TAXATION 1st Batch

1. Sypo vs. CTA; G.R no. 81446, Aug. 18, 1998 Dino Facts: Bonifacio Sy Po is the widow of the late Po Bien Sing, (who died on 7 September 1980). In the taxable years 1964 to 1972, the deceased Po Bien Sing was the sole proprietor of Silver Cup Wine Factory (Talisay,Cebu), and was engaged in the business of manufacture and sale of compounded liquors, using alcohol andother ingredients as raw materials. On the basis of a denunciation against Silver Cup, the Secretary of Finance directed the Finance-BIR-NBI team to investigate. Silver Cup was required to produce accounting records and other related documents for the examination of the team. Po Bien Sing failed to do so. This prompted the team to enter the factory bodega of Silver Cup and seize different brands, consisting of 1,555 cases of alcohol products. On the basis of the teams report of investigation, the Commissioner assessed Po Bien Sing deficiency income tax for 1966 to 1970 in the amount of P7,154,685.16 and for deficiency specific tax for 2January 1964 to 19 January 1972 in the amount of P5,595,003.68. Po Bien Sing protested the assessment. Issue: Whether the assessment have valid and legal bases. Held: Section 16 (b) of the National Internal Revenue Code of 1977 is specific and clear. The rule on the best evidence obtainable applies when a tax report required by law for the purpose of assessment is not available or when the tax report is incomplete or fraudulent. Herein, the persistent failure of Po Bien Sing and Bonifacia Sy Po to present their books of accounts for examination for the taxable years involved left the Commissioner no other legal option except to resort to the power conferred upon him under Section 16 of the Tax Code 2. CIR vs. Hantex Trading Company; G.R. no. 136975, March 31, 2005 Floyd 3. Commissioner vs. CA, G.R. No 119761, August 29, 1996 - Joselle Facts: RA 7654 was enacted by Congress on June 10, 1993 and took effect July 3, 1993. It amended partly Sec. 142 (c) of the NIRC. Fortune Tobacco manufactured the following cigaretter brands: Hope, More and Champion. Prior to RA 7654, these 3 brands were considered local brands subjected to an ad valorem tax of 20 to

45%. Applying the amendment, the 3 brands should fall under Sec 142 (c) (2) NIRC and shall be taxed from 20 to 45%. However, on July 1, 1993, petitioner Commissioner of Internal Revenue issued Revenue Memorandum Circular37-93 which reclassified the 3 brands as locally manufactured cigarettes bearing a foreign brand subject to the 55% ad valorem tax. The reclassification was before RA 7654 took effect. In effect, the memo circular subjected the 3 brands to the provisions of Sec 142 (c) (1) NIRC imposing upon these brands a rate of 55% instead of just 20 to 45% under Sec 142 (c) (2) NIRC. Issue: Whether or not Revenue Memorandum Circular 37-93 was valid and enforceable. Ruling: No, there was lack of notice and hearing violated due process required for promulgated rules. Moreover, it infringed on uniformity of taxation / equal protection since other local cigarettes bearing foreign brands had not been included within the scope of the memo circular. Contrary to petitioners contention, the memo was not a mere interpretative rule but a legislative rule in the nature of subordinate legislation, designed to implement a primary legislation by providing the details thereof. Promulgated legislative rules must be published. On the other hand, interpretative rules only provide guidelines to the law which the administrative agency is in charge of enforcing. BIR, in reclassifying the 3 brands and raising their applicable tax rate, did not simply interpret RA 7654 but legislated under its quasi-legislative authority. It is evident from the foregoing that in issuing RMC 37-93 petitioner Commissioner of Internal Revenue was exercising her quasi-judicial or administrative adjudicatory power. She cited and interpreted the law, made a factual finding, applied the law to her given set of facts, arrived at a conclusion, and issued a ruling aimed at a specific individual. Consequently prior notice and hearing are required.

4. People vs. Tan; G.R. no. 144707, July 13, 2004 Albert 5. ABSCBN vs. CIR; 108 SCRA 142 - Jan Mark Facts: In implementing Section 4(b) of the Tax Code, the Commissioner issued General Circular V-334. Pursuant thereto, ABS-CBN Broadcasting Corp. dutifully withheld and turned over to the BIR 30% of of the film rentals paid by it to foreign corporations not engaged in trade or business in the Philippines. The last year that the company withheld taxes pursuant to the Circular was in 1968. On 27 June 1908, RA 5431 amended Section 24 (b) of the Tax Code increasing the tax rate

from 30% to 35% and revising the tax basis from such amount referring to rents, etc. to gross income. In 1971, the Commissioner issued a letter of assessment and demand for deficiency withholding income tax for years 1965 to 1968. The company requested for reconsideration; where the Commissioner did not act upon.

