Commissioner of Internal Revenue vs.

British Overseas Airways Corporation And

Court Of Tax Appeals
149 SCRA 395
Facts:
British Overseas Airways Corp (BOAC) is a 100% British Government-owned
corporation engaged in international airline business and is a member of the
Interline Air Transport Association, and thus, it operates air transportation
services and sells transportation tickets over the routes of the other airline
members.
From 1959 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 Airways - which was responsible for selling
BOAC tickets covering passengers and cargoes. The Commissioner of Internal
Revenue assessed deficiency income taxes against BOAC.
Issue:
Whether the revenue derived by BOAC from ticket sales in the Philippines,
constitute income of BOAC from Philippine sources, and accordingly taxable.
RULING:
The source of an income is the property, activity, or service that produced
theincome. For the source of income to be considered as coming from the
Philippines, it issufficient that the income is derived from activity within the
Philippines. Herein, the saleof tickets in the Philippines is the activity that
produced the income. the ticketsexchanged hands here and payment for fares
were also made here in the Philippinecurrency.The situs of the source of
payments is the Philippines. The flow of wealthproceeded from, and occurred
within Philippine territory, enjoying the protectionaccorded by the Philippine
government. In consideration of such protection, the flow of wealth should share
the burden of supporting the government. PD 68, in relation to PD1355, ensures
that international airlines are taxed on their income from Philippinesources. The
2 1/2% tax on gross billings is an income tax. If it had been intended as an excise
tax or percentage tax, it would have been placed under Title V of the Tax
Codecovering taxes on business.

Hopewell Power Corp vs. Commissioner of Internal Revenue,

CTA Case No.5310, November 18, 1998
Facts:
Petitioner sought for tax credit/refund of input value-added tax (VAT) paid
oncapital goods. Hopewell Power Corp. Is a domestic corporation engaged in the
businessof power generation and sale. The basis for asking for such refund is Sec
106 (b) of theTax Code as amended by RA 7716. (petitioner actually relied on Sec
106 (c) of the1994 Tax Code which was the law governing at that time; same
content anyway). Sec106 (c) of the 1994 Tax Code requires that an applicant for
refund prove that a. It is a VAT registered person b. Input taxes claimed was paid
on capital goods c. Input taxes have not been applied against output tax liability
d. Administrative claim was seasonably filed (2 yr prescriptive period) .Of its 6
claims, 4 had prescribed and 2 had been filedseasonably. Court was also
convinced that requisites (a) and (c) had been met.
Issue:
Whether or not there should be a refund or whether or not the input taxes
claimed was paid on capital goods.
RULING:

Yes, the expenditures were properly considered as capital goods. The amount
was recomputed and reduced though.Capital goods refer to goods with
estimated useful life greater than 1 year and which are treated as depreciable
assets under Sec 29(f), used directly or indirectly in the production and sale of
taxable goods or services.

Statutorily, capital expenditures are specified as amounts paid out for a

newbuilding or for permanent improvements or betterments made to increase
the value of any property or amounts expended in restoring property.Hopewell
spent for engineering and structural services for purposes of constructing power
plant facilities needed in the production of electricity which is its a chief product.
Such expenses are necessary and as such, should form part of the costof the
power plant facilities.

