INCOME TAXATION

I. Income Taxation – In General;

 Definition;
o Income Tax is a tax on a person's income, emoluments, profits arising
from property, practice of profession, conduct of trade or business or on
the pertinent items of gross income specified in the Tax Code of 1997 (Tax
Code), as amended, less the deductions if any, authorized for such types
of income, by the Tax Code, as amended, or other special laws.
 Global Tax System v. Schedular Tax System;
o A schedular income tax is one in which separate taxes are imposed on
different categories of income. A global income tax is one in which a
single tax is imposed on all income, whatever its nature. “natural
person,” and refers to the tax as individual income tax or personal income
tax.

 Features of the Philippine Income Tax System;

II. Requisites for Income to be taxable;
 CREBA v. Romulo, G.R. No. 160756, March 9, 2010;
a. There must be income or gain;
b. The income or gain must be realized or received; and
c. The income or gain must not be excluded by law or treaty from taxation;
 Again, it is stressed that the CWT is creditable against the tax due from the seller of
the property at the end of the taxable year. The seller will be able to claim a tax
refund if its net income is less than the taxes withheld. Nothing is taken that is not
due so there is no confiscation of property repugnant to the constitutional guarantee
of due process. More importantly, the due process requirement applies to the power
to tax.79 The CWT does not impose new taxes nor does it increase taxes. It relates
entirely to the method and time of payment.

III. Concept of Income or Gain;

 Definition;
a. Fisher v. Trinidad, G.R. No. L-17518, October 30, 1922;
Ruling:
No. Generally speaking, stock dividends represent undistributed increase in
the capital of corporations or firms, joint stock companies, etc., etc., for a
particular period. They are used to show the increased interest or
proportional shares in the capital of each stockholder. In other words, the
inventory of the property of the corporation, etc., for particular period shows
an increase in its capital, so that the stock theretofore issued does not show
the real value of the stockholder's interest, and additional stock is issued
showing the increase in the actual capital, or property, or assets of the
corporation, etc.

In the case of Gray vs. Darlington (82 U.S., 653), said in speaking of income
that mere advance in value in no sense constitutes the "income" specified in
the revenue law as "income" of the owner for the year in which the sale of the
property was made. Such advance constitutes and can be treated merely as
an increase of capital. (In re Graham's Estate, 198 Pa., 216; Appeal of Braun,
105 Pa., 414.)
For bookkeeping purposes, when stock dividends are declared, the
corporation or company acknowledges a liability, in form, to the
stockholders, equivalent to the aggregate par value of their stock, evidenced
by a "capital stock account." If profits have been made by the corporation
during a particular period and not divided, they create additional
bookkeeping liabilities under the head of "profit and loss," "undivided
profits," "surplus account," etc., or the like. None of these, however, gives to
the stockholders as a body, much less to any one of them, either a claim
against the going concern or corporation, for any particular sum of money, or
a right to any particular portion of the asset, or any shares sells or until the
directors conclude that dividends shall be made a part of the company's
assets segregated from the common fund for that purpose. The dividend
normally is payable in money and when so paid, then only does the
stockholder realize a profit or gain, which becomes his separate property,
and thus derive an income from the capital that he has invested. Until that, is
done the increased assets belong to the corporation and not to the individual
stockholders.

When a corporation or company issues "stock dividends" it shows that the

company's accumulated profits have been capitalized, instead of distributed
to the stockholders or retained as surplus available for distribution, in money
or in kind, should opportunity offer. Far from being a realization of profits of
the stockholder, it tends rather to postpone said realization, in that the fund
represented by the new stock has been transferred from surplus to assets, and
no longer is available for actual distribution. The essential and controlling
fact is that the stockholder has received nothing out of the company's assets
for his separate use and benefit; on the contrary, every dollar of his original
investment, together with whatever accretions and accumulations resulting
from employment of his money and that of the other stockholders in the
business of the company, still remains the property of the company, and
subject to business risks which may result in wiping out of the entire
investment. Having regard to the very truth of the matter, to substance and
not to form, the stockholder by virtue of the stock dividend has in fact
received nothing that answers the definition of an "income." (Eisner vs.
Macomber, 252 U.S., 189, 209, 211.)

