CASE LIST: INCOME TAXATION Link to full text

*please remove blue highlight when the digest has been added
Relevant facts:
1. Conwi vs. Commissioner, 213 SCRA 83
2. Limpan Investment Corporation vs. Commissioner, 17 SCRA 703
● Petitioners are Filipino citizens and employees of P&G Philippine
3. Collector vs. Batangas Transportation Co., 102 Phil 882
Manufacturing Corporation
4. Gatchalian vs. Collector, 67 Phil 666
● During 1970-1971, petitioners were assigned outside the Philippines
5. Evangelista vs. Collector, 102 Phil 140
where they were paid US dollars as compensation
6. Marubeni Corporation vs. Commissioner, 177 SCRA 500
● Resulted in the alleged overpayments, refund and/or tax credit
7. British Overseas Airways Corporation vs. Commissioner, 149 SCRA 395
● Petitioners claim that public respondent Court of Tax Appeals erred:
8. South African Airways vs. CIR, GR No. 180356; Feb 16, 2010
○ Dollar earnings are receipts derived from foreign exchange
9. Bachrach vs. Seifert, 87 Phil. 483
transactions
10. Commissioner vs. Manning, 66 SCRA 14
○ Proper conversion rate in the prevailing free market rate of
11. Commissioner of Internal Revenue vs. CA, 301 SCRA 152
exchange and not the par value of the peso
12. Nielson & Co. vs. Lepanto Consolidated Mining Co
13. Gutierrez vs. Collector, 101 Phil. 713
Issue:
14. Wise vs. Meer, 78 Phil. 655
15. Pirovano vs. Commissioner, 14 SCRA 832 ● Whether the petitioners are entitled to refund. If so, what exchange
16. Western Minolco vs. Commissioner, 124 SCRA 121 rate should be used to determine the peso equivalent of the foreign
17. Commissioner of Customs vs. Philippine Acetylene Co., 39 SCRA 70 earnings of petitioners for income tax purposes?
18. Commissioner vs. Arnoldus Carpentry Shop G.R. No. L-71122, March 25, Ruling:
1988
19. Bank of the Philippines Islands vs. Trinidad, 45 Phil. 384 ● NO
20. Gibbs vs. Commissioner, 15 SCRA 318 ● Income may be defined as an amount of money coming to a person
21. British Traders Insurance Co. vs. CIR, G.R. No. L-20501, April 30, 1965 or corporation within a specified time, whether as payment for
22. Commissioner vs. Malayan Insurance Company, G.R. No. L-21913, services, interest or profit from investment. Unless otherwise
November 18, 1967 specified, it means cash or its equivalent. Income can also be
23. Commissioner vs. Procter & Gamble, G.R. No. 66838, December 2, 1991 though of as flow of the fruits of one's labor
24. Alhambra Cigar vs. Commissioner, 21 SCRA 1111 ● Section 21 of the National Internal Revenue Code imposed a tax
25. Aguinaldo Industries vs. Collector, 112 SCRA 136 upon the taxable net income received during each taxable year from
26. Commissioner vs. Smith Kline & French Overseas Co., G.R. No. L-54108, all sources by a citizen of the Philippines, whether residing here or
Jan. 17, 1984 abroad
27. Hospital de San Juan De Dios vs. Commissioner, 185 SCRA 273
28. Coll vs. Goodrich, L-22265, December 22, 1967 _______________________________________________
29. Priscila Estate vs. CIR, G.R. No. L-18282, May 29, 1964
30. Commissioner vs. YMCA, G.R. No. 124043, October 14, 1998
_______________________________________________
Case 2: Limpan Investment Corporation vs. Commissioner, 17 SCRA 703

Topic: When Income is Taxable; Items of Gross Income Subject to Tax- Rent
Case 1: Conwi vs. Commissioner, 213 SCRA 83
Applicable law:
Digested by: Anina-Lei Flores
Topic: Taxability of Resident Citizens Link to full text
Applicable law: Sec 21 of NIRC
Digested by: Faye Mondoy Relevant facts:
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 ● Limpan Investment Corporation (LIC) is a domestic corporation ● The petitioners borrowed from their father the sum of P59,140.00
engaged in the business of leasing real properties mostly situated which amount together with their personal monies was used by
in Manila and Pasay City. They appealed against the CTA decision them for the purpose of buying real properties
that LIC should pay for deficiency income taxes, plus surcharge and ● On August 16, 1945, they appointed thru a document their brother
monthly interest after BIR conducted an investigation and found LIC Simeon Evangelista to ‘manage their properties with full power to
underdeclared rental incomes (and excessive depreciation). lease; to collect and receive rents; to issue receipts therefor; in
● Reasons of LIC for unreported rental income: agreement where default of such payment, to bring suits against the defaulting
previous owners would turn over to LIC 6% of the value of its tenant; to sign all letters, contracts, etc., for and in their behalf, and
properties to be applied to the rentals of the land in exchange for to endorse and deposit all notes and checks for them.’
whatever rentals they may collect from the tenants who refused to ● They then leased and rented out the properties to different tenants
recognize the new owner; a part was not declared as income in its ● September 24, 1984: respondent Collector of Internal Revenue
1957 tax return because its president who collected and received demanded the payment of income tax on corporations, real estate
from certain tenants, did not turn it over to petitioner corporation in dealer’s fixed tax and corporation residence tax for the years 1945-
said year but did so only in 1959; sub-tenant paid P4,200.00 which 1949 totaling to P6,878.34.
ought not be declared as rental income ● The petitioners filed a case at the CTA for them to be absolved of
payment with costs against Respondents; said case was denied
Issue: together with the subsequent petition for reconsideration and new
● Whether the rental income BIR says is underdeclared should be trial, which now brings us to the present case.
considered taxable income
Issue:
Ruling: ● Whether or not petitioners are subject to tax on corporations (Sec
● The alleged verbal agreement with previous owners is not only 24 of the NIRC)
unusual but uncorroborated by the alleged transferors, or by any
document or unbiased evidence. And a BIR examiner personally Ruling:
interviewed the tenants of LIC and found they’d been regularly ● Since they (1) pooled money and property into a common fund, (2)
paying their rentals to the collectors. It is taxable. leased the property to different tenants, and (3) management has
● 1957 rent is taxable since income is taxable when it is received or been under one person, as if it belonged to a corporation or a
realized during the taxable year. Includes actual and constructive business operated for profit, then the petitioners constitute a
receipts. The rental was deposited already and it's in the control of partnership as defined under the Civil Code
the landlord so even if it wasn't withdrawn in 1957, it would still ● Although under American Law, corporations are taxed differently
constitute income because constructive receipt is also receipt. from partnerships, our NIRC included partnerships within the
● The payment by the sub-tenant should also be reported as rental purview of “corporations” and since the petitioners constitute a
income since it is income just the same regardless of its source. partnership then they are subject to income tax on corporations.
_______________________________________________ _______________________________________________

