CASE 1: PFDA v.

CA
FACTS: The controversy arose when respondent Municipality of
Navotas assessed the real estate taxes allegedly due from petitioner
Philippine Fisheries Development Authority (PFDA) for the period
1981-1990 on properties under its jurisdiction, management and
operation located inside the Navotas Fishing Port Complex (NFPC).
The assessed taxes had remained unpaid despite the demands
made by the municipality which prompted it, through Municipal
Treasurer Florante M. Barredo, to give notice to petitioner that the
NFPC will be sold at public auction in order that the municipality will
be able to collect on petitioners delinquent realty taxes which, as of
June 30, 1990, amounted to P23,128,304.51, inclusive of penalties.
Petitioner sought the deferment of the auction sale claiming that the
NFPC is owned by the Republic of the Philippines, and pursuant to
P.D. No. 977, it (PFDA) is not a taxable entity.
In view of the refusal of PFDA to pay the assessed realty taxes, the
matter was referred to the Department of Finance (DOF), which
instructed the Municipality to conduct an ocular inspection on the real
properties (land and building owned by PFDA) in order to identify the
properties actually leased and the taxable persons enjoying the
beneficial use thereof, because if it is used by a non-taxable person
other than PFDA itself, it remains to be non-taxable.
Notwithstanding the DOFs instruction, respondent Municipality
proceeded to publish the notice of sale of NFPC in the November 2,
1990 issue of Balita, a local newspaper.
On November 19, 1990, petitioner instituted Civil Case No. 1524 in
the Regional Trial Court (RTC) of Malabon, Metro Manila against
respondent Municipality, its Municipal Treasurer and the Chairman of
the Public Auction Sale Committee. Petitioner asked the RTC to
enjoin the auction of the NFPC on the ground that the properties
comprising the NFPC are owned by the Republic of the Philippines
and are, thus, exempt from taxation. According to petitioner, only a
small portion of NFPC which had been leased to private parties may
be subjected to real property tax which should be paid by the latter.

Respondent Municipality, on the other hand, insisted that: 1) the real

properties within NFPC are owned entirely by petitioner which,
despite the opportunity given, had failed to submit proof to the
Municipal Assessor that the properties are indeed owned by the
Republic of the Philippines; 2) if the properties in question really
belong to the government, then the complaint should have been
instituted in the name of the Republic of the Philippines, represented
by the Office of the Solicitor General; and 3) the complaint is fatally
defective because of non-compliance with a condition precedent,
which is, payment of the disputed tax assessment under protest.
The RTC issued a writ of preliminary injunction enjoining respondent
Municipality from proceeding with the public auction. However, after
some time, the RTC dismissed the case and dissolved the writ of
preliminary injunction. The CA affirmed the ruling of the RTC
decision. Petitioner filed a motion for reconsideration but the same
was denied by the CA.
Petitioners arguments: One, the CA acknowledged that the
property in question is a reclaimed land. As such, it is a property of
public dominion (Art. 420, Civil Code) and is owned by the State.
Notwithstanding this, the CA erroneously ruled that the government
had validly transferred ownership of the land to PFDA in 1982 when
P.D. No. 977 was amended by E.O. No. 772 by virtue of which the
property became part of the assets of PFDA (Sec. 5 of E.O. No.
772);
Two, as a reclaimed land, the port complex should be considered a
reserved land. In NDC v. Cebu City, the Supreme Court held that a
reserved land is a public land that has been withheld or kept back
from sale or disposition. The land remains an absolute property of
the government. As its title remains with the State, the reserved land
is tax exempt;
Three, in Government v. Cabangis and Lampria v. Director of Lands,
this Court declared that the land reclaimed from the sea, as a result
of the construction by the government of a breakwater fronting the
place where it is situated, belongs to the State in accordance with
Article 5 of the Law of Waters of 1866;

BBS Digest Group | Taxation Law 1 | Atty. Tuazon |

Four, petitioner merely operates the area or the NFPC complex in

favor of the Republic of the Philippines. Section 4.A of P.D. No. 977,
as amended by E.O. No. 772, provides that PFDA shall: Manage,
administer, operate, improve and modernize, coordinate and
otherwise govern the activities, operation and facilities in the fishing
ports, markets and landings that may hereinafter be placed under, or
transferred to the Authority, and such other fish markets, fishing
ports/harbors and infrastructure facilities as may be established
under this Decree; to investigate, prepare, adopt, implement and
execute a comprehensive plan for the overall development of fishing
port and market complexes and update such plan as may be
necessary from time to time; to construct or authorize the
construction in the land area under its jurisdiction, of infrastructure
facilities, factory buildings, warehouses, cold storage and ice plants,
and other structures related to the fishing industry or necessary and
useful in the conduct of its business or in the attainment of the
purpose and objectives of this Decree; to acquire, hold and dispose
real and personal property in the exercise of its functions and
powers.
Lastly, the NFPC property is intended for public use and public
service. As such, it is owned by the State, hence, exempt from real
property tax.
ISSUE/S: WON PFDA is liable to pay real property tax.
HELD: No. Only those portion which are being leased to taxable
persons are not exempted to tax.
RATIO: Local government units, pursuant to the fiscal autonomy
granted by the provisions of RA 7160 or the 1991 Local Government
Code, can impose realty taxes on juridical persons subject to the
limitations enumerated in Section 133 of the Code which provides
that unless otherwise provided herein, the exercise of the taxing
powers of provinces, cities, municipalities, and barangays shall not
extend to the levy of the following: taxes, fees, charges of any kind
on the national government, its agencies and instrumentalities, and
local government units.

