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 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.

239

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.
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 for 1review 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.

240

240 SUPREME COURT REPORTS ANNOTATED

Commissioner of Internal Revenue vs. Court of Appeals

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 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
TOTAL AMOUNT DUE AND P 3
COLLECTIBLE 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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VOL. 329, MARCH 30, 2000 241

Commissioner of Internal Revenue vs. Court of Appeals
On September 29,4 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.
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 and5
respondent with 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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242 SUPREME COURT REPORTS ANNOTATED

Commissioner of Internal Revenue vs. Court of Appeals
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 charges6 are ordered
CANCELLED for lack of legal and factual basis.”

The Court of Appeals anchored its decision on the

ratiocination
7
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.
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
September8 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.

243

VOL. 329, MARCH 30, 2000 243

Commissioner of Internal Revenue vs. Court of Appeals

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 the value-added
9
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 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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244 SUPREME COURT REPORTS ANNOTATED

Commissioner of Internal Revenue vs. Court of Appeals

“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.
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-
245

VOL. 329, MARCH 30, 2000 245

Commissioner of Internal Revenue vs. Court of Appeals

eminent entity is liable to pay VAT for the sale of goods

and services.
 Section
10
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,
11
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, December 9, 1995.
12 Upon a query made by Tipco-Bataan Group Incorporated.

246

246 SUPREME COURT REPORTS ANNOTATED

Commissioner of Internal Revenue vs. Court of Appeals

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
showing14 that it is plainly 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 15has been an abuse or 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).

247

VOL. 329, MARCH 30, 2000 247

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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