The document summarizes a Supreme Court case regarding whether income earned by British Overseas Airways Corporation (BOAC) from ticket sales in the Philippines is subject to Philippine income tax. The Court ruled that BOAC is considered a resident foreign corporation engaged in business in the Philippines through a local sales agent. It also ruled that the source of BOAC's income from ticket sales is the Philippines, so the income is taxable under Philippine law. The Court distinguished income tax, a direct tax, from excise taxes that can only be levied on activities within the country's jurisdiction. It reversed the lower court decision and denied BOAC's claim for a tax refund.
The document summarizes a Supreme Court case regarding whether income earned by British Overseas Airways Corporation (BOAC) from ticket sales in the Philippines is subject to Philippine income tax. The Court ruled that BOAC is considered a resident foreign corporation engaged in business in the Philippines through a local sales agent. It also ruled that the source of BOAC's income from ticket sales is the Philippines, so the income is taxable under Philippine law. The Court distinguished income tax, a direct tax, from excise taxes that can only be levied on activities within the country's jurisdiction. It reversed the lower court decision and denied BOAC's claim for a tax refund.
Original Description:
Digest
Original Title
British Airways vs CIR (Actually This is CIR vs BOAC)
The document summarizes a Supreme Court case regarding whether income earned by British Overseas Airways Corporation (BOAC) from ticket sales in the Philippines is subject to Philippine income tax. The Court ruled that BOAC is considered a resident foreign corporation engaged in business in the Philippines through a local sales agent. It also ruled that the source of BOAC's income from ticket sales is the Philippines, so the income is taxable under Philippine law. The Court distinguished income tax, a direct tax, from excise taxes that can only be levied on activities within the country's jurisdiction. It reversed the lower court decision and denied BOAC's claim for a tax refund.
The document summarizes a Supreme Court case regarding whether income earned by British Overseas Airways Corporation (BOAC) from ticket sales in the Philippines is subject to Philippine income tax. The Court ruled that BOAC is considered a resident foreign corporation engaged in business in the Philippines through a local sales agent. It also ruled that the source of BOAC's income from ticket sales is the Philippines, so the income is taxable under Philippine law. The Court distinguished income tax, a direct tax, from excise taxes that can only be levied on activities within the country's jurisdiction. It reversed the lower court decision and denied BOAC's claim for a tax refund.
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COMMISSIONER OF INTERNAL REVENUE, petitioner, vs.
BRITISH OVERSEAS AIRWAYS
CORPORATION and COURT OF TAX APPEALS, respondents. G.R. No. L-65773-74 | April 30, 1987 | Melencio-Herrera, J. (Angeli)
FACTS: BOAC is a 100% British Government-owned corporation organized and existing under the laws of the United Kingdom. BOAC had no landing rights for traffic purposes in the Philippines, and was not granted a Certificate of Public Convenience by the CAB (except for a temporary 9-month period in 1961- 62). It maintained a general sales agent in the Philippines (Wamer Barnes and Company and, later, Qantas Airways) which was responsible for selling BOAC tickets for passengers and cargoes.
These two consolidated cases refer to the assessments made by CIR which BOAC paid under protest. Claims for refund made by BOAC were also denied by CIR.
CTA reversed CIR. According to the CTA, the proceeds of sales of BOAC passage tickets in the Philippines by Warner Barnes and Company, Ltd., and later by Qantas Airways do not constitute BOAC income from Philippine sources since no 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/RATIO:
1) W/N BOAC is a resident foreign corporation – YES
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, maintained a general sales agent in the Philippines. That general sales agent 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. 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) W/N the revenue from sales of tickets by BOAC in the Philippines constitutes income from Philippine sources and, accordingly, taxable under our income tax laws - YES
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. In consideration of such protection, the flow of wealth should share the burden of supporting the government.
A transportation ticket is not a mere piece of paper. When issued by a common carrier, it constitutes the contract between the ticket-holder and the carrier. It gives rise to the obligation of the purchaser of the ticket to pay the fare and the corresponding obligation of the carrier to transport the passenger upon the terms and conditions set forth thereon.
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, Section 37, by its language, does not intend the enumeration to be exclusive.
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.
Note that the assessments made here are applicable only for the years 1959-1967, 1968-69 to 1970-71 because pursuant to PD 69 (promulgated 24 Nov 1972), international carriers shall now pay a tax of 2-½ per cent on their gross Philippine billings.
3) Whether the sale of tickets falls under excise taxes or income taxes – INCOME TAX
The common carrier's tax is an excise tax, being a tax on the activity of transporting, conveying or removing passengers and cargo from one place to another. It purports to tax the business of transportation. Being an excise tax, the same can be levied by the State only when the acts, privileges or businesses are done or performed within the jurisdiction of the Philippines. The subject matter of the case under consideration is income tax, a direct tax on the income of persons and other entities "of whatever kind and in whatever form derived from any source."
FALLO: Decision REVERSED. BOAC ordered to pay assessments; claim for refund denied.
