46.

CIR v Bank of Commerce

GR No. L-149636; June 08, 2005 2. Is there double taxation?

Doctrine: Ruling:
G​ross receipts means the entire receipts without any deduction. Deducting any amount from 1. there is no law which allows the deduction of 20% final tax from the respondent bank's
the gross receipts changes the result, and the meaning, to net receipts. Any deduction from interest income for the computation of the 5% gross receipts tax. On the other hand, Section
gross receipts is inconsistent with a law that mandates a tax on gross receipts, unless the 8(a)(c), Rev. Reg. No. 17-84 provides that interest earned on Philippine bank deposits and
yield from deposit substitutes are included as part of the tax base upon which the gross
law itself makes an exception.
receipts tax is imposed. Such earned interest refers to the gross interest without deduction
Gross receipts should be interpreted as the whole amount received as interest, without deductions;
since the regulations do not provide for any such deduction. The gross interest, without
otherwise, if deductions were to be made from gross receipts, it would be considered as "net
deduction, is the amount the borrower pays, and the income the lender earns, for the use by
receipts."
the borrower of the lender's money. The amount of the final tax plainly covers for the interest
earned and is consequently part of the taxable gross receipt of the lender.
Double taxation means taxing the same property twice when it should be taxed only once; that is,
The bare fact that the final withholding tax is a special trust fund belonging to the government
"xxx taxing the same person twice by the same jurisdiction for the same thing." Otherwise described
and that the respondent bank did not benefit from it while in custody of the borrower does not
as "direct duplicate taxation," the two taxes must be imposed on the same subject matter, for the
justify its exclusion from the computation of interest income. Such final withholding tax covers
same purpose, by the same taxing authority, within the same jurisdiction, during the same taxing
for the respondent bank's income and is the amount to be used to pay its tax liability to the
period; and they must be of the same kind or character.
government. This tax, along with the creditable withholding tax, constitutes payment which
would extinguish the respondent bank's obligation to the government. The bank can only pay
Facts:
the money it owns, or the money it is authorized to pay.
In 1994 and 1995, the respondent Bank of Commerce derived passive income in the form of interests
or discounts from its investments in government securities and private commercial papers. On
Note:
several occasions during the said period, it paid 5% gross receipts tax on its income, as reflected in
The concept of a withholding tax on income obviously and necessarily implies that the
its quarterly percentage tax returns. Included therein were the respondent bank's passive income
amount of the tax withheld comes from the income earned by the taxpayer. Since the amount
from the said investments amounting to P85,384,254.51, which had already been subjected to a final
of the tax withheld constitutes income earned by the taxpayer, then that amount manifestly
tax of 20%.
forms part of the taxpayer's gross receipts. Because the amount belongs to the taxpayer, he
can transfer its ownership to the government in payment of his tax liability. The amount
Meanwhile, on January 30, 1996, the CTA rendered judgment in Asia Bank Corporation v.
withheld indubitably comes from income of thwithheld e taxpayer, and thus forms part of his
Commissioner of Internal Revenue, CTA Case No. 4720, holding that the 20% final withholding tax on
gross receipts.
interest income from banks does not form part of taxable gross receipts for Gross Receipts Tax
(GRT) purposes. The CTA relied on Section 4(e) of Revenue Regulations (Rev. Reg.) No. 12-80.
2. No.
First, the taxes herein are imposed on two different subject matters. The subject matter of the
Relying on the said decision, the respondent bank filed an administrative claim for refund with the
FWT is the passive income generated in the form of interest on deposits and yield on deposit
Commissioner of Internal Revenue on July 19, 1996. It claimed that it had overpaid its gross receipts
substitutes, while the subject matter of the GRT is the privilege of engaging in the business of
tax for 1994 to 1995 by P853,842.54.
banking.
Issue:
Second, the taxing periods are different. The FWT is deducted and withheld as soon as the
1. Whether THE 20% FINAL WITHHOLDING TAX ON BANK'S INTEREST INCOME DOES
income is earned, and is paid after every calendar quarter in which it is earned. On the other
NOT FORM PART OF THE TAXABLE GROSS RECEIPTS IN COMPUTING THE 5%
