Tax 2 Digest by M.

Dizon
Transactions Subject to Regular VAT; Sale of Services
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CIR v. Tours Specialists, Inc.
G.R. No. 66416 | March 21, 1990 | Gutierrez, Jr., J.

Doctrine:
Gross receipts subject to tax under the Tax Code do not include monies or receipts entrusted to the
taxpayer which do not belong to them and do not redound to the taxpayer’s benefit; and it is not
necessary that there must be a law or regulation which would exempt such monies and receipts within the
meaning of gross receipts under the Tax Code.
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FACTS
• From 1974-1976, Tours Specialists derived income from activities as a travel agency by servicing
foreign tourists and Filipino balikbayans during their stay in the PH. Some the services consist of
booking the travelers in local hotels for lodging; transport from airport to hotels and back; transport
from hotels to various embarkation points for local tours; securing permits for them to visit places of
interests; and arranging their cultural entertainment, shopping and recreational activities.
o In order to supply these services, Tours Specialists and its counterpart tourist agencies
abroad agreed to offer a package fee. Although the fee is quoted by Tours, payments are
paid directly either by tourists themselves, or by their foreign travel agencies to the local hotels,
restaurants or shops.
• In some cases, tour agencies abroad request local tourist agencies such as Tours that the hotel room
charges be paid through them. By this arrangement, the foreign agency entrusts to Tours the
fund for hotel room accommodation, which is in turn paid by Tours to the local hotel when
billed. (hotel sends bill to Tours → Tours identifies by code name the tourist/group of tourists → Tours
pays hotel with the funds entrusted to it by the foreign agency)
o Despite this arrangement, CIR assessed Tours for deficiency 3% contractor’s tax as
independent contractor by including the entrusted hotel room charges in its gross receipts
for ’74-’76.
o Tours received the deficiency independent contractor’s tax assessment amounting to
P122,946.93.* Tours was also assessed a compromise penalty of P500.00.
• Tours formally protested the assessment on December 11, 1979 on the ground that the money
entrusted to it by the tourists, earmarked to pay hotel room charges, were not considered and have
never been considered by it as part of its taxable gross receipts for purposes of computing and paying
its contractor’s tax.
o During one of the hearings, following witnesses testified:
▪ Serafina Sazon (CPA and Accounting Department of Tours) – the amounts entrusted
were paid entirely to the hotel concerned, without any portion being diverted to its own
funds.
▪ Gerardo Isada (GM of Tours) – payments of hotel accommodation are made through
Tours without any increase in the room charged, and that the tourists pay through the
foreign agencies because the room charge is exempt from hotel room tax under PD
31.
▪ Isada – if payment is made through Tours, the hotel charges is only an act of
accommodation on the part of Tours, or that the agent abroad, instead of sending
several telexes and saving on bank charges, take the option to send money to Tours
to be held in trust to be endorsed to the hotel.
• CIR, without deciding the written protest, caused the issuance of a WDL and had Tours’ bank
deposits garnished.
o Tours, taking CIR’s action as the adverse and final decision on the disputed assessment,
appealed to the CTA.
o CTA Ruling – the money entrusted to Tours, earmarked and paid for hotel accommodations
of tourists, DOES NOT form part of its gross receipts subject to the 3% independent
contractor’s tax under the NIRC.
▪ CIR filed a petition for review on certiorari with the SC.
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ISSUES & HELD

