Tax Digests Compilation

7/21/2019 Tax Digests Compilation

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INCOME TAXATION

1. MADRIGAL VS RAFFERTY

FACTS:• Vicente Madrigal and Susana Paterno were legally married prior to Januray 1,

1914. The marriage was contracted under the proisions o! law concerningcon"ugal partnership

• #n 191$, Madrigal !iled a declaration o! his net income !or year 1914, the sum o!

P%9&,'(%.)'• Vicente Madrigal was contending that the said declared income does not

represent his income !or the year 1914 as it was the income o! his con"ugalpartnership with Paterno. *e said that in computing !or his additional income ta+,the amount declared should e diided y %.

• The reenue o!!icer was not satis!ied with Madrigal-s e+planation and ultimately,the nited States /ommissioner o! 0nternal eenue decided against the claim o! Madrigal.

• Madrigal paid under protest, and the couple decided to recoer the sum o!P',)2&.(2 alleged to hae een wrong!ully and illegally assessed and collectedy the /0.

ISSUE: 3hether or not the income reported y Madrigal on 191$ should e diided into % incomputing !or the additional income ta+

HELD:

• o5 The point o! iew o! the /0 is that the 0ncome Ta+ 6aw, as the name implies,ta+es upon income and not upon capital and property.

• The essential di!!erence etween capital and income is that capital is a !und7income is a !low. 8 !und o! property e+isting at an instant o! time is called capital.

• 8 !low o! serices rendered y that capital y the payment o! money !rom it orany other ene!it rendered y a !und o! capital i n relation to such !und through aperiod o! time is called income. /apital is wealth, while income is the serice o!wealth.

• 8s Paterno has no estate and income, actually and legally ested in her andentirely distinct !rom her husand-s property, the income cannot properly econsidered the separate income o! the wi!e !or the purposes o! the additional ta+.

• To recapitulate, Vicente wants to hal! his declared income in computing !or his ta+

since he is arguing that he has a con"ugal partnership with his wi!e. *oweer, thecourt ruled that the one that should e ta+ed is the income which is the !low o!the capital, thus it should not e diided into %.

DOCTRINE:The essential difference between capital and income is that capital is a fund; incomeis a flow. A fund of property existing at an instant of time is call ed capital. A flow ofservices rendered by that capital by the payment of money from it or any other benefitrendered by a fund of capital in relation to such fund through a period of time is calledincome. Capital is wealth, while income is the service of wealth.

2. CONWI VS CTA

Facts:

Petitioners are employees o! Procter and amle Philippine Manu!acturing/orporation, susidiary o! Procter ; amle, a !oreign corporation<.=uring the years19)( and 19)1, petitioners were assigned to other susidiaries o! Procter ; amleoutside the Philippines, !or which petitioners were paid S dollars as compensation.

Petitioners !iled their 0Ts !or 19)( and 19)1, computing ta+ due y applying thedollar>to>peso conersion ased on the !loating rate under ?0 uling o. )(>(%). 0n19)', petitioners !iled amened 0Ts !or 19)( and 19)1, this time using the par alueo! the peso as asis. This resulted in the alleged oerpayments, re!und and@or ta+credit, !or which claims !or re!und were !iled.

/T8 held that the proper conersion rate !or the purpose o! reporting and paying thePhilippine income ta+ on the dollar earnings o! petitioners are the rates prescriedunder eenueMemorandum /irculars os. )>)1 and 41>)1. The re!und claims weredenied.

Issues: 1< 3hether or not petitionersA dollar earnings are receipts deried !rom !oreigne+change transactions7 #.

%< 3hether or not the proper rate o! conersion o! petitionersA dollar earnings !or ta+purposes in the preailing !ree marBet rate o! e+change and not the par alue o! thepeso7 CDS.

He!:

Eor the proper resolution o! income ta+ cases, income may e de!ined as an amounto! money coming to a person or corporation within a speci!ied time, whether aspayment !or serices, interest or pro!it !rom inestment. nless otherwise speci!ied, itmeans cash or its eFuialent. 0ncome can also e though o! as !low o! the !ruits o!oneAs laor.

Petitioners are correct as to their claim that their dollar earnings are not receiptsderied !rom !oreign e+change transactions. Eor a !oreign e+change transaction is

simply that G a transaction in !oreign e+change, !oreign e+change eing Htheconersion o! an amount o! money or currency o! one country into an eFuialentamount o! money or currency o! another.H 3hen petitioners were assigned to the!oreign susidiaries o! Procter ; amle, they were earning in their assigned nationAscurrency and were 86S# spending in said currency. There was no conersion,there!ore, !rom one currency to another.

The dollar earnings o! petitioners are the !ruits o! their laors in the !oreignsusidiaries o! Procter ; amle. 0t was a de!inite amount o! money which came tothem within a speci!ied period o! time o! two years as payment !or their serices.

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8nd in the implementation !or the proper en!orcement o! the ational 0nternaleenue /ode, Section ''2 thereo! empowers the Secretary o! Einance toHpromulgate all need!ul rules and regulationsH to e!!ectiely en!orce its proisionspursuant to this authority, eenue Memorandum /ircular os. )>)1 and 41>)1 wereissued to prescried a uni!orm rate o! e+change !rom S dollars to Philippine pesos!or 0TD86 DVDD T8K PP#SDS !or the years 19)( and 19)1, respectiely.Said reenue circulars were a alid e+ercise o! the authority gien to the Secretary o!Einance y the 6egislature which enacted the 0nternal eenue /ode. 8nd these arepresumed to e a alid interpretation o! said code until reoBed y the Secretary o!

Einance himsel!.

Petitioners are citiLens o! the Philippines, and their income, within or without, and inthese cases wholly without, are su"ect to income ta+. Sec. %1, 0/, as amended,does not rooB any e+emption. =D0D= E# 68/ #E MD0T". CONSOLIDATED MINES INC VS CTAFacts: The /ompany, a domestic corporation engaged in mining, had !iled its incometa+ returns !or 19$1, 19$%, 19$' and 19$&. 0n 19$) e+aminers o! the ?0 inestigatedthe income ta+ returns !iled y the /ompany ecause its auditor, Eelipe #llada,claimed the re!und o! the sum o! P1(),4)%.(( representing alleged oerpayments o! income ta+es !or the year 19$1. 8!ter the inestigation the e+aminers reported that 8<!or the years 19$1 to 19$4 1< the /ompany had not accrued as an e+pense the sharein the company pro!its o! ?enguet /onsolidated Mines as operator o! the /ompanyAsmines, although !or income ta+ purposes the /ompany had reported income ande+penses on the accrual asis7 %< depletion and depreciation e+penses had een

oercharged7 and '< the claims !or audit and legal !ees and miscellaneous e+penses!or 19$' and 19$4 had not een properly sustantiated7 and that ?< !or the year 19$&1< the /ompany had oerstated its claim !or depletion7 and %< certain claims !or miscellaneous e+penses were not duly supported y eidence.

0n iew o! said reports the /ommissioner o! 0nternal eenue sent the /ompany aletter o! demand reFuiring it to pay certain de!iciency income ta+es !or the years 19$1to 19$4, inclusie, and !or the year 19$&. =e!iciency income ta+ assessment notices!or said years were also sent to the /ompany. The /ompany reFuested areconsideration o! the assessment, ut the /ommissioner re!used to reconsider,hence the /ompany appealed to the /ourt o! Ta+ 8ppeals.

#n May &, 19&1 the Ta+ /ourt rendered "udgment ordering the /ompany to pay theamounts o! P1(),24&.$&, P1'4,(''.(1 and P)1,'9%.2% as de!iciency income ta+es !or

the years 19$', 19$4 and 19$&, respectiely.

*oweer, on 8ugust ), 19&1, upon motion o! the /ompany, the Ta+ /ourtreconsidered its decision and !urther reduced the de!iciency income ta+ liailities o! the /ompany to P)9,21%.9', P$1,$%2.%4 and P)1,'2%.2% !or the years 19$', 19$4and 19$&, respectiely.

?oth the /ompany and the /ommissioner appealed to this /ourt. The /ompanyFuestions the rate o! mine depletion adopted y the /ourt o! Ta+ 8ppeals and thedisallowance o! depreciation charges and certain miscellaneous.

Issue: 3hether the /ourt o! Ta+ 8ppeals erred with respect to the rate o! minedepletion.

He!: The Ta+ /ode proides that in computing net income there shall e allowed asdeduction, in the case o! mines, a reasonale allowance !or depletion thereo! not toe+ceed the marBet alue in the mine o! the product thereo! which has een mined andsold during the year !or which the return is made NSec. '(g< 1< ?<O.

The !ormula !or computing the rate o! depletion is:

/ost o! Mine Property>>>>>>>>>>>>>>>>>>>>>> ate o! =epletion Per nit Dstimated ore =eposit o! Product Minedand sold.

