Case Digest (G.R. No. L-19392)
Facts:
In 1950, the Commonwealth Insurance Co., a domestic corporation based in the Philippines, entered into reinsurance contracts with 32 British insurance companies that were not engaged in trade or business within the Philippines. Alexander Howden & Co., Ltd., a British corporation also not doing business in the Philippines, acted as the representative for these British insurance companies. The reinsurance contracts were prepared and signed by the foreign reinsurers in England and subsequently sent to Manila, where the Commonwealth Insurance Co. signed them. In 1951, Commonwealth Insurance Co. remitted a total of P798,297.47 to Alexander Howden & Co., Ltd. as reinsurance premiums. In April 1952, Commonwealth Insurance Co. filed an income tax return declaring this amount, along with accrued interest of P4,985.77, as gross income for the calendar year 1951, and paid P66,112.00 in taxes to the Bureau of Internal Revenue. On May 12, 1954, within the two-year period allowed b...
Case Digest (G.R. No. L-19392)
Facts:
Parties and Background:
In 1950, Commonwealth Insurance Co., a domestic Philippine corporation, entered into reinsurance contracts with 32 British insurance companies not engaged in business in the Philippines. Alexander Howden & Co., Ltd., a British corporation also not engaged in business in the Philippines, represented these British insurers. The reinsurance contracts were prepared and signed by the foreign reinsurers in England and later signed by Commonwealth Insurance Co. in Manila.
Premiums and Tax Payment:
In 1951, Commonwealth Insurance Co. remitted P798,297.47 to Alexander Howden & Co., Ltd., as reinsurance premiums. In April 1952, Commonwealth filed an income tax return on behalf of Alexander Howden & Co., Ltd., declaring the remitted amount as gross income and paying P66,112.00 as tax.
Claim for Refund:
On May 12, 1954, Alexander Howden & Co., Ltd., filed a claim for refund of P66,112.00 (later reduced to P65,115.00), arguing that reinsurance premiums received by foreign companies not engaged in business in the Philippines were exempt from withholding tax, citing a December 8, 1953, ruling by the Commissioner of Internal Revenue.
Litigation:
The case was initially filed in the Court of First Instance of Manila but was later certified to the Court of Tax Appeals, which denied the claim on November 24, 1961. Alexander Howden & Co., Ltd., appealed the decision.
Issue:
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Ruling:
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Ratio:
Source of Income:
The reinsurance premiums were derived from sources within the Philippines because:- The risks insured and the liabilities reinsured were situated in the Philippines.
- The reinsurance contracts were perfected in the Philippines, as they were signed by Commonwealth Insurance Co. in Manila.
- The contracts explicitly provided for arbitration in Manila under Philippine law and used Philippine currency, indicating the parties' intent to be governed by Philippine law.
Taxability of Non-Resident Foreign Corporations:
Section 24 of the National Internal Revenue Code subjects non-resident foreign corporations to tax on income from sources within the Philippines. The reinsurance premiums, being income from such sources, were taxable even if the foreign corporations did not conduct business in the Philippines.Withholding Tax:
The reinsurance premiums fell under "premiums" or "determinable and periodical income" as defined in Sections 53 and 54 of the Tax Code, making them subject to withholding tax.Administrative Rulings:
The Commissioner of Internal Revenue’s rulings cited by Alexander Howden & Co., Ltd., were not binding as they were unpublished and not known to the legislature during subsequent statutory amendments.Legislative Confirmation:
The enactment of Republic Act 3825 in 1963, which exempted reinsurance premiums from taxation, implicitly affirmed that such premiums were taxable prior to the amendment.Judge’s Disqualification:
The objection to Judge Luciano’s qualification was raised too late and could not be entertained after the decision had been rendered.