TORRALBA, Rafael T.

4-BLM

CASE DIGEST

Tan v Del Rosario 237 SCRA 324

Facts:
1. Two consolidated cases assail the validity of RA 7496 or the Simplified Net Income Taxation
Scheme ("SNIT"), which amended certain provisions of the NIRC, as well as the Rules and
Regulations promulgated by public respondents pursuant to said law.
2. Petitioners posit that RA 7496 is unconstitutional as it allegedly violates the following provisions
of the Constitution:
-Article VI, Section 26(1) Every bill passed by the Congress shall embrace only one subject
which shall be expressed in the title thereof.
- Article VI, Section 28(1) The rule of taxation shall be uniform and equitable. The Congress
shall evolve a progressive system of taxation.
- Article III, Section 1 No person shall be deprived of . . . property without due process of law,
nor shall any person be denied the equal protection of the laws.
3. Petitioners contended that public respondents exceeded their rule-making authority in applying
SNIT to general professional partnerships. Petitioner contends that the title of HB 34314,
progenitor of RA 7496, is deficient for being merely entitled, "Simplified Net Income Taxation
Scheme for the Self-Employed and Professionals Engaged in the Practice of their
Profession" (Petition in G.R. No. 109289) when the full text of the title actually reads,

'An Act Adopting the Simplified Net Income Taxation Scheme For The Self-Employed and
Professionals Engaged In The Practice of Their Profession, Amending Sections 21 and 29 of the
National Internal Revenue Code,' as amended. Petitioners also contend it violated due process.
5. The Solicitor General espouses the position taken by public respondents.
6. The Court has given due course to both petitions.
ISSUE: Whether or not the tax law is unconstitutional for violating due process
NO. The due process clause may correctly be invoked only when there is a clear contravention of
inherent or constitutional limitations in the exercise of the tax power. No such transgression is so
evident in herein case.
1. Uniformity of taxation, like the concept of equal protection, merely requires that all subjects or
objects of taxation, similarly situated, are to be treated alike both in privileges and liabilities.
Uniformity does not violate classification as long as: (1) the standards that are used therefor are
substantial and not arbitrary, (2) the categorization is germane to achieve the legislative purpose,
(3) the law applies, all things being equal, to both present and future conditions, and (4) the
classification applies equally well to all those belonging to the same class.
2. What is apparent from the amendatory law is the legislative intent to increasingly shift the income
tax system towards the schedular approach in the income taxation of individual taxpayers and to
maintain, by and large, the present global treatment on taxable corporations. The Court does not
view this classification to be arbitrary and inappropriate.
ISSUE 2: Whether or not public respondents exceeded their authority in promulgating the
RR
No. There is no evident intention of the law, either before or after the amendatory legislation, to
place in an unequal footing or in significant variance the income tax treatment of professionals

who practice their respective professions individually and of those who do it through a general
professional partnership.

Commission of Internal Revenue VS Manning

Facts:
R e e s e , t h e m a j o r i t y s t o c k h o l d e r o f M a n t r a s c o executed a trust agreement between
him, Mantrasco,
Ross,S e l p h , c a r r a s c o s o & J a n d a l a w f i r m a n d t h e m i n o r i t y s t o c k h o l d e
r s , M a n n i n g , M c D o n a l d a n d S i m m o n s . S a i d agreement was entered into
because of Reeses desire that Mantrasco and Mantrasocs 2 subsidiaries, Mantrasco
Guama n d P o r t M o t o r s , t o c o n t i n u e u n d e r t h e m a n a g e m e n t o f Manning, McDo
nald and Simmons upon his [Reese] death.When Reese died, Mantrasco paid Reeses
estate the value of his shares. When said purchase price has been fully paid,
the2 4 , 7 0 0 s h a r e s , w h i c h w e r e d e c l a r e d a s d i v i d e n d s , w e r e p r o p o r t i o n a t e l y d
i s t r i b u t e d t o M a n n i n g , M c D o n a l d a n d Simmons. Because of this, the
BIR issued assessments on Manning, McDonald and Simmons for deficiency income tax for
1958. Manning et al, opposed this assessment but the BIRstill found them liable. Manning et al.
appealed to the CTA,which absolved them from any liability.
Issue: Whether or not Manning, McDonalds & Simmons should pay for the deficiency income taxes
Held:
T h e m a n i f e s t i n t e n t i o n o f t h e p a r t i e s t o t h e t r u s t agreement was, in sum and
substance, to treat the 24,700shares of Reese as absolutely outstanding shares of Reese's
estate until they were fully paid. Such being the true nature
of t h e 2 4 , 7 0 0 s h a r e s , t h e i r d e c l a r a t i o n a s t r e a s u r y s t o c k dividend in 1958 was a
complete nullity and plainly violative of public policy. A stock dividend, being one payable in capital
stock, cannot be declared out of outstanding corporate stock, but only from retained earnings.
A stock dividend always involves a transfer of surplus (or profit) to capital stock. A
stock dividend is a conversion
of s u r p l u s o r u n d i v i d e d p r o f i t s i n t o c a p i t a l s t o c k , w h i c h i s distributed to
stockholders in lieu of a cash dividend.

