mitsubishi metals

7/29/2019 Mitsubishi Metals

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Mitsubishi Metals (DIGESTED)

Facts: Atlas Consolidated Mining and Development Corporation, a domestic corporation, entered into a Loan and SalesContract with

Mitsubishi Metal Corporation, a Japanese corporation licensed to engage in business in the Philippines.To be able to extend the loan to Atlas,

Mitsubishi entered into another loan agreement with Export-Import Bank (Eximbank), a financing institution owned, controlled, and financed

by the Japanese government. After makinginterest payments to Mitsubishi, with the corresponding 15% tax thereon remitted to the

Government of thePhilippines, Altas claimed for tax credit with the Commissioner of Internal Revenue based on Section 29(b)(7)(A)

of TAXATION LAW DIGESTS FOR CASES SUGGESTED BY EXCELLENT5 5the National Internal Revenue Code, stating that since Eximbank, and not

Mitsubishi, is where the money for the loanoriginated from Eximbank, then it should be exempt from paying taxes on its loan thereon.Issues and Ruling:1. W/N the interest income from the loans extended to Atlas by Mitsubishi is excludible from gross incometaxation.NO.

Mitsubishi secured the loan from Eximbank in its own independent capacity as a private entity and not as aconduit of Eximbank. Therefore,

what the subject of the 15% withholding tax is not the interest income paid by Mitsubishi to Eximbank, but the interest income earned by

Mitsubishi from the loan to Atlas. Thus, it does not come within the ambit of Section 29(b)(7)(A), and it is not exempt from the payment of

taxes

TUASON V. LINGAD (TAX)

Facts: In 1948 the petitioner inherited from his mother several tracts of land, among which were two contiguous parcels situated on Pureza and

Sta. Mesa streets in Manila, with an area of 318 and 67,684 square meters, respectively.

When the petitioner's mother was yet alive she had these two parcels subdivided into twenty-nine lots. Twenty-eight were allocated to their

then occupants who had lease contracts with the petitioner's predecessor at various times from 1900 to 1903, which contracts expired on

December 31, 1953. The 29th lot (hereinafter referred to as Lot 29), with an area of 48,000 square meters, more or less, was not leased to any

person. It needed filling because of its very low elevation, and was planted to kangkong and other crops.

After the petitioner took possession of the mentioned parcels in 1950, he instructed his attorney-in-fact, J. Antonio Araneta, to sell them.

There was no difficulty encountered in selling the 28 small lots as their respective occupants bought them on a 10-year installment basis. Lot 29could not however be sold immediately due to its low elevation.

Sometime in 1952 the petitioner's attorney-in-fact had Lot 29 filled, then subdivided into small lots and paved with macadam roads. The small

lots were then sold over the years on a uniform 10-year annual amortization basis. J. Antonio Araneta, the petitioner's attorney-in-fact, did not

employ any broker nor did he put up advertisements in the matter of the sale thereof.

In 1953 and 1954 the petitioner reported his income from the sale of the small lots (P102,050.79 and P103,468.56, respectively) as long-term

capital gains. On May 17, 1957 the Collector of Internal Revenue upheld the petitioner's treatment of his gains from the said sale of small lots,

against a contrary ruling of a revenue examiner.

In his 1957 tax return the petitioner as before treated his income from the sale of the small lots (P119,072.18) as capital gains and included only

thereof as taxable income. In this return, the petitioner deducted the real estate dealer's tax he paid for 1957. It was explained, however,

that the payment of the dealer's tax was on account of rentals received from the mentioned 28 lots and other properties of the petitioner. On

the basis of the 1957 opinion of the Collector of Internal Revenue, the revenue examiner approved the petitioner's treatment of his income

from the sale of the lots in question. In a memorandum dated July 16, 1962 to the Commissioner of Internal Revenue, the chief of the BIR

Assessment Department advanced the same opinion, which was concurred in by the Commissioner of Internal Revenue.

On January 9, 1963, however, the Commissioner reversed himself.

Issue: Whether or not the properties in question which the petitioner had inherited and subsequently sold in small lots to other persons should

be regarded as capital assets.As thus defined by law, CAPITAL ASSETS include all properties of a taxpayer whether or not connected with his trade or business, except:

stock in trade or other property included in the taxpayer's inventory;

property primarily for sale to customers in the ordinary course of his trade or business;

property used in the trade or business of the taxpayer and subject to depreciation allowance; and

real property used in trade or business.

If the taxpayer sells or exchanges any of the properties above, any gain or loss relative thereto is an ordinary gain or an ordinary loss; the loss or

gain from the sale or exchange of all other properties of the taxpayer is a capital gain or a capital loss.

Under Section 34(b)(2) of the Tax Code, if a gain is realized by a taxpayer (other than a corporation) from the sale or exchange of capital assets

held for more than 12 months, only 50% of the net capital gain shall be taken into account in computing the net income.

The Tax Code's provisions on so-called long-term capital gains constitutes a statute of partial exemption. In view of the familiar and settled rule

that tax exemptions are construed in strictissimi juris against the taxpayer and liberally in favor of the taxing authority, it is the taxpayer's

burden to bring himself clearly and squarely within the terms of a tax-exempting statutory provision, otherwise, all fair doubts will be resolved

against him.

In the case at bar, after a thoroughgoing study of all the circumstances, this Court is of the view and so holds that petitioner's thesis is bereft of

merit. Under the circumstances, petitioner's sales of the several lots forming part of his rental business cannot be characterized as other than

sales of non-capital assets. the sales concluded on installment basis of the subdivided lots do not deserve a different characterization for tax

purposes.

This Court finds no error in the holding that the income of the petitioner from the sales of the lots in question should be considered as ordinary

income.

