Powers of the BIR

Q: What is the Commissioner of Internal Revenue’s power to interpret tax laws?

A: The power to interpret the provisions of the NIRC and other tax laws shall be under the exclusive and original
jurisdiction of the Commissioner, subject to review by the Secretary of Finance. (NIRC, Sec. 4)

Q: What are the different tax issuances?

A:

1. Revenue Regulations (RRs) - issuances signed by the Secretary of Finance, upon recommendation of the Commissioner
of Internal Revenue, that specify, prescribe or define rules and regulation for the effective enforcement of the provisions
of the NIRC and related issuances. (GRUBA, supra at 211)

2. Revenue Memorandum Orders (RMOs) - issuances that provide directives or instructions; prescribe guidelines; and
outline processes, operations, activities, workflows, methods and procedures necessary in the implementation of stated
policies, goals, objectives, plans and programs of the Bureau in all areas of operations, except auditing. (GRUBA, supra at
211)

3. Revenue Memorandum Rulings (RMRs) - rulings, opinions and interpretations of the Commissioner of Internal
Revenue with respect to the provisions of the Tax Code and other laws, as applied to a specific set of facts, with or
without established precedents, and which the Commissioner may issue from time to time for the purpose of providing
taxpayers guidance on the tax consequences in specific situations. BIR Rulings, therefore, cannot contravene duly issued
RMRs; otherwise, the Rulings are null and void ab initio. (GRUBA, supra at 212-213)

4. Revenue Memorandum Circular (RMCs) - issuances that publish pertinent and applicable portions, as well as
amplifications, of laws, rules, regulations and precedents issued by the BIR and other agendes/offices. (GRUBA, supra at
211)

5. Revenue Bulletins (RBs) - refer to periodic issuances, notices and official announcements of the CIR that consolidate
the BIR’s position on certain specific issues of law or administration in relation to the provisions of the 1997 Tax Code,
relevant tax laws and other issuances for the guidance of the public. (GRUBA, supra at 213

6. BIR Rulings - the official position of the Bureau of Internal Revenue to queries raised by taxpayers and other
stakeholders relative to clarification and interpretation of tax laws. (GRUBA, supra at 212

7. Revenue Administrative Orders (RAOs) - issuances that cover subject matters dealing strictly with the permanent
administrative setup of the Bureau, more specifically, the organizational structure, statements of functions and/or
responsibilities of BIR offices, definitions and delegations of authority, staffing and personnel requirements and
standards of performance. (GRUBA, supra at 211)

8. Revenue Delegation of Authority Orders (RDAOs) - to functions delegated by the Commissioner to revenue officials in
accordance with law. (GRUBA, supra at 212)

9. Revenue Special Orders (RSOs) - administrative orders issued by the CIR assigning revenue officers and employees of
the BIR to special duties which shall not exceed 1 year. (GRUBA, supra at 212)

10. Revenue Audit Memorandum Orders (RAMOs) - declarations of audit programs of the BIR for a specific taxable year
signed by the CIR. (GRUBA, supra at 212)

11. Revenue Travel Assignment Orders (RTAOs) - issued by the CIR transferring, assigning or reassigning revenue officers
or employees to other or special duties connected with the enforcement or administration of revenue laws as the
exigencies of the service may require: Provided, however, that revenue officers assigned to perform assessment or
collection functions shall not remain in the same assignment for more than 3 years. (GRUBA, supra at 213)
Q: What is the value of Revenue Regulations?

A: General rule: The Supreme Court said that a void law or administrative act cannot be the source of legal rights or
duties. Article 7 of the New Civil Code provides that “... administrative or executive acts, orders and regulations shall be
valid only when they are not contrary to the laws or the Constitution.” (CIR v. San Roque Corporation, G.R. No. 187485,
2013)

Exception: In the same case, citing Section 246 of the NIRC, the Court said that taxpayers may rely upon a rule or ruling
issued by the Commissioner from the time the rule or ruling is issued up to its reversal by the Commissioner or this
Court. The reversal is not given retroactive effect. This, in essence, is the doctrine of operative fact.

Q: What are the powers of the Commissioner of Internal Revenue?

