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    CIR vs. Japan Airlines

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    Arthur John Garraton
    This case involves a petition by the Commission on Internal Revenue (CIR) seeking to reverse a decision by the Court of Tax Appeals regarding tax assessments on Japan Airlines (JAL). The key issues are whether proceeds from ticket sales in the Philippines by JAL's sales agent Philippine Airlines constitute taxable income sources within the Philippines, and if JAL qualifies as a resident foreign corporation engaged in business in the country. The Supreme Court ultimately ruled in favor of CIR, finding that ticket sale proceeds are taxable Philippine income and that JAL meets the definition of a resident foreign corporation under the law.

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    CIR vs. Japan Airlines

    Uploaded by

    Arthur John Garraton
    102 views4 pages
    This case involves a petition by the Commission on Internal Revenue (CIR) seeking to reverse a decision by the Court of Tax Appeals regarding tax assessments on Japan Airlines (JAL). The key issues are whether proceeds from ticket sales in the Philippines by JAL's sales agent Philippine Airlines constitute taxable income sources within the Philippines, and if JAL qualifies as a resident foreign corporation engaged in business in the country. The Supreme Court ultimately ruled in favor of CIR, finding that ticket sale proceeds are taxable Philippine income and that JAL meets the definition of a resident foreign corporation under the law.

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    This case involves a petition by the Commission on Internal Revenue (CIR) seeking to reverse a decision by the Court of Tax Appeals regarding tax assessments on Japan Airlines (JAL). The key issues are whether proceeds from ticket sales in the Philippines by JAL's sales agent Philippine Airlines constitute taxable income sources within the Philippines, and if JAL qualifies as a resident foreign corporation engaged in business in the country. The Supreme Court ultimately ruled in favor of CIR, finding that ticket sale proceeds are taxable Philippine income and that JAL meets the definition of a resident foreign corporation under the law.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    102 views4 pages

    CIR vs. Japan Airlines

    Uploaded by

    Arthur John Garraton
    This case involves a petition by the Commission on Internal Revenue (CIR) seeking to reverse a decision by the Court of Tax Appeals regarding tax assessments on Japan Airlines (JAL). The key issues are whether proceeds from ticket sales in the Philippines by JAL's sales agent Philippine Airlines constitute taxable income sources within the Philippines, and if JAL qualifies as a resident foreign corporation engaged in business in the country. The Supreme Court ultimately ruled in favor of CIR, finding that ticket sale proceeds are taxable Philippine income and that JAL meets the definition of a resident foreign corporation under the law.

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    CIR vs.

    Japan Airlines
    Prepared by: Andrea Ruffa Bayona

    Topic: limitation of territorial jurisdiction; territorial vs. personal


    jurisdiction
    Ponente: Paras, J.
    Parties: Commission on Internal Revenue (petitioner) and Japan
    Airlines(JAL) (respondent)
    Nature: Petition for review which seeking the reversal of the decision of the
    Court of Tax Appeals which set aside petitioners assessment of deficiency
    income tax inclusive of interest and surcharge as well as compromise penalty
    Facts:
    That Japan Airlines is a foreign corporation engaged in the business of
    international air carriage.
    That from 1959 to 1963, JAL had not been granted a certificate of
    public convenience and necessity to operate
    However, since mid-July 1957, JAL had maintained and office at the
    Filipinas Hotel, Roxas Boulevard, Manila
    That there was no selling of tickets in this office but was maintained
    merely for the promotion of the companys public relations and to hand
    out brochures, literature and other information playing up to the
    attractions of Japan as a tourist spot and the services enjoyed in JAL
    planes
    That on July 17, 1957, JAL constituted PAL as its general sales agent in
    the Philippines
    That PAL sold for and in behalf of JAL, plane tickets and reservations for
    cargo spaces which were used by passengers or customers on the
    facilities of JAL
    That on June 2, 1972, JAL received deficiency income tax assessment
    notices and a demand letter from CIR for a total amount of
    P2,099,687.52 inclusive of 50% surcharge and interest for the years
    1959 through 1963
    That JAL protested the said assessment through the following actions

