CIR vs. PHILIPPINE AIRLINES, INC.

- Minimum Corporate Income Tax

FACTS:
PHILIPPINE AIRLINES, INC. had zero taxable income for 2000 but would have been
liable for Minimum Corporate Income Tax based on its gross income. However,
PHILIPPINE AIRLINES, INC. did not pay the Minimum Corporate Income Tax using as
basis its franchise which exempts it from all other taxes upon payment of
whichever is lower of either (a) the basic corporate income tax based on the net
taxable income or (b) a franchise tax of 2%.

ISSUE:
Is PAL liable for Minimum Corporate Income Tax?

HELD:
NO. PHILIPPINE AIRLINES, INC.s franchise clearly refers to "basic corporate income
tax" which refers to the general rate of 35% (now 30%). In addition, there is an
apparent distinction under the Tax Code between taxable income, which is the basis
for basic corporate income tax under Sec. 27 (A) and gross income, which is the
basis for the Minimum Corporate Income Tax under Section 27 (E). The two terms
have their respective technical meanings and cannot be used interchangeably. Not
being covered by the Charter which makes PAL liable only for basic corporate
income tax, then Minimum Corporate Income Tax is included in "all other taxes"
from which PHILIPPINE AIRLINES, INC. is exempted.

The CIR also can not point to the Substitution Theory which states that
Respondent may not invoke the in lieu of all other taxes provision if it did not pay
anything at all as basic corporate income tax or franchise tax. The Court ruled that
it is not the fact tax payment that exempts Respondent but the exercise of its
option. The Court even pointed out the fallacy of the argument in that a measly sum
of one peso would suffice to exempt PAL from other taxes while a zero liability would
not and said that there is really no substantial distinction between a zero tax and a
one-peso tax liability. Lastly, the Revenue Memorandum Circular stating the
applicability of the MCIT to PAL does more than just clarify a previous regulation and
goes beyond mere internal administration and thus cannot be given effect without
previous notice or publication to those who will be affected thereby.

Mellon Bank vs. Magsino G.R. No. 71479 October 18, 1990
Section 2 of said law allows the disclosure of bank deposits in cases where
the money deposited is the subject matter of the litigation. Inasmuch as
Civil Case No. 26899 is aimed at recovering the amount converted by the
Javiers for their own benefit, necessarily, an inquiry into the whereabouts
of the illegally acquired amount extends to whatever is concealed by
being held or recorded in the name of persons other than the one
responsible for the illegal acquisition.
Facts: On May 27, 1977, Dolores Ventosa requested the transfer of $1,000 from the
First National Bank of Moundsville, West Virginia, U.S.A. to Victoria Javier in Manila
through the Prudential Bank. Accordingly, the First National Bank requested the
petitioner, Mellon Bank, to effect the transfer. Unfortunately the wire sent by Mellon
Bank to Manufacturers Hanover Bank, a correspondent of Prudential Bank, indicated
the amount transferred as US$1,000,000.00 instead of US$1,000.00. Hence
Manufacturers Hanover Bank transferred one million dollars less bank charges of
$6.30 to the Prudential Bank for the account of Victoria Javier.
Javier withdrew $475,000 from account No. 343 and converted it into eight cashiers
checks made out to the following: (a) F.C. Hagedorn & Co., Inc., two cheeks for the
total amount of P1,000,000; (b) Elnor Investment Co., Inc., two checks for
P1,000,000; (c) Paramount Finance Corporation, two checks for P1,000,000; and (d)
M. Javier, Jr., two checks for P496,000. Javier also brought several properties in the
United States including the one of his lawyer, Poblador.
Mellon Bank filed a complaint docketed as No. 148056 in the Superior Court of
California, County of Kern, against Melchor Javier, Jane Doe Javier, Honorio Poblador,
Jrn, and Does I through V. In its first amended complaint to impose constructive
trust. The testimonies of these witnesses were objected to by the defense on the
grounds of res inter alios acta, immateriality, irrelevancy and confidentiality due to
RA 1405. The Javier spouses also contend that inasmuch as the Mellon Bank had
filed in California an action to impose constructive trust on the California property
and to recover the same.

Issue:1) Whether or not an account deposit which is relevant and material to the
resolution of the case may be covered under R.A. No. 1405.
2) Whether or not the principle of election of remedies bars recovery of Mellon
Bank

Held:
1) Whether or not an account deposit which is relevant and material to the
resolution of the case may be covered under R.A. No. 1405.
Yes. Section 2 of said law allows the disclosure of bank deposits in cases where the
money deposited is the subject matter of the litigation. 24 Inasmuch as Civil Case
No. 26899 is aimed at recovering the amount converted by the Javiers for their own
benefit, necessarily, an inquiry into the whereabouts of the illegally acquired
amount extends to whatever is concealed by being held or recorded in the name of
persons other than the one responsible for the illegal acquisition.
2) Whether or not the principle of election of remedies bars recovery of Mellon Bank
The spouses Javiers reliance on the procedural principle of election of remedies as
part of their ploy to terminate Civil Case No. 26899 prematurely. With the exception
of the Javiers, respondents failed to raise it as a defense in their answers and
therefore, by virtue of Section 2, Rule 9 of the Rules of Court, such defense is
deemed waived. 26 Notwithstanding its lengthy and thorough discussion during the
hearing and in pleadings subsequent to the answers, the issue of election of
remedies has not, contrary to the lower courts assertion, been elevated to a
substantive one. Having been waived as a defense, it cannot be treated as if it
has been raised in a motion to dismiss based on the nonexistence of a cause of
action.