The stockholder who receives a stock dividend has received nothing but a
representation of his increased interest in the capital of the corporation. There
has been no separation or segregation of his interest. All the property or
capital of the corporation still belongs to the corporation. There has been no
separation of the interest of the stockholder from the general capital of the
corporation. The stockholder, by virtue of the stock dividend, has no separate
or individual control over the interest represented thereby, further than he
had before the stock dividend was issued. He cannot use it for the reason that
it is still the property of the corporation and not the property of the
individual holder of stock dividend. A certificate of stock represented by the
stock dividend is simply a statement of his proportional interest or
participation in the capital of the corporation. For bookkeeping purposes, a
corporation, by issuing stock dividend, acknowledges a liability in form to
the stockholders, evidenced by a capital stock account. The receipt of a stock
dividend in no way increases the money received of a stockholder nor his
cash account at the close of the year. It simply shows that there has been an
increase in the amount of the capital of the corporation during the particular
period, which may be due to an increased business or to a natural increase of
the value of the capital due to business, economic, or other reasons. We
believe that the Legislature, when it provided for an "income tax," intended
to tax only the "income" of corporations, firms or individuals, as that term is
 generally used in its common acceptation; that is that the income means
money received, coming to a person or corporation for services, interest, or
profit from investments. We do not believe that the Legislature intended that
a mere increase in the value of the capital or assets of a corporation, firm, or
individuaal, should be taxed as "income." Such property can be reached
under the ordinary from of taxation.

The question whether stock dividends are income, or capital, or assets has
frequently come before the coaurts in another form — in cases of inheritance.
A is a stockholder in a large corporation. He dies leaving a will by the terms
of which he give to B during his lifetime the "income" from said stock, with a
further provision that C shall, at B's death, become the owner of his share in
the corporation. During B's life the corporation issues a stock dividend. Does
the stock dividend belong to B as an income, or does it finally belong to C as
a part of his share in the capital or assets of the corporation, which had been
left to him as a remainder by A? While there has been some difference of
opinion on that question, we believe that a great weight of authorities hold
that the stock dividend is capital or assets belonging to C and not an income
belonging to B. In the case of D'Ooge vs. Leeds (176 Mass., 558, 560) it was
held that stock dividends in such cases were regarded as capital and not as
income (Gibbons vs. Mahon, 136 U.S., 549.)

b. Conwi v. Court of Tax Appeals, G.R. No. 48532, August 31, 1992;

Facts: Petitioners are Filipino citizens and employees of Procter and Gamble,
Philippine Manufacturing Corporation, with offices at Sarmiento Building,
Ayala Avenue, Makati, Rizal. Said corporation is a subsidiary of Procter &
Gamble, a foreign corporation based in Cincinnati, Ohio, U.S.A. During the
years 1970 and 1971 petitioners were assigned, for certain periods, to other
subsidiaries of Procter & Gamble, outside of the Philippines, during which
petitioners were paid U.S. dollars as compensation for services in their
foreign assignments.

They filed their income tax returns for the year 1970-1971 using the dollar to
peso conversion prescribeduling No. 70-027.

However, on February 8, 1973 and October 8, 1973, petitioners in said cases

filed with the office of the respondent Commissioner, amended income tax
returns for the above-mentioned years, this time using the par value of the
peso as prescribed in Section 48 of Republic Act No. 265 in relation to Section
6 of Commonwealth Act No. 265 in relation to Section 6 of Commonwealth
Act No. 699 as the basis for converting their respective dollar income into
Philippine pesos for purposes of computing and paying the corresponding
income tax due from them. The aforesaid computation as shown in the
amended income tax returns resulted in the alleged overpayments, refund
 and/or tax credit. Accordingly, claims for refund of said over-payments were
filed with respondent Commissioner.

The said petition was denied. Hence, the case.

Issue: What exchange rate should be used to determine the peso equivalent of
the foreign earnings of petitioners for income tax purposes?

