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CONWI VS CTA at source.

The Soriano Estate definitely profited from the redemption

and such profit is taxable, and again, ASC had the duty to withhold the
Issue: What exchange rate should be used to determine the peso tax.
equivalent of the foreign earnings of petitioners for income tax
purposes? The three elements in the imposition of income tax are: (1) there must
be gain or and profit, (2) that the gain or profit is realized or received,
This basically an income tax case. For the proper resolution of these actually or constructively, and (3) it is not exempted by law or treaty
cases income may be defined as an amount of money coming to a from income tax.
person or corporation within a specified time, whether as payment for
services, interest or profit from investment. Unless otherwise specified, Any business purpose as to why or how the income was earned by the
it means cash or its equivalent. Income can also be though of as flow of taxpayer is not a requirement. Income tax is assessed on income
the fruits of one's labor. received from any property, activity or service that produces the
income because the Tax Code stands as an indifferent neutral party on
Section 21 of the National Internal Revenue Code, amended up to the matter of where income comes from.
August 4, 1969, states as follows:
As stated above, the test of taxability under the exempting clause of
Sec. 21. Rates of tax on citizens or residents. A tax is hereby imposed Section 83(b) is, whether income was realized through the redemption
upon the taxable net income received during each taxable year from all of stock dividends. The redemption converts into money the stock
sources by every individual, whether a citizen of the Philippines dividends which become a realized profit or gain and consequently, the
residing therein or abroad or an alien residing in the Philippines stockholders separate property. Profits derived from the capital
invested cannot escape income tax. As realized income, the proceeds of
Petitioners forget that they are citizens of the Philippines, and their the redeemed stock dividends can be reached by income taxation
income, within or without, and in these cases wholly without, are regardless of the existence of any business purpose for the redemption.
subject to income tax. Sec. 21, NIRC, as amended, does not brook any

The dismissal by the respondent Court of Tax Appeals of petitioners' ISSUE: Whether the 20% FWT Forms Part of the Taxable Gross
claims for tax refunds for the income tax period for 1970 and 1971 is Receipts.
AFFIRMED. Costs against petitioners.
Petitioner claims that although the 20% FWT on respondents interest
CIR VS BRITISH AIRWAYS income was not actually received by respondent because it was
remitted directly to the government, the fact that the amount
ISSUE: Whether the revenue derived by BOAC from ticket sales in the redounded to the banks benefit makes it part of the taxable gross
Philippines, constitute income of BOAC from Philippine sources, and receipts in computing the 5% GRT.
accordingly taxable.
The Court ruled in favor of Petitioner.
The source of an income is the property, activity, or service that
produced the income. For the source of income to be considered as A perusal of these provisions clearly shows that two types of taxes are
coming from the Philippines, it is sufficient that the income is derived involved in the present controversy: (1) the GRT, which is a percentage
from activity within the Philippines. Herein, the sale of tickets in the tax; and (2) the FWT, which is an income tax. As a bank, petitioner is
Philippines is the activity that produced the income. The tickets covered by both taxes.
exchanged hands here and payment for fares were also made here in
A percentage tax is a national tax measured by a certain percentage of
the Philippine currency.
the gross selling price or gross value in money of goods sold, bartered
The situs of the source of payments is the Philippines. The flow of or imported; or of the gross receipts or earnings derived by any person
wealth proceeded from, and occurred within Philippine territory, engaged in the sale of services. It is not subject to withholding.
enjoying the protection accorded by the Philippine government. In
An income tax, on the other hand, is a national tax imposed on the net
consideration of such protection, the flow of wealth should share the
or the gross income realized in a taxable year. It is subject to
burden of supporting the government. PD 68, in relation to PD 1355,
ensures that international airlines are taxed on their income from
Philippine sources. The 2 1/2% tax on gross billings is an income tax. If
In a withholding tax system, the payee is the taxpayer, the person on
it had been intended as an excise tax or percentage tax, it would have
whom the tax is imposed; the payor, a separate entity, acts as no more
been placed under Title V of the Tax Code covering taxes on business.
than an agent of the government for the collection of the tax in order to
ensure its payment. Obviously, this amount that is used to settle the tax
liability is deemed sourced from the proceeds constitutive of the tax
ISSUE: Whether the argument of ASC which avers that it is not duty base. These proceeds are either actual or constructive. Both parties
bound to withhold tax from the estate because it redeemed the said herein agree that there is no actual receipt by the bank of the amount
shares for purposes of Filipinization of ASC and also to reduce its withheld.
remittance abroad is correct.