Nonetheless, the above exemption does not apply when the

beneficial use of the government property has been granted to a
taxable person. Section 234 (a) of the Code states that real property
owned by the Republic of the Philippines or any of its political
subdivisions is exempted from payment of the real property tax
except when the beneficial use thereof has been granted, for
consideration or otherwise, to a taxable person.
Thus, as a rule, petitioner PFDA, being an instrumentality 1of the
national government, is exempt from real property tax but the
exemption does not extend to the portions of the NFPC that were
leased to taxable or private persons and entities for their beneficial
use.
Similarly, for the same reason, the NFPC cannot be sold at public
auction in satisfaction of the tax delinquency assessments made by
the Municipality of Navotas on the entire complex.
Additionally, the land on which the NFPC property sits is a reclaimed
land, which belongs to the State. In Chavez v. Public Estates
Authority, the Court declared that reclaimed lands are lands of the
public domain and cannot, without Congressional fiat, be subject of a
sale, public or private.
In light of the above, petitioner is only liable to pay the amount of
P62,841,947.79 representing the total taxes due as of December 31,
2001 from PFDA-owned properties that were leased, as shown in the

1 A national government instrumentality is an agency of the

national government, not integrated within the department
framework, vested with special functions or jurisdiction by law,
endowed with some, if not all, corporate powers, administering
special funds, and enjoying operational autonomy, usually through
a charter (Section 2 [10] of the Introductory Provisions of the
Administrative Code). The PFDA (then Philippine Fish Marketing
Authority/PFMA), pursuant to P.D. No. 977, as amended by E.O. No.
772, is tasked with the special function of promoting the
development of the countrys fishing industry and improve the
efficiency in handling, preserving, marketing, and distribution of
fish and other aquatic products.

BBS Digest Group | Taxation Law 1 | Atty. Tuazon |

Summary of Realty Taxes Due Properties Owned and/or Managed

by PFDA as per Realty Tax Order of Payment dated September 16,
2002.
CASE 2: Deutsche Bank AG Manila Branch vs. CIR
FACTS: Petitioner withheld and remitted to respondent on 21
October 2003 the amount of PHP 67,688,553.51, which represented
the 15% branch profit remittance tax (BPRT) on its regular banking
unit (RBU) net income remitted to Deutsche Bank Germany (DB
Germany) for 2002 and prior taxable years.
Believing that it made an overpayment of the BPRT, petitioner filed
with the BIR an administrative claim for refund or issuance of its tax
credit certificate in the total amount of PHP 22,562,851.17. On the
same date, petitioner requested from the International Tax Affairs
Division a confirmation of its entitlement to the preferential tax rate of
10% under the RP-Germany Tax Treaty. Due to the inaction of the
BIR on its administrative claim, petitioner filed a Petition for Review
with the CTA.
CTA Second division ruling: Refund was denied on the ground that
the application for a tax treaty relief was not filed with ITAD prior to
the payment by the former of its BPRT and actual remittance of its
branch profits to DB Germany, or prior to its availment of the
preferential rate of 10% under the RP-Germany Tax Treaty provision.
Further, before the benefits of the tax treaty may be extended to a
foreign corporation wishing to avail itself thereof, the latter should
first invoke the provisions of the tax treaty and prove that they indeed
apply to the corporation.
CTA En banc: Affirmed Second division ruling. Court also ruled that
the 15-day rule for tax treaty relief application under RMO No. 12000 cannot be relaxed for petitioner.
ISSUE: WON failure to strictly comply with RMO No. 1-2000 will
deprive persons or corporations of the benefit of a tax treaty.

HELD: No. Petitioner is entitled to refund. Paragraph 6, Article 10 of

the RP-Germany Tax Treaty provides where a resident of the
Federal Republic of Germany has a branch in the Republic of the
Philippines, this branch may be subjected to the branch profits
remittance tax withheld at source in accordance with Philippine law
but shall not exceed 10% of the gross amount of the profits remitted
by that branch to the head office.
RATIO: By virtue of the RP-Germany Tax Treaty, we are bound to
extend to a branch in the Philippines, remitting to its head office in
Germany, the benefit of a preferential rate equivalent to 10% BPRT.
A state that has contracted valid international obligations is bound to
make in its legislations those modifications that may be necessary to
ensure the fulfillment of the obligations undertaken.20 Thus, laws
and issuances must ensure that the reliefs granted under tax treaties
are accorded to the parties entitled thereto. The BIR must not impose
additional requirements that would negate the availment of the reliefs
provided for under international agreements. More so, when the RPGermany Tax Treaty does not provide for any pre-requisite for the
availment of the benefits under said agreement.
It must be stressed that there is nothing in RMO No. 1-2000 which
states a deprivation of entitlement to a tax treaty relief for failure to
comply with the 15-day period. The court recognizes the clear
intention of the BIR in implementing RMO No. 1-2000, but the CTAs
outright denial of a tax treaty relief for failure to strictly comply with
the prescribed period is not in harmony with the objectives of the
contracting state to ensure that the benefits granted under tax
treaties are enjoyed by duly entitled persons or corporations.
The outright denial of petitioners claim for a refund, on the sole
ground of failure to apply for a tax treaty relief prior to the payment of
the BPRT, would defeat the purpose of Section 229.

BBS Digest Group | Taxation Law 1 | Atty. Tuazon |

Tax treaties are entered into to reconcile the national fiscal

legislations of the contracting parties and, in turn, help the taxpayer
avoid simultaneous taxations in two different jurisdictions.
Ruling: there is no reason to deprive petitioner of the benefit of a
preferential tax rate of 10% BPRT in accordance with the RPGermany Tax Treaty.
Thus, it is proper to grant petitioner a refund of the difference
between the PHP 67,688,553.51 (15% BPRT) and PHP
45,125,702.34 (10% BPRT) or a total of PHP 22,562,851.17.
CASE 3: CITY OF PASIG v. REPUBLIC
FACTS: Mid-Pasig Land Development Corporation (MPLDC) owned
two parcels of land, with a total area of 18.4891 hectares, situated in
Pasig City. The properties are covered by Transfer Certificate of Title
(TCT) Nos. 337158 and 469702 and Tax Declaration Nos. E-03001185 and E-030-01186 under the name of MPLDC. Portions of the
properties are leased to different business establishments. In 1986,
the registered owner of MPLDC, Jose Y. Campos (Campos Marcos
crony), voluntarily surrendered MPLDC to the Republic of the
Philippines.
On 30 September 2002, the Pasig City Assessors Office sent
MPLDC two notices of tax delinquency for its failure to pay real
property tax on the properties for the period 1979 to
2001 totaling P256,858,555.86. In a letter dated 29 October 2002,
Independent Realty Corporation (IRC) President Ernesto
R. Jalandoni (Jalandoni) and Treasurer Rosario Razon informed the
Pasig City Treasurer that the tax for the period 1979 to 1986 had
been paid, and that the properties were exempt from tax beginning
1987.
Pasig City Treasurer informed MPLDC that the said properties are
not exempt from taxes. In a letter dated 16 February 2004, MPLDC
General Manager Antonio Merelos (Merelos) and Jalandoni again
informed the Pasig City Treasurer that the properties were exempt