A: The powers of the CIR are the following:

1. Interpret tax laws;

2. Decide (assessment/refund) cases;

3. Obtain information, summon or examine, or take testimony;

4. Examine returns;

5. Make findings based on best evidence obtainable if taxpayer fails to submit required documents;

6. Conduct inventory-taking, surveillance, prescribe presumptive gross sales and receipts;

7. Terminate taxable period - when taxpayer is:

1. Retiring from business

2. Intending to leave the country

3. Remove property

4. Doing acts to obstruct collection

8. Prescribe real property values;

, 9. Inquire into bank deposits;

10. Accredit and register tax agents; and

11. Prescribe additional documentary and procedural requirements.

Q: Which of the powers of the Commissioner of Internal Revenue CANNOT be delegated?

A:

1. Recommend rules and regulations to the Department of Finance;

2. Issue rulings of first impressions and revoke rulings;

3. Compromise or abate under Sec. 204;

a) NOTE: 500,000 or less may be made

by Regional Evaluation Board

4. Issue and reassign officers where articles subject to excise taxes are produced or kept.
Q: What was the limitation imposed upon the power of the Commissioner of Internal
Revenue (CIR) to obtain information with regard to Cooperatives as per RA 10963 or the
TRAIN Law?

A: The Cooperative Development Authority shall submit to the Bureau a tax incentive report, which
shall include information on the income tax, value-added tax, and other tax incentives availed of by
cooperatives registered and enjoying incentives under Republic Act No. 6938, as amended: Provided,
That the information submitted by the Cooperative Development Authority to the Bureau shall be
submitted to the Department of Finance and shall be included in the database created under
Republic Act No. 10708, otherwise known as 'The Tax Incentives Management and Transparency Act
(TIMTA). (Section 5(b), NIRC as amended by TRAIN Law)

Q: Under the TRAIN Law, is the power of the CIR to examine returns and determine tax
due subject to prior authorization of any government agency or instrumentality?
A: No. After a return has been filed as required under the provisions of the Tax Code, the
Commissioner or his duly authorized representative may authorize the examination of any taxpayer
and the assessment of the correct amount of tax, notwithstanding any law requiring the prior
authorization of any government agency or instrumentality: Provided, however, That failure to file a
return shall not prevent the Commissioner from authorizing the examination of any taxpayer. (Section
6(A), NIRC as amended by TRAIN Law)

Q: What are the additions made by the TRAIN Law as to the Authority of the Commissioner
to Prescribe Real Property Values?

A: Under the TRAIN Law, the Commissioner is authorized to divide the Philippines into different zones
or areas and shall, upon mandatory consultation with competent appraisers both from the private
and public sectors, and with prior notice to affected taxpayers, determine the fair market value of
real properties located in each zone or area, subject to automatic adjustment once every three (3)
years through rules and regulations issued by the Secretary of Finance based on the current
Philippine valuation standards: Provided, That no adjustment in zonal valuation shall be valid unless
published in a newspaper of general circulation in the province, city or municipality concerned, or in
the absence thereof, shall be posted in the provincial capitol, city or municipal hall and in two (2)
other conspicuous public places therein: Provided, further, That the basis of any valuation, including
the records of consultations done, shall be public records open to the inquiry of any taxpayer.
(Section 6(E), NIRC as amended by TRAIN Law)
Q: Explain the rule on non-retroactivity of rulings.

A: As a general rule, any revocation, modification or reversal of any of the rules and regulations promulgated or any of
the rulings or circulars promulgated by the Commissioner shall not be given retroactive application if the revocation,
modification or reversal will be prejudicial to the taxpayers.

Exception: Even if prejudicial to the taxpayer, they shall have retroactive effect in the following cases:

1. The taxpayer deliberately misstates or omits material facts from his return or any document required from him by the
Bureau of Internal Revenue;

2. The facts subsequently gathered by the

Bureau of Internal Revenue are materially different from the facts on which the ruling was based; or

3. The iaxpayer acted in bad faith. (Sec. 246, NIRC

Note: RR 5-2012 provides that all rulings issued prior to January 1, 1998 will no longer have any binding effect. They can
no longer be invoked as basis for any current business transaction/s or as a basis for securing legal tax opinions and
rulings.

