#32

African Airways v. CIR

G.R. No. 180356 February 16, 2010
VELASCO, JR., J.

Lessons Applicable: Taxes can be offset if intimately related, unless exempted assumed within the
purview of general rule, liabilities and tax credit must first be determined before offset can take
place

Laws Applicable:

Facts:
South African Airways, a foreign corporation with no license to do business in the Philippines, sells
passage documents for off-line flights through Aerotel Limited, general sales agent in the
Philippines
Feb 5, 2003: Petitioner filed a claim for refund erroneously paid tax on Gross Philippine Billing
(GPB) for the year 2010.
CTA: denied - petitioner is a resident foreign corp. engaged in trade or business in the Philippines
and therefore is NOT liable to pay tax on GPB under the Sec. 28 (A) (3) (a) of the 1997 NIRC but
cannot be allowed refund because liable for the 32% income tax from its sales of passage
documents.
This is upheld by the CTA and CTA En Banc
Issue:
1. W/N petitioner is engaged in trade or business in the Philippines is subject to 32% income tax.
2. W/N petitioner is entitled to refund

HELD: CTA En Banc decision is set side

1. Yes. Since it does not maintain flights to or from the Philippines, it is not taxable under Sec.
28(A)(3)(a) of the 1997 NIRC. This much was also found by the CTA. But petitioner further posits
the view that due to the non-applicability of Sec. 28(A)(3)(a) to it, it is precluded from paying any
other income tax for its sale of passage documents in the Philippines. But, Sec. 28 (A)(1) of the
1997 NIRC does not exempt all international air carriers from the coverage of Sec. 28 (A) (1) of the
1997 NIRC being a general rule. 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.

2. Underterminable. Although offsetting of tax refund with tax deficiency is unavailing under Art.
1279 of the Civil Code, in CIR v. CTA it granted when deficiency assessment is intimately related
and inextricably intertwined with the right to claim for a tax refund. Sec. 72 Chapter XI of 1997
NIRC is not applicable where petitioner's tax refund claim assumes that the tax return that it filed
were correct because petitioner is liable under Sec. 28 (A)(1), the correctness is now put in doubt
and refund cannot be granted. It cannot be assumed that the liabilities for two different
provisions would be the same. There is a necessity for the CTA to receive evidence and establish
the correct amount before a refund can be granted.32