TAXATION 1 | B2015

CASE DIGESTS

CIR vs. BOAC a. BOAC was still able to sell tickets in

April 30, 1987 the Philippines
J. Melencio-Herrera 4. 2 cases arise from the assessment
Mabel Africa a. First case CIR protested the amount
a new assessment amount was
SUMMARY: The CIR made an assessment of BOACs deficiency given income BOAC
taxes. paid covered
The period the new by the
disputed assessments included the time when BOAC had no landingassessment rights in the under protest
Philippines BOAC
but still maintained
a general sales agent. BOAC protested the computed amounts. CIR askedthenfor refund anew
produced CIRassessment
denied thewhich
BOAC paid under protest. BOAC then demanded a refund but was denied. petitionThe for Tax
refund
Court subsequently reversed
the CIR decision on the ground that the sales of BOAC passage b. Second
tickets incase the Philippines
BOAC was do assessed
not constitute
deficiency
income from the Philippines, and thus, is not subject to Philippine income tax. income taxes, decision
This Tax Court interests,
is being
assailed in the case at bar. The SC set aside this Tax Court decision and and penalty BOAC
concluded thatrequested
since the that
source of
income is made in the Philippines, it is covered by our tax laws. the assessment be countermanded &
set aside CIR denied the request
DOCTRINE: The tax imposed upon BOAC is an excise tax, and suchBOAC can be filed the by
levied second caseonly
the State before thethe
when
Tax court
acts, privileges or businesses are done or performed within the jurisdiction requesting
of the to be
Philippines. Theabsolved
test of
from
taxability is the source; and the source of an income is that activity liability
which produced the income.
5. Tax Court decision
FACTS: a. Reversed the CIR
1. BOAC 100% British Government-owned b. Held that the sale of tickets in the
corporation; international airline business Philippines is not subject to Philippine
that operates air transportation service & income tax because the source of
sells transportation tickets income is not the Philippines since
2. CIR assessed BOAC BOAC had no service of carriage of
a. Included in the assessment periods passengers or freight was performed
when BOAC had no landing rights in in the country
the Philippines because a Certificate 6. Petition for Review on certiorari of the
of Public Convenience has not been decision of the tax court
granted by the Civil Aeronautics Board
3. But during that period when BOAC had no ISSUES: Whether or not the revenue from sales of
landing rights, they maintained a general tickets by BOAC in the Philippines constitutes
sales agent in the Philippines income from Philippine sources and, accordingly,
taxable under our income tax laws.

RATIO: Yes, it is covered by the Philippine tax
laws since the source of income is the Philippines.
RULING:
1. Due to the continuity of commercial
dealings on BOAC in the Philippines, it is
deemed a resident foreign corporation. This
is pursuant to Section 20 of the 1977 Tax
Code.
2. The regular sale of tickets is the main
income-generating activity of BOAC. This
activity is done in the Philippines. Hence,
BOACs income was derived from the
Philippines. Therefore, it is taxable.
a. The flow of wealth proceeded from,
and occurred within, Philippine
territory, enjoying the protection
accorded by the Philippine
government. Inconsideration of such
protection, the flow of wealth should
share the burden of supporting the
government.
3. The absence of flight operations in the
Philippines is not an element of BOACs
income tax.
DISPOSITIVE: Wherefore, the appealed joint
Decision of the Court of Tax Appeals is hereby SET
ASIDE. Private respondent, the BOAC, is hereby
ordered to pay the amount of P534,132.08 as
deficiency income tax for the fiscal years 1968-69
TAXATION 1 | B2015
CASE DIGESTS
to 1970-71 plus 5% surcharge, and 1% monthly
interest from April 16, 1972 for a period not to
exceed of P858,307.79 is hereby denied. Without
costs.
DISSENTING OPINION: J. Feliciano
The statute presently applicable to
international carriers is Section 24 (b)(2) of
the Tax Code, as amended by PD 69 & PD
1355
o international carriers shall pay a
tax of 2 % of their gross Philippine
billings
Under this statute, the basis of billings shall
be the passengers & cargo originating from
the Philippines, regardless of their
embarkation & debarkation place.
2 % is a tax on gross receipts and not an
income tax
The Tax Court decision shall be affirmed
CONCURRING OPINION: CJ Teehankee
Agrees that the assessments of deficiency
income taxes made by the CIR shall be
upheld
J. Felicianos dissent regarding the proper
characterization of the taxable income is
already moot by PD 69, the rate of income
tax on foreign corporations (BOAC included)
has been reduced to 2 % as well. There is
no longer substantial difference.