hand, the GRT is neither deducted nor withheld, but is paid only after every taxable quarter in
GROSS RECEIPTS TAX
which it is earned.
 1. Yes. An offline carrier is "any foreign air carrier not certificated by the [Civil Aeronautics]
Third, these two taxes are of different kinds or characters. The FWT is an income tax subject
to withholding, while the GRT is a percentage tax not subject to withholding.
60. Air Canada v CIR
GR No. 169507; January 11, 2016
Doctrine:
The tax attaches only when the carriage of persons, excess baggage, cargo, and mail originated from
the Philippines in a continuous and uninterrupted flight, regardless of where the passage documents
were sold.
Facts:
Air Canada is a foreign corporation organized and existing under the laws of Canada. On April 24,
2000, it was granted an authority to operate as an offline carrier by the Civil Aeronautics Board,
subject to certain conditions, which authority would expire on April 24, 2005. As an off-line carrier it
does not have flights originating from or coming to the Philippines and does not operate any airplane
in the Philippines.
On July 1, 1999, Air Canada engaged the services of Aerotel as its general sales agent in the
Philippines. Aerotel sells Air Canada's passage documents in the Philippines.
For the period ranging from the third quarter of 2000 to the second quarter of 2002, Air Canada,
through Aerotel, filed quarterly and annual income tax returns and paid the income tax on Gross
Philippine Billings in the total amount of P5,185,676.77,10. On November 28, 2002, Air Canada filed
a written claim for refund of alleged erroneously paid income taxes amounting to P5,185,676.77
before the Bureau of Internal Revenue.
Issue:
1. whether petitioner Air Canada (as an offline international carrier selling passage documents
through a general sales agent in the Philippines) is a resident foreign corporation within the
meaning of Section 28(A)(1) of the 1997 National Internal Revenue Code.
2. whether petitioner Air Canada is subject to the 21/2% tax on Gross Philippine Billings
pursuant to Section 28(A)(3)
3. whether the Republic of the Philippines-Canada Tax Treaty applies
Ruling:
Board, but who maintains office or who has designated or appointed agents or employees in
the Philippines, who sells or offers for sale any air transportation in behalf of said foreign air
carrier and/or others, or negotiate for, or holds itself out by solicitation, advertisement, or
otherwise sells, provides, furnishes, contracts, or arranges for such transportation.
"Anyone desiring to engage in the activities of an off-line carrier [must] apply to the [Civil
Aeronautics] Board for such authority."64 Each offline carrier must file with the Civil
Aeronautics Board a monthly report containing information on the tickets sold, such as the
origin and destination of the passengers, carriers involved, and commissions received.
Hence, Petitioner is undoubtedly "doing business" or "engaged in trade or business" in the
Philippines.
2. As an offline international carrier with no landing rights in the Philippines, is not liable to tax
on Gross Philippine Billings under Section 28(A)(3) of the 1997 National Internal Revenue
Code…”(a) International Air Carrier. - 'Gross Philippine Billings' refers to the amount of gross
revenue derived from carriage of persons, excess baggage, cargo and mail originating from
the Philippines in a continuous and uninterrupted flight, irrespective of the place of sale or
issue and the place of payment of the ticket or passage document…”
Under the foregoing provision, the tax attaches only when the carriage of persons, excess
baggage, cargo, and mail originated from the Philippines in a continuous and uninterrupted
flight, regardless of where the passage documents were sold.
Not having flights to and from the Philippines, petitioner is clearly not liable for the Gross
Philippine Billings tax.
3. The Agreement between the government of the Republic of the Philippines and the
government of Canada on Air Transport, entered into on January 14, 1997, reiterates the
effectivity of Article VIII of the Republic of the Philippines-Canada Tax
Treaty:chanRoblesvirtualLawlibrary
ARTICLE XVI
(Taxation)
The Contracting Parties shall act in accordance with the provisions of Article VIII of the
Convention between the Philippines and Canada for the Avoidance of Double Taxation and
the Prevention of Fiscal Evasion with Respect to Taxes on Income, signed at Manila on
March 31, 1976 and entered into force on December 21, 1977, and any amendments thereto,
in respect of the operation of aircraft in international traffic.
Petitioner's income from sale of ticket for international carriage of passenger is income
derived from international operation of aircraft. The sale of tickets is closely related to the
international operation of aircraft that it is considered incidental thereto.

