12. Oceanic Wireless v.

CIR
GR NO. 148380, December 9, 2005

Facts: On March 17, 1988, petitioner received from the Bureau of Internal Revenue (BIR) deficiency tax
assessments for the taxable year 1984 in the total amount of P8,644,998.71. Petitioner filed its protest against the
tax assessments and requested a reconsideration or cancellation of the same in a letter to the BIR Commissioner.
Acting in behalf of the BIR Commissioner, then Chief of the BIR Accounts Receivable and Billing Division, Mr.
Severino B. Buot, reiterated the tax assessments while denying petitioners request for reinvestigation. Said letter
likewise requested petitioner to pay within 10 days from receipt thereof, otherwise the case shall be referred to
the Collection Enforcement Division of the BIR National Office for the issuance of a warrant of distraint and levy
without further notice.
Upon petitioners failure to pay the subject tax assessments within the prescribed period, the Assistant
Commissioner for Collection, acting for the Commissioner of Internal Revenue, issued the corresponding warrants
of distraint and/or levy and garnishment.
Petitioner filed a Petition for Review with the Court of Tax Appeals (CTA) to contest the issuance of the warrants to
enforce the collection of the tax assessments. The CTA dismissed the petition for lack of jurisdiction.
Petitioner filed a Motion for Reconsideration arguing that the demand letter cannot be considered as the final
decision of the Commissioner of Internal Revenue on its protest because the same was signed by a mere
subordinate and not by the Commissioner himself.
With the denial of its motion for reconsideration, petitioner consequently filed a Petition for Review with the Court
of Appeals contending that there was no final decision to speak of because the Commissioner had yet to make a
personal determination as regards the merits of petitioners case.
The Court of Appeals denied the petition.
Issue: Whether the demand letter for tax deficiency issued and signed by a subordinate officer who was acting in
behalf of the CIR is deemed final and executor and subject to an appeal to the CTA.
Held: YES. A demand letter for payment of delinquent taxes may be considered a decision on a disputed or
protested assessment. The determination on whether or not a demand letter is final is conditioned upon the
language used or the tenor of the letter being sent to the taxpayer. In this case, the letter of demand,
unquestionably constitutes the final action taken by the Bureau of Internal Revenue on petitioners request for
reconsideration when it reiterated the tax deficiency assessments due from petitioner, and requested its payment.
Failure to do so would result in the issuance of a warrant of distraint and levy to enforce its collection without
further notice. In addition, the letter contained a notation indicating that petitioners request for reconsideration
had been denied for lack of supporting documents. The demand letter received by petitioner verily signified a
character of finality. Therefore, it was tantamount to a rejection of the request for reconsideration.

This now brings us to the crux of the matter as to whether said demand letter indeed attained finality despite the
fact that it was issued and signed by the Chief of the Accounts Receivable and Billing Division instead of the BIR
Commissioner.
The general rule is that the Commissioner of Internal Revenue may delegate any power vested upon him by law to
Division Chiefs or to officials of higher rank. He cannot, however, delegate the four powers granted to him under
the National Internal Revenue Code (NIRC) enumerated in Section .
As amended by Republic Act No. 8424, Section 7 of the Code authorizes the BIR Commissioner to delegate the
powers vested in him under the pertinent provisions of the Code to any subordinate official with the rank
equivalent to a division chief or higher, except the following:
(a) The power to recommend the promulgation of rules and regulations by the Secretary of Finance;
(b) The power to issue rulings of first impression or to reverse, revoke or modify any existing ruling of the Bureau;
(c) The power to compromise or abate under Section 204(A) and (B) of this Code, any tax deficiency: Provided,
however, that assessments issued by the Regional Offices involving basic deficiency taxes of five hundred thousand
pesos (P500,000) or less, and minor criminal violations as may be determined by rules and regulations to be
promulgated by the Secretary of Finance, upon the recommendation of the Commissioner, discovered by regional
and district officials, may be compromised by a regional evaluation board which shall be composed of the Regional
Director as Chairman, the Assistant Regional Director, heads of the Legal, Assessment and Collection Divisions and
the Revenue District Officer having jurisdiction over the taxpayer, as members; and
(d) The power to assign or reassign internal revenue officers to establishments where articles subject to excise tax
are produced or kept.
It is clear from the above provision that the act of issuance of the demand letter by the Chief of the Accounts
Receivable and Billing Division does not fall under any of the exceptions that have been mentioned as nondelegable.
Thus, the authority to make tax assessments may be delegated to subordinate officers. Said assessment has the
same force and effect.

01 - CIR v. Aquafresh Seafoods, Inc. (2010) (Residential to Commercial)

Doctrine:

While the CIR is given the authority to determine the fair market value of the subject properties for the purpose
of computing internal revenue taxes, such authority is not without restriction or limitation.