The /ommissioner and the /ompany do not agree as to the !igures corresponding toeither !actor that a!!ects the rate o! depletion per unit. The !igures according to the/ommissioner are:

P%,&4&,2)2.44 mine cost< P(.$9129 rate o!>>>>>>>>>>>>>>>>>>>>>>>>> depletion per ton<4,4)1,29% tons estimated ore deposit<

while the /ompany insists they are:P4,%'2,9)4.$) mine cost< P1.(19) rate o!>>>>>>>>>>>>>>>>>>>>>>>>> > depletion per ton<4,1$&,222 tons estimatedore deposit<

They agree, howeer, that the Hcost o! the mine propertyH consists o! 1< mine cost7and %< e+penses o! deelopment e!ore production.

8s an income ta+ concept, depletion is wholly a creation o! the statuteG Hsolely amatter o! legislatie grace.H*ence, the ta+payer has the urden o! "usti!ying theallowance o! any deduction claimed. 8s in connection with all other ta+ controersies,the urden o! proo! to show that a disallowance o! depletion y the /ommissioner is

incorrect or that an allowance made is inadeFuate is upon the ta+payer, and this istrue with respect to the alue o! the property constituting the asis o! thededuction. This urden>o!>proo! rule has een !reFuently applied and a alue claimedhas een disallowed !or lacB o! eidence.

The /ompanyAs alance sheet !or =ecemer '1, 194) lists the Hmine costH o! P%,$((,((( as Hdeelopment costH and the amount o! P1,)'2,9)4.') as Hsuspenseaccount mining properties su"ect to war losses<.H The /ompany claims that itsaccountant, Mr. /alpo, made these errors, ecause he was then new at the "o.ranting that was what had happened, it does not a!!ect the !act that the, eidence on

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hand is insu!!icient to proe the cost o! deelopment alleged y the /ompany. or canwe rely on the statements o! Dligio S. arcia, who was the /ompanyAs treasurer andassistant secretary at the time he testi!ied on 8ugust 14, 19$9. *e admitted that he didnot Bnow how the !igure P4,%'2,9)4.$) was arried at, e+plaining: H0 only Bnow that itis the !igure appearing on the alance sheet as o! =ecemer '1, 194& as certi!ied ythe /ompanyAs auditors7 and this we made as the asis o! the aluation o! thedepletale alue o! the mines.H

3e, there!ore, hae to rely on the /ommissionerAs assertion that the HdeelopmentcostH was P1'1,2)2.44, roBen down as !ollows: assessment, P'4,(9%.1%7deelopment, P&1,424.&'7 e+ploration, P1',9&&.&%7 and diamond drilling, P%%,''$.().

The Fuestion as to which !igure should properly correspond to Hmine costH is one o! !act. The !indings o! !act o! the Ta+ /ourt, where reasonaly supported y eidence,are conclusie upon the Supreme /ourt.

#. CIR VS TOURS S$ECIALIST INC

FACTS:

The /ommissioner o! 0nternal eenue !iled a petition to reiew on certiorari to the/T8 decision which ruled that the money entrusted to priate respondent ToursSpecialist TS<, earmarBed and paid !or hotel room charges o! tourists, traellers

and@or !oreign trael agencies do not !orm part o! its gross receipt su"ect to 'Qindependent contractor-s ta+.Tours Specialist deried income !rom its actiities and serices as a trael agency,which included ooBing tourists in local hotels. To supply such serice, TS and itscounterpart tourist agencies aroad hae agreed to o!!er a pacBage !ee !or the touristspayment o! hotel room accommodations, !ood and other personal e+penses<. ?yarrangement, the !oreign tour agency entrusts to TS the !und !or hotel roomaccommodation, which in turn paid y the latter to the local hotel when illed.=espite this arrangement, /0 assessed priate respondent !or de!iciency 'Qcontractor-s ta+ as independent contractor including the entrusted hotel room chargesin its gross receipts !rom serices !or years 19)4>19)& plus compromise penalty.=uring cross>e+amination, TS eneral Manager stated that the payment through themRis only an act o! accommodation on its< part and Rthe agent aroad instead o!sending seeral tele+es and saing on anB charges they taBe the option to send themoney to TS< to e held in trust to e endorsed to the hotel.-

eertheless, /0 caused the issuance o! a warrant o! distraint and ley, and had TS-anB deposits garnished.

Issue:3@ amounts receied y a local tourist and trael agency included in a pacBage !ee!rom tourists or !oreign tour agencies, intended or earmarBed !or hotelaccommodations !orm part o! gross receipts su"ect to 'Q contractor-s ta+

He!:

N%. ross receipts su"ect to ta+ under the Ta+ /ode do not include monies orreceipts entrusted to the ta+payer which do not elong to them and do not redound tothe ta+payer-s ene!it7 and it is not necessary that there must e a law or regulationwhich would e+empt such monies or receipts within the meaning o! gross receiptsunder the Ta+ /ode. Parenthetically, the room charges entrusted y the !oreign traelagencies to the priate respondents do not !orm part o! i ts gross receipts within thede!inition o! the Ta+ /ode. The said receipts neer elonged to the priate respondent.The priate respondent neer ene!ited !rom their payment to the local hotels. Thisarrangement was only to accommodate the !oreign trael agencies.

D%ct&'(e:ross receipts su"ect to ta+ under the Ta+ /ode do not include monies or receiptsentrusted to the ta+payer which do not elong to them and do not redound to theta+payer-s ene!it7 and it is not necessary that there must e a law or regulation whichwould e+empt such monies or receipts within the meaning o! gross receipts under theTa+ /ode

). CIR VS *AVIER

Claim of right doctrine or doctrine of ownership, command or control- In this case,avier is not liable for fraud penalty because the !income" he received is not yet ataxable gain since it is still under litigation.

FACTS:

19)): Victoria Jaier, wi!e o! Jaier>respondent, receied U999B !rom Prudential?anB remitted y her sister =olores through Mellon ?anB in S. 8round ' weeBs a!ter, Mellon ?anB !iled a complaint with /E0 iLal against Jaierclaiming that its remittance o! U1M was a clerical error and should hae een U1B onlyand praying that the e+cess e returned on the ground that the Jaiers are "usttrustees o! an implied trust !or the ene!it o! Mellon ?anB. /E0 charged Jaier with esta!a alleging that they misappropriated and conerted it totheir own personal use. 8 year a!ter, Jaier !iled his 0ncome Ta+ eturn !or 19)) and stating in the !ootnotethat Rthe ta+payer was recipient o! some money receied aroad which he presumedto e a gi!t ut turned out to e an error and is now su"ect o! litigation The /ommissioner o! 0nternal eenue wrote a letter to Jaier demanding him to payta+es !or the de!iciency, due to the remittance. Jaier replied to the /ommissioner and said that he will pay the de!iciency ut

denied that he had any undeclared income !or 19)) and reFuested that theassessment o! 19)) e made to await !inal court decision on the case !iled againsthim !or !iling an allegedly !raudulent return. /ommissioner replied that Rthe amount o! Mellon ?anB-s erroneous remittance whichyou were ale to dispose is de!initely ta+ale and the /ommissioner imposed a $(Q!raud penalty on Jaier. ISSUE: 3hether or not Jaier is liale !or the $(Q penalty.

HELD: o.

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The court held that there was no actual and intentional !raud through will!ul anddelierate misleading o! the ?0 in the case. Jaier een noted that Rthe ta+payer wasrecipient o! some money receied aroad which he presumed to e a gi!t ut turnedout to e an error and is now su"ect o! litigation the !! are not e+pressly written in the case, in !act the doctrine 0 "ust !ound itelsewhere ut this is releant to the topic rather than the issue in the case<o /laim o! right doctrine> a ta+ale gain is conditioned upon the presence o! a claim o! right to the alleged gain and the asence o! a de!inite and unconditional oligation to

return or repay.o 0n this case, the remittance was not a ta+ale gain, since it is still under litigation andthere is a chance that Jaier might hae the oligation to return it. 0t will only ecometa+ale once the case has een settled ecause y then whateer amount that will erewarded, Jaier has a claim o! right oer it.

+. ROXAS VS CTA

FACTS: 8ntonio, Dduardo and Jose o+as, rothers and at the same time partners o! theo+as y /ompania, inherited !rom their grandparents seeral properties whichincluded !armlands. The tenants e+pressed their desire to purchase the !armland. Thetenants, howeer, did not hae enough !unds, so the o+ases agreed to a purchasey installment. SuseFuently, the /0 demanded !rom the rothers the payment o!de!iciency income ta+es resulting !rom the sale, 1((Q o! the pro!its deried there!rom

was ta+ed. The rothers protested the assessment ut the same was denied. #nappeal, the /ourt o! Ta+ 8ppeals sustained the assessment. *ence, this petition.

ISSUE:0s o+as liale

RULING:o. 0t should e orne in mind that the sale o! the !armlands to the ery !armers whotilled them !or generations was not only in consonance with, ut more in oedience tothe reFuest and pursuant to the policy o! our oernment to allocate lands to thelandless.

0n order to maintain the general pulic-s trust and con!idence in the oernment thispower must e used "ustly and not treacherously. 0t does not con!orm with the senseo! "ustice !or the oernment to persuade the ta+payer to lend it a helping hand and

later on penaliLe him !or duly answering the urgent call.