from tax. In a letter dated 11 March 2004, the Pasig City Treasurer
again informed Merelos that the properties were not exempt from tax.
On 9 November 2005, MPLDC received two warrants of levy on the
properties. On 1 December 2005, respondent Republic of the
Philippines, through the Presidential Commission on Good
Government (PCGG), filed with the RTC a petition for prohibition with
prayer for issuance of a temporary restraining order or writ of
preliminary injunction to enjoin petitioner Pasig City from auctioning
the properties and from collecting real property tax. Pasig City still
went on and put the said properties at a public auction. Since there
was no bidder, Pasig City bought the properties and was issued the
corresponding certificates of sale.
PCGG then filed in the RTC an amended petition for certiorari,
prohibition and mandamus against Pasay City for its alleged
inappropriate actions is selling/obtaining the properties. RTC ruled in
favor of PCGG and granted their prayers. The case was appealed to
CA, which then set aside the ruling or the RTC. The CA stated that
although the government, through the PCGG have [sic] sequestered
Mid-Pasig and all its assets including the subject parcels of land, the
sequestration per se, did not operate to convert Mid-Pasig and its
properties to public property.
The PCGG filed a motion for reconsideration. In this instance, the CA
then reversed its own ruling and stated that the subject properties
were not sequestered by the government so as to amount to a
deprivation of property without due process of law; instead, they
were voluntarily surrendered to the State by Campos, a self-admitted
crony of the then President Marcos. The relinquishment of the
subject properties to the State as ill-gotten wealth of Marcos, as
recognized by the Supreme Court, makes a judicial declaration that
the same were ill-gotten unnecessary. By virtue of said
relinquishment, the State correctly exercised dominion over the
subject properties. Indubitably, the subject properties, being ill-gotten
wealth, belong to the State. x x x By its nature, ill-gotten wealth is
owned by the State. As a matter of fact, the Republic continues to

BBS Digest Group | Taxation Law 1 | Atty. Tuazon |

exercise dominion over the subject properties. Hence, the present

petition.

establishments. Thus, the portions of the properties leased to taxable

entities are not only subject to real estate tax, they can also be sold
at public auction to satisfy the tax delinquency.

ISSUE: WON the said properties in question are totally exempted

from being taxed.
HELD: NO. The said properties in question are NOT totally
exempted from being taxed.
RATIO: Section 234(a) of Republic Act No. 7160 states that
properties owned by the Republic of the Philippines are exempt from
real property tax except when the beneficial use thereof has been
granted, for consideration or otherwise, to a taxable person. Thus,
the portions of the properties not leased to taxable entities are
exempt from real estate tax while the portions of the properties
leased to taxable entities are subject to real estate tax. The law
imposes the liability to pay real estate tax on the Republic of the
Philippines for the portions of the properties leased to taxable
entities. It is, of course, assumed that the Republic of the Philippines
passes on the real estate tax as part of the rent to the lessees.
Article 420 of the Civil Code classifies as properties of public
dominion those that are intended for public use, such as roads,
canals, rivers, torrents, ports and bridges constructed by the State,
banks, shores, roadsteads and those that are intended for some
public service or for the development of the national wealth.
Properties of public dominion are not only exempt from real
estate tax, they are exempt from sale at public auction. In Heirs of
Mario Malabanan v. Republic, the Court held that, It is clear that
property of public dominion, which generally includes property
belonging to the State, cannot be x x x subject of the commerce of
man.
In the present case, the parcels of land are not properties of public
dominion because they are not intended for public use, such as
roads, canals, rivers, torrents, ports and bridges constructed by the
State, banks, shores, roadsteads. Neither are they intended for
some public service or for the development of the national wealth.
MPLDC leases portions of the properties to different business

CASE 4: PFDA v. CBAA

FACTS: The records show that the Lucena Fishing Port Complex
(LFPC) is one of the fishery infrastructure projects undertaken by the
National Government under the Nationwide Fish Port-Package.
Located at Barangay Dalahican, Lucena City, the fish port was
constructed on a reclaimed land with an area of 8.7 hectares more or
less, at a total cost of PHP 296,764,618.77 financed through a loan
(L/A PH-25 and 51) from the Overseas Economic Cooperation Fund
(OECF) of Japan, dated November 9, 1978 and May 31, 1978,
respectively.
The Philippine Fisheries Development Authority (PFDA) was created
by virtue of P.D. 977 as amended by E.O. 772, with functions and
powers to (m)anage, operate, and develop the Navotas Fishing Port
Complex and such other fishing port complexes that may be
established by the Authority. Pursuant thereto, Petitioner-Appellant
PFDA took over the management and operation of LFPC in February
1992.
In a letter addressed to PFDA, the City Government of Lucena
demanded payment of realty taxes on the LFPC property for the
period from 1993 to 1999 in the total amount of P39,397,880.00.
Another demand letter was sent by the Government of Lucena City
on the same LFPC property, this time in the amount of
P45,660,080.00 covering the period from 1993 to 2000.
Petitioner-Appellant filed its Appeal before the Local Board of
Assessment Appeals of Lucena City, which was dismissed for lack of
merit. Petitioner-Appellant filed its motion for reconsideration; this
was denied by the Appellee Local Board. PFDA appealed to the
CBAA. The CBAA dismissed the appeal for lack of merit. The CBAA

