G.R. No. L-26379 - Reagan vs. Commissioner of Internal Revenue

Petitioner William C. Reagan, a U.S. citizen employed by Bendix Radio (providing technical assistance to the U.S. Air Force), was stationed at Clark Air Base, Philippines, from July 7, 1959.
On April 22, 1960, he imported a tax-free 1960 Cadillac with accessories, landed cost $6,443.83.

On July 11, 1960, petitioner obtained the Base Commander’s permit to sell the Cadillac only to U.S. Armed Forces members or U.S. citizens employed on U.S. bases in the Philippines.
That same day, at Clark Air Base, he sold the car to Pfc. Willie Johnson Jr. (U.S. Marine Corps) for $6,600; Johnson immediately resold it in Manila to Fred Meneses for ₱32,000.

The Commissioner of Internal Revenue computed petitioner’s net gain from the sale as ₱17,912.34 and assessed income tax of ₱2,979.
Petitioner paid the tax, sought a refund administratively, then filed a petition in the Court of Tax Appeals (CTA) contending the base was “foreign soil” and beyond Philippine taxing jurisdiction.
The CTA denied the refund, holding the sale occurred on Philippine territory and the tax assessment was valid.

Whether the sale of petitioner’s automobile at Clark Air Base occurred outside Philippine territory for purposes of income taxation.
Whether petitioner’s gain from that sale is exempt from Philippine income tax.