0n !ine, o+as cannot e considered a real estate dealer and is not liale !or 1((Q o!the sale. Pursuant to Section '4 o! the Ta+ /ode, the lands sold to the !armers arecapital assets and the gain deried !rom the sale thereo! is capital gain, ta+ale only tothe e+tent o! $(Q

,. FISHER VS TRINIDAD

Facts: Philippine 8merican =rug /ompany was a corporation duly organiLed ande+isting under the laws o! the Philippine 0slands, doing usiness in the /ity o! Manila.

Eisher was a stocBholder in said corporation. Said corporation, as result o! theusiness !or that year, declared a HstocB diidendH and that the proportionate share o!said stocB diided o! Eisher was P%4,2((. Said the stocB diidend !or that amount wasissued to Eisher. Eor this reason, Trinidad demanded payment o! income ta+ !orthe stocB diidend receied y Eisher. Eisher paid under protest the sum o! P229.91as income ta+on said stocB diidend. Eisher !iled an action !or the recoery o!P229.91. Trinidad demurred to the petition upon the ground that it did not state !actssu!!icient to constitute cause o! action. The demurrer was sustained and Eisherappealed.

Issue: 3hether or not the stocB diidend was an income and there!ore ta+ale.

He!: o. enerally speaBing, stocB diidends represent undistriuted increase in thecapital o! corporations or !irms, "ointstocB companies, etc., etc., !or a particular period.The inentory o! the property o! the corporation !or particular period shows anincrease in its capital, so that the stocB thereto!ore issued does not show the realalue o! the stocBholderAs interest, and additionalstocB is issued showing the increasein the actual capital, or property, or assets o! the corporation.

0n the case o! ray s. =arlington 2% .S., &$'<, the S Supreme /ourt held thatmere adance in alue does not constitute the HincomeH speci!ied in the reenue lawas HincomeH o! the owner !or the year in which the sale o! the property was made.Such adance constitutes and can e treated merely as an increase o! capital.

0n the case o! Towne s. Disner, income was de!ined in an income ta+ law to meancash or its eFuialent, unless it is otherwise speci!ied. 0t does not mean unrealiLedincrements in the alue o! the property. 8 stocB diidend really taBes nothing !rom theproperty o! the corporation, and adds nothing to the interests o! the shareholders. 0tsproperty is not diminished and their interest are not increased. The proportionalinterest o! each shareholder remains the same. 0n short, the corporation is no poorerand the stocBholder is no richer then they were e!ore.

0n the case o! =oyle s. Mitchell ?ros. /o. %4) .S., 1)9<, Mr. Justice Pitney, said thatthe term HincomeH in its natural and oious sense, imports something distinct !romprincipal or capital and coneying the idea o! gain or increase arising !rom corporateactiity.

0n the case o! Disner s. Macomer %$% .S., 129<, income was de!ined as the gainderied !rom capital, !rom laor, or !rom oth comined, proided it e understood to

include pro!it gained through a sale or conersion o! capital assets.

3hen a corporation or company issues HstocB diidendsH it shows that the companyAsaccumulated pro!its hae een capitaliLed, instead o! distriuted to the stocBholders or retained as surplus aailale !or distriution, in money or in Bind, should opportunityo!!er. The essential and controlling !act is that the stocBholder has receied nothing outo! the companyAs assets !or his separate use and ene!it7 on the contrary, eery dollaro! his original inestment, together with whateer accretions and accumulationsresulting !rom employment o! his money and that o! the other stocBholders in theusiness o! the company, still remains the property o! the company, and su"ect tousiness risBs which may result in wiping out o! the entire inestment. The stocBholder




y irtue o! the stocB diidend has in !act receied nothing that answers the de!initiono! an Hincome.H

The stocBholder who receies a stocB diidend has receied nothing ut arepresentation o! his increased interest in the capital o! the corporation. There haseen no separation or segregation o! his interest. 8ll the property or capital o! thecorporation still elongs to the corporation. There has een no separation o! theinterest o! the stocBholder !rom the general capital o! the corporation. The stocBholder,y irtue o! the stocB diidend, has no separate or indiidual control oer the interest

represented therey, !urther than he had e!ore the stocB diidend was issued. *ecannot use it !or the reason that it is still the property o! the corporation and not theproperty o! the indiidual holder o! stocB diidend. 8 certi!icate o!stocB represented ythe stocB diidend is simply a statement o! his proportional interest or participation inthe capital o! the corporation. The receipt o! a stocB diidend in no way increases themoney receied o! a stocBholder nor his cash account at the close o! the year. 0tsimply shows that there has een an increase in the amount o! the capital o! thecorporation during the particular period, which may e due to an increased usinessor to a natural increase o! the alue o! the capital due to usiness, economic, or otherreasons. 3e eliee that the 6egislature, when it proided !or an Hincome ta+,Hintended to ta+ only the HincomeH o! corporations, !irms or indiiduals, as that term isgenerally used in its commonacceptation7 that is that the income means moneyreceied, coming to a person or corporation !or serices, interest, or pro!it !rominestments. 3e do not eliee that the 6egislature intended that a mere increase inthe alue o! the capital or assets o! a corporation, !irm, or indiidual, should e ta+ed

as Hincome.H

8 stocB diidend, still eing the property o! the corporation and not the stocBholder,may e reached y an e+ecution against the corporation, and sold as a part o! theproperty o! the corporation. 0n such a case, i! all the property o! the corporation is sold,then the stocBholder certainly could not e charged with haing receied an income yirtue o! the issuance o! the stocB diidend. ntil the diidend is declared and paid, thecorporate pro!its still elong to the corporation, not to the stocBholders, and are liale!or corporate indetedness. The rule is well estalished that cash diidend, whetherlarge or small, are regarded as HincomeH and all stocBdiidends, as capital or assets

0! the ownership o! the property represented y a stocB diidend is still in thecorporation and not in the holder o! such stocB, then it is di!!icult to understand how itcan e regarded as income to the stocBholder and not as a part o! the capital orassets o! the corporation. 0! the holder o! the stocB diidend is reFuired to pay

anincome ta+ on the same, the result would e that he has paid a ta+ upon an incomewhich he neer receied. Such a conclusion is asolutely contradictory to the idea o!an income.

8s stocB diidends are not Hincome,H the same cannot e considered ta+es under thatproision o! 8ct o. %2''. Eor all o! the !oregoing reasons, S/ held that the "udgmento! the lower court should e DV#D=.-. LIM$AN INVESTMENT COR$ VS CIR

6impan 0nestment /ompany deemed to hae constructiely receied rental paymentsin 19$) when they were deposited in court due to its re!usal to receie them.

FACTS: ?0 assessed de!iciency ta+es on 6impan /orp, a company that leases real property,!or under>declaring its rental income !or years 19$&>$) y around P%( and P21respectiely. Petitioner appeals on the ground that portions o! these underdeclared rents are yetto e collected y the preious owners and turned oer or receied y the corporation. Petitioner cited that some rents were deposited with the court, such that thecorporation does not hae actual nor constructie control oer them.

The sole witness !or the petitioner, Solis /orporate Secretary> Treasurer< admittedto some undeclared rents in 19$& and19$), and that some alances were notcollected y the corporation in 19$& ecause the lessees re!used to recogniLe andpay rent to the new owners and that the corp-s president 0saelo 6im collected somerent and reported it in his personal income statement, ut did not turn oer the rent tothe corporation. *e also cites lacB o! actual or constructie control oer rents deposited with thecourt.

ISSUE:3hether or not the ?0 was correct in assessing de!iciency ta+es against 6impan/orp. !or undeclared rental income

HELD:Ces. Petitioner admitted that it indeed had undeclared income although only a part

and not the !ull amount assessed y ?0<. Thus, it has ecome incument upon themto proe their e+cuses y clear and conincing eidence, which it has !ailed to do.3hen is there constructie receipt o! rent 3ith regard to 19$) rents deposited withthe court, and withdrawn only in 19$2, the court iewed the corporation as haingconstructiely receied said rents. The non>collection was the petitioner-s !ault since itre!used to re!used to accept the rent, and not due to nonpayment o! lessees. *ence,although the corporation did not actually receie the rent, it is deemed to haeconstructiely receied them.

ALIENS

. GARRISON VS CA

=octrine: 8n alien actually present in the Philippines who is not a mere transient orso"ourner is a resident o! the Philippines !or purposes o! income ta+.

Facts:Petitioners, John arrison, EranB oertson, oert /athey, James oertson,Eelicitas de uLman and Ddward McurB PDT0T0#DS< are S /itiLens whoentered the country through the Philippine 0mmigration 8ct o! 194( and are employedin the S aal ?ase in #longapo /ity. They earn no Philippine source income and itis also their intention to return to the S as soon as their employment has ended.The ?0 sent notices to Petitioners stating that they did not !ile their 0ncome Ta+eturns 0T< !or 19&9. The ?0 claimed that they were resident aliens and reFuiredthem to !ile their returns.

