22. BANK OF AMERICA VS.
CA and
CIR, G.R. No. 103092, G.R. No. 103106
July 21, 1994
FACTS: Bank of America (BOA) is foreign
corporation duly licensed to engage in
business in the Philippines.
On July 20, 1982, BOA paid 15%
branch profit remittance tax in the
amount of P7,538,460.72 on profit from
its regular banking unit operations and
P445,790.25 on profit from its foreign
currency deposit unit operations or a
total of P7,984,250.97. The tax was
based on net profits after income tax
without deducting the amount
corresponding to the 15% tax.
BOA filed a claim for refund with
the BIR of that portion of the payment
which corresponds to the 15% branch
profit remittance tax, on the ground that
the tax should have been computed on
the basis of profits actually remitted,
which is P45,244,088.85, and not on the
amount before profit remittance tax,
which is P53,228,339.82.
Without awaiting respondent's
decision, petitioner filed a petition for
review on June 14, 1984 with this
Honorable Court for the recovery of the
amount of P1,041,424.03.
CIR contended that in computing
the 15% remittance tax, the tax should
be inclusive of the sum deemed remitted.
The Court of Tax Appeals (CTA)
upheld petitioner’s claim for refund.
Court of Appeals set aside the
decision of the Court of Tax Appeals on
Sept. 19, 1990.
Hence, these petitions for review.
ISSUE: WON the 15% branch profit
remittance tax should be assessed on the
amount actually remitted abroad.
RULING: Yes. It should be assessed on
the amount actually remitted abroad.
The Solicitor General correctly
points out that almost invariably in an ad
valorem tax, the tax paid or withheld is
not deducted from the tax base.
There is absolutely nothing in
Section 24(b) (2) (ii), supra, which
indicates that the 15% tax on branch
profit remittance is on the total amount
of profit to be remitted abroad which
shall be collected and paid in accordance
with the tax withholding device provided
in Sections 53 and 54 of the Tax Code.
The statute employs "Any profit remitted
abroad by a branch to its head office
shall be subject to a tax of fifteen per
cent (15%)" — without more. Nowhere
is there said of "base on the total amount
actually applied for by the branch with
the Central Bank of the Philippines as
profit to be remitted abroad, which shall
be collected and paid as provided in
Sections 53 and 54 of this Code." Where
the law does not qualify that the tax
is imposed and collected at source
based on profit to be remitted
abroad, that qualification should not
be read into the law. It is a basic rule
of statutory construction that there is no
safer nor better canon of interpretation
than that when the language of the law
is clear and unambiguous, it should be
applied as written. And to our mind, the
term "any profit remitted abroad" can
only mean such profit as is "forwarded,
sent, or transmitted abroad" as the
word "remitted" is commonly and
popularly accepted and understood. To
say therefore that the tax on branch
profit remittance is imposed and
collected at source and necessarily the
tax base should be the amount actually
applied for the branch with the Central
Bank as profit to be remitted abroad is to
ignore the unmistakable meaning of plain
words.
In the 15% remittance tax, the law
specifies its own tax base to be on the
"profit remitted abroad." There is
absolutely nothing equivocal or uncertain
about the language of the provision. The
tax is imposed on the amount sent
abroad, and the law (then in force) calls
for nothing further.
23. CIR VS. ANTONIO TUASON, INC.
and CTA, G.R. No. 85749 May 15, 1989
FACTS: February 27, 1981, CIR
assessed Tuason the following:
 a. Deficiency income tax for the years
1975,1976 and 1978;
b. Deficiency corporate quarterly
income tax for the first quarter of
1975; and
c. 25% surtax on unreasonable
accumulation of surplus for the
years 1975-1978…
PHP1,151,146.98
Tuason did not object the 1 st 2 items,
however, it protested the 3rd item (25%
surtax) on the ground that the
accumulation of surplus profits during
the years in question was solely for the
purpose of expanding its business
operations as real estate broker.
No reinvestigation was conducted.
The Revenue Commissioner issued
warrants of distraint and levy to enforce
collection.
Tuason filed for review with the