"[B]y reason of our bilateral negotiations with [Canada], we have agreed to have our right to
tax limited to a certain extent. Thus, we are bound to extend to a Canadian air carrier doing
business in the Philippines through a local sales agent the benefit of a lower tax equivalent to
1 1/2% on business profits derived from sale of international air transportation.
74. ING Bank v CIR
GR No. 167679; July 22, 2015
Doctrine:
The tax on compensation income is withheld at source under the creditable withholding tax system
wherein the tax withheld is intended to equal or at least approximate the tax due of the payee on the
said income. It was designed to enable (a) the individual taxpayer to meet his or her income tax
liability on compensation earned; and (b) the government to collect at source the appropriate taxes on
compensation.
Under the ​accrual method of accounting​, expenses not being claimed as deductions by a taxpayer
in the current year when they are incurred cannot be claimed as deduction from income for the
succeeding year. On the other hand, if the taxpayer is on ​cash basis​, the expense is deductible in
the year it was paid, regardless of the year it was incurred. If he is on the accrual method, he can
deduct the expense upon accrual thereof.
Facts:
ING Bank, the Philippine branch of Internationale Nederlanden Bank N.V., a foreign banking
corporation incorporated in the Netherlands[,] is duly authorized by the Bangko Sentral ng Pilipinas to
operate as a branch with full banking authority in the Philippines.
On January 3, 2000, ING Bank received a Final Assessment Notice dated December 3, 1999. The
Final Assessment Notice also contained the Details of Assessment and 13 Assessment Notices
issued by the Enforcement Service of the Bureau of Internal Revenue.
On February 2, ING Bank paid the deficiency assessments for 1996 compromise penalty, 1997
deficiency documentary stamp tax and 1997 deficiency final taxplus additional interest. ING Bank,
however, "protested the remaining ten (10) deficiency tax assessments.
ING Bank filed a Petition for Review before the Court of Tax Appeals.
Issue:
1. whether petitioner ING Bank may validly ​avail itself of the tax amnesty granted by Republic
Act No. 9480; and
2. whether petitioner ING Bank is ​liable for deficiency withholding tax on accrued bonuses for the
taxable years 1996 and 1997.
Ruling:
1. Yes.
Taxpayers with pending tax cases may avail themselves of the tax amnesty program under Republic
Act No. 9480.
In CS Garment, Inc. v. Commissioner of Internal Revenue, this court has "definitively declare[d] . . .
the exception ‘[i]ssues and cases which were ruled by any court (even without finality) in favor of the
BIR prior to amnesty availment of the taxpayer’ under BIR [Revenue Memorandum Circular No.]
19-2008 [as] invalid, [for going] beyond the scope of the provisions of the 2007 Tax Amnesty Law."69
Thus:
[N]either the law nor the implementing rules state that a court ruling that has not attained
finality would preclude the availment of the benefits of the Tax Amnesty Law. ​Both R.A. 9480
and DOF Order No. 29-07 are quite precise in declaring that "[t]ax cases subject of final and
executory judgment by the courts" are the ones excepted from the benefits of the law. In fact, we
have already pointed out the erroneous interpretation of the law in Philippine Banking Corporation
(Now: Global Business Bank, Inc.) v. Commissioner of Internal Revenue, viz:
The BIR’s inclusion of "issues and cases which were ruled by any court (even without finality) in favor
of the BIR prior to amnesty availment of the taxpayer" as one of the exceptions in RMC 19-2008 is
misplaced. RA 9480 is specifically clear that the exceptions to the tax amnesty program include "tax
cases subject of final and executory judgment by the courts." The present case has not become final
and executory when Metrobank availed of the tax amnesty program.
Moreover, in the fairly recent case of LG Electronics Philippines, Inc. v. Commissioner of Internal
Revenue, we confirmed that ​only cases that involve final and executory judgments are excluded from
the tax amnesty program​ as explicitly provided under Section 8 of Republic Act No. 9480.
Thus, petitioner ING Bank is not disqualified from availing itself of the tax amnesty under the law
during the pendency of its appeal before this court.
2. The provision of Section 72 of the 1977 National Internal Revenue Code (Section 79 of the 1997
National Internal Revenue Code) regarding withholding on wages must be read and construed in
harmony with Section 29(j) of the 1977 National Internal Revenue Code (Section 34(K) of the 1997
National Internal Revenue Code) on deductions from gross income. This is in accordance with the
rule on statutory construction that an interpretation is to be sought which gives effect to the whole of
the statute, such that every part is made effective, harmonious, and sensible,97 if possible, and not
defeated nor rendered insignificant, meaningless, and nugatory.98 If we go by the theory of petitioner
ING Bank, then the condition imposed by Section 29(j) would have been rendered nugatory, or we
would in effect have created an exception to this mandatory requirement when there was none in the
law.