BBS Digest Group | Taxation Law 1 | Atty. Tuazon |

ruled that ownership of LFPC however has, before hand, been

handed over to the PFDA, as provided for under Sec. 11 of P.D. No.
977, as amended, and declared under the MCIAA case. The
allegations therefore that PFDA is not the beneficial user of LFPC
and not a taxable person are rendered moot and academic by such
ownership of PFDA over LFPC. PFDAs Charter, P.D. 977, provided
for exemption from income tax under Par. 2, Sec. 10 thereof: (t)he
Authority shall be exempted from the payment of income tax.
Nothing was said however about PFDAs exemption from payment of
real property tax: PFDA therefore was not to lay claim for realty tax
exemption on its Fishing Port Complexes.
PFDA moved for reconsideration, which the CBAA denied in its
Resolution. On appeal, the Court of Tax Appeals denied PFDAs
petition for review and affirmed the Decision of the CBAA. Hence,
this petition for review.
The Court of Tax Appeals held that PFDA is a government-owned
or controlled corporation, and is therefore subject to the real property
tax imposed by local government units pursuant to Section 232 in
relation to Sections 193 and 234 of the Local Government Code.
Furthermore, the Court of Tax Appeals ruled that PFDA failed to
prove that it is exempt from real property tax pursuant to Section 234
of the Local Government Code or any of its provisions.
ISSUE/S: WON PFDA is liable for the real property tax assessed on
the Lucena Fishing Port Complex.
HELD: No.
RATIO: The ruling of the Court of Tax Appeals is anchored on the
wrong premise that the PFDA is a government-owned or controlled
corporation. On the contrary, this Court has already ruled that the
PFDA is a government instrumentality and not a government-owned
or controlled corporation.
This ruling was affirmed by the Court in a subsequent PFDA case
involving the Navotas Fishing Port Complex, which is also managed
and operated by the PFDA. In consonance with the previous ruling,
the Court held in the subsequent PFDA case that the PFDA is a

government instrumentality not subject to real property tax except

those portions of the Navotas Fishing Port Complex that were leased
to taxable or private persons and entities for their beneficial use.
Similarly, we hold that as a government instrumentality, the PFDA is
exempt from real property tax imposed on the Lucena Fishing Port
Complex, except those portions which are leased to private persons
or entities.
The exercise of the taxing power of local government units is subject
to the limitations enumerated in Section 133 of the Local
Government Code. Under Section 133(o) of the Local Government
Code, local government units have no power to tax instrumentalities
of the national government like the PFDA. Thus, PFDA is not liable to
pay real property tax assessed by the Office of the City Treasurer of
Lucena City on the Lucena Fishing Port Complex, except those
portions which are leased to private persons or entities.
Besides, the Lucena Fishing Port Complex is a property of public
dominion intended for public use, and is therefore exempt from real
property tax under Section 234(a) of the Local Government Code.
Properties of public dominion are owned by the State or the Republic
of the Philippines. Thus, Article 420 of the Civil Code provides:
Art. 420. The following things are property of public dominion:
(1) Those intended for public use, such as roads, canals, rivers,
torrents, ports and bridges constructed by the State, banks, shores,
roadsteads, and others of similar character;
(2) Those which belong to the State, without being for public use,
and are intended for some public service or for the development of
the national wealth.
The Lucena Fishing Port Complex, which is one of the major
infrastructure projects undertaken by the National Government under
the Nationwide Fishing Ports Package, is devoted for public use and
falls within the term ports. The Lucena Fishing Port Complex
serves as PFDAs commitment to continuously provide post-harvest
infrastructure support to the fishing industry, especially in areas

BBS Digest Group | Taxation Law 1 | Atty. Tuazon |

where productivity among the various players in the fishing industry

need to be enhanced. As property of public dominion, the Lucena
Fishing Port Complex is owned by the Republic of the Philippines
and thus exempt from real estate tax.
CASE 5: Lung Center vs. Quezon city
FACTS: The Petitioner is a non-stock, non-profit entity which owns a
parcel of land in Quezon City. Erected in the middle of the aforesaid
lot is a hospital known as the Lung Center of the Philippines. The
ground floor is being leased to a canteen, medical professionals
whom use the same as their private clinics, as well as to other
private parties. The right portion of the lot is being leased for
commercial purposes to the Elliptical Orchids and Garden Center.
The petitioner accepts paying and non-paying patients. It also
renders medical services to out-patients, both paying and nonpaying. Aside from its income from paying patients, the petitioner
receives annual subsidies from the government.
Petitioner seeks 4.5 million exemption from real property taxes when
the City Assessor issued Tax Declarations for the land and the
hospital building. Petitioner predicted on its claim that it is a
charitable institution. The request was denied, and a petition
hereafter filed before the Local Board of Assessment Appeals of
Quezon City (QC-LBAA) for reversal of the resolution of the City
Assessor. Petitioner alleged that as a charitable institution, is
exempted from real property taxes under Sec 28(3) Art VI of the
Constitution. QC-LBAA dismissed the petition and the decision was
likewise affirmed on appeal by the Central Board of Assessment
Appeals of Quezon City. The Court of Appeals affirmed the judgment
of the CBAA.
ISSUE: (1) WON petitioner is exempted from real property taxes.
(2) WON petitioner is a charitable institution within the context of PD
1823 and the 1973 and 1987 Constitution and Section 234(b) of RA
7160

HELD: (1) Partly no.

