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VOL. 329, MARCH 30, 2000 237

Commissioner of Internal Revenue vs. Court of Appeals

*
G.R. No. 125355. March 30, 2000.

COMMISSIONER OF INTERNAL REVENUE, petitioner, vs.

COURT OF APPEALS and COMMONWEALTH MANAGEMENT
AND SERVICES CORPORATION, respondents.

Taxation; Value Added Tax is a tax on transactions, imposed at every

stage of the distribution process on the sale, barter, exchange of goods or
property, and on the performance of services, even in the absence of profit
attributable thereto.—Contrary to COMASERCO’s contention the above
provision clarifies that even a non-stock, nonprofit, organization or
government entity, is liable to pay VAT on the sale of goods or services.
VAT is a tax on transactions, imposed at every stage of the distribution
process on the sale, barter, exchange of goods or property, and on the
performance of services, even in the absence of profit attributable thereto.
The term “in the course of trade or business” requires the regular conduct or
pursuit of a com-

_______________

* FIRST DIVISION.

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238 SUPREME COURT REPORTS ANNOTATED

Commissioner of Internal Revenue vs. Court of Appeals

mercial or an economic activity, regardless of whether or not the entity is

profit-oriented.
Same; Even a nonstock, nonprofit organization or government entity is
liable to pay Value Added Tax for the sale of goods and services.—The
definition of the term “in the course of trade or business” incorporated in the
present law applies to all transactions even to those made prior to its
enactment. Executive Order No. 273 stated that any person who, in the
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course of trade or business, sells, barters or exchanges goods and services,

was already liable to pay VAT. The present law merely stresses that even a
nonstock, nonprofit organization or government entity is liable to pay VAT
for the sale of goods and services.
Same; Definition of the phrase “sale of services.”—Section 108 of the
National Internal Revenue Code of 1997 defines the phrase “sale of
services” as the “performance of all kinds of services for others for a fee,
remuneration or consideration.” It includes “the supply of technical advice,
assistance or services rendered in connection with technical management or
administration of any scientific, industrial or commercial undertaking or
project.”
Same; Even if such corporation was organized without any intention of
realizing pro fit, any income or profit generated by the entity in the conduct
of its activities was subject to income tax.—On February 5, 1998, the
Commissioner of Internal Revenue issued BIR Ruling No. 010-98
emphasizing that a domestic corporation that provided technical, research,
management and technical assistance to its affiliated companies and
received payments on a reimbursement-of-cost basis, without any intention
of realizing profit, was subject to VAT on services rendered. In fact, even if
such corporation was organized without any intention of realizing profit, any
income or profit generated by the entity in the conduct of its activities was
subject to income tax.
Same; As long as the entity provides service for a fee, remuneration or
consideration, then the service rendered is subject to Value Added Tax.—It
is immaterial whether the primary purpose of a corporation indicates that it
receives payments for services rendered to its affiliates on a reimbursement-
on-cost basis only, without realizing profit, for purposes of determining
liability for VAT on services rendered. As long as the entity provides service
for a fee, remuneration or consideration, then the service rendered is subject
to VAT.

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VOL. 329, MARCH 30, 2000 239

Commissioner of Internal Revenue vs. Court of Appeals

Same; Any exemption from the payment of a tax must be clearly stated
in the language of the law.—It is a rule that because taxes are the lifeblood
of the nation, statutes that allow exemptions are construed strictly against
the grantee and liberally in favor of the government. Otherwise stated, any
exemption from the payment of a tax must be clearly stated in the language
of the law; it cannot be merely implied therefrom. In the case of VAT,
Section 109, Republic Act 8424 clearly enumerates the transactions
exempted from VAT. The services rendered by COMASERCO do not fall
within the exemptions.

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Same; Opinion of the Commissioner of Internal Revenue entitled to

great weight in the absence of any showing that it is plainly wrong.—Both
the Commissioner of Internal Revenue and the Court of Tax Appeals
correctly ruled that the services rendered by COMASERCO to Philamlife
and its affiliates are subject to VAT. As pointed out by the Commissioner,
the performance of all kinds of services for others for a fee, remuneration or
consideration is considered as sale of services subject to VAT. As the
government agency charged with the enforcement of the law, the opinion of
the Commissioner of Internal Revenue, in the absence of any showing that it
is plainly wrong, is entitled to great weight.

PETITION for review on certiorari of a decision of the Court of

Appeals.

The facts are stated in the opinion of the Court.

     The Solicitor General for petitioner.
     Benilda V. Quevedo-Santos and Anita A. Dimalanta-Arcinue
for private respondent.