Ruling:

The dollar earnings of petitioners are the fruits of their labors in the foreign
subsidiaries of Procter & Gamble. It was a definite amount of money which
came to them within a specified period of time of two yeas as payment for
their services.

Pursuant to this authority, Revenue Memorandum Circular Nos. 7-71 10 and

41-71 11 were issued to prescribed a uniform rate of exchange from US
dollars to Philippine pesos for INTERNAL REVENUE TAX PURPOSES for
the years 1970 and 1971, respectively. Said revenue circulars were a valid
exercise of the authority given to the Secretary of Finance by the Legislature
which enacted the Internal Revenue Code. And these are presumed to be a
valid interpretation of said code until revoked by the Secretary of Finance
himself.

Petitioners argue that since there were no remittances and acceptances of

their salaries and wages in US dollars into the Philippines, they are exempt
from the coverage of such circulars. Petitioners forget that they are citizens of
the Philippines, and their income, within or without, and in these cases
wholly without, are subject to income tax. Sec. 21, NIRC, as amended, does
not brook any exemption.

c. CIR (CIR) v. Manning, G.R. No. L-28398, August 6, 1975;

Held (2): Yes. The Court held that the declaration by the respondents and
Reese’s trustees of MANTRASCO’s alleged treasury stock dividends in favor
of the former, brings, however, into clear focus the ultimate purpose which
the parties to the trust instrument aimed to realize: to make the respondents
the sole owners of Reese’s interest in MANTRASCO by utilizing the periodic
earnings of that company and its subsidiaries to directly subsidize their
purchase of the said interests, and by making it appear outwardly, through
the formal declaration of non-existent stock dividends in the treasury, that
they have not received any income from those firms when, in fact, by that
declaration they secured to themselves the means to turn around as full
owners of Reese’s shares. In other words, the respondents, using the trust
instrument as a convenient technical device, bestowed unto themselves the
full worth and value of Reese’s corporate holdings with the use of the very
earnings of the companies. Such package device, obviously not designed to
carry out the usual stock dividend purpose of corporate expansion
reinvestment, e.g. the acquisition of additional facilities and other capital
budget items, but exclusively for expanding the capital base of the
respondents in MANTRASCO, cannot be allowed to deflect the respondents’
responsibilities toward our income tax laws. The conclusion is thus
ineluctable that whenever the companies involved herein parted with a
 portion of their earnings "to buy" the corporate holdings of Reese, they were
in ultimate effect and result making a distribution of such earnings to the
respondents. All these amounts are consequently subject to income tax as
being, in truth and in fact, a flow of cash benefits to the respondents.

Thus, the action taken by the Commissioner in all other respects — that is,
the assessment of a fraud penalty and imposition of interest charges pursuant
to the provisions of the Tax Code — to be in accordance with law.

ACCORDINGLY, the judgment of the Court of Tax Appeals absolving the

respondents from any deficiency income tax liability is set aside, and this
case is hereby remanded to the Court of Tax Appeals for further proceedings.
More specifically, the Court of Tax Appeals shall recompute the income tax
liabilities of the respondents in accordance with this decision and with the
Tax Code, and thereafter pronounce and enter judgment accordingly.

d. CIR v. Court of Appeals, G.R. No. 108576, January 20, 1999;

 e. CIR v. Spouses Magaan, G.R. No. 232663, May 3, 2021;

 Comparison and difference between income and capital;

a. Madrigal v. Rafferty, G.R. No. L-12287, August 7, 1918;
FACTS:
• Vicente Madrigal and Susana Paterno were legally married prior to Januray
1, 1914. The marriage was contracted under the provisions of law concerning
conjugal partnership
• On 1915, Madrigal filed a declaration of his net income for year 1914, the
sum of P296,302.73
• Vicente Madrigal was contending that the said declared income does not
represent his income for the year 1914 as it was the income of his conjugal
partnership with Paterno. He said that in computing for his additional
income tax, the amount declared should be divided by 2.
• The revenue officer was not satisfied with Madrigal’s explanation and
ultimately, the United States Commissioner of Internal Revenue decided
against the claim of Madrigal.
• Madrigal paid under protest, and the couple decided to recover the sum of
P3,786.08 alleged to have been wrongfully and illegally assessed and
collected by the CIR.