Case 5: Evangelista vs. Collector, 102 Phil 140 Case 6: Marubeni Corporation vs. Commissioner, 177 SCRA 500

Topic: Income Tax on Corporations Topic: Foreign corporations

Applicable law: Sec 22B, Sec 27 Applicable law: Sec. 22H, 28, NIRC
Digested by: Clark Amayna Digested by: Angelica Remillano
Link to full text Link to full text

Relevant facts: Relevant facts:

● Petitioner Marubeni is a foreign corporation duly organized under
the existing laws of Japan and duly licensed to engage in business
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 under Philippine laws. Marubeni of Japan has equity investments in ● Thus, on April 14, 2003, petitioner filed a Petition for Review with the
Atlantic Gulf & Pacific Co. of Manila. CTA for the refund of the aforementioned amount.
● When the profits on Marubeni’s investments in Atlantic Gulf and ● The CTA ruled that petitioner is a resident foreign corporation
Pacific Co. of Manila were declared, a 10% final dividend tax was engaged in trade or business in the Philippines. It further ruled that
withheld from it, and another 15% profit remittance tax based on the the petitioner was not liable to pay tax on its GPB under Section
remittable amount after the final 10% withholding tax were paid to 28(A)(3)(a). The CTA, however, stated that petitioner is liable to pay a
the Bureau of Internal Revenue. tax of 32% on its income derived from the sales of passage
● Marubeni Corp. now claims for a refund or tax credit for the amount documents in the Philippines. On this ground, the CTA denied the
which it has allegedly overpaid the BIR. petitioner's claim for a refund.
● In 2010, petitioner filed a petition before the Commissioner of
Issue: Internal Revenue
● Whether or not Marubeni Japan is a resident foreign corporation
Issue:
Ruling: ● Whether or not petitioner, as an off-line international carrier selling
● No. The general rule is a foreign corporation is the same juridical passage documents through an sales agent in the Philippines, is
entity as its branch office in the Philippines. The rule is based on engaged in trade or business in the Philippines subject to the 32%
the premise that the business of the foreign corporation is income tax imposed by Section 28 (A)(1)
conducted through its branch office, following the principal-agent ● Whether or not the income derived by petitioner from the sale of
relationship theory. It is understood that the branch becomes its passage documents covering petitioner's off-line flights is
agent. Philippine-source income subject to Philippine income tax.
● However, when the foreign corporation transacts business in the
Philippines independently of its branch, the principal-agent Ruling:
relationship is set aside. The transaction becomes one of the ● Since it does not maintain flights to or from the Philippines, it is
foreign corporations, not of the branch. Consequently, the taxpayer not taxable under the exception as provided in Sec. 28(A)(3)(a)
is the foreign corporation, not the branch or the resident foreign ● But petitioner further claims that due to the non-applicability of
corporation. Sec. 28(A)(3)(a) to it, it is precluded from paying any other income
● Thus, the alleged overpaid taxes were incurred for the remittance of tax for its sale of passage documents in the Philippines.
dividend income to the head office in Japan which is considered as ● The court found this without merit as Sec. 28 (A)(1) does not exempt
a separate and distinct income taxpayer from the branch in the all international air carriers from the coverage of Sec. 28 (A) (1)
Philippines. being a general rule.
---------------------------------------------------------------------------------------------- ● Petitioner, being an international carrier with no flights originating
from the Philippines, does not fall under the exception. As such, the
Case 8: South African Airways vs Commissioner of Internal Revenue petitioner must fall under the general rule and so it is subject to the
32% tax on all income from sources within the Philippines as
Topic: Taxation on Resident Foreign Corporations imposed by Section 28A1.
Applicable law: Sec 22H, Sec 28A1, Sec28A3a ● To reiterate, the correct interpretation of the above provisions is
Digested by: Lovella Pelete that, if an international air carrier maintains flights to and from the
Link to full text Philippines, it shall be taxed at the rate of 2 1/2% of its Gross
Philippine Billings, while international air carriers that do not have
Relevant facts: flights to and from the Philippines but nonetheless earn income
● On February 5, 2003, petitioner filed with the BIR, a claim for the from other activities in the country will be taxed at the rate of 32%
refund of the amount of PhP 1,727,766.38 as erroneously paid tax on of such income.
Gross Philippine Billings (GPB) for the taxable year 2000. This claim ----------------------------------------------------------------------------------------------
was denied.

