ONA v CIR

GR No. L -19342 | May 25, 1972 | J. Barredo

Facts:
Julia Buales died leaving as heirs her surviving spouse,
Lorenzo Oa and her five children. A civil case was
instituted for the settlement of her state, in which Oa
was appointed administrator and later on the guardian
of the three heirs who were still minors when the
project for partition was approved. This shows that the
heirs have undivided interest in 10 parcels of land, 6
houses and money from the War Damage Commission.
Although the project of partition was approved by the
Court, no attempt was made to divide the properties
and they remained under the management of Oa who
used said properties in business by leasing or selling
them and investing the income derived therefrom and
the proceeds from the sales thereof in real properties
and securities. As a result, petitioners properties and
investments gradually increased. Petitioners returned
for income tax purposes their shares in the net income
but they did not actually receive their shares because
this left with Oa who invested them.
Based on these facts, CIR decided that petitioners
formed an unregistered partnership and therefore,
subject to the corporate income tax, particularly for
years 1955 and 1956. Petitioners asked for
reconsideration, which was denied hence this petition
for review from CTAs decision.
Issue:
W/N there was a co-ownership or an unregistered
partnership
W/N the petitioners are liable for the deficiency
corporate income tax
Held:
Unregistered partnership. The Tax Court found that
instead of actually distributing the estate of the
deceased among themselves pursuant to the project of
partition, the heirs allowed their properties to remain
under the management of Oa and let him use their
shares as part of the common fund for their ventures,
even as they paid corresponding income taxes on their
respective shares.
Yes. For tax purposes, the co-ownership of inherited
properties is automatically converted into an
unregistered partnership the moment the said common
properties and/or the incomes derived therefrom are
used as a common fund with intent to produce profits
for the heirs in proportion to their respective shares in
the inheritance as determined in a project partition
either duly executed in an extrajudicial settlement or
approved by the court in the corresponding testate or
intestate proceeding. The reason is simple. From the
moment of such partition, the heirs are entitled already
to their respective definite shares of the estate and the
incomes thereof, for each of them to manage and
dispose of as exclusively his own without the
intervention of the other heirs, and, accordingly, he
becomes liable individually for all taxes in connection
therewith. If after such partition, he allows his share to
be held in common with his co-heirs under a single
management to be used with the intent of making
profit thereby in proportion to his share, there can be
no doubt that, even if no document or instrument were

executed, for the purpose, for tax purposes, at least, an

unregistered partnership is formed.
For purposes of the tax on corporations, our National
Internal Revenue Code includes these partnerships
The term partnership includes a syndicate, group,
pool, joint venture or other unincorporated
organization, through or by means of which any
business, financial operation, or venture is carried on
(8 Mertens Law of Federal Income Taxation, p. 562
Note 63; emphasis ours.)
with the exception only of duly registered general
copartnerships within the purview of the term
corporation. It is, therefore, clear to our mind that
petitioners herein constitute a partnership, insofar as
said Code is concerned, and are subject to the income
tax for corporations. Judgment affirmed

Commissioner vs BOAC
149 SCRA 395
Facts:
British overseas airways corp. (BOAC) a wholly
owned British Corporation, is engaged in international
airlines business. From 1959to 1972, it has no loading
rights for traffic purposes in the Philippines but
maintained a general sales agent in the Philippines
which was responsible for selling, BOAC tickets
covering passengers and cargoes the CIR assessed
deficiency income taxes against.
Issue: Is BOAC liable to pay taxes?
Ruling:
Yes. The source of income is the property,
activity of service that produces the income. For the
source of income to be considered coming from the
Philippines, it is sufficient that the income is derived
from the activity coming from the Philippines. The tax
code provides that for revenue to be taxable, it must
constitute income from Philippine sources. In this case,
the sale of tickets is the source of income. The situs of
the source of payments is the Philippines.
FACTS:
British Overseas Airways is a 100% British Governmentowned corporation engaged in international airline
business and is a member of the Interline Air Transport
Association and thus it operates air transportation
service and sells transportation tickets over the routes
of the other airline members. From 1959 to 1972, BOAC
had no landing rights for traffic purposes in the
Philippines but maintained a general sales agent in the
country. Warner Barnes was responsible for selling
BOAC tickets covering passengers of and cargos. The CIR
assessed deficiency income taxes against BOAC.
ISSUE:
Whether or not the revenue derived by BOAC from
ticket sales in the Philippines for its transportation
constitute income from Philippine sources and

accordingly taxable.
RULING:
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. Herein, the sale of
tickets is the activity that produced the income. The
tickets exchanged hands here and payment for fares
were also made here in the Philippine currency. The
situs or the source of the payment is the Philippines.
The flow of wealth proceeded from, and occurred
within, Philippine territory, enjoying the protection
accorded by Philippine government. In consideration of
such protection, the flow of wealth should share the
burden of supporting the government. PD 68, in relation
to PD1355, ensures that international airlines are taxed
on their income from Philippine sources. The 2.5% tax
on gross billings is an income tax. If it had been
intended as an excise tax, it would have been placed
under Title V of the Tax Code covering taxes on
business.