appointed their brother Simeon Evangelista to 'manage their properties with full power to lease; to collect and receive rents; to issue receipts therefor; in default of such payment, to bring suits against the defaulting tenants; to sign all letters, contracts, etc., for and in their behalf, and to endorse and deposit all notes and checks for them. After having bought the above-mentioned real properties the petitioners had the same rented or leases to various tenants. From the month of March, 1945 up to an including December, 1945, the total amount collected as rents on their real properties was P9,599.00 while the expenses amounted to P3,650.00 thereby leaving them a net rental income of P5,948.33. On 1946, they realized a gross rental income of in the sum of P24,786.30, out of which amount was deducted in the sum of P16,288.27 for expenses thereby leaving them a net rental income of P7,498.13. In 1948, they realized a gross rental income of P17,453.00 out of the which amount was deducted the sum of P4,837.65 as expenses, thereby leaving them a net rental income of P12,615.35. 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, computed, according to assessment made by said officer. Issue: Whether petitioners 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. The issue in this case With respect to the tax on corporations, the issue hinges on the meaning of the terms "corporation" and "partnership," as used in section 24 and 84 of said Code. Ruling: To begin with, the tax in question is one imposed upon "corporations", which, strictly speaking, are distinct and different from "partnerships". When our Internal Revenue Code includes "partnerships" among the entities subject to the tax on "corporations", said Code must allude, therefore, to organizations which are not necessarily "partnerships", in the technical sense of the term. Thus, for instance, section 24 of said Code exempts from the aforementioned tax "duly registered general partnerships which constitute precisely one of the most typical forms of partnerships in this jurisdiction. Likewise, as defined in section 84(b) of said Code, "the term corporation includes partnerships, no matter how created or organized." This qualifying expression clearly indicates that a joint venture need not be undertaken in any of the standard forms, or in conformity with the usual requirements of the law on partnerships, in order that one could be deemed constituted for purposes of the tax on corporations. Again, pursuant to said

Issue: Whether Revenue Memorandum Circular 4-71, revoking General Circular V-334, may be retroactively applied. Ruling: Rulings or circulars promulgated by the Commissioner have no retroactive application where to so apply them would be prejudicial to taxpayers. Herein, the prejudice the company of the retroactive application of Memorandum Circular 471 is beyond question. The company was no longer in a position to withhold taxes due from foreign corporations because it had already remitted all film rentals and had no longer control over them when the new circular was issued. Insofar as the enumerated exceptions are concerned, the company does not fall under any of them. 6. Evangelista vs. CIR; 102 phil 140 Micah Facts: Petitioners borrowed from their father the sum of P59,1400.00 which amount together with their personal monies was used by them for the purpose of buying real properties. On February 2, 1943, they bought from Mrs. Josefina Florentino a lot with an area of 3,713.40 sq. m. including improvements thereon from the sum of P100,000.00; this property has an assessed value of P57,517.00 as of 1948. On April 3, 1944 they purchased from Mrs. Josefa Oppus 21 parcels of land with an aggregate area of 3,718.40 sq. m. including improvements thereon for P130,000.00; this property has an assessed value of P82,255.00 as of 1948. On April 28, 1944 they purchased from the Insular Investments Inc., a lot of 4,353 sq. m. including improvements thereon for P108,825.00. This property has an assessed value of P4,983.00 as of 1948.

On April 28, 1944 they bought form Mrs. Valentina Afable a lot of 8,371 sq. m. including improvements thereon for P237,234.34. This property has an assessed value of P59,140.00 as of 1948. In a document dated August 16, 1945, they

section 84(b), the term "corporation" includes, among other, joint accounts, (cuentas en participation)" and "associations," none of which has a legal personality of its own, independent of that of its members. Accordingly, the lawmaker could not have regarded that personality as a condition essential to the existence of the partnerships therein referred to. In fact, as above stated, "duly registered general copartnerships" which are possessed of the aforementioned personality have been expressly excluded by law (sections 24 and 84 [b] from the connotation of the term "corporation" It may not be amiss to add that petitioners' allegation to the effect that their liability in connection with the leasing of the lots above referred to, under the management of one person even if true, on which we express no opinion tends to increase the similarity between the nature of their venture and that corporations, and is, therefore, an additional argument in favor of the imposition of said tax on corporations.