Donald L. Smith, petitioner vs. Commissioner of Internal Revenue

C.T.A Case no. 6268 September 12, 2002.
Facts:
This petition for review involves a claim for refund in the amount of One
MillionFive Hundred Thirty Three Thousand Six Hundred and Sixty pesos &
70/100 (1533,660.70) allegedly representing the income tax erroneously paid by
hereinpetitioner for taxable year 1998.Petitioner is a citizen of the United States
and is employed as Controller of Coastal Subic Bay Terminal, Inc. , a business
entity located within the Subic SpecialEconomic Zone as created by Republic Act
7227. On April 15, 1999, petitioner filed hisannual income tax return and paid
P1,533,660.70 in compensation income taxes for theincome he derived from his
employment. Claiming that the payment of income tax onhis compensation was
erroneous, petitioner filed a written claim for refund with the BIRon April 5, 2001.
Petitioner alleged that he is covered by Ra 7227 or otherwise knownas the Bases
Conversion and Development Act of 1992, thus he is tax exempt. Asthere was no
immediate action and the two year prescriptive period was about to
lapse,petitioner elevated his case to the CTA by way of petition for review on
April 6, 2001.
Issues:
(1) Whether or not Section 12 (c) of Republic Act No. 7227 applies to petitioner.
(2) Whether or not aliens working within the Subic Special Economic Zone are
withinPhilippine jurisdiction to be subjected from income taxes on income earned
from suchemployment;
RULING:(1)
No. RA 7227 applies only to business establishments within the SubicSpecial
Economic Zone. It only operates on the said group.Petitioner relying upon RA
7227 otherwise known as the Bases Conversion adDevelopment Act of 1992
which states that: Sec. 12.Subic Special Economic Zones.

xxx xxx xxx (c) The Provision of existing laws, rules and regulations to the
contrarynotwithstanding, no taxes, local and national, shall be imposed within
the Subic SpecialEconomic Zone shall be remitted to the National Government,
one percent (1%) eachto the local government units affected by the declaration
of the zone in proportion totheir population area, and other factors. In addition,
there is hereby established adevelopment fund of one percent (1%) of the gross
income earned by all businessesand enterprises within the Subic Special
Economic Zone to be utilized for thedevelopment of municipalities outside the
City of Olongapo and the Municipality of Subic, and other municipalities
contiguous to the base areas. In case of conflictbetween national and local laws

with respect to tax exemption privileges in the SubicSpecial Economic Zone, the
same shall be resolved in favor of the latter.
(2)
Individual aliens employed within the Subic Special Economic Zone (SSEZ)are not
exempt from the awesome power of Philippine taxation especially so that
theysourced out their earnings from within the Philippines. The secured area of
SSEZ,which is virtually delineated in metes and bounds by Proclamation No. 532,
issued by the then President Fidel Ramos on February 1, 1995, is in reality part of
the territorial jurisdiction of the Philippines. To buttress the point that SSEZ is
indeed within thePhilippine jurisdiction, Section 12 (h) of RA 7227, actually
placed the fenced-off area of SSEZ under the responsibility of the Philippine
National Government, thus, "Thedefense of the zone and the security of its
perimeters shall be the responsibility of the National Government in coordination
with the Subic Bay Metropolitan Authority. The Subic Bay Metropolitan Authority
shall provide and establish its own internal securityand fire-fighting forces."Such
being the case, all subjects over which the Philippinescan exercise dominion are
necessarily objects of taxation. As such, all subjects of taxation within its
jurisdiction are required to pay tax in exchange of the protection thatthe state
gives. Thus, the SSEZ, being within the territorial boundaries of thePhilippines,
the aliens residing therein, who enjoy the benefits and protection from thesaid
state are not exempt from contributing their share in the running of
thegovernment. They have the bounden duty to surrender part of their hardearned