Note, however, that RMC 22-2012 clarified that BIR Rulings prior to January 1, 1998 remains valid to the taxpayer who
was issued the ruling and covering the specific transaction which is subject of the ruling.

Note further that RMC 69-2016 suspended until further notice all revenue issuances issued within period covering June
1-30, 2016.

Q: May a BIR ruling be invoked by a taxpayer other than the one who requested the same?

A: No. The Supreme Court ruled that in keeping with the caveat attendant in every BIR ruling to the effect that it is valid
only if the facts claimed by the taxpayer are correct, a BIR ruling could be invoked only by the taxpayer who sought the
same. If the taxpayer is not the one who, in the first instance, sought the ruling from the BIR, he cannot invoke the
principle of non-retroactivity of BIR rulings. (CIR v. Filinvest Development Corporation, G.R. Nos. 163653 & 167689,
2011)
G.R. No. L-53961

NATIONAL DEVELOPMENT COMPANY, petitioner,

vs.
COMMISSIONER OF INTERNAL REVENUE, respondent.

CRUZ, J.:

We are asked to reverse the decision of the Court of Tax Appeals on the ground that it is erroneous. We have carefully
studied it and find it is not; on the contrary, it is supported by law and doctrine. So finding, we affirm.

Reduced to simplest terms, the background facts are as follows.

The national Development Company entered into contracts in Tokyo with several Japanese shipbuilding companies for
the construction of twelve ocean-going vessels. 1 The purchase price was to come from the proceeds of bonds issued by
the Central Bank. 2 Initial payments were made in cash and through irrevocable letters of credit. 3 Fourteen promissory
notes were signed for the balance by the NDC and, as required by the shipbuilders, guaranteed by the Republic of the
Philippines. 4 Pursuant thereto, the remaining payments and the interests thereon were remitted in due time by the NDC
to Tokyo. The vessels were eventually completed and delivered to the NDC in Tokyo. 5

The NDC remitted to the shipbuilders in Tokyo the total amount of US$4,066,580.70 as interest on the balance of the
purchase price. No tax was withheld. The Commissioner then held the NDC liable on such tax in the total sum of
P5,115,234.74. Negotiations followed but failed. The BIR thereupon served on the NDC a warrant of distraint and levy to
enforce collection of the claimed amount. 6 The NDC went to the Court of Tax Appeals.

The BIR was sustained by the CTA except for a slight reduction of the tax deficiency in the sum of P900.00, representing
the compromise penalty. 7 The NDC then came to this Court in a petition for certiorari.

The petition must fail for the following reasons.

The Japanese shipbuilders were liable to tax on the interest remitted to them under Section 37 of the Tax Code, thus:

SEC. 37. Income from sources within the Philippines. — (a) Gross income from sources within the Philippines. —
The following items of gross income shall be treated as gross income from sources within the Philippines:

(1) Interest. — Interest derived from sources within the Philippines, and interest on bonds, notes, or other
interest-bearing obligations of residents, corporate or otherwise;

x x x           x x x          x x x

The petitioner argues that the Japanese shipbuilders were not subject to tax under the above provision because all the
related activities — the signing of the contract, the construction of the vessels, the payment of the stipulated price, and
their delivery to the NDC — were done in Tokyo. 8 The law, however, does not speak of activity but of "source," which in
this case is the NDC. This is a domestic and resident corporation with principal offices in Manila.

As the Tax Court put it:

It is quite apparent, under the terms of the law, that the Government's right to levy and collect income tax on
interest received by foreign corporations not engaged in trade or business within the Philippines is not planted
upon the condition that 'the activity or labor — and the sale from which the (interest) income flowed had its situs'
in the Philippines. The law specifies: 'Interest derived from sources within the Philippines, and interest on bonds,
notes, or other interest-bearing obligations of residents, corporate or otherwise.' Nothing there speaks of the 'act
or activity' of non-resident corporations in the Philippines, or place where the contract is signed. The residence of
the obligor  who pays the interest rather than the physical location of the securities, bonds or notes or the place of
payment, is the determining factor of the source of interest income. (Mertens, Law of Federal Income Taxation,
Vol. 8, p. 128, citing A.C. Monk & Co. Inc. 10 T.C. 77; Sumitomo Bank, Ltd., 19 BTA 480; Estate of L.E. Mckinnon,
6 BTA 412; Standard Marine Ins. Co., Ltd., 4 BTA 853; Marine Ins. Co., Ltd., 4 BTA 867.) Accordingly, if the
obligor is a resident of the Philippines the interest payment paid by him can have no other source than within the
 Philippines. The interest is paid not by the bond, note or other interest-bearing obligations, but by the obligor. (See
mertens, Id., Vol. 8, p. 124.)