CIR V. RUFINO (TAX)

Facts:The private respondents were the majority stockholders of the defunct Eastern Theatrical Co., Inc., a corporation organized in 1934, for a

period of twenty-five years terminating on January 25, 1959. It had an original capital stock of P500,000.00, which was increased in 1949 to

P2,000,000.00, divided into 200,000 shares at P10.00 per share, and was organized to engage in the business of operating theaters, opera

houses, places of amusement and other related business enterprises, more particularly the Lyric and Capitol Theaters in Manila. The President

of this corporation (hereinafter referred to as the Old Corporation) during the year in question was Ernesto D. Rufino.


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The private respondents are also the majority and controlling stockholders of another corporation, the Eastern Theatrical Co Inc., which was

organized on December 8, 1958, for a term of 50 years, with an authorized capital stock of P200,000.00, each share having a par value of

P10.00. This corporation is engaged in the same kind of business as the Old Corporation. The General-Manager of this corporation (hereinafter

referred to as the New Corporation) at the time was Vicente A. Rufino.

In a special meeting of stockholders of the Old Corporation on December 17, 1958, to provide for the continuation of its business after the end

of its corporate life, and upon the recommendation of its board of directors, a resolution was passed authorizing the Old Corporation to merge

with the New Corporation by transferring its business, assets, goodwill, and liabilities to the latter, which in exchange would issue and distribute

to the shareholders of the Old Corporation one share for each share held by them in the said Corporation.

It was expressly declared that the merger of the Old Corporation with the New Corporation was necessary to continue the exhibition of movingpictures at the Lyric and Capitol Theaters even after the expiration of the corporate existence of the former, in view of its pending booking

contracts, not to mention its collective bargaining agreements with its employees.

Issue: Whether or not the merger was formed to evade the capital gains tax.

NO.We sustain the CTA. We hold that it did not err in finding that no taxable gain was derived by private respondent from the questioned

transaction.

Contrary to the claim of the petitioner, there was a valid merger although the actual transfer of the properties subject of the Deed of

Assignment was not made on the date of the merger. In the nature of things, this was not possible. Obviously, it was necessary for the Old

Corporation to surrender its net assets first to the New Corporation before the latter could issue its own stock to the shareholders of the Old

Corporation because the New Corporation had to increase its capitalization for this purpose..

The Court finds no impediment to the exchange of property for stock between the two corporations being considered to have been effected on

the date of the merger. The certificates of stock subsequently delivered by the New Corporation to the private respondents were only evidence

of the ownership of such stocks. Although these certificates could be issued to them only after the approval by the SEC of the increase in

capitalization of the New Corporation, the title thereto, legally speaking was transferred to them on the date the merger took effect, in

accordance with the Deed of Assignment.

The basic consideration of course, is the purpose of the merger, as this would determine whether the exchange of properties involved thereinshall be subject or not to the capital gains tax. The criterion laid down by the law is that the merger must be undertaken for a bona fide

business purpose and not solely for the purpose of escaping the burden of taxation.

It has been suggested that one certain indication of a scheme to evade the capital gains tax is the subsequent dissolution of the new

corporation after the transfer to it of the properties of the old corporation and the liquidation of the former soon after.

We see no such furtive intention in the instant case. It is clear, in fact, that the purpose of the merger was to continue the business of the Old

Corporation, whose corporate life was about to expire, through the New Corporation to which all the assets and obligations of the former had

been transferred. what argues strongly, indeed, for the New Corporation is that it was not dissolved after the merger. On the contrary, it

continued to operate the places of amusement originally owned by the Old Corporation.

Our ruling then is that the merger in question involved a pooling of resources aimed at the continuation and expansion of business and so came

under the letter and intendment of the NIRC, as amended, exempting from the capital gains tax of property affected under lawful corporate

combinations.

Gregory vs Helvering

Facts: The private respondents were the majority stockholders of the defunct Eastern Theatrical Co., Inc., a corporation organized in 1934, for a

period of twenty-five years terminating on January 25, 1959. It had an original capital stock of P500,000.00, which was increased in 1949 to

P2,000,000.00, divided into 200,000 shares at P10.00 per share, and was organized to engage in the business of operating theaters, operahouses, places of amusement and other related business enterprises, more particularly the Lyric and Capitol Theaters in Manila. The President

of this corporation (hereinafter referred to as the Old Corporation) during the year in question was Ernesto D. Rufino.

The private respondents are also the majority and controlling stockholders of another corporation, the Eastern Theatrical Co Inc., which was

organized on December 8, 1958, for a term of 50 years, with an authorized capital stock of P200,000.00, each share having a par value of

P10.00. This corporation is engaged in the same kind of business as the Old Corporation. The General-Manager of this corporation (hereinafter

referred to as the New Corporation) at the time was Vicente A. Rufino.

In a special meeting of stockholders of the Old Corporation on December 17, 1958, to provide for the continuation of its business after the end

of its corporate life, and upon the recommendation of its board of directors, a resolution was passed authorizing the Old Corporation to merge

with the New Corporation by transferring its business, assets, goodwill, and liabilities to the latter, which in exchange would issue and distribute

to the shareholders of the Old Corporation one share for each share held by them in the said Corporation.

It was expressly declared that the merger of the Old Corporation with the New Corporation was necessary to continue the exhibition of moving

pictures at the Lyric and Capitol Theaters even after the expiration of the corporate existence of the former, in view of its pending booking

contracts, not to mention its collective bargaining agreements with its employees.

Ruling: It is earnestly contended on behalf of the taxpayer that since every element required by [the statute] is to be found in what was done, a

statutory reorganization was effected; and that the motive of the taxpayer thereby to escape payment of a tax will not alter the result or make

unlawful what the statute allows. It is quite true that if a reorganization in reality was effected within the meaning of [the statute], the ulteriorpurpose mentioned will be disregarded. The legal right of a taxpayer to decrease the amount of what otherwise would be his [or her] taxes, or

altogether avoid them, by means which the law permits, cannot be doubted. [ . . . ] But the question for determination is whether what was

done, apart from the tax motive, was the thing which the statute intended. The reasoning of the court below [i.e., the reasoning of the Court of

Appeals] in justification of a negative answer leaves little to be said.