CTA with prayer for injunction against
the Commissioner from enforcing the
distraint and levy. On November 26,
1984, the prayer was granted and
enjoined the enforcement of the said
warrants.
Hence this case.
ISSUES: 1) WON Tuason accumulated
surplus.
2) WON Tuason is liable for the
25% Surtax on undue accumulation of
surplus.
RULING: 1) Yes. Antonio Tuason, Inc.
accumulated surplus profits
amounting to P3,263,305.88 for
1975 up to 1978 is not disputed.
However, the private respondent
vehemently denies that its purpose was
to evade payment of the progressive
income tax on such dividends by its
stockholders. According to the private
respondent, surplus profits were set
aside by the company to build up
sufficient capital for its expansion
program which included the construction
in 1979-1981 of an apartment building,
and the purchase in 1980 of a
condominium unit which was intended
for resale or lease.
However, while these investments
were actually made, the Commissioner
points out that the corporation did not
use up its surplus profits.
2) Yes, but only to the unspent
accumulated surplus profit.
The touchstone of liability is the
purpose behind the accumulation of the
income and not the consequences of the
accumulation. Thus, if the failure to
pay dividends were for the purpose
of using the undistributed earnings
and profits for the reasonable needs
of the business, that purpose would
not fall within the interdiction of the
statute" (Mertens Law of Federal
Income Taxation, Vol. 7, Chapter 39, p.
45 cited in Manila Wine Merchants, Inc.
vs. Commissioner of Internal Revenue,
127 SCRA 483, 493).
It is plain to see that the
company's failure to distribute dividends
to its stockholders in 1975-1978 was for
reasons other than the reasonable needs
of the business, thereby falling within the
interdiction of Section 25 of the Tax Code
of 1977.
The company as of the time of the
assessment in 1981, had invested in its
business operations only P 773,720 out
of its accumulated surplus profits of
P3,263,305.88 for 1975-1978, its
remaining accumulated surplus
profits of P2,489,858.88 are subject
to the 25% surtax.
24. MANILA WINE MECHANTS, INC.
Vs. CIR, G.R. No. L-26145. February 20,
1984
FACTS: Manila Wine is domestic
corporation organized in 1937, is
principally engaged in the importation
and sale of whisky, wines, liquors and
distilled spirits.
On Dec. 31, 1957, CIR caused the
examination of the book account of
Manila Wine and found the latter of
having unreasonably accumulated
surplus of P428,934.32 for the calendar
year 1947 to 1957, in excess of the
reasonable needs of the business subject
to the 25% surtax imposed by Section
25 of the Tax Code.
 On February 26, 1963, the CIR
demanded payment of the surtax plus
interest for the year of 1957
(P126,536.12).
Manila Wine contends that it
distributed 100% of its net earnings after
income tax and part of the surplus for
prior years.
Another basis of respondent in
assessing petitioner for accumulated
earnings tax is its substantial investment
of surplus or profits in unrelated
business. These investments are
itemized as follows:
1. Acme Commercial Co., Inc. P
27,501.00
2. Union Insurance Society of Canton
1,145.76
3. U.S.A. Treasury Bond 347,217.50
4. Wack Wack Golf & Country Club 1.00
CIR found that the accumulated
surplus in question were invested to
‘unrelated business’ which were not
considered in the ‘immediate needs’ of
the Company such that the 25% surtax
be imposed therefrom.
Manila Wine appealed to the CTA.
CTA declared that investment
made on item no.1, 2 and 4 are harmless
investment and thus, not subject to
surtax. Investment on item no. 3 is not
related to petitioner’s business of
importing and selling wines, whisky,
liquors and distilled spirits and thus,
subject to surtax.
A motion for reconsideration was
filed on March 30, 1966, which was
denied on May 30, 1966.
Hence, this case.
ISSUES: 1) WON purchase of U.S.A.
Treasury Bills in 1951 was an investment
in unrelated business subject to the 25%
surtax in 1957.
2) WON penalty tax of twenty-five
percent (25%) can be imposed on such
improper accumulation in 1957 despite
the fact that the accumulation occurred
in 1951
RULING: 1) Yes. The touchstone of
liability is the purpose behind the
accumulation of the income and not the
consequences of the accumulation. Thus,
