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ONA v CIR

GR No. L -19342 | May 25, 1972 | J. Barredo


Facts:
Julia Buales died leaving as heirs her
surviving spouse, Lorenzo Oa and her five
children. A civil case was instituted for the
settlement of her state, in which Oa was
appointed administrator and later on the
guardian of the three heirs who were still
minors when the project for partition was
approved. This shows that the heirs have
undivided interest in 10 parcels of land, 6
houses and money from the War Damage
Commission.
Although the project of partition was
approved by the Court, no attempt was
made to divide the properties and they
remained under the management of Oa
who used said properties in business by
leasing or selling them and investing the
income derived therefrom and the proceeds
from the sales thereof in real properties and
securities. As a result, petitioners properties
and investments gradually increased.
Petitioners returned for income tax purposes
their shares in the net income but they did
not actually receive their shares because this
left with Oa who invested them.
Based on these facts, CIR decided that
petitioners formed an unregistered
partnership and therefore, subject to the
corporate income tax, particularly for years
1955 and 1956. Petitioners asked for
reconsideration, which was denied hence this
petition for review from CTAs decision.
Issue:
W/N there was a co-ownership or an
unregistered partnership
W/N the petitioners are liable for the
deficiency corporate income tax
Held:
Unregistered partnership. The Tax Court
found that instead of actually distributing the
estate of the deceased among themselves
pursuant to the project of partition, the heirs
allowed their properties to remain under the
management of Oa and let him use their
shares as part of the common fund for their
ventures, even as they paid corresponding
income taxes on their respective shares.
Yes. For tax purposes, the co-ownership of
inherited properties is automatically
converted into an unregistered partnership
the moment the said common properties
and/or the incomes derived therefrom are
used as a common fund with intent to
produce profits for the heirs in proportion to
their respective shares in the inheritance as
determined in a project partition either duly
executed in an extrajudicial settlement or
approved by the court in the corresponding
testate or intestate proceeding. The reason is
simple. From the moment of such partition,
the heirs are entitled already to their
respective definite shares of the estate and
the incomes thereof, for each of them to
manage and dispose of as exclusively his

own without the intervention of the other


heirs, and, accordingly, he becomes liable
individually for all taxes in connection
therewith. If after such partition, he allows
his share to be held in common with his coheirs under a single management to be used
with the intent of making profit thereby in
proportion to his share, there can be no
doubt that, even if no document or
instrument were executed, for the purpose,
for tax purposes, at least, an unregistered
partnership is formed.
For purposes of the tax on corporations, our
National Internal Revenue Code includes
these partnerships
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
Mertens Law of Federal Income Taxation, p.
562 Note 63; emphasis ours.)
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. Judgment affirmed
Commissioner vs BOAC
149 SCRA 395
Facts:
British overseas airways corp.
(BOAC) a wholly owned British Corporation, is
engaged in international airlines business.
From 1959to 1972, it has no loading rights
for traffic purposes in the Philippines but
maintained a general sales agent in the
Philippines which was responsible for selling,
BOAC tickets covering passengers and
cargoes the CIR assessed deficiency income
taxes against.
Issue: Is BOAC liable to pay taxes?
Ruling:
Yes. The source of income is the
property, activity of service that produces
the income. For the source of income to be
considered coming from the Philippines, it is
sufficient that the income is derived from the
activity coming from the Philippines. The tax
code provides that for revenue to be taxable,
it must constitute income from Philippine
sources. In this case, the sale of tickets is the
source of income. The situs of the source of
payments is the Philippines.
FACTS:
British Overseas Airways 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 service 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 but maintained a
general sales agent in the country. Warner
Barnes was responsible for selling BOAC
tickets covering passengers of and cargos.
The CIR assessed deficiency income taxes
against BOAC.
ISSUE:
Whether or not the revenue derived by BOAC
from ticket sales in the Philippines for its
transportation constitute income from
Philippine sources and accordingly taxable.
RULING:
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. Herein, the sale of
tickets is the activity that produced the
income. The tickets exchanged hands here
and payment for fares were also made here
in the Philippine currency. The situs or the
source of the payment is the Philippines. The
flow of wealth proceeded from, and occurred
within, Philippine territory, enjoying the
protection accorded by Philippine
government. In consideration of such
protection, the flow of wealth should share
the burden of supporting the government. PD
68, in relation to PD1355, ensures that
international airlines are taxed on their
income from Philippine sources. The 2.5%
tax on gross billings is an income tax. If it
had been intended as an excise tax, it would
have been placed under Title V of the Tax
Code covering taxes on business.