The first sentence of Section 6(E) sets the limitation or condition in the exercise of such power by
requiringrespondent to consult with competent appraisers both from private and public sectors.Facts:Aquafresh
Seafoods sold to Philips Seafood two parcels of land located at Barrio Banica, Roxas City. Aquafresh paid the
corresponding Capital Gains Tax (P186,000) and Documentary Stamp Tax (P46,500). However, the BIR receiveda
report that the purchase price of the sale was undervalued for tax purposes. They conducted an investigation
andconcluded that the subject properties were commercial and had a higher zonal value (P2000). They sent
deficiencyassessment notices to Aquafresh for tax deficiencies. The deficiencies were based on the supposed
selling price followingthe P2000 zonal value. Aquafresh protested but the protest was denied.Aquafresh filed a
petition for review with the CTA seeking the reversal of the decision. They argued that since
the properties were located in Barrio Banica, classified as residential and given a zonal value of P650 per sq/m in th
e 1995Revised Zonal Values of Real Property, the prescribed zonal value should prevail. Aquafresh contends that
the BIR hadno business in re-classifying the subject properties to commercial. The CTA decided in favor of
Aquafresh stating thatwhile the CIR is given the authority to determine the zonal values, the same is not without
limitation - it should be done inconsulation with competent appraisers both from the public and private sectors
(Sec. 6e, NIRC).The CIR now assails the CTA decision. First, he argues that the requirement of consultation is
mandatory onlywhen it is prescribing real property values that is when a formulation or change is made in the
schedule of zonalvalues. He argues that what they did was not to prescribe the zonal value, but merely classify the
same as commercial andapply the corresponding zonal value for such classification based on the existing schedule
of zonal values. Second, heargues that their act was pursuant to their Zonal Valuation Guidelines. According to the
CIR, the guidelines provide thatAll real properties, regardless of actual use, located in a street/barangay zone, the
use of which are predominantlycommercial shall be classified as Commercial for purposes of zonal
valuation.Issues:1.
W/N the CIR is correct in re-classifying the subject properties from residential to commercial,
consequentlyraising the zonal value of the properties.Held/Ratio:1.
NO. While the CIR has the authority to prescribe real property values and divide the Philippines into zones, thelaw
is clear that the same has to be done upon consultation with competent appraisers both from the public
and private sectors. It is undisputed that at the time of the sale of the subject properties found in Barrio
Banica, RoxasCity, the same were classified as residential. The petitioner cannot unilaterally classify the same to
commercialwithout first conducting a re-evaluation of the zonal values as mandated under Section 6(E) of the
NIRC.As to the contention that consultation is needed only when there is a change in the prescribed zonal values,
andwhat they did was merely to classify the properties to commercial and apply the zonal values, it should be
notedthat ALL the properties in Barrio Banica were classified as residential, under the 1995 Revised Zonal Values.
Theact of classifying the subject properties into commercial involves a re-classification and revision of the
prescribed

Commissioner of Internal Revenue vs. Carlos Ledesma, Julieta Ledesma, Vi-cente Gustilo. Jr. and Amparo Ledesma de
GustiloG.R. No. L-17509 January 30, 1970Facts:
On July 9, 1949, Carlos Ledesma, Julieta Ledesma and the spouses Amparo Ledesma
andV i c e n t e G u s t i l o , J r . , p u r c h a s e d f r o m t h e i r p a r e n t s , t h e s u g a r p l a n t a t i o n k n o w n a s
" H a c i e n d a Fortuna," consisting of 36 parcels of land, which sugar quota was included in the sale. By virtue
of the purchase, respondents owned one-third each of the undivided portion of the plantation. After
the purchase of the plantation, herein respondents took over the sugar cane farming on the plantation beginning
with the crop year 1948-1949. For the crop year 1948- 1949 the San Carlos Milling Co.,Ltd. credited the
respondents with their shares in the gross sugar production.The respondents shared equally the expenses of
production, on the basis of their respectiveone-third undivided portions of the plantation. In th eir

individual income tax returns for the year 1949 the respondents included as part of their income their
respective net profits derived from their individual sugar production from the "Hacienda Fortuna," as herein-above
stated.On July 11, 1949, the respondents organized themselves into a general co-partnership under the firm
name "Hacienda Fortuna", for the "production of sugar cane for conversion into
sugar, palay and corn and such other products as may profitably be produced on said hacienda, which products sh
all be sold or otherwise disposed of for the purpose of realizing profit for the partner-ship." The articles of general
co-partnership were registered in the commercial register of the officeof the Register of Deeds in Bacolod City,
Negros Occidental, on July 14, 1949. Paragraph 14 of thearticles of general partnership provides that the
agreement shall have retroactive effect as of January1, 1949.
Issue:
Whether or not respondent operated the Hacienda Fortuna as partnership prior to the exe-cution of articles of
co-partnership.
Ruling:
Yes. Respondents operated the "Hacienda Fortuna" as a partnership prior to the execution of the articles of
general co-partnership based on their intention as clearly shown in paragraph 14 of t h e a r t i c l e s
of general co-partnership which provides that the partnership agreement "shall
b e retroactive as of January 1, 1949

SUMMARY OF SIGNIFICANT SC DECISIONS (January 2012)

-digested by Atty. Julie Ann Aranda
1. The proper party to question, or seek a refund of an indirect tax is the
statutory taxpayer, the person on whom the tax is imposed by law and who
paid the same even if he shifts the burden thereof to another.
Petitioner filed an administrative claim for refund on the excise taxes paid on the
purchase of jet fuel from its supplier oil company for the period of July 1, 1998 to
December 31, 1998, which it alleged to have been erroneously paid based on
Section 135(a) and (b) of the Tax Code of 1997. Due to inaction by respondent
Commissioner, petitioner filed a Petition for Review with the Court of Tax Appeals.
The CTA denied the petition and ruled that while petitioners country indeed
exempts from excise taxes petroleum products sold to international carriers,
petitioner nevertheless failed to comply with the second requirement under Section
135 (a) of the 1997 Tax Code as it failed to prove that the jet fuel delivered by
Petron came from the latters bonded storage tank. Upon the denial of the motion
of reconsideration, petitioner elevated the case to the CA. The CA affirmed the
denial and ruled that petitioner is not the proper party to seek for the refund of the
excise taxes paid. Upon appeal, the Supreme Court held that excise taxes, which
apply to articles manufactured or produced in the Philippines for domestic sale or
consumption or for any other disposition and to things imported into the
Philippines, is basically an indirect tax. While the tax is directly levied upon the
manufacturer/importer upon removal of the taxable goods from its place of
production or from the customs custody, the tax, in reality, is actually passed on to
the end consumer as part of the transfer value or selling price of the goods, sold,
bartered or exchanged. The proper party to question, or seek a refund of an
indirect tax is the statutory taxpayer, the person on whom the tax is imposed by law
and who paid the same even if he shifts the burden thereof to another. Petitioner,
as the purchaser and end-consumer, ultimately bears the tax burden, but this does
not transform its status into a statutory taxpayer. (Silkair (Singapore) Pte. Ltd.,
vs. Commissioner of Internal Revenue, G.R. No. 166482, January 25, 2012)
Commissioner vs. British Overseas Airways Corp.GR L-65773-74, 30 April 1987
En Banc, Melencio-Herrera (J): 7 concur, 1 took no part
Facts:

