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GUTIERREZ V COLLECTOR 101 PHIL 713
FACTS:
1. Maria Morales, married to Gutierrez(spouses), was the owner of an agricultural land. The U.S.
Gov(pursuant to Military Bases Agreement) wanted to expropriate the land of Morales to expand the
Clark Field Air Base.
2. The Republic was the plaintiff, and deposited a sum of Php 152k to be able to take immediate
possession. The spouses wanted consequential damages but instead settled with a compromise
agreement. In the compromise agreement, the parties agreed to keep the value of Php 2,500 per
hectare, except to some particular lot which would be at Php 3,000 per hectare.
3. In an assessment notice, CIR demanded payment of Php 8k for deficiency of income tax for the
year 1950.
4. The spouses contend that the expropriation was not taxable because it is not "income derived from
sale, dealing or disposition of property" as defined in Sec. 29 of the Tax Code. The spouses further
contend that they did not realize any profit in the said transaction. CIR did not agree.
5. The spouses appealed to the CTA. The Solicitor General, in representation of the respondent
Collector of Internal Revenue, filed an answer that the profit realized by petitioners from the sale of
the land in question was subject to income tax, that the full compensation received by petitioners
should be included in the income received in 1950, same having been paid in 1950 by the
Government. CTA favored SolGen but disregarded the penalty charged.
6. Both parties appealed to the SC.
ISSUES:
1. Whether or not that for income tax purposes, the expropriation should be deemed as income from
sale and any profit derived therefrom is subject to income taxes capital gain?
2. Whether or not there was profit or gain to be taxed?
HELD: Yes to both. CTA decision affirmed. It is subject to income tax.
RATIO 1: It is to be remembered that said property was acquired by the Government through
condemnation proceedings and appellants' stand is, therefore, that same cannot be considered as
sale as said acquisition was by force, there being practically no meeting of the minds between the
parties. U.S jurisprudence has held that the transfer of property through condemnation proceedings is
a sale or exchange within the meaning of section 117 (a) of the 1936 Revenue Act and profit from the
transaction constitutes capital gain" "The taking of property by condemnation and the, payment of just
compensation therefore is a "sale" or "exchange" within the meaning of section 117 (a) of the
Revenue Act of 1936, and profits from that transaction is capital gain.
SEC. 29. GROSS INCOME. — (a) General definition. — "Gross income" includes gains, profits, and
income derived from salaries, wages, or compensation for personal service of whatever kind and in
whatever form paid, or from professions, vocations, trades, businesses, commerce, sales or dealings
in property, whether real or personal, growing out of ownership or use of or interest in such property;
also from interests, rents, dividends, securities, or the transactions of any business carried on for gain
or profit, or gains, profits, and income derived from any source whatsoever.
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SEC. 37. INCOME FROM SOURCES WITHIN THE PHILIPPINES.
—
(a) Gross income from sources within the Philippines. — The following items of gross income shall be
treated as gross income from sources within the Philippines:
(5) SALE OF REAL PROPERTY. — Gains, profits, and income from the sale of real property located
in the Philippines;
xxxxxxxxx
It appears then that the acquisition by the Government of private properties through the exercise of
the power of eminent domain, said properties being JUSTLY compensated, is embraced within the
meaning of the term "sale" "disposition of property", and the proceeds from said transaction clearly
fall within the definition of gross income laid down by Section 29 of the Tax Code of the Philippines.
RATIO 2: As to appellant taxpayers' proposition that the profit, derived by them from the expropriation
of their property is merely nominal and not subject to income tax, We find Section 35 of the Tax Code
illuminating. Said section reads as follows:
SEC. 35. DETERMINATION OF GAIN OR LOSS FROM THE SALE OR OTHER DISPOSITION OF
PROPERTY. —The gain derived or loss sustained from the sale or other disposition of property, real
or personal, or mixed, shall be determined in accordance with the following schedule:
(a) xxx xxx xxx
(b) In the case of property acquired on or after March first, nineteen hundred and thirteen, the cost
thereof if such property was acquired by purchase or the fair market price or value as of the date of
the acquisition if the same was acquired by gratuitous title.
The records show that the property in question was adjudicated to Maria Morales by order of the
Court of First Instance of Pampanga on March 23, 1929, and in accordance with the aforequoted
section of the National Internal Revenue Code, only the fair market price or value of the property as of
the date of the acquisition thereof should be considered in determining the gain or loss sustained by
the property owner when the property was disposed, without taking into account the purchasing
power of the currency used in the transaction. The records placed the value of the said property at
the time of its acquisition by appellant Maria Morales P28,291.73 and it is a fact that same was
compensated with P94,305.75 when it was expropriated. The resulting difference is surely a capital
gain and should be correspondingly taxed.
