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Commissioner vs. British Overseas Airways Corp. GR L-65773-74, 30 April 1987 Facts: British Overseas Airways Corp. (BOAC) is a 100% British Government-owned corporation engaged in international airline business and is a member of the Interline Air Transport Association, and thus, it operates air transportation service and sells transportation tickets over the routes of the other airline members. From 1959 to 1972, BOAC had no landing rights for traffic purposes in the Philippines and thus did not carry passengers and/or cargo to or from the Philippines but maintained a general sales agent in the Philippines -- Warner Barnes & Co. Ltd., and later, Qantas Airway us -- which was responsible for selling BOAC tickets covering passengers and cargoes. The Commissioner of Internal Revenue assessed deficiency income taxes against BOAC. Issue: Whether the revenue derived by BOAC from ticket sales in the Philippines for air transportation, while having no landing rights in the Philippines, constitute income of BOAC from Philippine sources, and accordingly, taxable. Held: The source of an income is the property, activity or service that produced the income. For the source of income to be considered as coming from the Philippines, it is sufficient that the income is derived from activity within the Philippines. Herein, the sale of tickets in the Philippines is the activity that produced the income. The tickets exchanged hands here and payments for fares were also made here in Philippine currency. The situs of the source of payments is the Philippines. The flow of wealth proceeded from, and occurred within, Philippine territory, enjoying the protection accorded by the Philippine Government. In consideration of such protection, the flow of wealth should share the burden of supporting the government. PD 68, in relation to PD 1355, ensures that international airlines are taxed on their income from Philippine sources. The 2 1/2 %tax on gross billings is an income tax. If it had been intended as an excise or percentage tax, it would have been placed under Title V of the Tax Code covering taxes on business.
MAdrigal vs Rafferty, 38 Phil 414 G.R. No. L-12287 August7,1918 FACTS: Vicente Madrigal and Susana Paterno legally contracted marriage prior to January 1, 1914 under the provisions of law concerning conjugal partnerships (sociedad degananciales). On February 25, 1915, Vicente Madrigal filed sworn declaration on the prescribed form with the Collector of Internal Revenue, showing, as his total net income for the year 1914, the sum of P296, 302.73. Subsequently Madrigal submitted the claim that the said P296,302.73 did not represent his income for the year 1914, but was in fact the income of the conjugal partnership existing between himself and his wife Susana Paterno, and that in computing and assessing the additional income tax provided by the Act of Congress of October 3, 1913, the income declared byVicente Madrigal should be divided into two equal parts, one-half to be considered the income of Vicente Madrigal and the other half of Susana Paterno. The general question had in the meantime been submitted to the Attorney-General of the Philippine Islands who in an opinion dated March17, 1915, held with the petitioner Madrigal. The revenue officers forwarded the correspondence with the opinion of the Attorney-General to Washington for a decision by the United States Treasury Department. The United States Commissioner of Internal Revenue reversed the opinion of the Attorney-General, and thus decided against the claim of Madrigal. ISSUE:
Whether or not the additional income tax should be divided into two equal parts because of the conjugal partnership existing between Vicente Madrigal and Susana Paterno. HELD: The counter contentions of appellees are that the taxes imposed by the Income Tax Law are taxes upon income tax and not upon capital and property; that the fact that Madrigal was a married man, and his marriage contracted under the provisions governing the conjugal partnership, has no bearing on income considered as income, and that the distinction must be drawn between the ordinary form of commercial partnership and the conjugal partnership of spouses resulting from the relation of marriage.” The income of husband and wife should be taken as a whole for the purpose of the normal tax regardless as to whether from separate estates or not. Judgment affirmed, costs against appellants.