Issue: Whether or not petitioners have formed a partnership or joint venture and, thus, are liable for corporate income tax. Held: 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. 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 that was, in the nature of things, a temporary state.To consider them as partners would obliterate the distinction between a coownership and a partnership. The petitioners were not engaged in any joint venture by reason of that isolated transaction. 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. WHEREFORE, the judgment of the Tax Court is reversed and set aside. The assessments are cancelled. No costs. 8. Pascual vs. Commissioner; G.R. no. 78133, October 18, 1988 April Facts: The distinction between co-ownership and an unregistered partnership or joint venture for income tax purposes is the issue in this petition. On June 22, 1965, petitioners bought two (2) parcels of land from Santiago Bernardino, et al. and on May 28, 1966, they bought another three (3) 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 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

For purposes of the tax on corporations, our National Internal Revenue Code, includes these partnerships with the exception only of duly registered general copartnerships 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. 7. Obillos vs. Commissioner; G.R. no. L-68118, October 29, 1985 Zara Facts: For at least one year after their receipt of two parcels of land from their father, petitioners resold said lots for which they earned a 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. One day before the expiration of the five-year prescriptive period, the Commissioner of Internal Revenue 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 He assessed P37,018 as corporate income tax, P18,509 as 50% fraud surcharge and P15,547.56 as 42% accumulated interest, or a total of P71,074.56. Not only that. He considered the share of the profits of each petitioner in the sum of P33,584 as taxable in full (not a mere capital gain of which is taxable) and required them to pay deficiency income taxes aggregating P56,707.20 including the 50% fraud surcharge and the accumulated interest. Thus, the petitioners are being held liable for deficiency income taxes and penalties totaling P127,781.76 on their profit of P134,336, in addition to the tax on capital gains already paid by them.

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 fromprofits derived from the partnership by them which is subject to individual income tax. Issue: Whether petitioners formed an unregistered partnership thereby assessed with 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 fromt he 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 gain 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. 9. AFISCO vs. CIR; G.R. no. 112675, January 25, 1999 Kenny FACTS Forty-one non-life insurance corporations entered into a Quota Share Reinsurance Treaty and a Surplus Reinsurance Treaty with Munchener Ruckvericherungs-Gesselschaft (Munich), a non-resident foreign insurance corporation. The reinsurance treaties required petitioners to form a pool.

On April 14, 1976, the pool of machinery insurers submitted a financial statement and filed an "Information Return of Organization Exempt from Income Tax" for the year ending in 1975, on the basis of which it was assessed by the CIR deficiency corporate taxes, withholding taxes, and dividends paid to Munich and to the petitioners, respectively. These assessments were protested by the petitioners through its auditors Sycip, Gorres, Velayo and Co. On January 27, 1986, the Commissioner of Internal Revenue denied the protest and ordered the petitioners, assessed as "Pool of Machinery Insurers," to pay deficiency income tax, interest, and withholding tax. ISSUE Whether or not the Clearing House, acting as a mere agent and performing strictly administrative functions, and which did not insure or assume any risk in its own name, was a partnership or association subject to tax as a corporation; RULING Yes, the pool is taxable as a corporation. The Court in Evangelista v. Collector of Internal Revenue held that Section 24 covered these unregistered partnerships and even associations or joint accounts, which had no legal personalities apart from their individual members. The Court of Appeals astutely applied Evangelista. . . . Accordingly, a pool of individual real property owners dealing in real estate business was considered a corporation for purposes of the tax in sec. 24 of the Tax Code in Evangelista v. Collector of Internal Revenue, supra. The Supreme Court said: The term "partnership" includes a syndicate, group, pool, joint venture or other unincorporated organization, through or by means of which any business, financial operation, or venture is carried on. *** (8 Merten's Law of Federal Income Taxation, p. 562 Note 63) In the case before us, the ceding companies entered into a Pool Agreement or an association that would handle all the insurance businesses covered under their quota-share reinsurance treaty 31 and surplus reinsurance treaty 32 with Munich. The following unmistakably indicates a partnership or an association covered by Section 24 of the NIRC 10. Madrigal vs. Rafferty; G.R. no. L-12287, August 7, 1918; Rochelle FACTS: Vicente Madrigal and Susana Paterno are legally married prior to January 1, 1914 and was contracted under the provisions of law concerning conjugal partnerships. He filed his net total income for the year 1914 with the CIR claiming