(2) Yes. It is
RATIO: (1) Under PD 1823, the lung center does not enjoy any
property tax exemption privileges for its real properties as well as the
building constructed thereon. The property tax exemption under Sec.
28(3), Art. VI of the Constitution of the property taxes only. This
provision was implanted by Sec.243 (b) of RA 7160 which provides
that in order to be entitled to the exemption, the lung center must be
able to prove that: it is a charitable institution and; its real properties
are actually, directly and exclusively used for charitable purpose.
Accordingly, the portions occupied by the hospital used for its
patients are exempt from real property taxes while those leased to
private entities are not exempt from such taxes.
Moreover, P.D. No. 1823 only speaks of tax exemptions as regards
to: income and gift taxes for all donations, contributions, endowments
and equipment and supplies to be imported by authorized entities or
persons and by the Board of Trustees of the Lung Center of the
Philippines for the actual use and benefit of the Lung Center; and
taxes, charges and fees imposed by the Government or any political
subdivision or instrumentality thereof with respect to equipment
purchases (expression unius est exclusion alterius/expressium facit
cessare tacitum).
(2) Yes. The Court held that the petitioner is a charitable institution
within the context of the 1973 and 1987 Constitution. Under PD
1823, the petitioner is a non-profit and non-stock corporation which,
subject to the provisions of the decree, is to be administered by the
Office of the President with the Ministry of Health and the Ministry of
Human Settlements. The purpose for which it was created was to
render medical services to the public in general including those who
are poor and also the rich, and become a subject of charity. Under
PD 1823, petitioner is entitled to receive donations, even if the gift or
donation is in the form of subsidies granted by the government.
CASE 6: NAPOCOR v. PABILAO QUEZON

BBS Digest Group | Taxation Law 1 | Atty. Tuazon |

FACTS:The Province of Quezon assessed

Mirant
Pagbilao
Corporation (Mirant) for unpaid real property taxes in the amount
of P1.5 Billion for the machineries located in its power plant in
Pagbilao, Quezon. Napocor, which entered into a Build-OperateTransfer (BOT) Agreement (entitled Energy Conversion Agreement)
with Mirant, was furnished a copy of the tax assessment.
Napocor protested the assessment before the Local Board of
Assessment Appeals (LBAA), claiming entitlement to the tax
exemptions provided under Section 234 of the Local Government
Code (LGC), which states: Section 234. Exemptions from Real
Property Tax. The following are exempted from payment of the
real property tax:
(c) All machineries and equipment that are actually, directly,
and exclusively used by local water districts and government-owned
or controlled corporations engaged in the supply and distribution of
water and/or generation and transmission of electric power;
(e) Machinery and equipment used for pollution control and
environmental protection.
Assuming that it cannot claim the above tax exemptions, Napocor
argued that it is entitled to certain tax privileges, namely:
(a) the lower assessment level of 10% under Section 218(d)
of the LGC for government-owned and controlled corporations
engaged in the generation and transmission of electric power,
instead of the 80% assessment level for commercial properties
imposed in the assessment letter; and
(b) an allowance for depreciation of the subject machineries
under Section 225 of the LGC.
The Court ruled that Napocor is not entitled to any of these claimed
tax exemptions and privileges on the basis primarily of the defective
protest filed by the Napocor. We (COURT) found that Napocor did
not file a valid protest against the realty tax assessment because it
did not possess the requisite legal standing. (the entity that was
being taxed by Pabilao was Mirant, not Napocor) When a
taxpayer fails to question the assessment before the LBAA, the

assessment becomes final, executory, and demandable, precluding

the taxpayer from questioning the correctness of the assessment or
from invoking any defense that would reopen the question of its
liability on the merits. The Court also stated that the tax liability must
be a liability that arises from law, which the local government unit can
rightfully and successfully enforce, not the contractual liability that is
enforceable only between the parties to the contract. In the present
case, the Province of Quezon is a third party to the BOT Agreement
and could thus not exact payment from Napocor without violating the
principle of relativity of contracts.
Napocor filed for a motion for consideration, insisting that it is entitled
to the tax exemptions and privileges claimed, the primary issue for
the Court to resolve, however, is to determine whether Napocor has
sufficient legal interest to protest the tax assessment because
without the requisite interest, the tax assessment stands, and no
claim of exemption or privilege can prevail. Napocor posits that it is
the beneficial owner of the subject machineries, with Mirant retaining
merely a naked title to secure certain obligations. Thus, it argues
that the BOT Agreement is a mere financing agreement and is similar
to the arrangement authorized under Article 1503 of the Civil Code,
which declares:
Art. 1503. When there is a contract of sale of specific goods, the
seller may, by the terms of the contract, reserve the right of
possession or ownership in the goods until certain conditions have
been fulfilled. The right of possession or ownership may be thus
reserved notwithstanding the delivery of the goods to the buyer or to
a carrier or other bailee for the purpose of transmission to the buyer.
Where goods are shipped, and by the bill of lading the goods are
deliverable to the seller or his agent, or to the order of the seller or of
his agent, the seller thereby reserves the ownership in the goods.
But, if except for the form of the bill of lading, the ownership would
have passed to the buyer on shipment of the goods, the seller's
property in the goods shall be deemed to be only for the purpose of
securing performance by the buyer of his obligations under the
contract.

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ISSUE: WON Napocor has sufficient legal interest to protest the tax
assessment.
HELD: NO. Napocor does NOT have sufficient legal interest to
protest the tax assessment. Hence, the tax assessment stands and
no claim of exemption or privilege can prevail.
RATIO: Legal interest is defined as interest in property or a claim
cognizable at law, equivalent to that of a legal owner who has legal
title to the property. Given this definition, Napocor is clearly not
vested with the requisite interest to protest the tax assessment, as it
is not an entity having the legal title over the machineries. It has
absolutely no solid claim of ownership or even of use and possession
of the machineries, as our July 15, 2009 Decision explained.
Article 1503 is inapplicable to define the contract between Napocor
and Mirant, as it refers only to ordinary contracts of sale. We thus
declared in Tatad v. Garcia that under BOT agreements, the private
corporations/investors are the owners of the facility or machinery
concerned. Apparently, even Napocor and Mirant recognize this
principle; Article 2.12 of their BOT Agreement provides that until the
Transfer Date, Mirant shall, directly or indirectly, own the Power
Station and all the fixtures, fitting, machinery and equipment on the
Site. Mirant shall operate, manage, and maintain the Power Station
for the purpose of converting fuel of Napocor into electricity.
Moreover, if Napocor truly believed that it was the owner of the
subject machineries, it should have complied with Sections 202 and
206 of the LGC which obligates owners of real property to: 1) file a
sworn statement declaring the true value of the real property,
whether taxable or exempt; and 2) file sufficient documentary
evidence supporting its claim for tax exemption.
While a real property owners failure to comply with Sections 202 and
206 does not necessarily negate its tax obligation nor invalidate its
legitimate claim for tax exemption, Napocors omission to do so in
this case can be construed as contradictory to its claim of ownership
of the subject machineries. That it assumed liability for the taxes that
may be imposed on the subject machineries similarly does not clothe