Reading together the two provisions, we hold that the obligation of the payor/employer to deduct and
withhold the related withholding tax arises at the time the income was paid or accrued or recorded as
an expense in the payor’s/employer’s books, whichever comes first.

Petitioner ING Bank accrued or recorded the bonuses as deductible expense in its books. ING Bank
already recognized a definite liability on its part considering that it had deducted as business expense
from its gross income the accrued bonuses due to its employees. Underlying its accrual of the bonus
expense was a reasonable expectation or probability that the bonus would be achieved. In this sense,
there was already a constructive payment for income tax purposes as these accrued bonuses were
already allotted or made available to its officers and employees.

Therefore, its obligation to withhold the related withholding tax due from the deductions for accrued
bonuses arose at the time of accrual and not at the time of actual payment.
88. CIR v St. Lukes Medical Center
GR No. 195909; September 26, 2012
Doctrine:
Section 27(B) of the NIRC imposes a 10% preferential tax rate on the income of ​(1) proprietary
non-profit educational institutions and (2) proprietary non-profit hospitals.​ The only qualifications for
hospitals are that they must be proprietary and non-profit. ​"Proprietary" means private, following the
definition of a "proprietary educational institution" as "any private school maintained and administered
by private individuals or groups" with a government permit. "​Non-profit" means no net income or
asset accrues to or benefits any member or specific person, with all the net income or asset devoted
to the institution's purposes and all its activities conducted not for profit.
"Non-profit" does not necessarily mean "charitable."
Charity is essentially a gift to an indefinite number of persons which lessens the burden of
government. In other words, charitable institutions provide for free goods and services to the public
which would otherwise fall on the shoulders of government. Thus, as a matter of efficiency, the
government forgoes taxes which should have been spent to address public needs, because certain
private entities already assume a part of the burden.
Facts:
St. Luke's Medical Center, Inc. (St. Luke's) is a hospital organized as a non-stock and non-profit
corporation.
On 16 December 2002, the Bureau of Internal Revenue (BIR) assessed St. Luke's deficiency taxes.
On the following year, St. Luke's filed an administrative protest with the BIR against the deficiency tax
assessments. The BIR did not act on the protest within the 180-day period under Section 228 of the
NIRC. Thus, St. Luke's appealed to the CTA.
On the other hand, the BIR argued before the CTA that Section 27(B) of the NIRC, which imposes a
10% preferential tax rate on the income of proprietary non-profit hospitals, should be applicable to St.
Luke's. It further claimed that St. Luke's was actually operating for profit in 1998 because only 13% of
its revenues came from charitable purposes. Moreover, the hospital's board of trustees, officers and
employees directly benefit from its profits and assets.
Issue:
Whether St. Luke's is liable for deficiency income tax in 1998 under Section 27(B) of the NIRC, which
imposes a preferential tax rate of 10% on the income of proprietary non-profit hospitals.
Ruling:
The income of whatever kind and character of the foregoing organizations from any of their
properties, real or personal, or from any of their activities conducted for profit regardless of the
disposition made of such income, shall be subject to tax imposed under this Code.
To be a charitable institution, however, an organization must meet the substantive test of charity in
Lung Center. The issue in Lung Center concerns exemption from real property tax and not income
tax. However, it provides for the test of charity in our jurisdiction. Charity is essentially a gift to an
indefinite number of persons which lessens the burden of government. In other words, charitable
institutions provide for free goods and services to the public which would otherwise fall on the
shoulders of government. Thus, as a matter of efficiency, the government forgoes taxes which should
have been spent to address public needs, because certain private entities already assume a part of
the burden. This is the rationale for the tax exemption of charitable institutions. The loss of taxes by
the government is compensated by its relief from doing public works which would have been funded
by appropriations from the Treasury.
Charitable institutions, however, are not ipso facto entitled to a tax exemption. The requirements for a
tax exemption are specified by the law granting it. The power of Congress to tax implies the power to
exempt from tax. Congress can create tax exemptions, subject to the constitutional provision that
"[n]o law granting any tax exemption shall be passed without the concurrence of a majority of all the
Members of Congress." The requirements for a tax exemption are strictly construed against the
taxpayer because an exemption restricts the collection of taxes necessary for the existence of the
government.
As a general principle, a charitable institution does not lose its character as such and its exemption
from taxes simply because it derives income from paying patients, whether out-patient, or confined in
the hospital, or receives subsidies from the government, so long as the money received is devoted or
used altogether to the charitable object which it is intended to achieve; and no money inures to the
private benefit of the persons managing or operating the institution.
The Constitution exempts charitable institutions only from real property taxes. In the NIRC, Congress
decided to extend the exemption to income taxes. However, the way Congress crafted Section 30(E)
of the NIRC is materially different from Section 28(3), Article VI of the Constitution. Section 30(E) of
