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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 team’s 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 petitioner’s 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 ½ 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
00 as of 1948.30. In a document dated August 16. 1945. Ruling: Rulings or circulars promulgated by the Commissioner have no retroactive application where to so apply them would be prejudicial to taxpayers. 1944 they purchased from the Insular Investments Inc. etc.288.00 which amount together with their personal monies was used by them for the purpose of buying real properties.615. strictly speaking. said Code must allude. to bring suits against the defaulting tenants.353 sq. in default of such payment. The issue in this case With respect to the tax on corporations. 1945.” In 1971. contracts. 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. are distinct and different from "partnerships". Thus.00. When our Internal Revenue Code includes "partnerships" among the entities subject to the tax on "corporations". From the month of March. Issue: Whether petitioners are subject to the tax on corporations provided for in section 24 of Commonwealth Act. this property has an assessed value of P57.650. the issue hinges on the meaning of the terms "corporation" and "partnership. they . thereby leaving them a net rental income of P12. m. including improvements thereon for P108.40 sq. "the term corporation includes partnerships. 102 phil 140 – Micah Facts: Petitioners borrowed from their father the sum of P59. where the Commissioner did not act upon. to issue receipts therefor.. On 1946. they realized a gross rental income of P17. for and in their behalf.. including improvements thereon for P237. a lot of 4.00 as of 1948. including improvements thereon for P130. as well as to the residence tax for corporations and the real estate dealers fixed tax." This qualifying expression clearly indicates that a joint venture need not be undertaken in any of the standard forms.948.00.498." as used in section 24 and 84 of said Code.255. In 1948. m.599. or in conformity with the usual requirements of the law on partnerships. to organizations which are not necessarily "partnerships". Again. for instance.453. 466. out of which amount was deducted in the sum of P16. etc. real estate dealer's fixed tax and corporation residence tax for the years 1945-1949. 1945 up to an including December.65 as expenses. m. the prejudice the company of the retroactive application of Memorandum Circular 471 is beyond question.from 30% to 35% and revising the tax basis from “such amount” referring to rents.000.1400. On April 28.00.786. the company does not fall under any of them.825. this property has an assessed value of P82. otherwise known as the National Internal Revenue Code. On September 24. including improvements thereon from the sum of P100. Josefina Florentino a lot with an area of 3. m. they realized a gross rental income of in the sum of P24. This property has an assessed value of P4. Valentina Afable a lot of 8. Insofar as the enumerated exceptions are concerned. Josefa Oppus 21 parcels of land with an aggregate area of 3.00 as of 1948.00 as of 1948. No. in order that one could be deemed constituted for purposes of the tax on corporations. pursuant to said Issue: Whether Revenue Memorandum Circular 4-71. Ruling: To begin with. On April 28. On April 3.517. 1954 respondent Collector of Internal Revenue demanded the payment of income tax on corporations.718. and to endorse and deposit all notes and checks for them.837.00 while the expenses amounted to P3.13. Likewise. 1944 they bought form Mrs. The company requested for reconsideration. the total amount collected as rents on their real properties was P9. 6. the tax in question is one imposed upon "corporations". the Commissioner issued a letter of assessment and demand for deficiency withholding income tax for years 1965 to 1968. revoking General Circular V-334. to sign all letters. as defined in section 84(b) of said Code.713.000. appointed their brother Simeon Evangelista to 'manage their properties with full power to lease. they bought from Mrs.35.33.140. 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. On February 2. Evangelista vs. which. therefore.983. 1944 they purchased from Mrs.00 out of the which amount was deducted the sum of P4. computed.40 sq. may be retroactively applied. to collect and receive rents. no matter how created or organized. according to assessment made by said officer. This property has an assessed value of P59. to “gross income. CIR. After having bought the above-mentioned real properties the petitioners had the same rented or leases to various tenants. in the technical sense of the term.234.34.00 thereby leaving them a net rental income of P5.371 sq. Herein.27 for expenses thereby leaving them a net rental income of P7. 1943.
