1) CIR vs. Juliane Baier- Nickel Gr. No.

153793 August 29, 2006

Facts:

Respondent Juliane Baier- Nickel, a non-resident German citizen is the President of the
JUBANITEX, Inc., a domestic corporation engaged in manufacturing, marketing on
wholesale only, buying or otherwise acquiring, holding, importing and exporting, selling
and disposing embroidered textile products. It was agreed that respondent will receive
10% sales commission on sales actually concluded and collected through her efforts. In
1995, respondent received the amount of P1,707,772.64, representing her sales
commission income from which JUBANITEX withheld the corresponding 10%
withholding tax amounting to P170,777.26 and remitted the same to BIR. On April 14,
1998 respondent filed a claim to refund the amount of P170,777.26 alleged to have
been mistakenly withheld and remitted by JUBANITEX to the BIR.

Issue: Whether or not respondent Juliane Baier- Nickel is entitled for tax refund

Ruling:

Settled is the rule that tax refunds are in the nature of tax exemptions and are to be
construed strictissimi juris against the taxpayer. He who claims for refund rest the
burden of proving that the transaction subjected to tax is actually exempt from taxation.

To determine the source of income in personal services is not on the residence of the
payor or the place where the contract of service is entered into or the place of payment,
but the place where the services were actually rendered

Respondent presented evidence to prove that she performed income producing

activities abroad were copies of documents she allegedly faxed to JUBANITEX and
bearing instructions as to the size of or designs and fabrics to be used in the finished
products as well as samples of sales orders purportedly relayed to her by clients.
However, these documents do not show whether the instructions or orders faxed
ripened into concluded or collected sales in Germany. Furthermore, respondent
presented no evidence to prove that JUBANITEX does not sell embroidered products in
the Philippines and that her appointment as commission agent is exclusively for
Germany and other European markets.

In sum, the Court find that the faxed documents presented by respondent did not
constitute substantial evidence or that relevant evidence that a reasonable mind might
accept as adequate to support the conclusion that it was in Germany where she
performed the income producing service which give rise to the reported monthly sales in
the months of March and May to September of 1995. She thus failed to discharge the
burden of proving that her income was from sources outside the Philippines and exempt
from the application of the income tax law. Hence, the claim for tax refund should be
denied.

2) LORENZO OA AND HEIRS OF JULIA BUALES vs. CIR GR No. L -19342 |

May 25, 1972

Facts:

Julia Buales died leaving as heirs her surviving spouse, Lorenzo Oa and her five
children. A civil case was instituted for the settlement of her estate, in which Oa was
appointed administrator and later on the guardian of the three heirs who were still
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minors when the project for partition was approved. This shows that the heirs have
undivided interest in 10 parcels of land, 6 houses and money from the War Damage
Commission determined to be P50,000.00, more or less. The amount was not divided
among them but was used in the rehabilitation of properties owned by them in common.

Although the project of partition was approved by the Court, no attempt was made to
divide the properties and they remained under the management of Oa who used said
properties in business by leasing or selling them and investing the income derived
therefrom and the proceeds from the sales thereof in real properties and securities. As a
result, petitioners properties and investments gradually increased. Petitioners returned
for income tax purposes their shares in the net income but they did not actually receive
their shares because this is left with Oa who invested them.

Based on these facts, CIR decided that petitioners formed an unregistered partnership
and therefore, subject to the corporate income tax, particularly for years 1955 and 1956.
Petitioners asked for reconsideration, which was denied hence this petition for review
from CTAs decision.

Issues:

Whether or not there was a co-ownership or an unregistered partnership

Whether or not the petitioners are liable for the deficiency corporate income tax

Whether or not the various amounts already paid by them in their individual income
taxes can be deducted from the deficiency corporate taxes assessed therein

Ruling:

The Tax Court found that instead of actually distributing the estate of the deceased
among themselves pursuant to the project of partition, the heirs allowed their properties
to remain under the management of Oa and let him use their shares as part of the
common fund for their ventures even as they paid corresponding income taxes on their
respective shares. Such act was tantamount to actually contributing such incomes into a
common fund and in effect they thereby formed an unregistered partnership.

For tax purposes, the co-ownership of inherited properties is automatically converted

into an unregistered partnership the moment the said common properties and/or the
incomes derived therefrom are used as a common fund with intent to produce profits for
the heirs in proportion to their respective shares in the inheritance as determined in a
project partition either duly executed in an extrajudicial settlement or approved by the
court in the corresponding testate or intestate proceeding. The reason is simple. From
the moment of such partition, the heirs are entitled already to their respective definite
shares of the estate and the incomes thereof, for each of them to manage and dispose
of as exclusively his own without the intervention of the other heirs, and, accordingly, he
becomes liable individually for all taxes in connection therewith. If after such partition,
he allows his share to be held in common with his co-heirs under a single management
to be used with the intent of making profit thereby in proportion to his share, there can
be no doubt that, even if no document or instrument were executed, for the purpose, for
tax purposes, at least, an unregistered partnership is formed. Therefore, subject to
income tax on corporations.

The partnership profits distributable to the partners should be reduced by the amounts
of income tax assessed against the partnership. The case of petitioner here is simply a

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taxpayer who has paid the wrong tax, assuming that the failure to pay the corporate
taxes in question was not deliberate. Of course, such taxpayer has the right to be
reimbursed what he has erroneously paid, but the law is very clear that the claim and
action for such reimbursement are subject to the bar of prescription. And since the
period for the recovery of the excess income taxes in the case of herein petitioners has
already lapsed, it would not seem right to virtually disregard prescription merely upon
the ground that the reason for the delay is precisely because the taxpayers failed to
make the proper return and payment of the corporate taxes legally due from them.

3) EUFEMIA EVANGELISTA, MANUELA EVANGELISTA, and FRANCISCA

EVANGELISTA vs. THE COLLECTOR OF INTERNAL REVENUE and THE COURT
OF TAX APPEALS G.R. No. L-9996 promulgated on October 15, 1957

Facts:

Petitioners borrowed sum of money from their father and together with their own
personal funds they used said money to buy several real properties from 1945-1949.
Then, they appointed their brother (Simeon) as manager of the said real properties with
powers and authority to sell, lease or rent out said properties to third persons. From the
rentals of these properties for the period 1945-1949, Eufemia Evangelista, Manuela
Evangelista and Francisca Evangelista, realized income.

On September 24, 1954 respondent Collector of Internal Revenue demanded the

payment of income tax on corporations, real estate dealer's fixed tax and corporation
residence tax for the years 1945-1949. The letter of demand and corresponding
assessments were delivered to petitioners on December 3, 1954, whereupon they
instituted the present case in the Court of Tax Appeals, with a prayer that "the decision
of the respondent contained in his letter of demand dated September 24, 1954" be
reversed, and that they be absolved from the payment of the taxes in question. CTA
denied their petition and subsequent MR and New Trials were denied. Hence this
petition.

