DOMINADOR P. CANLAS AND THE MANILA PENCIL CO., AS SUCCESSOR OF THE PHILIPPINE CONSOLIDATED FREIGHT LINES, INC., PETITIONERS, VS. THE REPUBLIC OF THE PHILIPPINES AND THE HONS. AU…

The Manila Pencil Company, a corporation duly organized and existing under
the laws of the Philippines with Dominador P. Canlas for its president and
general manager, appears to be the successor in interest of the Philippine
Consolidated Freight Lines, Inc., assuming all the obligations the latter had
with third parties in connection with its past operation. From 1947 to 1951, the
Philippine Consolidated Freight Lines, Inc., ran a bus and trucking service
within the compound of the Clark Field Air Base in Pampanga pursuant to a
license issued in its favor by the Philippine Ryukyus Command (PHILRYCOM). For
income derived from said operation, the corporation filed its income tax returns
and was assessed as follows: P4,285.74 for the fiscal year ending August 31,
1947; P21,733.66, for the fiscal year ending August 31, 1948; P7,933.57 and
P3,332.00, for the fiscal years ending August 31, 1949, and August 31, 1951,
respectively. It appears on record that of these assessments said company paid
the amount of P4,000.00 as part payment of the income tax allegedly due for
1947;

On March 24, 1954, the Solicitor General filed a complaint with the Court of
First Instance of Manila (Civil Case No. 22366) against the Manila Pencil
Company, as successor-in-interest of the Philippine Consolidated Freight Lines,
Inc., and Dominador Canlas as president thereof, contending that despite
repeated demands, they had failed to pay the following amounts which were said
to be due the Government as income taxes, to wit:

	(1)	Deficiency income tax for fiscal year ending August 31, 1947	P1,084.97
	(2)	Income tax for fiscal year ending August 31, 1947	285.74
	(3)	Income tax for fiscal year ending August 31, 1948	21,733.65
	(4)	Income tax for fiscal year ending August 31, 1949	7,933.57
	(5)	Income tax for fiscal year ending August 31, 1951	3,332.00

It was thus prayed that defendants be ordered to pay the obligations so
indicated plus the corresponding delinquency penalties and for costs. To this
complaint, defendants filed a motion to dismiss based on prescription and for
lack of jurisdiction, but before said motion could be resolved, Republic Act No.
1125 creating the Court of Tax Appeals was enacted and pursuant to Section 22
thereof, said case was elevated to the latter Tribunal for adjudication.

As the motion for the dismissal of the action was denied, defendants filed
their answer claiming that the income on which plaintiff was trying to collect
were received exclusively from the operation of its freight and passenger bus
service within the Clark Field Air Base and therefore embraced within the
exemption provided for by Article XVIII of the Military Bases Agreement
concluded between the governments of the Philippines and the United States.
Defendants prayed the Court that plaintiff be required to refund to defendant
Manila Pencil Company the sum of P2,350.74 illegally collected; that AISCO Bond
No. 4419 of the Associated Insurance & Surety Co., Inc., in favor of the
Collector of Internal Revenue, which defendants filed to prevent the distraint
of their properties pending the final disposition of the case, be cancelled; and
in the event that the Court would find a case against the Manila Pencil Company,
defendant Dominador P. Canlas be excluded therein.

The issues having been
joined, the case was set for hearing and basing on the stipulation of facts
agreed upon by the parties, the Court of Tax Appeals rendered judgment holding
defendants liable for the payment of the deficiency income tax for 1947 and for
income taxes for the years 1949 and 1951, although they were absolved of the
liability with respect to the income taxes for the years 1947 and 1948 on the
ground of prescription. Upon defendants’ motion for reconsideration, said
decision was modified so as to deduct from the amount said to be due the
Government the sum of P3,526.47 secured by the AISCO Bond No. 4419 which was
already received by the Collector of Internal Revenue. But as defendants’
asseveration that they were totally exempted from the payment of said taxes was
denied, the matter was brought to this Court by way of a petition for review,
praying that the decision of the court a quo be declared erroneous and the
Collector of Internal Revenue be required to refund the amount of P2,350.74
allegedly collected illegally from them and for such other relief as may be
proper in the premises.