Ta+ % =igests /ompilation I Michelle =uguil $



nder then then 0nternal eenue /ode resident aliens may e ta+ed regardless o!whether the gross income was deried !rom Philippine sources.Petitioners re!used stating that they were not resident aliens ut only specialtemporary isitors. *ence, they were not reFuired to !ile 0Ts. They also claimede+emption y irtue o! the P>S Military ?ases 8greement.nder Military ?ases 8greement, a Rnational o! the nited States sering in oremployed in the Philippines in connection with construction, maintenance, operation or de!ense o! the ases and reside in the Philippines y reason only o! suchemployment is only liale !or ta+ on Philippine sources o! income.

The /ourt o! 8ppeals held that the ?ases 8greement RspeaBs o! e+emption !rom thepayment o! income ta+, not !rom the !iling o! the income ta+ returns . . .

Issue:1. 3hether or not Petitioners can e considered resident aliens.

%. 3hether or not Petitioners are e+empt !rom income ta+ under the P>S Military?ases 8greement.

'. 3hether or not Petitioners must still !ile 0T notwithstanding the e+emption.

He!:1. Ces.

eenue egulations o. % Section $ proides: R8n alien actually present in the

Philippines who is not a mere transient or so"ourner is a resident o! the Philippines !orpurposes o! income ta+. 3hether or not an alian is a transient or not is !urtherdetermined y his: Rintentions with regards to the length and nature o! his stay. 8 mere!loating intention inde!inite as to time, to return to another country is not su!!icient toconstitute him as transient. 0! he lies in the Philippines and has no de!inite intentionas to his stay, he is a resident. The Section $ !urther proides that i! the alien is in thePhilippines !or a de!inite purpose which y its nature may e promptly accomplished,he is considered a transient. *oweer, i! an e+tended stay is necessary !or him toaccomplsh his purpose, he is considered a resident, Rthough it may e his intention atall times to return to his domicile aroad when the purpose !or which he came haseen consummated or aandoned.

%. Ces.

otwithstanding the !act that the Petitioners are resident aliens who are generallyta+ale, their class is nonetheless e+empt !rom paying ta+es on income deried !romtheir employment in the naal ase y irtue o! the P>S Military asesagreement.The ?ases 8greement identi!ies the persons #T Rliale to pay income ta+in the Philippines e+cept in regard to income deried !rom Philippine sources orsources other than the S sources. They are the persons in whom concur the!ollowing reFuisites, to wit:1< nationals o! the nited States sering in or employed in the Philippines7%< their serice or employment is Hin connection with construction,maintenance,operation or de!ense o! the ases7'< they reside in the Philippines y reason only o! such employment7 and

4< their income is deried e+clusiely !rom R.S. Sources.

'. Ces

Den though the petitioners are e+empt !rom paying ta+es !rom their employment inthe aal ?ase, they must neertheless !ile an 0T. The Supreme /ourt held that the!iling o! an 0T and the payment o! ta+es are two distinct oligations. 3hile incomederied !rom employment connected with the aal ?ase is e+empt, income !romPhilippine Sources is not. The reFuirement o! !iling an 0T is so that the ?0 can

determine whether or not the S ational should e ta+ed. RThe duty rests on the .S.nationals concerned to inoBe and prima facie estalish their ta+>e+empt status. 0tcannot simply e presumed that they earned no income !rom any other sources thantheir employment in the 8merican ases and are there!ore totally e+empt !rom incometa+.

WHAT DETERMINES RESIDENCE/

10. CIR VS RITISH OVERSEAS AIRWAYS COR$ORATION

Facts: ?ritish #erseas 8irways /orp ?#8/< is a 1((Q ?ritish oernment>ownedcorporation engaged in international airline usiness and is a memer o! the 0nterline

8ir Transport 8ssociation, and thus, it operates air transportation serices and sellstransportation ticBets oer the routes o! the other airline memers.

Erom 19$9 to 19)%, ?#8/ had no landing rights !or tra!!ic purposes in the Philippinesand thus, did not carry passengers and@or cargo to or !rom the Philippines utmaintained a general sales agent in the Philippines > 3arner ?arnes ; /o. 6td. andlater, Wantas 8irways > which was responsile !or selling ?#8/ ticBets coeringpassengers and cargoes. The /ommissioner o! 0nternal eenue assessed de!iciencyincome ta+es against ?#8/.

Issue: 3hether the reenue deried y ?#8/ !rom ticBet sales in the Philippines,constitute income o! ?#8/ !rom Philippine sources, and accordingly ta+ale.

He!: The source o! an income is the property, actiity, or serice that produced theincome. Eor the source o! income to e considered as coming !rom the Philippines, itis su!!icient that the income is deried !rom actiity within the Philippines. *erein, thesale o! ticBets in the Philippines is the actiity that produced the income. The ticBetse+changed hands here and payment !or !areswere also made here in the Philippinecurrency.

The situs o! the source o! payments is the Philippines. The !low o! wealth proceeded!rom, and

11. NV REEDERI* AMSTERDAM3 AND ROYAL INTEROCEAN LINES VS CIR

0n order that a !oreign corporation may e considered engaged in trade or usiness,its usiness transactions must e continuous

FACTS:

Ta+ % =igests /ompilation I Michelle =uguil &



?oth essels o! petitioner .V. eederi" R8msterdam called on Philippine ports toload cargoes !or !oreign destinations. The !reight !ees !or these transactions were paid in aroad. 0n these twotransactions, petition oyal 0nterocean 6ines acted as husanding agent !or a !ee orcommission on said essels. o income ta+ has een paid y R8msterdam on the!reight receipts. 8s a result, /ommissioner o! 0nternal eenue !iled the corresponding income ta+returns !or the petitioner. /ommissioner assessed petitioner !or de!iciency o! incometa+, as a non>resident !oreign corporation #T engaged in trade or usiness.

#n the assumption that the said petitioner is a !oreign corporation engaged in tradeor usiness in the Philippines, petitioner oyal 0nterocean 6ines !iled an income ta+return o! the a!orementioned essels and paid the ta+ in pursuant to their supposedclassi!ication. #n the same date, petitioner oyal 0nterocean 6ines, as the husanding agent o!R8msterdam, !iled a written protest against the aoementioned assessment made ythe respondent /ommissioner. The protest was denied. #n appeal, /T8 modi!ied the assessment y eliminating the $(Q !raud compromisepenalties imposed upon petitioners. Petitioner still was not satis!ied and decided toappeal to the S/.

ISSUE: W4et4e& %& (%t N.V. Ree!e&'5 A6ste&!a63 s4%u! 7e ta8e! as a 9%&e'(c%&;%&at'%( (%t e(ae! '( t&a!e %& 7us'(ess '( t4e $4'';;'(es/

HELD:

Petitioner is a !oreign corporation not authoriLed or licensed to do usiness in thePhilippines. 0t does not hae a ranch in the Philippines, and it only made two calls inPhilippine ports, one in 19&' and the other in 19&4. 0n order that a !oreign corporation may e considered engaged in trade or usiness,its usiness transactions must e continuous. 8 casual usiness actiity in thePhilippines y a !oreign corporation does not amount to engaging in trade or usinessin the Philippines !or income ta+ purposes. 8 !oreign corporation doing usiness in the Philippines is ta+ale on income solely!rom sources within the Philippines. 0t is permitted to claim deductions !rom grossincome ut only to the e+tent connected with income earned in the Philippines. #n theother hand, !oreign corporations not doing usiness in the Philippines are ta+ale onincome !rom all sources within the Philippines . The ta+ is '(Q now '$Q !or non>resident !oreign corp which is also Bnown as !oreign corp not engaged in trade orusiness< o! such gross income. XtaBe note that in a resident !oreign corp, what iseing ta+ed is the ta+ale income, which is with deductions, as compared to a non>resident !oreign corp which the ta+ ase is gross income< Petiioner R8msterdam is a non>resident !oreign corporation, organiLed and e+istingunder the laws o! the etherlands with principal o!!ice in 8msterdam and not licensedto do usiness in the Philippines.

12. MARUENI COR$ORATION VS CIR

Facts: Petitioner Marueni s a !oreign corporation duly organiLed under the e+istinglaws o! Japan and duly licensed to engage in usiness under Philippine laws.

Marueni o! Japan has eFuity inestments in 8tlantic ul! ; Paci!ic /o. o! Manila.

8;P declared and directly remitted the cash diidends to Marueni-s head o!!ice inToByo net o! the !inal diidend ta+ and withholding pro!it remittance ta+.

Therea!ter, Marueni, through SV, sought a ruling !rom the ?0 on whether or not thediidends it receied !rom 8;P are e!!ectiely connected with its usiness in thePhilippines as to e considered ranch pro!its su"ect to pro!it remittance ta+.

The 8cting /ommissioner ruled that the diidends receied y Marueni are notincome !rom the usiness actiity in which it is engaged. Thus, the diidend i! remittedaroad are not considered ranch pro!its su"ect to pro!it remittance ta+.

Pursuant to such ruling, petitioner !iled a claim !or re!und !or the pro!it ta+ remittanceerroneously paid on the diidends remitted y 8; P.

espondent /ommissioner denied the claim. 0t ruled that since Marueni is a nonresident corporation not engaged in trade or usiness in the Philippines it shall esu"ect to ta+ on income earned !rom Philippine sources at the rate o! '$Q o! its grossincome.