No. The reason behind the redemption is not material. The proceeds
from a redemption is taxable and ASC is duty bound to withhold the tax
Regarding Constructive Receipt in his bid for a senatorial seat, cannot be considered as a material
consideration so as to negate a donation.
In our withholding tax system, possession is acquired by the payor as
the withholding agent of the government, because the taxpayer ratifies CIR VS BPI (JUNE 26 2006)
the very act of possession for the government. There is thus
constructive receipt. ISSUE: whether the 20% final tax on a bank's passive income, withheld
from the bank at source, still forms part of the bank's gross income for
The processes of bookkeeping and accounting for interest on deposits the purpose of computing its gross receipts tax liability.
and yield on deposit substitutes that are subjected to FWT are
tantamount to delivery, receipt or remittance. As commonly understood, the term "gross receipts" means the entire
receipts without any deduction. In its usual and ordinary meaning
MOBIL VS CITY TREASURER OF MAKATI "gross receipts" of a business is the whole and entire amount of the
receipts without deduction.
Business taxes imposed in the exercise of police power for regulatory
purposes are paid for the privilege of carrying on a business in the year The exclusion of the 20% final tax on passive income from the
the tax was paid. It is paid at the beginning of the year as a fee to allow taxpayer's tax base is effectively a tax exemption, the application of
the business to operate for the rest of the year. It is deemed a which is highly disfavored. The rule is that whoever claims an
prerequisite to the conduct of business. exemption must justify this right by the clearest grant of organic or
statute law. Like the other banks who have asserted a right tantamount
Income tax, on the other hand, is a tax on all yearly profits arising from to exception under these circumstances, BPI has failed to present a
property, professions, trades or offices, or as a tax on a persons clear statutory basis for its claim to take away the interest income
income, emoluments, profits and the like. It is tax on income, whether withheld from the purview of the levy on gross tax receipts.
net or gross realized in one taxable year. It is due on or before the 15th
day of the 4th month following the close of the taxpayers taxable year Note: Same logic as SOLIDBANK.
and is generally regarded as an excise tax, levied upon the right of a
person or entity to receive income or profits. CYANAMID VS CA

CIR VS CA & CASTANEDA To determine the reasonable needs of the business in order to justify an
accumulation of earnings, the Courts of the United States have invented
ISSUE: Whether or not terminal leave pay received by a government the so-called Immediacy Test which construed the words reasonable
official or employee on the occasion of his compulsory retirement from needs of the business to mean the immediate needs of the business,
the government service is subject to withholding (income) tax. and it was generally held that if the corporation did not prove an
immediate need for the accumulation of the earnings and profits, the
No. The Court has already ruled that the terminal leave pay received by accumulation was not for the reasonable needs of the business, and the
a government official or employee is not subject to withholding penalty tax would apply.
(income) tax.
Furthermore, the accumulated profits must be used within a
In fine, not being part of the gross salary or income of a government reasonable time after the close of the taxable year. In the instant case,
official or employee but a retirement benefit, terminal leave pay is not petitioner did not establish, by clear and convincing evidence, that
subject to income tax. such accumulation of profit was for the immediate needs of the
ISSUE: Whether Electoral contributions are subject to donors tax.
ISSUE: Whether income tax should not be treated as operating
Thus, reference may be made to the definition of a donation in the Civil expense as this should be borne by the stockholders who are recipients
Code. Article 725 of said Code defines donation as an act of liberality of the income or profits realized from the operation of their business
whereby a person disposes gratuitously of a thing or right in favor of hence, should not be passed on to the consumers.
another, who accepts it.
The ERB correctly ruled that income tax should not be included in the
Donation has the following elements: (a) the reduction of the patrimony computation of operating expenses of a public utility. Income tax paid
of the donor; (b) the increase in the patrimony of the donee; and, (c) the by a public utility is inconsistent with the nature of operating expenses.
intent to do an act of liberality or animus donandi. In general, operating expenses are those which are reasonably
incurred in connection with business operations to yield revenue or
The present case falls squarely within the definition of a donation.
income. They are items of expenses which contribute or are
There was intent to do an act of liberality or animus donandi was
attributable to the production of income or revenue. As correctly put
present since each of the petitioners gave their contributions without
by the ERB, operating expenses should be a requisite of or necessary in
any consideration.
the operation of a utility, recurring, and that it redounds to the service
This Court reiterates that donative intent is not negated by the or benefit of customers.
presence of other intentions, motives or purposes which do not
Income tax, it should be stressed, is imposed on an individual or entity
contradict donative intent. In fine, the purpose for which the sums of
as a form of excise tax or a tax on the privilege of earning income. In
money were given, which was to fund the campaign of Senator Angara
exchange for the protection extended by the State to the taxpayer, the