PASCUAL v. Commissioner of InternalRevenue G.R. No. 78133 October 18, 1988 FACTS: On June 22, 1965, petitioners bought two (2) parcels of land from Santiago Bernardino, et al. and on May 28, 1966, they bought another three (3) parcels of land from Juan Roque. The first two parcels of land were sold by petitioners in 1968 to Marenir Development Corporation, while the three parcels of land were sold by petitioners to Erlinda Reyes and Maria Samson on March 19, 1970. Petitioner realized a net profit in the sale made in 1968 in the amount of P165, 224.70, while they realized a net profit of P60,000 in the sale made in 1970. The corresponding capital gains taxes were paid by petitioners in 1973 and 1974 .Respondent Commissioner informed petitioners that in the years 1968 and 1970, petitioners as co-owners in the real estate transactions formed an unregistered partnership or joint venture taxable as a corporation under Section 20(b)and its income was subject to the taxes prescribed under Section 24, both of the National Internal Revenue Code; that the unregistered partnership was subject to corporate income tax as distinguished from profits derived from the partnership by them which is subject to individual income tax. ISSUE: Whether petitioners formed an unregistered partnership subject to corporate income tax(partnership vs. co-ownership) RULING: Article 1769 of the new Civil Code lays down the rule for determining when a transaction should be deemed a partnership or a co-ownership. Said article paragraphs 2 and 3, provides:(2) Co-ownership or co-possession does not itself establish a partnership, whether such co-owners or co-possessors do or do not share any profits made by the use of the property; (3) The sharing of gross returns does not of itself establish a partnership, whether or not the persons sharing them have a joint or common right or interest in any property from which the returns are derived; The sharing of returns does not in itself establish a partnership whether or not the persons sharing therein have a joint or common right or interest in the property. There must bea clear intent to form a partnership,
the existence of a juridical personality different from the individual partners, and the freedom of each party to transfer or assign the whole property. In the present case, there is clear evidence of co-ownership between the petitioners. There is no adequate basis to support the proposition that they thereby formed an unregistered partnership. The two isolated transactions whereby they purchased properties and sold the same a few years thereafter did not thereby make them partners. They shared in the gross profits as co- owners and paid their capital gains taxes on their net profits and availed of the tax amnesty thereby. Under the circumstances, they cannot be considered to have formed an unregistered partnership which is thereby liable for corporate income tax, as the respondent commissioner proposes. And even assuming for the sake of argument that such unregistered partnership appears to have been formed, since there is no such existing unregistered partnership with a distinct personality nor with assets that can be held liable for said deficiency corporate income tax, then petitioners can be held individually liable as partners for this unpaid obligation of the partnership.
CONWI VS. COURT OF TAX APPEALS G.R. L-48532, AUGUST 31, 1992
FACTS: Petitioners are Filipino citizens and employees of Procter and Gamble Philippines. Said corporation is a subsidiary of Procter & Gamble, a foreign corporation based in the US. During the years 1970 and 1971 petitioners were assigned, for certain periods, to other subsidiaries of Procter & Gamble, outside of the Philippines, during which petitioners were paid U.S. dollars as compensation for services in their foreign assignments. When petitioners filed their income tax returns for the year 1970, they computed the tax due by applying the dollar-to-peso conversion on the basis of the floating rate. However, in 1973, petitioners filed with the CIR, amended income tax returns for the abovementioned years, this time using the par value of the peso pursuant to CB Circular No. 289 as the basis for converting their respective dollar income into Philippine pesos for purposes of computing and paying the corresponding income tax due from them. The aforesaid computation as shown in the amended income tax returns resulted in the alleged overpayments, refund and/or tax credit. Accordingly, claims for refund of said over-payments were filed with respondent Commissioner. CTA agreed with CIR’s contention that the proper rate of conversion of petitioners' dollar earnings for tax purposes is the prevailing free market rate of exchange and not the par value of the peso. Petitioners contend that since their dollar earnings do not fall within the classification of foreign exchange transactions and thus, not included in the coverage of CB Circular No. 289 which provides for specific instances when the par value of the peso shall not be the conversion rate used, their earnings should be converted for income tax purposes using the par value. ISSUE: Whether petitioner’s dollar earnings should be computed using the par value?
