Case Digest (G.R. No. 42780)
Facts:
Manila Gas Corporation v. The Collector of Internal Revenue, G.R. No. 42780, January 17, 1936, the Supreme Court En Banc, Malcolm, J., writing for the Court.
The appellant, Manila Gas Corporation, a domestic corporation operating a gas plant and supplying gas in the City of Manila and nearby municipalities under a government franchise, sued the Collector of Internal Revenue to recover P56,757.37 which it had been required to deduct and withhold from payments to foreign corporations and which it paid under protest. The foreign payees were the Islands Gas and Electric Company (domiciled in New York) and the General Finance Company (domiciled in Zurich); neither was resident in the Philippines.
For the years 1930–1932 the facts, as accepted by both parties, were: dividends of P1,348,847.50 were paid by Manila Gas to Islands Gas and Electric, from which withholding tax of P40,460.03 was remitted; interest on bonds totaling P411,600 was paid to Islands Gas and Electric with P12,348 withheld; and interest on other indebtedness totaling P131,644.90 was paid to Islands Gas and Electric and General Finance Company with P3,949.34 withheld. Exhibits certified by Manila Gas’s treasurer purported to show that the place of payment for the interest was in the United States and Switzerland, but the bonds and other debt instruments themselves were not in the record and the precise situs remained uncertain.
Manila Gas sued for recovery of the withheld sums. The trial court dismissed the complaint with costs. On appeal to the Supreme Court, appellant assigned two principal errors: (1) that taxing the dividends as income of the foreign stockholder would, in effect, tax the corporation in violation of the tax-commutation clause of its franchise and the contract clause of the Constitution; and (2) that interest paid to nonresident foreign corporations outside the Philippines did not constitute income from Philippine sources and therefore was not subject to P...(Pro-only)
Issues:
- Did the Court correctly hold that dividends paid by a domestic corporation to foreign corporate stockholders are subject to Philippine income tax in the hands of the stockholders despite the corporation’s franchise tax-commutation clause?
- Were the interest payments on bonds and other indebtedness paid to nonresident foreign corporations, and allegedly paid outside the Philippines, income from Philippine sources and therefore subject t...(Pro-only)
Ruling:
- (Pro-only)
Ratio:
- (Pro-only)
Doctrine:
- (Pro-only)