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Case 10: Commissioner vs. Manning, 66 SCRA 14 ● Whether the distributed stock dividends were “Treasury shares”
and
Topic: Income tax on stock dividends ● the Taxability of the "treasury" stock dividends received by the
Applicable law: Sec 32A, NIRC respondents
Digested by: Franz Alimorong
Link to full text Ruling:
● The Supreme Court held that the newly acquired shares were not
Relevant facts: treasury shares; their declaration as treasury stock dividends was a
● Under a trust agreement, Julius Reese who owned 24,700 shares of complete nullity and that the assessment by the Commissioner of
the 25,000 common shares of MANTRASCO, and the three private fraud penalty and the imposition of interest charges pursuant to
respondents who owned the rest, at 100 shares each, deposited all the provision of the Tax Code were made in accordance with law.
their shares with the Trustees. ● The judgment of the Court of Tax Appeals absolving the
○ The trust agreement provided that upon Reese’s death respondents from any deficiency income tax liability is set aside.
MANTRASCO shall purchase Reese’s shares. The trust ----------------------------------------------------------------------------------------------
agreement was executed in view of Reese’s desire that upon
his death the Company would continue under the Case 12: Nielson & Co. vs. Lepanto Consolidated Mining Co
management of respondents.
Topic: Income tax on stock dividends
● Upon Reese’s death and partial payment by the company of Applicable law: Sec 16 (Corporation law), Sec 32a (NIRC)
Reeses’s share, a new certificate was issued in the name of Digested by: Sofia Bien
MANTRASCO, and the certificate indorsed to the Trustees. Link to full text
● Subsequently, the stockholders reverted the 24,700 shares in the
Treasury to the capital account of the company as stock dividends Relevant facts:
to be distributed to the stockholders. ● In January 1937, Nielson and Lepanto signed a 5-year contract
wherein it was agreed upon that Nielson would manage and operate
● When the entire purchase price of Reese’s interest in the company
Lepanto’s mining properties.
was paid in full by the latter, the trust agreement was terminated, ● In 1941, the contract was renewed for another 5 years (prior to the
and the shares held in trust were delivered to the company. conclusion of the initial contract).
● The Bureau of Internal Revenue concluded that the distribution of ● In January 1942, The Pacific War disrupted the operation of
the 24,700 shares of Reese as stock dividends was in effect a Lepanto's mining properties. The period of reconstruction and
distribution of the "assets or property of the corporation." rehabilitation was 1945-1948.
○ It therefore assessed respondents for deficiency income ● In 1966, the initial case was whether the management contract is
suspended during the years of World War II. The ruling was that it is
taxes as well as for fraud penalty and interest charges.
a contract of lease of services wherein Nielson & Co is rendering
● The Court of Tax Appeals absolved respondent from any liability for services to Lepanto Consolidated Mining Co. in exchange for
receiving the questioned stock dividends on the ground that their compensation. The contract is considered suspended during the
respective one-third interest in the Company remained the same rehabilitation period due to force majeure, and Nielson must be
before and after the declaration of the stock dividends and only the paid their compensation according to the agreement. The payment
number of shares held by each of them had changed. included stock dividends of Lepanto.

Issue:
Issue: ● Whether Nielson & Co. is entitled to stock dividends as part of
compensation.
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 Ruling:
Ruling: ● No, the Court held that said donation was not remuneratory. In the
● No, stock dividends cannot be issued to Nielson & Co. as resolution of De la Rama Steamship Co, the company said it
compensation for the entity is not a stockholder of Lepanto decided to renounce claims in favor of Pirovano's heirs "out of
Consolidated Mining Co. gratitude". In addition, there is nothing on record to show that when
● Section 16 of the Corporation Law states that share of stocks can the late Enrico Pirovano was not fully compensated for his services.
only be given in consideration for cash, property, and undistributed -> The company’s gratitude was the true consideration for the
profits. And it is only considered to be "stock dividends" if given in donation, and not the services themselves.
place of undistributed profits. In this case, the "stock dividends" are ● Further, The fact that his services contributed in a large measure to
given in exchange for services which do not fall under the success of the company did not give rise to a recoverable debt,
"undistributed profits" but under "property." and the conveyances made by the company to his heirs remain a
● Therefore, the court rules that stock dividends will not be given. gift or a donation.
Instead, the cash equivalent of 10% of stock dividends shall be paid ● Also whether remuneratory or simple, the conveyance remained a
to Nielson & Co. gift, taxable under the Internal Revenue Code.
_______________________________________________ ● It follows that the CIR was correct in its assessment.

