G.R. No.

L-12287

August 7, 1918

VICENTE MADRIGAL and his wife, SUSANA PATERNO, plaintiffs-appellants, vs. JAMES J. RAFFERTY, Collector of Internal Revenue, and VENANCIO CONCEPCION, Deputy Collector of Internal Revenue, defendants-appellees. Gregorio Araneta for appellants. Assistant Attorney Round for appellees. MALCOLM, J.: This appeal calls for consideration of the Income Tax Law, a law of American origin, with reference to the Civil Code, a law of Spanish origin. STATEMENT OF THE CASE. Vicente Madrigal and Susana Paterno were legally married prior to January 1, 1914. The marriage was contracted under the provisions of law concerning conjugal partnerships (sociedad de gananciales). On February 25, 1915, Vicente Madrigal filed sworn declaration on the prescribed form with the Collector of Internal Revenue, showing, as his total net income for the year 1914, the sum of P296,302.73. Subsequently Madrigal submitted the claim that the said P296,302.73 did not represent his income for the year 1914, but was in fact the income of the conjugal partnership existing between himself and his wife Susana Paterno, and that in computing and assessing the additional income tax provided by the Act of Congress of October 3, 1913, the income declared by Vicente Madrigal should be divided into two equal parts, one-half to be considered the income of Vicente Madrigal and the other half of Susana Paterno. The general question had in the meantime been submitted to the Attorney-General of the Philippine Islands who in an opinion dated March 17, 1915, held with the petitioner Madrigal. The revenue officers being still unsatisfied, the correspondence together with this opinion was forwarded to Washington for a decision by the United States Treasury Department. The United States Commissioner of Internal Revenue reversed the opinion of the Attorney-General, and thus decided against the claim of Madrigal. After payment under protest, and after the protest of Madrigal had been decided adversely by the Collector of Internal Revenue, action was begun by Vicente Madrigal and his wife Susana Paterno in the Court of First Instance of the city of Manila against Collector of Internal Revenue and the Deputy Collector of Internal Revenue for the recovery of the sum of P3,786.08, alleged to have been wrongfully and illegally collected by the defendants from the plaintiff, Vicente Madrigal, under the provisions of the Act of Congress known as the Income Tax Law. The burden of the complaint was that if the income tax for the year 1914 had been correctly and lawfully computed there would have been due payable by each of the plaintiffs the sum of P2,921.09, which taken together amounts of a total of P5,842.18 instead of P9,668.21, erroneously and unlawfully collected from the plaintiff Vicente Madrigal, with the result that plaintiff Madrigal has paid as income tax for the year 1914, P3,786.08, in excess of the sum lawfully due and payable. The answer of the defendants, together with an analysis of the tax declaration, the pleadings, and the stipulation, sets forth the basis of defendants' stand in the following way: The income of Vicente Madrigal and his wife Susana Paterno of the year 1914 was made up