insofar as said Code is concerned and are subject to the income tax for corporations." It is. under the management of one person — even if true.074. The petitioners were not engaged in any joint venture by reason of that isolated transaction. The division of the profit was merely incidental to the dissolution of the co-ownership that was. no.792.018 as corporate income tax. therefore. 78133. or a total of P71. The first two parcels of land were sold by petitioners in 1968 to Marenir Development Corporation. the lawmaker could not have regarded that personality as a condition essential to the existence of the partnerships therein referred to.To consider them as partners would obliterate the distinction between a coownership and a partnership. in addition to the tax on capital gains already paid by them. 8. If later on they found it not feasible to build their residences on the lots because of the high cost of construction. G. The corresponding capital gains taxes were paid by petitioners in 1973 and 1974 . the judgment of the Tax Court is reversed and set aside. 1966. Issue: Whether or not petitioners have formed a partnership or joint venture and.56. Accordingly. 7. Thus. among other. and on May 28.781.584 as taxable in full (not a mere capital gain of which ½ is taxable) and required them to pay deficiency income taxes aggregating P56. L-68118. 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.336.547. they bought another three (3) parcels of land from Juan Roque. joint accounts.R. an additional argument in favor of the imposition of said tax on corporations. They treated the profit as a capital gain and paid an income tax on one-half thereof or of P16.70.341. our National Internal Revenue Code. One day before the expiration of the five-year prescriptive period.336 in addition to individual income tax on their shares thereof He assessed P37.000 in the sale made in 1970. No costs.707. on which we express no opinion — tends to increase the similarity between the nature of their venture and that corporations. clear to our mind that petitioners herein constitute a partnership. The assessments are cancelled. Commissioner. . 224. no. Pascual vs. 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. He considered the share of the profits of each petitioner in the sum of P33.509 as 50% fraud surcharge and P15. et al. WHEREFORE. a temporary state. Their original purpose was to divide the lots for residential purposes. whether or not the persons sharing them have a joint or common right or interest in any property from which the returns are derived". Commissioner. 1965. October 29.76 on their profit of P134.56 as 42% accumulated interest. while the three parcels of land were sold by petitioners to Erlinda Reyes and Maria Samson on March 19. independent of that of its members. are liable for corporate income tax. 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. then they had no choice but to resell the same to dissolve the co-ownership. as above stated. thus. 1985 – Zara Facts: For at least one year after their receipt of two parcels of land from their father. Petitioner realized a net profit in the sale made in 1968 in the amount of P165." none of which has a legal personality of its own. October 18. the petitioners are being held liable for deficiency income taxes and penalties totaling P127. and is. in the nature of things. In fact.1970.section 84(b). petitioners resold said lots for which they earned a profit of P134. the term "corporation" includes. G. Article 1769(3) of the Civil Code provides that "the sharing of gross returns does not of itself establish a partnership. therefore.R. That eventuality should be obviated. P18. while they realized a net profit of P60. the Commissioner of Internal Revenue required the four petitioners to pay corporate income tax on the total profit of P134. "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.88 or P33. includes these partnerships — with the exception only of duly registered general copartnerships — within the purview of the term "corporation.Respondent Commissioner informed petitioners that in the years 1968 and 1970. There must be an unmistakable intention to form a partnership or joint venture. (cuentas en participation)" and "associations.584 for each of them.20 including the 50% fraud surcharge and the accumulated interest. Obillos vs. petitioners bought two (2) parcels of land from Santiago Bernardino. Not only that. On June 22.