Here in the case at bar, petitioner National Development Company, a corporation duly organized and existing
under the laws of the Republic of the Philippines, with address and principal office at Calle Pureza, Sta. Mesa,
Manila, Philippines unconditionally promised to pay the Japanese shipbuilders, as obligor in fourteen (14)
promissory notes for each vessel, the balance of the contract price of the twelve (12) ocean-going vessels
purchased and acquired by it from the Japanese corporations, including the interest on the principal sum at the
rate of five per cent (5%) per annum. (See Exhs. "D", D-1" to "D-13", pp. 100-113, CTA Records; par. 11, Partial
Stipulation of Facts.) And pursuant to the terms and conditions of these promisory notes, which are duly signed by
its Vice Chairman and General Manager, petitioner remitted to the Japanese shipbuilders in Japan during the
years 1960, 1961, and 1962 the sum of $830,613.17, $1,654,936.52 and $1,541.031.00, respectively, as interest
on the unpaid balance of the purchase price of the aforesaid vessels. (pars. 13, 14, & 15, Partial Stipulation of
Facts.)

The law is clear. Our plain duty is to apply it as written. The residence of the obligor which paid the interest under
consideration, petitioner herein, is Calle Pureza, Sta. Mesa, Manila, Philippines; and as a corporation duly
organized and existing under the laws of the Philippines, it is a domestic corporation, resident of the Philippines.
(Sec. 84(c), National Internal Revenue Code.) The interest paid by petitioner, which is admittedly a resident of the
Philippines, is on the promissory notes issued by it. Clearly, therefore, the interest remitted to the Japanese
shipbuilders in Japan in 1960, 1961 and 1962 on the unpaid balance of the purchase price of the vessels
acquired by petitioner is interest derived from sources within the Philippines subject to income tax under the then
Section 24(b)(1) of the National Internal Revenue Code. 9

There is no basis for saying that the interest payments were obligations of the Republic of the Philippines and that the
promissory notes of the NDC were government securities exempt from taxation under Section 29(b)[4] of the Tax Code,
reading as follows:

SEC. 29. Gross Income. —  xxxx xxx xxx xxx

(b) Exclusion from gross income. — The following items shall not be included in gross income and shall be
exempt from taxation under this Title:

x x x           x x x          x x x

(4) Interest on Government Securities. — Interest upon the obligations of the Government of the Republic of the
Philippines or any political subdivision thereof, but in the case of such obligations issued after approval of this
Code, only to the extent provided in the act authorizing the issue thereof. (As amended by Section 6, R.A. No. 82;
emphasis supplied)

The law invoked by the petitioner as authorizing the issuance of securities is R.A. No. 1407, which in fact is silent on this
matter. C.A. No. 182 as amended by C.A. No. 311 does carry such authorization but, like R.A. No. 1407, does not exempt
from taxes the interests on such securities.

It is also incorrect to suggest that the Republic of the Philippines could not collect taxes on the interest remitted because
of the undertaking signed by the Secretary of Finance in each of the promissory notes that:

Upon authority of the President of the Republic of the Philippines, the undersigned, for value received, hereby
absolutely and unconditionally guarantee (sic), on behalf of the Republic of the Philippines, the due and punctual
payment of both principal and interest of the above note.10

There is nothing in the above undertaking exempting the interests from taxes. Petitioner has not established a clear
waiver therein of the right to tax interests. Tax exemptions cannot be merely implied but must be categorically and
unmistakably expressed. 11 Any doubt concerning this question must be resolved in favor of the taxing power. 12