of three items: (1) P362,407.67, the profits made by Vicente Madrigal in his coal and shipping business; (2) P4,086.50, the profits made by Susana Paterno in her embroidery business; (3) P16,687.80, the profits made by Vicente Madrigal in a pawnshop company. The sum of these three items is P383,181.97, the gross income of Vicente Madrigal and Susana Paterno for the year 1914. General deductions were claimed and allowed in the sum of P86,879.24. The resulting net income was P296,302.73. For the purpose of assessing the normal tax of one per cent on the net income there were allowed as specific deductions the following: (1) P16,687.80, the tax upon which was to be paid at source, and (2) P8,000, the specific exemption granted to Vicente Madrigal and Susana Paterno, husband and wife. The remainder, P271,614.93 was the sum upon which the normal tax of one per cent was assessed. The normal tax thus arrived at was P2,716.15. The dispute between the plaintiffs and the defendants concerned the additional tax provided for in the Income Tax Law. The trial court in an exhausted decision found in favor of defendants, without costs. ISSUES. The contentions of plaintiffs and appellants having to do solely with the additional income tax, is that is should be divided into two equal parts, because of the conjugal partnership existing between them. The learned argument of counsel is mostly based upon the provisions of the Civil Code establishing the sociedad de gananciales. The counter contentions of appellees are that the taxes imposed by the Income Tax Law are as the name implies taxes upon income tax and not upon capital and property; that the fact that Madrigal was a married man, and his marriage contracted under the provisions governing the conjugal partnership, has no bearing on income considered as income, and that the distinction must be drawn between the ordinary form of commercial partnership and the conjugal partnership of spouses resulting from the relation of marriage. DECISION. From the point of view of test of faculty in taxation, no less than five answers have been given the course of history. The final stage has been the selection of income as the norm of taxation. (See Seligman, "The Income Tax," Introduction.) 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.) A regulation of the United States Treasury Department relative to returns by the husband and wife not living apart, contains the following: The husband, as the head and legal representative of the household and general custodian of its income, should make and render the return of the aggregate income of himself and wife, and for the purpose of levying the income tax it is assumed that he can ascertain the total amount of said income. If a wife has a separate estate managed by herself as her own separate property, and receives an income of more than $3,000, she may make return of her own income, and if the husband has other net income, making the aggregate of both incomes more than $4,000, the wife's return should be attached to the return of her husband, or his income should be included in her return, in order that a deduction of $4,000 may be made from the aggregate of both incomes. The tax in such case, however, will be imposed only upon so much of the aggregate income of both shall exceed $4,000. If either husband or wife separately has an income equal to or in excess of $3,000, a return of annual net income is required under the law, and such return must include the income of both, and in such case the return must be made even though the combined income of both be less than $4,000. If the aggregate net income of both exceeds $4,000, an annual return of their combined incomes must be made in the manner stated, although neither one separately has an income of $3,000 per annum. They are jointly and separately liable for such return and for the payment of the tax. The single or married status of the person claiming the specific exemption shall be determined as one of the time of claiming such exemption which return is made, otherwise the status at the close of the year." With these general observations relative to the Income Tax Law in force in the Philippine Islands, we turn for a moment to consider the provisions of the Civil Code dealing with the conjugal partnership. Recently in two elaborate decisions in which a long line of Spanish authorities were cited, this court in speaking of the conjugal partnership, decided that "prior to the liquidation the interest of the wife and in case of her death, of her heirs, is an interest inchoate, a mere expectancy, which constitutes neither a legal nor an equitable estate, and does not ripen into title until there appears that there are assets in the community as a result of the liquidation and settlement." (Nable Jose vs. Nable Jose [1916], 15 Off. Gaz., 871; Manuel and Laxamana vs. Losano [1918], 16 Off. Gaz., 1265.) 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. The point we are discussing has heretofore been considered by the Attorney-General of the Philippine Islands and the United States Treasury Department. The decision of the latter overruling the opinion of the Attorney-General is as follows: TREASURY DEPARTMENT, Washington. Income Tax. FRANK MCINTYRE, Chief, Bureau of Insular Affairs, War Department, Washington, D. C. SIR: This office is in receipt of your letter of June 22, 1915, transmitting copy of correspondence "from the Philippine authorities relative to the method of submission of income tax returns by marred person." You advise that "The Governor-General, in forwarding the papers to the Bureau, advises that the Insular Auditor has been authorized to suspend action on the warrants in question until an authoritative decision on the points raised can be secured from the Treasury Department." From the correspondence it appears that Gregorio Araneta, married and living with his wife, had an income of an amount sufficient to require the imposition of the net income was properly computed and then both income and deductions and the specific exemption were divided in half and two returns made, one return for each half in the names respectively of the husband and wife, so that under the returns as filed there would be an escape from the additional tax; that Araneta claims the returns are correct on the ground under the Philippine law his wife is entitled to half of his earnings; that Araneta has dominion over the income and under the Philippine law, the right to determine its use and disposition; that in this case the wife has no "separate estate" within the contemplation of the Act of October 3, 1913, levying an income tax. It appears further from the correspondence that upon the foregoing explanation, tax was assessed against the entire net income against Gregorio Araneta; that the tax was paid and an application for refund made, and that the application for refund was rejected, whereupon the matter was submitted to the Attorney-General of the Islands who holds that the returns were correctly rendered, and that the refund should be allowed; and thereupon the question at issue is submitted through the GovernorGeneral of the Islands and Bureau of Insular Affairs for the advisory opinion of this office. By paragraph M of the statute, its provisions are extended to the Philippine Islands, to be administered as in the United States but by the appropriate internal-revenue officers of the Philippine Government. You are therefore advised that upon the facts as stated, this office holds that for the Federal Income Tax (Act of October 3, 1913), the entire net income in this case was taxable to Gregorio Araneta, both for the normal and additional tax, and that the application for refund was properly rejected.

