G.R. No. L-31092 - Commissioner of Internal Revenue vs. John Gotamco and Sons, Inc.

The World Health Organization (WHO) is an international organization with a regional office in Manila enjoying privileges and immunities under the Host Agreement of July 22, 1951, which exempts it “from all direct and indirect taxes” (Section 11).
The Commissioner of Internal Revenue (petitioner) assessed a 3% contractor’s tax under Section 191 of the NIRC on respondent John Gotamco & Sons, Inc. (Gotamco) for gross receipts from constructing the WHO office building.

Host Agreement (July 22, 1951): Exempts the Organization, its income and assets from all direct and indirect taxes, except public-utility service charges.
Construction Agreement (November 26, 1957, Article III, ¶2): Permits WHO to import materials duty- and tax-free; Article VIII reaffirms exemption under the Host Agreement.
WHO Bid Invitation (1958): Instructs bidders to exclude fees, licenses, and taxes in their bids, as these are covered by WHO’s exemption.
Construction Contract Award (February 10, 1958): Gotamco awarded contract for ₱370,000, actual cost upon completion rose to ₱452,544.

May 1958 BIR Opinion: 3% contractor’s tax is an indirect tax on WHO and thus exempt under the Host Agreement.
June 3, 1958 Reversal: Commissioner holds the 3% tax is not a direct or indirect tax on WHO but primarily due from the contractor, hence not covered by the Host Agreement.
January 2, 1960 WHO Certification: Certifies contractors bid in good faith expecting tax exemption and requests that Gotamco be exempted from any taxes related to construction.
January 17, 1961 Letter of Demand: Commissioner demands ₱16,970.40 from Gotamco representing the 3% tax plus surcharges.

Gotamco appealed to the Court of Tax Appeals (CTA), which, after trial, reversed the Commissioner’s assessment and ruled in favor of Gotamco.
The Commissioner petitioned for certiorari to the Supreme Court.

Whether the Host Agreement granting WHO tax exemption is valid and binding without Senate ratification under the Constitution.
Whether the 3% contractor’s tax is an “indirect tax” on WHO within the meaning of the Host Agreement.
Whether Philippine Acetylene Co. v. CIR controls the characterization of the contractor’s tax as non-shiftable and therefore outside the exemption.