Professional Documents
Culture Documents
FACTS:
This case involves separate petitions by the Commissioner for review of
the corresponding decisions of the Court of Tax Appeals which have been
decided jointly, namely; G.R No. L-18169, G.R. No.L- 18286 and G.R. No. L21434.
The respondents are husband and wife; both are American citizens
residing in the Philippines and have derived all their income from Philippine
resources for the taxable years under question: 1955, 1956, and 1957.
Subsequently, they filed separate amended tax return covering the abovementioned taxable years, claiming deductions representing taxes paid to the
United States on income derived wholly from Philippine sources. The
Commissioner failed to take action on the amended tax returns, hence; the
Lednicky spouse brought suits in the Tax Court which decided in favor of the
respondents.
ISSUE:
Whether citizens of the United States residing in the Philippines who
derives income wholly from sources within the country, may deduct from gross
income the taxes they have paid to the US Government?
RULING:
No. The taxpayers are not entitled to tax deductions because all their
income is derived from Philippine sources. To allow an alien resident to deduct
from his gross income whatever taxes he pays to his own government amounts
to conferring on the latter power to reduce the tax income of the Philippine
government simply by increasing the tax rates on the alien resident. Such a
result is incompatible with the status of the Philippines as an independent and
sovereign State.
No. The Court held that the proceeds of the life insurance policy
represents as an indemnity and not taxable income.
fee but set aside the disallowance of the other three (3) minor items. The
petitioner appealed the Tax Courts finding.
ISSUE:
Whether or not the payment by the taxpayer to its controlling stockholder
of 50% of its supervision fee is a deductible, ordinary and necessary expense?
RULING:
NO. It did not fall within the purview of ordinary and necessary expense
and it failed to pass the test of reasonable compensation. Bonuses to employees
made in good faith and as additional compensation for services actually
rendered by the employees are deductible, provided such payments, when added
to the salaries do not exceed the compensation for services rendered.
The Court ruled that the employers right to fix the compensation of its
officers may be conceded but for income tax purposed the employer cannot
legally claim such bonuses as deductible expenses unless they are shown to be
reasonable. To hold otherwise would open of rampant tax evasion.
FACTS:
On June 14, 1985, the respondent corporation filed its income tax return
wherein it claimed as a deduction the amount of P9, 461. 246 spent for Tangs
media advertising. On May 31, 1980, the Commissioner disallowed 50% of the
deduction claimed and assessed the respondent deficiency income taxes. The
latter filed a motion for reconsideration but the same was denied. It appealed to
the Court of Tax Appeals but it was dismissed on the ground that such
expenditure is akin to an acquisition of the capital assets and therefore, expenses
related thereto are not business expenses but capital expenditures. The
respondent filed a petition for review at the Court of Appeals which rendered a
decision reversing the decision of the Court of Tax Appeal on the ground that it
was not sufficiently established that the item claimed as a deduction is
excessive.
ISSUE:
Whether or not the subject media advertising expense for Tang incurred
by the respondent was an ordinary and necessary expense fully deductible under
the NIRC?
RULING:
It is necessary but not an ordinary expense. The Court ruled that to be
deductible an advertising expense should not only be necessary but also be
ordinary. The subject media advertising was not an ordinary expense on the
ground that it failed to meet the two conditions: first, reasonableness of the
amount incurred and second, the amount incurred must not be a capital outlay to
create goodwill for the product and/or private respondents business.
Otherwise, the expense must be considered a capital expenditure to be spread
out over a reasonable time.
ISSUES:
1. Whether the CA correctly sustained the deduction of the expense for
professional and security services from the ICCs gross income?
2. Whether or not the respondent did not understate its interest income from the
promissory notes from the Realty Investment and that ICC withheld the
required 1% withholding tax from the deductions for security services?
RULING:
1. No. Following the principle that tax exemptions must be construed
strictissimi juris against the tax payer, accrual method of accounting must
largely a question of fact, such that tax payer bears the burden proof
establishing the accrual of income or deduction. However, ICC failed
discharge the burden.