The separate estate of a married woman within the contemplation of the Income Tax Law is that which belongs to her solely and separate and apart from her husband, and over which her husband has no right in equity. It may consist of lands or chattels. The statute and the regulations promulgated in accordance therewith provide that each person of lawful age (not excused from so doing) having a net income of $3,000 or over for the taxable year shall make a return showing the facts; that from the net income so shown there shall be deducted $3,000 where the person making the return is a single person, or married and not living with consort, and $1,000 additional where the person making the return is married and living with consort; but that where the husband and wife both make returns (they living together), the amount of deduction from the aggregate of their several incomes shall not exceed $4,000. The only occasion for a wife making a return is where she has income from a sole and separate estate in excess of $3,000, but together they have an income in excess of $4,000, in which the latter event either the husband or wife may make the return but not both. In all instances the income of husband and wife whether from separate estates or not, is taken as a whole for the purpose of the normal tax. Where the wife has income from a separate estate makes return made by her husband, while the incomes are added together for the purpose of the normal tax they are taken separately for the purpose of the additional tax. In this case, however, the wife has no separate income within the contemplation of the Income Tax Law. Respectfully, DAVID A. GATES. Acting Commissioner. In connection with the decision above quoted, it is well to recall a few basic ideas. The Income Tax Law was drafted by the Congress of the United States and has been by the Congress extended to the Philippine Islands. Being thus a law of American origin and being peculiarly intricate in its provisions, the authoritative decision of the official who is charged with enforcing it has peculiar force for the Philippines. It has come to be a well-settled rule that great weight should be given to the construction placed upon a revenue law, whose meaning is doubtful, by the department charged with its execution. (U.S. vs. Cerecedo Hermanos y Cia. [1907], 209 U.S., 338; In re Allen [1903], 2 Phil., 630; Government of the Philippine Islands vs. Municipality of Binalonan, and Roman Catholic Bishop of Nueva Segovia [1915], 32 Phil., 634.) We conclude that the judgment should be as it is hereby affirmed with costs against appellants. So ordered. Torres, Johnson, Carson, Street and Fisher, JJ., concur.

G.R. No. 76573 September 14, 1989 MARUBENI CORPORATION (formerly Marubeni Iida, Co., Ltd.), petitioner, vs.

COMMISSIONER OF INTERNAL REVENUE AND COURT OF TAX APPEALS, respondents. Melquiades C. Gutierrez for petitioner. The Solicitor General for respondents.

