Case Summary (G.R. No. 162299)
Petitioner
Commissioner of Internal Revenue, charged with assessing deficiency income taxes against BOAC for fiscal years 1959–1967 and 1968–1971, and denying BOAC’s refund claim and reconsideration requests.
Respondent
British Overseas Airways Corporation, which maintained no flight operations to or from the Philippines but sold tickets through local general sales agents (Warner Barnes & Co., then Qantas Airways) and received ticket proceeds in Philippine currency.
Key Dates
• Initial assessment for 1959–1963: 7 May 1968 (P2,498,358.56)
• Revised assessment for 1959–1967: 16 January 1970 (P858,307.79)
• Assessment for 1968–1971: 17 November 1971 (P549,327.43 plus penalties)
• CTA joint decision reversing CIR: 26 January 1983
• Supreme Court decision: 30 April 1987
Applicable Legal Framework
1987 Philippine Constitution governs income taxation. Tax Code definitions under Section 20 distinguish “resident” and “non-resident” foreign corporations. Section 24(b) prescribes tax rates and bases for resident foreign corporations’ net income from Philippine sources.
Core Issues
- Whether BOAC’s ticket-sale revenues in the Philippines constitute Philippine-source income subject to income tax.
- Whether BOAC is a resident foreign corporation doing business in the Philippines.
- If non-resident, whether BOAC’s Philippine gross income remains taxable at 35%.
Factual Background
BOAC lacked landing rights and did not perform carriage services in the Philippines outside brief temporary permits. Its sole Philippine presence was a general sales agent responsible for issuing tickets, collecting fares, and interline settlement with other carriers.
Proceedings Below
BOAC protested the deficiency assessments, paid under protest, sought refunds, and filed separate petitions before the CTA (Cases 2373 and 2561), which were later tried jointly. The CTA set aside the assessments and denied the refund.
Tax Court’s Ruling
The CTA held that ticket sales were not Philippine-source income since BOAC performed no transport services within the Philippines; accordingly, all assessments were canceled and the refund claim granted.
Revenue’s Contentions
• Ticket proceeds arise from Philippine activity and are Philippine-sourced.
• BOAC’s use of a local agent and continuity of ticket sales constitute “doing business” and render it a resident foreign corporation.
• Alternatively, unperformed services abroad remain taxable if the proceeds originate in Philippine territory.
Resident Foreign Corporation Analysis
Engaging a general sales agent on a continuous basis to sell tickets and allocate fares under IATA rules constitutes “trade or business” in the Philippines. BOAC is therefore a resident foreign corporation liable on net Philippine-source income under Section 24(b)(2).
Characterization of Income
“Gross income” includes all gains from business transactions, explicitly covering proceeds from the sale of transport documents. A ticket embodies mutual contractual obligations—fare payment in the Philippines and carriage abroad—but the sale transaction and payment occur within Philippine territory.
Source of Income Determination
The source is the activity producing the income. Ticket sales in the Philippines, with payments in Philippine currency and enjoyment of government protection, establish a Philippine source. Absence of physical carriage here does not alter the situs of ticket-sale proceeds.
Scope of Enumeration in Section 37
Section 37(a) lists example items of Philippine-source income but is not exhaustive. The broad definition of gross income and the “income from any source whatever” clause encompass ticket-sale proceeds.
Services Rule vs. Sales Rule
Income from services is sourced where
...continue readingCase Syllabus (G.R. No. 162299)
Facts
- British Overseas Airways Corporation (BOAC) is a 100% British Government–owned corporation, organized under U.K. law, engaged exclusively in international airline operations.
- During 1959–1967 and 1968–69 to 1970–71, BOAC held no Philippine landing rights for traffic purposes and no permanent CAB franchise, except a nine-month temporary permit in 1961–1962.
- BOAC did not operate flights to or from the Philippines, but maintained a general sales agent in Manila (Warner Barnes & Co., later Qantas) responsible for selling BOAC tickets for overseas carriage.
- Passengers purchased BOAC tickets in Philippine currency; no carriage service for those tickets ever commenced or terminated in Philippine territory.
Procedural History
- First Case (G.R. No. 65773 / CTA Case No. 2373):
- May 7, 1968: CIR assessed BOAC ₱2,498,358.56 for 1959–1963 income tax deficiency.
- January 16, 1970: New assessment of ₱858,307.79 for 1959–1967; BOAC paid under protest.
- BOAC filed a refund claim and Tax Court petition on January 27, 1972; refund denial on February 16, 1972.
- Second Case (G.R. No. 65774 / CTA Case No. 2561):
- November 17, 1971: CIR assessed BOAC ₱549,327.43 plus penalties for 1968–69 to 1970–71.
- February 16, 1972: CIR re-issued assessment of ₱534,132.08 and ₱1,000 penalty; reconsideration denied August 24, 1973.
- BOAC filed Tax Court petition to cancel those assessments; tried jointly with the First Case.
- January 26, 1983: Tax Court en banc reversed CIR, holding BOAC ticket-sale proceeds not Philippine-sourced.
- CIR filed a petition for review on certiorari before the Supreme Court, and moved to deny the CTA’s resolution of November 18, 1983.
Issues Presented
- Whether BOAC’s ticket-sale proceeds in the Philippines constitute income from Philippine sources and are taxable under the NIRC.
- Whether BOAC qualifies as a resident foreign corporation doing business or having a place of business in the Philippines.
- If BOAC is non-resident, whether it is nonetheless taxable at 35% on gross income fr