that the said income represents the income of the conjugal partnership existing between him and his wife which must be divided equally into two and then assessed for tax separately. However, he was assessed to pay tax for the whole amount and after payment under protest, and after such protest was decided adversely by the CIR, the spouses filed an action with the CFI of Manila for the recovery of the amount which is alleged to have been wrongfully and illegally collected by defendants from the plaintiffs. ISSUES: 1. What is income tax? 2. Should the additional income tax be divided into two equal parts because of the conjugal partnership existing between the spouses? RULING: 1. The Income Tax Law of the United States, extended to the Philippine Islands, is the result of an effect on the part of the legislators to put into statutory form this canon of taxation and of social reform. The aim has been to mitigate the evils arising from inequalities of wealth by a progressive scheme of taxation, which places the burden on those best able to pay. To carry out this idea, public considerations have demanded an exemption roughly equivalent to the minimum of subsistence. With these exceptions, the income tax is supposed to reach the earnings of the entire non-governmental property of the country. Such is the background of the Income Tax Law. Income as contrasted with capital or property is to be the test. The essential difference between capital and income is that capital is a fund; income is a flow. A fund of property existing at an instant of time is called capital. A flow of services rendered by that capital by the payment of money from it or any other benefit rendered by a fund of capital in relation to such fund through a period of time is called an income. Capital is wealth, while income is the service of wealth. (See Fisher, "The Nature of Capital and Income.") The Supreme Court of Georgia expresses the thought in the following figurative language: "The fact is that property is a tree, income is the fruit; labor is a tree, income the fruit; capital is a tree, income the fruit." (Waring vs. City of Savannah [1878], 60 Ga., 93.) A tax on income is not a tax on property. "Income," as here used, can be defined as "profits or gains." (London County Council vs. Attorney-General [1901], A. C., 26; 70 L. J. K. B. N. S., 77; 83 L. T. N. S., 605; 49 Week. Rep., 686; 4 Tax Cas., 265. See further Foster's Income Tax, second edition [1915], Chapter IV; Black on Income Taxes, second edition [1915], Chapter VIII; Gibbons vs. Mahon [1890], 136 U.S., 549; and Towne vs. Eisner, decided by the United States Supreme Court, January 7, 1918.) 2. Susana Paterno, wife of Vicente Madrigal, has an inchoate right in the property of her husband Vicente Madrigal during the life of the conjugal

partnership. She has an interest in the ultimate property rights and in the ultimate ownership of property acquired as income after such income has become capital. Susana Paterno has no absolute right to one-half the income of the conjugal partnership. Not being seized of a separate estate, Susana Paterno cannot make a separate return in order to receive the benefit of the exemption which would arise by reason of the additional tax. As she has no estate and income, actually and legally vested in her and entirely distinct from her husband's property, the income cannot properly be considered the separate income of the wife for the purposes of the additional tax. Moreover, the Income Tax Law does not look on the spouses as individual partners in an ordinary partnership. The husband and wife are only entitled to the exemption of P8,000 specifically granted by the law. The higher schedules of the additional tax directed at the incomes of the wealthy may not be partially defeated by reliance on provisions in our Civil Code dealing with the conjugal partnership and having no application to the Income Tax Law. The aims and purposes of the Income Tax Law must be given effect.

11. Commissioner vs. BOAC; 149 SCRA 395 Ihra Facts: British Overseas Airways Corp (BOAC) is a 100% British Government-owned corporation engaged in international airline business and is a member of the Interline Air Transport Association, and thus, it operates air transportation services and sells transportation tickets over the routes of the other airline members. From 1959 to 1972, BOAC had no landing rights for traffic purposes in the Philippines and thus, did not carry passengers and/or cargo to or from the Philippines but maintained a general sales agent in the Philippines - Warner Barnes & Co. Ltd. and later, Qantas Airways - which was responsible for selling BOAC tickets covering passengers and cargoes. The Commissioner of Internal Revenue assessed deficiency income taxes against BOAC. The Tax Court held that the proceeds of sales of BOAC passage tickets in the Philippines by Warner Barnes and Company, Ltd., and later by Qantas Airways, during the period in question, 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. Thus, the Tax Court ordered petitioner to credit BOAC and to cancel the deficiency income tax assessments against BOAC. Issue:

Whether or not the revenue derived by BOAC from sales of tickets in the Philippines for air transportation, while having no landing rights here, constitute income of BOAC from Philippine sources, and, accordingly, taxable? Ruling: Yes. The Tax Code defines "gross income" thus: "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 profession, vocations, trades,business, commerce, sales, or dealings in property, whether real or personal, growing out of the 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 profile, or gains, profits, and income derived from any source whatever (Sec. 29[3]; Emphasis supplied) The definition is broad and comprehensive to include proceeds from sales of 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 to a person within a specific time ...; it means something distinct from principal or capital. For, while capital is a fund, income is a flow. As used in our income tax law, "income" refers to the flow of wealth. The records show that the Philippine gross income of BOAC for the fiscal years 1968-69 to 1970-71 amounted to P10,428,368 .00. 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. A transportation ticket is not a mere piece of paper. When issued by a common carrier, it constitutes the contract between the ticket-holder and the carrier. It gives rise to the obligation of the purchaser of the ticket to pay the fare and the corresponding obligation of the carrier to transport the passenger upon the terms and conditions set forth thereon. The ordinary ticket issued to members of the traveling public in general embraces within its terms all the elements to constitute it a valid contract, binding upon the parties entering into the relationship. 9