Nowhere in the said undertaking do we find any inhibition against the collection of the disputed taxes. In fact, such
undertaking was made by the government in consonance with and certainly not against the following provisions of the Tax
Code:
 Sec. 53(b). Nonresident aliens. — All persons, corporations and general co-partnership (companies colectivas), in
whatever capacity acting, including lessees or mortgagors of real or personal capacity, executors, administrators,
receivers, conservators, fiduciaries, employers, and all officers and employees of the Government of the
Philippines having control, receipt, custody; disposal or payment of interest, dividends, rents, salaries, wages,
premiums, annuities, compensations, remunerations, emoluments, or other fixed or determinable annual or
categorical gains, profits and income of any nonresident alien individual, not engaged in trade or business within
the Philippines and not having any office or place of business therein, shall (except in the cases provided for in
subsection (a) of this section) deduct and withhold from such annual or periodical gains, profits and income a tax
to twenty (now 30%) per centum thereof: ...

Sec. 54. Payment of corporation income tax at source. — In the case of foreign corporations subject to taxation
under this Title not engaged in trade or business within the Philippines and not having any office or place of
business therein, there shall be deducted and withheld at the source in the same manner and upon the same
items as is provided in section fifty-three a tax equal to thirty (now 35%) per centum thereof, and such tax shall be
returned and paid in the same manner and subject to the same conditions as provided in that section:....

Manifestly, the said undertaking of the Republic of the Philippines merely guaranteed the obligations of the NDC but
without diminution of its taxing power under existing laws.

In suggesting that the NDC is merely an administrator of the funds of the Republic of the Philippines, the petitioner closes
its eyes to the nature of this entity as a corporation. As such, it is governed in its proprietary activities not only by its
charter but also by the Corporation Code and other pertinent laws.

The petitioner also forgets that it is not the NDC that is being taxed. The tax was due on the interests earned by the
Japanese shipbuilders. It was the income of these companies and not the Republic of the Philippines that was subject to
the tax the NDC did not withhold.

In effect, therefore, the imposition of the deficiency taxes on the NDC is a penalty for its failure to withhold the same from
the Japanese shipbuilders. Such liability is imposed by Section 53(c) of the Tax Code, thus:

Section 53(c). Return and Payment. — Every person required to deduct and withhold any tax under this section
shall make return thereof, in duplicate, on or before the fifteenth day of April of each year, and, on or before the
time fixed by law for the payment of the tax, shall pay the amount withheld to the officer of the Government of the
Philippines authorized to receive it. Every such person is made personally liable for such tax, and is indemnified
against the claims and demands of any person for the amount of any payments made in accordance with the
provisions of this section. (As amended by Section 9, R.A. No. 2343.)

In Philippine Guaranty Co. v. The Commissioner of Internal Revenue and the Court of Tax Appeals, 13 the Court quoted
with approval the following regulation of the BIR on the responsibilities of withholding agents:

In case of doubt, a withholding agent may always protect himself by withholding the tax due, and promptly
causing a query to be addressed to the Commissioner of Internal Revenue for the determination whether or not
the income paid to an individual is not subject to withholding. In case the Commissioner of Internal Revenue
decides that the income paid to an individual is not subject to withholding, the withholding agent may thereupon
remit the amount of a tax withheld. (2nd par., Sec. 200, Income Tax Regulations).

"Strict observance of said steps is required of a withholding agent before he could be released from liability," so said
Justice Jose P. Bengson, who wrote the decision. "Generally, the law frowns upon exemption from taxation; hence, an
exempting provision should be construed strictissimi juris." 14

The petitioner was remiss in the discharge of its obligation as the withholding agent of the government an so should be
held liable for its omission.

WHEREFORE, the appealed decision is AFFIRMED, without any pronouncement as to costs. It is so ordered.
G.R. No. L-65773-74 April 30, 1987

COMMISSIONER OF INTERNAL REVENUE, petitioner,

vs.
BRITISH OVERSEAS AIRWAYS CORPORATION and COURT OF TAX APPEALS, respondents.

Quasha, Asperilla, Ancheta, Peña, Valmonte & Marcos for respondent British Airways.

MELENCIO-HERRERA, J.:

Petitioner Commissioner of Internal Revenue (CIR) seeks a review on certiorari of the joint Decision of the Court of Tax
Appeals (CTA) in CTA Cases Nos. 2373 and 2561, dated 26 January 1983, which set aside petitioner's assessment of
deficiency income taxes against respondent British Overseas Airways Corporation (BOAC) for the fiscal years 1959 to
1967, 1968-69 to 1970-71, respectively, as well as its Resolution of 18 November, 1983 denying reconsideration.