#n the other hand, Marueni contends that, !ollowing the principal>agent relationshiptheory, Marueni Japan is a resident !oreign corporation su"ect only to !inal ta+ on

diidends receied !rom a domestic corporation.

Issue: 3hether or not Marueni Japan is a resident !oreign corporation.

He!: o. The general rule is a !oreign corporation is the same "uridical entity asits ranch o!!ice in the Philippines . The rule is ased on the premise that the usinesso! the !oreign corporation isconducted through its ranch o!!ice, !ollowing the principal>agent relationship theory. 0t is understood that the ranch ecomes its agent.

*oweer, when the !oreign corporation transacts usiness in the Philippinesindependently o! its ranch, the principal>agent relationship is set aside. Thetransaction ecomes one o! the !oreign corporation, not o! the ranch. /onseFuently,the ta+payer is the !oreign corporation, not the ranch or the resident !oreigncorporation.

Thus, the alleged oerpaid ta+es were incurred !or the remittance o! diidend incometo the head o!!ice in Japan which is considered as a separate and distinct incometa+payer !rom the ranch in the Philippines.

1". ACCENTURE INC VS CIR

VAT < =ua'9'cat'%( 9%& >e&%?&ate! sae

Ta+ % =igests /ompilation I Michelle =uguil )



ACCENTURE@ INC. s. COMMISSIONER OF INTERNAL REVENUE G.R. N%.10102 *uB 11@ 2012Eacts: Petitioner 8ccenture, a V8T registered entity, is a corporation engaged in theusiness o! proiding management consulting, usiness strategies deelopment, andselling and@or licensing o! so!tware. The monthly and Fuarterly V8T returns o!

8ccenture show that, notwithstanding its application o! the input V8T credits earned!rom its Lero>rated transactions against its output V8T liailities, it still had e+cess or unutiliLed input V8T credits in the amount o! P'),('2,%&9.12. Thus, 8ccenture !iledwith the =epartment o! Einance =oE< an administratie claim !or the re!und or the

issuance o! a Ta+ /redit /erti!icate T//<. 3hen the =oE did not act on the claim, 8ccenture !iled a Petition !or eiew with /T8 praying !or the issuance o! a T// in its!aour.

The /0 answered that the sale y 8ccenture o! goods and serices to itsclients are not Lero>rated transactions and that 8ccenture has !ailed to proe that it isentitled to a re!und, ecause its claim has not een !ully sustantiated or documented.uling that 8ccenture-s serices would Fuali!y !or Lero>rating under the 199) ational0nternal eenue /ode o! the Philippines Ta+ /ode< only i! the recipient o! theserices was doing usiness outside o! the Philippines, the =iision o! the /T8 ruledthat since 8ccenture had !ailed to present eidence to proe that the !oreign clients towhich the !ormer rendered serices did usiness outside the Philippines, it was notentitled to re!und.

#n appeal e!ore the /T8 en anc, 8ccenture argued that ecause thecase pertained to the third and the !ourth Fuarters o! ta+ale year %((%, the applicalelaw was the 199) Ta+ /ode, and not .8. 9'') and that prior to the amendment

introduced y .8.< 9''), there was no reFuirement that the serices must erendered to a person engaged in usiness conducted outside the Philippines to Fuali!y!or Lero>rating. eertheless, the /T8 en anc a!!irmed the decision o! the diision.*ence this present petition !or reiew e!ore the S/.0ssues:

1. Should the recipient o! the serices e Hdoing usiness outside thePhilippinesH !or the transaction to e Lero>rated under Section 1(2?<%< o! the 199) Ta+ /ode

%. *as 8ccenture success!ully proen that its clients are entities doingusiness outside the Philippines

'. 0s 8ccenture entitled to ta+ re!und

*eld:

1. ecipient o! serices must e doing usiness outside the Philippines !or thetransactions to Fuali!y as Lero>rated.

8ccenture anchors its re!und claim on Section 11%8< o! the 199) Ta+ /ode, whichallows the re!und o! unutiliLed input V8T earned !rom Lero>rated or e!!ectiely Lero>rated sales. The proision reads:

SD/. 11%. e!unds or Ta+ /redits o! 0nput Ta+. >

8< Yero>ated or D!!ectiely Yero>ated Sales. > 8ny V8T>registered person, whosesales are Lero>rated or e!!ectiely Lero>rated may, within two %< years a!ter the closeo! the ta+ale Fuarter when the sales were made, apply !or the issuance o! a ta+ creditcerti!icate or re!und o! creditale input ta+ due or paid attriutale to such sales,e+cept transitional input ta+, to the e+tent that such input ta+ has not een appliedagainst output ta+: Proided, howeer, That in the case o! Lero>rated sales underSection 1(&8<%<a<1<, %< and ?< and Section 1(2 ?<1< and %<, the acceptale!oreign currency e+change proceeds thereo! had een duly accounted !or inaccordance with the rules and regulations o! the ?angBo Sentral ng Pilipinas ?SP<:

Proided, !urther, That where the ta+payer is engaged in Lero>rated or e!!ectiely Lero>rated sale and also in ta+ale or e+empt sale o! goods o! properties or serices, andthe amount o! creditale input ta+ due or paid cannot e directly and entirely attriutedto any one o! the transactions, it shall e allocated proportionately on the asis o! theolume o! sales. Section 1(2?< re!erred to in the !oregoing proision was !irst seenwhen Presidential =ecree o. P.=.< 1994'1 amended Title 0V o! P.=. 11$2 which isalso Bnown as the ational 0nternal eenue /ode o! 19)). Seeral =ecisions haere!erred to this as the 192& Ta+ /ode, een though it merely amended Title 0V o! the19)) Ta+ /ode.

Two years therea!ter, or on 1 January 1922, D+ecutie #rder o. D.#.< %)''' !urtheramended proisions o! Title 0V. D.#. %)' y trans!erring the old Title 0V proisions toTitle V0 and !illing in the !ormer title with new proisions that imposed a V8T.

The V8T system introduced in D.#. %)' was restructured through epulic 8ct o.

.8.< ))1&. This law, which was approed on $ May 1994, widened the ta+ ase.Section ' thereo! reads:

SD/T0# '. Section 1(% o! the ational 0nternal eenue /ode, as amended, isherey !urther amended to read as !ollows:

HSD/. 1(%. Value>added ta+ on sale o! serices and use or lease o! properties. + + +

+ + + + + + + + +

H< Transactions su"ect to Lero>rate. G The !ollowing serices per!ormed in thePhilippines y V8T>registered persons shall e su"ect to (Q:

H1< Processing, manu!acturing or repacBing goods !or other persons doing usinessoutside the Philippines which goods are suseFuently e+ported, where the sericesare paid !or in acceptale !oreign currency and accounted !or in accordance with therules and regulations o! the ?angBo Sentral ng Pilipinas ?SP<.

H%< Serices other than those mentioned in the preceding su>paragraph, theconsideration !or which is paid !or in acceptale !oreign currency and accounted !or inaccordance with the rules and regulations o! the ?angBo Sentral ng Pilipinas ?SP<.H

Dssentially, Section 1(%< o! the 19)) Ta+ /odeGas amended y P.=. 1994, D.#.%)', and .8. ))1&Gproides that i! the consideration !or the serices proided y aV8T>registered person is in a !oreign currency, then this transaction shall e su"ectedto Lero percent rate.




The 199) Ta+ /ode reproduced Section 1(%< o! the 19)) Ta+ /ode in its Section1(2?<, to wit:

?< Transactions Su"ect to Yero Percent (Q< ate. > The !ollowing sericesper!ormed in the Philippines y V8T> registered persons shall e su"ect to Leropercent (Q< rate.

1< Processing, manu!acturing or repacBing goods !or other persons doing usiness

outside the Philippines which goods are suseFuently e+ported, where the sericesare paid !or in acceptale !oreign currency and accounted !or in accordance with therules and regulations o! the ?angBo Sentral ng Pilipinas ?SP<7

%< Serices other than those mentioned in the preceding paragraph, the consideration!or which is paid !or in acceptale !oreign currency and accounted !or in accordancewith the rules and regulations o! the ?angBo Sentral ng Pilipinas ?SP<7 + + +.

#n 1 oemer %(($, Section & o! .8. 9''), which amended the !oregoingproision, ecame e!!ectie. 0t reads:

SD/. &. Section 1(2 o! the same /ode, as amended, is herey !urther amended toread as !ollows:

HSD/. 1(2. Value>added Ta+ on Sale o! Serices and se or 6ease o!

