001 CIR v.
US LINES (VARGAS) November 1951 and 29 April 1952, of chrome ores from Masinloc, Zambales to the
30 May 1962 | Barrera, J. | Percentage Tax on International Carriers
PETITIONER: Commissioner of Internal Revenue
RESPONDENTS: United States Lines Company
SUMMARY: US Lines Company is a foreign corporation duly licensed to do business in the
Philippines. US Lines is the operator of ocean-going vessels transporting passengers and
freight to and from the Philippines. In the examination of its books of accounts and other
records to determine its tax liabilities, it was found that the US Lines also acted in behalf of
the West Coast Company, a non-resident foreign corporation, in connection with the
transportation, on board the "SS Portland Trader" belonging to the latter, on November 27,
1951 and April 29, 1952, of chrome ores from Masinloc, Zambales to the United States,
from which carriage or transportation freight revenue in the total sum of $272,470.00
was realized by the vessel's owner, and for which the 2% common carrier's percentage
tax imposed by Section 192 of the NIRC was never paid. As a consequence, the CIR
assessed and demanded from US Lines, as agent of the shipping companies, a deficiency tax
of P25,769.41. Upon petition by the US Lines, CTA ruled in favor of the former stating,
among others, that the 2% percentage tax under Section 192 of the Tax Code is imposable
only on owners or operators of the common carrier, and as there is no law constituting the
shipping agent the withholding agent of the taxes due from the principal, said shipping agent
is not personally liable for the tax obligations of the latter, unless the agent voluntarily
assumes such obligation which, in this case, the agent US Lines did not. The issue in this case
is whether or not US Lines, as agent of West Coast Company, can be compelled to pay the 2%
percentage tax on the freight revenue earned from the shipment of chrome ores transported
from PH to US? The SC ruled in the affirmative. What the legal provision purports to tax is
the business of transportation, so much so that the tax is based on the gross receipts. The
person liable is of course the owner or operator. However, a shipping company that holds
itself to the public and to Government as the shipowner's local agent, and in fact renders
services as such, is under obligation to pay, for and in behalf of its principal, whatever tax is
due from the latter, especially where the principal is a non-resident corporation beyond the
jurisdiction of the Philippines. This is of course, without prejudice to the right of the agent to
seek reimbursement from his principal.
DOCTRINE: What the legal provision purports to tax is the business of transportation, so
much so that the tax is based on the gross receipts. The person liable is of course the owner or
operators, but this does not mean that he and he alone can be made actually to pay the tax. In
other words, whoever acts on his behalf and for his benefit may be held liable to pay, for and
on behalf of the carrier or operator, such percentage tax on the business.
FACTS:
1. The US Lines Company, a foreign corporation duly licensed to do business in the
Philippines, under the trade name “American Pioneer Lines”, is the operator of
ocean-going vessels transporting passengers and freight to and from the Philippines.
It is also the sole agent and representative of the Pacific Far East Line, Inc., another
shipping company engaged in business in the Philippines as a common carrier by
water.
2. In the examination of its books of accounts and other records to determine its tax
liabilities for the period from 1 January 1950 to 30 September 1955, it was found
that the Company also acted in behalf of the West Coast Trans-Oceanic Steamship
Lines Co., Inc., a non-resident foreign corporation, in connection with the
transportation, on board the “SS Portland Trader” belonging to the latter, on 27
United States, from which carriage or transportation freight revenue in the total sum
of $272,470.00 was realized by the vessel’s owner, and for which the 2% common
carrier’s percentage tax imposed by Section 192 of the National Internal Revenue
Code was never paid.
3. As a consequence, the Commissioner of Internal Revenue assessed and demanded
from the Company, as deficiency tax, (a) the sum of P6,691.36 for its own business
under the name American Pioneer Lines; (b) P5,429.00, as agent of Pacific Far East
Line, Inc., and (c) P13,649.05 on the freight revenue of the West Coast Trans-
Oceanic Steamship Lines Co. from the carriage or transportation of the chrome ores;
or a total of P25,769.41.
4. At the instance of the Company, a reinvestigation of the case was conducted and a
hearing thereon held before the Appellate Division of the Bureau of Internal
Revenue. These, notwithstanding, the Commissioner maintained his demand.
5. The Company filed a petition with the Court of Tax Appeals contesting the
correctness of (1) the conversion of “collect” revenues or those freight and passage
receipts, commissions, and agency fees for services in the Philippines, but payable in
the United States, at the rate of P2.00 to $1.00 and (2) the demand on the Company
of the 2% carrier’s percentage tax on the gross receipts of the West Coast Trans-
Oceanic Steamship Lines from the chrome ore shipments of 27 November 1951 and
29 April 1952.
6. The Court of Tax Appeals, in its decision, ruled for the Company on the first issue,
using the agreed conversion rates $1.00 to P2.015 and $1.00 to P2.02 with regard to
the ‘prepaid’ freight and passage revenues, respectively, in order to arrive at the
actual amounts collected by the Company in Philippine pesos — the correct taxable
gross receipts. As to the second issue, it ruled that the 2% percentage tax under
Section 192 of the Tax Code is imposable only on owners or operators of the
common carrier, and as there is no law constituting the shipping agent the
withholding agent of the taxes due from the principal, said shipping agent is not
personally liable for the tax obligations of the latter, unless the agent voluntarily
assumes such obligation which, in this case, the agent Company did not.
7. Consequently, the Company was ordered to pay only a tax deficiency and surcharge
in the sum of P502.75. Hence, the institution of the appeal by the Commissioner of
Internal Revenue.
ISSUE/s:
Whether or not the Company, as agent of the West Coast Trans-Oceanic Steamship Lines
Company, can be compelled to pay the 2% percentage tax on the freight revenue earned from
the shipment of chrome ores transported from the Philippines to the United States - YES.
What the legal provision purports to tax is the business of transportation, so much so that the
tax is based on the gross receipts. The person liable is of course the owner or operator.
RULING: WHEREFORE, the decision of the Court of Tax Appeals in this case is modified at
above-indicated, and the records remanded to the court a quo for the purpose herein directed.
No costs. So ordered.
RATIO:
Conversion of the “collect” freight fees
1. The ruling by the lower court that the conversion of the “collect” freight fees (or
those earned in the Philippines but actually paid in the United States in dollar)
should be at the rate of P2.00 to $1.00 as established by law (Sec. 48, RA 265), and
 not the rate of exchange of P2.00375 to $1.00, as fixed by the Monetary Board, must
be upheld.
2. No evidence was presented rebutting the positive allegation of taxpayer, which was
sustained by the Tax Court, that the “collect” freightage fees were not remitted to
the local office of the US Lines Company (in the Philippines) nor actually converted
to and received in Philippine pesos. In other words, no foreign exchange operations
were involved.
Purpose of Section 192 of the Tax Code; Liability of shipping agent as withholding agent
of taxes due from its principal
3. What the legal provision purports to tax is the business of transportation, so much so
that the tax is based on the gross receipts. The person liable is of course the owner or
operators, but this does not mean that he and he alone can be made actually to pay
the tax. In other words, whoever acts on his behalf and for his benefit may be held
liable to pay, for and on behalf of the carrier or operator, such percentage tax on
the business.
4. However, a shipping company that holds itself to the public and to Government as
the shipowner's local agent, and in fact renders services as such, is under obligation
to pay, for and in behalf of its principal, whatever tax is due from the latter,
especially where the principal is a non-resident corporation beyond the jurisdiction
of the Philippines. This is of course, without prejudice to the right of the agent to
seek reimbursement from his principal.
Husbanding agent defined
5. The Company claimed that it merely acted as a “husbanding agent” of the vessel
with limited powers.
6. A “husbanding agent” is the general agent of the owner in relation to the ship, with
powers, among others, to engage the vessel for general freight and the usual
conditions, and settle for freight and adjust averages with the merchant.
7. However, the Company clearly acted as a general agent (not just a husbanding
agent) representing the ownership of the vessel. The Company represented itself as
"the local agent" of the vessel, secured the entry and clearance of the vessel at the
customs. After the loading of ore at Masinloc, again respondent Company prepared
the shipping documents and signed the bill of lading "As Agent.”
extra-judicial steps, either in the prosecution or defense of the owner’s rights or
interests.
12. As a matter of fact, if a foreign shipping company has a claim against the
Government in relation to commerce, its local shipping agent, by virtue of Article
595 of the Code of Commerce, can file such a claim in his own name. Conversely,
and logically, it must be admitted, the Government can hold the local shipping agent
liable for the taxes due from his principal. This is, of course, without prejudice to the
right of the agent to seek reimbursement from his principal.
Agreement and the law determines the liability of the agent
13. Any agreement or contract to be enforceable in Philippine jurisdiction is understood
to incorporate therein the provision or provisions of law specifying the obligations
of the parties under such contract.
14. The contract between herein Company and its principal consequently imposed upon
the parties not only the rights and duties delineated therein, but also the provisions
of law such as that of the Code of Commerce.
Reexamination required as to amount of taxable receipts; Remand
15. The records, as to the amount of taxable receipts, are not clear. The Commissioner
claims that there are contradictions in and among the three sets of summaries
submitted by the Company and they should not have been considered by the trial
court.
16. On the other hand, the assessments issued by the Commissioner are, likewise,
conflicting. In the present petition, the prayer sets the tax delinquency of the
Company at P26,436.17, which is the amount demanded in his letter of demand of 6
June 1958. In his brief, the Commissioner prays that the Company be ordered to pay
the sum of P25,769.41, the amount demanded in his letter of 28 June 1956.
17. In view of these discrepancies, a re-examination and verification of the records is
necessary to determine the exact taxable amount on which the 2% common carrier’s
percentage tax is to be computed in accordance with the terms of the present
decision.

US Lines a general agent

8. Whatever may be the technical functions of a “ship’s husband”, the Company herein
was considered and acted more as a general agent. The agency contract is not extant
in the records. Still, from the correspondence between the principal West Coast
Trans-Oceanic Steamship Lines and the Company itself, and with other entities
regarding the shipment in question, the real nature of the agency may be gleaned.
9. Documents show that the Company clearly acted (as it held itself to the public and
to the Government, specifically the Bureau of Customs) as the shipowner’s local
agent or the ship agent representing the ownership of the vessel.

Article 595 of the Code of Commerce

10. As provided in Article 595 of the Code of Commerce, “the ship agent shall represent
the ownership of the vessel, and may, in his own name and in such capacity, take
judicial and extrajudicial steps in matters relating to commerce.”
11. If the shipping agent represents the ownership of the vessel in matters relating to
commerce, then any liability arising in connection therewith may be enforced
against the agent who is, as a consequence thereof, authorized to take judicial or
 002 SOUTH AFRICAN AIRWAYS v. CIR (Yap)
9 June 2005 | Bautista, J. | Percentage Tax on International Carriers
PETITIONER: Soutth African Airways
RESPONDENTS: Commissioner of Internal Revenue
SUMMARY: South African Airways (SAA) is a non-resident foreign corporation organized
under the laws of South Africa, with its principal office there. It is an off-line international air
carrier with no landing rights in the Philippines. It maintains off-line flights for the carriage of
passengers and cargo between ports or points OUTSIDE the territorial jurisdiction of the
Philippines. SAA is not registered with the SEC, hence not licensed to do business in the
Philippines. However, it has a General Sales Agent, Aerotel Limited Corporation, which sells
passage documents for compensation or commission covering its off-line flights. For taxable
year 2001, Aerotel filed four Quarterly Income Tax Returns on SAA’s behalf. SAA now
claims for refund of PHP2,690,049.81 repreenting erroneously paid tax on Gross Philippine
Billings. Up to this date, however, the CIR has not acted on such claim. Hence, this redress to
the CTA by SAA.
The issue is whether gross revenues derived by an off-line carrier from the carriage of
passengers and cargo between ports or points outside the territorial jurisdiction of the
Philippines, through the sale of passage documents in the Philippines by the off-line carrier’s
sales agent, are subject to the Gross Philippine Billings tax.
The SC ruled that SAA is NOT LIABLE for tax on Gross Philippine Billings, but LIABLE for
income tax on the passage documents issued by its general sales agent. First, the definition of
‘Gross Philippine Billings’ under §28(A)(3)(a) covers the gross revenue derived from the
carriage of persons, excess baggage, cargo and mail ‘originating from the Philippines in a
continuous and uninterrupted flight’ irrespective of the place or sale or issue and the place
of payment of the ticket or passage document. To ‘originate’ would mean to cause the
beginning of; to start. In other words, the flights carring the passengers must have originated
or started from the Philippines. Here, SAA was not engaged in the carriage of goods or
persons originating from the Philippines. Second, §27(A) of the NIRC provides that an
income tax of 35% is imposed upon the taxable income derived during each taxable year from
all sources within and without the Philippines by every (domestic) corporation…and
effective January 1, 2000 and thereafter, the rate shall be 32%. §32 of the NIRC defines
gross income as “all income derived from whatever source, including but not limited to
compensation for services in whatever form paid, including, but not limited to fees, salaries,
wages, commissions, and similar items, gross income derived from the conduct of trade or
business or the exercise of a profession; gains derived from dealings in property; interests;
rent; royalties; dividends; annuities; prices and winnings; pensions; and partner’s
distributive share from the net income of the general professional partnerships.” The above
definition is so broad and encompassing that discloses the legislative intent to include all
income not expressly mentioned. Applying the definition above, proceeds from sales of
passage documents by SAA through Aerotel are subject to income tax. (Doctrine).
DOCTRINE: CIR v. British Overseas Airways Corp. – 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 an income is that activity
which produced the income.
FACTS:
8. South African Airways (SAA) is a non-resident foreign corporation organizing
under the laws of the Republic of South Africa.
a. Its principal office is in Johannesburg International Airport, South Africa.
b. It is an off-line international air carrier having no landing rights in the
Philippines and it does not maintain flight operations to and from the
Philippins.
c. It maintains off-line flights for the carriage of passengers and cargo
between ports or points outside the territorial jurisdiction of the
Philippines.
9. SAA is not registered with the SEC, hence not licensed to do business in the
Philippines.
10. SAA, however, has a General Sales Agent in the Philippines, Aerotel Limited
Corporation, which, among others, sells passage documents for compensation or
commission covering its off-line flights.
11. For taxable year 2001, Aerotel filed with the BIR, on behalf of SAA, four separate
Quarterly Income Tax Returns for passenger and cargo.
12. SAA now filed a formal claim for refund to recover PHP2,690,049.81 representing
erroneously paid tax on Gross Philippine Billings.
a. Up to this date, however, the CIR has not acted on such claim. Hence, this
redress to the CTA by SAA.
13. SAA argues:
a. That §28(A)(3)(a) of the NIRC and RR No. 15-0220 provides that the
GPB tax shall apply only to gross revenues derived from the carriage of
persons, excess baggage, cargo and mail that originate from the
Philippines in a continuous and uninterrupted flight.
b. That the fact that it has a general sales agent in the Philippines does not
amount to “doing business in the Philippines.”
c. That it renders services outside the Philippines and its income derived
therefrom are income from sources without the Philippines.
ISSUE/s:
1. Whether gross revenues derived by an off-line carrier from the carriage of passengers
and cargo between ports or points outside the territorial jurisdiction of the Philippines,
through the sale of passage documents in the Philippines by the off-line carrier’s sales
agent, are subject to the Gross Philippine Billings tax. NO — because there SAA is not
engaged in the carriage of goods or persons within or from the Philippines.
HOWEVER, it is liable for income tax derived from its sales of passage documents
here in the Philippines.
RULING: WHEREFORE, petition DISMISSED.
RATIO:
South African Airways is NOT LIABLE for Gross Philippine Billings, but LIABLE for
Income Tax derived from its agent’s sale of passage documents
1. §28(A)(3)(a), NIRC (Income Tax on Foreign Corporations) – Gross Philippine
Billings for International Air Carriers – refer to the the amount of gross revenue
derived from carriage of persons, excess baggage, cargo, and mail originating from
the philippines in a continuous and uninterrupted flight, irrespective of the place of
 sale or issue and the place of payment of the ticket or passage document: provided, 5. Here, while SAA is not liable to pay tax on Gross Philippine Billings, it is still liable
that tickets revalidated, exchanged and/or indorsed to another international airline to pay 32% income tax on its gross revenue from the sales of its passage documents.
form part of the gross philippine billings if the passenger boards a plane in a port or
point in the philippines: provided, further, that for a flight which originates from the
philippines, but transshipment of passenger takes place at any part outside the
philippines on another airline, only the aliquot portion of the cost of the ticket
corresponding to the leg flown from the philippines to the point of transshipment
shall form part of gross philippine billings.
2. Air Canada v. CIR – the definition of ‘Gross Philippine Billings’ covers the gross
revenue derived from the carriage of persons, excess baggage, cargo and mail
‘originating from the Philippines in a continuous and uninterrupted flight’
irrespective of the place or sale or issue and the place of payment of the ticket or
passage document. To ‘originate’ would mean to cause the beginning of; to start. In
other words, the flights carring the passengers must have originated or started from
the Philippines.
a. HOWEVER, the Court ruled herein that Air Canada was still liable to pay
income tax on the ground that a foreign airline company selling tickets in
the Philippines through their local agents, whether liaison offices, agencies
or branches, shall be considered as resident foreign corporations engaged
in trade or business in the Philippines since such activities show continuity
of commercial dealings or arrangements and performance of acts or works
or the exercise of some functions normally incident to and in progressive
prosecution of commercial gain or for the purpose and object of the
business organization.
b. This case applies likewise to South African Airways.
3. §27(A) of the NIRC provides that an income tax of 35% is imposed upon the taxable
income derived during each taxable year from all sources within and without the
Philippines by every (domestic) corporation…and effective January 1, 2000 and
thereafter, the rate shall be 32%.
a. §32 of the NIRC defines gross income as “all income derived from
whatever source, including but not limited to compensation for services in
whatever form paid, including, but not limited to fees, salaries, wages,
commissions, and similar items, gross income derived from the conduct of
trade or business or the exercise of a profession; gains derived from
dealings in property; interests; rent; royalties; dividends; annuities;
prices and winnings; pensions; and partner’s distributive share from the
net income of the general professional partnerships.”
b. The above definition is so broad and encompassing that discloses the
legislative intent to include all income not expressly mentioned.
c. Here, applying the definition above, proceeds from sales of passage
documents by SAA through Aerotel are subject to income tax.
d. The source of income is the property, activity or service that produced the
income and, in order that the source of income to be considered as coming
from the Philippines, it is enough that the income is derived from activity
within the Philippines.
4. CIR v. British Overseas Airways Corp. (BOAC) – the absence of flight operations to
and form 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 an income is
that activity which produced the income.
a. Unquestionably, the passage documents in these cases (BOAC and SAA)
were sold in the Philippines and the revenue therefrom was derived from a
business activity regularly pursued within the Philippines.