Issue:
Whether or not petitioners have formed a partnership and consequently, are subject to
the tax on corporations provided for in section 24 of Commonwealth Act. No. 466,
otherwise known as the National Internal Revenue Code, as well as to the residence tax
for corporations and the real estate dealers fixed tax.

Ruling:

YES. The essential elements of a partnership are two, namely:

(a) an agreement to contribute money, property or industry to a common fund; and
(b) intent to divide the profits among the contracting parties

The first element is undoubtedly present in the case at bar, for, admittedly, petitioners
have agreed to, and did, contribute money and property to a common fund. Upon
consideration of all the facts and circumstances surrounding the case, we are fully
satisfied that their purpose was to engage in real estate transactions for monetary gain
and then divide the same among themselves, because of the following observations,
among others: (1) Said common fund was not something they found already in
existence; (2)They invested the same, not merely in one transaction, but in a series of
transactions; (3) The aforesaid lots were not devoted to residential purposes, or to other
personal uses, of petitioners herein. Although, taken singly, they might not suffice to
establish the intent necessary to constitute a partnership, the collective effect of these

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circumstances is such as to leave no room for doubt on the existence of said intent in
petitioners herein. For purposes of the tax on corporations, our National Internal
Revenue Code, includes these partnerships with the exception only of duly registered
general co partnerships within the purview of the term "corporation." It is, therefore,
clear to our mind that petitioners herein constitute a partnership, insofar as said Code is
concerned and are subject to the income tax for corporations.

4) Obillos v CIR G.R. No. L-68118October 29, 1985

FACTS:

On March1973 Jose Obillos, Sr. completed payment on two lots located at Greenhills,
San Juan, Rizal. The next day he transferred his rights to his four children, the
petitioners, to enable them to build their residences. The company sold the two lots to
petitioners for P178,708.12 on March 132. In 1974, the petitioners resold them to the
Walled City Securities Corporation and Olga Cruz Canda for the total sum of P313,050.
They derived from the sale a total profit of P134,341.88 or P33,584 for each of them.
They treated the profit as a capital gain and paid an income tax on one-half thereof or of
P16,792.3. In April 1980, the CIR required the four petitioners to pay
Corporate income tax
on the total profit of P134,336 in addition to individual income tax on their shares
thereof. The petitioners are being held liable for deficiency income taxes and penalties
totalling P127,781.76on their profit of P134,336, in addition to the tax on capital gains
already paid by them.4. The Commissioner acted on the theory that the four petitioners
had formed an unregistered partnership or joint venture within the meaning of sections
24(a) and 84(b) of the Tax Code (Collector of Internal Revenue vs. Batangas Trans. Co.,
102 Phil. 822).

ISSUE: Whether or not the petitioners had created an unregistered partnership.

HELD:

NO. To regard the petitioners as having formed a taxable unregistered partnership

would result in oppressive taxation and confirm the dictum that the power to tax involves
the power to destroy. That eventuality should be obviated. As testified by Jose Obillos,
Jr., they had no such intention. They were co-owners pure and simple. To consider them
as partners would obliterate the distinction between a co-ownership and a partnership.
The petitioners were not engaged in any joint venture by reason of that isolated
transaction. Their original purpose was to divide the lots for residential purposes. If later
on they found it not feasible to build their residences on the lots because of the high
cost of construction, then they had no choice but to resell the same to dissolve the co-
ownership. The division of the profit was merely incidental to the dissolution of the co-
ownership which was in the nature of things a temporary state. It had to be terminated
sooner or later. Article 1769(3) of the Civil Code provides that "the sharing of gross
returns does not of itself establish a partnership, whether or not the persons sharing
them have a joint or common right or interest in any property from which the returns are
derived". There must be an unmistakable intention to form a partnership or joint venture.
In the instant case, what the Commissioner should have investigated was whether the
father donated the two lots to the petitioners and whether he paid the donor's tax (See
Art. 1448, Civil Code). We are not prejudging this matter. It might have already
prescribed.

5) Pascual v. Commissioner of Internal Revenue

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FACTS:

On June 22, 1965, petitioners bought two parcels of land from Santiago Bernardino, et
al. and on May 28, 1966, they bought another three parcels of land from Juan Roque.
The first two parcels of land were sold by petitioners in 1968 to Marenir Development
Corporation, while the three parcels of land were sold by petitioners to Erlinda Reyes
and Maria Samson on March 19, 1970. Petitioner realized a net profit in the sale made
in 1968 in the amount of P165, 224.70, while they realized a net profit of P60,000.00 in
the sale made in 1970. The corresponding capital gains taxes were paid by petitioners
in 1973 and 1974.

Respondent Commissioner informed petitioners that in the years 1968 and 1970,
petitioners as co-owners in the real estate transactions formed an unregistered
partnership or joint venture taxable as a corporation under Section 20(b) and its income
was subject to the taxes prescribed under Section 24, both of the National Internal
Revenue Code; that the unregistered partnership was subject to corporate income tax
as distinguished from profits derived from the partnership by them which is subject to
individual income tax.

ISSUE: Whether petitioners formed an unregistered partnership subject to corporate

income tax .

RULING:

Article 1769 of the new Civil Code lays down the rule for determining when a transaction
should be deemed a partnership or a co-ownership. Said article paragraphs 2 and 3,
provides:(2) Co-ownership or co-possession does not itself establish a partnership,
whether such co-owners or co-possessors do or do not share any profits made by the
use of the property; (3) The sharing of gross returns does not of itself establish a
partnership, whether or not the persons sharing them have a joint or common right or
interest in any property from which the returns are derived;

The sharing of returns does not in itself establish a partnership whether or not the
persons sharing therein have a joint or common right or interest in the property. There
must be a clear intent to form a partnership, the existence of a juridical personality
different from the individual partners, and the freedom of each party to transfer or assign
the whole property.

In the present case, there is clear evidence of co-ownership between the petitioners.
There is no adequate basis to support the proposition that they thereby formed an
unregistered partnership. The two isolated transactions whereby they purchased
properties and sold the same a few years thereafter did not thereby make them
partners. They shared in the gross profits as co- owners and paid their capital gains
taxes on their net profits and availed of the tax amnesty thereby. Under the
circumstances, they cannot be considered to have formed an unregistered partnership
which is thereby liable for corporate income tax, as the respondent commissioner
proposes.

And even assuming for the sake of argument that such unregistered partnership
appears to have been formed, since there is no such existing unregistered partnership
with a distinct personality nor with assets that can be held liable for said deficiency
corporate income tax, then petitioners can be held individually liable as partners for this
unpaid obligation of the partnership.

