National Development Company v CIR (1987)

FACTS:

The National Development Company NDC entered into contract in Tokyo with several
Japanese shipbuilding companies for the construction of its 12 ocean-going vessels. The
purchase price was to come from the proceeds of bonds issued by the Central Bank. Initial
payments were made in cash and through irrevocable letter of credit. Fourteen (14)
promissory notes were signed for the balance by the NDC guaranteed by Republic of the
Philippines.

Pursuant thereto, the remaining payments and the interest thereon were remitted in due time
by the NDC to Tokyo. The NDC remitted to the ship builders in Tokyo the total amount of
US$4,066,580 as interest on the balance of the purchase price. No tax was withheld.

The Commissioner then held the NDC liable on such tax in the total sum of
PhP5,115,234.74. The BIR thereupon served on the NDC a warrant of distraint and levy to
enforce collection of the claimed amount.

Petitioner argues that the Japanese ship builders were not subject to tax under the sec. 37
of the Tax Code because all the related activities- the signing of the contract, the
construction of the vessels, the payment of the stipulated price, and their delivery to the
NDC - were done in Tokyo.

ISSUE:
WON the Tokyo shipbuilders are subject to tax.

HELD:

YES. The law specifies: interest derived from sources within the Philippines, and interest on
bonds, notes, or other interest-bearing obligation of resident, corporate or otherwise. Nothing
there speak of the 'acts or activity' of non-residential corporation in the Philippines, or
place where the contract is signed.

The residence of the obligor who pays the interest rather than the physical location of the
securities, bonds or notes or the place of payment, is the determining factor of the source of
interest income. Accordingly, if the obligor is a resident of the Philippines the interest
payment paid by him can have no other source than within the Philippines. The interest is
paid not by the bond note or other interest-bearing obligations, but by the obligor.
Republic v. Gonzales13 SCRA 633G.R. NO. L-17962 April 30, 1965
Facts: Defendant-appellant, Blas Gonzales is a private concessionaire in the US military
Base at Clark Field, Angeles City, who is engaged in the manufacture of furniture and,
per agreement with base authorities, supplied them with his manufactured articles.

The BIR discovered that for the years 1946-47, appellant have undeclared income for
the two years causing deficiency in its tax dues. Despite the demand of the BIR to pay its tax
due, appellant failed to do so. In defense, appellant claim that as a concessionaire in an
American Air Base, he is not subject to Philippine Tax laws pursuant to the US-Phil.
Military Bases Agreement.

Issue: WON appellant is exempt from taxes?

Ruling: No. A Filipino concessionaire in an American Air Base is subject to Philippine

Income Tax laws under the US-Phil Military Bases Agreement. Non in the provisions of the
agreement shields a concessionaire, like the appellant, from the payment of the income tax.
For one thing, even the exemption in favor of members of the US armed forces and
nationals of the US does not include income derived from Philippine sources.