G.R. No. 18154; September 26, 1922
La Carlota Sugar Central, plaintiff-appellant, vs. Wenceslao Trinidad, as Collector of Internal Revenue, defendant-appellee.

FACTS

La Carlota Sugar Central (plaintiff) owns a sugar mill. It entered into agreements with sugar cane growers whereby the growers delivered cane to the mill, the mill processed the cane into raw centrifugal sugar, and the resulting sugar was divided—45% to the mill (as compensation for its work) and 55% to the grower. The plaintiff shipped its 45% share abroad during the first and second quarters of 1921, valuing P1,963,825. The Collector of Internal Revenue (defendant) assessed and collected a 1% percentage tax on this amount under Section 1462 of Act No. 2711 (the Internal Revenue Law), which imposed a tax on the gross receipts of “contractors,” among others. The plaintiff paid the tax (P19,638.25) under protest and filed an action for recovery, arguing it was not a “contractor” under the law. The defendant demurred to the complaint, and the trial court sustained the demurrer. The plaintiff appealed.

ISSUE

Whether La Carlota Sugar Central, under its described business arrangement with sugar cane growers, is a “contractor” subject to the percentage tax on gross receipts under Section 1462 of Act No. 2711.

RULING

No. The Supreme Court reversed the trial court’s judgment. The term “contractor” in Section 1462 of Act No. 2711 does not apply to La Carlota Sugar Central under the facts alleged. While in a broad sense every person who enters into a contract may be called a contractor, the legislative intent did not extend the term to cover all contractual relationships. The word “contractor” in the statute refers to one who, in the pursuit of an independent business, undertakes to do a specific job or piece of work for others, using his own means and methods, and is subject to control only as to the result, not the details. The arrangement between the plaintiff and the growers is more analogous to a partnership or a joint venture for the production and division of sugar, rather than a contract for work where one party is merely a contractor rendering services for a fee. The Court held it was not the legislative intent to tax such a business arrangement under the “contractor” provision. The case was remanded to the trial court for further proceedings.