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6) TAN V. DEL ROSARIO G.R. No. 109289 October 3, 1994

FACTS:
The case involves two consolidated cases assailing the constitutionality of RA 7496
(SNITS) amending certain provisions of the NIRC and, the validity of Section 6,
Revenue Regulations No. 2-93. Petitioners claim to be taxpayers adversely affected by
the continued implementation of the amendatory legislation. In G.R. No. 109289, it
is asserted that the enactment of Republic Act No. 7496 violates:

Article VI, Section 26(1) Every bill passed by the Congress shall embrace only one
subject which shall be expressed in the title thereof.
Article VI, Section 28(1) The rule of taxation shall be uniform and equitable. The
Congress shall evolve a progressive system of taxation.
Article III, Section 1 No person shall be deprived of . . . property without due process
of law, nor shall any person be denied the equal protection of the laws

Petitioner contends that the title is a misnomer or, deficient for being merely entitled,
"Simplified Net Income Taxation Scheme for the Self-Employed and Professionals
Engaged in the Practice of their Profession" when its full title is: Act Adopting the
Simplified Net Income Taxation Scheme For The Self-Employed and Professionals
Engaged In The Practice of Their Profession, Amending Sections 21 and 29 of the
National Internal Revenue Code, as Amended.

Petitioner also contends that SNITS should be considered as having now adopted a
gross income, instead of as having still retained the net income taxation scheme. The
allowance for deductible items, may have significantly been reduced by the questioned
law in comparison with that which has prevailed prior to the amendment; however,
allowable deductions from gross income is neither discordant with, nor opposed to, the
net income tax concept.

Petitioner contends that the law would now attempt to tax single proprietorships and
professionals differently from the manner it imposes the tax on corporations and
partnerships.

ISSUE: WON the law was unconstitutional for violating due process.

HELD: NO.
There is violation of due process only when there is the inherent or constitutional
limitations in the exercise of the power to tax is transgressed.
Uniformity of taxation, merely requires that all subjects or objects of taxation, similarly
situated, are to be treated alike both in privileges and liabilities. Uniformity does not
fortend classification as long as:
(1) the standards that are used therefor are substantial and not arbitrary,
(2) the categorization is germane to achieve the legislative purpose,
(3) the law applies, all things being equal, to both present and future conditions, and
(4) the classification applies equally well to all those belonging to the same class.
What may instead be perceived to be apparent from the amendatory law is the legislativ
e intent to increasingly shift the income tax system towards the schedular approach in
the income taxation of individual taxpayers and to maintain, by and large, the present
global treatment on taxable corporations. We certainly do not view this classification to
be arbitrary and inappropriate. Source: https://www.scribd.com

7) MARUBENI CORPORATION vs CIR G.R. no. 76573 September 14, 1989

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Facts:
Marubeni Corporation is a Japanese corporation licensed to engage in business in the
Philippines. When the profits on Marubenis investments in Atlantic Gulf and Pacific Co.
of Manila were declared, a 10% final dividend tax was withheld from it, and another 15%
profit remittance tax based on the remittable amount after the final 10% withholding tax
were paid to the Bureau of Internal Revenue. Marubeni Corp. now claims for a refund or
tax credit for the amount which it has allegedly overpaid the BIR.

Issues and Ruling:

1. Whether or not the dividends Marubeni Corporation received from Atlantic Gulf and
Pacific Co. are effectively connected with its conduct or business in the Philippines as to
be considered branch profits subject to 15% profit remittance tax imposed under
Section 24(b)(2) of the National Internal Revenue Code.

NO. Pursuant to Section 24(b)(2) of the Tax Code, as amended, only profits remitted
abroad by a branch office to its head office which are effectively connected with its trade
or business in the Philippines are subject to the 15% profit remittance tax. The
dividends received by Marubeni Corporation from Atlantic Gulf and Pacific Co. are not
income arising from the business activity in which Marubeni Corporation is engaged.
Accordingly, said dividends if remitted abroad are not considered branch profits for
purposes of the 15% profit remittance tax imposed by Section 24(b)(2) of the Tax Code,
as amended.

2. Whether Marubeni Corporation is a resident or non-resident foreign corporation.

Marubeni Corporation is a non-resident foreign corporation, with respect to the

transaction. Marubeni Corporations head office in Japan is a separate and distinct
income taxpayer from the branch in the Philippines. The investment on Atlantic Gulf and
Pacific Co. was made for purposes peculiarly germane to the conduct of the corporate
affairs of Marubeni Corporation in Japan, but certainly not of the branch in the
Philippines.

3. At what rate should Marubeni be taxed?

15%. The applicable provision of the Tax Code is Section 24(b)(1)(iii) in conjunction with
the Philippine-Japan Tax Treaty of 1980. As a general rule, it is taxed 35% of its gross
income from all sources within the Philippines. However, a discounted rate of 15% is
given to Marubeni Corporation on dividends received from Atlantic Gulf and Pacific Co.
on the condition that Japan, its domicile state, extends in favor of Marubeni Corporation
a tax credit of not less than 20% of the dividends received. This 15% tax rate imposed
on the dividends received under Section 24(b)(1)(iii) is easily within the maximum
ceiling of 25% of the gross amount of the dividends as decreed in Article 10(2)(b) of the
Tax Treaty.

The dividends received by Marubeni Corporation from Atlantic Gulf and Pacific Co. are
not income arising from the business activity in which Marubeni Corporation is engaged.
Accordingly, said dividends if remitted abroad are not considered branch profits subject
to Branch Profit Remittance Tax.

Note: Each tax has a different tax basis.

Under the Philippine-Japan Tax Convention, the 25% rate fixed is the maximum rate, as
reflected in the phrase shall not exceed. This means that any tax imposable by the

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contracting state concerned hould not exceed the 25% limitation and said rate would
apply only if the tax imposed by our laws exceeds the same

8) CIR vs. MARUBENI CORP.; G.R. No. 137377 December 18, 2001

Facts:
CIR assails the CA decision which affirmed CTA, ordering CIR to desist from collecting
the 1985 deficiency income, branch profit remittance and contractors taxes from
Marubeni Corp after finding the latter to have properly availed of the tax amnesty under
EO 41 & 64, as amended.
Marubeni, a Japanese corporation, engaged in general import and export trading,
financing and construction, is duly registered in the Philippines with Manila branch
office. CIR examined the Manila branchs books of accounts for fiscal year ending
March 1985, and found that respondent had undeclared income from contracts with
NDC and Philphos for construction of a wharf/port complex and ammonia storage
complex respectively.
On August 27, 1986, Marubeni received a letter from CIR assessing it for several
deficiency taxes. CIR claims that the income respondent derived were income from
Philippine sources, hence subject to internal revenue taxes. On Sept 1986, respondent
filed 2 petitions for review with CTA: the first, questioned the deficiency income, branch
profit remittance and contractors tax assessments and second questioned the
deficiency commercial brokers assessment.
On Aug 2, 1986, EO 41 declared a tax amnesty for unpaid income taxes for 1981-85,
and that taxpayers who wished to avail this should on or before Oct 31, 1986. Marubeni
filed its tax amnesty return on Oct 30, 1986.
On Nov 17, 1986, EO 64 expanded EO 41s scope to include estate and donors taxes
under Title 3 and business tax under Chap 2, Title 5 of NIRC, extended the period of
availment to Dec 15, 1986 and stated those who already availed amnesty under EO 41
should file an amended return to avail of the new benefits. Marubeni filed a
supplemental tax amnesty return on Dec 15, 1986.
CTA found that Marubeni properly availed of the tax amnesty and deemed cancelled the
deficiency taxes. CA affirmed on appeal.