When [the statute] speaks of a transfer of assets by one corporation to another, it means a transfer made 'in pursuance of a plan of

reorganization' [ . . . ] of corporate business; and not a transfer of assets by one corporation to another in pursuance of a plan having no

relation to the business of either, as plainly is the case here. Putting aside, then, the question of motive in respect of taxation altogether, and

fixing the character of the proceeding by what actually occurred, what do we find? Simply an operation having no business or corporate

purpose-a mere device which put on the form of a corporate reorganization as a disguise for concealing its real character, and the sole object

and accomplishment of which was the consummation of a preconceived plan, not to reorganize a business or any part of a business, but to


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transfer a parcel of corporate shares to the petitioner. No doubt, a new and valid corporation was created. But that corporation was nothing

more than a contrivance to the end last described. It was brought into existence for no other purpose; it performed, as it was intended from

the beginning it should perform, no other function. When that limited function had been exercised, it immediately was put to death.

In these circumstances, the facts speak for themselves and are susceptible of but one interpretation. The whole undertaking, though conducted

according to the terms of [ the statute], was in fact an elaborate and devious form of conveyance masquerading as a corporate reorganization,

and nothing else. [ . . . T]he transaction upon its face lies outside the plain intent of the statute. To hold otherwise would be to exalt artifice

above reality and to deprive the statutory provision in question of all serious purpose.

CIR vs. MARUBENIFacts: CIR assails the CA decision which affirmed CTA, ordering CIR to desist from collecting the 1985 deficiency income, branch profit

remittance and contractors taxes from Marubeni Corp after finding the latter to hav e properly availed of the tax amnesty under EO 41 & 64, as

amended.

Marubeni, a Japanese corporation, engaged in general import and export trading, financing and construction, is duly registered in the

Philippines with Manila branch office. CIR examined the Manila branchs books of accounts for fiscal year ending March 1985, and found that

respondent had undeclared income from contracts with NDC and Philphos for construction of a wharf/port complex and ammonia storage

complex respectively.

On August 27, 1986, Marubeni received a letter from CIR assessing it for several deficiency taxes. CIR claims that the income respondent

derived were income from Philippine sources, hence subject to internal revenue taxes. On Sept 1986, respondent filed 2 petitions for review

with CTA: the first, questioned the deficiency income, branch profit remittance and contractors tax assessments and second q uestioned the

deficiency commercial brokers assessment.

On Aug 2, 1986, EO 41 declared a tax amnesty for unpaid income taxes for 1981-85, and that taxpayers who wished to avail this should on or

before Oct 31, 1986. Marubeni filed its tax amnesty return on Oct 30, 1986.

On Nov 17, 1986, EO 64 expanded EO 41s scope to include estate and donors taxes under Title 3 and business tax under Chap 2, Title 5 of

NIRC, extended the period of availment to Dec 15, 1986 and stated those who already availed amnesty under EO 41 should file an amendedreturn to avail of the new benefits. Marubeni filed a supplemental tax amnesty return on Dec 15, 1986.

CTA found that Marubeni properly availed of the tax amnesty and deemed cancelled the deficiency taxes. CA affirmed on appeal.

Issue:W/N Marubeni is exempted from paying tax

Held:Yes. On situs of taxation, Marubeni contends that assuming it did not validly avail of the amnesty, it is still not liable for the deficiency tax

because the income from the projects came from the Offshore Portion as opposed to Onshore Portion. It claims all materials and

equipment in the contract under the Offshore Portion were manufactured and completed in Japan, not in the Philippines, and are therefore

not subject to Philippine taxes.

Marubeni, however, was able to sufficiently prove in trial that not all its work was performed in the Philippines because some of them were

completed in Japan (and in fact subcontracted) in accordance with the provisions of the contracts. All services for the design, fabrication,

engineering and manufacture of the materials and equipment under Japanese Yen Portion I were made and completed in Japan. These services

were rendered outside Philippines taxing jurisdiction and are therefore not subject to contractors tax. Petition denied.

CIR vs CA GR L-54108

Facts: This case is about the refund of a 1971 income tax amounting to P324,255. Smith Kline and French Overseas Company, a multinational

firm domiciled in Philadelphia, Pennsylvania, is licensed to do business in the Philippines. It is engaged in the importation, manufacture and sale

of pharmaceuticals drugs and chemicals.In its 1971 original income tax return, Smith Kline declared a net taxable income of P1,489,277 (Exh. A) and paid P511,247 as tax due. Among

the deductions claimed from gross income was P501,040 ($77,060) as its share of the head office overhead expenses. However, in its amended

return filed on March 1, 1973, there was an overpayment of P324,255 "arising from underdeduction of home office overhead" (Exh. E). It made

a formal claim for the refund of the alleged overpayment.

It appears that sometime in October, 1972, Smith Kline received from its international independent auditors, Peat, Marwick, Mitchell and

Company, an authenticated certification to the effect that the Philippine share in the unallocated overhead expenses of the main office for the

year ended December 31, 1971 was actually $219,547 (P1,427,484). It further stated in the certification that the allocation was made on the

basis of the percentage of gross income in the Philippines to gross income of the corporation as a whole. By reason of the new adjustment,

Smith Kline's tax liability was greatly reduced from P511,247 to P186,992 resulting in an overpayment of P324,255.

On April 2, 1974, without awaiting the action of the Commissioner of Internal Revenue on its claim Smith Kline filed a petition for review with

the Court of Tax Appeals.