G. 1914 and was contracted under the provisions of law concerning conjugal partnerships. then petitioners can be held individually liable as partners for this unpaid obligation of the partnership.R. 1918. which had no legal personalities apart from their individual members. 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 Commissioner of Internal Revenue denied the protest and ordered the petitioners. Collector of Internal Revenue. whether or not the persons sharing them have a joint or common right or interest in any property from which the returns are derived. no. ISSUE Whether or not the Clearing House. Said article paragraphs 2 and 3. . The following unmistakably indicates a partnership or an association covered by Section 24 of the NIRC 10. . provides:(2) Co-ownership or co-possession does not itself establish a partnership. financial operation. (3) The sharing of gross returns does not of itself establish a partnership. Under the circumstances. a non-resident foreign insurance corporation. G.owners and paid their capital gain taxes on their net profits and availed of the tax amnesty thereby. 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. 1976. The reinsurance treaties required petitioners to form a pool. There must be a clear intent to form a partnership. interest. They shared in the gross profits as co. The Court in Evangelista v. acting as a mere agent and performing strictly administrative functions. both of the National Internal Revenue Code. supra.In the present case. and the freedom of each party to transfer or assign the whole property . a pool of individual real property owners dealing in real estate business was considered a corporation for purposes of the tax in sec. January 25. Velayo and Co. on the basis of which it was assessed by the CIR deficiency corporate taxes. and which did not insure or assume any risk in its own name. August 7. they cannot be considered to have formed an unregistered partnership which is thereby liable for corporate income tax. 1986. Collector of Internal Revenue held that Section 24 covered these unregistered partnerships and even associations or joint accounts. Gorres. On January 27. group. and dividends paid to Munich and to the petitioners.R. Rafferty.income was subject to the taxes prescribed under Section 24. These assessments were protested by the petitioners through its auditors Sycip. p. and withholding tax. there is clear evidence of co-ownership between the petitioners. The Supreme Court said: The term "partnership" includes a syndicate. 562 Note 63) In the case before us. 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). or venture is carried on. through or by means of which any business. respectively. 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. The Court of Appeals astutely applied Evangelista. pool. 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. RULING Yes. There is no adequate basis to support the proposition that they thereby formed an unregistered partnership. joint venture or other unincorporated organization. as the respondent commissioner proposes. the pool is taxable as a corporation. AFISCO vs. The two isolated transactions whereby they purchased properties and sold the same a few years thereafter did not thereby make them partners. CIR. Madrigal vs. whether such co-owners or co-possessors do or do not share any profits made by the use of the property. assessed as "Pool of Machinery Insurers. 24 of the Tax Code in Evangelista v. Accordingly. . 112675. On April 14. He filed his net total income for the year 1914 with the CIR claiming . Rochelle FACTS: Vicente Madrigal and Susana Paterno are legally married prior to January 1. *** (8 Merten's Law of Federal Income Taxation. the existence of a juridical personality different fromt he individual partners. withholding taxes. 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. 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. was a partnership or association subject to tax as a corporation. L-12287. no. 9." to pay deficiency income tax. And even assuming for the sake of argument that such unregistered partnership appears to have been formed.
K.S. 83 L. 77. 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. second edition . "The Nature of Capital and Income. The Income Tax Law of the United States. A fund of property existing at an instant of time is called capital. From 1959 to 1972. and thus.. S. 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. actually and legally vested in her and entirely distinct from her husband's property. As she has no estate and income. N. Thus. 11. N. 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. Ltd. The aim has been to mitigate the evils arising from inequalities of wealth by a progressive scheme of taxation. With these exceptions. Gibbons vs. Issue: . The Commissioner of Internal Revenue assessed deficiency income taxes against BOAC.. January 7. 60 Ga.which was responsible for selling BOAC tickets covering passengers and cargoes. Should the additional income tax be divided into two equal parts because of the conjugal partnership existing between the spouses? RULING: 1. decided by the United States Supreme Court. second edition . A. C. 70 L.000 specifically granted by the law." as here used. Chapter IV. Such is the background of the Income Tax Law. However.." (Waring vs. while income is the service of wealth. it operates air transportation services and sells transportation tickets over the routes of the other airline members..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. income the fruit. the income cannot properly be considered the separate income of the wife for the purposes of the additional tax. 