Case 15: Pirovano vs. Commissioner, 14 SCRA 832 Additional notes:

● Acquisition of property by gift or donation is not income. ->
Topic: Exclusion of gifts, bequests, and devises from income tax Excluded from gross income even if there is flow of wealth because
Applicable law: Sec. 32 (B)(3), NIRC there is DONOR’S TAX.
Digested by: Trish Estomo _______________________________________________
Link to full text
Case 16: Western Minolco vs. Commissioner, 124 SCRA 121
Relevant facts:
● Enrico Pirovano, the father of the petitioners, was insured by De la Topic: Deductions from Gross Income
Rama Steamship Co. where he was the company's former President Applicable law: Sec. 1 of Republic Act No. 3823, Sec. I of Presidential Decree
and General Manager. Initially, the beneficiary of this life insurance No. 237, Sec. 1 of P. D. No. 238, Secs. 52 and 53 of Presidential Decree No. 463
was the company. However, after Pirovano's death, the company Digested by: Joanna Guadalupe
renounced all its claims in favor of Pirovano's heirs which was Link to full text
valued at P583,813.59.
● CIR then subjected the donation to gift tax inclusive of surcharges, Relevant facts:
interests and other penalties, against each of the heirs. ● In October 1972, the petitioner was granted Certificate of
Pirovano’s heirs contested. Petitioners argue that the grant was not Qualification for Tax Exemption No. 34.
subject to donee’s tax because it was not a simple donation, rather ● On Dec. 24, 1976, the petitioner was also granted by SEC the
it was remuneratory as it was made for a full and adequate authority to borrow money and issue commercial papers. The
compensation for the valuable services by the late Pirovano who petitioner borrowed funds from several financial institutions and
was "largely responsible for the rapid and very successful paid the corresponding 35% transaction tax due thereon in the
development of the activities of the company" amount of P1,317,801.03.
● On Feb. 16, 1978, the petitioner applied for the refund of the P1.3M
Issue: alleging that it was not liable to pay under its Certificate of
● Whether the donation is remuneratory and does not constitute a Qualification for Tax Exemption, and pursuant to The Mining Act,
taxable gift; and and the Mineral Resources Development Decree of 1974.
● Whether or not the CIR was correct in imposing donee's gift taxes ● On February 19, 1979, the respondent Commissioner of internal
inclusive of surcharge and interest Revenue denied the petitioner's claim for refund.

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 ● On May 29, 1979, Western Minolco filed a petition for review with the Digested by: Miguel Pocholo R. Matundan
respondent Court of Tax Appeals. Before the respondent court could Link to full text
render its decision, the petitioner filed a pleading entitled "Request
for Judicial Notice and Request for Admission" alleging that the
Relevant facts:
subject tax was paid in the nature of a business tax, and that the
petitioner's claim for refund is based on its exemption from ● BPI
business taxes, which is protected by existing tax exemptions ○ Plaintiff
granted under the mining law. ○ domestic banking corporation, with its principal office and
● On January 29, 1982, the Court of Tax Appeals denied the petitioner's place of business in the City of Manila, operating under a
"Request for Judicial Notice and Request for Admission. special character granted by the Philippine Legislature,
● On May 21, 1982, the respondent court rendered its decision known as Act No. 1790
dismissing the petition for review for lack of merit.
● TRINIDAD, Wenceslao
Issue: ○ Defendant
● Whether or not Western Minolco is exempt from the 35% ○ duly appointed, qualified, and acting Collector of Internal
transaction tax. (NO) Revenue of the Philippine Islands
● Cause of Action
Ruling: ○ Article 26 of its Character
● The transaction tax of P1.3M paid by the petitioner was not actually ○ renounce all claim to the exclusive privilege of issuing
imposed upon it in the conduct of its mining business or in the
notes in the Philippine Islands
importation of machinery, spare parts and or equipment listed in
the stamped "ANNEX I" of its Certificate of Qualification for Tax ○ no laws or regulations shall be made or enforced affecting
Exemption No. 34 the bank, or imposing charges or taxation upon it, which
● Regarding the petitioner's claim that the 35% transaction tax is a shall not apply equally to other banks of a similar type
business tax and not an income tax since the Revenue Code operating under similar conditions
classifies it as such, and that a presidential decree states that the ○ Legislature of the Philippine Islands granted a charter to the
transaction tax shall be a deductible for determining the borrower's
Philippine National Bank, by section 18:
taxable income, the court says that the 35% transaction tax is an
income tax on interest earnings to the lenders or placers. The ■ authority is given the bank to issue circulating
lenders are actually the taxpayers. Therefore, the tax cannot be a tax notes
imposed upon the petitioner. ■ “Said circulating notes shall be exempt from any
● Whether or not certain taxes are on income is not necessarily and all taxes levied or assessed by the Philippine
determined by their deductibility or non-deductibility from gross Government, or any department, division or
income. subdivision thereof.”
● Petitioner Western Minolco Corporation has failed to justify its
● Defendant filed demurrer and lower sustained, but was reversed
claimed exemption from the transaction tax. The decision of the
Commissioner of Internal Revenue denying the petitioner's claim for and remanded by supreme court
refund is affirmed. ● Defendant’s Defense:
_______________________________________________ ○ admitting the formal part of the complaint, and alleging the
collection of the taxes as alleged, and specially denies all of
Case 19: Bank of the Philippines Islands vs. Trinidad, 45 Phil. 384 the other material allegations of the complaint
● Special Defense:
Topic: Deductions from Gross Income
Applicable law: Section 34, NIRC ; Law on Exemptions (earlier in the sem)

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 ● that the plaintiff is not a bank of similar type operating under Bank was created to promote the general interests of the country,
similar conditions to the National Bank, nor is it entitled to the etc.
same exemptions and privileges as the National Bank _______________________________________________