British Overseas Airways Corp. (BOAC) is a 100% Britis Government-owned corporation engaged ininternational
airline business and is a member of the Interline Air Transport Association, and thus, it operatesair transportation
service and sells transportation tickets over the routes of the other airline members. From1959 to 1972, BOAC
had no landing rights for traffic purposes in the Philippines and thus did not carry passengers and/or
cargo to or from the Philippines but maintained a general sales agent in the Philippines --Warner Barnes & Co. Ltd.,
and later, Qantas Airwayus -- which was responsible for selling BOAC ticketscovering passengers and cargoes. The
Commissioner of Internal Revenue assessed deficiency income taxesagainst BOAC.
Issue:
Whether the revenue derived by BOAC from ticket sales in the Philippines for air transportation,
whilehaving no landing rights in the Philippines, constitute income of BOAC from Philippine
sources, andaccordingly, taxable.
Held:
The source of an income is the property, activity or service that produced the income. For the source ofincome to
be considered as coming from the Philippines, it is sufficient that the income is derived
fromactivity within the Philippines. Herein, the sale of tickets in the Philippines is the activity that produced
theincome. The tickets exchanged hands here and payments for fares were also made here in Philippine
currency.The situs of the source of payments is the Philippines. The flow of wealth proceeded
from, and occuredwithin, Philippine territory, enjoying the protection accorded by the Philippine Government.
In considerationof such protection, the flow of wealth should share the burden of supporting the
government. PD 68, in relation to PD 1355, ensures that international airlines are taxed on their income from
Philippine sources. The2 1/2 %tax on gross billings is an income tax. If it had been intended as an excise or
percentage tax, it wouldhave been placed under Title V of the Tax Code covering taxes on business.
[30]Commissioner vs. Air IndiaGR L-72443, 29 January 1988
First Division, Gancayco (J): 4 concur
Facts:
Air India is a foreign corporation and an off-line international carrier not engaged in the business of
airtransporation in the Philippines. Air India sells airplane tickets in the Philippines trhough its general salesagent,
Philippine Airlines. Said tickets are serviced by Air India outside the Philippines. The Commissioner of
Taxation Law I, 2004 ( 16 )

Digests (Berne Guerrero)

Internal Revenue assessed against Air India the amount of P142,471.68 representing 2.55 income tax on itsgross
Philippine billngs pursuant to Section 24 (b) (2) of the Tax Code, as amended, inclusive of th e50%surcharge and
interest for willful neglect to file a return as provided under Section 72 of the same Code. AirIndia appealed to the Court
of Tax Appeals.
Issue:
Whether the revenue derived by an international air carrier from sles of tickets in the Philippines for
airt r a n s p o r t a t i o n , w h i l e h a v i n g n o l a n d i n g r i g h t s i n t h e c o u n t r y , c o n s t i t u t e s i n c o m e
o f s a i d c a r r i e r f r o m Philippine sources, and thus taxable under Section 24 (b) (2) of the Tax Code.
Held:
Based on the doctrine enunciated in British Overseas Airways Corp., the revenue derived by Air Indiafrom the sales
of airplane tickets, through its agent in the Philippines, must be considered taxable income. Ascorrectly assessed
by the Commissioner, such income is subject to a 2.5% tax pursuant to PD 1355, amendingsection 24 (b) (2) of the Tax
Code.
ON "EVANGELISTA VS. COLLECTOR OF INTERNA L REVENUE

Facts: Petitioners borrowed money from their father and purchased several lands. For several years, these lands
were leased to tenants by the petitioners. In 1954, respondent Collector of Internal Revenue demanded from
petitioners the payment of income tax on corporations, real estate dealer's fixed tax and corporation residence
tax for the years 1945-1949. A letter of demand and corresponding assessments were delivered to petitioners.
Petitioners claim that they should be absolved from paying said taxes since they are not a corporation.
Issue: Whether petitioners are subject to the tax on corporations provided for in section 24 of Commonwealth Act.
No. 466, otherwise known as the National Internal Revenue Code, as well as to theresidence tax for corporations
and the real estate dealers fixed tax.
Held: Yes. Petitioners are subject to the income tax and residence tax for corporation.
As defined in section 84 (b) of the Internal Revenue Code, "the term corporation includes partnerships, no matter
how created or organized." This qualifying expression clearly indicates that a joint venture need not be undertaken
in any of the standard forms, or in conformity with the usual requirements of the law on partnerships, in order
that one could be deemed constituted for purposes of the tax on corporations. Partnership, as has been defined in
the civil code refers to two or more persons who bind themselves to contributemoney, properly, or industry to a
common fund, with the intention of dividing the profits among themselves. Thus, petitioners, being engaged in
the real estate transactions for monetary gain and dividing the same among themselves constitute a partnership
so far as the Code is concerned and are subject to income tax for corporation.
Since Sec 2 of the Code in defining corporations also includes joint-stock company, partnership, joint account,
association or insurance company, no matter how created or organized, it follows that petitioners, regardless of
how their partnership was created is also subject to the residence tax for corporations.
PARTNERSHIP; TAXATION
ONA
45

VS.