003 BIR Ruling DA 158-05 (YARTE)
14 April 2005 | Bunag, Mario | Common Carriers Tax
PETITIONER: SGV in behalf of Air France
RESPONDENTS: BIR
SUMMARY: Air France has ceased its flights to and from the Philippines. However, travel
agents still continue to sell Air France tickets in the country. This letter was to confirm W/N
they are subject to tax on gross Philippine billings, common carriers tax, and the corporate
income tax. The BIR opined that by virtue of the RP-France Tax Treaty its sales, being an
offline carrier, are not subject to gross Philippine billings. Therefore it follows, that it is also
not liable to pay the common carriers tax because the computation of such is based on the
gross Philippine billings. Finally, it is not liable to pay the corporate tax. Since passenger and
freight charges paid to an off-line airline are "not subject" to income tax and consequently to
the creditable withholding tax, then clearly, Air France cannot be held liable for the 32%
regular corporate income tax
DOCTRINE: Since passenger and freight charges paid to an off-line airline are "not subject"
to income tax and consequently to the creditable withholding tax, then clearly, Air France
cannot be held liable for the 32% regular corporate income tax or the 2% MCIT, in lieu of the
Gross Philippine Billings Tax.
FACTS:
1. This is a letter from the SGV & Co. sent in behalf of Air France asking for
confirmation of the BIR’s opinion that as an off-line airline, AirFrance is not subject
to 2 ½% Gross Philippine Billing Tax, the 3% common carrier's tax (CCT) and the
32% regular corporate income tax,2% Minimum Corporate Income Tax (MCIT) on
revenues generated from the sale of Air Francetickets within the Philippines.
2. Air France is a corporation organized and existing under the laws of France and it is
engaged in the international airline business.
3. In 2004, Air France acquired the shares of stock of KLM in exchange for Air France
shares; that pursuant to the terms of the TransactionAgreement, after the acquisition
of KLM, Air France was renamed Air France-KLM and all its assetswere
contributed to a new operating company (new Air France) in exchange for the
latter's shares.
4. Thus the original Air France, renamed Air France-KLM, became a holding
company, owning boththe KLM and the new Air France operating companies.
Although the two airlines, Air France andKLM, are now part of the same group,
they continue to exist as separate entities
5. Nonetheless, in countries where both Air France and KLM operate, it has
beendecided that only one airline will continue to have flight operations; that in
other words, one airlinewill continue to carry flights to and from that country, while
the other airline will cease its flightoperations in that country; that thus, in some
countries, Air France will continue to have flightoperations while KLM's flight
operations will cease; in others, it will be the other way around; that inany case, the
airline (either Air France or KLM) which will continue to have flight operations in
anycountry will carry the banner Air France-KLM and will honor any Air France or
KLM ticket.
6. In the Philippines, Air France do decided that Air France's flights to and from the
Philippines be terminated; that consequently, Air France flights to and from the
Philippines ceased effective November 1, 2004; that on October 28, 2004, Air
France officially informed the Civil Aeronautics Board (CAB) of the cessation of its
Philippine flights.
7. Notwithstanding the cessation of Air France's Philippine flight operations, travel
agents will continue to sell Air France tickets in the Philippines.
ISSUE/s:
1. Whether or not its income should be part of gross Philippine billings subject to tax. NO
— Since under the RP-France tax treaty its income is not subject to Gross Philippine
Billings, it shall likewise be exemp from paying CCT and MCIT.
RULING: To reiterate, we confirm your opinion that being an off-line airline, Air France
shall not be subject to the 2 1/2% Gross Philippine Billings Tax or the 11/2% income tax on
Gross Philippine Billings under Section 8 of the RP-France Tax Treaty, the 3% CCT, and the
32% regular corporate income tax 2% MCIT on revenues generated from the sale of Air
France tickets within the Philippines.
RATIO:
Gross Philippine Billings
1. It is clear from the that the 2 1/2% Gross Philippine Billings Tax is imposed only on
revenues derived by international air carrier from flights originating from any port or
point in the Philippines in a continuous and uninterrupted flight, irrespective of the
place where the passage documents are sold or issued.
2. Air France, having become an off-line carrier effective November 1, 2004 when it
ceased its passenger and cargo flight operations in the Philippines, will not derive
any Gross Philippine Billings or revenues from flights, originating from the
Philippines effective said date.
 3. RR 15-02 defines an "off-line carrier" as "an international air carrier having no flight
operations to and from the Philippines", and "off-line flights" as referring to "flight
operations carried out or maintained by an international air carrier between ports or
points outside the territorial jurisdiction of the Philippines, without touching a port
or point situated in the Philippines, except when in distress or due to force majeure.

4. In BIR Ruling No. [DA-209-04] this office has confirmed that the revenues
generated by an off-line carrier from the sale of tickets in the Philippines, shall not
be subject to income tax on Gross Philippine Billings.

5. Based on the these laws and the Philippines & France tax treaty, any revenues
derived by Air France beginning November 1, 2004 when it became an off-line
carrier, from the sale of tickets within the Philippines for off-line flights are not
subject to the 2 1/2% Gross Philippine Billings Tax provided for in Section
28(A)(3)(a) of the Tax Code of 1997 reduced to 1 1/2% income tax on Gross
Philippine Billings under Section 8 of the RP-France Tax Treaty.

Common Carriers Tax

1. Gross Philippine Billings, which is the basis for computing the 2 1/2% Gross
Philippines Billings Tax, is likewise used as basis in computing for the 3% CCT
imposed on international air carriers under Section 118(A) of the Tax Code of 1997.

2. In BIR Ruling No. [DA-209-04] dated April 12, 2004 cited above, this Office also
confirmed that an off-line carrier shall not be subject to the 3% CCT. For purposes
of imposing the CCT, this Office has consistently ruled that CCT on international air
carriers is imposed on gross receipts derived from outgoing freight and passenger
service, in other words, originating from the Philippines.

3. Therefore, any revenues derived by Air France from the sale of tickets for off-line
flights should also not be subject to the 3% CCT provided for in Section 118(A) of
the Tax Code of 1997.

Regular Corporate Income Tax

1. A resident foreign corporation, like an international carrier such as Air France, is

subject to income tax only on income derived from sources within the Philippines.

2. In BIR Ruling No. [DA-209-04], this Office also opined that since the amount of
passenger and freight charges paid to an off-line airline for its sale of tickets in the
Philippines are not subject to income tax, the payments made to the airline in respect
of said charges are likewise not subject to any creditable withholding income tax.

3. Since passenger and freight charges paid to an off-line airline are "not subject" to
income tax and consequently to the creditable withholding tax, then clearly, Air
France cannot be held liable for the 32% regular corporate income tax or the 2%
MCIT, in lieu of the Gross Philippine Billings Tax.
 004 VISAYAN ELECTRIC CO. v. DAVID (ADRIAS)
27 April 1953|Pablo, J.|Sec. 119 – Franchise Tax (Gen. Law vs. Special Law)
PLAINTIFF-APPELLANT: Visayan Electric Co., SA
DEFENDANT-APPELLANT: Saturnino David, rent administrator
SUMMARY: Visayan Electric Co (VEC) is a Philippine Corporation dedicated to the supply
of electricity with a certificate of public convenience. Law No. 3499 granted to it the right to
supply electricity in different municipalities in Cebu City for 50 years. Article 8 of Law No.
3499 states that VEC shall pay a tax of only 2% of the gross earnings and that such payment
shall be in lieu of all taxes of any kind levied by any authority whatsoever, now or in the future.
However, Article 259 of the National Internal Revenue Code states that 5% franchise tax shall
be collected upon the gross earnings of the business or such tax specified in the special
charters, whichever is higher, and that said tax shall be collected to all existing and future
franchises. Defendant David contends that Article 259 of the NIRC repeals Article 8 of Law
No. 3499. VEC contends that Law No. 3499 is a special law and cannot be amended by Article
259 of the NIRC, which is a general law. Lower Court ruled in favor of defendant David. The
issue in this case is:
WoN Visayan Electric Co is liable for the 2% tax imposed by Law 3499 or the 5% tax
imposed by Art. 259 of the NIRC? VEC is liable for the 2% tax. Article 259 of the NIRC did
not expressly repeal Article 8 of Law No. 3499. Hence, VEC is still controlled by Article 8 of
Law 3499 and is liable to only the 2% tax.
DOCTRINE: It is well-established that a later general law that does not expressly repeal an
earlier special law shall not affect the provisions of the special law. Therefore the tax rate in
franchises or concessions or special laws passed by Legislature cannot be impliedly repealed
by a general law. Such repeal must be expressly mentioned by the general law.
FACTS:
1. Visayan Electric Co (VEC) is a Philippine Corporation dedicated to the supply of
electricity with a certificate of public convenience.
2. Law No. 3499 granted to it the right to supply electricity in different municipalities
in Cebu City for 50 years.
3. Article 8 of the said law states that VEC shall pay a tax of only 2% of the gross
earnings and that such payment shall be in lieu of all taxes of any kind levied by any
authority whatsoever, now or in the future.
4. However, Article 259 of the National Internal Revenue Code states that 5%
franchise tax shall be collected upon the gross earnings of the business or such tax
specified in the special charters, whichever is higher, and that said tax shall be
collected to all existing and future franchises.
5. Defendant David contends that Article 259 of the NIRC repeals Article 8 of Law
No. 3499.
6. VEC contends that Law No. 3499 is a special law and cannot be amended by Article
259 of the NIRC, which is a general law.
7. LOWER COURT: VEC should pay 5% tax on her gross income in the supply of
electricity to the treasurer of each municipality in which her business operates.
8. VEC appealed this decision.
ISSUE/s:
1. WoN Visayan Electric Co is liable for the 2% tax imposed by Law 3499 or the 5%
tax imposed by Article 259 of the NIRC – Visayan Electric Co is liable for the 2%
tax. Article 259 of the NIRC did not expressly repeal Article 8 of Law No. 3499.
Hence, VEC is still controlled by Article 8 of Law 3499 and is liable to only the 2%
tax.
RULING: The decision appealed is reversed, it is declared that the applicant must only pay
the two percent tax provided by article 8 of Law No. 3499, without costs.
RATIO:
1. The concessions or special laws passed by the Legislature and ratings have the
nature of private contracts and they are not an integral part of the mechanism of
the General Government.
2. It is well-established that a later general law that does not expressly repeal an
earlier special law shall not affect the provisions of the special law.
3. It is true that Article 11 of Law No. 3499 gives the VEC franchise on the condition
that is subject to amendment, alteration or repeal by Act of Congress of the United
States; but neither the National Revenue Code or Republic Act No. 39 repeals
section 8 of the Act exemption (Law No. 3499). The amendment must be express.
4. Article 259 of the National Tax Code, as amended by Article 7 of the Law of the
Republic No. 39, does not amend Article 8 of Law No. 3499, which provides that
the tax of two percent that has of paying the plaintiff "shal be in lieu of all taxes at
any time levied, established or collected by any authority whatsoever, now or in the
future."
5. Therefore, Visayan Electric Co is still controlled by Article 8 of Law 3499 and is
liable to only the 2% tax.
PROVISIONS MENTIONED:
Article 8 of Law No. 3499
“The grantee shall pay the same taxes as they are now or may be required by law from other
persons, on its real estate, buildings, plant machinery, and other personal property, except
property declared exempt in this section. In consideration of the franchise and rights hereby
granted, the grantee shall pay into the municipal treasury of each municipality in which it is
supplying electricity to the public under this franchise, a tax equal to two per centum of the
gross earnings for electric current sold under this franchise. Said percentage shall be due
and payable quarterly and shall be in lieu of all taxes of any kind levied, established or
collected by any authority whatsoever, now or in the future, on its poles, wires, insulators,
switches, transformers and other structures, installations,conductors and accessories, placed in
and over the public streets, avenues, roads, through fares, squares, bridges, and other places,
and on its franchises, rights, privileges, receipts, revenues and profits, from which taxes the
grantee is hereby expressly exempted. "
Article 259 of the National Tax Code, as amended by Article 7 of the Law of the Republic
No. 39, reads as follows:
SEC. 259. Tax on corporate franchises . - There shall be collected in respect to all
existing and future franchises, upon the gross earnings or receipts from the
business covered by the law granting the franchise to tax of five per cent or such
taxes, charges and percentages as specified in the special charters of the corporations
upon whom such franchises are conferred, whichever is higher, unless the provisions
preclude the imposition of a higher tax. For the purpose of the facilitating the
assessment of this tax, reports shall be made by the respective holders of the
franchise in such form and at such times shall be required by the regulations of the
Department of Finance.