● that at the time the taxes mentioned on the first paragraph were Case 20: Gibbs vs. Commissioner, 15 SCRA 318
paid by the plaintiff, Act No. 2612 of the Philippine Legislature was
Topic: When Withholding Tax is Considered as Payment + Period of Tax
no longer in force, and that it was amended and superseded by Acts
Appeal
Nos. 2747 and 2938 Applicable Law: SEC. 229. Recovery of Tax Erroneously or Illegally Collected.
● under the provisions of section 14 of Act No. 2747 and section 15 of Digested by: Andrei Yu
Act No. 2938, the circulating notes of the Philippine National Bank, Link to full text
with the exception of those issued against gold coin of the United
States, are not exempt from taxes, and the defendant has Relevant facts:
heretofore levied and collected the taxes due on the circulating ● 1951 - Gibbs incurred tax liability
● 1956 - CIR issued Tax Deficiency Notice and demanded payment
notes of the National Bank; that the plaintiff has no note circulation
● 1956 - Gibbs paid full amount to show good faith but demanded
issued against gold coin of the United States, and the circulating refund
notes upon which the taxes were paid were of the same kind and ● 1958 - Gibbs sent a letter reiterating demand of refund
type on which the National was paying taxes ● 1958 - Gibbs filed a petition to court
● that the charter of the plaintiff bank has not in any way been ● GIBBS’ claim : Since there’s an ongoing appeal, the statute of
violated, and that the taxes paid by the plaintiff were legally due the limitation of 2 years from payment does not start until the CIR
Government addresses the appeal. Until the issue is addressed only then the 2
years start. Withholding tax cannot be considered as payment but a
● that the plaintiff paid the taxes voluntarily without any
deposit.
compulsation or demand by the defendant
Issue:
Issue: ● Whether or not the withheld tax is already considered payment or
● Whether or not BPI was similar to PNB not
○ If yes, should BPI still be taxed, because PNB was also taxed ○ This determines if the appeal is still within the statute of
limitations
later on due to certain amendments
Ruling:
Ruling: ● Appeal is denied because tax withheld at source is already
● Lower court rendered judgment for the defendant considered payment upon withholding of said tax.
● in finding that said agreed statement of facts admitted "That, in ● Additional stuff:
accordance with the law, the Philippine National Bank pays the ○ Even if the CIR takes time in assessing and replying, the
corresponding tax upon notes put in circulation, etc." and omitting party appealing should initiate or start filing a suit before
the end of the 2 year period. CIR is not liable if the party
facts as set forth in said statement in that regard
appealing does not start the suit before the end of the 2
● in finding that because the Philippine National Bank paid taxes its year period.
circulating notes, plaintiff's cause of action was not approve; and in _______________________________________________
rendering judgment for the defendant
● in finding that the statement of agreed facts submitted by the Case 21. British Traders Insurance Co. vs. CIR, G.R. No. L-20501, April 30,
parties admitted that "on the other hand, the Philippine National 1965