COMMISION

OF
SCRA

INTRNAL

REVENUE
74

FACTS:
1. Julia Bunales died on March 23, 1944 leaving as heirs her surviving spouse Lorenzo T. Oa and her five children.
2. A civil case was instituted in the CFI of Manila for the settlement of her estate.
3.
Lorenzo
was
appointed
administrator
of
he
deceaseds
estate.
4. A project of partition shows that the heirs have undivided interest in 10 parcels of land, 6 houses and an
undetermined
amount
to
be
collected
from
the
War
Damage
Commission.
5. Although the court approved the project of partition, no attempt was made to divide the properties listed
therein.
6. Instead, the properties remained under the management of Lorenzo who used the said properties in business by
leasing or telling them and investing the income derived therefrom and the proceeds from the sales thereof in real
properties
and
securities.
7. As a result, petitioners properties and investment gradually increased from P 105,405.00 in 1949 to P
480,0005.20
in
1956.

8. Respondent CIR decided that petitioners formed an unregistered partnership and therefore, subject to the
corporate income tax pursuant to Section 24, in relation to Section 84(b) of the Tax Code.
9. Petitioners protested against the assessment and asked for reconsideration of the ruling that they have formed
an
unregistered
partnership.
10.
Respondent
denied
the
motion
for
reconsideration.
11.
Hence
this
appeal.
ISSUE:
Did petitioners constitute an unregistered partnership, and are, therefore, subject to the payment of the
deficiency
corporate
income
taxes
assessed
against
them
by
respondent
CIR.
HELD:
From the moment petitioners allowed not only the incomes from their respective shares of the inheritance but
even the inherited properties themselves to be used by Lorenzo T. Oa as a common fund in undertaking several
transactions or in business, with the intention of deriving profit to be shared by them proportionately, such act
was tantamount to actually contributing such incomes to a common fund and, in effect, they thereby formed an
unregistered partnership within the purview of the provisions of the Tax Code.

4. A proprietary non-profit hospital is subject to 10% tax under Section 27(B) of the
1997 Tax Code.
St. Lukes Medical Center, Inc. (St. Lukes) was assessed by the BIR for deficiency income
tax under Section 27(B) of the 1997 Tax Code, which imposes 10% income tax on the
taxable income of proprietary educational institutions and hospitals which are non-profit. The
CTA dismissed the assessment on the ground that St. Lukes is not subject to income tax
under Section 30(E) and (G) of the Tax Code, which exempts from income tax income
received by non-stock corporations organized and operated exclusively for charitable
purposes and civic leagues and organizations not organized for profit and promoting social
welfare.
Upon appeal to the Supreme Court (SC), the latter ruled that St. Lukes is subject to tax
under Section 27(B) of the 1997 Tax Code. In arriving at the conclusion, the SC reconciled
the provisions of Sections 27(B) and 30 of the 1997 Tax Code. A charitable institution, while
organized and operated exclusively for charitable purposes, is nevertheless allowed to
engage in activities conducted for profit without loosing its tax exempt status. The only
consequence is that the income of whatever kind and character from any of the activities
conducted for profit, regardless of the disposition of such income, shall be subject to tax. St.
Lukes is a non-stock non-profit corporation. Nonetheless, services to paying patients are
activities conducted for profit. Such income is subject to income tax, but not to the 30%
income tax but to 10% under Section 27(B) of the 1997 Tax Code. (Commissioner of
Internal Revenue vs. St. Lukes Medical Center, Inc., 195909, September 26, 20121)
Manila banking

Facts:
1961- Manila Banking Corp was incorporated. It engaged in the banking industry til 1987.
May 1987- Monetary Board of Bangko Sentral ng Pilipinas (BSP) issued Resolution # 505 {pursuant to the Central
Bank Act (RA 265)} prohibiting Manila Bank from engaging in business by reason of insolvency. So, Manila Bank
ceased operations and its assets and liabilities were placed under charge of a gov.- appointed receiver.
1998- Comprehensive Tax Reform Act (RA8424) imposed a minimum corporate income tax on domestic and
resident foreign corporations.
o Implementing law: Revenue Regulation # 9-98 stating that the law allows a 4year period from the time the
corporations were registered with the BIR during which the minimum corporate income tax should not be
imposed.
June 23, 1999- BSP authorized Manila Bank to operate as a thrift bank.
o NOTE: June 15, 1999 Revenue Regulation #4-95 (pursuant to Thrift Bank Act of 1995) provides that the date of
commencement of operations shall be understood to mean the date when the thrift bank was registered with SEC
or when Certificate of Authority to Operate was issued by the Monetary Board, whichever comes LATER.
Dec 1999- Manila Bank wrote to BIR requesting a ruling on whether it is entitled to the 4 year grace period under
RR 9-98.
April 2000- Manila bank filed with BIR annual income tax return for taxable year 1999 and paid 33M.
Feb 2001- BIR issued BIR Ruling 7-2001 stating that Manila Bank is entitled to the 4year grace period. Since it
reopened in 1999, the min. corporate income tax may be imposed not earlier than 2002. It stressed that although
it had been registered with the BIR before 1994, but it ceased operations 1987-1999 due to involuntary closure.
o Manila Bank, then, filed with BIR for the refund. Due to the inaction of BIR on the claim, it filed with CTA for
a petition for review, which was denied and found that Manila Banks payment of 33M is correct, since its
operations were merely interrupted during 1987-1999. CA affirmed CTA.

Issue: Whether or not Manila Bank is entitled to a refund of its minimum corporate income tax paid to BIR for
1999.