the NIRC defines the corporation or association that is exempt from income tax. On the other hand,
Section 28(3), Article VI of the Constitution does not define a charitable institution, but requires that
the institution "actually, directly and exclusively" use the property for a charitable purpose.
Section 30(E) of the NIRC provides that a charitable institution must be:
(1) A non-stock corporation or association;
 (2) Organized exclusively for charitable purposes;
(3) Operated exclusively for charitable purposes; and
(4) No part of its net income or asset shall belong to or inure to the benefit of
any member, organizer, officer or any specific person.
Thus, both the organization and operations of the charitable institution must be devoted "exclusively"
for charitable purposes. The organization of the institution refers to its corporate form, as shown by its
articles of incorporation, by-laws and other constitutive documents. Section 30(E) of the NIRC
specifically requires that the corporation or association be non-stock, which is defined by the
Corporation Code as "one where no part of its income is distributable as dividends to its members,
trustees, or officers" and that any profit "obtain[ed] as an incident to its operations shall, whenever
necessary or proper, be used for the furtherance of the purpose or purposes for which the corporation
was organized."
There is no dispute that St. Luke's is organized as a non-stock and non-profit charitable institution.
However, this does not automatically exempt St. Luke's from paying taxes. This only refers to the
organization of St. Luke's. Even if St. Luke's meets the test of charity, a charitable institution is not
ipso facto tax exempt. To be exempt from real property taxes, Section 28(3), Article VI of the
Constitution requires that a charitable institution use the property "actually, directly and exclusively"
for charitable purposes. To be exempt from income taxes, Section 30(E) of the NIRC requires that a
charitable institution must be "organized and operated exclusively" for charitable purposes. Likewise,
to be exempt from income taxes, Section 30(G) of the NIRC requires that the institution be "operated
exclusively" for social welfare.
The Court finds that St. Luke's is a corporation that is not "operated exclusively" for charitable or
social welfare purposes insofar as its revenues from paying patients are concerned. This ruling is
based not only on a strict interpretation of a provision granting tax exemption, but also on the clear
and plain text of Section 30(E) and (G). Section 30(E) and (G) of the NIRC requires that an institution
be "operated exclusively" for charitable or social welfare purposes to be completely exempt from
income tax. An institution under Section 30(E) or (G) does not lose its tax exemption if it earns
income from its for-profit activities. Such income from for-profit activities, under the last paragraph of
Section 30, is merely subject to income tax, previously at the ordinary corporate rate but now at the
preferential 10% rate pursuant to Section 27(B).
A tax exemption is effectively a social subsidy granted by the State because an exempt institution is
spared from sharing in the expenses of government and yet benefits from them. Tax exemptions for
charitable institutions should therefore be limited to institutions beneficial to the public and those
which improve social welfare. A profit-making entity should not be allowed to exploit this subsidy to
the detriment of the government and other taxpayers.1âwphi1
St. Luke's fails to meet the requirements under Section 30(E) and (G) of the NIRC to be completely
tax exempt from all its income. However, it remains a proprietary non-profit hospital under Section
27(B) of the NIRC as long as it does not distribute any of its profits to its members and such profits
are reinvested pursuant to its corporate purposes. St. Luke's, as a proprietary non-profit hospital, is
entitled to the preferential tax rate of 10% on its net income from its for-profit activities.
88. CIR v St Luke’s Medical Center
GR No, 203514; GFebruary 13, 2014
Doctrine:
Facts:
On December 14, 2007, respondent St. Luke’s Medical Center, Inc. received from the Large
Taxpayers Service-Documents Processing and Quality Assurance Division of the Bureau of Internal
Revenue (BIR) Audit Results/Assessment Notice assessing respondent SLMC deficiency income tax
under Section 27(B) of the 1997 National Internal Revenue Code , as amended, for taxable years of
2005 and 2006.
On January 14, 2008, SLMC filed with petitioner Commissioner of Internal Revenue (CIR) an
administrative protest8 assailing the assessments. SLMC claimed that as a non-stock, non-profit
charitable and social welfare organization under Section 30(E) and (G) of the 1997 NIRC, as
amended, it is exempt from paying income tax. Aggrieved, SLMC elevated the matter to the CTA via
a Petition for Review.
The CTA rendered decision in favor of SLMC for not being liable to the deficiency income tax under
Section 27(B) of the 1997 NIRC. CIR moved for reconsideration but the CTA Division denied the
same. This prompted CIR to file a Petition for Review before the CTA en banc. But the same was
denied.
Issue:
whether SLMC is liable for income tax under Section 27(B) of the 1997 NIRC insofar as its revenues
from paying patients are concerned
Ruling:
Yes. We hold that Section 27(B) of the NIRC does not remove the income tax exemption of
proprietary non-profit hospitals under Section 30(E) and (G). Section 27(B) on one hand, and Section
30(E) and (G) on the other hand, can be construed together without the removal of such tax
exemption. The effect of the introduction of Section 27(B) is to subject the taxable income of two
specific institutions, namely, proprietary non-profit educational institutions and proprietary non-profit
hospitals, among the institutions covered by Section 30, to the 10% preferential rate under Section
27(B) instead of the ordinary 30% corporate rate under the last paragraph of Section 30 in relation to
Section 27(A)(l).

