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.

FACTS: -- petition to review on certiorari the decision of the CTA

• From 1974 to 1976, Tours Specialists, Inc. had derived income from its activities as a travel agency by servicing the needs of foreign tourists and travelers and Filipino "Balikbayans" during their stay in this country. Some of the services extended to the tourists consist of booking said tourists and travelers in local hotels for their lodging and board needs; transporting these foreign tourists from the airport to their respective hotels, and from the latter to the airport upon their departure from the Philippines, transporting them from their hotels to various embarkation points for local tours, visits and excursions; securing permits for them to visit places of interest; and arranging their cultural entertainment, shopping and recreational activities.

• In order to ably supply these services to the foreign tourists, TOURS and its correspondent counterpart tourist agencies abroad have agreed to offer a package fee for the tourists. . Although the fee to be paid by said tourists is quoted by the petitioner, the payments of the hotel room accommodations, food and other personal expenses of said tourists, as a rule, are paid directly either by tourists themselves, or by their foreign travel agencies to the local hotels and restaurants or shops, as the case may be. • Some tour agencies abroad request the local tour agencies that the hotel room charges be paid through them. By this arrangement, the foreign tour agency entrusts to Tours, the fund for hotel room accommodation, which in turn is paid by petitioner tour agency to the local hotel when billed. The billing hotel sends the bill to Tours. The local hotel identifies the individual tourist, or the particular groups of tourists by code name or group designation and also the duration of their stay for purposes of payment. Upon receipt of the bill, Tours then pays the local hotel with the funds entrusted to it by the foreign tour correspondent agency.

• Commissioner of Internal Revenue assessed petitioner for deficiency 3% contractor's tax as independent contractor by including the entrusted hotel room charges in its gross receipts from services for the years 1974 to 1976.

• In addition to the deficiency contractor's tax of P122,946.93, petitioner was assessed to pay a compromise penalty of P500.00.

• During one of the hearings in this case, a witness, Serafina Sazon, Certified Public Accountant and in charge of the Accounting Department of Tours, had testified, that the amounts entrusted to it by the foreign tourist agencies intended for payment of hotel room charges, were paid entirely to the hotel concerned, without any portion thereof being diverted to its own funds. And that the reason why tourists pay their room charge, or through their foreign tourists agencies, is the fact that the room charge is exempt from hotel room tax under P.D. 31


• WON amounts received by a local tourist and travel agency included in a package fee from tourists or foreign tour agencies, intended or earmarked for hotel accommodations form part of gross receipts subject to 3% contractor's tax.


• NO. 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.

• The room charges entrusted by the foreign travel agencies to the private respondent do not form part of its gross receipts within the definition of the Tax Code. The said receipts never belonged to the private respondent. The private respondent never benefited from their payment to the local hotels. As stated earlier, this arrangement was only to accommodate the foreign travel agencies.

• Another objection raised by the petitioner is to the respondent court's application of Presidential Decree 31 which exempts foreign tourists from payment of hotel room tax. Section 1 thereof provides: Sec. 1. — Foreign tourists and travelers shall be exempt from payment of any and all hotel room tax for the entire period of their stay in the country.

• If the hotel room charges entrusted to Tours will be subjected to 3% contractor's tax as what CIR would want to do in this case, that would in effect do indirectly what P.D. 31 would not like hotel room charges of foreign tourists to be subjected to hotel room tax. Although, CIR may claim that the 3% contractor's tax is imposed upon a different incidence i.e. the gross receipts of the tourist agency 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 Philippines as that would increase the costs or expenses by the addition of a hotel room tax in the overall expenses of said tourists.