G.R. No. L-44501-05 - Garrison vs. Court of Appeals

Case Summary (G.R. No. L-44501-05)

Factual Background

The petitioners were United States nationals employed at the United States Naval Base, Subic Bay, and entered the Philippines under Section 9(a) of the Philippine Immigration Act of 1940, as amended. Each petitioner had lived in or returned to the Philippines for extended periods and resided with Filipino spouses or families in Olongapo City except Edward McGurk who arrived July 11, 1967 and remained. For calendar year 1969 their reported earnings in dollars were: Garrison $15,288.00; James Robertson $14,985.54; Frank Robertson $12,045.84; McGurk $12,407.99; Cathey $9,855.20; and de Guzman $8,502.40. The Bureau of Internal Revenue, through District Revenue Officer Ladislao Firmacion, served notices that the petitioners had not filed income tax returns for 1969 as required by Section 45 of the Tax Code. The petitioners refused to file, claiming they were special temporary visitors under Section 9(a) and exempt from Philippine income tax by Article XII, paragraph 2 of the Military Bases Agreement, because their income derived exclusively from U.S. sources and they resided in the Philippines only by reason of their employment at the bases.

Trial Court Proceedings

The Court of First Instance of Zambales at Olongapo City convicted each petitioner for violation of Section 45(a)(1)(b) of the National Internal Revenue Code, as amended, for failing to file income tax returns for 1969. The trial court sentenced each to pay a fine of Two Thousand Pesos (P2,000.00), with subsidiary imprisonment in case of insolvency, and to pay costs proportionately. That judgment was rendered May 28, 1983 by Judge Augusto M. Amores (Branch I).

Court of Appeals Ruling

The Court of Appeals affirmed the trial court’s conviction. The appellate court ruled that the Tax Code’s requirement to file an income tax return depended on physical or bodily presence in the Philippines and not on the intention to make the Philippines a permanent abode. The Court of Appeals rejected the petitioners’ reliance on the Military Bases Agreement on the ground that the Agreement exempted them from the payment of income tax but did not relieve them from the duty to file income tax returns.

Court of Tax Appeals Decision and Subsequent Proceedings

Separately, the petitioners obtained relief from the Court of Tax Appeals, which set aside and cancelled the BIR assessments for deficiency income taxes for taxable years 1969–1972 in a decision dated December 14, 1984. The Commissioner of Internal Revenue contested that decision in G.R. Nos. 70116-19, and the decision of the Court of Tax Appeals was affirmed on August 12, 1986 (143 SCRA 397).

Legal Issue Presented

The principal issue was whether United States nationals employed at Subic Bay who reside in the Philippines by reason only of such employment and whose income derives exclusively from U.S. sources are nevertheless required to file Philippine income tax returns under Section 45 of the National Internal Revenue Code, notwithstanding their partial exemption from payment of income tax under Article XII, paragraph 2 of the Military Bases Agreement.

Petitioners' Contentions

The petitioners contended that they were not resident aliens but special temporary visitors under Section 9(a) and that the Military Bases Agreement exempted them from Philippine income tax. They argued that, having been recognized as exempt from payment, logic and administrative practice required that they also be excused from filing returns that would serve no practical purpose because any tax liability could not be exacted. They further invoked an alleged 22‑year administrative practice by both governments that did not require filing by American employees holding special visas and suggested the matter was better resolved by intergovernmental negotiation than litigation.

Respondents' Contentions

The respondents maintained that the Military Bases Agreement provided exemption from payment of income tax only for income derived from U.S. sources and did not dispense with the statutory duty to file returns under Section 45. The respondents asserted that the petitioners were aliens residing in the Philippines for purposes of the Tax Code because they were actually present and not mere transients or sojourners, a determination governed by Revenue Regulations No. 2 of February 10, 1940. The respondents also asserted that the burden to invoke and prima facie establish tax‑exempt status rested on the petitioners.

Supreme Court's Ruling

The Supreme Court, through Justice Narvasa, denied the petition for review on certiorari and affirmed the decision of the Court of Appeals. The Court ordered costs against the petitioners. Justices Cruz, Gancayco, Grino‑Aquino, and Medialdea concurred.

Legal Reasoning

The Court reasoned that the Military Bases Agreement plainly exempted covered U.S. nationals from the payment of income tax only insofar as the income was derived exclusively from U.S. sources connected with base employment; the Agreement did not state an exemption from the statutory duty to file income tax returns. The Court accepted the standards set forth in Revenue Regulations No. 2 for determining whether an alien actually present is a resident for tax purposes and emphasized that mere indefinite intention to r

Case Syllabus (G.R. No. L-44501-05)

Parties and Procedural Posture

John L. Garrison, Frank Robertson, Robert H. Cathey, James W. Robertson, Felicitas de Guzman and Edward McGurk were the petitioners and United States citizens employed at the United States Naval Base, Subic Bay, Olongapo City, who were charged for failure to file income tax returns for 1969.
Court of Appeals was the respondent whose judgment affirming the trial court conviction the petitioners sought to overturn by petition for review on certiorari.
Republic of the Philippines was the other respondent in the criminal prosecution for violation of the National Internal Revenue Code.
The petitioners were convicted by the Court of First Instance of Zambales at Olongapo City and were sentenced to pay a fine of Two Thousand Pesos with subsidiary imprisonment in case of insolvency and costs proportionately.
The Court of Appeals affirmed the trial court decision, and the petition for review to this Court was denied and the challenged decision of the Court of Appeals was affirmed.

Key Factual Allegations

The petitioners were United States nationals who entered under Section 9(a) of the Philippine Immigration Act of 1940, as amended, and were employed at the United States Naval Base in Olongapo City.
The petitioners lived in the Philippines during varying periods after World War II, with last returns to the Philippines between 1951 and 1967 and continuous residence thereafter up to the time of the cases.
For 1969 the petitioners received the following gross incomes: John L. Garrison $15,288.00; Frank Robertson $12,045.84; Robert H. Cathey $9,855.20; James W. Robertson $14,985.54; Felicitas de Guzman $8,502.40; and Edward McGurk $12,407.99.
The petitioners received notices from Ladislao Firmacion, District Revenue Officer at Olongapo City, advising them that they had not filed income tax returns for 1969 and directing them to file within ten days.
The petitioners refused to file returns on the ground that they were special temporary visitors under Section 9(a) and were exempt from income taxation under Article XII, paragraph 2 of the RP‑US Military Bases Agreement.

Issues Presented

Whether the petitioners were resident aliens of the Philippines required to file income tax returns under Section 45 of the National Internal Revenue Code, as amended.
Whether the exemption from income tax set forth in Article XII, paragraph 2 of the RP‑US Military Bases Agreement excused the petitioners from the separate duty to file income tax returns.
Whether physical presence in the Philippines alone sufficed to render an alien a resident for purposes of the filing requirement despite an intention to return abroad.
Whether the petitioner Americans carried the burden of proving that their income was exclusively from U.S. sources so as to warrant exemption.

Contentions

Petitioners contended that they were not resident aliens but special temporary visitors who entered under Section 9(a) and that the Bases Agreement exempted them from filing income tax returns because it exempted them from income taxation.
Petitioners contended that administrative practice for about twenty‑two years did not require U.S. citizen employees holding 9‑A visas to file Philippine income tax returns.
Petitioners argued that policy considerations and the partial surrender of taxing power under the Bases Agreement made it illogical and inconsistent to require filing when payment had been exempted.
Respondents contended that Section 45 required filing by any alien residing in the Philippines regardless of income source and that the Bases Agreement exe