Held: Yes.
CIRs contensions are without merit. He contended that based on RR# 9-98, Manila Bank should pay the min.
corporate income tax beg. 1998 as it did not close its operations in 1987 but merely suspended it. Even if placed
under suspended receivership, its corporate existence was never affected. Thus falling under the category of a
existing corporation recommencing its banking business operations
** Sec. 27 E of the Tax Code provides the Minimum Corporate Income Tax (mcit) on Domestic Corporations.
o (1) Imposition of Tax- MCIT of 2% of gross income as of the end of the taxable year, as defined here in, is hereby
imposed on a corporation taxable under this title, beginning on the 4th taxable year immediately following the
year in which such corp commenced its business operations, when the mcit is greater than the tax computed
under Subsec. A of this section for the taxable year.
o (2) Any excess in the mcit over the normal income tax shall be carried forward and credited against the normal
income tax for the 3 succeeding taxable years.

 Let it be stressed that RR 9-98 imposed the mcit on corps, the date when business operations commence is the
year in which the domestic corporation registered with the BIR. But under RR 4-95, the date of commencement of
operations of thrift banks, is the date of issuance of certificate by Monetary Board or registration with SEC,
whichever comes later. Clearly then, RR 4-95 applies to Manila banks, being a thrift bank. 4-year period= counted
from June 1999.

CHAMBER OF REAL ESTATE AND BUILDERS ASSOCIATION, INC. vs. EXECUTIVE SECRETARY- Minimum Corporate
Income Tax

FACTS:
CREBA assails the imposition of the minimum corporate income tax (MCIT) as being violative of the due process
clause as it levies income tax even if there is no realized gain. They also question the creditable withholding tax
(CWT) on sales of real properties classified as ordinary assets stating that (1) they ignore the different treatment of
ordinary assets and capital assets; (2) the use of gross selling price or fair market value as basis for the CWT and
the collection of tax on a per transaction basis (and not on the net income at the end of the year) are inconsistent
with the tax on ordinary real properties; (3) the government collects income tax even when the net income has not
yet been determined; and (4) the CWT is being levied upon real estate enterprises but not on other enterprises,
more particularly those in the manufacturing sector.

ISSUE:
Are the impositions of the MCIT on domestic corporations and
classified as ordinary assets unconstitutional?

CWT on income from sales of real properties

HELD:
NO. MCIT does not tax capital but only taxes income as shown by the fact that the MCIT is arrived at by deducting
the capital spent by a corporation in the sale of its goods, i.e., the cost of goods and other direct expenses from
gross sales. Besides, there are sufficient safeguards that exist for the MCIT: (1) it is only imposed on the 4th year of
operations; (2) the law allows the carry forward of any excess MCIT paid over the normal income tax; and (3) the
Secretary of Finance can suspend the imposition of MCIT in justifiable instances.
The regulations on CWT did not shift the tax base of a real estate business income tax from net income to GSP or
FMV of the property sold since the taxes withheld are in the nature of advance tax payments and they are thus just
installments on the annual tax which may be due at the end of the taxable year. As such the tax base for the sale of
real property classified as ordinary assets remains to be the net taxable income and the use of the GSP or FMV is
because these are the only factors reasonably known to the buyer in connection with the performance of the
duties as a withholding agent.
Neither is there violation of equal protection even if the CWT is levied only on the real industry as the real estate
industry is, by itself, a class on its own and can be validly treated different from other businesses.

South African Airways vs. CIR

08/30/2013
0 Comments

February 16, 2010

Facts: Petitioner South African Airways is a foreign corporation organized and existing under and by virtue of the
laws of the Republic of South Africa. Its principal office is located at Airways Park, Jones Road, Johannesburg
International Airport, South Africa. In the Philippines, it is an internal air carrier having no landing rights in the
country. Petitioner has a general sales agent in the Philippines, Aerotel Limited Corporation (Aerotel). Aerotel sells
passage documents for compensation or commission for petitioners off-line flights for the carriage of passengers
and cargo between ports or points outside the territorial jurisdiction of the Philippines. Petitioner is not registered
with the Securities and Exchange Commission as a corporation, branch office, or partnership. It is not licensed to
do business in the Philippines. It paid a corporate tax in the rate of 32% of its gross billings. However, it
subsequently claim for refund contending that its income should be taxed at the rate of 2 1/2% of its gross billings.
Issues: whether or not petitioners income is sourced within the Philippines and is to be taxed at 32% of the gross
billings?
Held: Yes! In the instant case, the general rule is that resident foreign corporations shall be liable for a 32% income
tax on their income from within the Philippines, except for resident foreign corporations that are international
carriers that derive income from carriage of persons, excess baggage, cargo and mail originating from the
Philippines which shall be taxed at 2 1/2% of their Gross Philippine Billings. Petitioner, being an international
carrier with no flights originating from the Philippines, does not fall under the exception. As such, petitioner must
fall under the general rule. This principle is embodied in the Latin maxim, exception firmat regulam in casibus non
exceptis, which means, a thing not being excepted must be regarded as coming within the purview of the general
rule.
To reiterate, the correct interpretation of the above provisions is that, if an international air carrier maintains
flights to and from the Philippines, it shall be taxed at the rate of 2 1/2% of its Gross Philippine Billings, while
international air carriers that do not have flights to and from the Philippines but nonetheless earn income from
other activities in the country will be taxed at the rate of 32% of such income.