COMMISSIONERvs.BOAC
"The source of an income is the property, activity or service that produced the income. For such
source to be considered as coming from the Philippines, it is sufficient that the income is derived from
activity within the Philippines."
FACTS: Petitioner CIR seeks a review of the CTA's decision setting aside petitioner's assessment of
deficiency income taxes against respondent British Overseas Airways Corporation (BOAC) for the
fiscal years 1959 to 1971. BOAC is a 100% British Government-owned corporation organized and
existing under the laws of the United Kingdom, and is engaged in the international airline business.
During the periods covered by the disputed assessments, it is admitted that BOAC had no landing
rights for traffic purposes in the Philippines. Consequently, it did not carry passengers and/or cargo to
or from the Philippines, although during the period covered by the assessments, it maintained a
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general sales agent in the Philippines — Wamer Barnes and Company, Ltd., and later Qantas
Airways — which was responsible for selling BOAC tickets covering passengers and cargoes. The
CTA sided with BOAC citing that the proceeds of sales of BOAC tickets do not constitute BOAC
income from Philippine sources since no service of carriage of passengers or freight was performed
by BOAC within the Philippines and, therefore, said income is not subject to Philippine income tax.
The CTA position was that income from transportation is income from services so that the place
where services are rendered determines the source.
ISSUE: Are the revenues derived by BOAC from sales of ticket for air transportation, while having no
landing rights here, constitute income of BOAC from Philippine sources, and accordingly, taxable?
HELD: Yes. The source of an income is the property, activity or service that produced the income. For
the source of income to be considered as coming from the Philippines, it is sufficient that the income
is derived from activity within the Philippines. In BOAC's case, the sale of tickets in the Philippines is
the activity that produces the income. The tickets exchanged hands here and payments for fares
were also made here in Philippine currency. The site of the source of payments is the Philippines. The
flow of wealth proceeded from, and occurred within, Philippine territory, enjoying the protection
accorded by the Philippine government. In consideration of such protection, the flow of wealth should
share the burden of supporting the government.
CIR VS JAPAN AIRLINES 202 SCRA 450
I957: JAL constituted PAL as its general sales agent in the
Philippines, whereby PAL sold for and in behalf of JAL plane
tickets and reservations for cargo spaces
- 1959-1963: JAL did not have planes that landed or lifted
passengers and cargoes in the Philippines—having had no
CPCN (certificate of public convenience and necessity)
- CIR assessed against JAL deficiency income tax for the years 1959-1963 - JAL protested, claiming
it was a non
-resident foreign
corporation and, therefore, taxable only on income from
Philippine sources
Decision :
- For CIR. The Court adopted the BOAC doctrine: “The source
of an income is the property, activity, or service that
produced the income. For the source of income to be
considered as coming from the Philippines, it is sufficient that the income is derived from an activity
within the Philippines”
- When JAL constituted PAL as its sales agent, there is no
doubt that JAL is a resident foreign corporation doing
business in the Philippines. Sale of plane tickets, after all, is
the very lifeblood of the airline industry.
I957: JAL constituted PAL as its general sales agent in the
Philippines, whereby PAL sold for and in behalf of JAL plane
tickets and reservations for cargo spaces
- 1959-1963: JAL did not have planes that landed or lifted
passengers and cargoes in the Philippines—having had no
CPCN (certificate of public convenience and necessity)
- CIR assessed against JAL deficiency income tax for the years 1959-1963 - JAL protested, claiming
it was a non
-resident foreign
corporation and, therefore, taxable only on income from
Philippine sources
Decision :
- For CIR. The Court adopted the BOAC doctrine: “The source
of an income is the property, activity, or service that
produced the income. For the source of income to be
considered as coming from the Philippines, it is sufficient that the income is derived from an activity
within the Philippines”
- When JAL constituted PAL as its sales agent, there is no
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doubt that JAL is a resident foreign corporation doing
business in the Philippines. Sale of plane tickets, after all, is
the very lifeblood of the airline industry.