The taxes, charges and percentages on corporate franchises shall be due and payable
as specified in the particular franchise, or, in case no time limit is specified therein,
the provisions of section on hundred eighty-three shall apply; and if such taxes,
charges and percentages remain unpaid for fifteen days from and after the date on
which they must have paid, twenty-five per centum shall be added to the amount of
such taxes, charges and percentages, which increase shall form part of the tax
 005 COMMISSIONER OF INTERNAL REVENUE v. COURT OF TAX APPEALS,
EASTERN EXTENSION AUSTRALASIA and CHINA TELEGRAPH COMPANY,
LTD. (ACUYONG)
March 20, 1991 | J. Medialdea | Franchise tax
PETITIONER: Commissioner of Internal Revenue
RESPONDENT: Eastern Extension Australasia And China Telegraph Company, Ltd.
SUMMARY:
Eastern Extension Australasia and China Telegraph (Eastern) is a foreign corporation that was
granted a franchise allowing it to operate an international telecommunications system. Under
the franchise, Eastern is only required to pay a 5% franchise tax on its gross earnings. It is
exempted from other taxes. It duly complied with the conditions of its franchise. CIR assessed
Eastern deficiency taxes on the belief that its franchise (including its tax privileges) is
inoperative because Eastern does not conform to the constitutional limitations on grant of
franchises to Filipinos or Filipino corporations only. ISSUE: W/N CIR can assess Eastern
deficiency taxes on the ground that Eastern violates the constitutional limitations thereby
rendering its franchise inoperative. No, Eastern validly possesses a franchise and has duly
complied with its conditions. Franchises spring from contracts between the sovereign power
and private citizens made upon valuable considerations, for purposes of individual advantage
as well as public benefit. It is generally considered that the obligation resting upon the grantee
to comply with the terms and conditions of the grant constitutes a sufficient consideration.
Moreover, the benefit to the community may constitute the sole consideration for the grant of
a franchise by the State. Such being the case, the franchise is the law between the parties and
they are bound by the terms thereof. Eastern is only mandated to pay the franchise tax as
provided in its franchise. It is exempt from any other tax impositions. The exemption from the
other taxes under the tax code is part of the inducement for the acceptance of the franchise and
the rendition of public service by the grantee. As a charter is in the nature of a private
contract, the imposition of another franchise tax on the corporation by the local authority
would constitute an impairment of the contract between the government and the corporation.
BIR, being a government agency is bound also by this contract.
DOCTRINE: A legislative franchise partakes of the nature of a contract. Franchises spring
from contracts between the sovereign power and private citizens made upon valuable
considerations, for purposes of individual advantage as well as public benefit.
FACTS:
1. Eastern Extension Australasia and China Telegraph Co., Ltd. (Eastern) is a foreign
corporation, organized and existing under the laws of Great Britain and is engaged
in international telecommunications. By a Royal Decree of the Spanish Government,
Eastern was given a concession for the construction, operation and maintenance of
submarine telegraph cable from Hongkong to Manila.
2. When the concession expired, Republic Act No. 808 was approved granting to
Eastern a legislative franchise to land, construct, maintain and operate at Manila,
Philippines a submarine telegraph cable connecting Manila with Hongkong. Section
8 thereof granted to the Corporation a tax exemption from the payment of any taxes
whether municipal, provincial, or national except a franchise tax of 5% on the gross
earnings and the tax on its real property.1
3. Republic Act No. 808 was amended by Republic Act No. 5002 by enlarging the
scope of the franchise granting Eastern a franchise to land, construct, maintain and
operate telecommunications by cable or other means known to science or which in
the future may be developed for the transmission of messages between any point in
the Philippines to points exterior thereto.
4. Eastern, pursuant to Section 8 of Republic Act No. 808 which was not amended by
Republic Act No. 5002, had duly reported its gross Philippine earnings and paid the
corresponding franchise tax thereon beginning the year 1952 to the General
Auditing office.
5. The Commissioner of the Internal Revenue (CIR) assessed Eastern in the amount of
P7,122,571.61, representing Eastern's deficiency income tax, inclusive of
surcharges, interests and penalties, for the years 1965 to 1970.
6. CIR made its assessment in view of its belief that Eastern's franchise under Republic
Act No. 808, later amended by Republic Act No. 5002, is inoperative for failure of
the latter to conform with the constitutional requirement that it be organized under
Philippine laws with 60% of its capital owned by Filipinos. Since Eastern is 100%
owned by British citizens, it is illegally operating its business in the Philippines
since Eastern is engaged in the operation of a public utility.
7. Eastern questioned and disputed this assessment by means of two letters. Eastern
questioned CIR's authority to assess income taxes against Eastern, pointing out its
franchise and its exclusive tax feature. It contends further that the assessment is
incorrect, without basis, and prescription had set in on part of the assessment,
assuming that the assessment is valid.
8. CIR rejected Eastern’s position and found no reason to withdraw or cancel its
assessment. CIR even reassessed Eastern not only from 1965 to 1970 but from 1952
to 1971 in the aggregate amount of P21,523,288.37 representing deficiency income
taxes, inclusive of surcharges, interests and compromise penalties.
9. Eastern filed with the Court of Tax Appeals a petition for review contesting the
legality of the assessment with a prayer for a restraining order directing the
Commissioner of Internal Revenue to desist from enforcing and collecting the same.
10. Then President Marcos enacted PD 489 authorizing Eastern to transfer and assign
the franchise granted to it under Republic Act No. 808, as amended, to Eastern
Telecommunications Philippines, Inc, which Eastern did.
11. CTA ruled that CIR’s assessment should be cancelled and without force and effect.
The assessment was beyond the prescriptive period and tantamount to a revocation
of the tax on franchise under the tax code which cannot be given a retroactive effect
as provided under the tax code.
ISSUE/s:
1
Sec. 8. In consideration of the franchise and rights hereby granted, the Grantee shall
pay to the Republic of the Philippines during the life of this franchise a tax of five
percent of the gross earnings derived by the grantee from its operation under this
franchise and which originate in the Philippines. Such tax shall be due and payable
annually, within ten (10) days after the audit and approval of the accounts as
prescribed in Section seven of this Act, and shall be in lieu of all taxes of any kind,
nature or description, levied, established or collected by any municipal, provincial or
Republic Authority except that the Grantee shall pay the tax on its real property in
conformity with existing law
 1. W/N the provision in the franchise requiring the payment of only 5% of gross 808 as amended by Republic Act No. 5002, is a special law applicable only to
receipts in lieu of any and all taxes is unenforceable and without effect, considering Eastern, while the Public Service Act and the Corporation Law are general statutes.
that the franchise is inoperative for failure of Eastern to comply with the The presumption is that special statutes are exemptions to the general law because
requirements of the Constitution, the Corporation Law and the Public Service Act. they pertain to special charter granted to meet a particular set of conditions and
circumstances.
RULING: ACCORDINGLY, the decision of the Court of Tax Appeals is hereby modified, as 6. The franchise is also not “inoperative and unenforceable” due to the failure of
follows: Eastern to comply with the constitutional requirement. pe
1. Republic Act No. 808 is presumed to be an operative act and the decision of the 7. “Why then should Eastern be at the receiving end or the ‘horses to be beaten’ for its
respondent tax court declaring the same to be unconstitutional is hereby SET inability to comply with the ‘60% Filipino ownership’ when the franchise itself
ASIDE; prohibited it from doing so.” Supreme Court is not prepared to punish Eastern which
2. the provision in the franchise requiring the payment of 5% of gross receipts as remained firm in not violating its franchise.
franchise tax in lieu of any and all taxes is enforceable and operative;
3. the assailed assessment was issued within the period prescribed by law;
4. the assailed assessment is not in the nature of a ruling within the purview of Section
338-A of the National Internal Revenue Code; and
5. the decision of the respondent tax court declaring the Commissioner's assessment
cancelled and without any legal force and effect is hereby SET ASIDE. A remand of
this case to respondent Court of Tax Appeals is ordered for trial on the merits to
determine the income tax liability of the private respondent corresponding to its
income beyond the scope of Republic Act No. 808.
The decision of the Court of Tax Appeals is AFFIRMED in all other respects.

RATIO:
1. The Supreme Court ruled that Eastern validly possesses a franchise and legally
conducts its business in the Philippines. It is excluded from the constitutional
limitations limiting the grant of certain franchises, permits and other certificates to
Filipino citizens and Filipino corporations only. Furthermore, Eastern duly complied
with all the conditions of its franchise, especially with the tax requirement by paying
to the Republic of the Philippines a tax of 5% of its gross earnings from Philippine
operations regularly since its creation.
2. A legislative franchise partakes of the nature of a contract.
Province of Misamis v. Cagayan Electric Power and Light Company: The
exemption from the corporate franchise tax under the tax code is part of the
inducement for the acceptance of the franchise and the rendition of public service by
the grantee. As a charter is in the nature of a private contract, the imposition of
another franchise tax on the corporation by the local authority would constitute an
impairment of the contract between the government and the corporation
3. Franchises spring from contracts between the sovereign power and private
citizens made upon valuable considerations, for purposes of individual
advantage as well as public benefit. It is generally considered that the obligation
resting upon the grantee to comply with the terms and conditions of the grant
constitutes a sufficient consideration. Moreover, the benefit to the community may
constitute the sole consideration for the grant of a franchise by the State. Such being
the case, the franchise is the law between the parties and they are bound by the terms
thereof.
4. BIR, being a government agency, is also bound by the terms of the franchise. It
cannot declare the franchise as "ineffective and unenforceable" merely by stating
Eastern failed to comply with the requirements of the general statutes which are not
mentioned in R.A. No. 808.
5. To allow CIR's claim would be to defy and ignore the superiority of a legislative
franchise granted by a special enactment over a mere authorization or permit granted
in accordance with the provisions of laws of general application. Republic Act No.
 006 CIR v. REPUBLIC BROADCASTING (BALISONG)
19 Sep. 1994 | Cui, J. | Franchise Tax; License
PETITIONER: Commissioner of Internal Revenue
RESPONDENTS: Republic Broadcasting System, Inc., and Court of Tax Appeals
SUMMARY: CIR assessed RBS for franchise taxes for the third and fourth quarters of 1987
amounting to P16,159,651. RBS filed a protest against the assessment which was denied by
the CIR. The CTA reversed the CIR and ruled for RBS saying that a franchise is different
from a license and that during the period in question, RBS was only a licensee and not a
holder of a legislative franchise. It was only later that R.A. 7252 was passed granting RBS a
new legislative franchise. The issue before the CA is whether RBS is a holder of a franchise
liable for franchise tax under then Section 117 of the Tax Code. The CA held in the negative.
PD 576-A revoked the franchise of RBS. It continued operation only as a licensee of the NTC
during the period in question. It was only later that RBS was granted a new franchise under
R.A. 7252. The CA said that the CIR cannot conflate the two as there are marked differences
between a franchisee and a licensee. Thus, being a mere licensee during the period of
assessment, RBS is not liable for franchise tax.
DOCTRINE: A “franchise” is a right or privilege granted by the sovereignty to one or more
parties to do some act or acts, which they could not do without this grant from the sovereign
power; a privilege which emanates from the sovereign power of the state government; a
branch of the sovereign power of the state, subsisting in a person or corporation by grant from
the state. A "license" on the other hand, confers no right or estate nor vested interest, not does
it constitute a binding contract between the parties, but it is a mere leave to be enjoyed as
matter of indulgence at the will of the party granting it. It is in no sense a contract between the
state and the licensee, but is a mere personal permit, neither transferable nor vendible. A
franchise is a vested right protected by the Constitution while a license is a mere personal
privilege and is revocable.
FACTS:
1. Commissioner of Internal Revenue (CIR) issued two (2) notices of assessment
against Republic Broadcasting System, Inc., (RBS) for deficiency franchise tax for
the third and fourth quarters of 1987, inclusive of surcharge and interest, in the total
amount of P16,159,651.61.
2. RBS filed a formal protest with the CIR, alleging that since RBS had not operated
under a franchise since 1982 until it accepted the new franchise granted to it by
Congress (R.A. No. 7252), the assessment against it has no basis in law. CIR denied
the protest. RBS elevated the matter to the CTA.
3. CTA concluded that since RBS was not a holder of a legislative franchise during the
year 1987, it could not be subject to the franchise tax.
ISSUE/s:
1. Whether RBS is a holder of a franchise and thus liable for the frnchise tax. NO —
PD 567-A revoked the franchise of RBS and it only continued to operate under a
license procured from NTC during the years in question. A franchise is markedly
different from a license, and a holder of the latter cannot be held liable for franchise
tax.
RULING: WHEREFORE, the instant petition for review is, for lack of merit, hereby
DISMISSED. Accordingly, the decision of respondent CTA dated July 27, 1993, cancelling
and setting aside the deficiency franchise tax assessments in the total amount of
P16,159,651.61 inclusive of increments for the third and fourth quarters of 1987 is
AFFIRMED.
RATIO:
Issue 1
1. CIR argues that (1) the decision of the CTA not in accordance with the law and
evidence adduced in the case; (2) the findings of CTA that RBS is not covered by
Section 117 of the Tax Code, as amended, is discriminatory; (3) P.D. 576-A did not
grant RBS any tax exemption; and (4) RBS is liable to pay the deficiency franchise
tax for the 3rd and 4th quarters of 1987 in the total amount of P16,159,651.61 plus
surcharge and interest until fully paid.
2. RBS contends that: (1) the alleged deficiency franchise tax assessed by CIR RBS is
erroneous and has no legal factual basis, considering that RBS was not a holder of a
Congressional franchise subject to franchise tax under Section 117 of the Tax Code
during the period in question; (2) the contention of CIR that the franchise of RBS
which was revoked by P.D. No. 576-A was subsequently renewed or revived by way
of licenses issued by Board of Communication and the Secretary of Public Works
and is erroneous because it disregards the long-accepted distinction between a
Congressional franchise and an administrative license/permit; (3) contrary to the
position taken by the CIR, the petition filed by RBS before respondent CTA is a
protest against improper or unauthorized tax imposition and not a claim for tax
exemption, thus the rule on the interpretation of tax statutes granting exemption is
inapplicable to the instant case; (4) the rule of uniformity in taxation invoked by the
CIR is inapplicable to the instant case, it having been amply shown that during the
third and fourth quarters of 1987, it did not fall within the class of individuals,
persons/subjects taxed under Section 117 of the National Internal Revenue Code
(NIRC), i.e., grantees of legislative franchises; and (5) granting without admitting,
that RBS is subject to the dispute franchise tax, RBS should not be held liable to pay
the surcharge and the compromise penalty under the prevailing circumstances.
3. The Court finds that RBS was a grantee of a legislative under Republic Act No. 513
(1950), as amended by R.A. No. 982 (1954) and R.A. 5351 (1968) to construct,
maintain and operate stations for radio television broadcasting. The franchise was
later terminated by Presidential Decree No. 576-A.2
2SECTION 1. No radio station or television channel may obtain a franchise unless it has
sufficiency capital on the basis of equity for its operation for at least one (1) year, including
purchase of equipment.
SEC. 6. All franchises, grants, licenses, permits, certificates or other forms of authority to
operate radio of television broadcasting systems shall terminate on December 31, 1981.
Thereafter, irrespective of any franchise, grant, license, permit, certificate or other forms of
authority to operate granted by any office, agency of person, no radio or television station
shall be authorized to operate without the authority of the Board of Communications and the
Secretary of Public Works and Communications or their successors who have the right and
authority to assign to qualified parties, frequencies, channels or other means of identifying
 4. RBS continued to operate its radio and broadcasting systems or facilities by virtue of
permits and/or licenses issued on an annual basis by the NTC and that it only
obtained a legislative franchise through the enactment of Republic Act 7252.