PARDO, J.:

What is before the Court is a petition

1
for review on certiorari of the
decision of the Court of Appeals, reversing that of

_______________

1 In CA-G.R. SP No. 37930, promulgated on May 13, 1996. Justice Pacita

Cañizares-Nye, ponente, Justices Pedro A. Ramirez and Salvador J. Valdez, Jr.,
concurring. Rollo, pp. 27-31.

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240 SUPREME COURT REPORTS ANNOTATED

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2
the Court of Tax Appeals, which affirmed with modification the
decision of the Commissioner of Internal Revenue ruling that
Commonwealth Management and Services Corporation, is liable for
value added tax for services to clients during taxable year 1988.
Commonwealth Management and Services Corporation
(COMASERCO, for brevity), is a corporation duly organized and
existing under the laws of the Philippines. It is an affiliate of
Philippine American Life Insurance Co. (Philamlife), organized by
the latter to perform collection, consultative and other technical
services, including functioning as an internal auditor, of Philamlife
and its other affiliates.
On January 24, 1992, the Bureau of Internal Revenue (BIR)
issued an assessment to private respondent COMASERCO for

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deficiency value-added tax (VAT) amounting to P351,851.01, for

taxable year 1988, computed as follows:

“Taxable sale/receipt P1,679,155.00

10% tax due thereon 167,915.50
25% surcharge 41,978.88
20% interest per annum 125,936.63
Compromise penalty for late payment 16,000.00
3
TOTAL AMOUNT DUE AND COLLECTIBLE P 351,831.01“

COMASERCO’s annual corporate income tax return ending

December 31, 1988 indicated a net loss in its operations in the
amount of P6,077.00.
On February 10, 1992, COMASERCO filed with the BIR, a
letter-protest objecting to the latter’s finding of deficiency VAT. On
August 20, 1992, the Commissioner of Internal Revenue sent a
collection letter to COMASERCO demanding payment of the
deficiency VAT.

_______________

2 In C.T.A. Case No. 4853, promulgated on June 22, 1995. Judge Ernesto D.
Acosta, presiding, Judges Manuel K. Gruba and Ramon O. De Veyra, concurring.
Rollo, pp. 32-42.
3 CTA Decision, Rollo, p. 32.

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Commissioner of Internal Revenue vs. Court of Appeals

On September
4
29, 1992, COMASERCO filed with the Court of Tax
Appeals a petition for review contesting the Commissioner’s
assessment. COMASERCO asserted that the services it rendered to
Philamlife and its affiliates, relating to colleo tions, consultative and
other technical assistance, including functioning as an internal
auditor, were on a “no-profit, reimbursement-of-cost-only” basis. It
averred that it was not engaged in the business of providing services
to Philamlife and its affiliates. COMASERCO was established to
ensure operational orderliness and administrative efficiency of
Philamlife and its affiliates, and not in the sale of services.
COMASERCO stressed that it was not profit-motivated, thus not
engaged in business. In fact, it did not generate profit but suffered a
net loss in taxable year 1988. COMASERCO averred that since, it
was not engaged in business, it was not liable to pay VAT.

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On June 22, 1995, the Court of Tax Appeals rendered decision in

favor of the Commissioner of Internal Revenue, the dispositive
portion of which reads:

“WHEREFORE, the decision of the Commissioner of Internal Revenue

assessing petitioner deficiency value-added tax for the taxable year 1988 is
AFFIRMED with slight modifications. Accordingly, petitioner is ordered to
pay respondent Commissioner of Internal Revenue the amount of
P335,831.01 inclusive of the 25% surcharge and interest plus 20% interest
from January 24, 1992 until fully paid pursuant to Section 248 and 249 of
the Tax Code.
“The compromise penalty of P16,000.00 imposed by the respondent in
her assessment letter shall not be included in the payment as there was no
compromise agreement entered into between petitioner and respondent with
5
respect to the value-added tax deficiency.”

On July 26, 1995, respondent filed with the Court of Appeals, a

petition for review of the decision of the Court of Appeals.

_______________

4 Docketed as C.T.A. Case No. 4853.

5 Rollo, pp. 32-43.

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After due proceedings, on May 13, 1996, the Court of Appeals

rendered decision reversing that of the Court of Tax Appeals, the
dispositive portion of which reads:

“WHEREFORE, in view of the foregoing, judgment is hereby rendered

REVERSING and SETTING ASIDE the questioned Decision promulgated
on 22 June 1995. The assessment for deficiency value-added tax for the
taxable year 1988 inclusive of surcharge, interest and penalty charges are
6
ordered CANCELLED for lack of legal and factual basis.”