In its decision of March 21, 1980, the Tax Court ordered the Commissioner to refund the overpayment or grant a tax credit to Smith Kline. The

Commissioner appealed to this Court.

Held: Clearly, the weight of evidence bolsters its position that the amount of P1,427,484 represents the correct ratable share, the same having

been computed pursuant to section 37(b) and section 160.

In a manifestation dated July 19, 1983, Smith Kline declared that with respect to its share of the head office overhead expenses in its incometax returns for the years 1973 to 1981, it deducted its ratable share of the total overhead expenses of its head office for those years as

computed by the independent auditors hired by the parent company in Philadelphia, Pennsylvania U.S.A., as soon as said computations were

made available to it.

We hold that Smith Kline's amended 1971 return is in conformity with the law and regulations. The Tax Court correctly held that the refund or

credit of the resulting overpayment is in order.

PHIL. GUARANTY CO., INC. v. CIR

FACTS: The petitioner Philippine Guaranty Co., Inc., a domestic insurance company, entered into reinsurance

contracts with foreign insurance companies not doing business in the country, thereby ceding to foreign

reinsurers a portion of the premiums on insurance it has originally underwritten in the Philippines. The premiums


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paid by such companies were excluded by the petitioner from its gross income when it file its income tax returns

for 1953 and 1954. Furthermore, it did not withhold or pay tax on them. Consequently, the CIR assessed against

the petitioner withholding taxes on the ceded reinsurance premiums to which the latter protested the

assessment on the ground that the premiums are not subject to tax for the premiums did not constitute income

from sources within the Philippines because the foreign reinsurers did not engage in business in the Philippines,

and CIR's previous rulings did not require insurance companies to withhold income tax due from foreign

companies.

ISSUE: Are insurance companies not required to withhold tax on reinsurance premiums ceded to foreign

insurance companies, which deprives the government from collecting the tax due from them?HELD: No. The power to tax is an attribute of sovereignty. It is a power emanating from necessity. It is a

necessary burden to preserve the State's sovereignty and a means to give the citizenry an army to resist an

aggression, a navy to defend its shores from invasion, a corps of civil servants to serve, public improvement

designed for the enjoyment of the citizenry and those which come within the State's territory, and facilities and

protection which a government is supposed to provide. Considering that the reinsurance premiums in question

were afforded protection by the government and the recipient foreign reinsurers exercised rights and privileges

guaranteed by our laws, such reinsurance premiums and reinsurers should share the burden of maintaining the

state.

The petitioner's defense of reliance of good faith on rulings of the CIR requiring no withholding of tax due on

reinsurance premiums may free the taxpayer from the payment of surcharges or penalties imposed for failure to

pay the corresponding withholding tax, but it certainly would not exculpate it from liability to pay such

withholding tax. The Government is not estopped from collecting taxes by the mistakes or errors of its agents.

ALEXANDER HOWDEN vs CIR (UNDIGESTED)

In 1950 the Commonwealth Insurance Co., a domestic corporation, entered into reinsurance contracts with 32 British insurance companies notengaged in trade or business in the Philippines, whereby the former agreed to cede to them a portion of the premiums on insurances on fire,

marine and other risks it has underwritten in the Philippines. Alexander Howden & Co., Ltd., also a British corporation not engaged in business

in this country, represented the aforesaid British insurance companies. The reinsurance contracts were prepared and signed by the foreign

reinsurers in England and sent to Manila where Commonwealth Insurance Co. signed them.

Pursuant to the aforesaid contracts, Commonwealth Insurance Co., in 1951, remitted P798,297.47 to Alexander Howden & Co., Ltd., as

reinsurance premiums. In behalf of Alexander Howden & Co., Ltd., Commonwealth Insurance Co. filed in April 1952 an income tax return

declaring the sum of P798,297.47, with accrued interest thereon in the amount of P4,985.77, as Alexander Howden & Co., Ltd.'s gross income

for calendar year 1951. It also paid the Bureau of Internal Revenue P66,112.00 income tax thereon.

On May 12, 1954, within the two-year period provided for by law, Alexander Howden & Co., Ltd. filed with the Bureau of Internal Revenue a

claim for refund of the P66,112.00, later reduced to P65,115.00, because Alexander Howden & Co., Ltd. agreed to the payment of P977.00 as

income tax on the P4,985.77 accrued interest. A ruling of the Commissioner of Internal Revenue, dated December 8, 1953, was invoked, stating

that it exempted from withholding tax reinsurance premiums received from domestic insurance companies by foreign insurance companies not

authorized to do business in the Philippines. Subsequently, Alexander Howden & Co., Ltd. instituted an action in the Court of First Instance of

Manila for the recovery of the aforesaid amount claimed. Pursuant to Section 22 of Republic Act 1125 the case was certified to the Court of Tax

Appeals. On November 24, 1961 the Tax Court denied the claim.

Plaintiffs have appealed, thereby squarely raising the following issues: (1) Are portions of premiums earned from insurances locallyunderwritten by a domestic corporation, ceded to and received by non-resident foreign reinsurance companies, thru a non-resident foreign

insurance broker, pursuant to reinsurance contracts signed by the reinsurers abroad but signed by the domestic corporation in the Philippines,

subject to income tax or not? (2) If subject thereto, may or may not the income tax on reinsurance premiums be withheld pursuant to Sections

53 and 54 of the National Internal Revenue Code?

Section 24 of the National Internal Revenue Code subjects to tax a non-resident foreign corporation's income from sources within the

Philippines. The first issue therefore hinges on whether or not the reinsurance premiums in question came from sources within the Philippines.

Appellants would impress upon this Court that the reinsurance premiums came from sources outside the Philippines, for these reasons: (1) The

contracts of reinsurance, out of which the reinsurance premiums were earned, were prepared and signed abroad, so that their situs lies outside

the Philippines; (2) The reinsurers, not being engaged in business in the Philippines, received the reinsurance premiums as income from their

business conducted in England and, as such, taxable in England; and, (3) Section 37 of the Tax Code, enumerating what are income from

sources within the Philippines, does not include reinsurance premiums.