HELD: NO. CB Circular No. 289 shows that the subject matters involved therein are export products, invisibles, receipts of foreign exchange, foreign exchange payments, new foreign borrowing and investments - nothing by way of income tax payments. Thus, petitioners are in error by concluding that since C.B. Circular No. 289 does not apply to them, the par value of the peso should be the guiding rate used for income tax purposes. The dollar earnings of petitioners are the fruits of their labors in the foreign subsidiaries of Procter & Gamble. It was a definite amount of money which came to them within a specified period of time of two years as payment for their services. The law provides that a tax imposed upon the taxable net income received during each taxable year from all sources by every individual, whether a citizen of the Philippines residing therein or abroad or an alien residing in the Philippines, determined in accordance with the schedule. The earnings must be computed based on the uniform rate of exchange from US dollars to pesos for internal revenue tax purposes for the years 1970 and 1971. They are not exempted from this. Petitioners forget that they are citizens of the Philippines, and their income, within or without, and in these cases wholly without, are subject to income tax. Since petitioners already paid in accordance with the uniform rate, there is no reason for CIR to refund any taxes.
MAdrigal vs Rafferty, 38 Phil 414 G.R. No. L-12287 August7,1918 FACTS: Vicente Madrigal and Susana Paterno legally contracted marriage prior to January 1, 1914 under the provisions of law concerning conjugal partnerships (sociedad degananciales). On February 25, 1915, Vicente Madrigal filed sworn declaration on the prescribed form with the Collector of Internal Revenue, showing, as his total net income for the year 1914, the sum of P296, 302.73. Subsequently Madrigal submitted the claim that the said P296,302.73 did not represent his income for the year 1914, but was in fact the income of the conjugal partnership existing between himself and his wife Susana Paterno, and that in computing and assessing the additional income tax provided by the Act of Congress of October 3, 1913, the income declared byVicente Madrigal should be divided into two equal parts, one-half to be considered the income of Vicente Madrigal and the other half of Susana Paterno. The general question had in the meantime been submitted to the Attorney-General of the Philippine Islands who in an opinion dated March17, 1915, held with the petitioner Madrigal. The revenue officers forwarded the correspondence with the opinion of the Attorney-General to Washington for a decision by the United States Treasury Department. The United States Commissioner of Internal Revenue reversed the opinion of the Attorney-General, and thus decided against the claim of Madrigal. ISSUE:
Whether or not the additional income tax should be divided into two equal parts because of the conjugal partnership existing between Vicente Madrigal and Susana Paterno. HELD: The counter contentions of appellees are that the taxes imposed by the Income Tax Law are taxes upon income tax and not upon capital and property; that the fact that Madrigal was a married man, and his marriage contracted under the provisions governing the conjugal partnership, has no bearing on income considered as income, and that the distinction must be drawn between the ordinary form of commercial partnership and the conjugal partnership of spouses resulting from the relation of marriage.” The income of husband and wife should be taken as a whole for the purpose of the normal tax regardless as to whether from separate estates or not. Judgment affirmed, costs against appellants.
PASCUAL v. Commissioner of InternalRevenue G.R. No. 78133 October 18, 1988 FACTS: On June 22, 1965, petitioners bought two (2) parcels of land from Santiago Bernardino, et al. and on May 28, 1966, they bought another three (3) parcels of land from Juan Roque. The first two parcels of land were sold by petitioners in 1968 to Marenir Development Corporation, while the three parcels of land were sold by petitioners to Erlinda Reyes and Maria Samson on March 19, 1970. Petitioner realized a net profit in the sale made in 1968 in the amount of P165, 224.70, while they realized a net profit of P60,000 in the sale made in 1970. The corresponding capital gains taxes were paid by petitioners in 1973 and 1974 .Respondent Commissioner informed petitioners that in the years 1968 and 1970, petitioners as co-owners in the real estate transactions formed an unregistered partnership or joint venture taxable as a corporation under Section 20(b)and its income was subject to the taxes prescribed under Section 24, both of the National Internal Revenue Code; that the unregistered partnership was subject to corporate income tax as distinguished from profits derived from the partnership by them which is subject to individual income tax. ISSUE: Whether petitioners formed an unregistered partnership subject to corporate income tax(partnership vs. co-ownership) RULING: Article 1769 of the new Civil Code lays down the rule for determining when a transaction should be deemed a partnership or a co-ownership. Said article paragraphs 2 and 3, provides:(2) Co-ownership or co-possession does not itself establish a partnership, whether such co-owners or co-possessors do or do not share any profits made by the use of the property; (3) The sharing of gross returns does not of itself establish a partnership, whether or not the persons sharing them have a joint or common right or interest in any property from which the returns are derived; The sharing of returns does not in itself establish a partnership whether or not the persons sharing therein have a joint or common right or interest in the property. There must bea clear intent to form a partnership,