Issue: WON Marubeni is exempted from paying tax

Ruling:
Yes.

1. On date of effectivity
CIR claims Marubeni is disqualified from the tax amnesty because it falls under the
exception in Sec 4b of EO 41: Sec. 4. Exceptions.The following taxpayers may not
avail themselves of the amnesty herein granted: xxx b) Those with income tax cases
already filed in Court as of the effectivity hereof;

Petitioner argues that at the time respondent filed for income tax amnesty on Oct 30,
1986, a case had already been filed and was pending before the CTA and Marubeni
therefore fell under the exception. However, the point of reference is the date
of effectivity of EO 41 and that the filing of income tax cases must have been made
before and as of its effectivity.

EO 41 took effect on Aug 22, 1986. The case questioning the 1985 deficiency was filed
with CTA on Sept 26, 1986. When EO 41 became effective, the case had not yet been
filed. Marubeni does not fall in the exception and is thus, not disqualified from availing of
the amnesty under EO 41 for taxes on income and branch profit remittance.
The difficulty herein is with respect to the contractors tax assessment (business tax)
and respondents availment of the amnesty under EO 64, which expanded EO 41s
coverage. When EO 64 took effect on Nov 17, 1986, it did not provide for exceptions to

8
the coverage of the amnesty for business, estate and donors taxes. Instead, Section 8
said EO provided that: Section 8. The provisions of Executive Orders Nos. 41 and 54
which are not contrary to or inconsistent with this amendatory Executive Order shall
remain in full force and effect. Due to the EO 64 amendment, Sec 4b cannot be
construed to refer to EO 41 and its date of effectivity. The general rule is that an
amendatory act operates prospectively. It may not be given a retroactive effect unless it
is so provided expressly or by necessary implication and no vested right or obligations
of contract are thereby impaired.

2. On situs of taxation
Marubeni contends that assuming it did not validly avail of the amnesty, it is still not
liable for the deficiency tax because the income from the projects came from the
Offshore Portion as opposed to Onshore Portion. It claims all materials and
equipment in the contract under the Offshore Portion were manufactured and
completed in Japan, not in the Philippines, and are therefore not subject to Philippine
taxes.

(BG: Marubeni won in the public bidding for projects with government corporations NDC
and Philphos. In the contracts, the prices were broken down into a Japanese Yen
Portion (I and II) and Philippine Pesos Portion and financed either by OECF or by
suppliers credit. The Japanese Yen Portion I corresponds to the Foreign Offshore
Portion, while Japanese Yen Portion II and the Philippine Pesos Portion correspond to
the Philippine Onshore Portion. Marubeni has already paid the Onshore Portion, a fact
that CIR does not deny.)

CIR argues that since the two agreements are turn-key, they call for the supply of both
materials and services to the client, they are contracts for a piece of work and are
indivisible. The situs of the two projects is in the Philippines, and the materials provided
and services rendered were all done and completed within the territorial jurisdiction of
the Philippines. Accordingly, respondents entire receipts from the contracts, including its
receipts from the Offshore Portion, constitute income from Philippine sources. The total
gross receipts covering both labor and materials should be subjected to contractors tax
(a tax on the exercise of a privilege of selling services or labor rather than a sale on
products).

Marubeni, however, was able to sufficiently prove in trial that not all its work was
performed in the Philippines because some of them were completed in Japan (and in
fact subcontracted) in accordance with the provisions of the contracts. All services for
the design, fabrication, engineering and manufacture of the materials and equipment
under Japanese Yen Portion I were made and completed in Japan. These services were
rendered outside Philippines taxing jurisdiction and are therefore not subject to
contractors tax. Petition denied.

9) PHILIPPPINE GUARANTY CO., INC VS CIR GR NO L-22074, SEPTEMBER 6,

1965

FACTS:
The grounds raised in the instant motion all spring from the movants view that the Court
of Tax Appeals and the Supreme Court, found it innocent of the charges of violating
subsection c of Sections 53 and 54 of NIRC. It alleges that it subsequently cannot be
held liable for the assessment of P375,345 based on said sections.

ISSUES:
1. Is PhilGuaranty innocent of the charges?
2. Is PhilGuaranty not expected to withhold taxes for reinsurance premiums?

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 3. Is PhiGuaranty released from liability for the tax after is was advised by the CIR
that reinsurance premiums were not subject to withholding?

RULING:
1. No. Precisely, the mere fact that it was exempted implies violation of Sec. 53c.
2. No., it should withhold taxes. The law sets no condition for the personal liability
of the withholding agent to attach. The reason is to compel the withholding agent
to withhold the tax under all circumstances.
3. No, it is liable. It has not been shown that it withheld the amount of tax due
before it inquired from the BIR, contrary to the requirements of Section 200.
Strict observance of said steps is required of a withholding agent before he could
be released from liability. Foreign corporations are taxable on their income from
sources within the Philippines. The foreign insurers place of business should not
be confused with their place of activity. It suffices that the activity creating the
income is performed or done in the Philippines.

11) CIR vs. JAPAN AIR LINES, INC., and THE CTA G.R. No. 60714, March 6, 1991

NATURE OF THE CASE:

A petition for review which seeks the reversal of the decision of the Court of Tax Appeals
that sets aside CIR's assessment of deficiency income tax inclusive of interest and
surcharge as well as compromise penalty for violation of bookkeeping regulations
charged against respondent.

FACTS:
Japan Air Lines, Inc. (JAL) is a foreign corporation engaged in the business of
international air carriage. Since JAL did not have planes lifted or landed passenger and
cargo in the Philippines because it was not granted then by the Civil Aeronautics Board
(CAB) with a certificate of public convenience and necessity to operate here in the
country, it constituted the Philippine Air Lines (PAL), as its general sales agent in the
Philippines.

Although prior to the constitution of JAL with PAL, JAL already maintained an office here
in the Philippines, but the office was for purposes of promotion of the companys public
relations. However, when JAL constituted PAL, it was purposely for selling plane tickets
and reservations for cargo spaces which were used by the passengers or customers on
the facilities of JAL.