ISSUE: Whether or not the income reported by Madrigal on 1915 should be

divided into 2 in computing for the additional income tax.

HELD:
• No! The point of view of the CIR is that the Income Tax Law, as the name
implies, taxes upon income and not upon capital and property.
• The essential difference between capital and income is that capital is a fund;
income is a flow. A fund of property existing at an instant of tiae is called
capital. A flow of services rendered by that capital by the payment of money
from it or any other benefit rendered by a fund of capital in relation to such
fund through a period of time is called income. Capital is wealth, while
income is the service of wealth.
• As Paterno has no estate and income, actually and legally vested in her and
entirely distinct from her husband’s property, the income cannot properly be
considered the separate income of the wife for the purposes of the additional
tax.
• To recapitulate, Vicente wants to half his declared income in computing for
his tax since he is arguing that he has a conjugal partnership with his wife.
However, the court ruled that the one that should be taxed is the income
which is the flow of the capital, thus it should not be divided into 2.

We conclude that the judgment should be as it is hereby AFFIRMED with

costs against appellants. So ordered.
 b. Delos Santos v. CIR, G.R. No. 222548, June 22, 2022
Facts:
Delos Santos is a resident of Classica Tower in Makati City since 2013 and
pays condo association dues to Classica Tower Condo Assoc. On October 31,
2012, CIR Henares of BIR issued RMC No. 65-2012 imposing VAT on condo
owner’s association dues.

On November 2015, Classica informed its unit owners that it will no longer
shoulder the VAT on association dues starting January 3, 2016. On 21 January
2016, Delos Santos paid his assoc fees plus VAT and subsequently filed a
petition challenging the constitutionality of the circular.

He argued that the Circular violates substantive due process because there is
no legal or judicial basis for its issuance. He further contends that section 105
of NIRC does not apply to condo owners’ or tenant’s payment of assoc dues.
In paying their assoc dues, they do not buy, transfer, or lease any good,
property of services from the condo corporation. The condo corporation does
not acquire ownership over the said dues but only holds the same in a
fiduciary capacity for payment of periodic maintenance costs of the project.

Issue: Whether assoc dues, membership fees, and other assessments and
charges collected by HOA and codo copos are VAT exempt.

Ruling.
Yes. The Court held that assoc dues, membership fees, and other assessments
and charges collected by HOA and codo copos are VAT exempt. It further
held that CIR gravely abused its authority in issuing the Circular and in
doing so, the circular did not merely interpret of clarify, but changed
altogether the long-standing rules of the BIR. It also reiterated its decision in
the case of Yamane vs. BA Lepanto that a condominium corporation is not
engaged in trade or business. association dues are not intended for profit, but
for the maintenance of the condo project. The collection of such fees is purely
for the benefit of the condo owners.

c. Association of Non-Profit Clubs, Inc. v. Bureau of Internal Revenue, G.R. No.

228539, June 26, 2019;
d. BIR v. First E-Bank Tower Condominium Corporation, G.R. No. 215801, January
15, 2020;
e. CIR v. Tours Specialists, Inc., G.R. No. L-66416, March 21, 1990;
f. Fernandez Hermanos, Inc. v. CIR, G.R. No. L-21551, September 30, 1969;

 Tests in Determining Income for Philippine Tax Purposes;

a. Realization Test
 a. Realization/Severance Test – There is no taxable income until there is
a separation from capital of something of exchangeable value, thereby
supplying the realization or transmutation which would result in the
receipt of income.
- Eisner v. Macomber, 252 U.S. 189;
b. Command or Control of Income Test;
- Helvering v. Horst, 311 U.S. 112;
c. Claim of Right Test;
- CIR v. Javier, G.R. No. 714479, July 31, 1991;
d. “Income from whatever source”
- CIR v. British Overseas Airways Corporation, G.R. No. L-65773, April 30,
1987;
e. Equivalent of Cash and Economic Benefit Test;
a. Economic Benefit Test – Any economic benefit to the employee that
increases his net worth, whatever may have been the mode by which
it is effect, is taxable.
- Commissioner v. Smith, 324 US 177;