7
 activity looks to happen in the Philippines based on
Relevant facts: evidence stated above
● British Traders Insurance Co. is part of a larger group of ● Therefore British Traders’ Insurance Co. was subject to withholding
international insurance companies. Said larger group entered into a tax.
joint REINSURANCE policy with FOREIGN REINSURERS, wherein _______________________________________________
they’d cede a certain amount of their premiums, in exchange for
said reinsurers to take on a certain amount of liability, proportional Case 22: Commissioner vs. Malayan Insurance Company, G.R. No. L-
to the premiums ceded 21913, November 18, 1967
● In the Philippine office of British Traders Insurance Co,, the
premiums they ceded to the foreign reinsurers were not included in Topic: Withholding Tax
their Annual Income Tax returns for 1954 and 1955 Applicable Law: Sec 53 (B) and (C) of 1939 tax code, Sec 57 of 1997 Tax Code
● The CIR caught wind of this, and ordered them to pay the tax (new)
associated with the income. Digested by: Ginger Vidal
● The Philippine office eventually obliged, although they kept fighting Link to full text
it, electing that the amounts ceded are not liable to income tax,
arguing that: Relevant facts:
○ The deal was signed internationally, therefore not subject to ● Relationship of parties
domestic taxes ○ Malayan Insurance Company, (domestic corporation) has a
○ The reinsurers are foreigners not based or doing business in reinsurance contract with Orion Insurance Company (non-
the Philippines and are therefore not subject to domestic resident foreign corporation)
taxation ○ In 1958, Orion had commissioned Filipinas Compañia de
○ Cessions of reinsurance premiums are not counted in SEC. Seguros (domestic company) to file the year’s income tax
37 of the tax code as types of income to be taxed return on its behalf, and there's a letter written for that
Issue: ● A petition (by CIR) for review of the previous decision of The CTA
● Whether or not the premiums are subject to income tax, and ordering a refund to Malayan insurance company inc, of a total of
whether or not British Traders’ Insurance Co. are subject to the 958 pesos, which was allegedly paid erroneously for foreign
withholding tax corporation Orion, and 2nd, the dismissal of the counterclaim of the
commissioner of internal revenue for the payment of withholding
Ruling: tax of 15,416.96. On the ff grounds:
● According to the Court of Tax Appeals: ○ Malayan had ceded reinsurance premiums to Orion. But, CIR
○ Although SEC. 37 does not explicitly mention the cession of did not dispute that Filipinas was commissioned by Orions
insurance premiums as a type of income, it also does not ○ Second, CIR contends that the payment of Filipinas of tax
state that those are the ONLY types of income to be taxed. on income derived by Orion from Philippine services did not
○ Much more important is that the flow of wealth occurred relieve Malayan of its obligation to pay withholding tax on
within the Philippines. Although the receivers are foreigners reinsurance premiums
not doing business in the Philippines, since the flow of
wealth occurred within the Philippines as they came from Issue:
Philippine customers, and there’s evidence to show that all ● Whether or not the obligation of Malayan was affected by the
other activities in regards to the contract will occur in the payment by Filipinas of Orion's income tax in 1958
Philippines (recording of transactions, the actual reinsuring
if the risk does occur, etc.) then it is still subject to the Ruling:
protections of the Philippine government and therefore ● No. Malayan’s obligation as a withholding agent is compulsory
liable to the government’s taxation ○ The cause of action of CIR against Malayan is not for the
○ Lastly, just because the contract was signed abroad, that collection of income tax but for the enforcement of
does not mean that is the only consideration, as situs of
8
 withholding tax - which is an obligation upon the ● The CTA granted the refund of the P4 million, but the Supreme Court
withholding agent, Malayan, not taxpayer, Orion. reversed CTA’s decision on the following grounds:
○ Sec 53 C of 1939 Tax Code - Malayan personally liable to ○ P&G USA was the proper party to receive the tax refund
withholding tax on reinsurance premium as a withholding ○ No provisions in the US Tax Code allows the credit deemed
agent to have been paid to be 20%
○ Supporting: ○ P&G PH failed to meet the certain conditions for it to be
■ No proof that Malayan withheld reinsurance subject to 15%
premiums, so the company needs to pay that.
■ In terms of the payment of Filipinas of 778, there is Issue:
also no proof that it included reinsurance ● Whether P&G PH is entitled to the tax credit and is a taxpayer
premiums, given the amount difference and that pursuant to Section 309 (3) NIRC.
the reinsurance premiums never really passed thru
Filipinas. Ruling:
■ Filipinas cannot be considered an authorized agent ● Yes, P&G PH is entitled to the tax credit and is a taxpayer.
through which any deficiency tax against Orion may ○ The requirements for the tax refund and the rate were met.
be collectible, as emphasized in the letter. The right ○ Since there was an implied authority between both
to appeal or claim for a refund is also withheld from companies and P&G PH was still under the effective control
the agent. of its parent stockholder.
_______________________________________________ ○ The Court also points out in reference to Philippine
Guaranty Company, Inc. v. Commissioner of Internal
Case 23: Commissioner vs. Procter & Gamble, G.R. No. 66838, December Revenue that P&G PH is both the withholding agent and the
2, 1991 taxpayer in this part:
“Thus, the withholding agent is constituted the
Topic: Withholding Tax agent of both the Government and the taxpayer. With
Applicable Law: Section 24 (b) (1) of the old NIRC; Section 28 (B)(5)(b) of the respect to the collection and/or withholding of the tax, he is
current NIRC the Government's agent. In regard to the filing of the
Digested by: Gabrielle Ybañez necessary income tax return and the payment of the tax to
Link to full text the Government, he is the agent of the taxpayer. The
withholding agent, therefore, is no ordinary government
Relevant facts: agent especially because under Section 53 (c) he is held
● In 1975, P&G PH declared P24 million of dividend payable to P&G personally liable for the tax he is duty bound to withhold;
USA whereas the Commissioner and his deputies are not
○ The dividends amount to P8 million due to the 35% made liable by law.”
withholding tax at source applied to the dividend. _______________________________________________
● In 1977, P&G PH claimed a tax refund/credit of P4 million to the CIR,
pursuant to the Section 24 (b) (1) that the rate is 15% not 35% Case 24: Alhambra Cigar vs. Commissioner, 21 SCRA 1111
○ Due to the CIR’s inaction, P&G PH filed a petition to the CTA
for the said refund. Topic: Itemized Deductions from Gross Income (Expenses -->
Compensation)

