Revenue v. Lines

CONCEPCION, J.:

Appeal by the Commissioner of Internal Revenue from a decision of the Court of Tax Appeals reversing that of said official, in connection with the liability of the Royal Interocean Lines, Inc., for deficiency carrier's percentage tax, plus surcharge. Said Royal Interocean Liner, Inc. - hereinafter referred to as the taxpayer - is a foreign corporation duly licensed to do business in the Philippines, with head office in Amsterdam, Holland. The taxpayer is engaged in the operation of ocean-going vessels, plying between the Philippines and other countries, transporting passengers and cargo.

It is, likewise, an agent and representative of the Holland East Asia Lines, a Dutch shipping company, from which the taxpayer receive compensation in the form of commissions for services rendered. It is not disputed that from February to May, 1962, inclusive, vessels of the taxpayer and/or the Holland East Asia Lines called at Philippine ports to load cargo, with freight, payable at destination, valued at US $37,501.50. This sum had been collected by and paid to the taxpayer's head office in Holland, and was not actually turned over or forwarded, as such freight fees, to the taxpayer in the Philippines.

The only remittances received by the latter from its aforementioned head office were those made, through its agent bank, for the operational expenses of the branch office in the Philippines. Prior to January, 1962, its dollar earnings derived from freight revenues were converted into the Philippine peso equivalent thereof, under the prevailing free market rate, for purposes of the common carrier's tax prescribed in Section 192 of the National Internal Revenue Code. Thereafter, the taxpayer discontinued this practice and, since February, 1962, it reported said revenues, in its monthly returns for carrier's tax, based on the parity rate of P2 to $1, and paid P1,500.00 as such carrier's tax.

Upon examination of the records of the taxpayer, the Commissioner of Internal Revenue, hereinafter referred to as the petitioner, held that, applying the free market converse on rate, the taxpayer's gross receipts from February to May, 1962, aggregated P163,776.38, and, based thereon demanded payment of P2,219,35 as deficiency common carrier's tax, plus surcharge and penalty. Having found, soon later, that the sum of P29,920.50 had twice been included in the computation of said receipts, petitioner subsequently agreed with the taxpayer that its gross receipts for the period in question, reckoned on the free market conversion rate, amounted to P133,855.88, based on which petitioner demanded, in a letter received by the taxpayer on January 18, 1963, payment of the total sum of P1,471.39, consisting of P1,177.12, as deficiency carrier's tax, plus a 25% surcharge, computed as follows: Total gross receipts ($37,501.50.

U.S. currency) converted to Philippine currency at market rate ................ P133,855.88