IV. Concept of Realization and Receipt of Income;

 Receipt of Income;
a. Limpan Investment Corp. v. CIR, G.R. No. L-21570, July 26, 1966;
b. CIR v. BPI, G.R. No. 147375, June 26, 2006;

 Realization of Income; All Events Test;

a. CIR v. Isabela Cultural Corporation, G.R. No. 172231, February 12, 2007;
b. ING Bank N.V. v. CIR, G.R. No. 167679, July 22, 2015;

V. Some of the Income Exempted or Excluded by the NIRC, as amended;

a. Section 22(B)
b. Section 23;
c. Section 24(A)(2)(a);
d. Section 24(D)(2);
e. Section 26;
f. Section 27(A) and (E)
g. Section 27(C)
h. Section 27(D)(3) and (4);
i. Section 28(A)(1) and (6)(a) and (6)(d);
j. Section 28 (1); and (2);
k. Section 30;
l. Section 32(B);
m. Section 33(C);
n. Section 40(C)(2);
o. Section 73(B);

VI. Income Taxation – Individuals

  Sections 23, 24(A)(1), 25(A), and 25(B), NIRC, as amended;
 Criteria in Imposition of Income Tax on Individuals;
a. Citizenship
- Section 1, Article IV, Constitution;
b. Residence
- See Section 22(E) and (F), NIRC, as amended;
c. Source – Section 42(A) and (C), NIRC, as amended;
1. Interest;
- National Development Company v. CIR, G.R. No. L-53691, June 30,
1987;
2. Dividends;
3. Services;
- CIR v. Baier-Nickel, G.R. No. 153793, August 29, 2006;
4. Rentals or Royalties;
5. Sale of Real Property;
6. Sale of Personal Property – relate to Section 42(E), NIRC, as amended;
- Personal property was produced within the Philippines and sold
outside the Philippines; or produced outside the Philippines and
sold within the Philippines;
- Personal property purchased within or outside the Philippines;
subsequent sale thereof within or outside the Philippines;
7. Others;
- CIR v. British Overseas Airways Corporation, G.R. No. L-65773, April
30, 1987;
d. Length of Stay (for Non-Resident Aliens) (Section 25(A) and (B) of the
NIRC, as amended);

VII. Income which an individual taxpayer may be liable:

a. Compensation Income (Section 24(A)(2)(a) and (c), in relation to Sections 32(A)

(1) and 31, NIRC, as amended);
b. Trade, Business, Professional Income (Section 24(A)(2)(b) and (c), in relation to
Sections 32(A)(2), 34 and 31, NIRC, as amended); and
c. Passive Income subject to Final Withholding Tax (FWT) (Section 24(B), 24(C),
24(D), 25(A)(2), and 25(B), NIRC, as amended); and
d. Other income - Section 24(A)(2)(a), in relation to Sections 32(A), 42, 34 and 31,
NIRC, as amended

VIII. Income Taxation on Compensation Income:

a. Compensation Income – Definition;
1. COURAGE v. BIR, G.R. No. 213446, July 3, 2018;
b. Who is an employer? (Section 78(D), NIRC, as amended);
c. Who is an employee? (Section 78(C), NIRC, as amended);
d. Types of Employee (Article 212(m), Labor Code); Importance of
Classification;
1. Managerial;
2. Supervisory;
3. Rank –and-file;

e. Composition of Compensation Income (Section 78(A), NIRC):

1. Compensation income
2. Fringe Benefit of Rank-and-File Employee;

Tax on Compensation Income

1. For Minimum Wage Earner (MWE) (Section 24(A)(2)(a), NIRC)
2. For Rank-and-File Employee other than MWE (Section 24(A)(1)(a) in
relation to Sections 33(C) and 32(B)(7)(e), NIRC, as amended)
3. For Managerial and Supervisory Employee (Section 24(A)(1)(a) in relation
to Section 32(B)(7)(e), and 31, NIRC, as amended);

Fringe Benefit Tax (FBT)