The source of an income is the property, activity or service that produced the income.1

The reinsurance premiums remitted to appellants by

virtue of the reinsurance contracts, accordingly, had for their source the undertaking to indemnify Commonwealth Insurance Co. against

liability. Said undertaking is the activity that produced the reinsurance premiums, and the same took place in the Philippines. In the first place,

the reinsured, the liabilities insured and the risks originally underwritten by Commonwealth Insurance Co., upon which the reinsurance

premiums and indemnity were based, were all situated in the Philippines. Secondly, contrary to appellants' view, the reinsurance contractswere perfected in the Philippines, for Commonwealth Insurance Co. signed them last in Manila. The American cases cited are inapplicable to

this case because in all of them the reinsurance contracts were signed outside the jurisdiction of the taxing State. And, thirdly, the parties to the

reinsurance contracts in question evidently intended Philippine law to govern. Article 11 thereof provided for arbitration in Manila, according to

the laws of the Philippines, of any dispute arising between the parties in regard to the interpretation of said contracts or rights in respect of any

transaction involved. Furthermore, the contracts provided for the use of Philippine currency as the medium of exchange and for the payment of

Philippine taxes.

Appellants should not confuse activitythat creates income with business in the course of which an income is realized. An activity may consist of

a single act; while business implies continuity of transactions.2

An income may be earned by a corporation in the Philippines although such

corporation conducts all its businesses abroad. Precisely, Section 24 of the Tax Code does not require a foreign corporation to be engaged in

business in the Philippines in order for its income from sources within the Philippines to be taxable. It subjects foreign corporations not doing


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business in the Philippines to tax for income from sources within the Philippines. If by source of income is meant the business of the taxpayer,

foreign corporations not engaged in business in the Philippines would be exempt from taxation on their income from sources within the

Philippines.

Furthermore, as used in our income tax law, "income" refers to the flow of wealth.3

Such flow, in the instant case, proceeded from the

Philippines. Such income enjoyed the protection of the Philippine Government. As wealth flowing from within the taxing jurisdiction of the

Philippines and in consideration for protection accorded it by the Philippines, said income should properly share the burden of maintaining the

government.

WHEREFORE, the judgment appealed from is hereby affirmed with costs against appellants. It is so ordered.

Phil-Am Life

Facts: Petitioner Philippine American Life Insurance Co., Inc. (PHILAMLIFE) a domestic corporation entered into a Management

Services Agreement with American International Reinsurance Co., Inc. (AIRCO), a non-resident foreign corporation with

principal place of business in Pembroke, Bermuda, whereby, effective January 1, 1972, for a fee of not exceeding $250,000.00

per annum, AIRCO shall perform for PHILAMLIFE the following services, to wit (Pages 9-10, BIR records; Exh. "D").

On November 18, 1980, respondent [Commissioner of Internal Revenue] issued in favor of PHILAMLIFE Tax Credit Memo (T.R.

No. 141-80) in the amount of P643,125.00 representing erroneous payment of withholding tax at source on remittances to AIGI

for services rendered abroad in 1979 (Pages 15-16, BIR records; Exh. "E").

On the basis of the aforesaid issuance of tax credit, PHILAMLIFE, in a letter dated March 12, 1981, filed with respondent a claim

for the refund of the second erroneous tax payment of P643,125.00 which was made on December 16, 1980' (Page 14, BIR

records). Said claim was followed up by another letter dated July 6, 1982 wherein PHILAMLIFE alleged that the 'claim for refund

of the amount paid in 1980 is exactly the same subject matter as [in] the previous claim for refund in 1979" (Page 4, BIR

records).

Without waiting for respondent to resolve the claim for refund, petitioners filed with the Honorable Court on July 29, 1982 thepetition docketed as C.T.A. Case No. 3540, seeking said refund.

Issue: Whether or not compensation for advisory services admittedly performed abroad by the personnel of a non-resident

foreign corporation not doing business in the Philippines (AIGI) are subject to Philippines withholding income tax

Held:In our jurisprudence, the test of taxability is the 'source', and the source of an income is "that activity . . . which produced the income"(Howden & Co., Ltd. vs. Collector of Internal Revenue, 13 SCRA 601, reiterated in Commissioner of Internal Revenue vs. Japan Air Lines, Inc., 202

SCRA 450). It is not the presence of any property from which one derives rentals and royalties that is controlling, but rather as expressed under

the expanded meaning of "royalties", it includes " royalties for the supply of scientific, technical, industrial, or commercial knowledge or

informations; and the technical advice, assistance or services rendered in connection with the technical management and administration of any

scientific, industrial or commercial undertaking, venture, project or scheme", and others (Section 37 (a) (7) as amended by P.D. 1457).

Consolidated Mines

Here we have to distinguish between (1) the method of accounting used by the Companyin determining its net income for tax purposes; and (2)

the method of computation agreed upon between the Company and Benguetin determining the amount of compensation that was to be paid

by the former to the latter. The parties, being free to do so, had contracted that in the method of computing compensation the basis were

"cash receipts" and "cash payments." Once determined in accordance with the stipulated bases and procedure, then the amount due Benguetfor each month accruedat the end of that month, whether the Company had made payment or not (see par. XIV of the agreement). To make

the Company deduct as an expense one-half of the "Accounts Receivable" would, in effect, be equivalent to giving Benguet a right which it did

not have under the contract, and to substitute for the parties' choice a mode of computation of compensation not contemplated by them.18

Since Benguet had no right to one-half of the "Accounts Receivable," the Company was correct in not accruing said one-half as a deduction. The

Company was not using a hybrid method of accounting, but was consistent in its use of the accrual method of accounting. The f irst issue raised

by the Company is with respect to the rate of mine depletion used by the Court of Tax Appeals. The Tax Code provides that in computing net

income there shall be allowed as deduction, in the case of mines, a reasonable allowance for depletion thereof not to exceed the market value

in the mine of the product thereof which has been mined and sold during the year for which the return is made [Sec. 30(g) (1) (B)].19

BPI FAMILY SAVINGS BANK, INC., V CA G.R. No. 122480, April 12, 2000

Facts: Petitioner banks annual corporate income tax return for 1989 showed that it suffered a loss of P8,286,960, and that it had a total

refundable amount of P297,492 inclusive of P112,491 being claimed astax refund in the present case. However, petitioner declared in its

1989 income tax return as a tax credit in the succeeding taxable year.

