William C. Reagan v.

Commission of Internal Revenue

Nature of Space occupied by a Foreign Embassy| December 27, 1969| FERNANDO, J.

FACTS:
- The petitioner is a citizen of the United State and an employee of Bendix Radio,
Divison of Bendix Aviation Corporation, which provided technical assistance to the United
States Air Force was assigned at the Clark Air Base Pampanga, honor about July 7, 19. Nine
months, before his tour duty expires, petitioner imported a tax free 1960 Cadillac car which
valued at $6443.83. More than two months after the car was imported, petitioner requested the
Clark Air Base Commander for a permit to sell the car. The request was granted with the
condition that he would sell it to a member of the United States Armed Forces or an employee of
the U.S. Military Bases.
- On July 11, 1960, petitioner sold the car to Willie Johnson for $6600, a private in US
Marine Corps, Sangby Point, Cavite as shown by a bill of sale executed at Clark Air Base. On the
same date William Johnson Jr. sold the car to Fred Meneses for P32,000 as evidence by a deed of
sale executed in Manila.

- The respondent after deducting the landed cost of the car and the personal exemption
which the petitioner was entitled, fixed as his net income arising from such transaction the
amount of P17912.34 rendering him liable for income tax of P2979.00. After paying the sum, he
sought refund from the respondent claiming that he is exempted. He filed a case within the
Court of Tax Appeals seeking recovery of the sum P2979.00 plus legal rate of interest.

ISSUE/S & RATIO:

1. Whether or not the said income tax of P2979.00 was legally collected by respondent from
petitioner.

Held/Ratio Decidendi:
1. Yes. The Philippine is an independent and sovereign country or state. Its authority may be
exercised over its entire domain. Its laws govern therein and everyone to whom it applies must
submit to its term. It does not prelude from allowing another power to participate in the exercise
of jurisdictional rights over certain portions of its territory. Such areas sustain their status as
native soil and still subject to its authority. Its jurisdiction may be diminished but it does not
disappear.
The Clark Air Base is one of he bases under lease to the American armed forces by
virtue of the Military Bases Agreement which states that a “national of the US serving or
employed in the Philippines in connection with the construction, maintenance, operation, or
defense of the bases and residing in the Philippines only by reason such unemployment is not to
be taxed on his income unless derived in the bases which one clearly derived the Phil.
Therefore the Supreme Court sustained the decision of the Court of Tax Appeals
rendering the petitioner liable of the income tax arising from the sale of his automobile that have
taken place in Clark Air Field which is within our territory to tax.