So on June 2, 1972, JAL received a deficiency income tax assessment notices and
demand letter from the CIR. JAL protested, alleging that as a non-resident foreign
corporation, it was only taxable on income from Philippine sources, and there being no
such income during the period in question, it was not liable for the deficiency income tax
liabilities assessed. The CIR denied JALs request. JAL appealed with the CTA. The
CTA reversed the decision of the CIR and denied its MR. Hence, CIR filed this petition
with the SC.

ISSUES:
1) Whether or not proceeds from sales of JAL tickets sold in the Philippines (PH)
are taxable as income from sources within the Philippines.
2) Whether or not JAL is a foreign corporation engaged in trade and business in the
Philippines.

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RULING:
Yes, JAL tickets sold in the PH are taxable income from sources within the PH.
Yes, JAL is a foreign corporation engaged in trade and business in the PH.

There being no dispute that JAL constituted PAL as local agent to sell its airline
tickets, there can be no conclusion other than that JAL is a resident foreign corporation,
doing business in the Philippines. Indeed, the sale of tickets is the very lifeblood of the
airline business, the generation of sales being the paramount objective (Commissioner
of Internal Revenue vs. British Overseas Airways Corporation, supra). The case of CIR
vs. American Airlines, Inc. (supra) sums it up as follows:

"x x x, foreign airline companies which sold tickets in the Philippines

through their local agents, whether called liaison offices, agencies or
branches, were considered resident foreign corporations engaged in trade
or business in the country. Such activities show continuity of commercial
dealings or arrangements and performance of acts or works or the exercise
of some functions normally incident to and in progressive prosecution of
commercial gain or for the purpose and object of the business
organization."

12) STATE INVESTMENT HOUSE INC vs CITIBANK (GR No 79926-27, October 17,
1991)

Facts:

On December 1981, the Bank of America (BA), Citi bank, and Hongkong
Shanghai Banking Corporation (HSBC) filed a petition for involuntary insolvency of
Consolidated Mining Inc (CMI) under Sec 20 of the Insolvency Law (Act No 1956) in the
CFI of Rizal. The pertinent provision of law states, an adjudication of insolvency may
be made on the petition of three or more creditors, residents of the Philippine Islands,
whose credits or demands accrued in the Philippine Islands, and the amount of which
credits or demands are in the aggregate not less than one thousand pesos.

The petition alleged that CMI obtained loans from the aforementioned banks and
as of November/December 1891, the outstanding debts were millions in US dollars and
in pesos, that State Investment House Inc and State Financing Center Inc had
separately instituted actions for collection of sums of money against CMI from Benguet
Consolidated Mining Inc and that CMI committed acts of insolvency while its property
remained under attachment and it defaulted in paying its obligation.

The petition was opposed by SIHI and SFCI averring that the said banks had
already received payment from CMI in the aggregate amount of P10.8 M, that the court
has no jurisdiction since the alleged insolvency is false, the writ of attachment were
issued for other lawful ground, and that the court has no jurisdiction because the foreign
banks are non-resident creditors in contemplation of the insolvency law.

CMI filed an Answer asserting it is not insolvent and filed a motion to dismiss on
the affirmative defense that the said banks have no capacity to sue because they are
not Philippine residents.

Resolution deferred. Hearing on merits followed, SIHI and SFCI requested the
aforementioned banks for admissions but only HSBC complied. SIHI and SFCI then
filed a motion for summary judgment on the ground that trial court has no jurisdiction,

11
and declared that the aforementioned banks are merely licensed to do business in the
Philippines and not deemed residents.

The foreign banks filed a notice of appeal. At the CA, the CA reversed the
decision of the trial court. The CA ruled that:

1. The purpose of the Insolvency Law was to convert the assets of the bankrupt
in cash for distribution among creditors, and then to relieve the honest debtor
from the weight of oppressive indebtedness and that the law designed not
only for the benefit of the debtor himself;

2. The trial court had placed a very strained and restrictive interpretation of the
term resident;

3. The three banks mentioned are in fact considered as residents of the

Philippines for purposes of doing business in the Philippines and taxation;

4. The three banks complied with all the laws for doing business in the country
and that the authority granted to them covers not only transacting banking
business but likewise maintaining suits for recovery of any debt, claims or
demands;

5. To deprive the foreign banks of their right to proceed against their debtors
would contravene the basic standards of equity and fair play; and

6. As regards a corporation, it may have its legal domicile in one place and
residence in another.

MR was filed by SIHI and SFCI but was denied.

Issue:

Whether foreign banks licensed to do business in the Philippines may be

considered residents of the Philippines.

Ruling:

The NIRC declares the resident foreign corporation applies to a foreign

corporation engaged in trade and business within the Philippines as distinguished from
a non-resident foreign corporation which is not engaged in trade or business within the
Philippines.

Further, the Offshore Banking Law (PD 1034) states that branches, subsidiaries
or any other units of corporation organized under the laws of any foreign country
operating in the Philippines shall be considered residents of the Philippines.

The General Banking Act (RA 337) places branches and agencies in the
Philippines of foreign banks called Philippine Branches, in the same category as
commercial savings, development, and rural banks formed and organized under
Philippine Laws, that makes no distinction between foreign and domestic in so far as the
term banking institution and banks are used in Act, declaring further that foreign
banks or their branches lawful doing business in the Philippines shall be bound by all
laws applicable to domestic banking corporations of the same class.
12
 Based on the above cited laws, the said foreign banks are considered Philippine
resident.

13) COMM. OF INTERNAL REVENUE VS. BRITISH OVERSEAS AIRWAY CORP.

G.R. NO: l-65773-74 4-30-1987

FACTS OF THE CASE:

On May 7, 1968, respondent was assessed for deficient income taxes for the
year 1959 to 1963 which assessment was protested. Subsequent investigation resulted
in the issuance of new assessment for the year 1959 to 1967 which respondent paid
and again protested. A claim for refund was taken by respondent. However, before
action taken by the CIR on the refund issue, respondent filed petition for review before
CTA assailing the assessment and praying for refund.

On November 17,1971, respondent was again assessed for deficiency of income

taxes, interests and penalties for the fiscal years 1968-1969 to 1970-1971 and
additional compromise penalties for violation of Sec.46 (requiring the filing of
corporation return) penalized under Sec. 74 of NIRC. On November 25, 2017
respondent requested that the assessment be countermanded and be set aside.
However, CIR did not only deny the respondent request for refund in first assessment
but it also issued deficient income tax assessment for the year 1969 to 1970-71 plus
compromise penalty under Sec. 74 of NIRC. This prompted respondent to file another
case before CTA because of the denial by the CIR of its request for reconsideration
praying among others that respondent corporation be absolved from liability of
deficiency of income tax for the years 1969 to 1971.

The CTA ruled against CIR on the ground that the proceeds of sales of BOA's
passage ticket in the Philippines during the question periods does not constitute
BOAC's income from Philippine sources since no service of carriage of passengers or
freight was performed by BOAC within Philippines, and therefore, said income is not
subject to Philippine Income Tax.