FERNAN, C.J.: Petitioner, Marubeni Corporation, representing itself as a foreign corporation duly organized and existing under the laws of Japan and duly licensed to engage in business under Philippine laws with branch office at the 4th Floor, FEEMI Building, Aduana Street, Intramuros, Manila seeks the reversal of the decision of the Court of Tax Appeals 1 dated February 12, 1986 denying its claim for refund or tax credit in the amount of P229,424.40 representing alleged overpayment of branch profit remittance tax withheld from dividends by Atlantic Gulf and Pacific Co. of Manila (AG&P). The following facts are undisputed: Marubeni Corporation of Japan has equity investments in AG&P of Manila. For the first quarter of 1981 ending March 31, AG&P declared and paid cash dividends to petitioner in the amount of P849,720 and withheld the corresponding 10% final dividend tax thereon. Similarly, for the third quarter of 1981 ending September 30, AG&P declared and paid P849,720 as cash dividends to petitioner and withheld the corresponding 10% final dividend tax thereon. 2 AG&P directly remitted the cash dividends to petitioner's head office in Tokyo, Japan, net not only of the 10% final dividend tax in the amounts of P764,748 for the first and third quarters of 1981, but also of the withheld 15% profit remittance tax based on the remittable amount after deducting the final withholding tax of 10%. A schedule of dividends declared and paid by AG&P to its stockholder Marubeni Corporation of Japan, the 10% final intercorporate dividend tax and the 15% branch profit remittance tax paid thereon, is shown below:
1981 FIRST QUARTER (three months ended 3.31.81) (In Pesos) 849,720.44 84,972.00 764,748.00 114,712.20 650,035.80 THIRD QUARTER (three months ended 9.30.81) 849,720.00 84,972.00 764,748.00 114,712.20 650,035.80 TOTAL OF FIRST and THIRD quarters

Cash Dividends Paid 10% Dividend Tax Withheld Cash Dividend net of 10% Dividend Tax Withheld 15% Branch Profit Remittance Tax Withheld Net Amount Remitted to Petitioner

1,699,440.00 169,944.00 1,529,496.00 229,424.40 3 1,300,071.60

The 10% final dividend tax of P84,972 and the 15% branch profit remittance tax of P114,712.20 for the first quarter of 1981 were paid to the Bureau of Internal Revenue by AG&P on April 20, 1981 under Central Bank Receipt No. 6757880. Likewise, the 10% final dividend tax of P84,972 and the 15% branch profit remittance tax of P114,712 for the third quarter of 1981 were paid to the Bureau of Internal Revenue by AG&P on August 4, 1981 under Central Bank Confirmation Receipt No. 7905930. 4 Thus, for the first and third quarters of 1981, AG&P as withholding agent paid 15% branch profit remittance on cash dividends declared and remitted to petitioner at its head office in Tokyo in the total amount of P229,424.40 on April 20 and August 4, 1981. 5 In a letter dated January 29, 1981, petitioner, through the accounting firm Sycip, Gorres, Velayo and Company, sought a ruling from the Bureau of Internal Revenue on whether or not the dividends petitioner received from AG&P are effectively connected with its conduct or business in the Philippines as to be considered branch profits subject to the 15% profit remittance tax imposed under Section 24 (b) (2) of the National Internal Revenue Code as amended by Presidential Decrees Nos. 1705 and 1773. In reply to petitioner's query, Acting Commissioner Ruben Ancheta ruled: 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. To be effectively connected it is not necessary that the income be derived from the actual operation of taxpayer-corporation's trade or business; it is sufficient that the income arises from the business activity in which the corporation is engaged. For example, if a resident foreign corporation is engaged in the buying and selling of machineries in the Philippines and invests in some shares of stock on which dividends are subsequently received, the dividends thus earned are not considered 'effectively connected' with its trade or business in this country. (Revenue Memorandum Circular No. 55-80).
In the instant case, the dividends received by Marubeni from AG&P are not income arising from the business activity in which Marubeni 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 . . . 6