it with legal title over the same. We do not believe that the
phrase person having legal interest in the property in Section 226 of
the LGC can include an entity that assumes another persons tax
liability by contract.
CASE 7: CIR v. CA, CTA, YMCA (1998)
FACTS: Private Respondent YMCA is a non-stock, non-profit
institution, which conducts various programs and activities that are
beneficial to the public, especially the young people, pursuant to its
religious, educational and charitable objectives.
In 1980, private respondent earned, among others, an income of
P676,829.80 from leasing out a portion of its premises to small shop
owners, like restaurants and canteen operators, and P44,259.00
from parking fees collected from non-members. On July 2, 1984, the
CIR issued an assessment to private respondent, in the total amount
of P415,615.01 including surcharge and interest, for deficiency
income tax, deficiency expanded withholding taxes on rentals and
professional fees and deficiency withholding tax on wages. Private
respondent formally protested the assessment and, as a supplement
to its basic protest, filed a letter dated October 8, 1985. In reply, the
CIR denied the claims of YMCA.
Contesting the denial of its protest, the YMCA filed a petition for
review at the CTA. In due course, the CTA issued this ruling in favor
of the YMCA:
The leasing of private respondents facilities to small shop owners,
to restaurant and canteen operators and the operation of the parking
lot are reasonably incidental to and reasonably necessary for the
accomplishment of the objectives of the [private respondents]. It
appears from the testimonies of the witnesses for the [private
respondent] particularly Mr. James C. Delote, former accountant of
YMCA, that these facilities were leased to members and that they
have to service the needs of its members and their guests. The
Rentals were minimal as for example, the barbershop was only
charged P300 per month. He also testified that there was actually no
lot devoted for parking space but the parking was done at the sides

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of the building. The parking was primarily for members with stickers
on the windshields of their cars and they charged P.50 for nonmembers. The rentals and parking fees were just enough to cover
the costs of operation and maintenance only. The earning[s] from
these rentals and parking charges including those from lodging and
other charges for the use of the recreational facilities constitute [the]
bulk of its income which [is] channeled to support its many activities
and attainment of its objectives. As pointed out earlier, the
membership dues are very insufficient to support its program. We
find it reasonably necessary therefore for [private respondent] to
make [the] most out [of] its existing facilities to earn some income. It
would have been different if under the circumstances, [private
respondent] will purchase a lot and convert it to a parking lot to cater
to the needs of the general public for a fee, or construct a building
and lease it out to the highest bidder or at the market rate for
commercial purposes, or should it invest its funds in the buy and sell
of properties, real or personal. Under these circumstances, we could
conclude that the activities are already profit oriented, not incidental
and reasonably necessary to the pursuit of the objectives of the
association and therefore, will fall under the last paragraph of section
27 of the Tax Code and any income derived therefrom shall be
taxable. Considering our findings that [private respondent] was not
engaged in the business of operating or contracting [a] parking lot,
we find no legal basis also for the imposition of [a] deficiency fixed
tax and [a] contractors tax in the amount[s] of P353.15 and
P3,129.73, respectively.
Dissatisfied with the CTA ruling, the CIR elevated the case to the CA.
In its Decision, the CA initially decided in favor of the CIR. Aggrieved,
the YMCA asked for reconsideration. Finding merit in the Motion for
Reconsideration filed by the YMCA, the CA reversed itself, saying
that The Court cannot depart from the CTAs findings of fact, as they
are supported by evidence beyond what is considered as
substantial.
ISSUE/S: WON the income of private respondent from rentals of
small shops and parking fees [is] exempt from taxation.
HELD: No.

RATIO: At the outset, we set forth the relevant provision of the NIRC:
SEC. 27. Exemptions from tax on corporations. -- 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) Club organized and operated exclusively for pleasure, recreation,
and other non-profitable purposes, no part of the net income of which
inures to the benefit of any private stockholder or member;
Notwithstanding the provision in the preceding paragraphs, the
income of whatever kind and character of the foregoing organization
from any of their properties, real or personal, or from any of their
activities conducted for profit, regardless of the disposition made of
such income, shall be subject to the tax imposed under this Code.
(as amended by Pres. Decree No. 1457)
Petitioners argues that while the income received by the
organizations enumerated in Section 27 (now Section 26) of the
NIRC is, as a rule, exempted from the payment of tax in respect to
income received by them as such, the exemption does not apply to
income derived xxx from any if their properties, real or personal, or
from any of their activities conducted for profit, regardless, of the
disposition made of such income xxx.
Petitioner adds that rented income derived by a tax-exempt
organization from the lease of its properties, real or personal, [is] not,
therefore, exempt from income taxation, even if such income [is]
exclusively used for the accomplishment of its objectives. We agree
with the commissioner.
Because taxes are the lifeblood of the nation, the Court has always
applied the doctrine of strict interpretation in construing tax
exemptions. Furthermore, a claim of statutory exemption from
taxation should be manifest and unmistakable from the language of
the law on which it is based. Thus, the claimed exemption must
expressly be granted in a statute stated in a language too clear to be

