G.R. No. L-11594, December 22, 1958
SERGIO F. NAGUIAT, petitioner, vs. J. ANTONIO ARANETA, ETC., ET AL., respondents.

FACTS

Petitioner Sergio F. Naguiat appealed a decision of the Court of Tax Appeals which denied his claim for a refund of income tax paid for the years 1950, 1951, and 1952. Naguiat derived this income from operating a taxi service within the Clark Field Air Base. He based his claim for exemption on Paragraph I of Article XVIII of the Military Bases Agreement between the United States and the Philippines. This provision states that the United States shall have the right to establish government agencies and concessions on the bases, free from all licenses, fees, sales, excise, or other taxes or imposts, and that the merchandise or services sold by such agencies shall also be free of all taxes. Naguiat contended that although income tax is not expressly mentioned, the exemption necessarily includes it, either as an “excise” tax or under the phrase “other taxes or imposts.”

ISSUE

Whether a concessionaire operating a business (a taxi service) within a U.S. military base in the Philippines is exempt from paying Philippine income tax on the income derived from that business, based on the Military Bases Agreement.

RULING

The Supreme Court DENIED the petition and AFFIRMED the decision of the Court of Tax Appeals. The petitioner is NOT entitled to a refund of the income tax paid.
The Court held that the tax exemption clause in Paragraph I of Article XVIII of the Military Bases Agreement is limited in scope. It expressly applies only to: (1) the right to establish government agencies and concessions, and (2) the merchandise or services sold or dispensed by those agencies. The income tax is a levy on the income or profits of the owner or operator of the business, not on the right to establish it or on the goods/services sold. Therefore, it falls outside the specific exemption granted by that article.
The Court further emphasized that the Agreement contains a separate, detailed article specifically governing “INTERNAL REVENUE TAX EXEMPTION.” This article explicitly grants income tax exemptions only to:
1. Members of the U.S. armed forces (except Filipino citizens) and their dependents, but not for income from Philippine sources.
2. U.S. nationals employed in connection with the bases and their families, but not for income from Philippine or non-U.S. sources.
3. U.S. nationals or corporations regarding profits from contracts made in the U.S. for base construction, etc.
None of these specific exemptions apply to or mention a Filipino concessionaire like the petitioner. The fact that the parties meticulously provided for income tax exemptions in a specific article, while omitting concessionaires, indicates that no such exemption was intended for them.
The objective of the exemption in Article XVIII is to enable U.S. military personnel and authorized civilians to procure goods and services at reduced prices within the base. Collecting income tax from the concessionaire does not frustrate this purpose, as it is a tax on the concessionaire’s profit, not a direct tax on the transaction or merchandise that would increase the purchase price for the base personnel.
Therefore, the terms “excise” or “other taxes or imposts” in Article XVIII cannot be construed to include the income tax payable by the concessionaire, as those terms are contextually limited to taxes on the establishment of agencies/concessions and on the merchandise/services themselves.