ABS-CBN v.

COURT OF TAX APPEALS (1981)

Facts

ABS-CBN (petitioner) was engaged in the business of telecasting local as well as foreign films
acquired from foreign corporations not engaged in trade or business within the Philippines, for
which petitioner paid rentals after withholding income tax of 30% of one-half of the film rentals.

In so far as the income tax on non-resident corporations is concerned, section 24 (b) of the
National Internal Revenue Code, as amended by Republic Act No. 2343 dated June 20, 1959,
used to provide:

"(b)  Tax on foreign corporations. -- (1) Non-resident corporations. -- There shall be levied,

collected, and paid for each taxable year, in lieu of the tax imposed by the preceding
paragraph, upon the amount received by every foreign corporation not engaged in trade
or business within the Philippines, from all sources within the Philippines, xxx xxx xxx a tax
equal to thirty per centum of such amount." 

Because the term “amount” was not defined by the then tax code, it became involved in a series
of interpretations that contradicted with each other. Below is a timeline showing the circulars and
statutes involving the term “amount”.

Date Title of Circular or Pertinent Provisions & Petitioner’s Actions

Statute/Issuing Authority
April 12, General Circular No. V-334 /
1961 Commissioner of Internal
Revenue
Provision: The local distributor should
withhold 30% of one-half of the film
rentals paid to the non-resident foreign film
distributor, and pay the same to this office in
accordance with law unless the non-resident
foreign film distributor makes a prior settle-
ment of its income tax liability.

Action: petitioner dutifully withheld and

turned over to the Bureau of Internal Revenue
the amount of 30% of one-half of the film
rentals paid by it to foreign corporations not
engaged in trade or business within
the Philippines.  The last year that
petitioner withheld taxes pursuant to
the foregoing Circular was in 1968.

June 27, Republic Act No. 5431 Amended Section 24(b) of the Tax Code
1968 increasing the tax rate from 30% to 35% and
revising the tax basis from "such amount"
referring to rents, etc. to "gross income."
February 8,
1971