G.R. No. L-47421 - Commissioner of Internal Revenue vs. Court of Tax Appeals

Case Summary (G.R. No. L-47421)

Factual Background

Manila Golf & Country Club, Inc. was a non-stock corporation that maintained a golf course and operated a clubhouse with a lounge, bar and dining room for the exclusive use of its members and their accompanied guests, charging on a cost-plus-expense basis. Republic Act No. 6110 took effect on September 1, 1969 and contained Section 191-A, which imposed a caterers tax with graduated rates and included a paragraph subjecting to a twenty percent tax those eating establishments maintained within the premises or compound of a hotel, motel, or resthouse and declaring that where such establishments were operated or maintained by clubs the keepers shall pay the corresponding tax “irrespective of the disposition of their net income and whether or not they cater exclusively to members or their guests.”

Administrative Assessment and Protest

Acting under R.A. No. 6110, the COMMISSIONER OF INTERNAL REVENUE assessed the club for fixed taxes as operator of golf links and restaurants and for percentage (caterers) tax on sales of food and fermented liquors and wines for the period September 1969 to December 1970, amounting to P32,504.96. The club protested the assessment on the ground that Section 42 of House Bill No. 17839 (which contained Section 191-A) had been vetoed by President Ferdinand E. Marcos on August 4, 1969, thereby purporting to negate the tax liability.

Legislative History and Veto Message

The President’s veto message of August 4, 1969 stated that he had signed H.B. No. 17839 but had disapproved certain items, including “pp. 44, SEC. 42,” and explained that the burden of taxation would be shifted to the consuming public and that hotel development essential to the tourist industry might be restrained. The House Ways and Means Committee interpreted the veto as objectionable only to certain additions, recommending deletion of enterprises connected with the tourist industry, and the Official Gazette publication of R.A. No. 6110 later printed Section 191-A in the text with the words “hotels, motels, resthouses” omitted.

Proceedings Below and Conflicting Administrative Advice

The Court of Tax Appeals sustained the club’s position and declared the caterers tax invalid as to the club, relying in part on a 1972 letter from the Office of the President stating that Section 42 had been vetoed by the President. The COMMISSIONER OF INTERNAL REVENUE maintained that the veto was limited to the inclusion of the words hotels, motels, resthouses and that the remainder of Section 191-A became law, while the House committee and the Bureau of Internal Revenue treated the vetoed words as deletions rather than a repeal of the entire section.

Issue Presented

The principal legal question was whether the presidential veto referred to the entirety of Section 191-A or only to the inclusion of the words “hotels, motels, resthouses” in the twenty percent bracket, and, relatedly, whether the President had the constitutional power to disapprove part of an item in a revenue bill.

Petitioner's and Respondent's Contentions

The COMMISSIONER OF INTERNAL REVENUE argued that the veto disapproved only the inclusion of hotels, motels and resthouses and that Section 191-A otherwise remained valid and enforceable, relying on the interpretive view of the House Ways and Means Committee and on the publication of the statute as thus modified. MANILA GOLF & COUNTRY CLUB, INC. contended that the veto message was clear and unqualified, that Section 42 had been vetoed in full, and that the Court of Tax Appeals correctly set aside the assessment. The CTA asserted that a chief executive could not veto part of an item in a revenue bill and thus could only approve or disapprove an entire section.

Ruling of the Supreme Court

The Supreme Court granted the petition, set aside the decision of the Court of Tax Appeals in CTA Case No. 2630, and held that Section 191-A of R.A. No. 6110 was valid and enforceable. The Court thus declared MANILA GOLF & COUNTRY CLUB, INC. liable for the amount assessed against it. The decision concurred in by Narvasa (Chairman), Cruz, and Grino-Aquino, while Justice Gancayco was on leave.

Legal Basis and Reasoning

The Court observed that the State’s power to impose the three percent caterers tax was not debatable and reiterated its prior ruling in Commissioner of Internal Revenue v. Manila Hotel Corporation, G.R. No. 83250, September 26, 1989, that Section 191-A imposed an enforceable obligation on operators of restaurants. The Court rejected the CTA’s premise that the President could veto only an entire section, explaining that an “item” in a revenue bill should be construed to mean the subject of the tax and the tax rate rather than the whole section. The Court reasoned that construing “item” to mean an entire section would unduly restrict the President’s constitutional power to disapprove objectionable portions of revenue measures and would force the President to choose between approving an entire section that contained objectionable provisions or vetoing the entire section and thereby losing the tax altogether. The Court agreed with Solicitor General Estelito Mendoza that inclusion of hotels, motels and resthouses in the twenty percent bracket constituted items within the meaning of Section 20-(3), Article VI, of the Constitution, and that the President thus had the p

Case Syllabus (G.R. No. L-47421)

Parties and Posture

Commissioner of Internal Revenue filed the petition to review the decision of the Court of Tax Appeals in CTA Case No. 2630.
Manila Golf & Country Club, Inc. was the private respondent assessed for taxes under Republic Act No. 6110.
The petition asked the Supreme Court to set aside the CTA decision that had exonerated the club from the caterers tax in Section 191-A of R.A. No. 6110.

Key Facts

Manila Golf & Country Club, Inc. is a non-stock corporation that operates a golf course and a clubhouse with lounge, bar, and dining room for exclusive use of members and accompanied guests.
The club charged for its facilities on a cost-plus-expense basis and claimed privilege tax exemptions by reason of its membership nature.
The Commissioner assessed the club for fixed taxes on golf links and restaurants and for percentage caterers tax for the period September 1969 to December 1970 in the amount of P32,504.96.
The club protested the assessment on the ground that Section 42 of H.B. No. 17839, which inserted Section 191-A, had been vetoed by President Ferdinand E. Marcos on August 4, 1969.

Statutory Framework

Republic Act No. 6110 took effect on September 1, 1969 and included Section 191-A imposing a caterers tax.
Section 191-A imposed a three percent tax on proprietors or operators of restaurants and similar establishments, differentiated three percent and seven percent treatment where alcoholic beverages were served, and a twenty percent rate on establishments within the premises or compound of hotels, motels, resthouses and specified venues.
The presidential veto message specifically identified as objectionable the insertion of a new Section 191-A and cited fears of pass-through to the consuming public and adverse effects on hotel development.

Veto and Legislative Records

The President’s veto message dated August 4, 1969 stated he signed H.B. No. 17839 but vetoed certain items including p. 44, SEC. 42, which inserted Section 191-A.
The House Ways and Means Committee construed the veto as limited to certain additions to Section 191-A, and recommended deletion of enterprises connected with the tourist industry from the 20% bracket.
The Official Gazette published R.A. No. 6110 with Section 191-A included but omitting the words "hotels, motels, resthouses" in the 20% clause.
A 1972 letter from the Office of the President confirmed that Section 42 had been vetoed by the President.

Procedural History

The club petitioned the Court of Tax Appeals which sustained the club’s position that the presidential veto nullified Section 191-A.
The Commissioner sought relief in the Supreme Court, relying partly on