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. he was assessed to pay tax for the whole amount and after payment under protest. capital is a tree. during the period in question. 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 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. income is the fruit. and Towne vs. 49 Week. To carry out this idea. The essential difference between capital and income is that capital is a fund. 136 U. Mahon . said income is not subject to Philippine income tax.) 2. 93. 26. "Income. Moreover. Black on Income Taxes. and later by Qantas Airways. Susana Paterno has no absolute right to one-half the income of the conjugal partnership." (London County Council vs.") The Supreme Court of Georgia expresses the thought in the following figurative language: "The fact is that property is a tree.. did not carry passengers and/or cargo to or from the Philippines but maintained a general sales agent in the Philippines . and later. 1918. Qantas Airways . B. which places the burden on those best able to pay. See further Foster's Income Tax. 4 Tax Cas. J. Ltd. T. Chapter VIII. The husband and wife are only entitled to the exemption of P8. The Tax Court held that the proceeds of sales of BOAC passage tickets in the Philippines by Warner Barnes and Company. 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. The CTA position was that income from transportation is income from services so that the place where services are rendered determines the source. BOAC. Rep.. 686. can be defined as "profits or gains.. What is income tax? 2. has an inchoate right in the property of her husband Vicente Madrigal during the life of the conjugal partnership.. ISSUES: 1. income the fruit. 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. Commissioner vs. 605. S. Capital is wealth. extended to the Philippine Islands. Attorney-General . the Tax Court ordered petitioner to credit BOAC and to cancel the deficiency income tax assessments against BOAC. City of Savannah . Eisner. therefore. the income tax is supposed to reach the earnings of the entire non-governmental property of the country. Income as contrasted with capital or property is to be the test. public considerations have demanded an exemption roughly equivalent to the minimum of subsistence.) A tax on income is not a tax on property. and after such protest was decided adversely by the CIR. Susana Paterno. (See Fisher. BOAC had no landing rights for traffic purposes in the Philippines and thus. labor is a tree.Warner Barnes & Co. The aims and purposes of the Income Tax Law must be given effect. 265. 549. Not being seized of a separate estate. wife of Vicente Madrigal. income is a flow. the Income Tax Law does not look on the spouses as individual partners in an ordinary partnership.
" The absence of flight operations to and from the Philippines is not determinative of the source of income or the site of income taxation. and occurred within. Admittedly. petitioner Royal Interocean Lines (RIL) acted as husbanding agent for a fee or commission on said vessels. Reederij "Amsterdam. dividends. Section 37. which produced the income. A transportation ticket is not a mere piece of paper. while having no landing rights here. June 23. The records show that the Philippine gross income of BOAC for the fiscal years 1968-69 to 1970-71 amounted to P10. sales. income is a flow. it cannot alter the fact that income from the sale of tickets was derived from the Philippines. BOAC was an off-line international airline at the time pertinent to this case. In these two instances. the sale of tickets in the Philippines is the activity that produces the income.business. and that no other kind of income may be so considered. Philippine territory. (21) dividends. growing out of the ownership or use of or interest in such property. accordingly. business a And even if the BOAC tickets sold covered the "transport of passengers and cargo to and from foreign cities". The test of taxability is the "source". no. (4) rentals and royalties. commerce. As used in our income tax law. trades. 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. (5) sale of real property. taxable? Ruling: Yes. "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. RIL filed a written protest against the assessment made by the respondent Commissioner. and. For. constitute income of BOAC from Philippine sources. However. namely: (1) interest. wages or compensation for personal service of whatever kind and in whatever form paid. does not mention income from the sale of tickets for international transportation. it constitutes the contract between the ticket-holder and the carrier. The word "source" conveys one essential idea. by its language. The Tax Code defines "gross income" thus: "Gross income" includes gains. In BOAC's case. also from interests.. Petitioner still was not satisfied and decided to appeal to the SC. and the origin of the income herein is the Philippines 12. Reederij vs. The protest was denied.. No income tax appears to have been paid by petitioner N. It merely directs that the types of income listed therein be treated as income from sources within the Philippines. and the source of an income is that activity . When issued by a common carrier. profits. G. 2 vessels of petitioner N. CTA modified the assessment by eliminating the 50% fraud compromise penalties imposed upon petitioners. On the same date. or the transactions of any business carried on for gain or profile. Section 37(a) of the Tax Code. or from profession. it is the amount of money coming to a person within a specific time . Unquestionably. . securities. does not intend the enumeration to be exclusive. (3) service. On appeal. In consideration of such protection. The freight fees for these transactions were paid abroad. The tickets exchanged hands here and payments for fares were also made here in Philippine currency. whether real or personal." Income means "cash received or its equivalent". or dealings in property. it means something distinct from principal or capital. "income" refers to the flow of wealth..Whether or not the revenue derived by BOAC from sales of tickets in the Philippines for air transportation. 