Properties. >

?< Transactions Su"ect to Yero Percent (Q< ate. > The !ollowing sericesper!ormed in the Philippines y V8T>registered persons shall e su"ect to Leropercent (Q< rate:

1< Processing, manu!acturing or repacBing goods !or other persons doing usinessoutside the Philippines which goods are suseFuently e+ported, where the sericesare paid !or in acceptale !oreign currency and accounted !or in accordance with therules and regulations o! the ?angBo Sentral ng Pilipinas ?SP<7

H%< Serices other than those mentioned in the preceding paragraph rendered to aperson engaged in usiness conducted outside the Philippines or to a nonresidentperson not engaged in usiness who is outside the Philippines when the serices areper!ormed, the consideration !or which is paid !or in acceptale !oreign currency andaccounted !or in accordance with the rules and regulations o! the ?angBo Sentral ngPilipinas ?SP<7 + + + .H Dmphasis supplied<

3e rule that the recipient o! the serice must e doing usiness outside thePhilippines !or the transaction to Fuali!y !or Lero>rating under Section 1(2?< o! the Ta+/ode.

This /ourt upholds the position o! the /T8 en anc that, ecause Section 1(2?< o!the 199) Ta+ /ode is a eratim copy o! Section 1(%< o! the 19)) Ta+ /ode, anyinterpretation o! the latter holds true !or the !ormer.

Moreoer, een though 8ccenture-s Petition was !iled e!ore ?urmeister waspromulgated, the pronouncements made in that case may e applied to the presentone without iolating the rule against retroactie application. 3hen this /ourt decidesa case, it does not pass a new law, ut merely interprets a pree+isting one. 3hen this/ourt interpreted Section 1(%< o! the 19)) Ta+ /ode in ?urmeister, thisinterpretation ecame part o! the law !rom the moment it ecame e!!ectie. 0t iselementary that the interpretation o! a law y this /ourt constitutes part o! that law!rom the date it was originally passed, since this /ourtAs construction merely

estalishes the contemporaneous legislatie intent that the interpreted law carried intoe!!ect.

That the recipient o! the serice should e doing usiness outside the Philippines toFuali!y !or Lero>rating is the only logical interpretation o! Section 1(%<%< o! the 19))Ta+ /ode, as we e+plained in ?urmeister:

This can only e the logical interpretation o! Section 1(% < %<. 0! the proider andrecipient o! the Hother sericesH are oth doing usiness in the Philippines, thepayment o! !oreign currency is irreleant. #therwise, those su"ect to the regular V8Tunder Section 1(% a< can aoid paying the V8T y simply stipulating payment in!oreign currency inwardly remitted y the recipient o! serices. To interpret Section 1(%< %< to apply to a payer>recipient o! serices doing usiness in the Philippines is tomaBe the payment o! the regular V8T under Section 1(% a< dependent on thegenerosity o! the ta+payer. The proider o! serices can choose to pay the regular V8T

or aoid it y stipulating payment in !oreign currency inwardly remitted y the payer>recipient. Such interpretation remoes Section 1(% a< as a ta+ measure in the Ta+/ode, an interpretation this /ourt cannot sanction. 8 ta+ is a mandatory e+action, nota oluntary contriution.

+ + + + + + + + +

Eurther, when the proider and recipient o! serices are oth doing usiness in thePhilippines, their transaction !alls sFuarely under Section 1(% a< goerning domesticsale or e+change o! serices. 0ndeed, this is a purely local sale or e+change o!serices su"ect to the regular V8T, unless o! course the transaction !alls under theother proisions o! Section 1(% <.

Thus, when Section 1(% < %< speaBs o! Hserices other than those mentioned in thepreceding suparagraph,H the legislatie intent is that only the serices are di!!erentetween suparagraphs 1 and %. The reFuirements !or Lero>rating, including theessential condition that the recipient o! serices is doing usiness outside thePhilippines, remain the same under oth suparagraphs.

6astly, it is worth mentioning that prior to the promulgation o! ?urmeister, /ongresshad already clari!ied the intent ehind Sections 1(%<%< o! the 19)) Ta+ /ode and1(2?<%< o! the 199) Ta+ /ode amending the earlier proision. .8. 9'') added the!ollowing phrase: Hrendered to a person engaged in usiness conducted outside thePhilippines or to a nonresident person not engaged in usiness who is outside thePhilippines when the serices are per!ormed.H




%. 8ccenture has !ailed to estalish that the recipients o! its serices do usinessoutside the Philippines.

0n the /T8-s opinion, howeer, the documents presented y 8ccenture merelysustantiate the e+istence o! the sales, receipt o! !oreign currency payments, andinward remittance o! the proceeds o! these sales duly accounted !or in accordancewith ?SP rules. Petitioner presented no eidence whatsoeer that these clients weredoing usiness outside the Philippines.

8ccenture insists, howeer, that it was ale to estalish that it had rendered sericesto !oreign corporations doing usiness outside the Philippines, unliBe in ?urmeister,which allegedly inoled a !oreign corporation doing usiness in the Philippines.$1

'. 3e deny 8ccenture-s Petition !or a ta+ re!und.

The eidence presented y 8ccenture may hae estalished that its clients are!oreign.1Zwphi1 This !act does not automatically mean, howeer, that these clientswere doing usiness outside the Philippines. 8!ter all, the Ta+ /ode itsel! hasproisions !or a !oreign corporation engaged in usiness within the Philippines andice ersa, to wit:

SD/. %%. =e!initions > 3hen used in this Title:

+ + + + + + + + +

*< The term Hresident !oreign corporationH applies to a !oreign corporation engaged intrade or usiness within the Philippines.

0< The term [nonresident !oreign corporation- applies to a !oreign corporation notengaged in trade or usiness within the Philippines. Dmphasis in the original<

/onseFuently, to come within the puriew o! Section 1(2?<%<, it is not enough thatthe recipient o! the serice e proen to e a !oreign corporation7 rather, it must especi!ically proen to e a nonresident !oreign corporation.

There is no speci!ic criterion as to what constitutes HdoingH or Hengaging inH orHtransactingH usiness. 3e ruled thus in /ommissioner o! 0nternal eenue . ?ritish#erseas 8irways /orporation:$%

+ + +. There is no speci!ic criterion as to what constitutes HdoingH or Hengaging inH orHtransactingH usiness. Dach case must e "udged in the light o! its peculiarenironmental circumstances. The term implies a continuity o! commercial dealingsand arrangements, and contemplates, to that e+tent, the per!ormance o! acts or worBsor the e+ercise o! some o! the !unctions normally incident to, and in progressieprosecution o! commercial gain or !or the purpose and o"ect o! the usinessorganiLation. H0n order that a !oreign corporation may e regarded as doing usinesswithin a State, there must e continuity o! conduct and intention to estalish acontinuous usiness, such as the appointment o! a local agent, and not one o! atemporary character.H$'

8 ta+payer claiming a ta+ credit or re!und has the urden o! proo! to estalish the!actual asis o! that claim.1Zwphi1 Ta+ re!unds, liBe ta+ e+emptions, are construedstrictly against the ta+payer.$4

8ccenture !ailed to discharge this urden. 0t alleged and presented eidence to proeonly that its clients were !oreign entities. *oweer, as !ound y oth the /T8 =iisionand the /T8 Dn ?anc, no eidence was presented y 8ccenture to proe the !act thatthe !oreign clients to whom petitioner rendered its serices were clients doingusiness outside the Philippines.

$ARTNERSHI$S

1#. GATCHALIAN VS CIR

Facts: Plainti!!s purchased, in the ordinary course o! usiness, !rom one o! theduly authoriLed agents o! the ational /harity SweepstaBes #!!ice one ticBet !or thesum o! two pesos P%<, saidticBet was registered in the name o! Jose atchalian and/ompany. The ticBet won one o! the third>priLes in the amount o! P$(,(((.

Jose atchalian was reFuired to !ile the corresponding income ta+ return coering thepriLe won. =e!endant>/ollector made an assessment against Jose atchalian and /o.reFuesting the payment o! the sum o! P1,499.94 to the deputy proincial treasurer o!

Pulilan, ?ulacan. Plainti!!s, howeer through counsel made a reFuest ! or e+emption. 0twas denied.

Plainti!!s !ailed to pay the amount due, hence a warrant o! distraint and ley wasissued. Plainti!!s paid under protest a part o! the ta+ and penalties to aoid the e!!ectso! the warrant. 8 reFuest that the alance e paid y plainti!!s in installments wasmade. This was granted on the condition that a ond e !iled.

Plainti!!s !ailed in their installment payments. *ence a reFuest !or e+ecution o! thewarrant o! distraint and ley was made. Plainti!!s paid under protest to aoid thee+ecution.

8 claim !or re!und was made y the plainti!!s, which was dismissed, hence the appeal.

Issue: 3hether the plainti!!s !ormed a partnership hence liale !orincome ta+.

He!: Ces. 8ccording to the stipulation !acts the plainti!!s organiLed a partnership o! aciil nature ecause each o! them put up money to uy a sweepstaBes ticBet !or thesole purpose o! diiding eFually the priLe which they may win, as they did in !act in theamount o! P$(,(((. The partnership was not only !ormed, ut upon the organiLationthereo! and the winning o! the priLe, Jose atchalian personally appeared in the o!!iceo! the Philippines /harity SweepstaBes, in his capacity as co>partner, assuch collection thepriLe, the o!!ice issued the checB !or P$(,((( in !aor o! Joseatchalian and company, and the said partner, in the same capacity, collected the saidchecB. 8ll these circumstances repel the idea that the plainti!!s organiLed and !ormeda community o! property only.