Consequently, in a letter dated September 21, 1981 and filed with the Commissioner of Internal Revenue on September 24, 1981, petitioner claimed for the refund or issuance of a tax credit of P229,424.40 "representing profit tax remittance erroneously paid on the dividends remitted by Atlantic Gulf and Pacific Co. of Manila (AG&P) on April 20 and August 4, 1981 to ... head office in Tokyo. 7 On June 14, 1982, respondent Commissioner of Internal Revenue denied petitioner's claim for refund/credit of P229,424.40 on the following grounds: While it is true that said dividends remitted were not subject to the 15% profit remittance tax as the same were not income earned by a Philippine Branch of Marubeni Corporation of Japan; and neither is it subject to the 10% intercorporate dividend tax, the recipient of the dividends, being a non-

resident stockholder, nevertheless, said dividend income is subject to the 25 % tax pursuant to Article 10 (2) (b) of the Tax Treaty dated February 13, 1980 between the Philippines and Japan.
Inasmuch as the cash dividends remitted by AG&P to Marubeni Corporation, Japan is subject to 25 % tax, and that the taxes withheld of 10 % as intercorporate dividend tax and 15 % as profit remittance tax totals (sic) 25 %, the amount refundable offsets the liability, hence, nothing is left to be refunded. 8

Petitioner appealed to the Court of Tax Appeals which affirmed the denial of the refund by the Commissioner of Internal Revenue in its assailed judgment of February 12, 1986. 9 In support of its rejection of petitioner's claimed refund, respondent Tax Court explained: Whatever the dialectics employed, no amount of sophistry can ignore the fact that the dividends in question are income taxable to the Marubeni Corporation of Tokyo, Japan. The said dividends were distributions made by the Atlantic, Gulf and Pacific Company of Manila to its shareholder out of its profits on the investments of the Marubeni Corporation of Japan, a nonresident foreign corporation. The investments in the Atlantic Gulf & Pacific Company of the Marubeni Corporation of Japan were directly made by it and the dividends on the investments were likewise directly remitted to and received by the Marubeni Corporation of Japan. Petitioner Marubeni Corporation Philippine Branch has no participation or intervention, directly or indirectly, in the investments and in the receipt of the dividends. And it appears that the funds invested in the Atlantic Gulf & Pacific Company did not come out of the funds infused by the Marubeni Corporation of Japan to the Marubeni Corporation Philippine Branch. As a matter of fact, the Central Bank of the Philippines, in authorizing the remittance of the foreign exchange equivalent of (sic) the dividends in question, treated the Marubeni Corporation of Japan as a non-resident stockholder of the Atlantic Gulf & Pacific Company based on the supporting documents submitted to it.
Subject to certain exceptions not pertinent hereto, income is taxable to the person who earned it. Admittedly, the dividends under consideration were earned by the Marubeni Corporation of Japan, and hence, taxable to the said corporation. While it is true that the Marubeni Corporation Philippine Branch is duly licensed to engage in business under Philippine laws, such dividends are not the income of the Philippine Branch and are not taxable to the said Philippine branch. We see no significance thereto in the identity concept or principal-agent relationship theory of petitioner because such dividends are the income of and taxable to the Japanese corporation in Japan and not to the Philippine branch. 10

Hence, the instant petition for review. It is the argument of petitioner corporation that following the principal-agent relationship theory, Marubeni Japan is likewise a resident foreign corporation subject only to the 10 % intercorporate final tax on dividends received from a domestic corporation in accordance with Section 24(c) (1) of the Tax Code of 1977 which states: Dividends received by a domestic or resident foreign corporation liable to tax under this Code (1) Shall be subject to a final tax of 10% on the total