BOAC is a 100% British Government-owned corporation organized and existing under the laws of the United Kingdom It is
engaged in the international airline business and is a member-signatory of the Interline Air Transport Association (IATA).
As such it operates air transportation service and sells transportation tickets over the routes of the other airline members.
During the periods covered by the disputed assessments, it is admitted that BOAC had no landing rights for traffic
purposes in the Philippines, and was not granted a Certificate of public convenience and necessity to operate in the
Philippines by the Civil Aeronautics Board (CAB), except for a nine-month period, partly in 1961 and partly in 1962, when
it was granted a temporary landing permit by the CAB. Consequently, it did not carry passengers and/or cargo to or from
the Philippines, although during the period covered by the assessments, it maintained a general sales agent in the
Philippines — Wamer Barnes and Company, Ltd., and later Qantas Airways — which was responsible for selling BOAC
tickets covering passengers and cargoes. 1

G.R. No. 65773 (CTA Case No. 2373, the First Case)

On 7 May 1968, petitioner Commissioner of Internal Revenue (CIR, for brevity) assessed BOAC the aggregate amount of
P2,498,358.56 for deficiency income taxes covering the years 1959 to 1963. This was protested by BOAC. Subsequent
investigation resulted in the issuance of a new assessment, dated 16 January 1970 for the years 1959 to 1967 in the
amount of P858,307.79. BOAC paid this new assessment under protest.

On 7 October 1970, BOAC filed a claim for refund of the amount of P858,307.79, which claim was denied by the CIR on
16 February 1972. But before said denial, BOAC had already filed a petition for review with the Tax Court on 27 January
1972, assailing the assessment and praying for the refund of the amount paid.

G.R. No. 65774 (CTA Case No. 2561, the Second Case)

On 17 November 1971, BOAC was assessed deficiency income taxes, interests, and penalty for the fiscal years 1968-
1969 to 1970-1971 in the aggregate amount of P549,327.43, and the additional amounts of P1,000.00 and P1,800.00 as
compromise penalties for violation of Section 46 (requiring the filing of corporation returns) penalized under Section 74 of
the National Internal Revenue Code (NIRC).

On 25 November 1971, BOAC requested that the assessment be countermanded and set aside. In a letter, dated 16
February 1972, however, the CIR not only denied the BOAC request for refund in the First Case but also re-issued in the
Second Case the deficiency income tax assessment for P534,132.08 for the years 1969 to 1970-71 plus P1,000.00 as
compromise penalty under Section 74 of the Tax Code. BOAC's request for reconsideration was denied by the CIR on 24
August 1973. This prompted BOAC to file the Second Case before the Tax Court praying that it be absolved of liability for
deficiency income tax for the years 1969 to 1971.

This case was subsequently tried jointly with the First Case.

On 26 January 1983, the Tax Court rendered the assailed joint Decision reversing the CIR. The Tax Court held that the
proceeds of sales of BOAC passage tickets in the Philippines by Warner Barnes and Company, Ltd., and later by Qantas
Airways, during the period in question, 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, therefore, said income is not
subject to Philippine income tax. The CTA position was that income from transportation is income from services so that
the place where services are rendered determines the source. Thus, in the dispositive portion of its Decision, the Tax
Court ordered petitioner to credit BOAC with the sum of P858,307.79, and to cancel the deficiency income tax
assessments against BOAC in the amount of P534,132.08 for the fiscal years 1968-69 to 1970-71.

Hence, this Petition for Review on certiorari of the Decision of the Tax Court.

The Solicitor General, in representation of the CIR, has aptly defined the issues, thus:

1. Whether or not the revenue derived by private respondent British Overseas Airways Corporation
(BOAC) from sales of tickets in the Philippines for air transportation, while having no landing rights here,
constitute income of BOAC from Philippine sources, and, accordingly, taxable.

2. Whether or not during the fiscal years in question BOAC s a resident foreign corporation doing
business in the Philippines or has an office or place of business in the Philippines.