5. A 'franchise' is a right or privilege granted by the sovereignty to one or more parties

to do some act or acts, which they could not do without this grant from the sovereign
power; a privilege which emanates from the sovereign power of the state
government; a branch of the sovereign power of the state, subsisting in a person or
corporation by grant from the state. A "license" on the other hand, confers no right
or estate nor vested interest, not does it constitute a binding contract between the
parties, but it is a mere leave to be enjoyed as matter of indulgence at the will of the
party granting it. It is in no sense a contract between the state and the licensee, but is
a mere personal permit, neither transferable nor vendible. A franchise is a vested
right protected by the Constitution while a license is a mere personal privilege and is
revocable.

6. Section 117 of the National Internal Revenue Code imposes a franchise tax on the
"gross receipts from the business covered by the law granting the franchise." The
provision may be enforced only upon grantees of legislative franchises. If it were the
intent of the farmers of the revenue measure to include television and radio stations
operating by virtue of administrative permits and licenses, they could have easily so
provided the same therein.

7. There are marked distinction between a franchise and a license. Corporations or

entities which are operating by means of a license are placed in an entire different
situations as compared to those covered by a legislative franchise.

broadcasting systems; Provided, however, that any conflict over, or disagreement with, a
decision of the aforementioned authorities may be appealed finally to the Office of the
President within fifteen (15) days from the date of the decision is received by the party in
interest.
 007 Meralco v. Yatco (BRUZON)
1 November 1939 | Moran, J. | Where risk is located
PETITIONER: Manila Electric Company
RESPONDENTS: A.L. Yatco, Collector of Internal Revenue
SUMMARY: Merlaco insured certain real and personal properties situated in the Philippines
with New York Insurance Company and the United States Guaranty Company (both foreign
corporations not licensed to do in the Philippines). Merlaco paid premiums amounting to
P91,696. CIR assessed and levied a tax of 1% on said premiums pursuant to Sec. 192 of Act.
No. 2427. Issue: W/N the premiums are subject to tax? YES. The company, by making and
carrying out policies covering risks located in this country which might require adjustment or
the making of proof of loss therein, did business in the Philippines and subjected itself to its
jurisdiction. Where the insured against also within the Philippines, the risk insured against
also within the Philippines, and certain incidents of the contract are to be attended to in the
Philippines, such as, payment of dividends when received in cash, sending of an unjuster into
the Philippines in case of dispute, or making of proof of loss, the Commonwealth of the
Philippines has the power to impose the tax upon the insured, regardless of whether the
contract is executed in a foreign country and with a foreign corporation. Under such
circumstances, substantial elements of the contract may be said to be so situated in the
Philippines as to give its government the power to tax. Even if it be assumed that the tax
imposed upon the insured will ultimately be passed on the insurer, thus constituting an indirect
tax upon the foreign corporation, it would still be valid, because the foreign corporation, by
the stipulations of its contract, has subjected itself to the taxing jurisdiction of the Philippines.
DOCTRINE: Where the insured against also within the Philippines, the risk insured against
also within the Philippines, and certain incidents of the contract are to be attended to in the
Philippines, such as, payment of dividends when received in cash, sending of an unjuster into
the Philippines in case of dispute, or making of proof of loss, the Commonwealth of the
Philippines has the power to impose the tax upon the insured, regardless of whether the
contract is executed in a foreign country and with a foreign corporation.
FACTS:
1. Manila Electric Company, a corporation organized and existing under the laws of
the Philippines, with its principal office and place of business in the City of Manila,
insured with the city of New York Insurance Company and the United States
Guaranty Company, certain real and personal properties situated in the Philippines.
2. The insurance companies are foreign corporations not licensed to do business in the
Philippines and having no agents therein.
3. The policies contained provisions for the settlement and payment of losses upon the
occurence of any risk insured against, a sample of which is policy No. 20 of the New
York insurance Company attached to and made an integral part of the agreed
statement of facts.
4. Meralco, through its broker paid, in New York, to said insurance company
premiums in the sum of P91,696. Sec. 192 of Act No. 2427 provides:
“xxx
In all case where owners of property obtain insurance directly with foreign
companies, it shall be the duty of said owners to report to the insurance
commissioner and to the Collector of Internal Revenue each case where insurance
has been so effected, and shall pay the tax of one per centum on premium paid, in
the manner required by law of insurance companies, and shall be subject to the same
penalties for failure to do so.”
5. The Collector of Internal Revenue assessed and levied a tax of one per centum on
said premiums, which plaintiff paid under protest. The protest having been
overruled, Meralco instituted the present action to recover the tax.
ISSUE/s:
1. Whether the premiums are subject to tax? YES — substantial elements of the
contract are situated in the Philippines
RULING: Judgment affirmed, with costs against appellant.
RATIO:
1. The insured is a corporation organized under the laws of the Philippines, its
principal office and place of business being in the City of Manila.
2. The New York Insurance Company and the United States Guaranty Company may
be said to be doing policies issued by them cover risks on properties within the
Philippines, which may require adjustment and the activities of agents in the
Philippines with respect to the settlement of losses arising thereunder.
3. It is stipulated that "the insured, as often as may be reasonably required, shall exhibit
to any person designated by the company all the remains of any property therein
described and submit toexamination under oath by any person named by the
company, and as often as may be reasonably required, shall exhibit to any person
designated by the company all the remains of any property therein described and
submit to an examination all books of accounts . . . at such reasonable time and
place as may be designated by the company or its representative."
4. In case of disagreement as to the amount of losses or damages as to require the
appointment of appraisers, the insurance contract provides that "the appraisers shall
first select a competent umpire; and failure for fifteen days to agree to such umpire,
then, on request of the insured or of the company, such umpire shall be selected by a
judge of the court of record in the state in which the property insured is located.
5. The company, by making and carrying out policies covering risks located in this
country which might require adjustment or the making of proof of loss therein, did
business in the Philippines and subjected itself to its jurisdiction, a rule that can
perfectly be applied in the present case to the new York Insurance Company and the
United States Guaranty Company.
6. Where the insured against also within the Philippines, the risk insured against also
within the Philippines, and certain incidents of the contract are to be attended to in
the Philippines, such as, payment of dividends when received in cash, sending of an
unjuster into the Philippines in case of dispute, or making of proof of loss, the
Commonwealth of the Philippines has the power to impose the tax upon the insured,
regardless of whether the contract is executed in a foreign country and with a foreign
corporation.
7. Under such circumstances, substantial elements of the contract may be said to be so
situated in the Philippines as to give its government the power to tax.
8. Even if it be assumed that the tax imposed upon the insured will ultimately be
passed on the insurer, thus constituting an indirect tax upon the foreign corporation,
it would still be valid, because the foreign corporation, by the stipulations of its
 contract, has subjected itself to the taxing jurisdiction of the Philippines.
9. It would certainly be a discrimination against domestic corporations to hold the tax
valid when the policy is given by them and invalid when issued by foreign
corporations.
 008 Standard Vacuum Oil vs. Antigua (BURGOS)
30 April 1955 | Montemayor, J. | Activities Merely Part of The Main Business
PLAINTIFF: STANDARD-VACUUM OIL COMPANY
DEFENDANT: M. D. ANTIGUA, as Municipal Treasurer of Opon and the MUNICIPALITY
OF OPON
SUMMARY: Section 1 of Commonwealth Act 472 known as the Municipality Autonomy Act
states, in part, that the municipal council or municipal district council shall have authority
to impose municipal license taxes upon person engaged in any occupation or business, or
exercising privileges in the municipality or municipal district. Empowered by said
provision, the municipal council of Opon passed Ordinance No. 9, series of 1949, imposing a
graduated license tax on the business of manufacturing tin cans based on the maximum output
capacity of the factory. Said ordinance was duly approved by the Department of
Finance. Standard Oil contends that the municipal ordinance is null and void because the
graduated license tax imposed is said to partake of the nature of a percentage or specific tax,
being an indirect percentage tax on specified articles (ie. tin cans), and as such percentage tax
is outside the powers of a municipal corporation to impose under the above-cited legal
provision; and that assuming that it is not a percentage but an occupation tax, still it does not
apply to the tin can factory of Standard Oil because it is not a business operated for profit but
is merely incidental to its main business of importing gasoline, kerosene and other fuel oils
and later placing them in tin cans for distribution and sale. ISSUES: (1) W/N the graduated
license tax imposed by the ordinance in question is an occupation tax. YES — It is imposed by
virtue of the municipal council’s taxing power for purposes of revenue, and is in accordance
with the last part of section 1 of Commonwealth Act 42, thus valid. (2) W/N the graduated
license tax is applicanble to Standard Oil. NO — Where the manufacture of tin cans as in the
present case is conducted not as an independent business, and for profit but merely as an
incident to or part of its main business, then it may not be considered as an occupation or
business which may be taxed separately. Standard Oil as already stated, is engaged in the
importation, distribution and sale of gasoline, kerosene and other fuel oils and it is already
paying the specific tax of two centavos and seven centavos per liter of kerosene and gasoline,
respectively, being sold by it.
DOCTRINE: When a person or company is already taxed on its main business, it may not be
further taxed for doing something or engaging in an activity or work which is merely a part of,
incidental to and is necessary to its main business.
FACTS:
1. This is an action to recover from the Municipal Treasurer of Opon, Cebu, the sum of
P26,639.50 collected by said town official from Standard Vacuum Oil Company
(Standard Oil), which it paid under protest.
2. Section 1 of Commonwealth Act 472 known as the Municipality Autonomy Act
states: ”A municipal council or municipal district council shall have authority to
impose municipal license taxes upon person engaged in any occupation or business,
or exercising privileges in the municipality or municipal district, by requiring them
to secure licenses at rates fixed by the municipal council, or municipal district council,
and to collect fees and charges, for service rendered by the municipality or municipal
district and shall otherwise have power to levy for public local purposes, and for school
purposes, including teacher’s salaries, just and uniform taxes other than percentages
taxes and taxes on specified articles."
2. Empowered by the above-cited provision the municipal council of Opon passed
Ordinance No. 9, series of 1949, imposing a graduated license tax on the business of
manufacturing tin cans based on the maximum output capacity of the factory. Said
ordinance was duly approved by the Department of Finance.
3. Standard Oil, a foreign corporation duly licensed to transact business in the Philippines,
having its principal office in the City of Manila and with branch office in the City of
Cebu, is engaged in the importation, distribution and sale of gasoline, kerosene and other
fuel oils. The company operates and maintains an establishment in the Municipality of
Opon known as Opon Terminal where it stores the gasoline, kerosene and other fuel oils
it imports from abroad and where it manufactures 5-gallon tin cans
4. Standard Oil contends that the municipal ordinance is null and void because the
graduated license tax imposed is said to partake of the nature of a percentage or specific
tax, being an indirect percentage tax on specified articles, in this case, the tin cans, and
as such percentage tax is outside the powers of a municipal corporation to impose under
the above-cited legal provision; and that assuming that it is not a percentage but an
occupation tax, still it does not apply to the tin can factory of plaintiff-appellant because
it is not a business operated for profit but is merely incidental to its main business of
importing gasoline, kerosene and other fuel oils and later placing them in tin cans for
distribution and sale.
5. Trial court held that the manufacture of tin cans by plaintiff company to be used as
containers of its gasoline, kerosene and other fuel oils is an occupation by itself from
which the plaintiff derives benefit by not buying said tin cans from other persons who
would otherwise manufacture them; and that were the plaintiff exempted from paying
the tax on the cans manufactured and used for the distribution of its commodity while
others engaged in the manufacture of tin cans are required to pay the tax, then the said
tax ceases to be just and uniform.
ISSUE/s:
1. Whether the graduated license tax imposed by the ordinance in question is an occupation
tax. YES — It is imposed by virtue of the municipal council’s taxing power for purposes
of revenue, and is in accordance with the last part of section 1 of Commonwealth Act
42, thus valid.
2. Whether the graduated license tax is applicanble to Standard Oil. NO — Where the
manufacture of tin cans as in the present case is conducted not as an independent
business, and for profit but merely as an incident to or part of its main business, then it
may not be considered as an occupation or business which may be taxed separately.
RULING: In view of the foregoing, the decision appealed from is hereby reversed, and the
Municipal Treasurer of Opon Cebu, is hereby ordered to return to the plaintiff-appellant the
sum of P26,639.50, without interest, but with costs.
RATIO:
Issue 1
1. The Court is satisfied that the graduated license tax imposed by the ordinance
in question is an occupation tax, imposed not under the police or regulatory
power of the municipality but by virtue of its taxing power for purposes of
revenue, and is in accordance with the last part of section 1 of Commonwealth
Act 42. It is, therefore, valid.
Issue 2
2. To us, it is clear that if a company manufactures tin cans to be sold to the public
or to companies engaged in the sale and distribution of liquids, then said
manufacture would be a business or occupation subject to the tax imposed by
the ordinance. However, where the manufacture of tin cans as in the present
case is conducted not as an independent business, and for profit but merely as
an incident to or part of its main business, then it may not be considered as an
occupation or business which may be taxed separately. Standard Oil as already
stated, is engaged in the importation, distribution and sale of gasoline, kerosene
and other fuel oils and it is already paying the specific tax of two centavos and
seven centavos per liter of kerosene and gasoline, respectively, being sold by it.
While gasoline may be sold and distributed to its dealers and to the public at
gasoline stations and without the use of tin cans this may not be done with
kerosene or petroleum which is being sold not only in small towns which have
no kerosene stations but in distant barrios; hence the necessity of providing
suitable containers such as 5-gallon tin cans.
3. In conclusion, we hold that when a person or company is already taxed on its
main business, it may not be further taxed for doing something or engaging in
an activity or work which is merely a part of, incidental to and is necessary to
its main business.