Ta+ % =igests /ompilation I Michelle =uguil 1(



1). $ASCUAL VS CIR

FACTS:Petitioners ought two parcels o! land and another ' parcels the !ollowing year. The %parcels were sold in 19&2 while the other ' were sold in 19)(. ealiLing pro!its !romthe sale, petitioners !iled capital gains ta+. *oweer, they were assessed withde!iciency ta+ !or corporate income ta+es.

ISSUE:3hether or not petitioners !ormed an unregistered partnership therey assessed withcorporate income ta+.

RULING:?y the contract o! partnership, two or more persons ind themseles to contriutemoney, industry or property to a common !und with the intention o! diiding pro!itsamong themseles. There is no eidence though, that petitioners entered into anagreement to contriute MP0 to a common !und and that they intend to diide pro!itsamong themseles. The petitioners purchased parcels o! land and ecame co>ownersthereo!. Their transactions o! selling the lots were isolated cases. The character o!haituality peculiar to the usiness transactions !or the purpose o! gain was notpresent.

The sharing o! returns !oes not in itsel! estalish a partnership whether or not the

persons sharing therein hae a "oint or common right or interest in the property. Theremust e a clear intent to !orm partnership, the e+istence o! a "uridical personalitydi!!erent !rom the indiidual partners, and the !reedom o! each party to trans!er orassign the whole property.

1+. CIR VS SC *OHNSON AND SON INC

Facts: espondent is a domestic corporation organiLed and operating under thePhilippine 6aws, entered into a licensed agreement with the S/Johnson and Son,S8, a non>resident !oreign corporation ased in the S8 pursuant to which therespondent was granted the right to use the trademarB, patents and technology ownedy the later including the right to manu!acture, pacBage and distriute theproducts coered y the 8greement and secure assistance in management, marBetingand production !rom S/ Johnson and Son S8.

Eor the use o! trademarB or technology, respondent was oliged to payS/Johnson and Son, S8 royalties ased on a percentage o! net sales and su"ectedthe same to %$Q withholding ta+ on royalty payments which respondent paid !or theperiod coering July 199% to May 199' in the total amount o! P1,&(',44'.((.

#n #ctoer %9, 199', respondent !iled with the 0nternational Ta+ 8!!airs =iision0T8=< o! the ?0 a claim !or re!und o! oerpaid withholding ta+on royalties arguingthat, the antecedent !acts attending respondents case !all sFuarely within the samecircumstances under which said Maceorge and illette rulings were issued.Since the agreement was approed y the Technology Trans!er ?oard, the pre!erentialta+ rate o! 1(Q should apply to the respondent. So, royalties paid y the respondent

to S/Johnson and Son, S8 is only su"ect to 1(Q withholding ta+.

The /ommissioner did not act on said claim !or re!und. Priate respondentS/ Johnson ; Son, 0nc. then !iled a petition !or reiew e!ore the /T8, to claim are!und o! the oerpaid withholding ta+ on royalty payments !rom July 199% to May199'.

#n May ), 199&, the /T8 rendered its decision in !aor o! S/ Johnson and orderedthe /0 to issue a ta+ credit certi!icate in the amount o! P1&',%&&.(( representing

oerpaid withholding ta+ on royalty paymentseginning July 199% to May 199'.

The /0 thus !iled a petition !or reiew with the /8 which rendered the decisionsu"ect o! this appeal on oemer ), 199& !inding no merit in the petition anda!!irming in toto the /T8 ruling.

Issue: 3hether or not ta+ re!unds are considered as ta+ e+emptions.

He!: 0t ears stress that ta+ re!unds are in the nature o! ta+e+emptions. 8s such theyare registered as in derogation o! soereign authority and to e construed strictissimi

"uris against the person or entity claiming the e+emption. The urden o! proo! is uponhim who claims thee+emption in his !aor and he must e ale to "usti!y his claim ythe clearest grant o! organic or statute law. Priate respondent is claiming !or a re!undo! the alleged oerpayment o! ta+ on royalties7 howeer there is nothing on record tosupport a claim that the ta+ on royalties under the P>S Treaty is paid under similar

circumstances as the ta+ on royalties under the P>3est ermany Ta+ Treaty.

1,. REYES VS CIR

Facts: ?y irtue o! a sworn a!!idait !or reward y one 8ad, an inestigation wasconducted y ?0 on the estate o! the deceased Maria Tancinco who died in 199'leaing a residential lot and old house in =asma. 3ithout sumitting a preliminary!inding report, an 6#8 was issued and receied y eyes, one o! the heirs on 14March 199).

Then on 1% Ee 1992, a P8 was issued against the estate, and a E8 as well asdemand letter was issued on %% 8pril 1992. Eor the assessment o! P14.9M !or estateta+ o! the estate o! Maria Tancinco. #n March 11, 1999, the heirs proposed acompromise settlement o! P1,(((,(((.((.

=uring those dates, 8 24%4 Ta+ e!orm 8ct was already in e!!ect. 8 24%4 statedthat the ta+payer must e in!ormed o! oth the law and !acts on which the assessmentwas ased.The notice reFuired under the old law was no longer su!!icient underthe new law. Eirst, 8 24%4 has already amended the proision o! Section %%9 onprotesting an assessment. The old reFuirement o! merely notifying the ta+payer o! the/0-s !indings was changed in 1992 to informing the ta+payer o! not only the law, utalso o! the !acts on which an assessment would e made7 otherwise, the assessmentitsel! would e inalid.

=ue to !ailure to pay ta+ on the deadline ?0 noti!ied on June &, %((( that the su"ectproperty would e sold at pulic auction on 8ugust 2, %(((. eyes !iled a protest with




the ?0. *ence the petition !or reiew !iled y eyes in /T8 and a T# to desist andre!rain !rom proceeding with the auction sale o! the su"ect property or !rom issuing awarrant pending determination o! the case and@or unless a contrary order is issued.

/0 !iled a motion saying /T8 has no "urisdiction since the assessment against theestate is already !inal and e+ecutory7 and ii< that the petition was !iled out o! time

/T8 I uled in !aour o! /0 ordering eyes to pay the estate ta+ amounting to 19M./T8 ratiocinated that there can only e a per!ected and consummated compromise o!

the estate-s ta+ liailityN,O i! the D? has approed Neyes-sO application !orcompromise in accordance with o. &>%(((, as implemented y M# o. 4%>%(((.

/8 I Partly granted petition. S/ I 8!!irmed, petition w@o merit.

ISSUE: 3# whether the assessment against the estate is alid7 and, second,whether the compromise entered into is also alid.

HELD: o. nder the present proisions o! the Ta+ /ode and pursuant to elementarydue process, ta+payers must e in!ormed in writing o! the law and the !acts uponwhich a ta+ assessment is ased7 otherwise, the assessment is oid. ?eing inalid,the assessment cannot in turn e used as a asis !or the per!ection o! a ta+compromise. This was clear and mandatory under Section %%2.

eyes was not in!ormed in writing o! the law and the !acts on which the assessment o! estate ta+es had een made. She was merely noti!ied o! the !indings y the /0, whohad simply relied upon the proisions o! !ormer Section %%91' prior to its amendmenty epulic 8ct 8< o. 24%4, otherwise Bnown as the Ta+ e!orm 8ct o! 199).

To e simply in!ormed in writing o! the inestigation eing conducted and o! therecommendation !or the assessment o! the estate ta+es due is nothing ut aper!unctory discharge o! the ta+ !unction o! correctly assessing a ta+payer. The actcannot e taBen to mean that eyes already Bnew the law and the !acts on which theassessment was ased. 0t does not at all con!orm to the compulsory reFuirementunder Section %%2. Moreoer, the 6etter o! 8uthority receied y respondent on March14, 199) was !or the sheer purpose o! inestigation and was not een the reFuisitenotice under the law.

Va'!'tB %9 C%6;&%6'se. 0t would e premature !or this /ourt to declare that thecompromise on the estate ta+ liaility has een per!ected and consummated,considering the earlier determination that the assessment against the estate was oid.othing has een settled or !inaliLed. nder Section %(48< o! the Ta+ /ode, wherethe asic ta+ inoled e+ceeds one million pesos or the settlement o!!ered is less thanthe prescried minimum rates, the compromise shall e su"ect to the approal o! theD? composed o! the petitioner and !our deputy commissioners. Einally, as correctlyheld y the appellate court, this proision applies to all compromises, whether

goernment>initiated or not. #bi lex non distinguit, nec nos distinguere debemos .3here the law does not distinguish, we should not distinguish.

1-. EVANGELISTA VS CIR

Facts: Petitioners orrowed money !rom their !ather and purchased seeral lands. Eor seeral years, these lands were leased to tenants y the petitioners. 0n 19$4,respondent /ollector o! 0nternal eenuedemanded !rom petitioners the paymento! income ta+ on corporations, real estate dealerAs !i+ed ta+ and corporation residence

ta+ !or the years 194$>1949. 8 letter o! demand and correspondingassessments weredeliered to petitioners. Petitioners claim that they should e asoled !rom payingsaid ta+es since they are not a corporation.