if the failure to pay dividends is due to
some other cause, such as the use of
undistributed earnings and profits for the
reasonable needs of the business, such
purpose does not fall within the
interdiction of the statute.
To determine the "reasonable
needs" of the business in order to justify
an accumulation of earnings, the Courts
of the United States have invented the
so-called "Immediacy Test" which
construed the words "reasonable needs
of the business" to mean the
immediate needs of the business,
and it was generally held that if the
corporation did not prove an immediate
need for the accumulation of the
earnings and profits, the accumulation
was not for the reasonable needs of
the business, and the penalty tax
would apply.
The records further reveal that
from May 1951 when petitioner
purchased the U.S.A. Treasury shares,
until 1962 when it finally liquidated the
same, it (petitioner) never had the
occasion to use the said shares in aiding
or financing its importation. This
militates against the purpose enunciated
earlier by petitioner that the shares were
purchased to finance its importation
business. To justify an accumulation of
earnings and profits for the reasonably
anticipated future needs, such
accumulation must be used within a
reasonable time after the close of
the taxable year.
2) Yes. The rule is now settled in
Our jurisprudence that undistributed
earnings or profits of prior years are
taken into consideration in
determining unreasonable
accumulation for purposes of the
25% surtax.
In determining whether
accumulations of earnings or profits in a
particular year are within the reasonable
needs of a corporation, it is necessary to
take into account prior accumulations,
since accumulations prior to the year
involved may have been sufficient to
cover the business needs and additional
accumulations during the year involved
would not reasonably be necessary.
25. BASILAN ESTATES, INC. Vs. CIR
and CTA, G.R. No. L-22492, September
5, 1967
FACTS: Basilan Estates, Inc. (Basilan) is
a Philippine corporation engaged in the
coconut industry.
Basilan filed on March 24, 1954 its
income tax returns for 1953 and paid an
income tax of P8,028.
February 26, 1959, the CIR
assessed a deficiency income tax of
P3,912 for 1953 and P86,876.85 as 25%
surtax on unreasonably accumulated
profits as of 1953 pursuant to Section 25
of the Tax Code.
Basilan did not pay and thus, a
warrant of distraint and levy was issued.
On December 20, 1960, Basilan
filed before the Court of Tax Appeals a
petition for review of the Commissioner's
assessment, alleging prescription of the
period for assessment and collection;
error in disallowing claimed
depreciations, travelling and
miscellaneous expenses; and error in
finding the existence of unreasonably
accumulated profits and the imposition of
25% surtax thereon.
On October 31, 1963, CTA found
that there was no prescription and
affirmed the deficiency assessment in
toto.
Hence, this petition.
3) WON Basilan is exempt from the
penalty tax under Republic Act 1823
amending Section 25 of the Tax Code.
RULING: 1) No, it did not prescribe. The
assessment of the deficiency tax was
made on February 26, 1959; but the
petitioner claims that it never received
notice of such assessment or if it did, it
received the notice beyond the five-year
prescriptive period.
Under Section 331 of the Tax Code
requiring five years within which to
assess deficiency taxes, the assessment
is deemed made when notice to this
effect is released, mailed or sent by the
Collector to the taxpayer and it is not
required that the notice be received
by the taxpayer within the
aforementioned five-year period.
2) Yes, petitioner had
unreasonably accumulated profits as of
1953 in the amount of P347,507.01,
based on the following circumstances
(Examiner's Report pp. 62-68 of BIR
records):
1. Strong financial position of the
petitioner as of December 31, 1953.
Assets were P388,617.00 while the
liabilities amounted to only
P61,117.31 or a ratio of 6:1.
2. As of 1953, the corporation had
considerable capital adequate to meet
the reasonable needs of the business
amounting to P327,499.69 (assets
less liabilities).
3. The P200,000 reserved for
electrification of drier and
mechanization and the P50,000
reserved for malaria control were
reverted to its surplus in 1953.