Bank of America vs Court of Appeals 234 SCRA 302

FACTS:
Eduardo K. Litonjua, Sr. and Aurelio J. Litonjua (Litonjuas) were engaged in the shipping

business owning 2 vessels: Don Aurelio and El Champion. Bank of America (BA) offered
them to take a loan for them to increase their ships because their business where doing well.
BA acquired through them as borrowers four more ships: (a) El Carrier; (b) El General; (c) El
Challenger; and (d) El Conqueror. The registration, operation, income, funds, possession of
the vessel belonged to the corporation. On May 10, 1993, Litonjuas filed a complaint to the
RTC Pasig claming that during its operations and the foreclosure sale, BA as trutees failed to
fully render an account of the income. They lost all their 6 vessels and 10% of their personal
funds and they still have an unpaid balance of their loans.
BA NT&SA, and BA international filed a Motion to Dismiss on grounds of forum non
conveniens and lack of cause of action against them. RTC and CA: Dismissed
ISSUE:
1. W/N there is grounds of forum non conveniens
2. W/N there is litis pendentia

HELD: Denied
1. NO.

The doctrine of forum non-conveniens, literally meaning 'the forum is inconvenient',

emerged in private international law to deter the practice of global forum shopping

Under this doctrine, a court, in conflicts of law cases, may refuse impositions on its
jurisdiction where it is not the most "convenient" or available forum and the parties are not
precluded from seeking remedies elsewhere.

Whether a suit should be entertained or dismissed on the basis of said doctrine depends
largely upon the facts of the particular case and is addressed to the sound discretion of the
trial court.

Philippine Court may assume jurisdiction over the case if it chooses to do so; provided,

that the following requisites are met:

(1) that the Philippine Court is one to which the parties may conveniently resort

to; - present
(2) that the Philippine Court is in a position to make an intelligent decision as to

the law and the facts; and, - present

(3) that the Philippine Court has or is likely to have power to enforce its decision -

present

This Court further ruled that while it is within the discretion of the trial court to abstain

from assuming jurisdiction on this ground, it should do so only after vital facts are
established, to determine whether special circumstances require the court's desistance; and
that the propriety of dismissing a case based on this principle of forum non conveniens
requires a factual determination, hence it is more properly considered a matter of defense
2. NO.

litis pendentia to be a ground for the dismissal of an action there must be:
(a) identity of the parties or at least such as to represent the same interest in both
actions -present

(b) identity of rights asserted and relief prayed for, the relief being founded on the
same acts - not shown

(c) the identity in the two cases should be such that the judgment which may be
rendered in one would, regardless of which party is successful, amount to res judicata in the
other - not shown

