CIR VS. TOKYO SHIPPING. LTD | G.R. No. L-68252 May 26, 1995

G.R. No. L-68252 May 26, 1995

COMMISSIONER OF INTERNAL REVENUE, petitioner, 

vs.

TOKYO SHIPPING CO. LTD., represented by SORIAMONT STEAMSHIP AGENCIES INC., and COURT OF TAX APPEALS, respondents.

Doctrine: 
A claim for refund is in the nature of a claim for exemption and should be construed in strictissimi juris against the taxpayer.

Facts:
Tokyo Shipping Co. is a foreign corporation represented in the Philippines by Soriamont Steamship Agencies, Inc. 

In 1980, NASUTRA2 chartered M/V Gardenia, a vessel owned by Tokyo Shipping, to load 16,500 metric tons of raw sugar in the Philippines. The operations supervisor of Soriamont Agency, pursuant to the said charter agreement, paid the required income and common carrier's taxes worth P107,142.75 which was based on the expected gross receipts of the vessel.

However, upon arriving at Guimaras Port of Iloilo, the vessel has no sugar to load. So on January 10, 1981, NASUTRA and Tokyo Shipping's agent mutually agreed to have the vessel sail for Japan without any cargo.

Tokyo Shipping now claims for a refund on the prepaid income and common carrier's taxes as such was erroneous since no receipt was realized from the charter agreement.

The CIR however contested the petition. It alleged that (1) taxes are presumed to have been collected in accordance with law; (2) in an action for refund, the burden of proof is upon the taxpayer to show that taxes are erroneously or illegally collected, and the taxpayer's failure to sustain said burden is fatal to the action for refund; and (3) claims for refund are construed strictly against tax claimants.

Issue: 
Whether the Tokyo Shipping is entitled to a refund of the taxes it prepaid to the government

Ruling:
Yes. Pursuant to Section 24 (b) (2) of the National Internal Revenue Code, a resident foreign corporation engaged in the transport of cargo is liable for taxes depending on the amount of income it derives from sources within the Philippines. Thus, before such a tax liability can be enforced the taxpayer must be shown to have earned income sourced from the Philippines.

Although the Supreme Court agrees with CIR that a claim for refund is in the nature of a claim for exemption and should be construed in strictissimi juris against the taxpayer. And there can be no disagreement with the CIR's stance that Tokyo Shipping has the burden of proof to establish the factual basis of its claim for tax refund. The Supreme Court held that sufficient evidence has been adduced by Tokyo Shipping in proving that it derived no receipt from its charter agreement with NASUTRA. This finding of fact rests on a rational basis, and hence, must be sustained. BIR should refund without any unreasonable delay what it has erroneously collected. 

In Roxas v. Court of Tax Appeals, the Supreme Court has held:
The power of taxation is sometimes called also the power to destroy. Therefore it should be exercised with caution to minimize injury to the proprietary rights of a taxpayer. It must be exercised fairly, equally and uniformly, lest the tax collector kill the "hen that lays the golden egg." And, in order to maintain the general public's trust and confidence in the Government this power must be used justly and not treacherously.