Moreover, granting that the defense was properly raised, it is inapplicable in this
case. In its broad sense, election of remedies refers to the choice by a party to an
action of one of two or more coexisting remedial rights, where several such rights

arise out of the same facts, but the term has been generally limited to a choice by a
party between inconsistent remedial rights, the assertion of one being necessarily
repugnant to, or a repudiation of, the other. In its technical and more restricted
sense, election of remedies is the adoption of one of two or more coexisting
remedies, with the effect of precluding a resort to the others.

COMMISSIONER OF INTERNAL REVENUE VS. FILINVEST DEVELOPMENT

CORPORATION- Theoretical Interest

Filinvest Development Corporation extended advances in favor of its affiliates and

supported the same with instructional letters and cash and journal vouchers. The
BIR assessed Filinvest for deficiency income tax by imputing an arms length
interest rate on its advances to affiliates. Filinvest disputed this by saying that the
CIR lacks the authority to impute theoretical interest and that the rule is that
interests cannot be demanded in the absence of a stipulation to the effect.

ISSUE:
Can the CIR impute theoretical interest on the advances made by Filinvest to its
affiliates?

HELD:
NO. Despite the seemingly broad power of the CIR to distribute, apportion and
allocate gross income under (now) Section 50 of the Tax Code, the same does not
include the power to impute theoretical interests even with regard to controlled
taxpayers transactions. This is true even if the CIR is able to prove that interest
expense (on its own loans) was in fact claimed by the lending entity. The term in the
definition of gross income that even those income from whatever source derived
is covered still requires that there must be actual or at least probable receipt or
realization of the item of gross income sought to be apportioned, distributed, or
allocated. Finally, the rule under the Civil Code that no interest shall be due unless
expressly stipulated in writing was also applied in this case.

The Court also ruled that the instructional letters, cash and journal vouchers qualify
as loan agreements that are subject to DST.

BDO vs. REPUBLIC OF THE PHILIPPINES, G.R. No. 198756, Case Digest
The term deposit substitutes shall mean an alternative form of obtaining funds
from the public (the term 'public' means borrowing from twenty (20) or
more individual or corporate lenders at any one time) other than deposits,
through the issuance, endorsement, or acceptance of debt instruments for the
borrowers own account, for the purpose of relending or purchasing of receivables
and other obligations, or financing their own needs or the needs of their agent or
dealer.
Under the 1997 National Internal Revenue Code, Congress specifically defined
public to mean twenty (20) or more individual or corporate lenders at any one
time. Hence, the number of lenders is determinative of whether a debt instrument
should be considered a deposit substitute and consequently subject to the 20% final
withholding tax.
20-lender rule
Petitioners contend that there [is] only one (1) lender (i.e. RCBC) to whom the BTr
issued the Government Bonds.169 On the other hand, respondents theorize that the

word any indicates that the period contemplated is the entire term of the bond
and not merely the point of origination or issuance[,] 170 such that if the debt
instruments were subsequently sold in secondary markets and so on, in such a way
that twenty (20) or more buyers eventually own the instruments, then it becomes
indubitable that funds would be obtained from the public as defined in Section
22(Y) of the NIRC.171 Indeed, in the context of the financial market, the words at
any one time create an ambiguity.

Meaning of at any one time

Thus, from the point of view of the financial market, the phrase at any one time
for purposes of determining the 20 or more lenders would mean every transaction
executed in the primary or secondary market in connection with the purchase or
sale of securities.
For example, where the financial assets involved are government securities like
bonds, the reckoning of 20 or more lenders/investors is made at any transaction
in connection with the purchase or sale of the Government Bonds.

South African Airways vs. CIR

Facts: Petitioner South African Airways is a foreign corporation organized and
existing under and by virtue of the laws of the Republic of South Africa. Its principal
office is located at Airways Park, Jones Road, Johannesburg International Airport,
South Africa. In the Philippines, it is an internal air carrier having no landing rights in
the country. Petitioner has a general sales agent in the Philippines, Aerotel Limited
Corporation (Aerotel). Aerotel sells passage documents for compensation or
commission for petitioners off-line flights for the carriage of passengers and cargo
between ports or points outside the territorial jurisdiction of the Philippines.
Petitioner is not registered with the Securities and Exchange Commission as a
corporation, branch office, or partnership. It is not licensed to do business in the
Philippines. It paid a corporate tax in the rate of 32% of its gross billings. However,
it subsequently claim for refund contending that its income should be taxed at the
rate of 2 1/2% of its gross billings.
Issues: whether or not petitioners income is sourced within the Philippines and is
to
be
taxed
at
32%
of
the
gross
billings?
Held: Yes! In the instant case, the general rule is that resident foreign corporations
shall be liable for a 32% income tax on their income from within the Philippines,
except for resident foreign corporations that are international carriers that derive
income from carriage of persons, excess baggage, cargo and mail originating from
the Philippines which shall be taxed at 2 1/2% of their Gross Philippine Billings.
Petitioner, being an international carrier with no flights originating from the

Philippines, does not fall under the exception. As such, petitioner must fall under the
general rule. This principle is embodied in the Latin maxim, exception firmat
regulam in casibus non exceptis, which means, a thing not being excepted must be
regarded
as
coming
within
the
purview
of
the
general
rule.
To reiterate, the correct interpretation of the above provisions is that, if
an international air carrier maintains flights to and from the 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 flights to and from the
Philippines but nonetheless earn income from other activities in the
country will be taxed at the rate of 32% of such income.