amount thereof, which shall be collected and paid as provided in Sections 53 and 54 of this Code .... Public respondents, however, are of the contrary view that Marubeni, Japan, being a nonresident foreign corporation and not engaged in trade or business in the Philippines, is subject to tax on income earned from Philippine sources at the rate of 35 % of its gross income under Section 24 (b) (1) of the same Code which reads: (b) Tax on foreign corporations (1) Non-resident corporations. A foreign corporation not engaged in trade or business in the Philippines shall pay a tax equal to thirty-five per cent of the gross income received during each taxable year from all sources within the Philippines as ... dividends .... but expressly made subject to the special rate of 25% under Article 10(2) (b) of the Tax Treaty of 1980 concluded between the Philippines and Japan. 11 Thus: Article 10 (1) Dividends paid by a company which is a resident of a Contracting State to a resident of the other Contracting State may be taxed in that other Contracting State. (2) However, such dividends may also be taxed in the Contracting State of which the company paying the dividends is a resident, and according to the laws of that Contracting State, but if the recipient is the beneficial owner of the dividends the tax so charged shall not exceed; (a) . . . (b) 25 per cent of the gross amount of the dividends in all other cases. Central to the issue of Marubeni Japan's tax liability on its dividend income from Philippine sources is therefore the determination of whether it is a resident or a non-resident foreign corporation under Philippine laws. Under the Tax Code, a resident foreign corporation is one that is "engaged in trade or business" within the Philippines. Petitioner contends that precisely because it is engaged in business in the Philippines through its Philippine branch that it must be considered as a resident foreign corporation. Petitioner reasons that since the Philippine branch and the Tokyo head office are one and the same entity, whoever made the investment in AG&P, Manila does not matter at all. A single corporate entity cannot be both a resident and a nonresident corporation depending on the nature of the particular transaction involved. Accordingly, whether the dividends are paid directly to the head office or coursed through its local branch is of no moment for after all, the head office and the office branch constitute but one corporate entity, the Marubeni Corporation, which, under both Philippine tax and corporate laws, is a resident foreign corporation because it is transacting business in the Philippines. The Solicitor General has adequately refuted petitioner's arguments in this wise: The general rule that a foreign corporation is the same juridical entity as its branch office in the Philippines cannot apply here. This rule is based on the premise that the business of the foreign corporation is conducted through its

branch office, following the principal agent relationship theory. It is understood that the branch becomes its agent here. So that when the foreign corporation transacts business in the Philippines independently of its branch, the principal-agent relationship is set aside. The transaction becomes one of the foreign corporation, not of the branch. Consequently, the taxpayer is the foreign corporation, not the branch or the resident foreign corporation.
Corollarily, if the business transaction is conducted through the branch office, the latter becomes the taxpayer, and not the foreign corporation. 12

In other words, the alleged overpaid taxes were incurred for the remittance of dividend income to the head office in Japan which is a separate and distinct income taxpayer from the branch in the Philippines. There can be no other logical conclusion considering the undisputed fact that the investment (totalling 283.260 shares including that of nominee) was made for purposes peculiarly germane to the conduct of the corporate affairs of Marubeni Japan, but certainly not of the branch in the Philippines. It is thus clear that petitioner, having made this independent investment attributable only to the head office, cannot now claim the increments as ordinary consequences of its trade or business in the Philippines and avail itself of the lower tax rate of 10 %. But while public respondents correctly concluded that the dividends in dispute were neither subject to the 15 % profit remittance tax nor to the 10 % intercorporate dividend tax, the recipient being a non-resident stockholder, they grossly erred in holding that no refund was forthcoming to the petitioner because the taxes thus withheld totalled the 25 % rate imposed by the Philippine-Japan Tax Convention pursuant to Article 10 (2) (b). To simply add the two taxes to arrive at the 25 % tax rate is to disregard a basic rule in taxation that each tax has a different tax basis. While the tax on dividends is directly levied on the dividends received, "the tax base upon which the 15 % branch profit remittance tax is imposed is the profit actually remitted abroad." 13 Public respondents likewise erred in automatically imposing the 25 % rate under Article 10 (2) (b) of the Tax Treaty as if this were a flat rate. A closer look at the Treaty reveals that the tax rates fixed by Article 10 are the maximum rates as reflected in the phrase "shall not exceed." This means that any tax imposable by the contracting state concerned should not exceed the 25 % limitation and that said rate would apply only if the tax imposed by our laws exceeds the same. In other words, by reason of our bilateral negotiations with Japan, we have agreed to have our right to tax limited to a certain extent to attain the goals set forth in the Treaty. Petitioner, being a non-resident foreign corporation with respect to the transaction in question, the applicable provision of the Tax Code is Section 24 (b) (1) (iii) in conjunction with the Philippine-Japan Treaty of 1980. Said section provides: (b) Tax on foreign corporations. (1) Non-resident corporations ... (iii) On dividends received from a domestic corporation liable to tax under this Chapter, the tax shall be 15% of the dividends received, which shall be collected and paid as provided in Section 53 (d) of this Code, subject to the condition that the country in which the non-resident foreign corporation is domiciled shall allow a credit against the tax due from the non-resident foreign corporation, taxes deemed to have been paid in the Philippines equivalent to 20 % which represents the difference between the regular tax