ISSUES:

Whether or not income derived by respondent from sales of tickets in the

Philippines for air transportation while having no landing rights constitute income from
Philippines sources, hence taxable.
Whether or not during the fiscal years in question, respondent is a resident
foreign corporation doing business in the Philippines and has an office or place of
business in the Philippines.
In the alternative that private respondent may not be considered as resident
foreign corporation but a non-resident foreign corporation, then it is liable to Philippine
Income tax at the rate of thirty-five percent (35%) of its gross income received from all
sources of the Philippines.

RULING OF THE COURT:

As to the first issue, the Court ruled that it is taxable income considering the fact
the definition of gross income under Sec. 29 (3) of the Tax Code is broad and
comprehensive to include proceeds from sales to transport documents. The words
income from any source whatever disclose a legislative policy to include all income not
expressly exempted within the class of taxable income under our laws. Income means
cash received or its equivalent; it is the amount of money coming from to a person
within a specific time, something distinct from capital or principal. For while capital is a

13
fund, income is a flow. As such the flow of wealth of respondent come sources within
the Philippines as the source of income is the property, activity or service that produced
income, hence BOAC's activity of the sales of tickets in the Philippines is the activity
that produces income. Likewise, Sec. 37 (a) of the Tax Code enumerates items of
gross income from sources within the Philippines namely: (1) interest; (2) dividends; (3)
service; (4) rentals and royalties; (5) sale of real property, and (6) sale of personal
property which does not include sale of tickets. However, that does not render it less as
an income from sources within the Philippines because it does not state that it is an all-
inclusive enumeration, and that no other kind of income may be considered.

As to the second issue, respondent is resident foreign corporation doing

business in the Philippines. It ratiocinated that there is no specific criterion as to what
constitutes doing or engaging in or transacting. Respondent during the periods
covered by the subject-assessment, maintained a general sales agent in the
Philippines. There is no doubt that the respondent is doing business in the Philippines
through a local agent during the period covered by the assessment. Accordingly it is a
resident foreign corporation subject to tax upon its total net income received in the
preceding taxable year from all sources within the Philippines.

Finally, with the findings of the Court that respondent is a resident foreign
corporation, its argument that it shall not be subject to common carrier's tax considering
the fact that its sale of ticket is without physical act of carriage. The subject matter of
the case under consideration is an income tax, a direct tax on the income of persons or
persons and other entities of whatever kind and in whatever form derived from any
source.

14) COMMISSIONER OF INTERNAL REVENUE vs. ST. LUKES MEDICAL CENTER

G.R. NOS. 195909 and 195960

Facts:
These are consolidated petitions for review on certiorari under Rule Medical
Center, Inc. is ORDERED TO PAY the deficiency income tax in 1998 base on the 10%
preferential income tax rate under Section 27(B) of the national Internal Revenue Code.
All other parts of the Decision and Resolution of the Court of Tax Appeals are
AFFIRMED.
The petition of St. Lukes Medical Center, Inc. in G.R. No. 195960 is DENIED for
violating Section 1, Rule 45 of the Rules of Court.

The Main Issue and Ruling:

The issue raised by the BIR is a purely legal one. It involves the effect of the
introduction of Section 27(B) in the NIRC of 1997 vis--vis Section 30(E) and (G) on the
income tax exemption of charitable and social welfare institutions. The 10% income tax
rate under Section 27(B) specifically pertains to proprietary educational institutions and
proprietary non-profit hospitals. The BIR argues that Congress intended to remove the
exemption that non-profit hospitals previously enjoyed under Section 27(E) of the NIRC
of 1977, which is now substantially reproduced in Section 30(E) of the NIRC of 1997.

St. Lukes claims tax exemptions under Section 30(E) and (G) of the NIRC. It
contends that it is a charitable institution and an organization promoting social welfare.
The arguments of St. Lukes focus on the wording of Section 30(E) exempting from
income tax non-stock, non- profit charitable institutions. St. Lukes asserts the legislative
intent of introducing Section 27(B) was only to remove the exemption for proprietary
non-profit hospitals.

The Court partly grants the petition of the BIR but on a different ground. We hold
that Section 27(B) of the NIRC does not remove the income tax exemption of

14
proprietary non-profit hospitals under Sec. 30(E) and (G). Section 27(B) on one hand,
and Section 30(E) and (G) on the other hand, can be construed together without the
removal of such tax exemption. The effect of the introduction of Section 27(B) is to
subject the taxable income of the specific institutions, namely, proprietary non-profit
educational institutions and proprietary non-profit hospitals, among the institutions
covered by Section 30, to the 10% preferential rate under Section 27(B) instead of the
ordinary 30% corporate rate under the last paragraph of Section 30 in relation to
Section 27(A)(1). The constitution exempts charitable institutions only from real property
taxes.

Section 30(E) of the NIRC provides that a charitable institution must be:
A non-stock corporation or association;
Organized exclusively for charitable purposes;
Operated exclusively for charitable purposes; and
No part of its net income or asset shall belong to or inure to the benefit of any member,
organizer, officer or any specific person.

There is no dispute that St. Lukes is organized as a non-stock and non-profit charitable
institution. However, this does not automatically exempt St. Lukes from paying taxes.
This only refers to the organization of St. Lukes. Even if St. Lukes meet the test of
charity, a charitable institution is not ipso facto tax exempt. To be exempt from real
property taxes, Section 28(3), Article VI of the Constitution requires that a charitable
institution use the property actually, directly and exclusively for charitable purposes.
To be exempt from income taxes, Section 30(E) of the NIRC requires that a charitable
institution must be organized and operated exclusively for charitable purposes.
Likewise, to be exempt from income taxes, Section 30(G) of the NIRC requires that the
institution be operated exclusively for social welfare. Thus, even if the charitable
institution must be organized and operated exclusively for charitable purposes, it
nevertheless allowed to engage in activities conducted for profit without losing its tax
exempt status for its non-for-profit activities. The only consequence is that the income
of whatever kind and character of a charitable institution from any of its activities
conducted for profit, regardless of the disposition made of such income, shall be subject
to tax.

In 1998, St. Lukes had total revenue of Php 1.73 billion from services to paying patients
and it cannot be disputed that a hospital which receives approximately Php1.73 billion
from paying patients is not an institution operated exclusively from charitable
purposes. The Court cannot expand the meaning of the words operated exclusively
without violating the NIRC. Services to paying patients are activities conducted for profit.
They cannot be considered any other way. There is a purpose to make profit over and
above the cost of services. Activities for profit should not escape the reach of taxation.
Being a non-stock and non-profit corporation does not, by this reason alone, completely
exempt an institution from tax. An institution cannot use its corporate form to prevent it
profitable activities from being taxed.

