Revenue v. Tours Specialists

JR., J.:

This is a petition to review on certiorari the decision of the Court of Tax Appeals which ruled that the money entrusted to private respondent Tours Specialists, Inc., earmarked and paid for hotel room charges of tourists, travelers and/or foreign travel agencies does not form part of its gross receipts subject to the 3% independent contractor's tax under the National Internal Revenue Code of 1977. We adopt the findings of facts of the Court of Tax Appeals as follows: "For the years 1974 to 1976, petitioner (Tours Specialists, Inc.) had derived income from its activities as a travel agency by servicing the needs of foreign tourists and travelers and Filipino "Balikbayans" during their stay in this country.

Some of the services extended to the tourists consist of booking said tourists and travelers in local hotels for their lodging and board needs; transporting these foreign tourists from the airport to their respective hotels, and from the latter to the airport upon their departure from the Philippines, transporting them from their hotels to various embarkation points for local tours, visits and excursions; securing permits for them to visit places of interest; and arranging their cultural entertainment, shopping and recreational activities. "In order to ably supply these services to the foreign tourists, petitioner and its correspondent counterpart tourist agencies abroad have agreed to offer a package fee for the tourists. Although the fee to be paid by said tourists is quoted by the petitioner, the payments of the hotel room accommodations, food and other personal expenses of said tourists, as a rule, are paid directly either by tourists themselves, or by their foreign travel agencies to the local hotels (pp. 77, t.s.n., February 2, 1981; Exhs.

O & O-1, p. 29, CTA rec.; pp. 2425, t.s.n., ibid) and restaurants or shops, as the case may be. "It is also the case that some tour agencies abroad request the local tour agencies, such as the petitioner in the case, that the hotel room charges, in some specific cases, be paid through them.

(Exh. Q, Q-1, p. 29 CTA rec., p.

25, T.s.n., ibid, pp. 5-6, 17-18, t.s.n., Aug. 20, 1981.; See also Exh. "U", pp. 22-23, t.s.n., Oct.

9, 1981, pp. 3-4, 11., t.s.n., Aug. 10, 1982). By this arrangement, the foreign tour agency entrusts to the petitioner Tours Specialists, Inc., the fund for hotel room accommodation, which in turn is paid by petitioner tour agency to the local hotel when billed.

The procedure observed is that the billing hotel sends the bill to the petitioner. The local hotel identifies the individual tourist, or the particular groups of tourists by code name or group designation and also the duration of their stay for purposes of payment. Upon receipt of the bill, the petitioner then pays the local hotel with the funds entrusted to it by the foreign tour correspondent agency.

"Despite this arrangement, respondent Commissioner of Internal Revenue assessed petitioner for deficiency 3% contractor's tax as independent contractor by including the entrusted hotel room charges in its gross receipts from services for the years 1974 to 1976. Consequently, on December 6, 1979, petitioner received from respondent the 3% deficiency independent contractor's tax assessment in the amount of P122,946.93 for the years 1974 to 1976, inclusive, computed as follows: 1974 deficiency percentage tax per investigation P 3,995.63 15% surcharge for late payment 998.91