On October 11, 1991, petitioner bank filed a written claim for refund of P112,491 with the BIR alleging that it did not apply the 1989 refundable

amount of P297,492 as tax credit to its 1990 annual corporate income tax return or either tax liabilities due to business losses it incurred for the

same year. Without waiting for respondent CIRs action in its claim for refund, petitioner filed a petition for review with the CTA.

CTA dismissed the petition on the ground that petitioner bank failed to present as evidence its 1990 annual income tax return to prove that it

had not yet credited the amount of P297,422, inclusive of P112,491 which is the subject of the present controversy to its 1990 tax liability. Since

petitioner declared in its 1989 income tax return that it would apply the excess withholding tax as tax credit for the following year, the tax court

presumed that it did so. Petitioner failed to overcome this presumption because it did not present its 1990 tax return which would have shown

that the amount was not applied as a tax credit. Hence, it was concluded that petition was not entitled to a tax refund. The CA affirmed said

decision of the CTA.

Issue: Whether or not respondent Commissioner is barred by prescription, laches, estoppel, or equitable considerations in cancelling the

previous approval of petitioner's claim for refund more than 5 years thereafter, after it has determined, after investigation, that the advisory

services were rendered/performed abroad by the personnel of AIGI, a non-resident foreign corporation not doing business in the Philippines.

Held: "On the second issue, this Court believes that the rule on prescription of assessment and the filing of formal protest will not apply in the


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C.T.A. Case No. 3943. The decision of the Commissioner of Internal Revenue revoking the tax credit memo he has issued and issuing an

assessment accordingly was actually a denial of the claim for refund covering the 1979 withholding tax at source which was previously granted.

The original action that was filed by the Petitioner which precipitated the so refund filed by Petitioner. Therefore, the rules on prescription of

action in the case of recovery of tax erroneously or illegally collected shall apply.

BPI vs CIR

Facts: On October 20, 1989, the Bureau of Internal Revenue (BIR) issued a formal assessment notice (FAN) against the Bank of the Philippine

Islands (BPI). The FAN demanded BPI to pay P28k in taxes. In November 1989, BPI filed a protest however the protest did not specify if it was a

request for reconsideration or a reinvestigation. The BIR did not reply on the protest but on October 15, 1992 (four days before the expirationof the period to collect or 1095 days [3 years]after issuance of FAN on 10/20/1989), the Commissioner of Internal Revenue (CIR) issued a

warrant of distraint/levy against BPI for the satisfaction of the assessed tax. The warrant was served to BPI on October 23, 1992 (four days after

period has prescribed). In September 1997, the CIR finally sent a letter to BPI advising the latter that its protest is denied.

ISSUE:

1. Whether or not the filing of the protest by BPI suspended the running of the prescriptive period.

2. Whether or not the governments right to collect the assessed tax has p rescribed.

HELD:

1. No. The protest did not indicate whether BPI was asking for a reconsideration or a reinvestigation but since BPI did not adduceadditional evidence, it should be treated as a request for reconsideration. Under the tax code, a request for reconsideration does

not suspend the running of the prescriptive period. Even assuming that the protest is a request for reinvestigation, the same did not

toll the running of the prescriptive period because the CIR failed to show proof that the request has been granted and that a

reinvestigation has been actually conducted. In fact, BPI never heard from the BIR not until the CIR decided the protest in

September 1997 5 years after the protest has been filed.

2. Yes. When it comes to collection, even though the warrant for distraint/levy was issued within the prescriptive period, it is requiredthat the same should be served upon the taxpayer within the prescriptive period. This is because it is upon the service of theWarrant that the taxpayer is informed of the denial by the BIR of any pending protest of the said taxpayer, and the resolute

intention of the BIR to collect the tax assessed. In the case at bar, BPI received the warrant 4 days after the expiration of the

prescriptive period hence, the right to collect has already prescribed.

CIR vs BPI

Facts: In filing its Corporate Income Tax Return for the Calendar Year 2000, BPI carried over the excess tax credits from the previous years of

1997, 1998 and 1999. However, BPI failed to indicate in its ITR its choice of whether to carry over its excess tax credits or to claim the refund of

or issuance of a tax credit certificate.

BPI filed with the Commissioner of Internal Revenue (CIR) an administrative claim for refund. The CIR failed to act on the claim for tax refund of

BPI. Hence, BPI filed a Petition for Review before the CTA, whom denied the claim.

The CTA relied on the irrevocability rule laid down in Section 76 of the National Internal Revenue Code (NIRC) of 1997, which states that once

the taxpayer opts to carry over and apply its excess income tax to succeeding taxable years, its option shall be irrevocable for that taxable

period and no application for tax refund or issuance of a tax credit shall be allowed for the same.