009 SHELL v. MUN. OF CORDOVA (CALLUENG)
24 February 1954 | Padilla, J. | Excise Tax
PETITIONER: The Shell Co. of P.I. Ltd
RESPONDENTS: E.E. Vaño, as Municipal Treasurer of the Municipality of Cordova,
Province of Cebu
SUMMARY: The Municipal Council of Cordova adopted the following ordinances: No. 10,
series of 1946, which imposes an annual tax of P150 on occupation or the exercise of the
privilege of installation manager; No. 9, series of 1947, which imposes an annual tax of P40
for local deposits in drums of combustible and inflammable materials and an annual tax of
P200 for tin can factories; and No. 11, series of 1948, which imposes an annual tax of P150 on
tin can factories having a maximum output capacity of 30,000 tin cans. Shell, a foreign
corporation, filed suit for the refund of the taxes paid by it, on the ground that the ordinances
imposing such taxes are ultra vires.
ISSUE: WoN Ordinance No. 11, series of 1948 is a valid ordinance. YES. Ordinance No. 11,
series of 1948, which imposes a municipal tax of P150 on tin can factories having a maximum
annual output capacity of 30,000 tin cans is valid and lawful, because it is neither a percentage
tax nor one on specified articles which are the only exceptions provided in section 1,
Commonwealth Act No. 472. Neither does it fall under any of the prohibitions provided for in
section 3 of the same Act. Specific taxes enumerated in the National Internal Revenue Code
are those that are imposed upon "things manufactured or produced in the Philippines for
domestic sale or consumption" and upon "things imported from the United States and foreign
countries," such as distilled spirits, domestic denatured alcohol, fermented liquors, products of
tobacco, cigars and cigarettes, matches, mechanical lighters, firecrackers, skimmed milk,
manufactured oils and other fuels, coal, bunker fuel oil, diesel fuel oil, cinematographic films,
playing cards, sacharine. And it is not a percentage tax because it is tax on business and the
maximum annual output capacity is not a percentage, because it is not a share or a tax based
on the amount of the proceeds realized out of the sale of the tin cans manufactured therein but
on the business of manufacturing tin cans having a maximum annual output capacity of
30,000 tin cans.
DOCTRINE: Specific Taxes are imposed upon “things manufactured or produced in the
Philippines for domestic sale or consumption” and upon “things imported from the United
States and foreign countries” While, Percentage Tax is tax based on a percentage. It is a share
or tax based on the amount of the proceeds realized out of the sale.
FACTS:
NOTE: ORDINANCE NO. 11 IS THE ORDINANCE RELATED TO EXCISE TAX.
CASE ONLY DISCUSSED THE RATIO.
1. The Municipal Council of Cordova, Province of Cebu, adopted the following
ordinances: No. 10, series of 1946, which imposes an annual tax of P150 on
occupation or the exercise of the privilege of installation manager; No. 9, series of
1947, which imposes an annual tax of P40 for local deposits in drums of
combustible and inflammable materials and an annual tax of P200 for tin can
factories; and No. 11, series of 1948, which imposes an annual tax of P150 on tin
can factories having a maximum output capacity of 30,000 tin cans.
2. The Shell Co. of P.I. Ltd., a foreign corporation, filed suit for the refund of the
taxes paid by it, on the ground that the ordinances imposing such taxes
are ultra vires. The Municipal Council of Cordova denied this.
ISSUE/s:
1. WoN Ordinance No. 11, series of 1948 is a valid ordinance. YES, because it is
neither a percentage tax nor one on specified articles which are the only
exceptions provided in section 1, Commonwealth Act No. 472.
RULING: The judgment appealed from is hereby affirmed, with costs against the appellant.
RATIO:
Issue 1
1. Ordinance No. 11, series of 1948, which imposes a municipal tax of P150 on tin can
factories having a maximum annual output capacity of 30,000 tin cans which,
according to the stipulation of facts, was approved by the Provincial Board of Cebu
and the Department of Finance, is valid and lawful, because it is neither a
percentage tax nor one on specified articles which are the only exceptions
provided in section 1, Commonwealth Act No. 472.
2. Neither does it fall under any of the prohibitions provided for in section 3 of the
same Act. Specific taxes enumerated in the National Internal Revenue Code are
those that are imposed upon "things manufactured or produced in the
Philippines for domestic sale or consumption" and upon "things imported from
the United States and foreign countries," such as distilled spirits, domestic
denatured alcohol, fermented liquors, products of tobacco, cigars and cigarettes,
matches, mechanical lighters, firecrackers, skimmed milk, manufactured oils and
other fuels, coal, bunker fuel oil, diesel fuel oil, cinematographic films, playing
cards, sacharine.3
3. And it is not a percentage tax because it is tax on business and the maximum
annual output capacity is not a percentage, because it is not a share or a tax
based on the amount of the proceeds realized out of the sale of the tin cans
manufactured therein but on the business of manufacturing tin cans having a
maximum annual output capacity of 30,000 tin cans.
4. In an action for refund of municipal taxes claimed to have been paid and collected
under an illegal ordinance, the real party in interest is not the municipal treasurer but
the municipality concerned that is empowered to sue and be sued.
 010 GIGARE v. COMMISSIONER (CASTILLO)
26 August 1966 | Concepcion, CJ. | Payment of Excise Taxes on imported articles
PETITIONER: Luz M. Gigare
RESPONDENT: Commissioner of Customs
SUMMARY: Several customs agents conducted a search on board the Vessel F/S ‘Bais’ while
said vessel was docked at the port of Jolo. The search party discovered several cartons of
‘Chesterfield’ cigarettes, which bore blue seals, but not internal revenue strip stamps concealed
in different parts of the vessel. The wrappers of the cigarettes indicated that the same were
manufactured in the United States of America. Said cigarettes were seized by the customs
agents, allegedly for violation of Section 1363 (m-1) of the Revised Administrative Code
and Section 174 of the National Internal Revenue Code, after issuing a receipt therefor to
Gigare, who purchased them in the open market of Jolo. Gigare initially denied ownership of
the cigarettes, but afterwards she also claimed ownership over the same. CTA held the
cigarettes were illegally imported and affirmed the order of forfeiture of the Commissioner of
Customs. Gigare’s contention is that said commodities are “not merchandise of prohibited
importation, the importation of which is contrary to law,” because our laws permit the
importation of foreign cigarettes, provided that the corresponding tax thereon is paid. Issue is
WoN the cigarettes were illegally imported into the Philippines. YES — The importation of
the cigarettes is contrary to the Revised Administrative Code, and is illegal for the unpaid
taxes. The internal revenue tax on the cigarettes in dispute has not been paid, it is clear that the
importation thereof is prohibited by law, and that said cigarettes fall within the category
of “merchandise of prohibited importation”, the importation of which is contrary to law
and may justify its forfeiture, as provided in Sec 1363 and 1364 of the Revised Admin Code.
Moreover, the blue seals affixed on said commodities prove satisfactorily that they are foreign
products. The ‘blue seal’ cigarettes, at bar, having been illegally brought into the country, they
are likewise subject to forfeiture under Section 1363 (m-1) of the Revised Administrative Code
for the reason that they were imported into the country without going through a
customhouse. The fact that petitioner is merely a buyer of the cigarettes in the open market of
Jolo does not render the cigarettes immune from the penalty of forfeiture. This is so because
forfeiture proceedings are instituted against the res (cigarettes) and by express provision of Sec.
1364 of the Revised Administrative Code, the forfeiture shall also occur while the merchandise
is in the hands or subject to the control of some person who shall receive, conceal, buy, sell, or
transport the same with knowledge that the merchandise was imported contrary to law.
Section No. 1363. Property subject to forfeiture under customs laws.—Vessels, cargo,
merchandise, and other objects and things, shall under the conditions hereinbelow specified, be
subject to forfeiture. xxxxx (f) Any merchandise of prohibited importation or exportation, the
importation or exportation of which is effected or attempted contrary to law, and all other
merchandise which, in the opinion of the collector, have been used, are or were intended to be
used as instrument in the importation or exportation of the former. xxxxx (m) Any
merchandise the importation or exportation of which is effected or attempted in any of the
ways or under any of the conditions hereinbelow described. 1. Upon importation or
exportation, either consummate or frustrate, without going through a customhouse.
Section 1364. Conditions affecting forfeiture of merchandise.—As regards imported and
exported merchandise, or merchandise whereof the importation or exportation is merely
attempted, the forfeiture shall occur only when and while the merchandise is in the custody of
the customs authorities or in the hands or subject to the control of the importer, exporter.
original owner, consignee, agent or other persons effecting the importation, entry or
exportation in question, or in the hands or subject to the control of some person who shall
receive, conceal, buy, sell or transport the same or aid in any such acts, with knowledge that the
merchandise was imported, or was subject of an attempt at importation or exportation, contrary
to law.
DOCTRINE: Where the internal revenue tax on the cigarettes in dispute has not been paid, it
is clear that their importation is prohibited by law, and that they fall within the category of
merchandise of prohibited importation, the importation of which is contrary to law and may
justify its forfeiture, as provided in Sections 1363 and 1364 of the Revised Administrative
Code.
FACTS:
1. Petition for review of a decision of the Court of Tax Appeals affirming that of the
Commissioner of Customs, decreeing the forfeiture, in favor of the Government, of
519 cartons of “Chesterfield” cigarettes with blue seals, but without internal revenue
stamps.
2. Several customs agents conducted a search on board the Vessel F/S ‘Bais’ while
said vessel was docked at the port of Jolo.
3. The search party discovered several cartons of ‘Chesterfield’ cigarettes, which bore
blue seals, but not internal revenue strip stamps concealed in different parts of the
vessel.
4. The wrappers of the cigarettes indicated that the same were manufactured in the
United States of America. Said cigarettes were seized by the customs agents,
allegedly for violation of Section 1363 (m-1) of the Revised Administrative Code
and Section 174 of the National Internal Revenue Code, after issuing a receipt
therefor to Gigare, who purchased them in the open market of Jolo.
5. Gigare initially denied ownership of the cigarettes, but afterwards she also claimed
ownership over the same
6. CTA concluded that the cigarettes had been illegally imported into the Philippines,
and affirmed the order of forfeiture by the Commissioner of Customs.
7. Gigare’s contention is that said commodities are “not merchandise of prohibited
importation, the importation of which is contrary to law”, and that, in any event,
they are not liable to forfeiture, because:
a. Our laws permit the importation of foreign cigarettes, provided that the
 corresponding tax thereon is paid; 3. The absence of Philippine internal revenue strip stamps on cigarettes indicates that
they are either manufactured clandestinely within the Philippines or imported
b. The foreign character of the cigarettes in question and the alleged illegally into the country.
importation thereof have not been, it is claimed, established; and
4. The affixture of blue seals on the packs of cigarettes, the wrappers, the purchase of
c. Appellant’s knowledge of said importation and of the nonpayment of the cigarettes in the open market of Jolo, a place where American and other foreign-
aforementioned tax has not been sufficiently proven. made cigarettes are, of common knowledge, frequently smuggled from Borneo, and
the failure of petitioner to show that the cigarettes in question were locally
8. This pretense is clearly untenable. manufactured rule out the possibility that the cigarettes in question were
manufactured in the Philippines.
ISSUE/s:
1. Whether or not the cigarettes were illegally imported into the Philippines. YES —
5. The ‘blue seal’ cigarettes, at bar, having been illegally brought into the country, they
The importation of the cigarettes is contrary to the Revised Administrative Code,
are likewise subject to forfeiture under Section 1363 (m-1) of the Revised
and is illegal for the unpaid taxes.
Administrative Code for the reason that they were imported into the country without
going through a customhouse.
RULING: Wherefore, the decision appealed from should be, as it is hereby affirmed, with
costs against petitioner-appellant, Luz M. Gigare. It is so ordered.
6. The fact that petitioner is merely a buyer of the cigarettes in the open market of Jolo
RATIO: does not render the cigarettes immune from the penalty of forfeiture. This is so
because forfeiture proceedings are instituted against the res (cigarettes) and by
1. The internal revenue tax on the cigarettes in dispute has not been paid, it is clear that express provision of Sec. 1364 of the Revised Administrative Code, the forfeiture
the importation thereof is prohibited by law, and that said cigarettes fall within the shall also occur while the merchandise is in the hands or subject to the control of
category of “merchandise of prohibited importation”, the importation of which is some person who shall receive, conceal, buy, sell, or transport the same with
contrary to law and may justify its forfeiture, as provided in Sections 13633 and knowledge that the merchandise was imported contrary to law.
13644 of the Revised Administrative Code.
7. To uphold the claim of petitioner and forego the forfeiture would be giving a chance
2. Moreover, the blue seals affixed on said commodities prove satisfactorily that they to accessories after the fact of smugglers of foreign cigarettes to ply their trade with
are foreign products. Again, the importation thereof into the Philippines is attested impunity and with the sanction of the courts.
by the presence of said products within our jurisdiction.

3 Section No. 1363. Property subject to forfeiture under customs laws.—Vessels, cargo,
merchandise, and other objects and things, shall under the conditions hereinbelow specified,
be subject to forfeiture. xxxxx (f) Any merchandise of prohibited importation or exportation,
the importation or exportation of which is effected or attempted contrary to law, and all other
merchandise which, in the opinion of the collector, have been used, are or were intended to be
used as instrument in the importation or exportation of the former. xxxxx (m) Any
merchandise the importation or exportation of which is effected or attempted in any of the
ways or under any of the conditions hereinbelow described. 1. Upon importation or
exportation, either consummate or frustrate, without going through a customhouse.
4 Section 1364. Conditions affecting forfeiture of merchandise.—As regards imported and

exported merchandise, or merchandise whereof the importation or exportation is merely

attempted, the forfeiture shall occur only when and while the merchandise is in the custody of
the customs authorities or in the hands or subject to the control of the importer, exporter.
original owner, consignee, agent or other persons effecting the importation, entry or
exportation in question, or in the hands or subject to the control of some person who shall
receive, conceal, buy, sell or transport the same or aid in any such acts, with knowledge that
the merchandise was imported, or was subject of an attempt at importation or exportation,
contrary to law.
 011 GOOD DAY TRADING CORP v. BOARD OF TAX APPEALS (CASTRO) owner under section 125 of the National Internal Revenue Code.
July 31, 1954 | Montemayor, J. | Taxes of imported articles may be paid either by owner or
importer