True, Section 37(a) of the Tax Code, which enumerates items of gross income from sources within the Philippines, namely: (1) interest, (21) dividends, (3) service, (4) rentals and royalties, (5) sale of real property, and (6) sale of personal property, does not mention income from the sale of tickets for international transportation. However, that does not render it less an income from sources within the Philippines. Section 37, by its language, does not intend the enumeration to be exclusive. It merely directs that the types of income listed therein be treated as income from sources within the Philippines. A cursory reading of the section will show that it does not state that it is an all-inclusive enumeration, and that no other kind of income may be so considered. " The absence of flight operations to and from the Philippines is not determinative of the source of income or the site of income taxation. Admittedly, BOAC was an off-line international airline at the time pertinent to this case. The test of taxability is the "source"; and the source of an income is that activity ... which produced the income. Unquestionably, the passage documentations in these cases were sold in the Philippines and the revenue therefrom was derived from a activity regularly pursued within the Philippines. business a And even if the BOAC tickets sold covered the "transport of passengers and cargo to and from foreign cities", it cannot alter the fact that income from the sale of tickets was derived from the Philippines. The word "source" conveys one essential idea, that of origin, and the origin of the income herein is the Philippines 12. Reederij vs. Commissioner; G.R. no. 46029, June 23, 1988 Lean Facts: In 1963 and 1964, 2 vessels of petitioner N.B. Reederij "Amsterdam," called on Philippine ports to load cargoes for foreign destination. The freight fees for these transactions were paid abroad. In these two instances, petitioner Royal Interocean Lines (RIL) acted as husbanding agent for a fee or commission on said vessels. No income tax appears to have been paid by petitioner N.V. Reederij "AMSTERDAM" on the freight receipts. Commissioner assessed said petitioner for deficiency of income tax for the years 1963 and 1964 as "a non-resident foreign corporation not engaged in trade or business in the Philippines under Section 24 (b) (1) of the Tax Code. On the assumption that the said petitioner is a foreign corporation engaged in trade or business in the Philippines, RIL filed an income tax return of the aforementioned vessels and paid the tax in pursuant to their supposed classification. On the same date, RIL filed a written protest against the assessment made by the respondent Commissioner. The protest was denied. On appeal, CTA modified the assessment by eliminating the 50% fraud compromise penalties imposed upon petitioners. Petitioner still was not satisfied and decided to appeal to the SC.

Issue: Whether N.V. Reederij "Amsterdam" should be taxed as a foreign corporation not engaged in trade or business in the philippines under section 24(b) (1) of the tax code or should be taxed as a foreign corporation engaged in trade or business in the philippines under section 24(b) (2) in relation to section 37 (e) of the same code. Held: Petitioner N.V. Reederij "Amsterdam" is a non-resident foreign corporation, organized and existing under the laws of The Netherlands with principal office in Amsterdam and not licensed to do business in the Philippines. As a non-resident foreign corporation, it is thus a foreign corporation, not engaged in trade or business within the Philippines. Therefore, it is taxable on income from all sources within the Philippines, as interest, dividends, rents, salaries, wages, premiums, annuities, compensations, remunerations, emoluments, or other fixed or determinable annual or periodical or casual gains, profits and income and capital gains, and the tax is equal to thirty per centum of such amount, under Section 24(b) (1) of the Tax Code. The accent is on the words of--`such amount." Accordingly, petitioner N. V. Reederij "Amsterdam" being a non-resident foreign corporation, its taxable income for purposes of our income tax law consists of its gross income from all sources within the Philippines. In order that a foreign corporation may be considered engaged in trade or business, its business transactions must be continuous. A casual business activity in the Philippines by a foreign corporation does not amount to engaging in trade or business in the Philippines for income tax purposes. A foreign corporation doing business in the Philippines is taxable on income solely from sources within the Philippines. It is permitted to claim deductions from gross income but only to the extent connected with income earned in the Philippines. On the other hand, a foreign corporation not engaged in trade or business within the Philippies and which does not have any office or place of business therein is taxed on income received from all sources within the Philippines at the rate of 35% of the gross income. 13. Commissioner vs. Manning; 66 SCRA 14 Gail FACTS: 1952 - Mantrasco had an authorized capital stock of P2.5M divided into 25,000 common shares. 24,700 of these shares are owned by Julius Reese while the rest, at 100 each, are owned by Manning, McDonald & Simmons. A trust agreement was executed between Reese, Mantrasco, Ross, Selph, Carrascoso & Janda law firm, Manning, McDonald and Simmons so that Mantrasco