G.R. No. 178788

United Airlines vs. Commissioner of Internal Revenue
September 29, 2009
Facts:
International airline, petitioner United Airlines, filed a claim for income tax refund. Petitioner sought to be
refunded the erroneously collected income tax from in the amount of P5,028,813.23 on passenger revenue from

tickets sold in the Philippines, the uplifts of which did not originate in the Philippines. The airlines ceased operation
originating form the Philippines since February 21, 1998.
Court of tAx appeals ruled the petitioner is not entitled to a refund because under the NIRC, income tax on GPB
also includes gross revenue from carriage of cargoes from the Philippines. And upon assessment by the CTA, it was
found out that petitioner deducted items from its cargo revenues which should have entitled the government to
an amount of P 31.43 million, which is obviously higher than the amount the petitioner prayed to be refunded.
Petitioner argued that the petitioners supposed underpayment cannot offset his claim to a refund as established
by well-settled jurisprudence.
Issue:
Whether or not petitioner is entitled to a refund?
HELd:
Petitioner was correct in averring that his claim to a refund cannot be subject to offsetting or, as it claimed the
offsetting to be, a legal compensation under Sec. 28(A)(3)(a)
Petitioners (similar) tax refund claim assumes that the tax return that it filed was correct. Given, however, the
finding of the CTA that petitioner, although not liable under Sec. 28(A)(3)(a) of the 1997 NIRC, is liable under Sec.
28(A)(1), the correctness of the return filed by petitioner is now put in doubt. As such, we(the court) cannot grant
the prayer for a refund.
The court held that the petitioner is not entitled to a refund, Having underpaid the GPB tax due on its cargo
revenues for 1999, the amount of the former being even much higher (P31.43 million) than the tax refund sought
(P5.2 million).
Relevant note:
The Court have consistently ruled that there can be no off-setting [or compensation] of taxes against the claims
that the taxpayer may have against the government. A person cannot refuse to pay a tax on the ground that the
government owes him an amount equal to or greater than the tax being collected. The collection of a tax cannot
await the results of a lawsuit against the government.(francia vs Intermediate appellate court)

The grant of a refund is founded on the assumption that the tax return is valid, that is, the facts stated therein are
true and correct. The deficiency assessment, although not yet final, created a doubt as to and constitutes a
challenge against the truth and accuracy of the facts stated in said return which, by itself and without
unquestionable evidence, cannot be the basis for the grant of the refund. (CIR vs CTA)

National Internal Revenue Code; international air carriers; Gross Philippine Billings; regular income tax. Inasmuch
as thetaxpayer has ceased operating passenger flights to or from the Philippines in 1998, it is not taxable under
Section 28(A)(3)(a) of the National Internal Revenue Code (NIRC), or on 2 1/2% of its Gross Philippine Billings
(GPB). The correct interpretation of said provisions is that, if an international air carrier maintains flights to and
from the Philippines then it shall be taxed at the rate of 2 1/2 % of its GPB, while international air carriers that do
not have flights to and from the Philippines but nonetheless earn income from other activities in the country will
be taxed at the rate of 32% [now 30%] of such income.
National Internal Revenue Code; claims for refunds. Under Section 72 [Suit to Recover Tax Based on False or
Fraudulent Returns] of the National Internal Revenue Code, the Court of Tax Appeals can make a valid finding
that taxpayer made erroneous deductions on its gross cargo revenue; that because of the erroneous
deductions, taxpayer reported a lower cargo revenue and paid a lower income tax thereon; and that taxpayers
underpayment of the income tax on cargo revenue is even higher than the income tax it paid
on passenger revenue subject of the claim for refund, such that the refund cannot be granted. On the assumption
thattaxpayer filed a correct return, it had the right to file a claim for refund of the Gross Philippine Billings (GPB)
tax on passengerrevenues it paid in 1999 when it was not operating passenger flights to and from the Philippines.
However, upon examination by the CTA,taxpayers return was found erroneous as it understated its gross cargo
revenue for the same taxable year due to deductions of two items. Having underpaid the GPB tax due on its cargo
revenues for 1999, taxpayer is not entitled to a refund of its GPB tax on itspassenger revenue, the amount of the
former being even much higher than the tax refund sought. United Airlines, Inc. vsCommissioner of Internal
Revenue, G.R. No. 178788, September 29, 2010.
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de Leon, Kaycee Ann B. Taxation 1LLB 3

ACOMMISSIONER OF INTERNAL REVENUE,

vs.
BRITISH OVERSEAS AIRWAYS CORPORATION and COURT OF TAX APPEALS, G.R.No. L-65773-74 April 30,
1987MELENCIO-HERRERA,
J.:

Facts:
British Overseas Airways Corporation (BOAC) is a 100% British Government-ownedcorporation organized and existing under
the laws of the United Kingdom It is engaged in theinternational airline business and is a member-signatory of the Interline Air
Transport Association (IATA). BOAC did not carry passengers and/or cargo to or from the
Philippines,although during the period covered by the assessments, it maintained a general sales agentin the Philippines

Wamer Barnes and Company, Ltd., and later Qantas Airways

whichwas responsible for selling BOAC tickets covering passengers and cargoes.1
st
case: On May 7, 1968 CIR assessed BOAC with P2,498,358.56 for deficiency incometaxes covering the years 1959 to 1963.
BOAC protested. Investigation resulted to aassessment in the amount of P858,307.79 covering the years 1959 to 1967.
BOAC paid thisnew assessment under protest.BOAC filed a claim for refund in the amount of P858,307.79 with the CIR.
However, BOACdid not wait for the decision of the CIR, filed petition for review with the tax court. Thereafter,CIR denied claim
for refund2
nd
case: On November 17, 1971 CIR assessed BOAC with deficiency income taxes,interests, and penalty for the fiscal years
1968-1969 to 1970-1971 in the aggregate amount of P549,327.43, and the additional amounts of P1,000.00 and P1,800.00
as compromisepenalties for violation of Section 46 (requiring the filing of corporation returns) penalizedunder Section 74 of the
National Internal Revenue Code (NIRC).BOAC in a letter requested that the assessment to countermanded and set aside.
CIR deniedthe request and reissued the deficiency income tax assessment for P534,132.08 for the years1969 to 1970-71 plus
P1,000.00 as compromise penalty under Section 74 of the Tax Code.BOAC asked for reconsideration but CIR denied the
same. BOAC filed a 2
nd
petition for review with the tax court. The 2 cases before the CTA were consolidatedTax Court rendered the assailed joint
Decision reversing the CIR. Its position was thatincome from transportation is income from services so that the place where
services arerendered determines the source. It further held that the proceeds of sales of BOAC passagetickets in the
Philippines by Warner Barnes and Company, Ltd., and later by Qantas Airways,