PETITIONER: Good Day Trading Corporation

RESPONDENT: Board of Tax Appeals

SUMMARY: Good day Trading imported cigarettes and it was stored in a bonded
warehouse. Good day filed a bond worth P52,360 corresponding to its tax obligation.
While the cigarettes are in the warehouse Good day sold the cigarettes worth P32,000
exclusive of specific taxes and that the sale is being conditioned on the buyer paying all
the specific taxes or filing of a surety bond. The next day Isleta informed Good day that it
bought the cigarettes not for himself but for certain companions and that the latter will
pay the specifc tax obligations through backpay certificates or certificate of indebtedness.
Good day then wrote a letter to the Collector of Internal Revenue advising him of the sale,
at the same time requesting that should the certificates of indebtedness with which the
buyers intend to pay the specific taxes on the cigarettes be approved and accepted, the
surety bond previously filed by Good day be ordered cancelled. Afterwards, when despite
several extensions given to Isleta and his companions they failed to show evidence that
they had either paid the specific taxes or filed the corresponding surety bond, Good day to
avoid deterioration of the cigarettes, decided to rescind the sale and on December 8, 1952,
on account of the specific taxes, it made an initial payment of P8,800 to the Collector of
Internal Revenue and thereafter attempted to withdraw from storage 40 cases of
cigarettes, covered by the initial payment. The warehouseman, however, refused delivery
saying that Isleta and companions claimed ownership of the whole shipment because they
already had submitted with the Bureau of Internal Revenue certificates of indebtedness
(Back Pay) for payment of all the specific taxes, which according to them have already
been approved and accepted by the Bureau. Good day then claimed for a refund which the
BIR approved but the board of tax appeals disapproved by saying that it is Good day as
the importer who is ultimately liable. The issue is WoN it is only the importer who is
liable to pay the specific tax on imported articles – No, the code provides that specific
taxes shall be paid by the owner or importer. In this case the importer is Good day and the
owner/ buyer is Isleta and either of the two can pay the specific tax. The SC ruled that
either the owner or importer shall pay the specific taxes on imported articles. So that if the
sale of the cigarettes by the importer to the owners of the certificates of indebtedness was
valid, then said purchasers become the owners of the shipment and could pay the specific
taxes. We, therefore, believe and hold that the Tax Board erred in holding that only
petitioner Good Day Trading Corporation was called upon and couldpay the specific
taxes on the cigarette shipment.
DOCTRINE: If a shipment stored, pursuant to existing law, in a bonded warehouse
under the custody of the Bureau of Customs is sold, while in storage to another person,
the specific taxes on the shipment may be paid either by the importer or the buyer, as
FACTS:
1. The petitioner Good Day Trading Corporation imported 238 cases of Chesterfield
cigarettes on February 18, 1952. The corresponding surety bond was filed in its
favor to secure the payment of the sum of P52,360, the amount of specific taxes due
on the cigarette importation, and pursuant to existing law, the shipment was stored
in a bonded warehouse under the custody of the Bureau of Customs.
2. On September 23, 1952, while the cigarettes were still in storage, Good day sold
them to one Buenaventura Isleta for a total sum of P32,000, exclusive of specific
taxes, the sale being conditioned on the buyer paying all the specific taxes or filing a
surety bond with the Bureau of Internal Revenue to guarantee payment thereof,
within 15 days from the sale agreement, besides paying all the storage fees, fire
insurance premium and other expenses from the date of sale until the cigarettes have
been withdrawn by the buyer.
3. A few days after the sale agreement Isleta informed Good day that he bought the
cigarettes not for himself but on behalf of his companions who intended to pay the
specific taxes with their backpay certificates or certificates of indebtedness.
4. Good day then wrote a letter to the Collector of Internal Revenue advising him of
the sale, at the same time requesting that should the certificates of indebtedness with
which the buyers intend to pay the specific taxes on the cigarettes be approved and
accepted, the surety bond previously filed by Good day be ordered cancelled. This
letter was duly received by the Collector of Internal Revenue.
5. Afterwards, when despite several extensions given to Isleta and his companions they
failed to show evidence that they had either paid the specific taxes or filed the
corresponding surety bond, Good day to avoid deterioration of the cigarettes,
decided to rescind the sale and on December 8, 1952, on account of the specific
taxes, it made an initial payment of P8,800 to the Collector of Internal Revenue and
thereafter attempted to withdraw from storage 40 cases of cigarettes, covered by the
 initial payment.
6. The warehouseman, however, refused delivery saying that Isleta and companions
claimed ownership of the whole shipment because they already had submitted with
the Bureau of Internal Revenue certificates of indebtedness (Back Pay) for payment
of all the specific taxes, which according to them have already been approved and
accepted by the Bureau.
7. At the same time Isleta came to Good Day's office with a letter requesting the
suspension of the withdrawal of the cigarettes by Good day, with the condition that
should he (Isleta and companions) fail to comply with the sale agreement on or
before December 15, 1952, then Good day may withdraw the whole shipment and
Isleta and companions would pay P10,000 as liquidated damages.
8. Eventually, the Bureau of Internal Revenue approved or accepted the certificates of
indebtedness tendered by the buyers as payment of the specific taxes on the
cigarettes, the issuance of the certificates of indebtedness having been approved by
the National Treasurer of the Philippines.
9. The Bureau of Internal Revenue also authorized the Bureau of Customs to release to
the buyers the whole shipment; the buyers filed their entries with the Bureau of
Customs, and withdrew all the cigarettes and allegedly sold the same.
10. Thereafter, Good day asked for the refund of the P8,800 paid by it in cash, in view
11. of the full payment of the specific taxes on the cigarettes by the buyers. The
Collector of Internal Revenue granted the refund and his action was approved by the
Secretary of Finance. No appeal was taken from said decision; but because the
amount involved was more than P5,000 the case was brought before the Board of
Tax Appeals for final resolution under the provisions of Executive Order No. 401-A,
section 95, particularly the second paragraph thereof.
5 1. Presumably due to a ruling by this Tribunal (University of Santo Tomas vs. Board of
"SEC. 9. In all cases involving an original assessment of P5,000 or less, the action
of the Collector of Internal Revenue pursuant to his authority to compromise cases
and make refunds under section 309 of the National Internal Revenue Code, and that
of the Commissioner of Customs pursuant to similar authority under section 1369 of
the revised Administrative Code, shall in no case become effective unless approved
by the Secretary of Finance. Copies of the action of the Collector of Internal
Revenue or of the Commissioner of Customs, as the case may be, and of the
approval thereof by the Secretary of Finance shall be promptly furnished the Board
of Tax Appeals, and within sixty days from the receipt of copy thereof, the Board
may, for justifiable reasons, review the case motu proprio.
"But in cases involving an original assessment of more than P5,000, the approval by
the Secretary of Finance of the action taken as aforesaid by the Collector of Internal
12. The case was set for hearing before the Tax Board and memoranda were filed after
which, the Board issued its resolution dated January 31, 1953. The Board not only
reversed the decision of the Collector of Internal Revenue granting the refund of
P8,800 but it also rejected the payment of the entire amount of specific taxes in
certificates of indebtedness, and ordered Good day to pay the balance of P43,560 in
cash.
13. In other words, the Good Day Trading Corporation which originally imported the
cigarettes whose specific taxes amounted to P52,360 was held liable and was
ordered to pay thewhole of said specific taxes.
14. Good day asked for reconsideration claiming that the payment of P8,800 in cash
amounted to a double payment because the corresponding amount was later paid
with certificates of indebtedness, accepted by the Collector of Internal Revenue and
approved by the Secretary of Finance; being double payment petitioner was entitled
to a refund; moreover, assuming that Good day was not entitled to refund, the Tax
Board had neither authority nor jurisdiction to order petitioner to pay the balance of
P43,560 because it was not involved nor was it an issue in the matter submitted to
the Tax Board for review.
15. Tax board denied the same saying the motion was filed out of time and the
resolution had become final
ISSUE/s:
1. WoN it is only the importer who is liable to pay the specific tax on imported articles
– No, the code provides that specific taxes shall be paid by the owner or importer. In
this case the importer is Good day and the owner/ buyer is Isleta and either of the
two can pay the specific tax.
RULING:
RATIO:
ON THE LEGALITY OF BOARD OF TAX APEALS
Tax Appeals, 93 Phil., 376) that the Board of Tax Appeals was illegally established
(because by mere Executive Order) for the reason that the jurisdiction assigned to it
deprived the Courts of First Instance of their jurisdiction to entertain and pass upon
cases taken to them from actions and decisions of the Collector of Customs and the
Collector of Internal Revenue regarding taxes, assessments, refunds, etc., Republic
Act 1125 was subsequently passed. Said Act abolished the Board of Tax Appeals,
created what is now known as the Court of Tax Appeals with practically the same
Revenue or of the Commissioner of Customs shall not become effective until and
unless the same is approved by the Board of Tax
Appeals."
 jurisdiction and functions of the former Board of Tax Appeals, and although it
repealed Executive Order No. 401-A, nevertheless it provided that all cases decided
by the former Board of tax Appeals and appealed to the Supreme Court pursuant to
Executive Order No. 401-A shall be decided by the Supreme Court on the merits, to
all intents and purposes as if said Executive order 401-A had been duly enacted by
Congress.
1. Where no appeal was taken from the decision of the Collector of Internal Revenue,
as approved by the Secretary of Finance, authorizing the refund of specific taxes
paid by the importer,in view of its full payment by the buyers of the stored
shipment, and because the amount involved exceeded P5,000 the approval of the
Court of Tax Appeals under section 9 of Executive Order No. 401-A becomes
necessary, the latter court should consider only the amount and propriety of the
refund and nothing more.

(IMPORTANT) ON WHO IS LIABLE TO PAY THE SPECIFIC TAXES ON ON PAYMENT OF TAXES THROUGH BACKPAY CERTIFICATES
IMPORTATION
1. The board of tax appeals claim that it is the petitioner who is ultimately liable to pay 1. Whether or not owners of backpay certificates should be given certificates of
the specific taxes on its importations indebtedness ostensibly to be used to pay taxes but in reality to be speculated upon
and negotiated by some unscrupulous person, is not for the Court of tax Appeals to
2. The main ground on which the Tax Board based its resolution is that petitioner Good
determine, but is wholly the legal concern of the Treasurer of the Philippines and the
Day Trading Corporation is the importer of the shipment of cigarettes and therefore
Department to be affected after by the use of said certificate of indebtedness.
is the one called upon to pay the specific taxes, and consequently, should pay the
same in cash, and the Tax Board proceeds to cite authorities defining what is meant
by an importer, namely, that the importer is the primary consignee to whom the
goods are sent and who himself presents the invoices, makes the entry, receives the
bill of lading, and gets the goods, as distinguished from one who may be the
ultimate consignee, and that it does not include a person who purchases the goods
from the importer after they have been brought within the jurisdiction of the United
States

3. Importation is not completed until the duties due upon the merchandise have been
paid and legal permit for withdrawal shall have been granted; so that the person or
entity paying the duties due and receiving the legal permit for withdrawal and
actually withdrawing the goods becomes the importer.

4. The court believes that whether or not petitioner is the importer of the cigarettes in
question, is of little import because of section 1256

5. Either the owner or importer shall pay the specific taxes on imported articles.
So that if the sale of the cigarettes by the importer to the owners of the
certificates of indebtedness was valid, then said purchasers become the owners
of the shipment and could pay the specific taxes. We, therefore, believe and
hold that the Tax Board erred in holding that only petitioner Good Day
Trading Corporation was called upon and couldpay the specific taxes on the
cigarette shipment.