the existence of a juridical personality different from the individual partners, and the freedom of each party to transfer or assign the whole property. In the present case, there is clear evidence of co-ownership between the petitioners. There is no adequate basis to support the proposition that they thereby formed an unregistered partnership. The two isolated transactions whereby they purchased properties and sold the same a few years thereafter did not thereby make them partners. They shared in the gross profits as co- owners and paid their capital gains taxes on their net profits and availed of the tax amnesty thereby. Under the circumstances, they cannot be considered to have formed an unregistered partnership which is thereby liable for corporate income tax, as the respondent commissioner proposes. And even assuming for the sake of argument that such unregistered partnership appears to have been formed, since there is no such existing unregistered partnership with a distinct personality nor with assets that can be held liable for said deficiency corporate income tax, then petitioners can be held individually liable as partners for this unpaid obligation of the partnership.
CONWI VS. COURT OF TAX APPEALS G.R. L-48532, AUGUST 31, 1992
FACTS: Petitioners are Filipino citizens and employees of Procter and Gamble Philippines. Said corporation is a subsidiary of Procter & Gamble, a foreign corporation based in the US. During the years 1970 and 1971 petitioners were assigned, for certain periods, to other subsidiaries of Procter & Gamble, outside of the Philippines, during which petitioners were paid U.S. dollars as compensation for services in their foreign assignments. When petitioners filed their income tax returns for the year 1970, they computed the tax due by applying the dollar-to-peso conversion on the basis of the floating rate. However, in 1973, petitioners filed with the CIR, amended income tax returns for the abovementioned years, this time using the par value of the peso pursuant to CB Circular No. 289 as the basis for converting their respective dollar income into Philippine pesos for purposes of computing and paying the corresponding income tax due from them. The aforesaid computation as shown in the amended income tax returns resulted in the alleged overpayments, refund and/or tax credit. Accordingly, claims for refund of said over-payments were filed with respondent Commissioner. CTA agreed with CIR’s contention that the proper rate of conversion of petitioners' dollar earnings for tax purposes is the prevailing free market rate of exchange and not the par value of the peso. Petitioners contend that since their dollar earnings do not fall within the classification of foreign exchange transactions and thus, not included in the coverage of CB Circular No. 289 which provides for specific instances when the par value of the peso shall not be the conversion rate used, their earnings should be converted for income tax purposes using the par value. ISSUE: Whether petitioner’s dollar earnings should be computed using the par value?
HELD: NO. CB Circular No. 289 shows that the subject matters involved therein are export products, invisibles, receipts of foreign exchange, foreign exchange payments, new foreign borrowing and investments - nothing by way of income tax payments. Thus, petitioners are in error by concluding that since C.B. Circular No. 289 does not apply to them, the par value of the peso should be the guiding rate used for income tax purposes. The dollar earnings of petitioners are the fruits of their labors in the foreign subsidiaries of Procter & Gamble. It was a definite amount of money which came to them within a specified period of time of two years as payment for their services. The law provides that a tax imposed upon the taxable net income received during each taxable year from all sources by every individual, whether a citizen of the Philippines residing therein or abroad or an alien residing in the Philippines, determined in accordance with the schedule. The earnings must be computed based on the uniform rate of exchange from US dollars to pesos for internal revenue tax purposes for the years 1970 and 1971. They are not exempted from this. Petitioners forget that they are citizens of the Philippines, and their income, within or without, and in these cases wholly without, are subject to income tax. Since petitioners already paid in accordance with the uniform rate, there is no reason for CIR to refund any taxes.