46029.428. 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. Reederij "AMSTERDAM" on the freight receipts. The source of an income is the property.. Emphasis supplied) The definition is broad and comprehensive to include proceeds from sales of transport documents. Commissioner.B. The site of the source of payments is the Philippines. which enumerates items of gross income from sources within the Philippines.00." called on Philippine ports to load cargoes for foreign destination. it is sufficient that the income is derived from activity within the Philippines. A cursory reading of the section will show that it does not state that it is an all-inclusive enumeration..368 . rents. profits. 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. that of origin. vocations.V. and income derived from any source whatever (Sec. the flow of wealth should share the burden of supporting the government.R. RIL filed an income tax return of the aforementioned vessels and paid the tax in pursuant to their supposed classification. 29. that does not render it less an income from sources within the Philippines. 1988 – Lean Facts: In 1963 and 1964. 9 True. and (6) sale of personal property. binding upon the parties entering into the relationship. For the source of income to be considered as coming from the Philippines. 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. The flow of wealth proceeded from. while capital is a fund. enjoying the protection accorded by the Philippine government. and income derived from salaries. or gains. activity or service that produced the income. On the assumption that the said petitioner is a foreign corporation engaged in trade or business in the Philippines.
6602. new certificate was endorsed to the law firm of Ross. Manning. McDonald & Simmons failed to declare the said stock dividends as part of their taxable income for the year 1958. 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. 1962 . it is thus a foreign corporation. This examination disclosed that: As of December 31. Also." Because of this. Held: Petitioner N. 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. 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.Mantrasco had an authorized capital stock of P2. Mantrasco Guam and Port Motors. 66 SCRA 14 – Gail FACTS: 1952 . its taxable income for purposes of our income tax law consists of its gross income from all sources within the Philippines. McDonald and Simmons upon his [Reese] death. its business transactions must be continuous. After Mantrasco made a partial payment of Reese's shares. Commissioner vs. 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 trust agreement was executed between Reese. premiums. under Section 24(b) (1) of the Tax Code. representing a total book value or acquisition cost of P7. organized and existing under the laws of The Netherlands with principal office in Amsterdam and not licensed to do business in the Philippines. The accent is on the words of--`such amount. dividends.BIR ordered an examination of Mantrasco’s books.973. are owned by Manning. Manning. as trustees for and in behalf of Mantrasco.000 common shares.V. and the tax is equal to thirty per centum of such amount. September 14. petitioner N. the trust agreement was terminated and the trustees delivered to Mantrasco all the shares which they were holding in trust. Thus. Selph. McDonald & Simmons appealed to the CTA. McDonald & Simmons. profits and income and capital gains. as interest. Manning." Accordingly. wages. annuities. or other fixed or determinable annual or periodical or casual gains.5M divided into 25. the certificate for the 24. compensations. Eventually. at 100 each. Mantrasco. McDonald & Simmons for the year 1958.700 of these shares are owned by Julius Reese while the rest. the entire purchase price of Reese's interest in Mantrasco was finally paid in full by Mantrasco. Manning. 13. Therefore. Subsequently.700 shares in Reese's name was cancelled and a new certificate as issued in the name of Mantrasco. Ross. McDonald & Simmons opposed said assessments. a resolution was passed during a special meeting of Mantrasco stockholders. remunerations. V. Reederij "Amsterdam" being a non-resident foreign corporation. emoluments. 24. Later. salaries. Carrascoso and Janda. Manning.V. ISSUE: . CTA absolved Manning. 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. McDonald & Simmons. When Reese died.Issue: Whether N. A foreign corporation doing business in the Philippines is taxable on income solely from sources within the Philippines. not engaged in trade or business within the Philippines. Selph. 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. 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. BIR still held them liable for these assessments. it is taxable on income from all sources within the Philippines. the Commissioner of Internal Revenue issued notices of assessment for deficiency income taxes to Manning. will continue under the management of Manning. Carrascoso & Janda law firm. rents. As a non-resident foreign corporation. 1958 the 24.700 shares declared as dividends had been proportionately distributed to Manning. Reederij "Amsterdam" is a non-resident foreign corporation. In order that a foreign corporation may be considered engaged in trade or business. McDonald and Simmons so that Mantrasco and Mantrasoc’s 2 subsidiaries.