ON THE ISSUE OF JURISDICTION OF COURT OF APPEALS

6
"SEC. 125. Payment of specific tax on imported articles . — Specific taxes on
imported articles shall be paid by the owner or importer to the customs officers,
conformably with regulations of the Department of Finance and before the release of
such articles from the customhouse."
 012 BPI v Trinidad (CHUNG)
February 27, 1925 | Johns, J. | Documentary Stamp tax
PETITIONER: BANK OF THE PHILIPPINE ISLANDS
RESPONDENT: WENCESLAO TRINIDAD, as Collector of Internal Revenue for the
Philippine Islands
SUMMARY:
 Commissioner Trinidad issued a ruling requiring BPU to place documentary stamp
to the amount of 4 centavos for each P200 or fraction thereon of each check, draft,
or telegraphic order of money drawn by it upon each and all of its foreign
correspondents.
 It is argued by BPI that for documentary stamps to be applied to foreign bills of
exchange, the same must be drawn “in a set of 3 or more” based on the Admin
Code.
 In this case, they were drawn in sets of 2 – one as the original and one as the
duplicate.
ISSUE: Is documentary stamp tax required in this case? YES
RULING: BPI is required to place the documentary stamps.
 It may be true that the law was awkwardly worded, but the purpose and intent of
the law is clear – the Government should have a revenue of 4 centavos for every
P200 of fraction on each foregin bill of exchange and letter of credit, which is
drawn in but payable out of the Philippine Islands, that is issued in accord with the
customs and emthods adopted and in use by merchants and bankers, regardless of
the fact of whether they were drawn “in a set of 3 or more”
DOCTRINE
The purpose and intent of the law is clear – the Government should have a revenue of 4
centavos for every P200 of fraction on each foregin bill of exchange and letter of credit,
which is drawn in but payable out of the Philippine Islands, that is issued in accord with the
customs and emthods adopted and in use by merchants and bankers, regardless of the fact of
whether they were drawn “in a set of 3 or more
FACTS:
 After the formal pleas, plaintiff alleges that prior to the filing of the complaint the
defendant, as Collector of Internal Revenue, made a ruling which required that the
plaintiff should place documentary stamps to the amount of 4 centavos for each
P200 or fraction thereof on each check, draft or telegraphic order of money drawn
by it upon each and all of its foreign correspondents. That the plaintiff protested
such ruling, and thereafter and in pursuance therewith, placed the corresponding
stamps upon all of its foreign checks or drafts. That the ruling was not authorized by
any statute. That a summary of the amounts which the plaintiff paid for such stamps
is annexed to, marked Exhibit A, and made a part of, the complaint. That by reason
thereof, there is now due and owing from the defendant to this plaintiffs the sum of
P2,567.52, for which plaintiffs prays a corresponding judgment, with interest from
January 14, 1924, and costs.
 For answer the defendant makes a general and specific denial of all the material
allegations of the complaint.
 The case was tried upon the following "agreed statement of facts:"
1. That the allegations in paragraph numbered 1 of the complaint are true.
2. That during the period covered by the complaint, the plaintiff has been
drawing orders for the payment of money upon its foreign correspondents
and delivering such orders to its clients for value received. That such
orders are in the form substantially as set forth in Exhibit A hereto
annexed.
3. That during such period, the defendant, as Collector of Internal Revenue,
required the plaintiff to affix to such orders documentary stamps to the
amount of, and as required by subsection (i) of section 1449 of the
Administrative Code as amended.
4. That the plaintiff from time made due protest against this requirement and
from time to time made demands for the refund of the value of the stamps
so affixed, and that the defendant overruled each and all of said protests
and refused each and all of said requests for refunds.
5. It is further stipulated that in case the court shall decide that refunds are
due as demanded by the complaint, opportunity will be afforded by the
plaintiff to the agents of the defendant to verify by the books of the
plaintiff and its branches the amounts that have been actually expended for
such stamps as have been paid under protests and not barred under section
1679 [1579] of Act No. 2711 at the time of filing of the complaint herein
and that judgment may be rendered accordingly.
 The lower court rendered judgment to the effect that the ruling was unauthorized,
and that the plaintiff was entitled to recover the amount which it had paid for such
stamps, allowing the defendant thirty days in which to make an accounting.
 After his motion for a new trial was overruled, the defendant appealed, contending
that the lower court erred in holding that "the negotiable instrument in question
(Exhibit A) is not subject to the tax imposed in subsection (i) of section 1449 of Act
No. 2711, but to subsection (f) of the same section," and "in rendering judgment for
the plaintiff and against the defendant."
ISSUE: Is documentary stamp tax required in this case? YES
RULING:
 It will be noted that the word "foreign" is used in subsection (i), and that it is not
used in subsection (f). The purpose and intent of the law is apparent. Subsection (f)
applies only to interisland bank checks, drafts or certificate of deposits as therein
defined, and subsection (i) applies to "foreign bills of exchange and letters of credit
drawn in but payable out of the Philippine Islands." Subsection (f) applies to
domestic transactions and subsection (i) applies to foreign transactions.
 It is clear that the legislature intended that upon all of such domestic transactions,
there should be a revenue of 2 centavos on each bank check, draft or certificate of
deposit. That upon all transactions defined in subsection (i) there should be a
revenue of 4 centavos on "each P200 or fractional part thereof." It will also be noted
that no amount is specified on domestic transactions, and that on foreign
transactions it is 4 centavos on each P200 or a fraction. It will also be noted that
subsection (i) says:
 "In a set of three or more according to the custom of merchants and bankers," and
that there is no such or a similar provision in subsection (f). The words "according to
the custom of merchants and bankers" have a well- defined meaning and are
descriptive of the transaction itself.
 Plaintiff's contention would nullify the legal force and effect of subsection (i). Under
its construction a bank which drew an order for the payment of money on a foreign
correspondents in a set of three or more would have to pay 4 centavos on each P200
or a fraction, and a bank which drew its orders in duplicate only would be exempt
from payment. That was never the purpose and intent of the legislature.
 It may be true that subsection (i) is awkwardly worded, but the purpose and intent of
the law is apparent to the effect that the Government should have a revenue of 4
centavos for every P200 or fraction on each foreign bill of exchange and letter of
credit, which is drawn in but payable out of the Philippine Islands, that is issued in
accord with the customs and methods adopted and in use by merchants and bankers,
regardless of the fact of whether they were drawn "in a set of three or more."
 013 CIR v. Construction Resources of Asia (COSCOLLUELA)
25 November 1986 | Gutierrez, Jr., J. | When instrument attains value
PETITIONER: Commissioner of Internal Revenue
RESPONDENTS: Construction Resources of Asia, Inc., and the Court of Tax Appeals
SUMMARY: CRA was assessed by the BIR of unpaid withholding tax-at-source and DST for
its foreign loans remitted abroad, in connection with a contract with the Malaysian
government for the construction of a road at Sabah. CRA argues that it cannot be liable for the
DST as there has been no transfer of ownership of the shares, as there has been no delivery of
the certificates and they have not been fully paid yet. The CIR DTS are taxes on the privilege
to issue shares of stocks and they accrue at the time of issuance, because that is the transaction
which is subject to tax.
The issue is whether or not liability to pay DST attaches upon the issuances of certificates of
stocks.
YES. Delivery, either actual or constructive, is not necessary. Ordinarily, when a corporation
issues a certificate of stock, the certificate of stock can be utilized for the exercise of the
attributes of ownership over the stocks mentioned on its face.The stocks can be alienated; the
dividends or fruits derived there from can be enjoyed, and they can be conveyed, pledged or
encumbered.The certificate as issued by the corporation, irrespective of whetheror not it is in
the actual or constructive possession of the stockholder,is considered issued because it is with
value and hence the documentary stamp tax must be paid. The delivery of the certificates of
stocks to the CRA’s stockholders whether actual or constructive, is not essential for the
documentary and science stamps taxes to attach. What is taxed is the privilege of issuing
shares of stock and, therefore, the taxes accrue at the time the shares are issued.
DOCTRINE: The delivery of the certificates of stocks to the CRA’s stockholders whether
actual or constructive, is not essential for the DST to attach. What is taxed is the privilege of
issuing shares of stock and, therefore, the taxes accrue at the time the shares are issued.
FACTS:
1. CRA is a domestic corporation duly registered with the Overseas Construction
Board as an overseas contractor
2. It incurred foreign loans ($3.9M) in connection with a contract entered into with the
Malaysian government for the construction of a road at Sabah.
3. An investigation by the BIR found that CRA failed to file withholding tax return and
to withhold 15% tax on interest on foreign loans remitted abroad. It was also found
that it failed to purchase and affix the corresponding DST on the stock certificates
issued by it (P17.8M worth of shares).
4. The BIR sought payment of the withholding tax-at-source and DST in the amount of
P300,170.46 and P89,400, respectively.
5. CRA protested arguing that the actual payment of interest was made on June 5, 1978
and therefore, it had nothing yet to withhold in 1977 and as an overseas contractor, it
is exempt from withholding tax-at-source. For the DST, CRA argues that there has
been no transfer of ownership of the shares.
6. The BIR denied CRA’s protest.
7. The CTA affirmed the assessment by the CIR of the withholding tax-at-source for
the 4th quarter of 1977 and 1st and 2nd quarter of 1978. As to the DST, the CTA
denied the assessment on the ground that there was absolutely nothing in the records
which will show or indicate that the stock certificates on the paid-in-capital of
P17.8M were issued or delivered, actually or constructively, to the stockholders,
granting that such paid-in-capital was originally issued. MR by CIR was denied.
8. CIR argues that DTS are taxes on the privilege to issue shares of stocks and they
accrue at the time of issuance, because that is the transaction which is subject to tax.
9. CRA, on the other hand, argues that DTS are levied on the document evidencing the
transaction, and that the CTA correctly took into consideration the non-delivery of
the certificates and that the shares have not yet been fully paid for by the
stockholders.
ISSUE/s:
1. Whether or not liability to pay DST attaches upon the issuances of certificates of
stocks. YES — One sentence explanation
RULING: WHEREFORE, the petition is hereby GRANTED and thedecision of the
respondent Court of Tax Appeals dated November 25, 1983 is ANNULLED and SET ASIDE.
The private respondent is ordered to pay the petitioner the amount of EIGHTY NINE
THOUSAND FOUR HUNDRED PESOS (P89,400.00).
SO ORDERED.
RATIO:
1. Delivery, either actual or constructive, is not necessary.
2. Sec. 224 of the NIRC provides:
a. Stamp tax on original issue of certiftcates of stock. — On everyoriginal
issue, whether on organization, reorganization, or for anylawful purpose,
of certificates of stock by any association, company,or corporation, there
shall be collected a documentary stamp tax ofone peso and ten centavos on
each two hundred pesos, or fractionalpart thereof, of the par value of such
certificates: Provided, that in the case of the original issue of stock without
par value the amount ofthe documentary stamp tax herein prescribed shall
be based upon theactual consideration received by the association,
company, or cor-poration for the issuance of such stock, and in the case of
stockdividends, on the actual value represented by each share.
3. It is clear that the certificates of stocks only need to be issued, not delivered.
4. As to what ‘issue’ means, documentary stamp tax is imposed on every original issue
of a certificate of stock (the document evidencing ownership of shares of stock in
the corporation), and that a documentary stamp tax is in the nature of an excise tax
because it is levied upon the privilege, the opportunity and the facility of issuing
certificates of stock. It being a levy on the original issue of a certificate of
stock. Ordinarily, when a corporation issues a certificate of stock, the certificate of
stock can be utilized for the exercise of the attributes of ownership over the stocks
mentioned on its face.The stocks can be alienated; the dividends or fruits derived
there from can be enjoyed, and they can be conveyed, pledged or encumbered.The
certificate as issued by the corporation, irrespective of whetheror not it is in the
actual or constructive possession of the stockholder, is considered issued
because it is with value and hence the DST must be paid.
5. The delivery of the certificates of stocks to the CRA’s stockholders whether actual
or constructive, is not essential for the DST to attach. What is taxed is the privilege
of issuing shares of stock and, therefore, the taxes accrue at the time the shares are
issued.
6. Also, when CRA received the letter of assessment it did not question the DST. Even
in its letter to the BIR, the CRA only requested reinvestigation with the regard to the
 interests and surcharges on its foreign loan. It also requested for further time to be
allowed to settle the DST as it was undertaking the speedy transfer of the
ownershipof the assets to its capital base.
7. In other words, it never disputed the DST but only asked it be given more time to
pay them.
8. It has also not denied, until now, that it received a paid-in-capital in the amount of
P17.8M. This belated denial and the fact that it did not initially dispute either the
amount of assessment or the act of levy itself lend more credence to the report of
CIR’s examiners that upon investigation, they found that the CIR received a paid-in-
for which certificates of stock were issued but that the DST thereof were not paid.
 014 LINCOLN PHILIPPINE LIFE v. CA (DIM)
July 23, 1998 | Mendoza, J. | When does DST accrue
PETITIONER: LINCOLN PHILIPPINE LIFE INSURANCE COMPANY, INC. (now
JARDINE-CMG LIFE INSURANCE CO. INC.)
RESPONDENTS: COURT OF APPEALS AND COMMISSIONER OF INTERNAL
REVENUE
SUMMARY: Lincoln issued 50,000 shares of stock as stock dividends. Lincold paid
Documentary Stamp Tax (DST) on each certificate based on its par value. The CIR assessed
deficiency DST in the amount of P78,991.25 in excess of the par value of the stock dividends as
it believed that the book value of the shares should be used as the basis for determining DST.
The CTA reversed the decision and stated that the amount of the DST paid should be based on
the par value stated on each certificate of stock. The CA reversed the CTA’s decision and held
that the actual value represented by the subject shares should be used as basis. Lincoln brings this
appeal to the SC. The issue is whether the amount of DST to be paid in stock dividends is to be
based on the book value of the shares or the par value stated in the certificate of stock – PAR
VALUE. The SC reinstated the decision of the CTA. A reading of the then Sec. 224 (now Sec.
175) of the NIRC will show that the documentary stamp tax is not levied upon the shares of stock
per se but rather on the privilege of issuing certificates of stock. A stock certificate is merely
evidence of a share of stock and not the share itself. It is clear that stock dividends are shares of
stock and not certificates of stock which merely represent them. There is, therefore, no reason for
determining the actual value of such dividends for purposes of the documentary stamp tax if the
certificates representing them indicate a par value. With respect to stock certificates, it is levied
upon the privilege of issuing them; not on the money or property received by the issuing
company for such certificates. Neither is it imposed upon the share of stock. As Justice Learned
Hand pointed out in one case, documentary stamp tax is levied on the document and not on the
property which it described.
DOCTRINE: A documentary stamp tax is in the nature of an excise tax. It is not imposed upon
the business transacted but is an excise upon the privilege, opportunity or facility offered at
exchanges for the transaction of the business. It is an excise upon the facilities used in the
transaction of the business separate and apart from the business itself.
FACTS:
1. Lincoln Philippine Life Insurance (now Jardine-CMG Life Insurance Company,
Inc.) is a domestic corporation engaged in the life insurance business.
2. In 1984, Lincoln issued 50,000 shares of stock as stock dividends, with a par
value of P100 or a total of P5 million. Lincoln paid documentary stamp taxes on
each certificate on the basis of its par value.
3. The question in this case is whether in determining the amount to be paid as
documentary stamp tax, it is the par value of the certificates of stock or the
book value of the shares which should be considered.
4. The applicable law at the time was PD 1158
a. SEC. 224. Stamp tax on original issues of certificates of stock. -- On
every original issue, whether on organization, reorganization or for any
lawful purpose, of certificates of stock by any association, company or
corporation, there shall be collected a documentary stamp tax of one
peso and ten centavos on each two hundred pesos, or fractional part
thereof, of the par value of such certificates: Provided, That in the case
of the original issue of stock without par value the amount of the
documentary stamp tax herein prescribed shall be based upon the actual
consideration received by the association, company, or corporation for the
issuance of such stock, and in the case of stock dividends on the actual
value represented by each share.
5. The CIR took the view that the book value of the shares, amounting to
P19,307,500.00, should be used as basis for determining the amount of the
documentary stamp tax. Accordingly, the CIR issued a deficiency documentary
stamp tax assessment in the amount of P78,991.25 in excess of the par value of the
stock dividends.
6. Lincoln questioned the DST assessment with the CTA, which rendered its
decision holding that the amount of the documentary stamp tax should be
based on the par value stated on each certificate of stock:
a. WHEREFORE, the deficiency documentary stamp tax assessments in the
amount of P464,898.76 and P78,991.25 or a total of P543,890.01 are
hereby cancelled for lack of merit.
7. The CA reversed the CTAs decision and held that, in assessing the tax in
question, the basis should be the actual value represented by the subject shares.
a. According to the CA, in the case of stock certificates with par value, the
documentary stamp tax is based on the par value of the stock; for stock
certificates without par value, the same tax is computed from the actual
consideration received by the corporation, association or company; but
for stock dividends, documentary stamp tax is to be paid on the actual
value represented by each share.
ISSUE/s:
1. WoN the DST for stock dividends should be based on the book value of the stock –
NO. It should be computed based on the par value written on the certificate of stock.
RULING: SC REVERSED the CA and REINSTATED the decision of the CTA.
RATIO:
1. Apparently, the CA treats stock dividends as distinct from ordinary shares of stock
for purposes of the then 224 of the NIRC. There is, however, no basis for
considering stock dividends as a distinct class from ordinary shares of stock since
under this provision only certificates of stock are required to be distinguished (into
either one with par value or one without) rather than the classes of shares
themselves.
2. Indeed, a reading of the then 224 (now 175) of the NIRC will show that the
documentary stamp tax is not levied upon the shares of stock per se but rather
on the privilege of issuing certificates of stock. A stock certificate is merely
evidence of a share of stock and not the share itself.
3. It is clear that stock dividends are shares of stock and not certificates of stock which
merely represent them. There is, therefore, no reason for determining the actual
value of such dividends for purposes of the documentary stamp tax if the
certificates representing them indicate a par value.
4. Apparently, the former tax code sought to distinguish between stock dividends
without par value and other transactions involving ordinary shares of stock without
par value in the second clause of the then 224 in order to prevent claims that the
former are exempt from documentary stamp taxes as, unlike in the case of ordinary
shares, corporations actually receive nothing from their stockholders in exchange for
such stock dividends. Hence the provision that, in the case of stock dividends, the
amount of the documentary stamp tax must be based on the actual value of each
share.
5. A documentary stamp tax is in the nature of an excise tax. It is not imposed
upon the business transacted but is an excise upon the privilege, opportunity or
facility offered at exchanges for the transaction of the business. It is an excise
upon the facilities used in the transaction of the business separate and apart from the
business itself.
6. With respect to stock certificates, it is levied upon the privilege of issuing them;
not on the money or property received by the issuing company for such
certificates. Neither is it imposed upon the share of stock. As Justice Learned Hand
pointed out in one case, documentary stamp tax is levied on the document and not
on the property which it described.
 015 Gabucan v. Manta (IGNACIO) 4. The case was brought up to the SC by means of mandamus.
12 January 1980 | Aquino, J. | Effect of failure to attach documentary stamp tax
ISSUE/s:
PETITIONER: Jose Antonio Gabucan 1. W/N the lower court erred in dismissing the probate proceedings? - YES. The non-
RESPONDENTS: Judge Luis D. Manta, Josefa G. Vda. De Ysalina, and Nelda G. admissibility of the document subsists only “until the requisite stamp or stamps shall
Enclonar have been affixed thereto and cancelled.”

SUMMARY: (this is a really short case!) The probate of the will of the late Rogaciano
Gabucan was dismissed in the CFI of Camiguin, because the requisite documentary
stamp was not affixed to the notarial acknowledgment in the will, and hence, according
to Judge Manta, it was not admissible in evidence pursuant to Section 238 of the Tax
Code. (see fact #1) Petitioner moved for reconsideration, manifesting that he had already
attached the documentary stamp to the original of the will, but it was denied.
The Supreme Court ruled that the lower court was wrong in declaring that because no
documentary stamp was affixed to the will, there was "no will and testament to probate"
and, consequently, the alleged "action must of necessity be dismissed". What the
probate court should have done was to require the petitioner or proponent to affix
the requisite thirty-centavo documentary stamp to the notarial acknowledgment of
the will which is the taxable portion of that document. This procedure may be
implied from the provision of section 238: That the non-admissibility of the document,
which does not bear the requisite documentary stamp, subsists only "until the requisite
stamp or stamps shall have been affixed thereto and cancelled."
DOCTRINE: The non-admissibility of the document, which does not bear the requisite
documentary stamp, subsists only "until the requisite stamp or stamps shall have been
affixed thereto and cancelled." The lack of a documentary stamp on a document does
not invalidate such document.
RULING: WHEREFORE, the lower court's dismissal of the petition for probate is reversed
and set aside. It is directed to decide the case on the merits in the light of the parties' evidence.
No costs.
RATIO:
1. We hold that the lower court manifestly erred in declaring that, because no
documentary stamp was affixed to the will, there was "no will and testament to
probate" and, consequently, the alleged "action must of necessity be dismissed".
What the probate court should have done was to require the petitioner or
proponent to affix the requisite thirty-centavo documentary stamp to the
notarial acknowledgment of the will which is the taxable portion of that
document.
2. That procedure may be implied from the provision of section 238 that the non-
admissibility of the document, which does not bear the requisite documentary stamp,
subsists only "until the requisite stamp or stamps shall have been affixed thereto and
cancelled."
3. Thus, it was held that the documentary stamp may be affixed at the time the taxable
document is presented in evidence. If the promissory note does not bear a
documentary stamp, the court should have allowed plaintiff's tender of a stamp to
supply the deficiency. Note the holding in Azarraga vs. Rodriguez, that the lack of
the documentary stamp on a document does not invalidate such document.