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mistaken. Verba legis non est recedendum where the law does
not distinguish, neither should we.
In the instant case, the exemption claimed by the YMCA is expressly
disallowed by the very wording of the last paragraph of then Section
27 of the NIRC which mandates that the income of exempt
organizations (such as the YMCA) from any of their properties, real
or personal, be subject to the imposed by the same Code. Because
the last paragraph of said section unequivocally subjects to tax the
rent income of the YMCA from its rental property, the Court is dutybound to abide strictly by its literal meaning and to refrain from
resorting to any convoluted attempt at construction.
It is axiomatic that where the language of the law is clear and
unambiguous, its express terms must be applied. Parenthetically, a
consideration of the question of construction must not even begin,
particularly when such question is on whether to apply a strict
construction or a literal one on statutes that grant tax exemptions to
religious, charitable and educational propert[ies] or institutions.
The last paragraph of Section 27, the YMCA argues, should be
subject to the qualification that the income from the properties must
arise from activities conducted for profit before it may be considered
taxable. This argument is erroneous. As previously stated, a
reading of said paragraph ineludibly shows that the income from any
property of exempt organizations, as well as that arising from any
activity it conducts for profit, is taxable. The phrase any of their
activities conducted for profit does not qualify the word properties.
This makes income from the property of the organization taxable,
regardless of how that income is used -- whether for profit or for lofty
non-profit purposes.
Constitutional Provisions on Taxation: Invoking not only the NIRC
but also the fundamental law, private respondent submits that Article
VI, Section 28 of par. 3 of the 1987 Constitution, exempts charitable
institutions from the payment not only of property taxes but also of
income tax from any source. In support of its novel theory, it
compares the use of the words charitable institutions, actually and
directly in the 1973 and the 1987 Constitutions, on the hand; and in

Article VI Section 22, par. 3 of the 1935 Constitution, on the other

hand.
Private respondent enunciates three points. First, the present
provision is divisible into two categories: (1) [c]haritable institutions,
churches and parsonages or convents appurtenant thereto, mosques
and non-profit cemeteries, the incomes of which are, from whatever
source, all tax-exempt; and (2) [a]ll lands, buildings and
improvements actually and directly used for religious, charitable or
educational purposes, which are exempt only from property taxes.
Second, Lladoc v. Commissioner of Internal Revenue, which limited
the exemption only to the payment of property taxes, referred to the
provision of the 1935 Constitution and not to its counterparts in the
1973 and the 1987 Constitutions. Third, the phrase actually, directly
and exclusively used for religious, charitable or educational
purposes refers not only to all lands, buildings and improvements,
but also to the above-quoted first category which includes charitable
institutions like the private respondent.
The Court is not persuaded. The debates, interpellations and
expressions of opinion of the framers of the Constitution reveal their
intent which, in turn, may have guided the people in ratifying the
Charter. Such intent must be effectuated.
Accordingly, Justice Hilario G. Davide, Jr., a former constitutional
commissioner, who is now a member of this Court, stressed during
the Concom debates that xxx what is exempted is not the institution
itself xxx; those exempted from real estate taxes are lands, buildings
and improvements actually, directly and exclusively used for
religious, charitable or educational purposes. Father Joaquin G.
Bernas, an eminent authority on the Constitution and also a member
of the Concom, adhered to the same view that the exemption created
by said provision pertained only to property taxes.
In his treatise on taxation, Mr. Justice Jose C. Vitug concurs, stating
that [t]he tax exemption covers property taxes only." Indeed, the
income tax exemption claimed by private respondent finds no basis
in Article VI, Section 28, par. 3 of the Constitution.

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Private respondent also invokes Article XIV, Section 4, par. 3 of the

Charter, claiming that the YMCA is a non-stock, non-profit
educational institution whose revenues and assets are used actually,
directly and exclusively for educational purposes so it is exempt from
taxes on its properties and income. We reiterate that private
respondent is exempt from the payment of property tax, but not
income tax on the rentals from its property. The bare allegation alone
that it is a non-stock, non-profit educational institution is insufficient
to justify its exemption from the payment of income tax.
As previously discussed, laws allowing tax exemption are construed
strictissimi juris. Hence, for the YMCA to be granted the exemption it
claims under the aforecited provision, it must prove with substantial
evidence that (1) it falls under the classification non-stock, non-profit
educational institution; and (2) the income it seeks to be exempted
from taxation is used actually, directly, and exclusively for educational
purposes. However, the Court notes that not a scintilla of evidence
was submitted by private respondent to prove that it met the said
requisites.
Is the YMCA an educational institution within the purview of Article
XIV, Section 4, par.3 of the Constitution? We rule that it is not. The
term educational institution or institution of learning has acquired
a well-known technical meaning, of which the members of the
Constitutional Commission are deemed cognizant. Under the
Education Act of 1982, such term refers to schools. The school
system is synonymous with formal education, which refers to the
hierarchically structured and chronological graded learnings
organized and provided by the formal school system and for which
certification is required in order for the learner to progress through
the grades or move to the higher levels. The Court has examined
the Amended Articles of Incorporation and By-Laws of the YMCA,
but found nothing in them that even hints that it is a school or an
educational institution.
Furthermore, under the Education Act of 1982, even non-formal
education is understood to be school-based and private auspices
such as foundations and civic-spirited organizations are ruled out.
[45] It is settled that the term educational institution, when used in

laws granting tax exemptions, refers to a xxx school seminary,

college or educational establishment xxx.[46] Therefore, the private
respondent cannot be deemed one of the educational institutions
covered by the constitutional provision under consideration.
xxx Words used in the Constitution are to be taken in their ordinary
acceptation. While in its broadest and best sense education
embraces all forms and phrases of instruction, improvement and
development of mind and body, and as well of religious and moral
sentiments, yet in the common understanding and application it
means a place where systematic instruction in any or all of the useful
branches of learning is given by methods common to schools and
institutions of learning. That we conceive to be the true intent and
scope of the term [educational institutions,] as used in the
Constitution.
Moreover, without conceding that Private Respondent YMCA is an
educational institution, the Court also notes that the former did not
submit proof of the proportionate amount of the subject income that
was actually, directly and exclusively used for educational purposes.
Article XIII, Section 5 of the YMCA by-laws, which formed part of the
evidence submitted, is patently insufficient, since the same merely
signified that [t]he net income derived from the rentals of the
commercial buildings shall be apportioned to the Federation and
Member Associations as the National Board may decide. In sum, we
find no basis for granting the YMCA exemption from income tax
under the constitutional provision invoke
CASE 8: PROCTER & GAMBLE ASIA PTE LTD. V. CIR
FACTS: On 26 September and 13 December 2006, petitioner filed
administrative claims with the BIR for the refund or credit of the input
VAT attributable to the formers zero-rated sales covering the periods
July 1- September 30, 2004 and October 1- December 31, 2004,
respectively.
On October 2 and December 29, 2006, petitioner filed judicial claims
docketed as CTA Case Nos. 7523 and 7556, respectively, for the
aforementioned refund or credit of its input VAT. Respondent filed