Stock dividends. ANSCOR again redeemed 80. this petition. McDonald & Simmons. CA. Case remanded to the CTA for further proceedings for the re-computation of the income tax liabilities of Manning. ANSCOR increased its capital stock to P20M and in 1966 further increased it to P30M. McDonald & Simmons in Mantrasco. Commissioner should not have assessed the income tax on the total acquisition cost of the alleged treasury stock dividends in 1 lump sum. after examining ANSCOR's books of account and records. ANSCOR filed a petition for review with the CTA assailing the tax assessments on the redemptions and exchange of stocks. Doña Carmen Soriano. By November 1968. ANSCOR is wholly owned and controlled by the family of Don Andres. 1968.000 common shares from the Don Andres' estate. About a year later. pursuant to a Board Resolution. A day after Don Andres died. after finding sufficient evidence to overcome the prima facie correctness of the questioned assessments. those earnings should be taxed for each of the corresponding years when payments were made to Reese’s estate on account of his 24. the records revealed that he has a total shareholdings of 185. McDonalds &Simmons the sole owners of Reese’s 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. Revenue examiners issued a report proposing that ANSCOR be assessed for deficiency withholding tax-at-source.577 shares were transferred to his wife. January 30.864 common shares each. G. 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. obviously not designed to carry out the usual stock dividend purpose of corporate expansion reinvestment but exclusively for expanding the capital base of Manning. The ultimate purpose which the parties to the trust agreement aimed to realize is to make Manning.700 shares.287 shares were respectively received by the Don Andres estate and Doña Carmen from ANSCOR. 1991 – Nathan 15. McDonald & Simmons. 1999 – Pie Facts: Don Andres Soriano. the Board further increased ANSCOR's capital stock to P75M. All these amounts are subject to income tax as being a flow of cash benefits to Manning. July 31. with a P1. strictly speaking. The record shows that the earnings of Mantrasco over a period of years were used to gradually wipe out the holdings of Reese. McDonald & Simmons. In a petition for review the CA as mentioned. In 1973. From 1947-1963. represent capital and do not constitute income to its recipient.867 and 138.000 common shares from the Don Andres' estate. On June 30. CIR vs.000. no. a citizen and resident of the United States. Commissioner’s assessment is erroneous.000 common shares at a par value of P100/share. Correspondingly. On December 30. 14. RULING: YES.00 capitalization divided into 10. 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 Reese’s shares.WON Manning. 1964 Don Andres died. Soriano Y Cia". In its decision. using the trust instrument as a convenient technical device. Commissioner vs. ANSCOR redeemed 28. Manning. who are all non resident aliens. Javier.000. one-half of that shareholdings or 92. G. As of that date. as her conjugal share. in fact. Dispositive: CTA judgment set aside. the Tax Court reversed petitioner's ruling. Consequently. predecessor of ANSCOR. affirmed the ruling of the CTA. bestowed unto themselves the full worth and value of Reese's corporate holdings with the use of the very earnings of the companies. Hence. 108576. increasing their accumulated shareholdings to 138. 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 . The bone of contention is the interpretation and application of Section 83(b) of the 1939 Revenue Act 38. formed the corporation "A. Subsequently.154 shares. McDonald & Simmons should pay for deficiency income taxes HELD: Yes.290 and 46. 78953. Such package device. cannot be allowed to deflect their responsibilities toward our income tax laws. The other half formed part of his estate.R.R. ANSCOR declared stock dividends. 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. no. Stock dividends worth 46.