and Mantrasocs 2 subsidiaries, Mantrasco Guam and Port Motors, will continue under the management of Manning, McDonald and Simmons upon his [Reese] death. When Reese died, the projected transfer of his shares in the name of Mantrasco could not be immediately effected for lack of sufficient funds to cover the initial payment on the shares. After Mantrasco made a partial payment of Reese's shares, the certificate for the 24,700 shares in Reese's name was cancelled and a new certificate as issued in the name of Mantrasco. Also, new certificate was endorsed to the law firm of Ross, Selph, Carrascoso and Janda, as trustees for and in behalf of Mantrasco. Subsequently, a resolution was passed during a special meeting of Mantrasco stockholders. Eventually, the entire purchase price of Reese's interest in Mantrasco was finally paid in full by Mantrasco. Later, the trust agreement was terminated and the trustees delivered to Mantrasco all the shares which they were holding in trust. September 14, 1962 - BIR ordered an examination of Mantrascos books. This examination disclosed that: As of December 31, 1958 the 24,700 shares declared as dividends had been proportionately distributed to Manning, McDonald & Simmons, representing a total book value or acquisition cost of P7,973,6602. Manning, McDonald & Simmons failed to declare the said stock dividends as part of their taxable income for the year 1958. Thus, BIR examiners concluded that the distribution of Reese's shares as stock dividends was in effect a distribution of the "asset or property of the corporation as may be gleaned from the payment of cash for the redemption of said stock and distributing the same as stock dividend." Because of this, the Commissioner of Internal Revenue issued notices of assessment for deficiency income taxes to Manning, McDonald & Simmons for the year 1958. Manning, McDonald & Simmons opposed said assessments. BIR still held them liable for these assessments. Manning, McDonald & Simmons appealed to the CTA. CTA absolved Manning, McDonald &Simmons from any liability on the ground that their respective 1/3 interest in Mantrasco remained the same before and after the declaration of stock dividends and only the number of shares held by each of them changed. ISSUE:

WON Manning, McDonald & Simmons should pay for deficiency income taxes HELD: Yes. The ultimate purpose which the parties to the trust agreement aimed to realize is to make Manning, McDonalds &Simmons the sole owners of Reeses interest in Mantrasco by utilizing the periodic earnings of Mantrasco and its subsidiaries to directly subsidize their purchase of said interests and by making it appear that they have not received any income from those firms when, in fact, by the formal declaration of non-existent stock dividends in the treasury they secured to themselves the means to turn around as full owners of Reeses shares. Manning, McDonald & Simmons, using the trust instrument as a convenient technical device, bestowed unto themselves the full worth and value of Reese's corporate holdings with the use of the very earnings of the companies. Such package device, obviously not designed to carry out the usual stock dividend purpose of corporate expansion reinvestment but exclusively for expanding the capital base of Manning, McDonald & Simmons in Mantrasco, cannot be allowed to deflect their responsibilities toward our income tax laws. All these amounts are subject to income tax as being a flow of cash benefits to Manning, McDonald & Simmons. Commissioners assessment is erroneous. Commissioner should not have assessed the income tax on the total acquisition cost of the alleged treasury stock dividends in 1 lump sum. The record shows that the earnings of Mantrasco over a period of years were used to gradually wipe out the holdings of Reese. Consequently, those earnings should be taxed for each of the corresponding years when payments were made to Reeses estate on account of his 24,700 shares. Dispositive: CTA judgment set aside. Case remanded to the CTA for further proceedings for the re-computation of the income tax liabilities of Manning, McDonald & Simmons. 14. CIR vs. Javier; G.R. no. 78953, July 31, 1991 Nathan 15. Commissioner vs. CA; G.R. no. 108576, January 30, 1999 Pie Facts: Don Andres Soriano, a citizen and resident of the United States, formed the corporation "A. Soriano Y Cia", predecessor of ANSCOR, with a P1,000,000.00

capitalization divided into 10,000 common shares at a par value of P100/share. ANSCOR is wholly owned and controlled by the family of Don Andres, who are all non resident aliens. From 1947-1963, ANSCOR declared stock dividends. On December 30, 1964 Don Andres died. As of that date, the records revealed that he has a total shareholdings of 185,154 shares. Correspondingly, one-half of that shareholdings or 92,577 shares were transferred to his wife, Doa Carmen Soriano, as her conjugal share. The other half formed part of his estate. A day after Don Andres died, ANSCOR increased its capital stock to P20M and in 1966 further increased it to P30M. Stock dividends worth 46,290 and 46,287 shares were respectively received by the Don Andres estate and Doa Carmen from ANSCOR, increasing their accumulated shareholdings to 138,867 and 138,864 common shares each. On June 30, 1968, pursuant to a Board Resolution, ANSCOR redeemed 28,000 common shares from the Don Andres' estate. By November 1968, the Board further increased ANSCOR's capital stock to P75M. About a year later, ANSCOR again redeemed 80,000 common shares from the Don Andres' estate. In 1973, after examining ANSCOR's books of account and records, Revenue examiners issued a report proposing that ANSCOR be assessed for deficiency withholding tax-at-source, pursuant to Sections 53 and 54 of the 1939 Revenue Code for the year 1968 and the second quarter of 1969 based on the transactions of exchange and redemption of stocks. Subsequently, ANSCOR filed a petition for review with the CTA assailing the tax assessments on the redemptions and exchange of stocks. In its decision, the Tax Court reversed petitioner's ruling, after finding sufficient evidence to overcome the prima facie correctness of the questioned assessments. In a petition for review the CA as mentioned, affirmed the ruling of the CTA. Hence, this petition. ISSUE: Whether or not ANSCOR's redemption of stocks from its stockholder as well as the exchange of common with preferred shares can be considered as "essentially equivalent to the distribution of taxable dividend" making the proceeds thereof taxable.