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Tax 2 Digest by M. Dizon
Transactions Subject to Regular VAT; Sale of Services
1. W/N amounts received by a local tourist and travel agency (i.e., Tours Specialists) included in a
package fee from tourists or foreign tour agencies, earmarked for hotel accommodations, form
part of gross receipts subject to 3% contractor’s tax—NO.
● CIR argues that since there is no law or regulation that states that money entrusted/earmarked
for hotel room charges should not form part of the gross receipts, then said charges are included
in Tours’ gross receipts for purposes of the 3% contractor’s tax.
o CIR v. Manila Jockey Club, Inc. – gross receipts of the proprietor of the amusement place
should not include any money which, although delivered to the amusement place, has
been especially earmarked by law or regulation for some person other than the proprietor.
o 2nd CIR v. Manila Jockey Club, Inc. case – similar to the first case; the 10-peso contribution
never belonged to the Club, but was held by it as a trust fund. When the club receives a
10-peso contribution, it simultaneously contributes 10 pesos out of its own pocket, and
thereafter distributed both amounts as prize to horse owners. It is unreasonable to regard
the 10-peso contribution of horse owners as taxable receipt of the Club, since the latter,
at the same moment it received the contribution, necessarily lost 10 pesos, too.
o As demonstrated in CIR v. Manila Jockey Club, Inc., gross receipts subject to tax under
the Tax Code do not include monies or receipts entrusted to the taxpayer which do not
belong to them and do not redound to the taxpayer’s benefit; and it is not necessary that
there must be a law or regulation which would exempt such monies and receipts within the
meaning of gross receipts under the Tax Code.
▪ ITC, the room charges entrusted by the foreign agencies to Tours do not form part
of its gross receipts within the definition of the Tax Code. Said receipts never
belonged to Tours and it never benefited from the payments to the local hotels.
This arrangement was only to accommodate the foreign agencies.
● CIR initially raised as an objection to the CTA the application of PD 31, which exempts foreign
tourists from payment of hotel room tax. With the SC, the CIR alleged that PD 31 has no relevance
to the case, contending that the tax under Sec. 191, Tax Code is in the nature of an excise tax on
the exercise of the privilege to engage in business as a contractor and is imposed on the person
exercising the privilege. He summed up his arguments by stating that while the burden may be
shifted to the person for whom the services are rendered by the contractor, the latter is not relieved
from the payment of the tax.
o PD 31 is significant in determining W/N hotel room charges of foreign tourists in
local hotels are subject to the contractor’s tax. (not subject to contractor’s tax)
▪ If the hotel room charges entrusted to Tours will be subjected to the contractor’s
tax, that would in effect do indirectly what PD 31 would not like hotel room charges
of foreign tourists to be subjected to hotel room tax. Although CIR may claim that
the contractor’s tax is imposed upon a different incidence, i.e., the gross receipts
of Tours which he asserts includes the hotel room charges entrusted to it, the effect
would be to impose a tax, and though different, it nonetheless imposes a tax
actually on room charges.
▪ One way or the other, it would not have the effect of promoting tourism in the PH
as that would increase the costs or expenses by the addition of a hotel room tax in
the overall expenses of said tourists.
● The amounts received for hotel room accommodations do NOT form part of gross receipts
as defined by law.
o The findings of facts of the CTA are binding on the SC and, absent strong reasons for the
Court to delve into facts, only questions of law are open for determination.
▪ ITC, no reason to disregard and deviate from the findings of facts of the CTA.
▪ CTA found as a fact that the foreign agency entrusts to Tours the fund for hotel
room accommodation, which in turn is paid by Tours to the local hotel when billed.
▪ Evidence presented by Tours also shows that the amounts entrusted to it were not
diverted to its founds and this arrangement was only an act of accommodation.
This was not refuted.
▪ CIR’s assertion that the hotel room charges entrusted to it were part of the package
fee paid by foreign tourists to Tours is not correct. Evidence is clear to the effect
that the amounts entrusted to Tours were exclusively for payment of hotel room
charges of foreign tourists entrusted to it by foreign agencies.
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Tax 2 Digest by M. Dizon
Transactions Subject to Regular VAT; Sale of Services
● It is established by evidence that the amounts received and earmarked are actually what
had been paid out as hotel room charges.
o CTA stated that the records show in the Examiners’ Worksheet that from July to
December ’76 alone, a breakdown was provided for hotel room accommodations.
According to the CTA, it is not true that there is no evidence proving the amounts
earmarked for hotel room charges. Since BIR examiners could not have manufactured the
figures representing advances for hotel room accommodations, these payments must
have been taken from Tours’ records, such as invoices, hotel bills, official receipts and
other pertinent documents.
o Since the factual findings of the CTA are supported by substantial evidence, it is binding
upon this Court.
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RULING:
Petition DENIED. CTA decision AFFIRMED.
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NOTES
* Breakdown of 3% independent contractor’s tax
1974 deficiency percentage tax
per investigation P3,995.63
15% surcharge for late payment 998.91
_________
P4,994.54
14% interest computed by quarters
up to 12-28-79 3,953.18 P8,847.72
1975 deficiency percentage tax
per investigation P8,427.39
25% surcharge for late payment 2,106.85
__________
P10,534.24
14% interest computed by
quarters up to 12-28-79 6,808.47 P17,342.71
1976 deficiency percentage
tax per investigation P54,276.42
25% surcharge for late payment 13,569.11
__________
P67,845.53
14% interest computed by quarters
up to 12-28-79 28,910.97 P96,756.50
_________ __________
Total amount due P122,946.93