The Court of Appeals reversed the CTA decision stating that there was no actual carrying over of the excess tax credit, given that BPI suffered a

net loss in 1999, and was not liable for any income tax for said taxable period, against which the 1998 excess tax credit could have been

applied.The Court of Appeals further stated that even if Section 76 was to be construed strictly and literally, the irrevocability rule would still not bar

BPI from seeking a tax refund of its 1998 excess tax credit despite previously opting to carry over the same. The phrase for that taxable period

qualified the irrevocability of the option of BIR to carry over its 1998 excess tax credit to only the 1999 taxable period; such that, when the 1999

taxable period expired, the irrevocability of the option of BPI to carry over its excess tax credit from 1998 also expired.

Issue: 1. What is the period captured by the irrevocability rule?

Held: 1. The last sentence of Section 76 of the NIRC of 1997 reads: Once the option to carry -over and apply the excess quarterly income tax

against income tax due for the taxable quarters of the succeeding taxable years has been made, such option shall be considered irrevocable

for that taxable period and no application for tax refund or issuance of a tax credit certificate shall be allowed therefor. The phrase for that

taxable period merely identifies the excess income tax, subject of the option, by referring to the taxable period when it was acquired by the

taxpayer.

In the present case, the excess income tax credit, which BPI opted to carry over, was acquired by the said bank during the taxable year 1998.

The option of BPI to carry over its 1998 excess income tax credit is irrevocable; it cannot later on opt to apply for a refund of the very same

1998 excess income tax credit.

CITIBANK, N.A. V CA October 10, 1997

Facts: Citibank N.A. Philippine Branch (CITIBANK) is a foreign corporation doing business in the Philippines. In 1979 and 1980, its tenantswithheld and paid to the Bureau of Internal Revenue the taxes on rents due to Citibank, pursuant to Section 1(c) of the Expanded Withholding

Tax Regulations.

On April 15, 1980, Citibank field its corporate income tax returns for the year and ended December 31, 1979 showing a net loss of

P74,854,916.00 and its tax credits totaled P6,257,780.00, even without including the amounts withheld on rental income under the Expanded

Withholding Tax System, the same not having been utilized or applied for the reason that the years operation resulted in a loss. The tax es thus

withheld by the tenants from rentals paid to Citibank in 1979 were not included as tax credits although a rental incomeamounting to

P7,796,811.00 was included in its income declared for the year ended December 31, 1979.

For the year ended December 31, 1980, Citibanks corporate income tax returns, filed on April 15, 1981, showed a net loss P77,071,790.00 for

income tax purposes. Its available tax credit at the end of 1980 amounting to P11,532,855.00 was not utilized or applied. The said available tax

credits did not include the amounts withheld by Citibanks tenants from rental payment sin 1980 but the rentalpayments for that year were


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declared as part of its gross income included in its annual income tax returns.

On October 31, 1981, Citibank submitted its claim for refund of the aforesaid amounts of P270,160.56 and P298,829.29, respectively or a total

of P568,989.85; and on October 12, 1981 filed a petition for review with the Court of Tax Appeals concerning subject claim for tax refund.

On August 30, 1981, the CTA adjudged Citibanks entitlement to thetax refund sought for, representing the 5% tax withheld and paid on

Citibanks rental income for 1979 and 1980. The Court of Tax Appeals, rejected Respondent CIRs argument that the claim was not seasonably

filed. Not satisfied the Commissioner appealed to the Court of Appeals, CA ruled that Citibank N.A. Philippine branch, entitled to a tax

refund/credit in the amount of P569,989.85, representing the 5% withheld tax in Citibanks rental income for the years 1979 and 1980 is

REVERSED. Motion for Reconsideration of the petitioner bank was denied. Hence, this petition.

Issue: Whether or not income taxes remitted partially on a periodic or quarterly basis should be credited or refunded to the taxpayer on thebasis of the taxpayers final adjusted returns.

Held: In several cases, we have already ruled that income taxesremitted partially on a periodic or quarterly basis should be credited or refunded

to the taxpayer on the basis of the taxpayers final adjusted returns, not on such perio dic or quarterly basis. When applied to taxpayers filing

income tax returns on a quarterly basis, the date ofpayment mentioned in Sec. 230 must be deemed to be qualified by Sec. 68 and 69 of the

present. Tax Code. It may be observed that although quarterly taxes due are required to be paid within 60 days from the close of each quarter,

the fact that the amount shall be deducted from the tax due for the succeeding quarter shows that until a final adjustment return shall have

been filed, the taxes paid in the preceding quarters are merely partial taxes due from a corporation. Neither amount can serve as the final

figure to quantify what is due the government nor what should be refunded to be corporation. This interpretation may be gleaned from the last

paragraph of Sec. 69 of the Tax Code which provides that the refundable amount, in case a refund is due a corporation, is that amount which is

shown on its final adjustment return and not on its quarterly returns.

Marubeni vs. CIR

Facts: Petitioner Marubeni s a foreign corporation duly organized under the existing laws of Japan and duly licensed to engage in business

under Philippine laws.

Marubeni of Japan has equity investments in Atlantic Gulf & Pacific Co. of Manila.AG&P declared and directly remitted the cash dividends to Marubenis head office in Tokyo net of the final dividend tax and withholding profit

remittance tax.

Thereafter, Marubeni, through SGV, sought a ruling from the BIR on whether or not the dividends it received from AG&P are effectively

connected with its business in the Philippines as to be considered branch profits subject to profit remittance tax.

The Acting Commissioner ruled that the dividends received by Marubeni are not income from the business activity in which it is engaged. Thus,

the dividend if remitted abroad are not considered branch profits subject to profit remittance tax.

Pursuant to such ruling, petitioner filed a claim for refund for the profit tax remittance erroneously paid on the dividends remitted by AG& P.

Respondent Commissioner denied the claim. It ruled that since Marubeni is a non resident corporation not engaged in trade or business in the

Philippines it shall be subject to tax on income earned from Philippine sources at the rate of 35% of its gross income.