RULING: YES. The bone of contention is the interpretation and application of Section 83(b) of the 1939 Revenue Act 38. Stock dividends, strictly speaking, represent capital and do not constitute income to its recipient. So that the mere issuance thereof is not yet subject to income tax as they are nothing but an "enrichment through increase in value of capital

investment." The exception provides that the redemption or cancellation of stock dividends, depending on the "time" and "manner" it was made, is essentially equivalent to a distribution of taxable dividends," making the proceeds thereof "taxable income" "to the extent it represents profits". Simply put, depending on the circumstances, the proceeds of redemption of stock dividends are essentially distribution of cash dividends, which when paid becomes the absolute property of the stockholder. Thereafter, the latter becomes the exclusive owner thereof and can exercise the freedom of choice. Having realized gain from that redemption, the income earner cannot escape income tax. For the exempting clause of Section, 83(b) to apply, it is indispensable that: (a) there is redemption or cancellation; (b) the transaction involves stock dividends and (c) the "time and manner" of the transaction makes it "essentially equivalent to a distribution of taxable dividends." It is not the stock dividends but the proceeds of its redemption that may be deemed as taxable dividends. ANSCOR redeemed stock dividends issued just 2 to 3 years earlier. At the time of the last redemption, the original common shares owned by the estate were only 25,247.5 91 This means that from the total of 108,000 shares redeemed from the estate, the balance of 82,752.5 (108,000 less 25,247.5) must have come from stock dividends. The test of taxability under the exempting clause of Section 83(b) is, whether income was realized through the redemption of stock dividends. The redemption converts into money the stock dividends which become a realized profit or gain and consequently, the stockholder's separate property. Profits derived from the capital invested cannot escape income tax. As realized income, the proceeds of the redeemed stock dividends can be reached by income taxation regardless of the existence of any business purpose for the redemption. The proceeds thereof are essentially considered equivalent to a distribution of taxable dividends. As "taxable dividend" under Section 83(b), it is part of the "entire income" subject to tax under Section 22 in relation to Section 21 120 of the 1939 Code. Moreover, under Section 29(a) of said Code, dividends are included in "gross income". As income, it is subject to income tax which is required to be withheld at source. DISPOSITIVE: WHEREFORE, premises considered, the decision of the Court of Appeals is MODIFIED in that ANSCOR's redemption of 82,752.5 stock dividends is herein considered as essentially equivalent to a distribution of taxable dividends for which it is LIABLE for the withholding tax-at-source. The decision is AFFIRMED in all other respects. 16. CIR vs. Bank of Commerce; G.R. no. 149636, June 8, 2005 Ingrid FACTS: In 1994 and 1995, the respondent Bank of Commerce derived passive income in the form of interests or discounts from its investments in government

securities and private commercial papers. On several occasions during that period, it paid 5% gross receipts tax on its income. Included therein was the respondent banks passive income from the said investments amounting to P 85,384,254.51, which had already been subjected to a final tax of 20%. Meanwhile, the CTA rendered judgment in Asia Bank Corporation v. Commissioner of Internal Revenue, holding that the 20% final withholding tax on interest income from banks does not form part of taxable gross receipts for Gross Receipts Tax (GRT) purposes. The CTA relied on Section 4 (e) of Revenue Regulations (Rev. Reg.) No. 12-80. The respondent bank then filed an administrative claim for refund, claimed that it had overpaid its gross receipts tax for 1994 to 1995 by P 853,842.54. ISSUES: (1) Does the 20% final withholding tax on banks interest income form part of the taxable gross receipts in computing the 5% gross receipts tax? (2) Is there double taxation? HELD: (1) Yes. In Far East Bank & Trust Co. v. Commissioner and Standard Chartered Bank v. Commissioner, both promulgated on 16 November 2001, the tax court ruled that the final withholding tax forms part of the banks gross receipts in computing the gross receipts tax. The tax court held that Section 4(e) of Revenue Regulations No. 12-80 did not prescribe the computation of the amount of gross receipts but merely authorized the determination of the amount of gross receipts on the basis of the method of accounting being used by the taxpayer. The word gross must be used in its plain and ordinary meaning. It is defined as whole, entire, total, without deduction. (2) SC reversed the ruling of the CA that subjecting the Final Withholding Tax (FWT) to the 5% of gross receipts tax would result in double taxation. In CIR v. Solidbank Corporation, SC said that the two taxes, subject of this litigation, are different from each other. The basis of their imposition may be the same, but their natures are different. NO DOUBLE TAXATION Double taxation means taxing the same property twice when it should be taxed only once; that is, "xxx taxing the same person twice by the same jurisdiction for the same thing." It is obnoxious when the taxpayer is taxed twice, when it should be but once. Otherwise described as "direct duplicate taxation," the two taxes must be imposed on the same subject matter, for the same