COLLECTOR V. LARA
(multiplicity of situs)
FACTS:
Hugo H. Miller, an American citizen, was born in SantaCruz, California, U.S.A., in
1883. In 1905, he came to thePhilippines. From 1906 to 1917, he was connected
with thepublic school system, first as a teacher and later as a
divisionsuperintendent of schools. After his retirement, Miller acceptedan
executive position in the local branch of Ginn & Co., bookpublishers with principal
offices in New York and Boston,U.S.A., up to the outbreak of the Pacific War. Miller
lived at theManila Hotel. He never lived in any residential house in thePhilippines.
After the death of his wife in 1931, he transferredfrom the Manila Hotel to the
Army and Navy Club, where hewas staying at the outbreak of the Pacific War. On
January 17,1941, Miller executed his last will and testament in Santa
Cruz,California, in which he declared that he was "of Santa Cruz,California". On
December 7, 1941, because of the Pacific War,the office of Ginn & Co. was
closed, and Miller joined theBoard of Censors of the United States Navy. During
the war,he was taken prisoner by the Japanese forces in Leyte, and inJanuary,
1944, he was transferred to Catbalogan, Samar,where he was reported to have
been executed by said forceson March 11, 1944.Testate proceedings were
instituted before the Courtof California in Santa Cruz County, which subsequently
issuedan order and decree of settlement of final account and finaldistribution.
The Bank of America, National Trust and SavingsAssociation of San Francisco
California, co-executor named inMiller's will, filed an estate and inheritance tax
return with theCollector, covering only the shares of stock issued byPhilippine
corporations. After due investigation, the Collector assessed estate and
inheritance taxes, which was received bythe said executor. The estate of Miller
protested saidassessment. This assessment was appealed by De Lara
asAncilliary Administrator before the Board of Tax Appeals, whichappeal was later
heard and decided by the Court of TaxAppeals.In determining the "gross estate"
of a decedent, under Section 122 in relation to section 88 of our Tax Code, it is
firstnecessary to decide whether the decedent was a resident or anon-resident of
the Philippines at the time of his death. TheCollector maintains that under the
tax laws, residence anddomicile have different meanings; that tax laws on estate
andinheritance taxes only mention resident and non-resident, andno reference
whatsoever is made to domicile except in Section93 (d) of the Tax Code; that
Miller during his long stay in thePhilippines had required a "residence" in this
country, and wasa resident thereof at the time of his death, and consequently,his
intangible personal properties situated here as well as inthe United States were
subject to said taxes. The AncilliaryAdministrator, however, equally maintains
that for estate andinheritance tax purposes, the term "residence" is
synonymouswith the term domicile.
ISSUE:
W/N the estate is liable to file an estate andinheritance tax return besides those
covering shares of stocksissued by Philippine corporations.

HELD: No
. The Court agrees with the Court of Tax Appeals that at the time that The
National Internal Revenue Code waspromulgated in 1939, the prevailing
construction given by thecourts to the "residence" was synonymous with
domicile. andthat the two were used intercnangeabiy. Moreover, there isreason
to believe that the Legislature adopted the American(Federal and State) estate
and inheritance tax system (see e.g.Report to the Tax Commision of the
Philippines, Vol. II, pages122-124, cited in I Dalupan, National Internal Revenue
CodeAnnotated, p. 469-470). In the United States, for estate taxpurposes, a
resident is considered one who at the time of hisdeath had his domicile in the
United States, and in American jurisprudence, for purposes of estate and
taxation, "residence"is interpreted as synonymous with domicile, and that
The incidence of estate and succession hashistorically been determined by
domicile andsitus and not by the fact of actual residence.
(Bowring vs. Bowers)At the time of his death, Miller had his residence or
domicile in Santa Cruz, California. During his stay in the country, Miller never
acquired a house for residential purposesfor he stayed at the Manila Hotel and
later on at the Army andNavy Club. The bulk of his savings and properties were
in theUnited States. To his home in California, he had been sendingsouvenirs. In
November, 1940, Miller took out a propertyinsurance policy and indicated therein
his address as SantaCruz, California, this aside from the fact that Miller, as
already stated, executed his will in Santa Cruz, California, wherein he stated that
he was "of Santa Cruz, California".*** As to the shares of stocks issued by
Philippine corporations, an exemption was granted to the estate by virtueof
Section 122 of the Tax Code, which provides as follows:. . ."And Provided,
however, That no tax shall becollected under this Title in respect of intangible
personal property (a) if the decedent at the time of hisdeath was a resident of a
foreign country which at thetime of his death did not impose a transfer tax or
death tax of any character in respect of intangible personal property of citizens
of the Philippines notresiding in that country, or (b) if the laws of the
foreigncountry of which the decedent was resident at thetune of his death allow
a similar exemption fromtransfer taxes or death taxes of every character
inrespect of intangible personal property owned bycitizen, of the Philippine not
residing in that foreigncountry.
Affirmed, with modification.