The Commissioner of Internal Revenue

versus Phoenix Assurance Co., LTD.

G.R. No. L-19727, May 20, 1965
En Banc, Bengzon-J.P, J.

Facts: Phoenix Assurance Co., Ltd. (Phoenix) foreign insurance corporation

organized under the laws of Great Britain whose office is at London, but has
agreed to cede a portion of premiums received on original insurances
thought-out the world, some to the Philippines. The amounts were ceded for
years 1952, 1953 and 1954 to which got corresponding assessment for
withholding tax. Phoenix filed for tax deductions for its reinsurance premiums
ceded to foreign insurers. On April 29, 1958 Phoenix received an assessment
from the Bureau of Internal Revenue (BIR) for the return it filed for yr 1954 finding
a deficiency tax of 2,874Php. This was protested by Phoenix to the
Commissioner of Internal Revenue (CIR) who denied the same. The Court of
Tax Appeals, favored Phoenix, the CIR thus appealed to the Supreme Court.

Issue(s): (1) Whether the reinsurance contracts of Phoenix executed abroad

are subject to withholding tax; (2) Whether the period for assessment had
prescribed (3) Whether the deduction claim should be based on the net
income; (4) Whether the deduction claim of Phoenix was excessive.

Decision: CA Decision Modified. By issue; 1. Yes, as held in British Traders

Insurance v. CIR. 2. The CIR argues the 5 year prescriptive period in the Tax
code should run from when the amended return was filed, instead the filing of
the original return. The Court rules that it should be counted from the filing of
the amended return due to the substantial difference it had with the original
return. Here, the amended return was filed August 30, 1955, and the deficiency
assessment was issued July 24, 1958 hence, it has not prescribed. 3. The CIR
treated the reduction of 40% of the marine insurance premiums received in the
subject year as excessive, and reduced said deduction. Section 32 of the Tax
Code provides that net additions required by law to be paid within the year to
reserve funds and the sums other than dividends to be paid within the year on
policy annuity contracts may be deducted from the gross income, provided
that the released reserve is treated as income for the year of release. Under
the Insurance Law, in section 186 provide two bases to determine the reserve
required: 50% of premiums under policies on yearly risks, and 100% of premiums
under policies of marine risks not terminated during the year. Such reserve is
allowed full deduction from gross income. Here, being less than the amount
required to be deducted, the deduction claim of Phoenix thus cannot be
treated excessive. 4. The issue on the 5% deduction claim for head office
expenses incurred during 1952, 1953 and 1954 by Phoenix computed from the
gross income, while the CIR argues it should be based on Phoenix’ net income,
disallowing the latter’s claim. Here, Phoenix’ consists of income from its PH
businesses as well as reinsurance premiums received for its head office in
London, hence not taxable. The Court thus sustain that the deduction must be
based on the net income.

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