be taxed at the regular rate of 32% (now


30%) of such income.
SUMMARY:
South African Airways is a foreign
corporation organized and existing under
and by virtue of the laws of the Republic of
South Africa. In the Philippines, it is an
internal air carrier having no landing rights in
the country. South African Airways, however,
has a general sales agent in the Philippines,
Aerotel. Aerotel sells passage documents for
compensation or commission for South
African Airways off-line flights for the
carriage of passengers and cargo between
ports or points outside the territorial
jurisdiction of the Philippines. South African
Airways filed income tax returns and paid tax
on its Gross Philippine Billings (GPB). South
African Airways, however, subsequently
claim for refund contending that it was not
liable to pay tax on its GPB.CTA denied the
claim on the ground that South African
Airways is liable to pay the32% (now 30%)
regular corporate income tax.
W/N South African Airways engaged in trade
or business in the Philippines subject to the
regular corporate income tax?
YES.
The general rule is that resident foreign
corporations shall be liable for a 32% income
tax on their income from within the
Philippines, except for resident foreign
corporations that are international carriers
that derive income from carriage of persons,
excess baggage, cargo and mail originating
from the Philippines which shall be taxed
at 2 % of their Gross Philippine
Billings. South African Airways being an
international carrier with no flights
originating from the Philippines, does not fall
under the exception. As such, it must fall
under the general rule
Hence, it is liable for regular corporate
income tax.

SOUTH AFRICAN AIRWAYS v. CIRG.R. No.


180356 | February 16, 2010
Petitioner: SOUTH AFRICAN AIRWAYS
Respondent: COMMISSIONER OF INTERNAL
REVENUE
VELASCO, JR.,
J.:
Doctrine: If an international air carrier
maintains flights
to and from the Philippines, it shall be taxed
at the rate of 2 %of its Gross Philippine
Billings, while international air carriers that
do not have flights to and from the
Philippines but nonetheless earn income
from other activities in the country will

FACTS:

Petition for Review on Certiorari


seeking the reversal of CTA EB
decision (affirming decision of CTA
division) DENYING its claim for tax
refund.
South African Airways is a foreign
corporation organized and existing
under and by virtue of the laws of the
Republic of South Africa. Its principal
office is located at Johannesburg
International Airport, South Africa.
In PH, it is an internal air carrier
having no landing rights in the
country. South African Airways,
however, has a general sales agent in

the Philippines, Aerotel Limited


Corporation (Aerotel)
Aerotel sells passage documents for
compensation or commission for South
African Airways off-line flights for the
carriage of passengers and cargo
between ports or points outside the
territorial jurisdiction of the
Philippines.
South African Airways is not registered
with the SEC as a corporation, branch
office, or partnership. It is not licensed
to do business in PH.
For the taxable year 2000,
South African Airways filed separate
quarterly and annual income tax
returns for its off-line flights
February 5, 2003: South African
Airways filed with the BIR a claim for
the refund of the amount of PhP
1,727,766.38 as erroneously paid tax
on Gross Philippine Billings (GPB)
for the taxable year 2000.
Claim was unheeded
South African Airways filed a Petition
for Review with the CTA for the refund
of the said amount.
CTA First Division: DENIED petition for
lack of merit
Ruled that South African Airways is a
resident
foreign corporation engaged in trade
or business in the Philippines.
South African Airways was not liable
to pay tax on its GPB under Section 28
(A)(3)(a) of NIRC. BUT South African
Airways is liable to pay a tax of32% on
its income derived from the sales of
passage documents in the Philippines.
CTA En Banc: AFFIRMED CTA Divisions
Decision. MR Denied
Hence, this petition.

ISSUES:
1. W/N South African Airways, as an off-line
international carrier selling passage
documents through an independent sales

agent in the Philippines, is engaged in trade


or business in the Philippines subject to the
32% (now30%) income tax? YES
2. W/N the income derived by South African
Airways from the sale of passage documents
covering petitioners off-line flights
is Philippine-source income subject to
Philippine income tax? YES3. W/N South
African Airways is entitled to a refund or a
tax credit of erroneously paid tax on Gross
Philippine Billings for the taxable year 2000
in the amount ofP1, 727,766.38?
HELD:
CTA Decision SET ASIDE. The instant case is
REMANDED to the CTA En Banc for
further proceedings and appropriate action,
more particularly, the reception of evidence
for both parties and the corresponding
disposition the case consistent with the SCs
decision
RATIO
:
SOUTH AFRICAN AIRWAYS IS SUBJECT TO
INCOME TAX AT THE RATE OF32% (NOW
30%) OF ITS TAXABLE INCOME
South African Airways failed to
sufficiently prove that it is exempted from
being taxed for its sale of passage
documents in the Philippines.
CIR v. Acesite (Philippines) Hotel
Corporation: Tax refund partakes of
the nature of an exemption
It is strictly construed against the
claimant who must discharge such
burden convincingly.
South African Airways
contentions: With the new definition
of GPB (the provision was amended), it
is no longer liable under Sec. 28(A)(3)
(a).
Since 2 1/2% tax on GPB is
inapplicable to it, South
African Airways is also excluded from
the imposition of any income tax