Title
Canlas vs. Republic
Case
G.R. No. L-11305
Decision Date
May 21, 1958
Bus service income within Clark Field Air Base not exempt from taxes; defendants liable for unpaid income taxes, no refund granted.
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Case Digest (G.R. No. L-11305)

Facts:

  1. Parties Involved:

    • Petitioners: Dominador P. Canlas and The Manila Pencil Co. (successor of Philippine Consolidated Freight Lines, Inc.).
    • Respondents: The Republic of the Philippines and the Honorable Judges of the Court of Tax Appeals.
  2. Background of the Case:

    • The Philippine Consolidated Freight Lines, Inc. operated a bus and trucking service within the Clark Field Air Base in Pampanga from 1947 to 1951 under a license issued by the Philippine Ryukyus Command (PHILRYCOM).
    • The company filed income tax returns for the fiscal years ending August 31, 1947, 1948, 1949, and 1951, and was assessed the following amounts:
      • 1947: P4,285.74 (partially paid P4,000.00).
      • 1948: P21,733.66.
      • 1949: P7,933.57.
      • 1951: P3,332.00.
  3. Legal Proceedings:

    • On March 24, 1954, the Solicitor General filed a complaint against The Manila Pencil Co. and Dominador Canlas for unpaid income taxes, including deficiency taxes for 1947 and taxes for 1948, 1949, and 1951.
    • Defendants filed a motion to dismiss based on prescription and lack of jurisdiction, but the case was transferred to the Court of Tax Appeals under Republic Act No. 1125.
    • The Court of Tax Appeals ruled that defendants were liable for the deficiency income tax for 1947 and income taxes for 1949 and 1951 but absolved them of liability for 1947 and 1948 due to prescription.
  4. Defendants' Claim:

    • Defendants argued that their income was derived from operations within the Clark Field Air Base and was exempt from taxation under Article XVIII of the Military Bases Agreement between the Philippines and the United States.
    • They sought a refund of P2,350.74 and cancellation of the AISCO Bond No. 4419 filed to prevent distraint of their properties.
  5. Court of Tax Appeals Decision:

    • The court modified its decision to deduct P3,526.47 secured by the AISCO Bond but denied the claim for total exemption from income taxes.
  6. Appeal to the Supreme Court:

    • Defendants appealed, seeking a declaration that the decision was erroneous and a refund of P2,350.74.

Issue:

  1. Whether the income derived from the operation of a freight and bus service within the Clark Field Air Base is exempt from income tax under Article XVIII of the Military Bases Agreement.
  2. Whether the phrase "other taxes" in Article XVIII includes income taxes.
  3. Whether the defendants are entitled to a refund of P2,350.74 and cancellation of the AISCO Bond.

Ruling:

The Supreme Court affirmed the decision of the Court of Tax Appeals, holding that:

  1. The income derived from the operation of the freight and bus service within the Clark Field Air Base is not exempt from income tax under Article XVIII of the Military Bases Agreement.
  2. The phrase "other taxes" in Article XVIII refers to taxes on the establishment of agencies or concessions, not income taxes.
  3. The defendants are not entitled to a refund of P2,350.74 or cancellation of the AISCO Bond.

Ratio:

  1. Interpretation of Article XVIII:

    • Article XVIII of the Military Bases Agreement exempts the establishment of agencies or concessions (e.g., sales commissaries, messes) from licenses, fees, sales, excise, or "other taxes."
    • The exemption applies to the establishment itself and the merchandise or services sold or dispensed, not to income taxes on earnings derived from such operations.
  2. Income Tax Exemption Under Article XII:

    • Article XII of the Military Bases Agreement specifically addresses income tax exemptions, limiting them to members of the U.S. armed forces, their dependents, and U.S. nationals employed in connection with the bases.
    • Filipino citizens and entities, such as the defendants, are not covered by this exemption.
  3. Principle of Inclusio Unius Est Exclusio Alterius:

    • The inclusion of specific exemptions (e.g., sales, excise taxes) implies the exclusion of others (e.g., income taxes).
    • The treaty's language clearly distinguishes between taxes on the establishment of concessions and taxes on income.
  4. Conclusion:

    • The defendants' claim for exemption from income taxes is without merit. The Court upheld the decision of the Court of Tax Appeals, affirming the defendants' liability for the unpaid income taxes.


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