Simply put. The redemption converts into money the stock dividends which become a realized profit or gain and consequently.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 respondent Bank of Commerce derived passive income in the form of interests or discounts from its investments in government securities and private commercial papers. Otherwise described as "direct duplicate taxation. when it should be but once. the CTA rendered judgment in Asia Bank Corporation v." making the proceeds thereof "taxable income" "to the extent it represents profits". It is defined as “whole. June 8. The respondent bank then filed an administrative claim for refund.000 less 25.752.) No. v. The test of taxability under the exempting clause of Section 83(b) is.R. 83(b) to apply. 149636. Reg. without deduction. As realized income. the decision of the Court of Appeals is MODIFIED in that ANSCOR's redemption of 82. The tax court held that Section 4(e) of Revenue Regulations No. it is part of the "entire income" subject to tax under Section 22 in relation to Section 21 120 of the 1939 Code. are different from each other." It is not the stock dividends but the proceeds of its redemption that may be deemed as taxable dividends. subject of this litigation.” (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.000 shares redeemed from the estate.752. Meanwhile. ANSCOR redeemed stock dividends issued just 2 to 3 years earlier. but their natures are different. it is subject to income tax which is required to be withheld at source.842. Having realized gain from that redemption. Moreover. At the time of the last redemption.” The word “gross” must be used in its plain and ordinary meaning.5 (108.254. The decision is AFFIRMED in all other respects." It is obnoxious when the taxpayer is taxed twice. 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. 2005 – Ingrid FACTS: In 1994 and 1995. Bank of Commerce. As "taxable dividend" under Section 83(b). both promulgated on 16 November 2001. G. is essentially equivalent to a distribution of taxable dividends." The exception provides that the redemption or cancellation of stock dividends. Thereafter. In CIR v. Commissioner and Standard Chartered Bank v. the proceeds of the redeemed stock dividends can be reached by income taxation regardless of the existence of any business purpose for the redemption. which had already been subjected to a final tax of 20%. The basis of their imposition may be the same. "xxx taxing the same person twice by the same jurisdiction for the same thing.5 91 This means that from the total of 108. no. NO DOUBLE TAXATION Double taxation means taxing the same property twice when it should be taxed only once.51. that is. which when paid becomes the absolute property of the stockholder.54. CIR vs. it is indispensable that: (a) there is redemption or cancellation. it paid 5% gross receipts tax on its income. the latter becomes the exclusive owner thereof and can exercise the freedom of choice. premises considered. Commissioner. the balance of 82. The proceeds thereof are essentially considered equivalent to a distribution of taxable dividends. As income. total." the two taxes must be imposed on the same subject matter. The CTA relied on Section 4 (e) of Revenue Regulations (Rev. Commissioner of Internal Revenue. Included therein was the respondent bank’s passive income from the said investments amounting to P 85. depending on the "time" and "manner" it was made. 12-80.247. entire.384. for the same . In Far East Bank & Trust Co. the stockholder's separate property.” 16. Profits derived from the capital invested cannot escape income tax. the proceeds of redemption of stock dividends are essentially distribution of cash dividends. dividends are included in "gross income". claimed that it had overpaid its gross receipts tax for 1994 to 1995 by P 853. the income earner cannot escape income tax. under Section 29(a) of said Code. 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. SC said that the two taxes. (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.247.5) must have come from stock dividends. depending on the circumstances. DISPOSITIVE: “WHEREFORE. the tax court ruled that the final withholding tax forms part of the bank’s gross receipts in computing the gross receipts tax. Solidbank Corporation. whether income was realized through the redemption of stock dividends. ISSUES: (1) Does the 20% final withholding tax on bank’s interest income form part of the taxable gross receipts in computing the 5% gross receipts tax? (2) Is there double taxation? HELD: (1) Yes. On several occasions during that period. For the exempting clause of Section.investment. the original common shares owned by the estate were only 25.
