Case No.

126

G.R. No. 180356 February 16, 2010

SOUTH AFRICAN AIRWAYS, Petitioner,

vs.
COMMISSIONER OF INTERNAL REVENUE, Respondent.

Facts:

South African Airways is a foreign corporation organized and existing under and by virtue of the laws of the
Republic of South Africa. In the Philippines, it is an internal air carrier having no landing rights in the country. South
African Airways, however, has a general sales agent in the Philippines, Aerotel. Aerotel sells passage documents for
compensation or commission for South African Airways’ off-line flights for the carriage of passengers and cargo between
ports or points outside the territorial jurisdiction of the Philippines. South African Airways filed income tax returns and
paid tax on its Gross Philippine Billings (GPB).

Thereafter, South African Airways, however, subsequently claim for refund contending that it was not liable to
pay tax on its GPB.

CTA denied the claim on the ground that petitioner is a resident foreign corporation engaged in trade or
business in the Philippines. It further ruled that petitioner was not liable to pay tax on its GPB under Section 28(A)(3)(a)
of the National Internal Revenue Code (NIRC) of 1997. The CTA, however, stated that petitioner is liable to pay a tax of
32% on its income derived from the sales of passage documents in the Philippines.

Issue:

Whether or not petitioner is entitled to a refund or a tax credit of erroneously paid tax on Gross Philippine
Billings for the taxable year 2000.

Ruling:

Sec. 28(A)(1) of the 1997 NIRC is a general rule that resident foreign corporations are liable for 32% tax on all
income from sources within the Philippines. Sec. 28(A)(3) is an exception to this general rule.

The general rule is that resident foreign corporations shall be liable for a 32% income tax on their income from
within the Philippines, except for resident foreign corporations that are international carriers that derive income "from
carriage of persons, excess baggage, cargo and mail originating from the Philippines" which shall be taxed at 2 1/2% of
their Gross Philippine Billings. Petitioner, being an international carrier with no flights originating from the Philippines,
does not fall under the exception. As such, petitioner must fall under the general rule. This principle is embodied in the
Latin maxim, exception firmat regulam in casibus non exceptis, which means, a thing not being excepted must be
regarded as coming within the purview of the general rule.

To reiterate, the correct interpretation of the above provisions is that, if an international air carrier maintains
flights to and from the Philippines, it shall be taxed at the rate of 2 1/2% of its Gross Philippine Billings, while
international air carriers that do not have flights to and from the Philippines but nonetheless earn income from other
activities in the country will be taxed at the rate of 32% of such income.