3. In the alternative that private respondent may not be considered a resident foreign corporation but a
non-resident foreign corporation, then it is liable to Philippine income tax at the rate of thirty-five per cent
(35%) of its gross income received from all sources within the Philippines.

Under Section 20 of the 1977 Tax Code:

(h) the term resident foreign corporation engaged in trade or business within the Philippines or having an
office or place of business therein.

(i) The term "non-resident foreign corporation" applies to a foreign corporation not engaged in trade or
business within the Philippines and not having any office or place of business therein

It is our considered opinion that BOAC is a resident foreign corporation. There is no specific criterion as to what
constitutes "doing" or "engaging in" or "transacting" business. Each case must be judged in the light of its peculiar
environmental circumstances. The term implies a continuity of commercial dealings and arrangements, and contemplates,
to that extent, the performance of acts or works or the exercise of some of the functions normally incident to, and in
progressive prosecution of commercial gain or for the purpose and object of the business organization. 2 "In order that a
foreign corporation may be regarded as doing business within a State, there must be continuity of conduct and intention to
establish a continuous business, such as the appointment of a local agent, and not one of a temporary character. 3

BOAC, during the periods covered by the subject - assessments, maintained a general sales agent in the Philippines,
That general sales agent, from 1959 to 1971, "was engaged in (1) selling and issuing tickets; (2) breaking down the whole
trip into series of trips — each trip in the series corresponding to a different airline company; (3) receiving the fare from the
whole trip; and (4) consequently allocating to the various airline companies on the basis of their participation in the
services rendered through the mode of interline settlement as prescribed by Article VI of the Resolution No. 850 of the
IATA Agreement." 4 Those activities were in exercise of the functions which are normally incident to, and are in
progressive pursuit of, the purpose and object of its organization as an international air carrier. In fact, the regular sale of
tickets, its main activity, is the very lifeblood of the airline business, the generation of sales being the paramount objective.
There should be no doubt then that BOAC was "engaged in" business in the Philippines through a local agent during the
period covered by the assessments. Accordingly, it is a resident foreign corporation subject to tax upon its total net
income received in the preceding taxable year from all sources within the Philippines. 5

Sec. 24. Rates of tax on corporations. — ...

(b) Tax on foreign corporations. — ...

(2) Resident corporations. — A corporation organized, authorized, or existing under the laws of any
foreign country, except a foreign fife insurance company, engaged in trade or business within the
Philippines, shall be taxable as provided in subsection (a) of this section upon the total net income
received in the preceding taxable year from all sources within the Philippines. (Emphasis supplied)

Next, we address ourselves to the issue of whether or not the revenue from sales of tickets by BOAC in the Philippines
constitutes income from Philippine sources and, accordingly, taxable under our income tax laws.
The Tax Code defines "gross income" thus:

"Gross income" includes gains, profits, and income derived from salaries, wages or compensation for
personal service of whatever kind and in whatever form paid, or from profession, vocations,
trades, business, commerce, sales, or dealings in property, whether real or personal, growing out of the
ownership or use of or interest in such property; also from interests, rents, dividends, securities, or
the transactions of any business carried on for gain or profile, or gains, profits, and income derived from
any source whatever (Sec. 29[3]; Emphasis supplied)

The definition is broad and comprehensive to include proceeds from sales of transport documents. "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." Income means "cash received or its equivalent"; it is the amount of money coming to a
person within a specific time ...; it means something distinct from principal or capital. For, while capital is a fund, income is
a flow. As used in our income tax law, "income" refers to the flow of wealth. 6

The records show that the Philippine gross income of BOAC for the fiscal years 1968-69 to 1970-71 amounted to
P10,428,368 .00. 7

Did such "flow of wealth" come from "sources within the Philippines",

The source of an income is the property, activity or service that produced the income. 8 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. In
BOAC's case, the sale of tickets in the Philippines is the activity that produces the income. The tickets exchanged hands
here and payments for fares were also made here in Philippine currency. The site of the source of payments is the
Philippines. The flow of wealth proceeded from, and occurred within, Philippine territory, enjoying the protection accorded
by the Philippine government. In consideration of such protection, the flow of wealth should share the burden of
supporting the government.