A tax exemption is effectively a social subsidy granted by the State because an exempt
institution is spared from sharing in the expenses of government and yet benefits from
them. Tax exemptions for charitable institution should be therefore be limited to
institutions beneficial to the public and those which improve social welfare. St. Lukes
fails to meet the requirements under Section 30(E) and (G) of the NIRC to be
completely tax exempt from all its income. St. Lukes, as a proprietary non-profit
hospitable, is entitled to the preferential tax rate of 10% on its net income from its for-
profit activities.

SC PARTLY GRANTED the petition of the Commissioner of Internal Revenue in G.R.

no. 195909. The Decision of the Court of Tax Appeals En Banc dated 19 November
2010 and its Resolution dated 1 March 2011 in CTA case no 6746 are MODIFIED. St.

15
Lukes Medical Center, Inc., is ORDERED TO PAY the deficiency income tax in 1998
based on the 10% preferential income tax rate under Section 27(B) of the NIRC.
However, it is not liable for surcharge and interest on such deficiency income tax under
Section 248 and 249 of the NIRC. All other parts of the DECISION and Resolution of the
Court of Tax Appeals are AFFIRMED.
The petition of St. Lukes Medical Center, Inc. in G.R. no. 195960 is DENIED for
violating Section 1, Rule 45 of the Rules of Court.

15) CIR vs. CA, CTA and GCL Retirement Plan

FACTS: Private respondent, GCL Retirement Plan (GCL, for brevity) is an employees'
trust maintained by the employer, GCL Inc., to provide retirement, pension, disability
and death benefits to its employees. The Plan as submitted was approved and qualified
as exempt from income tax by Petitioner Commissioner of Internal Revenue in
accordance with Rep. Act No. 4917. In 1984, Respondent GCL made investsments and
earned therefrom interest income from which was witheld the fifteen per centum (15%)
final witholding tax imposed by Pres. Decree No. 1959. GCL filed a claim for refund but
this was denied.

ISSUES: Whether or not the GCL Retirement is exempt from this tax

RULING: YES. The GCL Plan was qualified as exempt from income tax by the
Commissioner of Internal Revenue in accordance with Rep. Act No. 4917. This law
specifically provided that the retirement benefits received by officials and employees of
private firms, whether individual or corporate, in accordance with a reasonable private
benefit plan maintained by the employer shall 5 Of 10 be exempt from all taxes. In so far
as employees' trusts are concerned, the foregoing law should be taken in relation to
then Section 56(b) (now 53[b]) of the Tax Code, as amended by Rep. Act No. 1983. This
provision specifically exempted employee's trusts from income tax. The tax-exemption
privilege of employees' trusts, as distinguished from any other kind of property held in
trust, springs from the foregoing. It is unambiguous. Manifest therefrom is that the tax
law has singled out employees' trusts for tax exemption. And rightly so, by virtue of the
raison de'etre behind the creation of employees' trusts. Employees' trusts or benefit
plans normally provide economic assistance to employees upon the occurrence of
certain contingencies, particularly, old age retirement, death, sickness, or disability. It
provides security against certain hazards to which members of the Plan may be
exposed. It is an independent and additional source of protection for the working group.
What is more, it is established for their exclusive benefit and for no other purpose.
Otherwise, taxation of those earnings would result in a diminution accumulated income
and reduce whatever the trust beneficiaries would receive out of the trust fund. This
would run afoul of the very intendment of the law.

16) CIR vs. CTA and Smith Kline and French Overseas Co. (Philippine Branch)

Doctrine: Where an expense is clearly related to the production of Philippine-

derived income or to Philippine operations (e.g. salaries of Philippine personnel, rental
of office building in the Philippines), that expense can be deducted from the gross
income acquired in the Philippines.
The overhead expenses incurred by the parent company in connection with finance,
administration, and research and development which direct benefit its branches all over
the world are items which cannot be definitely allocated or identified with the operations
of the Philippine branch, and thus, under Sec. 37(b) of NIRC and Sec. 160 of DoF RR-
2, the company can claim as its deductible share a ratable part of such expenses, which

16
is based upon the ration of the local branchs gross income to the total gross income of
the multinational corp. worldwide.

Facts/Procedure:
This case is about the refund of a 1971 income tax amounting to P324,255. Smith Kline
and French Overseas Company, a multinational firm domiciled in Philadelphia,
Pennsylvania, is licensed to do business in the Philippines. It is engaged in the
importation, manufacture and sale of pharmaceuticals drugs and chemicals.
In its 1971 original income tax return, Smith Kline declared a net taxable income of
P1,489,277 and paid P511,247 as tax due. The deductions claimed from gross income
was P501,040 ($77,060) from its share of its head office overhead expenses. In 1973, it
filed an amended return and claimed it overpaid by P324,255 because of under-
deduction of home office overhead. It based this claim of underpayment from an
authenticated certification from Smith Klines independent international auditors. In that
certification, it said that Philippine share in the unallocated overhead expenses of the
main office for the year ended December 31, 1971 was actually $219,547
(P1,427,484). By reason of the new adjustment, Smith Kline's tax liability was greatly
reduced from P511,247 to P186,992 resulting in an overpayment of P324,255. Hence it
made a formal claim for refund with CIR. It nevertheless filed a petition with the CTA.
The CTA ruled in favor of the refund and it ordered the CIR to do so.

Issue/s:
W/N CTA was correct in finding in favor of Smith Kline in its claim for refund?

Held/Ratio:
Yes.
Sec. 36 of Old NIRC (C.A. 466), reproduced in NIRC 1977 (P.D. 1158)
Sec. 37. Income from sources within the Philippines.
xxx xxx xxx

(b) Net income from sources in the Philippines. From the items of gross income
specified in subsection (a) of this section there shall be deducted the expenses, losses,
and other deductions properly apportioned or allocated thereto and a ratable part of any
expenses, losses, or other deductions which cannot definitely be allocated to some item
or class of gross income. The remainder, if any, shall be included in full as net income
from sources within the Philippines. Dept. of Finance RR-2 (determines the deductions
to be made to determine the net income from Phil. Sources)

Sec. 160. Apportionment of deductions. From the items specified in section 37(a), as
being derived specifically from sources within the Philippines there shall be deducted
the expenses, losses, and other deductions properly apportioned or allocated thereto
and a ratable part of any other expenses, losses or deductions which cannot definitely
be allocated to some item or class of gross income. The remainder shall be included in
full as net income from sources within the Philippines. The ratable part is based upon
the ratio of gross income from sources within the Philippines to the total gross income.

Example: A non-resident alien individual whose taxable year is the calendar year,
derived gross income from all sources for 1939 of P180,000, including therein:
Interest on bonds of a domestic corporation P9,000
Dividends on stock of a domestic corporation 4,000
Royalty for the use of patents within the Philippines 12,000
Gain from sale of real property located within the Philippines 11,000
Total P36,000 that is, one-fifth of the total gross income was from sources within the
Philippines. The remainder of the gross income was from sources without the
Philippines, determined under section 37(c).
The expenses of the taxpayer for the year amounted to P78,000. Of these expenses the
amount of P8,000 is properly allocated to income from sources within the Philippines

17
and the amount of P40,000 is properly allocated to income from sources without the
Philippines.

