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SEA-LAND SERVICE v. COURT OF APPEALS

FACTS:

The case involves a petition for tax credit or refund of income tax paid by Sea-Land Service Incorporated (SEA-LAND), an American international shipping company, on its gross Philippine billings for taxable year 1984. SEA-LAND entered into a contract with the United States Government to transport military household goods and effects of U.S. military personnel assigned to the Subic Naval Base. From this contract, SEA-LAND derived an income of P58,006,207.54. SEA-LAND filed its corporate income tax return and paid an income tax of 1.5% amounting to P870,093.12. SEA-LAND claimed that it paid the income tax by mistake and filed a claim for refund with the Bureau of Internal Revenue (BIR). Before the claim for refund could be acted upon, SEA-LAND filed a petition for review with the Court of Tax Appeals (CTA). The CTA denied SEA-LAND's claim for refund, and the decision was affirmed by the Court of Appeals. The issue raised in the petition is whether the income derived by SEA-LAND from transporting household goods and effects of U.S. military personnel falls within the tax exemption provided in the RP-US Military Bases Agreement. The Supreme Court denied the petition and upheld the decision of the lower courts, stating that the transportation service provided by SEA-LAND is not directly related to the defense and security of the Philippines.

ISSUES:

  1. Whether the income derived by petitioner from transporting household goods and effects of U.S. military personnel falls within the tax exemption provided in Article XII, paragraph 4 of the RP-US Military Bases Agreement.

RULING:

  1. The Supreme Court denied the petition. The transport or shipment of household goods and effects of U.S. military personnel is not included in the term "construction, maintenance, operation and defense of the bases" under the RP-US Military Bases Agreement. The performance of this service to the U.S. government cannot be interpreted as directly related to the defense and security of the Philippine territories. Therefore, the petitioner is not exempted from the payment of income tax on its revenue earned from the transport or shipment of household goods and effects of U.S. personnel assigned at Subic Naval Base.

PRINCIPLES:

  • Laws granting exemption from tax are construed strictissimi juris against the taxpayer and liberally in favor of the taxing power.

  • Taxation is the rule and exemption is the exception.

  • Exemptions from tax must be justified by words too plain to be mistaken and too categorical to be misinterpreted.

  • When the law speaks in clear and categorical language, there is no reason for interpretation or construction, but only for application.

  • The avowed purpose of tax exemption is a public benefit or interest that offsets the monetary loss entailed in the grant of the exemption.

  • The Court of Tax Appeals, as an expert body in tax problems, should be given deference in its conclusions unless there has been an abuse or improvident exercise of authority.