A transportation ticket is not a mere piece of paper. When issued by a common carrier, it constitutes the contract between
the ticket-holder and the carrier. 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. 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, binding upon the parties entering into the relationship. 9

True, Section 37(a) of the Tax Code, which enumerates items of gross income from sources within the Philippines,
namely: (1) interest, (21) dividends, (3) service, (4) rentals and royalties, (5) sale of real property, and (6) sale of personal
property, does not mention income from the sale of tickets for international transportation. However, that does not render
it less an income from sources within the Philippines. Section 37, by its language, does not intend the enumeration to be
exclusive. It merely directs that the types of income listed therein be treated as income from sources within the
Philippines. A cursory reading of the section will show that it does not state that it is an all-inclusive enumeration, and that
no other kind of income may be so considered. " 10

BOAC, however, would impress upon this Court that income derived from transportation is income for services, with the
result that the place where the services are rendered determines the source; and since BOAC's service of transportation
is performed outside the Philippines, the income derived is from sources without the Philippines and, therefore, not
taxable under our income tax laws. The Tax Court upholds that stand in the joint Decision under review.

The absence of flight operations to and from the Philippines is not determinative of the source of income or the site of
income taxation. Admittedly, BOAC was an off-line international airline at the time pertinent to this case. The test of
taxability is the "source"; and the source of an income is that activity ... which produced the income. 11 Unquestionably,
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. business a And even if the BOAC tickets sold covered the "transport of
passengers and cargo to and from foreign cities", 12 it cannot alter the fact that income from the sale of tickets was
derived from the Philippines. The word "source" conveys one essential idea, that of origin, and the origin of the income
herein is the Philippines. 13
It should be pointed out, however, that the assessments upheld herein apply only to the fiscal years covered by the
questioned deficiency income tax assessments in these cases, or, from 1959 to 1967, 1968-69 to 1970-71. For, pursuant
to Presidential Decree No. 69, promulgated on 24 November, 1972, international carriers are now taxed as follows:

... Provided, however, That international carriers shall pay a tax of 2-½ per cent on their cross Philippine
billings. (Sec. 24[b] [21, Tax Code).

Presidential Decree No. 1355, promulgated on 21 April, 1978, provided a statutory definition of the term "gross Philippine
billings," thus:

... "Gross Philippine billings" includes gross revenue realized from uplifts anywhere in the world by any
international carrier doing business in the Philippines of passage documents sold therein, whether for
passenger, excess baggage or mail provided the cargo or mail originates from the Philippines. ...

The foregoing provision ensures that international airlines are taxed on their income from Philippine sources. The 2-½ %
tax on gross Philippine billings is an income tax. If it had been intended as an excise or percentage tax it would have been
place under Title V of the Tax Code covering Taxes on Business.

Lastly, we find as untenable the BOAC argument that the dismissal for lack of merit by this Court of the appeal in JAL vs.
Commissioner of Internal Revenue (G.R. No. L-30041) on February 3, 1969, is res judicata to the present case. The ruling
by the Tax Court in that case was to the effect that the mere sale of tickets, unaccompanied by the physical act of carriage
of transportation, does not render the taxpayer therein subject to the common carrier's tax. As elucidated by the Tax
Court, however, the common carrier's tax is an excise tax, being a tax on the activity of transporting, conveying or
removing passengers and cargo from one place to another. It purports to tax the business of transportation. 14 Being an
excise tax, the same can be levied by the State only when the acts, privileges or businesses are done or performed within
the jurisdiction of the Philippines. The subject matter of the case under consideration is income tax, a direct tax on the
income of persons and other entities "of whatever kind and in whatever form derived from any source." Since the two
cases treat of a different subject matter, the decision in one cannot be res judicata  to the other.

WHEREFORE, the appealed joint Decision of the Court of Tax Appeals is hereby SET ASIDE. Private respondent, the
British Overseas Airways Corporation (BOAC), is hereby ordered to pay the amount of P534,132.08 as deficiency income
tax for the fiscal years 1968-69 to 1970-71 plus 5% surcharge, and 1% monthly interest from April 16, 1972 for a period
not to exceed three (3) years in accordance with the Tax Code. The BOAC claim for refund in the amount of P858,307.79
is hereby denied. Without costs.

SO ORDERED.