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; de Leon, KAB

during the period in question, do not constitute BOAC income from Philippine sources "sinceno service of carriage of
passengers or freight was performed by BOAC within thePhilippines" and, therefore, said income is not subject to Philippine
income tax.
Issues:
1. Whether or not during the fiscal years in question BOAC is a resident foreigncorporation doing business in the Philippines or
has an office or place of business in
thePhilippines.2. Whether proceeds from the sale of BOAC tickets in the Philippines by Warner Barnesand Company, Ltd are
considered income from sources within the Philippines
Ruling:
1. Yes, BOAC is a resident foreign corporation.There is no specific criterion as to what constitutes "doing" or "engaging in" or
"transacting"business. The term implies a continuity of commercial dealings and arrangements, andcontemplates, to that
extent, the performance of acts or works or the exercise of some of thefunctions normally incident to, and in progressive
prosecution of commercial gain or for thepurpose and object of the business organization. "In order that a foreign corporation
may beregarded as doing business within a State, there must be continuity of conduct and intentionto establish a continuous
business, such as the appointment of a local agent, and not one of a temporary character.BOAC, during the periods covered
by the subject - assessments, maintained a general salesagent in the Philippines, That general sales agent, from 1959 to
1971, "was engaged in (1)selling and issuing tickets; (2) breaking down the whole trip into series of trips

each trip inthe series corresponding to a different airline company; (3) receiving the fare from the wholetrip; and (4)
consequently allocating to the various airline companies on the basis of their participation in the services rendered through the
mode of interline settlement as prescribedby Article VI of the Resolution No. 850 of the IATA Agreement." Those activities were
inexercise of the functions which are normally incident to, and are in progressive pursuit of, thepurpose and object of its
organization as an international air carrier. In fact, the regular saleof tickets, its main activity, is the very lifeblood of the airline
business, the generation of salesbeing the paramount objective. There should be no doubt then that BOAC was "engaged
in"business in the Philippines through a local agent during the period covered by theassessments. Accordingly, it is a resident
foreign corporation subject to tax upon its total netincome received in the preceding taxable year from all sources within the
Philippines.

2. Yes, proceeds from the sale of BOAC tickets in the Philippines by Warner Barnes andCompany, Ltd. are considered
income from sources within the Philippines hence taxable bythe Philippine government.The Tax Code defines "gross income"
thus:
"Gross income" includes gains, profits, and income derived from salaries, wages or compensation for personal service of whatever kind and
in whatever form paid, or from profession, vocations, trades, business, commerce, sales, or dealings in property, whether real or personal,
growing out of the ownership or use of or interest in such property; also from interests, rents, dividends, securities, or the transactions of any
business carried on for gain or profile, or gains, profits, and income derived from any source whatever (Sec. 29[3])

"The phrase 'income from any source whatever' discloses a legislative policy to include allincome not expressly exempted
within the class of taxable income under our laws." Incomemeans "cash received or its equivalent"; it is the amount of money
coming to a person withina specific time ...; it means something distinct from principal or capital. For, while capital is afund,
income is a flow. As used in our income tax law, "income" refers to the flow of wealth.The source of an income is the property,
activity or service that produced the income. For thesource of income to be considered as coming from the Philippines, it is
sufficient that theincome is derived from activity within the Philippines. In BOAC's case, the sale of tickets inthe Philippines is the
activity that produces the income. The tickets exchanged hands hereand payments for fares were also made here in Philippine
currency. The site of the source of payments is the Philippines. The flow of wealth proceeded from, and occurred
within,Philippine territory, enjoying the protection accorded by the Philippine government. Inconsideration of such protection, the
flow of wealth should share the burden of supporting thegovernment.The absence of flight operations to and from the
Philippines is not determinative of the sourceof income or the site of income taxation. Admittedly, BOAC was an off-line
internationalairline at the time pertinent to this case. The test of taxability is the "source"; and the sourceof an income is that
activity ... which produced the income. Unquestionably, the passagedocumentations in these cases were sold in the
Philippines and the revenue therefrom wasderived from an activity regularly pursued within the Philippines. And even if the
BOAC ticketssold covered the "transport of passengers and cargo to and from foreign cities", it cannot alter the fact that income
from the sale of tickets was derived from the Philippines. The word"source" conveys one essential idea, that of origin, and the
origin of the income herein is thePhilippines.

