CASE # 8

WILLIAM C. REAGAN, ETC. vs. COMMISSIONER OF INTERNAL REVENUE

G.R. No. L-26379, December 27, 1969

William C. Reagan, petitioner, filed a case seeking the recovery of the assessed income
tax of P2,797.00 by public respondent, Court of Tax Appeals on the grounds that the sale
was made outside of Philippine territory and therefore beyond jurisdictional power to tax.

FACTS:
Petitioner William C. Reagan is an American citizen assigned to Clark Air Base,
Philippines as an employee of Bendix Badio, an aviation company that provides technical
assistance to the United States Air Force. He imported a tax-free 1960 Cadillac car valued
at $6,443.83. Petitioner then sold the automobile with the permission of the Base
Commander to Willie Johnson Jr., a Private first class of the United States Marine Corps
for $6,600.00 at Clark Air Base. The transaction resulted in Respondent Commissioner
of Internal Revenue in rendering petitioner an income tax of P2.979.00 from the fixed net
taxable income of P17,912.34. Petitioner paid sum of income tax but sought a refund of
said fee from the Court of Tax Appeals including the legal rate of interest.

ISSUE:
Whether or not the said income tax of P2,979.00 was legally collected by the respondent
for the petitioner

HELD:
Yes. The Philippines being independent and sovereign, its authority may be exercised
over its entire domain. There is no portion there of that is beyond its power. Within its
limits, its decrees are supreme, it commands paramount. Its laws govern therein, and
everyone to whom it applies must submit to its terms. That is the extent of its jurisdiction,
both territorial and personal. Necessarily, likewise, it has to be exclusive. If it were not
thus, there is a diminution of its sovereignty. Furthermore, the first and crucial error
imputed to the Court of Tax Appeals to the effect that is should have held that the Clark
Air Force Base is foreign soil or territory for purposes of income tax legislation is clearly
without support in law. There is nothing in the Military Bases Agreement that lends support
to such an assertion. It has not become foreign soil or territory. This country’s jurisdictional
rights therein, certainly not excluding the power of tax, have been preserved. Therefore,
there is nothing that stands in the way of an affirmance of the Court of Tax Appeals
decision. Denial of refund of P2,979.00 as income tax paid by petitioner is affirmed.