1. Fringe Benefit – Definition (Section 33(B), NIRC, as amended);

2. Taxation of Fringe Benefit of Rank-and-File Employee (Section 24(A)(1)(a)
in relation to Sections 33(C) and 32(B)(7)(e), NIRC, as amended);
3. Taxation of Fringe Benefit of Managerial and Supervisory Employee:
- FBT for Individuals other than non-resident alien not engaged in trade or
business in the Philippines (NRANETB) = Value of FB divide by 65%
multiplied by FBT rate of 35%;
- FBT for NRANETB = Value of FB divide by 75% multiplied by tax rate of
25%
- Exceptions to FBT:
- Section 33(A), NIRC, as amended;
* CIR v. Henderson, G.R. No. L-12954, February 28, 1961;
* CIR v. PAGCOR, G.R. No. 177387, November 9, 2016;
- Section 33 (C), NIRC, as amended;

f. Items excluded from imposition of income tax on compensation income

earners:
1. Section 32(B)(7)(e), NIRC, as amended;
2. Section 32(B)(7)(f), NIRC, as amended;
3. Section 24(A)(2)(a), NIRC, as amended;
4. Section 33(C)(4), NIRC, as amended;
5. Section 24(A), NIRC, as amended;

h. Tax Treatment on sums received by an employee on account of retirement or

cessation from employment:
 1. Retirement Benefit and reasonable benefit received from private
benefit plan (Section 32(B)(6)(a), NIRC, as amended);
2. Amounts received on account of separation from employment (Section
32(B)(6)(b), NIRC, as amended);
- CIR v. CA, G.R. No. 96016, October 17, 1991;
3. Benefits originating from SSS and/or GSIS (Section 32(B)(6)(e) and (f),
NIRC, as amended);
4. Benefits, pensions, gratuities emanating from foreign governments
(Section 32(B)(6)(d), NIRC, as amended);
5. Pensions, annuities, gratuities – others (Section 32(A), (A)(8), and (A)
(10), in relation to Section 31, NIRC, as amended)

IX. Income Taxation on Individuals – Trade/Business/Professional Income/Mixed

Income:

1. Purely self-employed or professional income earners

a. If gross annual sales and/or receipts exceeds P3,000,000.00 (Section 24(A)(2)(a)
in relation to Sections 109(CC) and 105, NIRC, as amended)
b. If gross annual sales and/or receipts does not exceed P3,000,000.00 (Section
24(A)(2)(b) in relation to Sections 24(A)(2)(a), 109(CC), 116, 109(E) and 105 of the
NIRC, as amended);

2.Mixed income earners

a. If gross annual sales and/or receipts exceeds P3,000,000.00 (Section 24(A)(2)(a)
in relation to Sections 109(CC) and 105, NIRC, as amended)
b. If gross annual sales and/or receipts does not exceed P3,000,000.00 (Section
24(A)(2)(c) in relation to Sections 24(A)(2)(a), 109(CC), 116, 109(E) and 105 of the
NIRC, as amended)

X. Income Taxation – Individuals (Partners in a General Professional Partnership)

1. General Professional Partnership (GPP) – Definition (Section 22(B), NIRC, as
amended);
2. Concept of GPP (Section 26, NIRC, as amended)
* See Tan v. Del Rosario, Jr., G.R. No. 109289, October 3, 1994;
3. How are partners in the GPP taxed? (Section 26, in relation Section 32(A)(11)
and 31, NIRC, as amended);

XI. Income Taxation on Individuals – PASSIVE income

1.1 Interest Income /Monetary Benefit (Section 24(B)(1) and 25(A)(2), NIRC, as
amended by RA No. 11534);
a. Scope: Philippine Peso Bank Deposits/Foreign Currency Bank Deposits/
Deposit Substitutes (Section 22(Y), NIRC)/Trust Funds
b. Requirement
c. Tax Rates
d. Tax Treatment of Interest Income on Long-Term Bank Deposit

1.2 Interest Income – Others (Section 32(A)(4) in relation to Sections 31 and 24(A)
(1), NIRC, as amended)

2.1 Royalty income (Section 24(B)(1) and 25(A)(2), NIRC, as amended by RA No.
11534)
a. Requirement;
b. Tax Rates; Preferential Tax Rates