MCIT is imposed beginning on the fourth year following the commencement of business operations. 8424). Manila Banking Corp vs. 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. It is not an income tax. hence. On June 23. The FWT is deducted and withheld as soon as the income is earned. within the same jurisdiction. Manila Bank. 4-95implementing R. by the same taxing authority. there is no double taxation. the taxable year in which business operations commenced shall be the year in which the domestic corporation registered with the BIR. In 1998. since its operations were merely interrupted during 1987-1999. the Comprehensive Tax Reform Act (RA8424) imposed a minimum corporate income tax on domestic and resident foreign corporations. the GRT is neither deducted nor withheld. because there is no taxing twice. 1999. 168118. G. 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. No. it should only pay it MCIT after four (4) years from 1999. by the same taxing authority. it is an excise rather than a property tax. unlike the FWT. for purposes of the MCIT.R. whichever comes LATER. However. A thrift bank is a different taxpayer from that of the commercial bank. Subsequently. Its implementing law allows a 4-year period from the time the corporations were registered with the BIR during . some of the property in the territory. 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. ISSUE: What is the reckoning date for the MCIT in so far as thrift banks are concerned? HELD: Under the law (R. the thrift bank will be considered as an entirely new 17.00 as minimum corporate income tax (MCIT) for taxable year 1999. which the minimum corporate income tax should not be imposed. the BSP authorized Manila Bank to operate as a thrift bank. 816. Manila Bank wrote to BIR requesting a ruling on whether it is entitled to the 4 year grace period. On the other hand. 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. which was denied and found that Manila Bank’s payment of 33M is correct. on June 15. Revenue Regulations No. but is paid only after every taxable quarter in which it is earned. 1999. due to the inaction of BIR on the claim. In addition. specifically on April 7. with respect to thrift banks. no. On Feb 2001. within the same jurisdiction. entitled to a grace period of four years counted from June 23. The FWT is an income tax subject to withholding.A. it filed its annual corporate income tax return and paid P33.these two taxes are entirely distinct and are assessed under different provisions. Subjecting interest income to a 20% FWT and including it in the computation of the 5% GRT is clearly not double taxation. Posadas.” Petitioner registered as a commercial bank with the BIR in 1961 and again registered on January 21. However. Akin to our ruling in Velilla v. Second. 998 provides that “For purpose of the MCIT. therefore. filed with BIR for the refund. these two taxes are of different kinds or characters. Consequently. 7906).164. the taxes herein are imposed on two different subject matters. it filed with CTA for a petition for review. CA affirmed CTA. It is. while the GRT is a percentage tax not subject to withholding. but it ceased operations 1987-1999 due to involuntary closure.A. First. It stressed that although it had been registered with the BIR before 1994. hence. 1999 as a thrift bank. and is paid after every calendar quarter in which it is earned. 1999 when it was authorized by the BSP to operate as a thrift bank (it having been registered with SEC at an earlier date). BIR issued BIR Ruling 7-2001 stating that Manila Bank is entitled to the 4-year grace period. the taxing periods they affect are different. then. The following years. the MCIT may be imposed not earlier than 2002. In short. we have already held that one can be taxed for engaging in business and further taxed differently for the income derived therefrom.9-98. 4-95 and not RR No. 28.purpose. Since it reopened in 1999. 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. In fact. and they must be of the same kind or character. in different taxing periods. for the same purpose. A tax based on receipts is a tax on business rather than on the property. CIR. 2000. The SC ruled that what applied to petitioner is RR No. Aug. Third. during the same taxing period. whichever comes later (RR No.
.entity although it continued to use the same corporate name used by it as a commercial bank.
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