(35 %) on corporations and the tax (15 %) on dividends as provided in this Section; .... Proceeding to apply the above section to the case at bar, petitioner, being a non-resident foreign corporation, as a general rule, is taxed 35 % of its gross income from all sources within the Philippines. [Section 24 (b) (1)]. However, a discounted rate of 15% is given to petitioner on dividends received from a domestic corporation (AG&P) on the condition that its domicile state (Japan) extends in favor of petitioner, a tax credit of not less than 20 % of the dividends received. This 20 % represents the difference between the regular tax of 35 % on non-resident foreign corporations which petitioner would have ordinarily paid, and the 15 % special rate on dividends received from a domestic corporation. Consequently, petitioner is entitled to a refund on the transaction in question to be computed as follows: Total cash dividend paid ................P1,699,440.00 less 15% under Sec. 24 (b) (1) (iii ) .........................................254,916.00 -----------------Cash dividend net of 15 % tax due petitioner ...............................P1,444.524.00 less net amount actually remitted .............................1,300,071.60 ------------------Amount to be refunded to petitioner representing overpayment of taxes on dividends remitted ..............P 144 452.40 =========== It is readily apparent that the 15 % tax rate imposed on the dividends received by a foreign non-resident stockholder from a domestic corporation 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. There is one final point that must be settled. Respondent Commissioner of Internal Revenue is laboring under the impression that the Court of Tax Appeals is covered by Batas Pambansa Blg. 129, otherwise known as the Judiciary Reorganization Act of 1980. He alleges that the instant petition for review was not perfected in accordance with Batas Pambansa Blg. 129 which provides that "the period of appeal from final orders, resolutions, awards, judgments, or decisions of any court in all cases shall be fifteen (15) days counted from the notice of the final order, resolution, award, judgment or decision appealed from .... This is completely untenable. The cited BP Blg. 129 does not include the Court of Tax Appeals which has been created by virtue of a special law, Republic Act No. 1125. Respondent court is not among those courts specifically mentioned in Section 2 of BP Blg. 129 as falling within its scope.

Thus, under Section 18 of Republic Act No. 1125, a party adversely affected by an order, ruling or decision of the Court of Tax Appeals is given thirty (30) days from notice to appeal therefrom. Otherwise, said order, ruling, or decision shall become final. Records show that petitioner received notice of the Court of Tax Appeals's decision denying its claim for refund on April 15, 1986. On the 30th day, or on May 15, 1986 (the last day for appeal), petitioner filed a motion for reconsideration which respondent court subsequently denied on November 17, 1986, and notice of which was received by petitioner on November 26, 1986. Two days later, or on November 28, 1986, petitioner simultaneously filed a notice of appeal with the Court of Tax Appeals and a petition for review with the Supreme Court. 14 From the foregoing, it is evident that the instant appeal was perfected well within the 30-day period provided under R.A. No. 1125, the whole 30-day period to appeal having begun to run again from notice of the denial of petitioner's motion for reconsideration. WHEREFORE, the questioned decision of respondent Court of Tax Appeals dated February 12, 1986 which affirmed the denial by respondent Commissioner of Internal Revenue of petitioner Marubeni Corporation's claim for refund is hereby REVERSED. The Commissioner of Internal Revenue is ordered to refund or grant as tax credit in favor of petitioner the amount of P144,452.40 representing overpayment of taxes on dividends received. No costs. So ordered. Gutierrez, Jr., Bidin and Cortes, JJ., concur. Feliciano, J., is on leave.