FACTS:
1. The probate of the will of the late Rogaciano Gabucan was dismissed in the CFI of
Camiguin, because the requisite documentary stamp was not affixed to the notarial
acknowledgment in the will, and hence, according to Judge Manta, it was not
admissible in evidence pursuant to Section 238 of the Tax Code, which states:
SEC. 238. Effect of failure to stamp taxable document. — An instrument, document, or paper
which is required by law to be stamped and which has been signed, issued, accepted, or
transferred without being duly stamped, shall not be recorded, nor shall it or any copy
thereof or any record of transfer of the same be admitted or used in evidence in anycourt
until the requisite stamp or stamps shall have been affixed thereto and cancelled.
No notary public or other officer authorized to administer oaths shall add his jurat or
acknowledgment to any document subject to documentary stamp tax unless the proper
documentary stamps are affixed thereto and cancelled.
2. The probate court assumed that this notarial acknowledgment of the will is subject
to the 30-centavo documentary stamp tax fixed in Section 225 of the Tax Code.
3. Petitioner moved for reconsideration, manifesting that he had already attached the
documentary stamp to the original of the will, but it was denied.
 016 RODRIGUEZ v. MARTINEZ (LEONG)
Sept. 29, 1905 | Mapa, J. | Failure to attach DST
PETITIONER: Francisco Rodriguez
RESPONDENTS: Francisco Martinez
SUMMARY: Martinez executed a promissory note on Oct 17, 1902, for the sum of 4,000
pesos, Mexican currency, payable to one Felipe C. Montalvo; that the said Montalvo, for
value received, sold and transferred the said promissory note to Rodriguez before maturity;
that Rodriguez received the same without notice of any conditions existing against the note;
that Rodriguez, before having the note, went to Martinez and asked him in respect thereto, and
was informed by him that the note was good and that he would pay the same at a discount; and
that the note was delivered by Martinez to the said Montalvo in payment of the gambling debt
which the Martinez owed Montalvo. This note was presented to the court as evidence of that
debt without the stamp required by law, and no stamp had ever been attached thereto. After
the trial Rodriguez offered to put the necessary stamp on the note, and tendered such stamp.
Issue: Whether the failure to attach a Documetary Stamp Tax (DST) invalidates the
promissory note? NO. As to the omission of the stamp required by law upon such documents,
this fact is not sufficient to invalidate the note sued upon; there is no such provision of law.
Section 11 of the royal decree reads as follows “Every note not stamped in accordance with
the provisions of the foregoing sections shall be null and void and will not be admitted in any
court or any Government office whatsoever, and will not have the efficacy inherent to
commercial instruments; this, however, will not bar a purely civil action which may be
brought in the manner, provided by law for the enforcement of civil obligations.” However,
Executive actions having been abolished by the enactment of the present Code of Civil
Procedure, the penalty provided in the section above quoted is practically of no importance in
this particular case. We do not know of any law which provides that the lack of a stamp on an
instrument of this kind can not be supplied. We are therefore of the opinion that the court
below should have allowed the plaintiff to supply this deficiency when he tendered the stamp
for that purpose.
DOCTRINE: The lack of DST attached in a document does not invalidate the note sued upon
as there is no such provision of law that invalidates it.
FACTS:
10. The judgment of the court below contains the following finding of facts: "The
evidence introduced at the trial shows that the defendant executed his promissory
note of the 17th of October, 1902, for the sum of 4,000 pesos, Mexican currency,
payable to one Felipe C. Montalvo; that the said Montalvo, for value received, sold
and transferred the said promissory note to the plaintiff before maturity; that the said
plaintiff received the same without notice of any conditions existing against the
note; that the plaintiff, before having the note, went to the defendant and asked him
in respect thereto, and was informed by him that the note was good and that he
would pay the same at a discount; and that the note was delivered by the defendant
to the said Montalvo in payment of the gambling debt which the defendant owed
Montalvo. This note was presented to the court as evidence of that debt without the
stamp required by law, and no stamp had ever been attached thereto. After the trial
the plaintiff offered to put the necessary stamp on the note, and tendered such
stamp."
11. These are the only facts which we shall take into consideration in deciding this case.
We must assume that they were duly established as found by the court below for the
reason that neither party moved for a new trial.
ISSUE/s:
2. Whether the failure to attach a Documetary Stamp Tax (DST) invalidates the
promissory note? NO. As to the omission of the stamp required by law upon such
documents, this fact is not sufficient to invalidate the note sued upon; there is no
such provision of law.
3. Whether the promissory note was indorsed validly? YES. (not the main issue for tax
2)
RULING: The judgment of the court below is hereby reversed, and the defendant ordered to
pay to the plaintiff the sum of 4,000 pesos, Mexican currency, or its equivalent in Philippine
currency, with legal interest at the rate of 6 per cent per annum from the 22d day of April,
1903, when the complaint in this action was filed, after first attaching to the said notice the
necessary stamp. The defendant shall pay the costs of the proceedings in the Court of First
Instance without express condemnation as to the costs of this instance.
After the expiration of twenty days let judgment be entered in accordance herewith and the
record be remanded to the Court of First Instance from whence it came for execution. So
ordered.
RATIO:
Issue 1
9. Ratio for holding re: Issue 1 As to the omission of the stamp required by law upon
such documents, this fact is not sufficient to invalidate the note sued upon; there is
no such provision of law. Section 11 of the royal decree of the 29th of May, 1894,
published in the Official Gazette in Manila on the 29th of July of the same year
provided, it is true, that such documents would be null and void unless they were
duly stamped, but this does not mean that such documents would be absolutely null
and void, but that no executive action could be brought upon them in accordance
with the laws then in force regarding mercantile documents. The provisions of that
section are so clear that they leave no room for doubt. It reads as follows: "Every
note not stamped in accordance with the provisions of the foregoing sections shall
be null and void and will not be admitted in any court or any Government office
whatsoever, and will not have the efficacy inherent to commercial instruments; this,
however, will not bar a purely civil action which may be brought in the manner,
provided by law for the enforcement of civil obligations."
10. In accordance with this provision, the note in question, not being stamped, did not
give the holder thereof the right to bring an executive action and could not,
therefore, be the basis of such an action; but it was a valid document in that it was
proof of a purely civil obligation and could be utilized as such in an ordinary action.
Executive actions having been abolished by the enactment of the present Code of
Civil Procedure, the penalty provided in the section above quoted is practically of no
importance in this particular case.
11. We do not know of any law which provides that the lack of a stamp on an
instrument of this kind can not be supplied. We are therefore of the opinion
that the court below should have allowed the plaintiff to supply this deficiency
 when he tendered the stamp for that purpose.

Issue 2
12. Without considering whether the game at which this debt was incurred is a
prohibited game or not, and in view of the fact that the judgment of the court below
contains no finding as to the name or nature of the game, which omission could
perhaps create the presumption in favor of the plaintiff, since article 1277 of the
Civil Code provides that the consideration of the contract must be presumed to be
lawful and valid until the contrary is proved; and without considering as we have
said these questions which we do not think necessary to discuss for the purposes of
this decision, yet there are other grounds upon which this case can be decided.

13. According to the facts set out in the judgment of the court below, the plaintiff
acquired the ownership of the note in question by virtue of its indorsement, he
having paid the value thereof to its former holder. He did so without being aware of
the fact that the note had an unlawful origin, since he was not given notice, as the
court found, of any conditions existing against the note. Furthermore, he accepted it
in good faith, believing the note was valid and absolutely good, and that the
defendant would not repudiate it for the reason that he, the defendant, had assured
him before the purchase of the note that the same was good and that he would it at a
discount. Without such assurance from the defendant we can hardly believe that the
plaintiff would have bought the note. It is thus inferred from the fact that he, the
plaintiff, inquired from the defendant about the nature of the note before accepting
its indorsement. These facts sufficiently show that the plaintiff bought the note upon
the statement of the defendant that the same had no legal defect and that he was
thereby induced to buy the same by the personal act of said defendant. In view of
this, we are of the opinion that the defendant can not be relieved from the obligation
of paying the plaintiff the amount of the note alleged to have been executed for an
unlawful consideration. If such unlawful consideration did in fact exist, the
defendant deliberately and maliciously concealed it from the plaintiff. Therefore, to
hold otherwise would be equivalent to permitting the defendant to go against his
own acts to the prejudice of the plaintiff. Such a holding would be contrary to the
most rudimentary principles of justice and law. Paragraph 1, section 333 of the Code
of Civil Procedure, which is applicable to this case, provides as follows: "Whenever
a party has, by his own declaration, act, or omission intentionally and deliberately
led another to believe a particular thing true, and to act upon such belief, he can not,
in any litigation arising out of such declaration, act, or omission, be permitted to
falsity it."
 017 Azarraga v. Rodriguez (LU)
January 18, 1908 | Torres J. | Documentary Stamp Tax
PETITIONER: Juan Azarraga as plaintiff-appellee
RESPONDENTS: Jose Rodriguez defendant-appellant
SUMMARY: This is an assignment of credit case where the assignee/new creditor is
enforcing obligation against the debtor. DST was only discussed in the ruling.
Jose Rodriguez (debtor) executed a document of indebtedness in favor of Regino Ramirez
(old creditor/assignor) where Rodriguez promises to pay 400.25 pesos, a partial amount
which Fr. Lesmes Perez owes Ramirez. Regino Ramirez (old creditor/assignor) assigned
the obligation to Juan Azarraga (new creditor/assignee). Jose Rodriguez (debtor) was
notified and consented to the assignment.
When the obligation became due, Azarraga demanded through a letter that Rodriguez pay
the obligation. Rodriguez promised to pay the obligation but various demands, Rodriguez
did not pay. This led the filing of an action before the CFI of Capiz. (Note: Documentary
Stamp Tax was no
CFI: Defendant Jose Rodriguez is adjudged to pay 400.25 pesos plus costs.
Relevant Issue: Whether the lack of documentary stamp tax in a documentary of
indebtedness invalidates the document – No. It merely subjects the violator to a fine.
Supreme Court ruled: With reference to the lack of a documentary stamp on the
document of indebtedness, the decree of May 16, 1886, and the instructions for its
application do not declare the nullity of any document unprovided with such stamp;
it limits itself, by article 82 thereof, to imposing a fine on whoever should violate the
decree by executing and issuing a document without a proper stamp. (Only relevant
to tax)
DOCTRINE: Non-attachment of documentary stamp tax does not nullify the document
but subjects the violator to a fine.
FACTS:
1. On June 19, 1905, Juan Azarraga (plaintiff-appellee) filed a complaint against Jose
Rodriguez (defendant-appellant) with the CFI of Capiz. Rodriguez was sentenced to
pay 400.25 pesos and legal interest with costs. Rodriguez appeals the case before the
SC.
2. On December 31, 1898, Jose Rodriguez (debtor) executed in favor of Regino Ramirez
(old creditor) a document where Jose Rodriguez bound himself to pay the amount of
400.25 pesos which Fr. Lesmes Perez owed Regino Ramirez on May 15, 1899.
a. "The undersigned hereby engages to pay Sr. Regino Ra mirez, a merchant
of this place, on the 15th day of May of the coming year 1899, the 400.25
pesos, four hundred pesos and twenty-five centimos, which Fr. Lesmes
Perez appears to owe him under the document indorsed in many favor on
this date. Capiz, December 31, 1898.—Jose Rodriguez."
3. In payment of Ramirez's debt to Juan Azarraga, the obligation was indorsed or
assigned by Region Ramirez (Assignor) to Juan Azarraga (Asignee), which
Rodriguez (debtor) consented to.
a. "I hereby indorse in favor of Sr. D. Juan Azarraga the above-stated
amount. Iloilo, June 15, 1901.—Regino Ramirez."
4. Azarraga (as new creditor) in 1901 wrote a letter to Rodriguez requesting that the
amount of 400.25 pesos where the Rodriguez (debtor) acknowledged his
indebtedness and engaging to pay the same.
5. For failing to heed the demand, Azarraga instituted the case before the CFI. Rodriguez
in his answer admitted the execution of the document but denied the other
allegations.
6. Defendant in his answer admitted the execution of the document but denied the other
allegations.
7. Rodriguez argues that the document was executed as a security for the accounts which
Fr. Perez had with Ramirez and that the indorsement was on the condition to return
the money on March 15, 1899 or to return the accounts if uncollected in exchange of
the document.
8. When the obligation became due, the parties involved are merchants (Azarraga,
Rodriguez, and the original creditor Regino Ramirez) are merchants. Thus, the
transaction is mercantile and the action has already prescribed pursuant to the Code
of Commerce.
ISSUE/s
1. Whether the transaction is mercantile – No. There’s no indication that the
transaction was mercantile in nature.
2. Whether the action has prescribed. – No. The prescriptive period of the Civil Code
governs and not of the Code of Commerce.
3. Whether the transaction is void – No. Cause or consideration is presumed.
4. Whether the lack of documentary stamp tax in a documentary of indebtedness
invalidates the document – No. It merely subjects the violator to a fine.
RULING: In view of the foregoing, and adopting the conclusions stated in the judgment
appealed from, it is our opinion that the same should be affirmed with costs against the
appellant, provided, however, that the defendant, Jose Rodriguez, shall pay legal interest
from the time when the complaint was filed with the court of the justice of the peace, and it
is so ordered.
RATIO
1. At the time when the complaint was filed with the court of the justice of the peace,
the date fixed for the fulfillment of the obligation, namely, the 15th of May, 1899,
had long since passed without the obligated party, Rodriguez, hav ing paid
Azarraga, the transferee, the 400.25 pesos which, under the said document of
indebtedness, he had engaged to pay, notwithstanding the fact that he was informed
of the cession or transfer thereof, and demand had been made upon him therefor.
And, furthermore, as alleged, after the defendant had been sentenced by the justice
of the peace to pay the said amount, he, without legal reasons, and with excessive
temerity, still ventured to appeal in a second and third instance, with the evident
intent to evade the fulfillment of a valid obligation, the date for the pay ment of
which was overdue and payment therefore demandable, inasmuch as the defendant
can be compelled to pay the said amount. The document is clear and there was no
condition in the document.
2. The transaction carried out is logical and perfectly legal; if by reason of the transfer
Rodriguez became the owner of the credit of 40U.25 pesos held by Ramirez against
Fr. Les mes, it is proper that he should in turn execute in favor of the assigning
creditor a document Whereby he bound himself to pay the amount transferred on a
certain date; said credit was subsequently transferred to the plaintiff, a transfer of
rights authorized by article 1112 of the Civil Code, and furthermore involving a
novation of the original obligation, Rodriguez substituting the debtor, Fr. Lesmes
Perez, and subrogating Azarraga to Ramirez, the original creditor. (Arts. 1203, 1205,
1212, Civil Code.)
3. It has not been proved that the claim of Ramirez against Fr. Lesmes arose from
mercantile operations, nor that the obligation contracted by Rodriguez, Jin favor of
the first named, originated from an act of commerce and for mercantile purposes;
neither does the said document ap pear as having been issued payable to order as
required by articles 311 and 532 of the Code of Commerce; for said reason the
document marked "A" is not of a mercantile character, and its nature and conditions
are subject to the provisions of the Civil Code.
4. As for the rest, the assignment or transfer of the credit in question, made by
Ramirez, the creditor, is perfectly valid, and notwithstanding the fact that the cause
or consideration for the transfer is not stated in the indorse ment, it must be
presumed that one exists and that it is a lawful one, unless the debtor should prove
the contrary, which he has not done in this case. (Arts. 1274, 1277, Civil Code.)
5. With reference to the lack of a documentary stamp on the document of
indebtedness, the decree of May 16, 1886, and the instructions for its
application do not declare the nullity of any document unprovided with such
stamp; it limits itself, by article 82 thereof, to imposing a fine on whoever
should violate the decree by executing and issuing a document without a proper
stamp.