G.R. No. L-31092 February 27, 1987 1.
Whether or not the 3% contractor’s tax assessed on
COMMISSIONER OF INTERNAL Gotamco is an “indirect tax”.
REVENUE, petitioner, vs. JOHN GOTAMCO & SONS, 2. Whether respondent John Gotamco & Sons, Inc.
INC. and THE COURT OF TAX APPEALS, respondents. should pay the 3% contractor’s tax under Section 191
Facts: of the National Internal Revenue Code on the gross
receipts it realized from the construction of the World
The World Health Organization (WHO), an international Health Organization office building in Manila.
organization, entered into a Host Agreement with the RULING:
Republic of the Philippines on July 22, 1951. In the
agreement, WHO’S assets, income and other properties The Petitioner’s position is that the contractor’s tax “is in
shall be exempt from all direct and indirect taxes. WHO the nature of an excise tax which is a charge imposed
decided to construct a building to house its own offices, upon the performance of an act, the enjoyment of a
as well as the other United Nations offices stationed in privilege or the engaging in an occupation. . . It is a tax
Manila. In inviting bids for the construction of the building, due primarily and directly on the contractor, not on the
WHO informed the bidders that the building to be owner of the building. Since this tax has no bearing upon
constructed belonged to an international organization with the WHO, it cannot be deemed an indirect taxation upon
diplomatic status and thus exempt from the payment of all it.”
fees, licenses, and taxes, and that therefore their bids
“must take this into account and should not include items The Court agreed with the Court of Tax Appeals in
for such taxes, licenses and other payments to rejecting this contention of the petitioner. The CA stated:
Government agencies.” The construction contract was The contractor’s tax is of course payable by the
awarded to respondent John Gotamco & Sons, Inc. on contractor but in the last analysis it is the owner of the
February 10, 1958. building that shoulders the burden of the tax because the
same is shifted by the contractor to the owner as a matter
On June 3, 1958, the Commissioner of Internal Revenue of self-preservation. Thus, it is an indirect tax. And it is an
stated that “as the 3% contractor’s tax is not a direct nor indirect tax on the WHO because, although it is payable
an indirect tax on the WHO, but a tax that is primarily due by the petitioner, the latter can shift its burden on the
from the contractor, the same is not covered by . . . the WHO. In the last analysis it is the WHO that will pay the
Host Agreement.” tax indirectly through the contractor and it certainly
cannot be said that ‘this tax has no bearing upon the
On January 2, 1960, the WHO issued a certification that World Health Organization.
the bid of Gotamco should be exempted from any taxes
in connection with the construction of the WHO office The Host Agreement, in specifically exempting the WHO
building because taxes or fees in connection with the from “indirect taxes,” contemplates taxes which, although
construction of the building is an indirect tax to WHO. not imposed upon or paid by the Organization directly,
form part of the price paid or to be paid by it. The 3%
On January 17, 1961, the Commissioner of Internal contractor’s tax would be within this category and should
Revenue sent a letter of demand to Gotamco demanding be viewed as a form of an “indirect tax” On the
payment of P 16,970.40, representing the 3% contractor’s Organization, as the payment thereof or its inclusion in
tax plus surcharges on the gross receipts it received from the bid price would have meant an increase in the
the WHO in the construction of the latter’s building. construction cost of the building.
Respondent Gotamco appealed the Commissioner’s APPEALED DECISION AFFIRMED.
decision to the Court of Tax Appeals, which after trial
rendered a decision, in favor of Gotamco and reversed
the Commissioner’s decision.
Issues:
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