9
Applicable law: Sec 34A since there is no justification for the performance of services to
Digested by: Juris Nafarrete warrant such amounts
Link to full text ● Questions to be considered in the deductibility of items for
compensation: (1) Have personal services been actually rendered?,
Relevant facts: (2) What is the reasonable allowance therefore?
● Petition for Review of a CTA decision _______________________________________________
● Alhambra Cigar contended that the CTA, in affirming the action
taken by CIR, erred: (1) in holding that A.P. Kuenzle and H.A. Streiff Case 25: Aguinaldo Industries vs. Collector, 112 SCRA 136
(Pres & VP of Alhambra) were entitled to a salary of only P6000 each
year from 1954-1957, and a bonus equal to the reduced bonus of W. Topic: Itemized Deductions from Gross Income (Expenses)
Eggmann for each of said years — disallowing as deductions the Applicable law: Sec 34A
portions of their salary and bonus in excess of said amounts, (2) in Digested by: Cheska Pajaro
disallowing as deductions all directors’ fees and commissions paid Link to full text
to Kuenzle and Streiff, (3) in holding Alhambra liable for the alleged
deficiency income taxes in question Relevant facts:
● Appraisal of evidence by CIR showed that only P6000 of the P15000 ● Petition for Review of a CTA decision
salary claimed by Alhambra was reasonable, and considered as ● Aguinaldo Industries Inc (petitioner), CIR (defendant)
ordinary and necessary business expense ● Aguinaldo Industries Corporation is a domestic corporation
● Bonus claimed that was 4 times as much as the annual salary was engaged in the manufacturing of fishing nets and furniture. Fish
reduced to the amount equivalent to Eggmann, resident treasurer Nets Division and Furniture Division had separate acctg books.
and manager ● Aguinaldo Industries purchased land in Muntinglupa, meant to be a
● No evidence of any particular services rendered to warrant payment site for the fishing net factory, but after found a more suitable
of commissions; services mentioned would have been more property in Marikina, so they sold the Muntinglupa property
adequately compensated through salaries and bonuses through an agent, deriving profit from the sale, entered as
● No justification of paying directors’ fees of about P10000 each for miscellaneous income into the books of the Fishing Nets Division.
coming to the Philippines only once in 2 years ● Tax Return of 1957: There was a deduction from its gross income for
additional remuneration paid to officers of the petitioner of P61k.
Issue: ● Examiner recommended that the P61,187.48 remuneration expense
● Whether or not the decision of the Court of Tax Appeals sought to be should be disallowed as a deduction from gross income.
reviewed reflected with fidelity the doctrine* thus announced or ● Aguinaldo Industries argued that it should be allowed as deduction
deviated therefrom. because it was paid to its officers as allowance or bonus pursuant
to the company's by-laws.
*Sec 34A: “the ordinary and necessary expenses paid or increased during
the taxable year in carrying on any trade or business, including a Issue:
reasonable allowance for salaries and other compensation for personal ● Whether or not the bonus given to the officers of the Aguinaldo
services actually rendered Industries upon the sale of its Muntinglupa land is an ordinary and
necessary business expense deductible for income tax purposes
Ruling:
● The decision of the Court of Tax Appeals is affirmed, with costs *Sec 34A: “the ordinary and necessary expenses paid or increased during
against petitioner-appellant (Alhambra). the taxable year in carrying on any trade or business, including a
● Only allowable deductions are the P6000 as salaries and bonuses reasonable allowance for salaries and other compensation for personal
equal to that of W. Eggmann as these are reasonable allowances services actually rendered
considered as ordinary and necessary business expense;
Commissions and directors’ fees are disallowed as deductions Ruling:

10
 ●NO. The bonus given to the officers of Aguinaldo Industries is NOT report prepared by Sycip, Gorres, Velayo and Company, and the gross
deductible from gross income. income of the corporation as a whole was $6,891,052, Smith Kline's
● The sale was effected through a broker who was paid by Aguinaldo share at 15.94% of the home office overhead expenses was
Industries a commission of P51,723.72 for his services. P1,427,484 ($219,547) (Exh. G to G-2, BIR Records, 4-5).
● There was no evidence that the remunerated officers actually
rendered any services that could have been the basis for the bonus Ruling:
derived from the profit of the sale. ● We hold that Smith Kline's amended 1971 return is in conformity
● Thus, the giving of bonus from the sale cannot be considered a with the law and regulations. The Tax Court correctly held that the
selling expense, nor can it be deemed reasonable and necessary so refund or credit of the resulting overpayment is in order.
as to make it deductible for tax purposes. _______________________________________________
_______________________________________________
Case 28: Coll vs. Goodrich, L-22265, December 22, 1967
Case 26: Commissioner vs. Smith Kline & French Overseas Co., G.R. No. L-
54108, Jan. 17, 1984 Topic: Itemized Deductions from Gross Income (Bad Debt)
Applicable law: Sec 34E
Topic: Itemized Deductions from Gross Income (Expenses) Digested by:
Applicable law: Sec 37 and Sec 160 Link to full text
Digested by: Vernice Pancho
Link to full text Relevant facts:
● Petition for Review of a CTA decision
Relevant facts: ● Collector of Internal Revenue (petitioner), Goodrich International
● Smith Kline and French Overseas Co. is a multinational firm Rubber Co. (respondent)
domiciled in Pennsylvania licensed to do business in the PH ● Goodrich’s agent had recorded expenses at certain golf clubs as a
● 1971 original income tax return, Smith Kline declared a net taxable representation expense but could not provide receipts from the
income of P 1,489,277 with P 511,247 as tax due; among deductions establishments.
was P 501,040 as its share of the head office overhead expenses ● Goodrich recorded P50,455.41 worth of written off bad debt as
● 1973 amended return, there was an overpayment of P 324,255 on deductions.
taxes due because the share on head office overhead expenses was ○ Some of these were eventually paid in full
P 1,427,484 vs P 501,040 ● Goodrich included these as deductions and the initial CTA decision
● 1974, Smith Kline filed a petition for review with the CTA allowed it.
● 1980, Tax Court ordered the Commissioner to refund the
overpayment or grant a tax credit to Smith Kline Issue:
● Commissioner argues that there exists a service agreement 1. Are the representation expenses valid as deductions given the
between Smith Kline PH and Smith Kline US that fixes the overhead claim by Goodrich’s agents
expenses at P 501,040 as originally filed and that Smith Kline has 2. Are the written off bad debt valid as deductions
not presented ample evidence for their claim *Sec 34E: “In General. – Debts due to the taxpayer actually ascertained to
be worthless and charged off within the taxable year except those not
Issue: connected with profession, trade or business and those sustained in a
1. Is Smith Kline’s amended return valid based on their computation transaction entered into between parties mentioned under Section 36 (B)
and should there be a tax refund or tax credit? of this Code: Provided, That recovery of bad debts previously allowed as
Smith Kline likewise submits that it has presented ample evidence deduction in the preceding years shall be included as part of the gross
to support its claim for refund. To this end, it has presented before income in the year of recovery to the extent of the income tax benefit of
the Tax Court the authenticated statement of Peat, Marwick, said deduction.”
Mitchell and Company to show that since the gross income of the
Philippine branch was P7,143,155 ($1,098,617) for 1971 as per audit Ruling:
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 1.Representation Expense ● Collector of Internal Revenue (petitioner), Priscila Estate Inc.
○ NO. The representation expense is not deductible from (respondent)
gross income. ● Priscila Estate paid taxes for 1949, 1950, and 1951
○ The claimed receipts only attest to the expense.
● Dec 1949, Priscila’s Estate’s building was demolished
○ If the expenses had in fact been incurred, then the clubs
and establishments would have provided receipts and it ● June 1952: Priscila Estate amended income tax returns for 1951
must be submitted as proof. ● Sep 1952: Priscila Estate claimed for refund of overpaid tax returns
2. Bad Debt Deductions for 1950: having deducted loss of only approx. PHP6k instead of
○ The requirement of ascertainment of worthlessness approx PHP39k as loss in the sale of the lot and building.
requires proof of two facts: ● CIR investigated and gave tax credit of approx PHP1,500 for 1950.
(1) that the taxpayer did in fact ascertain the debt to be ● Nov 1953: CIR assessed and found deficiency in income taxes
worthlessness, in the year for which the deduction is
amounting to approx PHP3,500 for 1949, & approx PHP22,000 for
sought;
and (2) that, in so doing, he acted in good faith.1 1951.
“Good faith on the part of the taxpayer is not enough” ● Priscila Estate contested deficiency assessments when CIR refused
○ Some of the expenses were found NOTto be deductible from to reconsider. Brought suit to tax court (CTA), was granted a refund
gross income. of approx PHP3,000.
■ These written off debt had eventually become fully ● CIR elevated CTA’s decision to the Supreme Court.
paid
■ Some of the companies remained operational
Issue:
■ Sending demand letters is not enough
■ Proper investigation is required and proof from it 1. Whether or not the value of the demolished building should be
that the debt is in fact worthless and may never be deducted from gross income or added to the cost of the building
paid. replacing it.
○ Some of the expenses were found to be deductible from
gross income. Note:
■ Those found to be deductible include debt so small
● CIR was claiming the sale was to make way for a new building.
that investigation and further demands would cost
more than the amount of the debt. ● Removal of the building was not voluntary by Priscila Estate, the
■ One was found to be worthless as the business had city engineer ordered for it because it was a fire hazard.
been found to be permanently non-operational after ● The building was not compensated for by insurance.
burning down and without any leviable assets.
_______________________________________________ *Sec 34D. (1) Losses actually sustained during the taxable year and not
compensated for by insurance or other forms of indemnity shall be allowed as
Case 29. Priscila Estate vs. CIR, G.R. No. L-18282, May 29, 1964
deductions”