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2.No. No such interest understatement exists and that only simple interest
computation and not a compounded one should have been applied by the BIR.
There is no stipulation between the Realty Investment and the ICC on the
application of compounded interest. Under Art. 1959of the Civil Code, unless
there is a stipulation to the contrary, interest due should not further earn interest.
assessment was protested by the petitioner but such was denied by the
respondent on the ground that the liability to withhold and pay income tax
withheld at source from certain payment due to a foreign corporation is at the
time of accrual and not at the time of actual payment or remittance thereof.
On June 28, 1985, petitioner brought a petition for review before the
Court of Tax Appeals which renders a decision against it. With the denial
motion for reconsideration, the petitioner appealed to the Court of Appeals
which affirmed in toto the appealed decision.
ISSUE:
Whether the liability to withhold tax at source on income payments to
non- resident foreign corporation arises upon remittance of the amounts due to
foreign creditors or upon the accrual thereof?
RULING:
The liability to withheld tax at source on income payments to nonresident foreign corporations arises upon the accrual of the amounts due to
foreign creditors. In the case at bar, the Court concurred in the finding by the
CTA that there was a definite liability, a clear and imminent certainty that at the
maturity of the loan contracts, the foreign corporation was going to earn income
in an ascertained amount, so much so that the petitioner already deducted a
business expense the said amount as interest due to the foreign corporation. This
is allowed under the law, petitioner having adopted the accrual method of
accounting in reporting its income.
For the CTA, the purchase of shares in Wack Wack, Union Insurance and
Acme Commercial were harmless and not subject to 25% surtax. However, the
purchase of the Treasury Bills was in no way related to the business of
importing and selling wines and ordered Manila Wine Merchants to pay IAET
on the Treasury Bills. Manila Wine Merchants appealed to the CTA.
ISSUE:
Whether or not Manila Wine Merchants unreasonably accumulated
earnings in excess of the reasonable needs of business, thus making it liable to
surtax under the Tax Code?
RULING:
YES, Manila Wine Merchants is liable to surtax under the Tax Code. The
findings of the CTA that the purchase were in no way related to the business of
the petitioner and thus construed as an investment beyond the reasonable needs
of the business is binding upon the Court.
Under the Immediacy Test, the words reasonable needs of the business
means the immediate needs of the business. It has been 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 touchstone of liability is the
purpose behind the accumulation of the income and not the consequences of the
accumulation.
Mitsubishi all the copper concentrates produced from said machine for a period
of fifteen (15) years.
Mitsubishi thereafter applied for a loan equivalent to $20,000,000. 00
with the Export-Import Bank of Japan to comply with its obligation under said
contract subject to the condition that Mitsubishi would use the amount as a loan
to Atlas and as a consideration for importing copper concentrates from Atlas,
and that Mitsubishi had to pay back the total amount of loan by September 30,
1981.
Pursuant to the contract between Atlas and Mitsubishi, interest payments
were made by the former for the years 1974 and 1975. The corresponding 15%
tax thereon in the amount of P1,971,595.01 was withheld pursuant to Section 24
(b) (1) and Section 53 (b) (2) of the NIRC and duly remitted to the Government.
On March 1976, private respondents filed a claim for tax credit
requesting that the sum of P1,971,595.01 be applied against their existing and
future tax liabilities. Not having acted upon the claim for tax credit, respondents
filed a petition for review on the ground that Mitsubishi was a mere agent of
Eximbank, which is a financing institution owned, controlled and financed by
the Japanese Government. Such governmental status of Eximbank, if it may be
so called, is the basis for private respondents claim for exemption from paying
the tax on the interest payments on the loan as earlier stated pursuant to Sec. 29
(b) (7) (A) of the NIRC.
ISSUE:
Whether or not the interest income from the loans extended to Atlas by
Mitsubishi is excludible from gross income taxation pursuant to Section 29 b)
(7) (A) and, therefore, exempt from withholding tax.