W/N South African Airways engaged in trade or

business in the Philippines subject to the regular
corporate income tax?
YES.
The general rule is that resident foreign corporations
shall be liable for a 32% income tax on their income
from within the Philippines, except for resident foreign
corporations that are international carriers that derive
income from carriage of persons, excess baggage,
cargo and mail originating from the Philippines which
shall be taxed at 2 % of their Gross Philippine
Billings. South African Airways being an international
carrier with no flights originating from the Philippines,
does not fall under the exception. As such, it must fall
under the general rule
Hence, it is liable for regular corporate income tax.

FACTS:

SOUTH AFRICAN AIRWAYS v. CIRG.R. No. 180356 |

February 16, 2010
Petitioner: SOUTH AFRICAN AIRWAYS
Respondent: COMMISSIONER OF INTERNAL REVENUE

VELASCO, JR.,
J.:
Doctrine: If an international air carrier maintains flights
to and from the Philippines, it shall be taxed at the rate
of 2 %of its Gross Philippine Billings, while
international air carriers that do not have flights to and
from the Philippines but nonetheless earn income from
other activities in the country will be taxed at the
regular rate of 32% (now 30%) of such income.
SUMMARY:
South African Airways is a foreign corporation organized
and existing under and by virtue of the laws of the
Republic of South Africa. In the Philippines, it is an
internal air carrier having no landing rights in the
country. South African Airways, however, has a general
sales agent in the Philippines, Aerotel. Aerotel sells
passage documents for compensation or commission
for South African Airways off-line flights for the
carriage of passengers and cargo between ports or
points outside the territorial jurisdiction of the
Philippines. South African Airways filed income tax
returns and paid tax on its Gross Philippine Billings
(GPB). South African Airways, however, subsequently
claim for refund contending that it was not liable to pay
tax on its GPB.CTA denied the claim on the ground that
South African Airways is liable to pay the32% (now 30%)
regular corporate income tax.

Petition for Review on Certiorari seeking the

reversal of CTA EB decision (affirming decision
of CTA division) DENYING its claim for tax
refund.
South African Airways is a foreign corporation
organized and existing under and by virtue of
the laws of the Republic of South Africa. Its
principal office is located at Johannesburg
International Airport, South Africa.
In PH, it is an internal air carrier having no
landing rights in the country. South African
Airways, however, has a general sales agent in
the Philippines, Aerotel Limited Corporation
(Aerotel)
Aerotel sells passage documents for
compensation or commission for South African
Airways off-line flights for the carriage of
passengers and cargo between ports or points
outside the territorial jurisdiction of the
Philippines.
South African Airways is not registered with the
SEC as a corporation, branch office, or
partnership. It is not licensed to do business in
PH.
For the taxable year 2000, South African
Airways filed separate quarterly and annual
income tax returns for its off-line flights
February 5, 2003: South African Airways
filed with the BIR a claim for the refund of the
amount of PhP 1,727,766.38 as erroneously
paid tax on Gross Philippine Billings (GPB)
for the taxable year 2000.
Claim was unheeded
South African Airways filed a Petition for Review
with the CTA for the refund of the said amount.
CTA First Division: DENIED petition for lack of
merit
Ruled that South African Airways is a resident
foreign corporation engaged in trade or
business in the Philippines.

South African Airways was not liable to pay tax

on its GPB under Section 28 (A)(3)(a) of NIRC.
BUT South African Airways is liable to pay a tax
of32% on its income derived from the sales of
passage documents in the Philippines.
CTA En Banc: AFFIRMED CTA Divisions Decision.
MR Denied
Hence, this petition.

ISSUES:
1. W/N South African Airways, as an off-line
international carrier selling passage documents through
an independent sales agent in the Philippines, is
engaged in trade or business in the Philippines subject
to the 32% (now30%) income tax? YES
2. W/N the income derived by South African Airways
from the sale of passage documents covering
petitioners off-line flights is Philippine-source income
subject to Philippine income tax? YES3. W/N South
African Airways is entitled to a refund or a tax credit of
erroneously paid tax on Gross Philippine Billings for the
taxable year 2000 in the amount ofP1, 727,766.38?
HELD:
CTA Decision SET ASIDE. The instant case is REMANDED
to the CTA En Banc for further proceedings and
appropriate action, more particularly, the reception of
evidence for both parties and the corresponding
disposition the case consistent with the SCs decision
RATIO
:
SOUTH AFRICAN AIRWAYS IS SUBJECT TO INCOME TAX
AT THE RATE OF32% (NOW 30%) OF ITS TAXABLE
INCOME
South African Airways failed to sufficiently prove that it
is exempted from being taxed for its sale of passage
documents in the Philippines.
CIR v. Acesite (Philippines) Hotel Corporation:
Tax refund partakes of the nature of an
exemption
It is strictly construed against the claimant who
must discharge such burden convincingly.
South African Airways contentions: With
the new definition of GPB (the provision was
amended), it is no longer liable under Sec.
28(A)(3)(a).
Since 2 1/2% tax on GPB is inapplicable to it,
South African Airways is also excluded from the
imposition of any income tax