There is no dispute as to the fact that defendant Manila Pencil Company, as
successor-in-interest of the Philippine Consolidated Freight Lines, Inc., was
engaged in and duly licensed by the U. S. military authorities to operate a
freight and bus service within the Clark Field Air Base, a military reservation
established in conformity with the agreement concluded between the Governments
of the Philippines and the United States on March 14, 1947 (43 Off. Gaz., No. 3,
p. 1020). And as such grantee of a franchise, which this Court has held to be
embraced within the meaning of the word “concession” appearing in the treaty and
was declared exempted from the payment of the contractor’s tax (Araneta vs.
Manila Pencil Company, G. R. No. L-8182, June 29, 1957), defendant corporation
also claimed exemption from the payment of income tax on earnings derived from
such undertaking. In advancing such contention, defendants relied on the
provisions of Article XVIII of the Bases Agreement the pertinent portion of
which reads as follows:

“ARTICLE XVIII.-SALES AND SERVICES WITHIN THE BASES

“1. It is mutually agreed that the United States shall have the right to
establish on bases, free of all licenses; fees; sales, excise or OTHER TAXES, or
imposts; Government agencies, including concessions, such as sales commissaries
and posts exchanges, messes and social clubs, for the exclusive use of the
United States military forces and authorized civilian personnel and their
families. The merchandise or services sold or dispensed by such agencies shall
be free of all taxes, duties and inspection by the Philippine authorities. * *
*.”

While it may be argued that a tax on the income derived from the operation of
a concession falls under the term “other taxes” included in the enumeration of
the imposts from which a Government agency or private concessioner (of which
defendant corporation is considered as one) is exempted, yet a careful perusal
of the same would reveal that what is being exempted from the payment of such
exactions is the establishment of the agency or concession designed for the
exclusive use of the U.S. military forces and authorized civil personnel and
their families. Considering- that the concession itself and the income accruing
therefrom are subject to different taxes, and taking into account the sentence
following the enumeration which specifies the “merchandise or services sold or
dispensed by such agencies” to be free from taxes or duties, it becomes all too
obvious that the privilege is intended merely to be confined to the latter and
to no other. Inclusio unius exclusio est alterius. Moreover, exemption from
income tax is treated separately under a different provision of the treaty which
reads as follows:

“ARTICLE XII.-INTERNAL REVENUE TAX EXEMPTION

“1. No member of the United States armed forces, EXCEPT Filipino citizens,
serving in the Philippines in connection with the bases and residing1 in the
Philippines by reason only of such service, or his dependents, shall be liable
to pay income tax in the Philippines except in respect of income derived from
Philippines sources.

“2. No national of the United States serving in or
employed in the Philippines in connection with the construction, maintenance,
operation or defense of the bases and residing in the Philippines by reason only
of such employment, or his spouse, shall be liable to pay income tax in the
Philippines except in respect of income derived from Philippine sources or
sources other than the United States sources.

3. * * *.

4.* * *.”

It is clear from the foregoing that if ever the signatories to the said
treaty intended to grant exemption from income taxes collectible by the
Philippine Government, said privilege was allowed only to members of the United
States armed forces, nationals of said country, and their dependents and
families, to the exclusion of Filipino citizens. And it dispels the least doubt,
if there may be any as to the merit of defendant’s claim, for the insertion of
the phrase ‘other taxes” is manifestly intended to cover imposts other than
sales or excise taxes on the undertaking itself and not taxes on income which is
specially taken care of by another provision of the same treaty. Wherefore, the
appealed decision of the lower Court, as corrected by its resolution of
September 10, 1956, is hereby affirmed, with costs against defendants. It is so
ordered.

Paras, C.J., Bengzon, Montemayor, Reyes, A., Bautista Angelo, Labrador,
Concepcion, Reyes, J.B.L., and Endencia, JJ., concur.