The Court of Appeals anchored its decision7 on the ratiocination in

another tax case involving the same parties, where it was held that
COMASERCO was not liable to pay fixed and contractor’s tax for
services rendered to Philamlife and its affiliates. The Court of
Appeals, in that case, reasoned that COMASERCO was not engaged
in business of providing services to Philamlife and its affiliates. In
the same manner, the Court of Appeals held that COMASERCO was
not liable to pay VAT for it was not engaged in the business of
selling services.

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On July 16, 1996, the Commissioner of Internal Revenue filed

with this Court a petition for review on certiorari assailing the
decision of the Court of Appeals.
On August 7, 1996, we required respondent COMASERCO to
file comment on the petition, and on 8September 26, 1996,
COMASERCO complied with the resolution.
We give due course to the petition.

________________

6 Rollo, pp. 27-31.

7 Docketed as CA-G-R. SP No. 34032, Commonwealth Management and Services
Corporation v. Commissioner of Internal Revenue and the Court of Tax Appeals,
promulgated on December 21, 1995. Justice Jaime M. Lantin, ponente, Justices
Eduardo G. Montenegro and Jose C. Dela Rama, concurring. This decision became
final since no petition for review was filed with this Court.
8 Rollo, pp. 50-64.

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At issue in this case is whether COMASERCO was engaged in the

sale of services, and thus liable to pay VAT thereon.
Petitioner avers that to “engage in business” and to “engage in
the sale of services” are two different things. Petitioner maintains
that the services rendered by COMASERCO to Philamlife and its
affiliates, for a fee or consideration, are subject to VAT. VAT is a tax
on the value added by the performance of the service. It is
immaterial whether profit is derived from rendering the service.
We agree with the Commissioner.
Section 99 of the National Internal Revenue Code of 1986, as
amended by Executive Order (E.O.) No. 273 in 1988, provides that:

“Section 99. Persons liable.—Any person who, in the course of trade or

business, sells, barters or exchanges goods, renders services, or engages in
similar transactions and any person who imports goods shall be subject to
9
the value-added tax (VAT) imposed in Sections 100 to 102 of this Code.”

COMASERCO contends that the term “in the course of trade or

business” requires that the “business” is carried on with a view to
profit or livelihood. It avers that the activities of the entity must be
profit-oriented. COMASERCO submits that it is not motivated by
profit, as defined by its primary purpose in the articles of
incorporation, stating that it is operating “only on reimbursement-of-
cost basis, without any profit.” Private respondent argues that profit

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motive is material in ascertaining who to tax for purposes of

determining liability for VAT.
We disagree.
On May 28, 1994, Congress enacted Republic Act No. 7716, the
Expanded VAT Law (EVAT), amending among other sections,
Section 99 of the Tax Code. On January 1, 1998, Republic Act 8424,
the National Internal Revenue Code of 1997, took effect. The
amended law provides that:

_______________

9 Now in Section 105 of the Tax Code.

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“SEC. 105. Persons Liable.—Any person who, in the course of trade or

business, sells, barters, exchanges, leases goods or properties, renders
services, and any person who imports goods shall be subject to the value-
added tax (VAT) imposed in Sections 106 and 108 of this Code.
“The value-added tax is an indirect tax and the amount of tax may be
shifted or passed on to the buyer, transferee or lessee of the goods,
properties or services. This rule shall likewise apply to existing sale or lease
of goods, properties or services at the time of the effectivity of Republic Act
No. 7716.
“The phrase “in the course of trade or business” means the regular
conduct or pursuit of a commercial or an economic activity, including
transactions incidental thereto, by any person regardless of whether or not
the person engaged therein is a nonstock, nonprofit organization
(irrespective of the disposition of its net income and whether or not it sells
exclusively to members of their guests), or government entity.
“The rule of regularity, to the contrary notwithstanding, services as
defined in this Code rendered in the Philippines by nonresident foreign
persons shall be considered as being rendered in the course of trade or
business.”

Contrary to COMASERCO’s contention the above provision

clarifies that even a non-stock, non-profit, organization or
government entity, is liable to pay VAT on the sale of goods or
services. VAT is a tax on transactions, imposed at every stage, of the
distribution process on the sale, barter, exchange of goods or
property, and on the performance of services, even in the absence of
profit attributable thereto. The term “in the course of trade or
business” requires the regular conduct or pursuit of a commercial or
an economic activity, regardless of whether or not the entity is
profit-oriented.