The remainder of the expense, P30,000, cannot be definitely allocated to any class of
income. A ratable part thereof, based upon the relation of gross income from sources
within the Philippines to the total gross income, shall be deducted in computing net
income from sources within the Philippines. Thus, these are deducted from the P36,000
of gross income from sources within the Philippines expenses amounting to P14,000
[representing P8,000 properly apportioned to the income from sources within the
Philippines and P6,000, a ratable part (one-fifth) of the expenses which could not be
allocated to any item or class of gross income.] The remainder, P22,000, is the net
income from sources within the Philippines.

From these Rules supra, it is manifest that where an expense is clearly related to the
production of Philippine-derived income or to Philippine operations (e.g. salaries of
Philippine personnel, rental of office building in the Philippines), that expense can be
deducted from the gross income acquired in the Philippines without resorting to
apportionment The overhead expenses incurred by the parent company in connection
with finance, administration, and research and development, all of which direct benefit
its branches all over the world, including the Philippines, fall under a different category
however. These are items which cannot be definitely allocated or identified with the
operations of the Philippine branch.

Based on the above-mentioned rules, Smith Kline can claim as its deductible share a
ratable part of such expenses based upon the ratio of the local branch's gross income to
the total gross income, worldwide, of the multinational corporation.
The weight of evidence bolsters the position of Smith Kline that the amount of
P1,427,484 represents the ratable share.
CTA decision affirmed.

11) SORIANO Y CIA., vs COLLECTOR OF INTERNAL REVENUE G.R. No. L-5896

August 31, 1955

FACTS:
This is a petition for review of the decision of the Board of Tax Appeals affirming the
decision of the respondent-appellee Collector of Internal Revenue holding the petitioner
A. Soriano y Cia. liable for the payment of P47,002.52 as sales tax and surcharge (as
required by Sec. 182 of the National Internal Revenue Code, as amended) on its gross
sales to the United Africa Co., Ltd. of 57 tractors acquired from the Foreign Liquidation
Commission.

Petitioner was engaged in the business of selling surplus goods acquired from the
Foreign Liquidation Commission pursuant to an agreement with the United States
Government whereby petitioner undertook to rehabilitate the Veterans Administration
Building (formerly Heacock Building) for and in consideration of over a million pesos
worth of surplus goods. Part of the surplus goods consisted of tractors which were then
in the various U. S. military bases or depots in the Philippines. The petitioner had yards
known as "Sta. Mesa Yard" and "Pieco Yard" located in Manila, where some of the
surplus goods were stored, and those which were defective reconditioned.

The United Africa Co., Ltd. sent its representative, Hugh Watson Gibson, to the
Philippines to look into the availability of tractors for sale in the Philippines. Gibson
learned of the petitioner's business and contracted to buy tractors from the latter, to be
delivered f.a.s. (free alongside ship), Manila, in good working condition and capable of

18
running off lighters under their own power. A tractor expert, Mr. Tex Taylor, was
employed by the foreign company to select, inspect and test the tractors before delivery.

ISSUE: The question at issue is whether or not petitioner is liable for the payment of
percentage or sales tax on its gross sales of the 57 tractors in question to the United
Africa Co., Ltd. under the provisions of Sec. 186 of the National Internal Revenue Code.

HELD:
Petitioner's liability would thus depend on first, whether or not it was an importer of the
57 tractors in question, and second, whether it made an original sale thereof in the
Philippines.

The theory of the Bureau of Internal Revenue, affirmed by the defunct Board of Tax
Appeals, is that petitioner imported the tractors from the army bases; that they were
subsequently sold to its foreign buyer within the Philippines; and that title passed upon
delivery to the carrier f.a.s. Manila.

Other undisputed facts in the record also force the conclusion that title to the tractors in
question passed to petitioner's buyer not at the bases, but only at pier, Manila. First, it
was petitioner who paid for the delivery charges from the different bases to the pier,
pursuant to the tax in "fob" or "f.a.s." sales that "the seller pays all charges and is
subject to risk until the goods are placed alongside the 'vessel' (Williston, supra).
Second, the tractors were described in petitioner's invoices (Vol. I, Records, pp. 65-70)
as bearing certain numbers followed by the phrase "Our Unit Sta. Mesa" or "Our Unit
Pieco", showing that the tractors were first brought to petitioner's yards and numbered
accordingly, in the same way that all goods found and stored in these yards were
numbered, and it was only after they had passed petitioner's yards that they were
delivered to the buyer. Third, two of petitioner's invoices (Records, I, pp. 70-71) stated
that the tractors were inspected and accepted at Pieco Yard and/or Sta. Mesa Yard,
which disproves petitioner's contention that Tex Taylor tested and approved of them
right in the bases. Fourth, petitioner's own witness Epimaco Gonzales admitted that it
was only at Pieco Yard that Taylor inspected and tested that tractors (t.s.n. 9-10).

Petitioner argues that the goods in question did not acquire a taxable situs in the
Philippines because they merely passed Philippine territory in transit and that they were
not intended for local use but for exportation to a foreign country. We find this argument
irrelevant, since the tax in dispute is one on transaction (sales) and not a tax on the
property sold. The sale of the tractors was consummated in the Philippines, for title was
transferred to the foreign buyer at the pier in Manila; hence, the situs of the sale is
Philippines and it is taxable in this country. Wherefore, the decision appealed from is
affirmed, with costs against petitioner. So ordered.

18) National Development Company v CIR GR No L-53961, June 30, 1987

FACTS:
The National Development Company (NDC) entered into contracts in Tokyo with several
Japanese shipbuilding companies for the construction of 12 ocean-going vessels initial
payments were made in cash and through irrevocable letters of credit. When the
vessels were completed and delivered to the NDC in Tokyo, the latter remitted to the
shipbuilders the amount of US$ 4,066,580.70 as interest on the balance of the purchase
price. No tax was withheld. The Commissioner then held the NDC liable on such tax in
the total sum of P5,115,234.74. Negotiations followed but failed. NDC went to CTA. BIR
was sustained by CTA. Hence, this petition for certiorari.

ISSUE:
Is NDC liable for the tax?

19
RULING: Yes. Although NDC is not the one taxed since it was the Japanese
shipbuilders who were liable on the interest remitted to them under Section 37 of the
Tax Code, still, the imposition is valid.

The imposition of the deficiency taxes on NDC is a penalty for its failure to withhold the
same from the Japanese shipbuilders. Such liability is imposed by Section 53c of the
Tax Code. NDC was remiss in the discharge of its obligation as the withholding agent of
the government and so should be liable for the omission.

20