Issue: 3hether petitioners are su"ect to the ta+ on corporations proided !or insection %4 o! /ommonwealth 8ct. o. 4&&, otherwise Bnown as the ational 0nternaleenue /ode, as well as to the residence ta+ !or corporations and the real estatedealers !i+ed ta+.

He!: Ces. Petitioners are su"ect to the income ta+ and residence ta+ !or corporation.

8s de!ined in section 24 < o! the 0nternal eenue /ode, Hthe term corporationincludes partnerships, no matter how created or organiLed.H This Fuali!ying e+pressionclearly indicates that a "oint enture need not e undertaBen in any o! the standard!orms, or in con!ormity with the usual reFuirements o! the law on partnerships, in order that one could e deemed constituted !or purposes o! the ta+ on corporations.Partnership, as has een de!ined in the ciil code re!ers to two or more persons whoind themseles to contriute money, properly, or industry to a common !und, with theintention o! diiding the pro!its among themseles. Thus, petitioners, eing engaged inthe real estate transactions !or monetary gain and diiding the same amongthemseles constitute a partnership so !ar as the /ode is concerned and are su"ectto income ta+ !or corporation.

Since Sec % o! the /ode in de!ining corporations also includes "oint>stocB company,partnership, "oint account, association or insurance company, no matter how createdor organiLed, it !ollows that petitioners, regardless o! how their partnership wascreated is also su"ect to the residence ta+ !or corporations.

1. ROYAL INTEROCEAN LINES VS CIR

E8/TS:Erom March %) to 8pril '(, 19&', M.V. 8mstelmeer and !rom Septemer %4 to #ctoer %2, 19&4, MC H8mstelBroon, H oth o! which are essels o! petitioner .?. eederi"H8MSTD=8M,H called on Philippine ports to load cargoes !or !oreign destination. The!reight !ees !or these transactions were paid aroad in the amount o! S U92,1)$.(( in19&' and S U1'),19'.(( in 19&4. 0n these two instances, petitioner oyal 0nterocean6ines acted as husanding agent !or a !ee or commission on said essels. o incometa+ appears to hae een paid y petitioner .V. eederi" H8MSTD=8MH on the!reight receipts.espondent /ommissioner o! 0nternal eenue, through hise+aminers, !iled the corresponding income ta+ returns !or and in ehal! o! the !ormer

Ta+ % =igests /ompilation I Michelle =uguil 1%

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under Section 1$ o! the ational 0nternal eenue /ode. #n June '(, 19&),respondent /ommissioner assessed said petitioner in the amounts o! P09',9)'.%( andP%&%,9(4.94 as de!iciency income ta+ !or 19&' and 19&4, respectiely, as Hanonresident !oreign corporation not engaged in trade or usiness in the Philippinesunder Section %4 < 1< o! the Ta+ /odeugust %2, 19&), petitioner oyal 0nterocean6ines !iled an income ta+ return o! the a!orementioned essels computed at thee+change rate o! P%.(( to SSl.(( 1 and paid the ta+ thereon in the amount o!Pl,2'$.$% and P9,442.94, respectiely, pursuant to Section %4 < %< in relation toSection ') ?< e< o! the ational 0nternal eenue /ode and Section 1&' o! eenue

egulations #.%. oyal 0nterocean 6ines as the husanding agent o! petitioner .V.eederi" H8MSTD=8MH !iled a written protest against the aoementionedassessment .the respondent /ourt o! Ta+ 8ppeals praying !or the cancellation o! thesu"ect assessment. 8!ter due hearing, the respondent court, on =ecemer 1, 19)&,rendered a decision modi!ying said assessments y eliminating the $(Q !raudcompromise penalties imposed upon petitioners. Petitioners !iled a motion !orreconsideration o! said decision ut this was denied y the respondent court.

ISSUE:

3hether .V. eederi" H8msterdamH not haing any o!!ice or place o! usiness in the philippines, whose essels called on the philippine ports !orthe purpose o! loading cargoes only twice>one in 19&' and another in 19&4 > shoulde ta+ed as a !oreign corporation not engaged in trade or usiness in the Philippinesunder section %4< 1< o! the ta+ code or should e ta+ed as a !oreign corporationengaged in trade or usiness in the philippines under section %4< %< in relation tosection ') e< o! the same code7

3hether the !oreign e+change receipts o! n.. reederi" HamsterdamH should econerted into Philipine pesos at the o!!icial rate o! p%.(( to us U1.((, or at P'.9( to usU1.((.

HELD:The petition is deoid o! merit.

Petitioner .V. eederi" H8MSTD=8MH is a !oreign corporation not authoriLed orlicensed to do usiness in the Philippines. 0t does not hae a ranch o!!ice in thePhilippines and it made only two calls in Philippine ports, one in 19&' and the other in19&4. 0n order that a !oreign corporation may e considered engaged in trade orusiness, its usiness transactions must e continuous. 8 casual usiness actiity inthe Philippines y a !oreign corporation, as in the present case, does not amount toengaging in trade or usiness in the Philippines !or income ta+ purposes.Eoreigncorporation doing usiness in the Philippines is ta+ale on income solely !rom sourceswithin the Philippines, it is permitted to deductions !rom gross income ut only to thee+tent connected with income earned in the Philippines. Sees. %4< %< and '), Ta+/ode.< #n the other hand, !oreign corporations not doing usiness in the Philippinesare ta+ale on income !rom all sources within the Philippines, as interest, diidends,rents, salaries, wages, premiums, annuities /ompensations, remunerations,emoluments, or other !i+ed or determinale annual or periodical or casual gains,pro!its and income and capital gainsH The ta+ is '(Q now '$Q< o! such gross income.Sec. %4 < 1<, Ta+ /ode.< 8s stated aoe 8msterdam is there!ore ta+ale.

20. ONA VS CIR

Facts:Julia ?u\ales died leaing as heirs her suriing spouse, 6orenLo #\a and her !iechildren. 8 ciil case was instituted !or the settlement o! her state, in which #\a wasappointed administrator and later on the guardian o! the three heirs who were stillminors when the pro"ect !or partition was approed. This shows that the heirs hae

undiided ] interest in 1( parcels o! land, & houses and money !rom the 3ar =amage/ommission. 8lthough the pro"ect o! partition was approed y the /ourt, no attempt was made todiide the properties and they remained under the management o! #\a who used saidproperties in usiness y leasing or selling them and inesting the income deriedthere!rom and the proceeds !rom the sales thereo! in real properties and securities. 8sa result, petitioners- properties and inestments gradually increased. Petitionersreturned !or income ta+ purposes their shares in the net income ut they did notactually receie their shares ecause this le!t with #\a who inested them.?ased on these !acts, /0 decided that petitioners !ormed an unregistered partnershipand there!ore, su"ect to the corporate income ta+, particularly !or years 19$$ and19$&. Petitioners asBed !or reconsideration, which was denied hence this petition !orreiew !rom /T8-s decision.Issue:3@ there was a co>ownership or an unregistered partnership3@ the petitioners are liale !or the de!iciency corporate income ta+He!:U(&e'ste&e! ;a&t(e&s4';. The Ta+ /ourt !ound that instead o! actually distriutingthe estate o! the deceased among themseles pursuant to the pro"ect o! partition, theheirs allowed their properties to remain under the management o! #\a and let him usetheir shares as part o! the common !und !or their entures, een as they paidcorresponding income ta+es on their respectie shares.

Yes. Eor ta+ purposes, the co>ownership o! inherited properties is automaticallyconerted into an unregistered partnership the moment the said common propertiesand@or the incomes deried there!rom are used as a common !und with intent toproduce pro!its !or the heirs in proportion to their respectie shares in the inheritanceas determined in a pro"ect partition either duly e+ecuted in an e+tra"udicial settlementor approed y the court in the corresponding testate or intestate proceeding. Thereason is simple. Erom the moment o! such partition, the heirs are entitled already totheir respectie de!inite shares o! the estate and the incomes thereo!, !or each o! themto manage and dispose o! as e+clusiely his own without the interention o! the otherheirs, and, accordingly, he ecomes liale indiidually !or all ta+es in connectiontherewith. 0! a!ter such partition, he allows his share to e held in common with his co>heirs under a single management to e used with the intent o! maBing pro!it therey inproportion to his share, there can e no dout that, een i! no document or instrumentwere e+ecuted, !or the purpose, !or ta+ purposes, at least, an unregistered partnershipis !ormed.Eor purposes o! the ta+ on corporations, our ational 0nternal eenue /ode includesthese partnerships G The term !partnership" includes a syndicate, group, pool, $oint venture or otherunincorporated organi%ation, through or by means of which any business, financial

Ta+ % =igests /ompilation I Michelle =uguil 1'



operation, or venture is carried on& '( )erten*s +aw of ederal Income Taxation, p./ 0ote 1; emphasis ours.2with the e+ception only o! duly registered general copartnerships G within the puriewo! the term Rcorporation. 0t is, there!ore, clear to our mind that petitioners herein

constitute a partnership, inso!ar as said /ode is concerned, and are su"ect to theincome ta+ !or corporations. *u!6e(t a99'&6e!.


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