2.2. Royalty Income – Others (Section 32(A)(5) in relation to Sections 31 and

24(A)(1), NIRC, as amended)

3.1. Income on Prizes - (Section 24(B)(1) and 25(A)(2), NIRC, as amended by RA

No. 11534)
a. If amount exceeds P10,000.00
b. if amount does not exceed P10,000.00
c. Requirement;
d. Tax Rates

3.2. Income on Prizes – Others (Section 32(A)(9) in relation to Sections 31 and

24(A)(1), NIRC, as amended

3.3. Prizes and Awards not subject to income tax (Section 32(B)(7)(c) and (d),
NIRC, as amended);

4.1. Income on Winnings – (Sections 24(B)(1), NIRC, and 25(A)(2), NIRC, as

amended by RA No. 11534)
a. If winnings from PCSO or Lotto do not exceed P10,000.00;
b. Requirement;
c. Tax Rate;

4.2. Income on Winnings – Others (Section 32(A)(9) in relation to Sections 31 and

24(A)(1), NIRC, as amended

5. Dividend Income
5.1. Dividend – Definition (Section 73(A), NIRC, as amended)
5.2. Dividends and income deemed as dividends subject to Final Tax (Section
24(B)(2) and 25(A)(2) in relation to Section 73(D), NIRC, as amended);
*Who is the declarant of such dividends?
*Who are the recipients of such dividends?
*Tax Rate
5.3. Tax Treatment on Stock Dividends; exception (Section 73(B), NIRC, as
amended)
* PLDT v. NTC, G.R. No. 152685, December 4, 2007;
 * Fisher v. Trinidad, G.R. No. L-17518, October 30, 1922;
* CIR v. CA, G.R. No. 108576, January 20, 1999;
* CIR v. Manning, G.R. No. L-28398, August 6, 1975;
5.4. Tax Treatment on Liquidating Dividend (Section 73(A), NIRC, as amended);
5.5. Tax Treatment on a Disguised Dividend

6. Tax Treatment of Certain Properties falling under Section 24(C) and (D),
NIRC, as amended – Discussion will be on a separate topic.

XII. Income Taxation – Individuals (Other Income not specifically exempted or

excluded by law from income taxation)
1. Sections 24(A)(1) and (2), 25(A), 25(B) in relation to Section 32(A) and 31 of the
NIRC, as amended;
* CIR v. BOAC, G.R. No. L- 65773-74, April 30, 1987;

XIII. Income Taxation – Income of Estate and Trust (Section 60-64, NIRC, as amended)

Estate Status Entitlement Liability for Income Taxes

to Special
Deduction
Under Judicial Status of Individual Yes Estate itself
Settlement prior to his/her
death
NOT under Judicial 1. Without infusion No 1. As Co-Ownership – Heirs are
Settlement of capital, labor, or liable for income in proportion to
both on property their respective shares.
inherited – Co-
Ownership (Article
484, CC);

2. With infusion of 2. As Unregistered partnership –

capital, labor, or the Partnership itself is treated as
both on property a corporation, hence liable for
inherited with intent corporate income tax; and
to derive profit distribution of income after tax
unregistered to the partners thereof
partnership (Section constitutes a taxable dividend
22(B), NIRC) subject to final tax
Trust
Irrevocable Trust Status of Trustor Yes Trust itself
Revocable Trust No Trustor

1. Deductions available only to Estate under Judicial Settlement and Irrevocable

Trust in addition to those specified under Section 34, NIRC, as amended
(Sections 61-62, NIRC, as amended);
2. Tax Treatment of income of Employee’s Trust exempted by law from income
tax (Section 60(B), NIRC, as amended); requisites; rationale
* CIR v. CA, GCL Retirement Plan, G.R. No. 95022, March 23, 1992;
* Tax Treatment on the amounts received by the employee-beneficiary
disbursed by Employee’s Trust;
General Rule: Section 32(A)(8) and (10), and 32(A), first sentence, in
relation Section 31, NIRC, as amended;
Exception: If qualified for Section 32(B)(6)(a), NIRC, as amended