RULING:
NO. The loans and contracts are strictly between Mitsubishi and Atlas.
The subject of the 15% withholding tax is not the interest income paid by
Mitsubishi to Exim Bank but the interest income earned by the former from its
loan to Atlas. Hence, private respondents are not even among the entities which,
under Section 29 (b) (7) (A), are entitled to exemption and which should
indispensably be the party in interest in this case.
Further, it has been settled that laws granting exemption from tax are
construed strictissimi juris against the taxpayer and liberally in favor of the
taxing power. Taxation is the rule and exemption is the exception. The burden of
proof rests upon the party claiming exemption to prove that it is in fact covered
by the exemption so claimed, which onus petitioners have failed to discharge.
Commissioner of Internal Revenue vs British Overseas Airways
Corporation
FACTS:
British Overseas Airways Corporation (BOAC) is a 100% British
Government-owned corporation organized and existing under the laws of the
United Kingdom. BOAC 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.
On May 7, 1968 CIR assessed BOAC with P2,498,358.56 for deficiency
income taxes covering the years 1959 to 1963. BOAC protested. Investigation
resulted to an assessment in the amount of P858,307.79 covering the years 1959
to 1967. BOAC paid this new assessment under protest. BOAC filed a claim for
refund in the amount of P858,307.79 with the CIR. However, BOAC did not
wait for the decision of the CIR, filed petition for review with the tax court.
Thereafter, CIR denied claim for refund.
On November 17, 1971 CIR assessed BOAC with 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).BOAC in a letter requested that the assessment to
countermanded and set aside. CIR denied the request and reissued the
deficiency income tax assessment for P534,132.08 for the years1969 to 1970-71
plus P1,000.00 as compromise penalty under Section 74 of the Tax Code.
BOAC asked for reconsideration but CIR denied the same. BOAC filed a 2nd
petition for review with the tax court. The 2 cases before the CTA were
consolidated Tax Court rendered the assailed joint Decision reversing the CIR.
Its position was that income from transportation is income from services so that
the place where services are rendered determines the source. It further 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 sinceno
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.
ISSUE:
Whether or not during the fiscal years in question BOAC is a resident
foreign corporation doing business in the Philippines or has an office or place of
business in the Philippines.
Whether proceeds from the sale of BOAC tickets in the Philippines by
Warner Barnes and Company, Ltd are considered income from sources within
the Philippines
RULING:
1. Yes. The Court rule that 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. 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.
2. Yes. The test of taxability is the source; and the source of an income is that
activity ... which produced the income. Unquestionably, the passage
documentations in these cases were sold in the Philippines and the revenue
therefrom was derived from an activity regularly pursued within the Philippines.
Even if the BOAC tickets sold covered the transport of passengers and cargo to
and from foreign cities, 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.
1. Yes. For the retirement benefits to be exempt from withholding tax, the
taxpayer is burdened to prove the concurrence of the following: a) a reasonable
private benefit plan maintained by the employer; b) the retiring official or
employer has been in the service of the same employer for at least ten (10)
years; c) the retiring official or employee is not less than fifty (50) years of age
of his retirement; and d) the benefit had been availed of only once. More so,
there is no evidence on record that the 1993 CBA had been approved or was
ever presented to the BIR. Hence, the retirement benefits of the respondents are
taxable.
2. Yes. The agreement to pay the taxes on the retirement benefits had been
agreed upon by the parties and relied upon by the respondents. Such agreement
is not contrary to law or to public morals. For petitioner to renege on its contract
simply because its new management had found the same disadvantageous
would amount to a breach of contract. The well-entrenched rule is that estoppel
may arise from a making a promise if it was intended that the promise be relied
upon and in fact, was relied upon and if a refusal to sanction the perpetration of
fraud would result to injustice. The mere omission by the promisor to do
whatever he promises is sufficient forbearance to give rise to a promissory
estoppel.