I957: JAL constituted PAL as its general sales agent in the
Philippines, whereby PAL sold for and in behalf of JAL plane
tickets and reservations for cargo spaces
- 1959-1963: JAL did not have planes that landed or lifted
passengers and cargoes in the Philippines—having had no
CPCN (certificate of public convenience and necessity)
- CIR assessed against JAL deficiency income tax for the years 1959-1963 - JAL protested, claiming
it was a non
-resident foreign
corporation and, therefore, taxable only on income from
Philippine sources
Decision :
- For CIR. The Court adopted the BOAC doctrine: “The source
of an income is the property, activity, or service that
produced the income. For the source of income to be
considered as coming from the Philippines, it is sufficient that the income is derived from an activity
within the Philippines”
- When JAL constituted PAL as its sales agent, there is no
doubt that JAL is a resident foreign corporation doing
business in the Philippines. Sale of plane tickets, after all, is
the very lifeblood of the airline industry.
I957: JAL constituted PAL as its general sales agent in the
Philippines, whereby PAL sold for and in behalf of JAL plane
tickets and reservations for cargo spaces
- 1959-1963: JAL did not have planes that landed or lifted
passengers and cargoes in the Philippines—having had no
CPCN (certificate of public convenience and necessity)
- CIR assessed against JAL deficiency income tax for the years 1959-1963 - JAL protested, claiming
it was a non
-resident foreign
corporation and, therefore, taxable only on income from
Philippine sources
Decision :
- For CIR. The Court adopted the BOAC doctrine: “The source
of an income is the property, activity, or service that
produced the income. For the source of income to be
considered as coming from the Philippines, it is sufficient that the income is derived from an activity
within the Philippines”
- When JAL constituted PAL as its sales agent, there is no
doubt that JAL is a resident foreign corporation doing
business in the Philippines. Sale of plane tickets, after all, is
the very lifeblood of the airline industry.
I957: JAL constituted PAL as its general sales agent in the
Philippines, whereby PAL sold for and in behalf of JAL plane
tickets and reservations for cargo spaces
- 1959-1963: JAL did not have planes that landed or lifted
passengers and cargoes in the Philippines—having had no
CPCN (certificate of public convenience and necessity)
- CIR assessed against JAL deficiency income tax for the years 1959-1963 - JAL protested, claiming
it was a non
-resident foreign
corporation and, therefore, taxable only on income from
Philippine sources
Decision :
- For CIR. The Court adopted the BOAC doctrine: “The source
of an income is the property, activity, or service that
produced the income. For the source of income to be
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considered as coming from the Philippines, it is sufficient that the income is derived from an activity
within the Philippines”
- When JAL constituted PAL as its sales agent, there is no
doubt that JAL is a resident foreign corporation doing
business in the Philippines. Sale of plane tickets, after all, is
the very lifeblood of the airline industry.
I957: JAL constituted PAL as its general sales agent in the Philippines, whereby PAL sold for and in
behalf of JAL plane tickets and reservations for cargo spaces
- 1959-1963: JAL did not have planes that landed or lifted passengers and cargoes in the Philippines
—having had no CPCN (certificate of public convenience and necessity)
- CIR assessed against JAL deficiency income tax for the years 1959-1963 - JAL protested, claiming
it was a nonresident foreign corporation and, therefore, taxable only on income fromPhilippine
sources
ISSUE:
Whether or not the proceeds from sales of JAL tickets sold in the Philippines by Philippine Airlines
(PAL) are taxable as income from sources within the Philippines.
HELD:
YES. Court said the ticket sales are taxable.
Citing the case of CIR v BOAC, the court reiterated that the source of an income is the property,
activity orservice that produced the income. For the source of income to be considered as coming
from the Philippines, it is sufficient that the income is derived from activity within the
Philippines.
The absence of flight operations to and from the Philippines is not determinative of the source of
income or the situs of income taxation.
The test of taxability is the source, and the source of the income is that activity which produced
the income. In this case, as JAL constituted PAL as its agent, the sales of JAL tickets made by
PAL is taxable
NDC vs. CIR
The NDC entered into contract in Tokyo with several Japanese shipbuilding companies for the
construction of its 12 ocean-going vessels. The purchase price was to come from the proceeds of
bonds issued by the Central Bank. Initial payments were made in cash and through irrevocable letter
of credit. Fourteen (14) promissory notes were signed for the balance by the NDC guaranteed by
Republic of the Philippines.
Pursuant thereto, the remaining payments and the interest thereon were remitted in due time by the
NDC to Tokyo. The NDC remitted to the ship builders in Tokyo the total amount of US$4,066,580 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 PhP5,115,234.74. The
BIR thereupon served on the NDC a warrant of distraint and levy to enforcce collection of the claimed
amount.
Petitioner argues that the Japanese ship builders were not subject to tax under the sec. 37 of the Tax
Code because all the related activities- the signing of the contract, the construction of the vessels, the
payment of the stipulated price, and their delivery to the NDC - were done in Tokyo.