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separate Answers to the two cases, which were later consolidated,

basically arguing that petitioner failed to substantiate its claims for
refund or credit.
Trial on the merits ensued. On January 2011, the CTA First Division
rendered a Decision dismissing the judicial claims for having been
prematurely filed. It ruled that petitioner had failed to observe the
mandatory 120-day waiting period to allow the Commissioner of
Internal Revenue (CIR) to decide on the administrative claim.
Petitioners Motion for Reconsideration was denied on March 2011.
Petitioner thereafter filed a Petition for Review before the CTA En
Banc. The latter, however, issued the assailed Decision affirming the
ruling of the CTA First Division. Petitioners Motion for
Reconsideration was denied in the assailed Resolution.
PETITIONER CONTENTION: Petitioner filed the present petition
arguing mainly that the 120-day waiting period, reckoned from the
filing of the administrative claim for the refund or credit of unutilized
input VAT before the filing of the judicial claim, is not jurisdictional.
According to petitioner, the premature filing of its judicial claims was
a mere failure to exhaust administrative remedies, amounting to a
lack of cause of action. When respondent did not file a motion to
dismiss based on this ground and opted to participate in the trial
before the CTA, it was deemed to have waived such defense.
ISSUE/S: WON petitioner can still claim for refund of unutilized input
value-added tax (VAT) for not observing the mandatory 120-day
waiting period.
HELD: Yes.
RATIO: On June 3, 2013, the Court required respondent to submit its
Comment, which it filed on December 4, 2013. Citing the recent case
CIR v. San Roque Power Corporation, respondent counters that the
120-day period to file judicial claims for a refund or tax credit is
mandatory and jurisdictional. Failure to comply with the waiting
period violates the doctrine of exhaustion of administrative remedies,
rendering the judicial claim premature. Thus, the CTA does not
acquire jurisdiction over the judicial claim.

Respondent is correct on this score. However, it fails to mention that

San Roque also recognized the validity of BIR Ruling No. DA-48903. The ruling expressly states that the "taxpayer-claimant need not
wait for the lapse of the 120-day period before it could seek judicial
relief with the CTA by way of Petition for Review."
The Court, in San Roque, ruled that equitable estoppel had set in
when respondent issued BIR Ruling No. DA-489-03. This was a
general interpretative rule, which effectively misled all taxpayers into
filing premature judicial claims with the CTA. Thus, taxpayers could
rely on the ruling from its issuance on 10 December 2003 up to its
reversal on 6 October 2010, when CIR v. Aichi Forging Company of
Asia, lnc. was promulgated.
The judicial claims in the instant petition were filed on 2 October and
29 December 2006, well within the ruling's period of validity.
Petitioner is in a position to "claim the benefit of BIR Ruling No. DA489-03, which shields the filing of its judicial claim from the vice of
prematurity."
CASE 9: CIR vs. BOAC
SUMMARY: The CIR made an assessment of BOACs deficiency
income taxes. The period
covered
by the
disputed
assessmentsincluded the time when BOAC had no landing rights in
the Philippinesbut still maintained a general sales agent. BOAC
protested thecomputed amounts. CIR then produced a new
assessment whichBOAC paid under protest. BOAC then demanded
a refund but wasdenied. The Tax Court subsequently reversed the
CIR decision on theground that the sales of BOAC passage tickets in
the Philippines donot constitute income from the Philippines, and
thus, is not subject toPhilippine income tax. This Tax Court decision
is being assailed in thecase at bar. The SC set aside this Tax Court
decision and concludedthat since the source of income is made in
the Philippines, it iscovered by our tax laws.
DOCTRINE: The tax imposed upon BOAC is an excise tax, and
suchcan be levied by the State only when the acts, privileges or
businessesare done or performed within the jurisdiction of the

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Philippines. The test of taxability is the source; and the source of an

income is that activity which produced the income.

Tax Code. BOAC asked for reconsideration but CIR denied the
same. BOAC filed a 2nd petition for review with the tax court.

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 theinternational
airline business and is a member-signatory 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 agent in the
Philippines Wamer Barnes and Company, Ltd., and later Qantas
Airways which was responsible for selling BOAC tickets covering
passengers and cargoes.

The 2 cases before the CTA were consolidated. Tax Court rendered
the assailed joint Decision reversing the CIR. Its position was
thatincome from transportation is income from services so that the
place where services are rendered 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
thePhilippines" and, therefore, said income is not subject to
Philippine income tax.

1st case: On May 7, 1968 CIR assessed BOAC with P2,498,358.56

for deficiency incometaxes covering the years 1959 to 1963. BOAC
protested. Investigation resulted to aassessment in the amount of
P858,307.79 covering the years 1959 to 1967. BOAC paid thisnew
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 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 years 1969 to 197071 plus P1,000.00 as compromise penalty under Section 74 of the

ISSUES: (1) WON during the fiscal years in question BOAC is a

resident foreign corporation doing business in the Philippines or has
an office or place of business in the Philippines.
(2) WON proceeds from the sale of BOAC tickets in the Philippines
by Warner Barnes and Company, Ltd are considered income from
sources within the Philippines
HELD: (1) Yes. BOAC is a resident foreign corporation.
(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.
RATIO: (1) 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.

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"In order that a foreign corporation may beregarded as doing

business within a State, there must be continuity of conduct and
intentionto 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 salesagent 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 inthe
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
prescribedby Article VI of the Resolution No. 850 of the IATA
Agreement." Those activities were inexercise of the functions which
are normally incident to, and are in progressive pursuit of,
thepurpose 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 salesbeing 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) 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 theincome 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.The
absence of flight operations to and from the Philippines is not
determinative of the sourceof 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
sourceof 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.

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