Bank of America NT & SA v Court of Appeals and Francisco et. al G.R. No.
105395 December 10, 1993
MARCH 15, 2014LEAVE A COMMENT

There would at least be three (3) parties: (a) the buyer, who procures the letter of credit and obliges himself to
reimburse the issuing bank upon receipts of the documents of title; (b) the bank issuing the letter of credit, which
undertakes to pay the seller upon receipt of the draft and proper document of titles and to surrender the
documents to the buyer upon reimbursement; and, (c) the seller, who in compliance with the contract of sale
ships the goods to the buyer and delivers the documents of title and draft to the issuing bank to recover payment.
Facts : Bank of America received an Irrevocable Letter of Credit issued by Bank of Ayudhya for the Account of
General Chemicals Ltd., Inc. for the sale of plastic ropes and agricultural files. Under the letter of credit, Bank of
America acted as an advising bank and Inter-Resin Industrial Corp. (IR) acted as the beneficiary. Upon receipt of the
letter advice, Inter- Resin told Bank of America to confirm the letter of credit.
Notwithstanding such instruction, Bank of America failed to confirm the letter of credit. Inter-Resin made a partial
availment of the Letter of Credit after presentment of the required documents to Bank of America. After
confirmation of all the documents Bank of America issued a check in favor of IR. BA advised Bank of Ayudhya of
IRs availment under the letter of credit and asked for the corresponding reimbursement. IR presented documents for
the second availment under the same letter of credit. However, BA stopped the processing of such after they
received a telex from Bank of Ayudhya delaring that the LC fraudulent. BA sued IR for the recovery of the first LC
payment.
The IR contended that Bank of America should have first checked the authenticity of the letter of credit with bank of
Ayudhya
Issue: Whether or not Bank of America may recover what it has paid under the letter of credit to Inter-Resin

Held : May Bank of America then recover what it has paid under the letter of credit when the corresponding draft
There would at least be three (3) parties: (a) the buyer, who procures the letter of credit and obliges himself to
reimburse the issuing bank upon receipts of the documents of title; (b) the bank issuing the letter of credit, which
undertakes to pay the seller upon receipt of the draft and proper document of titles and to surrender the documents to
the buyer upon reimbursement; and, (c) the seller, who in compliance with the contract of sale ships the goods to the
buyer and delivers the documents of title and draft to the issuing bank to recover payment.
The services of an advising (notifying) bank may be utilized to convey to the seller the existence of the credit; or, of
a confirming bank 16 which will lend credence to the letter of credit issued by a lesser known issuing bank; or, of a
paying bank, which undertakes to encash the drafts drawn by the exporter. Further, instead of going to the place of
the issuing bank to claim payment, the buyer may approach another bank, termed the negotiating bank, 18 to have
the draft discounted.
Bank of America has acted independently as a negotiating bank, thus saving Inter-Resin from the hardship of
presenting the documents directly to Bank of Ayudhya to recover payment. As a negotiating bank, Bank of America
has a right to recourse against the issuer bank and until reimbursement is obtained, Inter-Resin, as the drawer of the
draft, continues to assume a contingent liability thereon.
Furthermore, bringing the letter of credit to the attention of the seller is the primordial obligation of an advising
bank. The view that Bank of America should have first checked the authenticity of the letter of credit with bank of
Ayudhya, by using advanced mode of business communications, before dispatching the same to Inter-Resin finds no
real su In order to determine whether profits are accumulated for the reasonable needs of the business to
avoid the surtax upon the shareholders, it must be shown that the controlling intention of the taxpayer is
manifested at the time of the accumulation, not intentions subsequently, which are mere afterthoughts.
cyanamid philippines vs ca case digest

Facts:
Petitioner is a corporation organized under Philippine laws and is a wholly owned subsidiary of American
Cyanamid Co. based in Maine, USA. It is engaged in the manufacture of pharmaceutical products and
chemicals, a wholesaler of imported finished goods and an imported/indentor. In 1985 the CIR assessed
on petitioner a deficiency income tax of P119,817) for the year 1981. Cyanamid protested the
assessments particularly the 25% surtax for undue accumulation of earnings. It claimed that said profits
were retained to increase petitioners working capital and it would be used for reasonable business needs
of the company. The CIR refused to allow the cancellation of the assessments, petitioner appealed to the
CTA. It claimed that there was not legal basis for the assessment because 1) it accumulated its earnings
and profits for reasonable business requirements to meet working capital needs and retirement of
indebtedness 2) it is a wholly owned subsidiary of American Cyanamid Company, a foreign corporation,
and its shares are listed and traded in the NY Stock Exchange. The CTA denied the petition stating that
the law permits corporations to set aside a portion of its retained earnings for specified purposes under
Sec. 43 of the Corporation Code but that petitioners purpose did not fall within such purposes. It found
that there was no need to set aside such retained earnings as working capital as it had considerable liquid
funds. Those corporations exempted from the accumulated earnings tax are found under Sec. 25 of the
NIRC, and that the petitioner is not among those exempted. The CA affirmed the CTAs decision.

Issue: Whether or not the accumulation of income was justified.

Held:
In order to determine whether profits are accumulated for the reasonable needs of the business to avoid
the surtax upon the shareholders, it must be shown that the controlling intention of the taxpayer is
manifested at the time of the accumulation, not intentions subsequently, which are mere afterthoughts.
The accumulated profits must be used within reasonable time after the close of the taxable year. In the
instant case, petitioner did not establish by clear and convincing evidence that such accumulated was for
the immediate needs of the business.
To determine the reasonable needs of the business, the United States Courts have invented the
Immediacy Test which construed the words reasonable needs of the business to mean the immediate
needs of the business, and it is held that if the corporation did not prove an immediate need for the
accumulation of earnings and profits such was not for reasonable needs of the business and the penalty
tax would apply. (Law of Federal Income Taxation Vol 7) The working capital needs of a business depend
on the nature of the business, its credit policies, the amount of inventories, the rate of turnover, the
amount of accounts receivable, the collection rate, the availability of credit and other similar factors. The
Tax Court opted to determine the working capital sufficiency by using the ration between the current
assets to current liabilities. Unless, rebutted, the presumption is that the assessment is correct. With the
petitioners failure to prove the CIR incorrect, clearly and conclusively, the Tax Courts ruling is upheld.
pport.