ISSUE: WON the Tokyo shipbuilders are subject to tax?
HELD:
The law specifies: interest derived from sources within the Philippines, and interest on bonds, notes,
or other interest-bearing obligation of resident, corporate or otherwise. Nothing there speak of the
'acts or activity' of non-residential corporation in the Philippines, or place where the contract is signed.
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The residence of the obligor who pays the interest rather than the physical location of the securities,
bonds or notes or the place of payment, is the determining factor of the source of interest income.
Accordingly, if the obligor is a resident of the Philippines the interest payment paid by him can have
no other source than within the Philippines. The interest is paid not by the bond note or other
interest-bearing obligations, but by the obligor.
CIR VS MABUNI
Facts:
CIR assails the CA decision which affirmed CTA, ordering CIR to desist from collecting the 1985
deficiency income, branch profit remittance and contractor’s 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
branch’s 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 contractor’s tax assessments and
second questioned the deficiency commercial broker’s 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 41’s scope to include estate and donor’s 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:
W/N Marubeni is exempted from paying tax
Held:
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 contractor’s tax assessment (business tax) and
respondent’s availment of the amnesty under EO 64, which expanded EO 41’s coverage. When EO
64 took effect on Nov 17, 1986, it did not provide for exceptions to the coverage of the amnesty for
business, estate and donor’s taxes. Instead, Section 8 said EO provided that:
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“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 supplier’s 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, respondent’s 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
contractor’s 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 contractor’s tax.Petition denied.
Manila electric vs yatco 69 phil 89
FACTS:
Meralco entered into an insurance contract with a new york based insurance company. Yatco, the
Commissioner of
Internal Revenue, levied taxes on the premium paid. Meralco paid under protest alleging that the
Philippines had no jurisdiction.
ISSUE:
Whether the CIR exceeded his powers in taxing Meralco’s paid premium
RULING:
No. Where the risk insured against and certain incidents of the contract are to be attended in the
Philippines such as
payment of dividends when received in cash, the Philippines may impose tax regardless whether the
contract is executed abroad. Under such circumstances, substantial elements of the contract may be
said to be so situated in the Philippines as to give its government the power to tax. Even if it be
assumed that the tax imposed upon the insured will ultimately be passed on to the insurer, thus
constituting an indirect tax upon the foreign corporation, by stipulations of its contract, has subjected
itself to the taxing jurisdiction of the Philippines.
After all, the Government of the Philippines, by protecting the properties insured, benefits the foreign
corporation. It is thus reasonable that the latter should pay a just contribution therefor.
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PHIL. GUARANTY CO., INC. v. CIR
GR No. L-22074, April 30, 1965
13 SCRA 775
FACTS: The petitioner Philippine Guaranty Co., Inc., a domestic insurance company, entered into reinsurance
contracts with foreign insurance companies not doing business in the country, thereby ceding to foreign
reinsurers a portion of the premiums on insurance it has originally underwritten in the Philippines. The premiums
paid by such companies were excluded by the petitioner from its gross income when it file its income tax returns
for 1953 and 1954. Furthermore, it did not withhold or pay tax on them. Consequently, the CIR assessed against
the petitioner withholding taxes on the ceded reinsurance premiums to which the latter protested the
assessment on the ground that the premiums are not subject to tax for the premiums did not constitute income
from sources within the Philippines because the foreign reinsurers did not engage in business in the Philippines,
and CIR's previous rulings did not require insurance companies to withhold income tax due from foreign
companies.
ISSUE: Are insurance companies not required to withhold tax on reinsurance premiums ceded to foreign
insurance companies, which deprives the government from collecting the tax due from them?
HELD: No. The power to tax is an attribute of sovereignty. It is a power emanating from necessity. It is a
necessary burden to preserve the State's sovereignty and a means to give the citizenry an army to resist an
aggression, a navy to defend its shores from invasion, a corps of civil servants to serve, public improvement
designed for the enjoyment of the citizenry and those which come within the State's territory, and facilities and
protection which a government is supposed to provide. Considering that the reinsurance premiums in question
were afforded protection by the government and the recipient foreign reinsurers exercised rights and privileges
guaranteed by our laws, such reinsurance premiums and reinsurers should share the burden of maintaining the
state.
The petitioner's defense of reliance of good faith on rulings of the CIR requiring no withholding of tax due on
reinsurance premiums may free the taxpayer from the payment of surcharges or penalties imposed for failure to
pay the corresponding withholding tax, but it certainly would not exculpate it from liability to pay such
withholding tax. The Government is not estopped from collecting taxes by the mistakes or errors of its agents.