purpose, by the same taxing authority, within the same jurisdiction, during the same taxing period; and they must be of the same kind or character. First, the taxes herein are imposed on two different subject matters. The subject matter of the FWT is the passive income generated in the form of interest on deposits and yield on deposit substitutes, while the subject matter of the GRT is the privilege of engaging in the business of banking. A tax based on receipts is a tax on business rather than on the property; hence, it is an excise rather than a property tax. It is not an income tax, unlike the FWT. In fact, we have already held that one can be taxed for engaging in business and further taxed differently for the income derived therefrom. Akin to our ruling in Velilla v. Posadas,these two taxes are entirely distinct and are assessed under different provisions. Second, although both taxes are national in scope because they are imposed by the same taxing authority the national government under the Tax Code and operate within the same Philippine jurisdiction for the same purpose of raising revenues, the taxing periods they affect are different. The FWT is deducted and withheld as soon as the income is earned, and is paid after every calendar quarter in which it is earned. On the other hand, the GRT is neither deducted nor withheld, but is paid only after every taxable quarter in which it is earned. Third, these two taxes are of different kinds or characters. The FWT is an income tax subject to withholding, while the GRT is a percentage tax not subject to withholding. In short, there is no double taxation, because there is no taxing twice, by the same taxing authority, within the same jurisdiction, for the same purpose, in different taxing periods, some of the property in the territory. Subjecting interest income to a 20% FWT and including it in the computation of the 5% GRT is clearly not double taxation.

which the minimum corporate income tax should not be imposed. On June 23, 1999, the BSP authorized Manila Bank to operate as a thrift bank. In addition, on June 15, 1999, Revenue Regulation #4-95 (pursuant to Thrift Bank Act of 1995) provides that the date of commencement of operations shall be understood to mean the date when the thrift bank was registered with SEC or when Certificate of Authority to Operate was issued by the Monetary Board, whichever comes LATER. Subsequently, Manila Bank wrote to BIR requesting a ruling on whether it is entitled to the 4 year grace period. The following years, specifically on April 7, 2000, it filed its annual corporate income tax return and paid P33, 816,164.00 as minimum corporate income tax (MCIT) for taxable year 1999. On Feb 2001, BIR issued BIR Ruling 7-2001 stating that Manila Bank is entitled to the 4-year grace period. Since it reopened in 1999, the MCIT may be imposed not earlier than 2002. It stressed that although it had been registered with the BIR before 1994, but it ceased operations 1987-1999 due to involuntary closure. Manila Bank, then, filed with BIR for the refund. However, due to the inaction of BIR on the claim, it filed with CTA for a petition for review, which was denied and found that Manila Banks payment of 33M is correct, since its operations were merely interrupted during 1987-1999. CA affirmed CTA. ISSUE: What is the reckoning date for the MCIT in so far as thrift banks are concerned? HELD: Under the law (R.A. 8424), MCIT is imposed beginning on the fourth year following the commencement of business operations. Revenue Regulations No. 998 provides that For purpose of the MCIT, the taxable year in which business operations commenced shall be the year in which the domestic corporation registered with the BIR. Petitioner registered as a commercial bank with the BIR in 1961 and again registered on January 21, 1999 as a thrift bank. However, with respect to thrift banks, the date of commencement of business operations is the date the particular thrift bank was registered with the SEC or the date when the Certificate of Authority to Operate was issued to it by the Monetary Board of the BSP, whichever comes later (RR No. 4-95implementing R.A. No. 7906). The SC ruled that what applied to petitioner is RR No. 4-95 and not RR No.9-98. It is, therefore, entitled to a grace period of four years counted from June 23, 1999 when it was authorized by the BSP to operate as a thrift bank (it having been registered with SEC at an earlier date). Consequently, it should only pay it MCIT after four (4) years from 1999. A thrift bank is a different taxpayer from that of the commercial bank, hence, for purposes of the MCIT, the thrift bank will be considered as an entirely new

17. Manila Banking Corp vs. CIR; G.R. no. 168118, Aug. 28, 2006 Rocky FACTS: Manila Banking Corporation (MBC) was incorporated in 1961 and since had engaged in the commercial banking business until it was ordered closed by the Bangko Sentral ng Pilipinas in 1987 due to insolvency. In 1998, the Comprehensive Tax Reform Act (RA8424) imposed a minimum corporate income tax on domestic and resident foreign corporations. Its implementing law allows a 4-year period from the time the corporations were registered with the BIR during

entity although it continued to use the same corporate name used by it as a commercial bank.