Topic: Itemized Deductions from Gross Income (Losses)

Ruling:
Applicable law: Sec 34D
● YES. Loss of sale should be deducted from gross income.
Digested by: Leila Rufino
● It was proven that there were no intentions of demolishing solely for
Link to full text
the purpose of erecting a new building.
● There was also no insurance for the building.
Relevant facts:
● Finding no reversible error in the decision under review, the same is
● Supreme Court’s review of a CTA decision
hereby affirmed.
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_______________________________________________ or personal, or from any of their activities conducted for profit
regardless of the disposition made of such income, shall be
Case 30. Commissioner vs. YMCA, G.R. No. 124043, October 14, 1998 subject to tax imposed under this Code.”
● Regardless of whether the income is used to attain YMCA’s
Topic: Exempt Corporations objectives, it is still subject to tax.
Applicable law: Sec 30
Digested by:
Link to full text

Relevant facts:
● YMCA is a non-government, non-stock, non- profit, civic, voluntary,
educational and ecumenical association.
○ primary objective is to serve the welfare of the youth
● 1980, YMCA income of P676,829.80 from leasing out a portion of its
premises to small shop owners and P44,259.00 from parking fees
collected from non-members
● July 2, 1984: CIR issued an assessment to YMCA, in the total amount
of P415,615.01 including surcharge and interest, for deficiency
income tax and other deficiencies
● March 14, 1989: YMCA filed petition for review at the CTA.
○ CTA ruled in favor of YMCA ruling that the leasing of
properties and operation of the parking lot “reasonably
incidental to and reasonably necessary for the
accomplishment of the objectives of the [private
respondents].
● CIR elevated the case to the CA, who initially decided in favor of CIR
but eventually ended up affirming CTA’s decision
○ CA: cannot depart from the CTAs findings of fact and
income “from small shops and parking fees help[s] to keep
its head above the water, so to speak, and allow it to
continue with its laudable work.”

Issue:
● Whether or not YMCA’s rental income is taxable
● SEC. 30 The following organizations shall not be taxed under this Title in
respect to income received by them as such: (G). Civic league or
organization not organized for profit but operated exclusively for the
promotion of social welfare; (H). A nonstock and nonprofit educational
institution;

Ruling:
● Yes, YMCA’s rental income is taxable.
● SEC. 30, (last paragraph): “Notwithstanding the provisions in the
preceding paragraphs, the income of whatever kind and character
of the foregoing organizations from any of their properties, real
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