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The definition of the term “in the course of trade or business”

incorporated in the present law applies to all transactions even to
those made prior to its enactment. Executive Order No. 273 stated
that any person who, in the course of trade or business, sells, barters
or exchanges goods and services, was already liable to pay VAT. The
present law merely stresses that even a nonstock, nonprofit
organization or gov-

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VOL. 329, MARCH 30, 2000 245

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eminent entity is liable to pay VAT for the sale of goods and
services.
10
Section 108 of the National Internal Revenue Code of 1997
defines the phrase “sale of services” as the “performance of all kinds
of services for others for a fee, remuneration or consideration.” It
includes “the supply of technical advice, assistance or services
rendered in connection with technical management or administration
11
of any scientific, industrial or commercial undertaking or project.”
On February 5, 1998, the Commissioner
12
of Internal Revenue
issued BIR Ruling No. 010-98 emphasizing that a domestic
corporation that provided technical, research, management and
technical assistance to its affiliated companies and received
payments on a reimbursement-of-cost basis, without any intention of
realizing profit, was subject to VAT on services rendered. In fact,
even if such corporation was organized without any intention of
realizing profit, any income or profit generated by the entity in the
conduct of its activities was subject to income tax.
Hence, it is immaterial whether the primary purpose of a
corporation indicates that it receives payments for services rendered
to its affiliates on a reimbursement-on-cost basis only, without
realizing profit, for purposes of determining liability for VAT on
services rendered. As long as the entity provides service for a fee,
remuneration or consideration, then the service rendered is subject to
VAT.
At any rate, it is a rule that because taxes are the lifeblood of the
nation, statutes that allow exemptions are construed strictly against
the grantee and liberally in favor of the government. Otherwise
stated, any exemption from the payment of a tax must be clearly
stated in the language of the law; it

_________________

10 Formerly Section 102.

11 Section 108 (A) (6), National Internal Revenue Code of 1997; Section 4.102-1,
Revenue Regulations No. 7-95 (Value-Added Tax Regulations), as amended,

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December 9, 1995.
12 Upon a query made by Tipco-Bataan Group Incorporated.

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13
cannot be merely implied therefrom. In the case of VAT, Section
109, Republic Act 8424 clearly enumerates the transactions
exempted from VAT. The services rendered by COMASERCO do
not fall within the exemptions.
Both the Commissioner of Internal Revenue and the Court of Tax
Appeals correctly ruled that the services rendered by COMASERCO
to Philamlife and its affiliates are subject to VAT. As pointed out by
the Commissioner, the performance of all kinds of services for
others for a fee, remuneration or consideration is considered as sale
of services subject to VAT. As the government agency charged with
the enforcement of the law, the opinion of the Commissioner of
Internal Revenue, in the absence of any showing that it is plainly
14
wrong, is entitled to great weight. Also, it has been the long
standing policy and practice of this Court to respect the conclusions
of quasijudicial agencies, such as the Court of Tax Appeals which,
by the nature of its functions, is dedicated exclusively to the study
and consideration of tax cases and has necessarily developed an
expertise on the subject, unless there has been an abuse or
15
improvident exercise of its authority.
There is no merit to respondent’s contention that the Court of
Appeals’ decision in CA-G.R. No. 34042, declaring the
COMASERCO as not engaged in business and not liable for the
payment of fixed and percentage taxes, binds petitioner. The issue in
CA-G-R. No. 34042 is different from the present case, which
involves COMASERCO’s liability for VAT. As heretofore stated,
every person who sells, barters, or exchanges goods and services, in
the course of trade or business, as defined by law, is subject to VAT.

_________________

13 Davao Gulf Lumber Corporation v. Commissioner of Internal Revenue, 293

SCRA 76 (1998).
14 Misamis Oriental Association of Coco Traders, Inc. v. Department of Finance
Secretary, 238 SCRA 63, 68 (1994).
15 Commissioner of Internal Revenue v. Court of Appeals, 204 SCRA 183, 189-
190 (1991).

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People vs. Aquino

WHEREFORE, the Court GRANTS the petition and REVERSES

the decision of the Court of Appeals in CA-G.R. SP No. 37930. The
Court hereby REINSTATES the decision of the Court of Tax
Appeals in C.T.A. Case No. 4853.
No costs.
SO ORDERED.

     Davide, Jr. (C.J.), Puno, Kapunan and Ynares-Santiago, JJ.,

concur.

Petition granted, judgment reversed. That of the court a quo

reinstated.

Note.—A claimant has the burden of proof to establish the

factual basis of his or her claim for tax credit or refund. (Citibank
N.A. vs. Court of Appeals, 280 SCRA 459 [1997])

——o0o——

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