It merely mentioned that civil cases were filed in Hongkong and England

Commissioner of Internal Revenue vs British Overseas Airways

Facts:
British Overseas Airways Corporation (BOAC) is a 100% British Government-owned corporation organized and
existing under the laws of the United Kingdom It is engaged in the international airline business and is a membersignatory of the Interline Air Transport Association (IATA). BOAC did not carry passengers
and/or cargo to or from the Philippines, Although during the period covered by the assessments, it
maintained a general sales agentin the Philippines Wamer Barnes and Company, Ltd., and later Qantas Airways
which was responsible for selling BOAC tickets covering passengers and cargoes.
1st case: On May 7, 1968 CIR assessed BOAC with P2,498,358.56 for deficiency income taxes covering the
years 1959 to 1963. BOAC protested. Investigation resulted to assessment in the amount of P858,307.79 covering
the years 1959 to 1967. BOAC paid this new assessment under protest. BOAC filed a claim for refund in the
amount of P858,307.79 with the CIR. However, BOAC did not wait for the decision of the CIR, filed petition for
review with the tax court. Thereafter, CIR denied claim for refund
2nd case: On November 17, 1971 CIR assessed BOAC with deficiency income taxes, interests, and penalty for the
fiscal years 1968-1969 to 1970-1971 in the aggregate amount of P549,327.43, and the additional amounts of
P1,000.00 and P1,800.00 as compromise penalties for violation of Section 46 (requiring the filing of corporation
returns) penalized under Section 74 of the National Internal Revenue Code (NIRC).BOAC in a letter requested
that the assessment to countermanded and set aside. CIR denied the request and reissued the deficiency income tax
assessment for P534,132.08 for the years1969 to 1970-71 plus P1,000.00 as compromise penalty under Section 74
of the Tax Code. BOAC asked for reconsideration but CIR denied the same. BOAC filed a 2nd petition for review
with the tax court. The 2 cases before the CTAwere consolidated Tax Court rendered the assailed joint Decision
reversing the CIR. Its position was that income from transportation is income from services so that the place where
services a rerendered determines the source. It further held that the proceeds of sales of BOAC passage tickets in
the Philippines by Warner Barnes and Company, Ltd., and later by Qantas Airways, during the period in question,
do not constitute BOAC income from Philippine sources "sinceno service of carriage of passengers or freight was
performed by BOAC within the Philippines" and, therefore, said income is not subject to Philippine income tax.
Issues:

1. Whether or not during the fiscal years in question BOAC is a resident foreigncorporation doing business in
the Philippines or has an office or place of business in
thePhilippines.2. Whether proceeds from the sale of BOAC tickets in the Philippines by Warner Barnesand
Company, Ltd are considered income from sources within the Philippines
Ruling:
1. Yes, BOAC is a resident foreign corporation. There is no specific criterion as to what constitutes "doing" or
"engaging in" or "transacting" business. The term implies a 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. BOAC, during the periods covered by the subject - assessments,
maintained a general sales agent in the Philippines, That general sales agent, from 1959 to 1971, "was engaged in
(1)selling and issuing tickets; (2) breaking down the whole trip into series of trips

each trip in the series corresponding to a different airline company; (3) receiving the fare from the whole trip; and
(4) consequently allocating to the various airline companies on the basis of their participation in the services
rendered through the mode of interline settlement as prescribed by Article VI of the Resolution No. 850 of the
IATAAgreement." Those activities were in exercise of the functions which are normally incident to, and are in
progressive pursuit of, the purpose and object of its organization as an international air carrier. In fact, the regular
sale of tickets, its main activity, is the very lifeblood of the airline business, the generation of sales being the
paramount objective. There should be no doubt then that BOAC was "engaged in" business in the Philippines
through a local agent during the period covered by the assessments. Accordingly, it is a resident foreign corporation
subject to tax upon its total net income received in the preceding taxable year from all sources within the
Philippines.

2. Yes, proceeds from the sale of BOAC tickets in the Philippines by Warner Barnes andCompany, Ltd. are
considered income from sources within the Philippines hence taxable by the Philippine government. The Tax
Code defines "gross income" thus:

"Gross income" includes gains, profits, and income derived from salaries, wages or compensation for personal
service of whatever kind and in whatever form paid, or from profession, vocations, trades, business, commerce,
sales, or dealings in property, whether real or personal, growing out of the ownership or use of or interest in such
property; also from interests, rents, dividends, securities, or the transactions of any business carried on for gain or
profile, or gains, profits, and income derived from any source whatever (Sec. 29[3])
"The phrase 'income from any source whatever' discloses a legislative policy to include all income not expressly
exempted within the class of taxable income under our laws." Income means "cash received or its equivalent"; it is
the amount of money coming to a person within a specific time ...; it means something distinct from principal or
capital. For, while capital is a fund, income is a flow. As used in our income tax law, "income" refers to the flow of
wealth. 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 Philippine government. Inconsideration of such
protection, the flow of wealth should share the burden of supporting the government. The absence of flight
operations to and from the Philippines is not determinative of the source of income or the site of income taxation.
Admittedly, BOAC was an off-line international airline at the time pertinent to this case. The test of taxability is the
"source"; and the source of an income is that activity ... which produced the income. Unquestionably, the passage
documentations in these cases were sold in the Philippines and the revenue therefrom was derived from an activity
regularly pursued within the Philippines. And even if the BOAC tickets sold covered the "transport of passengers
and cargo to and from foreign cities", it cannot alter the fact that income from the sale of tickets was derived from
the Philippines. The word "source" conveys one essential idea, that of origin, and the origin of the income herein is
the Philippines.

Commissioner of Internal Revenue vs. Air India 180 SCRA 450

Facts:
Air India is a foreign corporation and an off-line international carrier not engaged in the business
of air transportation in the Philippines. Air India sells airplane tickets in the Philippine Airlines.
Said tickets are serviced by the Air India outside the Philippines. The Commissioner of Internal
Revenue assessed against Air India the amount of P 142, 471.68. Representing 2.55 income tax
on its gross Philippine Billings pursuant to section 24 (b) (2) of the Tax Code, as amended,
inclusive of the 50% surcharge and interest for willful neglect to file a return as provided under
section 72 of the same Code. Air India appealed to the Court of Tax Appeals.

Issue:
Whether or not the revenue derived by an international air carrier from sales of tickets in the
Philippines for air transportation, while having no landing rights in the country, constitutes
income of said carrier from the Philippines sources, and thus taxable under section 24 (b) (2) of
the Tax Code.

Held:
Based on the doctrine enunciated in British Overseas Airways Corp., the revenue derived by Air
India from the sales of tickets, through its agent in the Philippines, must be considered taxable
income. As correctly assessed by the Commissioner, such income is subject to a 2.5% tax
pursuant to PD 1355, amending section 24 (b) (2) of the Tax Code.

Commissioner of Internal Revenue vs. Japan Airlines 202 SCRA 450

FACTS: JAL is also a foreign corporation likewise engaged in the business of International air
carriage. Now if British Overseas Airways Corp. (BOAC) merely used ticket sales agent and
stayed at bay. JAL is different. JAL maintained an office at the Filipinas Hotel, Roxas Boulevard
Manila since mid-July of 1957. The said office did not sell tickets but was merely for the
promotion of the company. But that's what they think. On July 17 1957, JAL constituted
Philippine Airlines (PAL) as its ticket agent in the Philippines. PAL therefore sold tickets for and
in behalf of JAL. Same as BOAC there was absence of flight operations to and from the
Philippines in this case. Meaning JAL likewise had no landing rights. And so like BOAC what
were talking about here are connecting flights. So obviously this didn't escape the long 'nose'.. I
mean claws of the BIR. On June 1972, JAL received deficiency income tax assessments notices
and a demand letter from petitioner CIR for years 1959 through 1963. Of course JAL protested
as BOAC did, against said assessments alleging that as a non-resident foreign corporation, it is
taxable only on income from Philippines sources as determined by section 37 of the Tax Code,
there being no income on said years, JAL is not liable for taxes.

ISSUE: Whether or not the proceeds from sales of JAL tickets sold in the Philippines by
Philippine Airlines (PAL) are taxable as income from sources within the Philippines.

HELD: YES. Court said the ticket sales are taxable. Citing the case of CIR v BOAC, the court
reiterated that 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. The absence of flight operations
to and from the Philippines is not determinative of the source of income or the situs of income
taxation. The test of taxability is the source, and the source of the income is that activity which
produced the income. In this case, as JAL constituted PAL as its agent, the sales of JAL tickets
made by PAL is taxable.