On the other hand, Marubeni contends that, following the principal-agent relationship theory, Marubeni Japan is a resident foreign corporation

subject only to final tax on dividends received from a domestic corporation.

Issue: Whether or not Marubeni Japan is a resident foreign corporation.

Held: No. The general rule is a foreign corporation is the same juridical entity as its branch office in the Philippines . The rule is based on the

premise that the business of the foreign corporation is conducted through its branch office, following the principal-agent relationship theory. It

is understood that the branch becomes its agent.

However, when the foreign corporation transacts business in the Philippines independently of its branch, the principal-agent relationship is setaside. The transaction becomes one of the foreign corporation, not of the branch. Consequently, the taxpayer is the foreign corporation, not

the branch or the resident foreign corporation.

Thus, the alleged overpaid taxes were incurred for the remittance of dividend income to the head office in Japan which is considered as a

separate and distinct income taxpayer from the branch in the Philippines.

CIR vs WANDER PHilippines

Wander Philippines, a domestic corporation, is a wholly-owned subsidiary of Glaro S.A. Ltd., a Swiss corporation notengaged in trade or

business in the Philippines. It had been remitting 35% of its earnings to the Bureau of InternalRevenue when it claimed a tax refund, stating that

it was only liable for 15% withholding tax in accordance withSection 24(b)(1) of the Tax Code, as amended by Presidential D ecree Nos. 369 and

778.

Issues and Ruling: W/N W ander is the proper party to claim the tax refund. YES Wander is, first and foremost, a wholly owned subsidiary of

Glaro. As the Philippine counterpart, Wander is theproper entity who should file for the refund or credit of overpaid withholding tax on

dividends paid or remitted by Glaro.2. W/N Switzerland allows as tax credit the deemed paid 20% Philippine tax on such dividends. YES. As a

matter of fact, Switzerland does not even impose any income tax on dividends received by Swisscorporations domiciled in foreign countries.

Thus, it should be deemed that the condition in Section 24(b)(1) of theTax Code requiring at least 20% tax be credited by the foreign

government is fully satisfied. Thus, Wander is entitledto the tax refund.

CIR vs. PAL [504 SCRA 90]

Facts: A franchise is a legislative grant to operate a public utility. In the present case, P.D. 1590 granted PAL an option to pay the lower of two

alternatives: (a) the basic corporate income tax based on PALs annual net taxable income computed in accordance with the provisions of the

NIRC or (b) a franchise tax of 2% of gross revenues. Availment of either of these two alternatives shall exempt the airline from

the payment of all other taxes including the 20 percent final withholding tax on bank deposits. On Nov. 5, 1997, PALs AVP -Revenue filed with

the CIR a written request for refund in the amount of P2M, which represents the total amount of 20% final withholding tax withheld from the

respondent by various withholding agent banks. CTA ruled PAL was not entitled to refund. The CA held that PAL was bound to pay only either

(A) or (B); that Sec. 13 of PD 1590 exempts respondent form paying all other taxes, duties, royalties and other feeds of any kind. Having chosen

to pay itscorporate income tax liability, respondent should now be exempt from paying all other taxes including the final withholding tax.


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Issue: Whether the CA erred on a question of law ruling that the in lieu of all other taxes provisions in Sec. 13 of PD No. 1590 applies ev en if

there were in fact no taxes paid under any of subsections (A) and (B) of the said decree.

Held: Note that the tax liability of PAL under the option it chose (Item a of Sec. 13 of PD 1590) is to be computed in accordance with the

provisions of the NIRC. Taxable income means the pertinent items of gross income specified in the Tax Code, less the deductions and/or

personal and additional exemptions, if any, authorized for these types of income. Under Sec. 32 of the Tax Code, gross income means income

derived from whatever source, including compensation for services; the conduct of trade or business or the exercise of a profession; dealings in

property; interests; rents; royalties; dividends; annuities; prizes and winnings; pensions; and a partners distributive share in the net income of a

general professional partnership. Sec. 34 enumerates the allowable deductions; Sec. 35, personal and additional exemptions.

The definition of gross income is broad enough to include all passive incomes subject to specific rates or final taxes. However, sincethesepassive incomes are already subject to different rates and taxed finally at source, they are no longer included in the computation of gross

income, which determines taxable income.

Thus, PALs franchise exempts it from paying any tax other than the option it chooses: either the basiccorporate income tax or the 2% gross

revenue tax.

BANCO FILIPINO vs. COURT OF APPEALS

FACTS: Elsa Arcilla and her husband, Calvin Arcilla secured on three occasions, loans from the Banco Filipino Savings and Mortgage bank in the

amount of Php.107,946.00 as evidenced by the Promissory Note executed by the spouses in favor of the said bank. To se cure payment of said

loans, the spouses executed Real Estate Mortgages in favor of the appellants (Banco Filipino) over their parcels of land. The appellee spouses

failed to pay their monthly amortization to appellant. On September 2, 1985 the appelleesfiled a complaint for Annulment of the Loan

Contracts, Foreclosure Sale with Prohibitory and Injunction which was granted by the RTC. Petitioners appealed to the Court of Appeals, but

the CA affirmed the decision of the RTC.

ISSUE: Whether or not the CA erred when it held that the cause of action of the private respondents accrued on October 30, 1978 and the filing

of their complaint for annulment of their contracts in 1085 was not yet barred by the prescription

RULING: The court held that the petition is unmeritorious. Petitioners claim that the action of the private respondents have prescribed isbereft of merit. Under Article 1150 of the Civil Code, the time for prescription of all kinds of action where there is no special provision which

ordains otherwise shall be counted from the day they may be brought. Thus the period of prescription of any cause of action is reckoned only

from the date of the cause of action accrued. The period should not be made to retroact to the date of the execution of the contract, but from

the date they received the statement of account showing the increased rate of interest, for it was only from the moment that they discovered

the petitioners unilateral increase thereof.

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