QUESTION

1. What is “gross income” for purposes of the income tax?

2. How does “income” differ from “capital?” Explain.
3. Mr. Francisco borrowed P10,000.00 from his friend, Mr. Gutierrez, payable in one year
without interest. When the loan become due, Mr. Francisco told Mr. Gutierrez that he (Mr.
Francisco) was unable to pay because of business reverses. Mr. Gutierrez took pity on Mr.
Francisco and condoned the loan. Mr. Francisco was solvent at the time he borrowed the
P10,000.00 and at the time the loan was condoned. Did Mr. Francisco derive any income from
the cancellation or condonation of his indebtedness? Explain.
4. Bates Advertising Company is a non-resident corporation duly organized and existing under
the laws of Singapore. It is not doing business and has no office in the Philippines. Pilipinas
Garment, Inc., a domestic corporation, retained the services of Bates to do all the advertising of
its products abroad. For said services, Bates’ fees are paid through outward remittances. Are
the fees received by Bates subject to any withholding tax?
5. Caledonia Aircargo is an off-line international carrier without any flight operations in the
Philippines. It has, however, a liaison office in the Philippines which is duly licensed with the
Securities and Exchange Commission, established for the purposes of providing passenger and
flight information, reservation and ticketing services. Is the revenue of Caledonia Aircargo from
tickets reserved by its Philippine office subject to tax?
6. An international airline with no landing rights in the Philippines sold tickets in the Philippines
for air transportation. Is the income derived from such sales of tickets considered taxable
income of the said international air carrier from Philippine sources under the Tax Code? Explain.
7. Pacific, Inc. is engaged in overseas shipping. It time chartered one of its ships to a Japanese
company on a five-year term. The charter was consummated through the efforts of Kamimo
Moto, a Tokyo based broker. The negotiation took place in Tokyo. Your opinion is sought
whether Pacific, Inc. should withhold the tax before sending the compensation of Kamino Moto.
8. Mr. Jose Castillo is a resident Filipino citizen. He purchased a parcel of land in Makati City in
1970 at a consideration of P1 million. In 2011, the land, which remained underdeveloped and
idle, had a fair market value of P20 million. Mr. Antonio Ayala, another Filipino citizen, is very
much interested in the property and he offered to buy the same for P20 million. (A) Is Mr.
Castillo liable for income tax in 2011 based on the offer to buy by Mr. Ayala? (b) Should Mr.
Castillo agree to sell the land in 2012 for P20 million, subject to the condition as stated in the
Deed of Sale that the buyer shall assume the capital gains tax thereon, how much is the income
tax due on the transaction and when must the tax return be filed and the tax be paid by the
taxpayer?
9. The University of Bigaa, a non-stock, non-profit entity, operates a canteen for its students and
a bookstore inside the campus. It also operates two dormitories for its students, one of which is
in the campus. Is the University liable to pay income taxes for the operation of the:
a. Canteen?
b. Bookstore?
c. Two dormitories?
10. Mr. Domingo owns a vacant parcel of land. He leases the land to Mr. Enriquez for ten years
at a rental of P12,000.00 per year. The condition is that Mr. Enriquez will erect a building on the
land which will become the property of Mr. Domingo at the end of the lease without
compensation or reimbursement whatsoever for the value of the building. Mr. Enriquez erects
the building. Upon completion, the building had a fair market value of P1 million. At the end of
the lease, the building is worth only P900,000.00 due to depreciation. Will Mr. Domingo have
income when the lease expired and becomes the owner of the building with a fair market value
of P900,000.00? How much income must he report on the building? Explain.