ISSUES: 1) WON Commissioner's right 4. Withdrawal by shareholders, of

to collect deficiency income tax large sums of money as personal
prescribed. loans.

2) Have there been unreasonably 5. Investment of undistributed

accumulated profits? If so, should the earnings in assets having no
25% surtax be imposed on the balance proximate connection with the
of the entire surplus from 1947-1953, or business — as hospital building and
only for 1953? equipment worth P59,794.72.

6. In 1953, with an increase of

surplus amounting to P677,232.01,
 the capital stock was increased to
P500,000 although there was no need
for such increase.
The surplus of P347,507.01 was
taken by the examiner from the balance
sheet of petitioner for 1953. To check the
figure arrived at, the examiner traced
the accumulation process from 1947 until
1953, and petitioner's figure stood out to
be correct… "In determining whether
accumulations of earnings or profits in a
particular year are within the reasonable
needs of a corporation, it is neccessary
to take into account prior
accumulations, since accumulations
prior to the year involved may have been
sufficient to cover the business needs
and additional accumulations during the
year involved would not reasonably be
necessary."
Another factor that stands out to
show unreasonable accumulation is the
fact that large amounts were withdrawn
by or advanced to the stockholders. For
the year 1953 alone these totalled
P197,229.26. Yet the surplus of
P347,507.01 was left as of December 31,
1953. We find unacceptable petitioner's
explanation that these were advances
made in furtherance of the business
purposes of the petitioner. As correctly
held by the Court of Tax Appeals, while
certain expenses of the corporation were
credited against these amounts, the
unspent balance was retained by the
stockholders without refunding them to
petitioner at the end of each year. These
advances were in fact indirect loans to
the stockholders indicating the
unreasonable accumulation of surplus
beyond the needs of the business.
3) No. The unreasonable
accumulation was in 1953. The
exemption was by virtue of Republic Act
1823 which amended Sec. 25 only on
June 22, 1957 — more than three years
after the period covered by the
assessment.
26. CYANAMID PHILIPPINES, INC.
Vs. CA, CTA, CIR, G.R. No. 108067,
January 20, 2000
FACTS: Cyanamid Philippines, Inc.
(Cyanamid), a corporation organized
under Philippine laws, is a wholly owned
subsidiary of American Cyanamid Co.
based in Maine, USA. It is engaged in the
manufacture of pharmaceutical products
and chemicals, a wholesaler of imported
finished goods, and an
importer/indentor.
On February 7, 1985, the CIR sent
an assessment letter to petitioner and
demanded the payment of deficiency
income tax (Php119,817) for taxable
year 1981.
On March 4, 1985, Cyanamid
protested the assessment. It claimed,
that the surtax for the undue
accumulation of earnings was not proper
because the said profits were retained to
increase petitioner's working capital and
it would be used for reasonable business
needs of the company. Petitioner
contended that it availed of the tax
amnesty under Executive Order No. 41,
hence enjoyed amnesty from civil and
criminal prosecution granted by the law.
On October 20, 1987, the CIR in a
letter, refused to allow the cancellation of
the assessment notices.
Cyanamid appealed to the CTA.
Pending resolution, the parties entered
into a compromise however, the surtax
remained unresolved.
CTA held that Cyanamid is liable
for the 25% surtax on its accumulated
earnings for the year 1981.
CA affirmed the decision of CTA in
toto.
ISSUE: WON Cyanamid is liable for the
accumulated earning tax for the year
1981.
RULING: Yes. The amendatory provision
of Section 25 of the 1977 NIRC, which
was PD 1739, enumerated the
corporations exempt from the imposition
of improperly accumulated tax: (a)
banks; (b) non-bank financial
intermediaries; (c) insurance companies;
and (d) corporations organized primarily
and authorized by the Central Bank of
the Philippines to hold shares of stocks of
banks. Petitioner does not fall among
those exempt classes… The burden of
proof rests upon the party claiming
exemption to prove that it is, in fact,
covered by the exemption so claimed, a
burden which petitioner here has failed
to discharge.

Also, in order to determine

whether profits are accumulated for the
reasonable needs to avoid the surtax
upon shareholders, it must be shown
that the controlling intention of the
taxpayer is manifest at the time of
accumulation, not intentions declared
subsequently, which are mere
afterthoughts. Furthermore, the
accumulated profits must be used within
a reasonable time after the close of the
taxable year. In the instant case,
petitioner did not establish, by clear and
convincing evidence, that such
accumulation of profit was for the
immediate needs of the business.