Case Digest (A.M. No. 10-11-5-SC, 10-11-6-SC, 10-11-7-SC) Core Legal Reasoning Model
Core Legal Reasoning Model
Facts:
In Manila Gas Corporation v. Collector of Internal Revenue (62 Phil. 895, January 17, 1936), the Manila Gas Corporation, a domestic utility organized under Philippine law and operating under a franchise granted by the Philippine Government, paid under protest the sum of ₱56,757.37 in withholding income taxes on dividends and interest due foreign corporations. Its principal foreign stockholder was the Islands Gas and Electric Company (New York), and another creditor was the General Finance Company (Zurich). For the years 1930–1932, Manila Gas declared dividends amounting to ₱1,348,847.50 and paid interest on bonds totaling ₱411,600, as well as interest on other indebtedness of ₱131,644.90, withholding taxes of ₱40,460.03, ₱12,348.00, and ₱3,949.34, respectively. Manila Gas sued the Collector of Internal Revenue to recover these taxes after the trial court dismissed its complaint, holding the dividends and interest taxable.Issues:
- Whether dividends paid by Manila Gas to its f
Case Digest (A.M. No. 10-11-5-SC, 10-11-6-SC, 10-11-7-SC) Expanded Legal Reasoning Model
Expanded Legal Reasoning Model
Facts:
- Parties and Background
- Manila Gas Corporation (domestic corporation) operates a gas plant in Manila under a franchise from the Philippine Government, which stipulates an annual payment of 2½% of gross receipts in lieu of all taxes except real estate and personal property taxes.
- Islands Gas and Electric Company (New York) and General Finance Company (Zurich) are foreign, non-resident stockholders of Manila Gas.
- Payments and Tax Withheld
- For 1930–1932, dividends of ₱1,348,847.50 paid to Islands Gas and Electric Company, with withholding tax of ₱40,460.03.
- Interest on bonds totaling ₱411,600 paid to Islands Gas and Electric Company, with withholding tax of ₱12,348.00.
- Interest on other indebtedness totaling ₱131,644.90 paid to both foreign corporations, with withholding tax of ₱3,949.34.
- Procedural History
- Manila Gas filed suit to recover ₱56,757.37 withheld under protest.
- Trial court dismissed the complaint with costs.
- Plaintiff appealed, assigning two principal errors: (a) dividend withholding violates its franchise and contract clause; (b) interest paid abroad to non-residents is not Philippine-source income.
Issues:
- Whether dividends paid by Manila Gas to foreign corporate stockholders are exempt from Philippine withholding tax by virtue of the franchise “in lieu of all taxes” clause, and whether taxing such dividends impairs a contract.
- Whether interest on bonds and other indebtedness paid outside the Philippines to non-resident corporations constitutes Philippine-source income subject to Philippine withholding tax.
Ruling:
- (Subscriber-Only)
Ratio:
- (Subscriber-Only)
Doctrine:
- (Subscriber-Only)