    CIR vs. Japan Airlines


    Prepared by: Andrea Ruffa Bayona

    First Action/Initiatory Action


    Filed by: JAL
    Kind of action: request for cancellation of assessments
    Court: CIR
    Issue/s: that as a non-resident foreign corporation, it was taxable only on
    income from Philippines sources and that they had no income in the years
    covered by the assessments
    Ruling: denied by the CIR
    JAL elevated the case to CTA

    Secondary Action: before the CIR denied their claim for refund
    Filed by: JAL
    Kind of action: appeal
    Court: CTA
    Issue/s: same issues with the ones raised to the CIR
    Ruling: CTA reversed CIRs decision and denied the CIRs motion for
    reconsideration

    Tertiary action
    Filed by: CIR
    Kind of action: petition for review CTAs decision
    Court: Supreme Court

    CIR vs. Japan Airlines


    Prepared by: Andrea Ruffa Bayona

    Issue/s: 1. Whether or not proceeds from sales of JAL sold in the Philippines
    are taxable as income from sources within the Philippines
    2. Whether or not Japan Airlines is a foreign corporation engaged in trade or
    business in the Philippines
    Ruling: petition was granted; CTAs decision was set aside; JAL was ordered
    to pay the assessments
    Reasoning:
    1. Yes, the proceeds of JAL are considered income from sources within the
    Philippines
    2. Yes, JAL is a resident foreign corporation under Sec. 84 (g) of the National
    Internal Revenue Code of 1939. The definition of resident foreign
    corporation is provided in sec.20 of the 1977 tax code (refer below)
    Laws/Jurisprudence/Further court rulings
    1. What may be considered income from Philippine sources?
    The source of an income is the property, activity or service that produced the
    income. For the source of income to be considered as coming from the Philippines, it
    is sufficient that the income is derived from activity within the Philippines. In BOAC's
    case, the sale of tickets in the Philippines is the activity that produces the income.
    The tickets exchanged hands
    here and payments for fares were also made here in Philippine currency. The site of
    the source of payments is the Philippines. The flow of wealth proceeded from, and
    occurred within, Philippine territory, enjoying the protection accorded by the
    Philippines (Sec. 29,(3) of the Tax Code)
    True, Section 37(a) of the Tax Code, which enumerates items of gross income from
    sources within the Philippines, namely: (1) interest, (21) dividends, (3) service, (4)
    rentals and royalties, (5) sale of real property, and (6) sale of personal property,
    does not mention income from the sale of tickets for international transportation.
    However, that does not render it less an income from sources within the Philippines.
    Section 37, by its language, does not intend the enumeration to be exclusive. It
    merely directs that the types of income listed therein be treated as income from
    sources within the Philippines. A cursory reading of the section will show that it does
    not state that it is an all inclusive
    enumeration, and that no other kind of income may be so considered.
    2. Is JAL a resident foreign corporation doing business in the Philippines?
    Under Section 20 of the 1977 Tax Code:

    CIR vs. Japan Airlines


    Prepared by: Andrea Ruffa Bayona
    "(h) the term `resident foreign corporation' applies to a foreign corporation engaged
    in trade or
    business within the Philippines or having an office or place of business therein.
    "(i) the term `non-resident foreign corporation' applies to a foreign corporation not
    engaged in trade
    or business within the Philippines and not having any office or place of business
    therein. There is no specific criterion as to what constitutes `doing' or `engaging in'
    or `transacting' business. Each case must be judged in the light of its peculiar
    environmental circumstances. The term implies continuity of commercial dealings
    and arrangements, and contemplates, to that extent, the performance of acts or
    works or the exercise of some of the functions normally incident to, and in
    progressive prosecution of commercial gain or for the purpose and object of the
    business organization.
    In order that a foreign corporation may be regarded as doing business within a
    State, there must be continuity of conduct and intention to establish a continuous
    business, such as the appointment of a local agent, and not one of a temporary
    character (Pacific Micronesian Line, Inc. vs. Del Rosario and Peligon, 96 Phil. 23, 30,
    citing Thompson on Corporations, Vol. 8, 3rd ed., pp. 844-847 and Fisher's Philippine
    Law of Stock Corporation, p. 415).

    -end-

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