Section 27(B) of the NIRC imposes a 10% preferential tax rate on the income of (1) proprietary
non-profit educational institutions and (2) proprietary non-profit hospitals. The only qualifications for
hospitals are that they must be proprietary and non-profit. 'Proprietary' means private, following the
definition of a 'proprietary educational institution' as 'any private school maintained and administered
by private individuals or groups' with a government permit. 'Non-profit' means no net income or asset
accrues to or benefits any member or specific person, with all the net income or asset devoted to the
institution's purposes and all its activities conducted not for profit.
102.Philippine Acetylene v CIR
GR No. L-19707; August 17, 1967

Doctrine:
The tax imposed by section 186 of the National Internal Revenue Code is a tax on the manufacturer
or producer and not a tax on the purchaser except probably in a very remote and inconsequential
sense.

Facts:
The petitioner is a corporation engaged in the manufacture and sale of oxygen and acetylene gases.
During the period from June 2, 1953 to June 30, 1958, it made various sales of its products to the
National Power Corporation, an agency of the Philippine Government, and to the Voice of America an
agency of the United States Government. The sales to the NPC amounted to P145,866.70, while
those to the VOA amounted to P1,683, on account of which the respondent Commission of Internal
Revenue assessed against, and demanded from, the petitioner the payment of P12,910.60 as
deficiency sales tax and surcharge, pursuant to the following-provisions of the National Internal
Revenue Code.

Issue:
Whether Phil. Acetelyne is liable for the sales tax

Held:
Yes. The Code states that the sales tax "shall be paid by the manufacturer or producer, "who must
"make a true and complete return of the amount of his, her or its gross monthly sales, receipts or
earnings or gross value of output actually removed from the factory or mill warehouse and within
twenty days after the end of each month, pay the tax due thereon.