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TAXATION 1 | B2015


CIR vs. BOAC a. BOAC was still able to sell tickets in

April 30, 1987 the Philippines
J. Melencio-Herrera 4. 2 cases arise from the assessment
Mabel Africa a. First case CIR protested the amount
a new assessment amount was
SUMMARY: The CIR made an assessment of BOACs deficiency given income BOAC
taxes. paid covered
The period the new by the
disputed assessments included the time when BOAC had no landingassessment rights in the under protest
Philippines BOAC
but still maintained
a general sales agent. BOAC protested the computed amounts. CIR askedthenfor refund anew
produced CIRassessment
denied thewhich
BOAC paid under protest. BOAC then demanded a refund but was denied. petitionThe for Tax
Court subsequently reversed
the CIR decision on the ground that the sales of BOAC passage b. Second
tickets incase the Philippines
BOAC was do assessed
not constitute
income from the Philippines, and thus, is not subject to Philippine income tax. income taxes, decision
This Tax Court interests,
is being
assailed in the case at bar. The SC set aside this Tax Court decision and and penalty BOAC
concluded thatrequested
since the that
source of
income is made in the Philippines, it is covered by our tax laws. the assessment be countermanded &
set aside CIR denied the request
DOCTRINE: The tax imposed upon BOAC is an excise tax, and suchBOAC can be filed the by
levied second caseonly
the State before thethe
Tax court
acts, privileges or businesses are done or performed within the jurisdiction requesting
of the to be
Philippines. Theabsolved
test of
taxability is the source; and the source of an income is that activity liability
which produced the income.
5. Tax Court decision
FACTS: a. Reversed the CIR
1. BOAC 100% British Government-owned b. Held that the sale of tickets in the
corporation; international airline business Philippines is not subject to Philippine
that operates air transportation service & income tax because the source of
sells transportation tickets income is not the Philippines since
2. CIR assessed BOAC BOAC had no service of carriage of
a. Included in the assessment periods passengers or freight was performed
when BOAC had no landing rights in in the country
the Philippines because a Certificate 6. Petition for Review on certiorari of the
of Public Convenience has not been decision of the tax court
granted by the Civil Aeronautics Board
3. But during that period when BOAC had no ISSUES: Whether or not the revenue from sales of
landing rights, they maintained a general tickets by BOAC in the Philippines constitutes
sales agent in the Philippines income from Philippine sources and, accordingly,
taxable under our income tax laws.
TAXATION 1 | B2015

to 1970-71 plus 5% surcharge, and 1% monthly

RATIO: Yes, it is covered by the Philippine tax interest from April 16, 1972 for a period not to
laws since the source of income is the Philippines. exceed of P858,307.79 is hereby denied. Without
1. Due to the continuity of commercial
dealings on BOAC in the Philippines, it is DISSENTING OPINION: J. Feliciano
deemed a resident foreign corporation. This The statute presently applicable to
is pursuant to Section 20 of the 1977 Tax international carriers is Section 24 (b)(2) of
Code. the Tax Code, as amended by PD 69 & PD
2. The regular sale of tickets is the main 1355
income-generating activity of BOAC. This o international carriers shall pay a
activity is done in the Philippines. Hence, tax of 2 % of their gross Philippine
BOACs income was derived from the billings
Philippines. Therefore, it is taxable. Under this statute, the basis of billings shall
a. The flow of wealth proceeded from, be the passengers & cargo originating from
and occurred within, Philippine the Philippines, regardless of their
territory, enjoying the protection embarkation & debarkation place.
accorded by the Philippine
2 % is a tax on gross receipts and not an
government. Inconsideration of such
income tax
protection, the flow of wealth should
The Tax Court decision shall be affirmed
share the burden of supporting the
3. The absence of flight operations in the CONCURRING OPINION: CJ Teehankee
Philippines is not an element of BOACs Agrees that the assessments of deficiency
income tax. income taxes made by the CIR shall be
DISPOSITIVE: Wherefore, the appealed joint J. Felicianos dissent regarding the proper
Decision of the Court of Tax Appeals is hereby SET characterization of the taxable income is
ASIDE. Private respondent, the BOAC, is hereby already moot by PD 69, the rate of income
ordered to pay the amount of P534,132.08 as tax on foreign corporations (BOAC included)
deficiency income tax for the fiscal years 1968-69 has been reduced to 2 % as well. There is
no longer substantial difference.