government collects taxes as a source of revenue to finance its This being so, the payment of a bonus to them out of the gain realized
activities. Clearly, by its nature, income tax payments of a public utility from the sale cannot be considered as a selling expense; nor can it be
are not expenses which contribute to or are incurred in connection deemed reasonable and necessary so as to make it deductible for tax
with the production of profit of a public utility. Income tax should be purposes.
borne by the taxpayer alone as they are payments made in exchange
for benefits received by the taxpayer from the State. Thus, the extraordinary and unusual amounts paid by Aguinaldo to
these directors in the guise and form of compensation for their
No benefit is derived by the customers of a public utility for the taxes supposed services as such, without any relation to the measure of their
paid by such entity and no direct contribution is made by the payment actual services, cannot be regarded as ordinary and necessary
of income tax to the operation of a public utility for purposes of expenses within the meaning of the law.
generating revenue or profit.
Accordingly, the burden of paying income tax should be Meralcos alone
and should not be shifted to the consumers by including the same in the In said case, we held that for debts to be considered as worthless,
computation of its operating expenses. and thereby qualify as bad debts making them deductible, the taxpayer
should show that:
(1) there is a valid and subsisting debt; (2) the debt must be actually
ISSUE (1): Whether margin fees are taxes. ascertained to be worthless and uncollectible during the taxable year; (3)
the debt must be charged off during the taxable year; and (4) the debt
ISSUE (2): Whether margin fees are necessary and ordinary business must arise from the business or trade of the taxpayer. Additionally,
expenses. before a debt can be considered worthless, (5) the taxpayer must also
show that it is indeed uncollectible even in the future.
(1) No. A tax is levied to provide revenue for government operations,
while the proceeds of the margin fee are applied to strengthen our Furthermore, there are steps outlined to be undertaken by the
country's international reserves. The margin fee was imposed by the taxpayer to prove that he exerted diligent efforts to collect the debts,
State in the exercise of its police power and not the power of taxation. viz: (1) sending of statement of accounts; (2) sending of collection
letters; (3) giving the account to a lawyer for collection; and (4) filing a
(2) No. Ordinarily, an expense will be considered 'necessary' where collection case in court.
the expenditure is appropriate and helpful in the development of the
taxpayer's business. It is 'ordinary' when it connotes a payment which CHINABANK VS CA (JULY 19 2000)
is normal in relation to the business of the taxpayer and the
surrounding circumstances. ISSUE: Whether or not the investment should be classified as a capital
Since the margin fees in question were incurred for the remittance of
funds to Esso's Head Office in New York, which is a separate and Yes. Section 29.d.4.B of the NIRC contains provisions on securities
distinct income taxpayer from the branch in the Philippines, for its becoming worthless. It conveys that capital loss normally requires the
disposal abroad, it can never be said therefore that the margin concurrence of 2 conditions:
fees were appropriate and helpful in the development of Esso's
business in the Philippines exclusively or were incurred for a) there is a sale or exchange; and
purposes proper to the conduct of the affairs of Esso's branch in the b) b) the thing sold or exchanges is a capital asset
Philippines exclusively or for the purpose of realizing a profit or of
minimizing a loss in the Philippines exclusively. If at all, the margin When securities become worthless, there is strictly no sale or exchange
fees were incurred for purposes proper to the conduct of the corporate but the law deems it to be a loss. These are allowed to be deducted only
affairs of Esso in New York, but certainly not in the Philippines. to the extent of capital gains and not from any other income of the
taxpayer. A similar kind of treatment is given by the NIRC on the
AGUINALDO VS CIR retirement of certificates of indebtedness with interest coupons or in
registered form, short sales and options to buy or sell property where
ISSUE: Whether the bonus given to the officers of the petitioner upon no sale or exchange strictly exists. In these cases, The NIRC dispenses
the sale of its Muntinlupa land is an ordinary and necessary business with the standard requirements.
expense deductible for income tax purposes.
There is ordinary loss when the property sold is not a capital asset.
In general, only those ordinary and necessary expenses paid or
incurred during the taxable year in carrying on any trade or business, CIR VS GENERAL FOODS
including a reasonable allowance for personal services actually
rendered can be claimed as a deductible. The bonus given to the ISSUE: Whether or not the subject media advertising expense for Tang
officers of the Aguinaldo Industries as their share of the profit realized incurred by respondent corporation was an ordinary and necessary
from the sale of the land cannot be deemed a deductible expense for expense fully deductible under the NIRC.
tax purposes, even if the aforesaid sale could be considered as a
NO. It is a governing principle in taxation that tax exemptions must be
transact ion for Carrying on the trade or business of the Aguinaldo
construed in strictissimi juris against the taxpayer and liberally in
Industries and the grant of the bonus to the corporate officers
favor of the taxing authority; and he who claims an exemption must be
pursuant to Aguinaldo Industries by -laws could, as an intra-corporate
able to justify his claim by the clearest grant of organic or statute law.
matter, be sustained.
An exemption from the common burden cannot be permitted to exist
upon vague implications.

Deductions for income tax purposes partake of the nature of tax

exemptions; hence, if tax exemptions are strictly construed, then
deductions must also be strictly construed.

To be deductible, an advertising expense should not only be necessary

but also ordinary. The Court finds the subject expense for the
advertisement of a single product to be inordinately large. Therefore,
even if it is necessary, it cannot be considered an ordinary expense
deductible under then Section 29 (a) (1) (A) of the NIRC.


ISSUE: Is the income derived from rentals of real property owned by

the Young Mens Christian Association of the Philippines, Inc. (YMCA)
established as a welfare, educational and charitable non-profit
corporation -- subject to income tax under the National Internal
Revenue Code (NIRC) and the Constitution?

Income of whatever kind and character of non-stock non-profit

organizations from any of their properties, real or personal, or from
any of their activities conducted for profit, regardless of the disposition
made of such income, shall be subject to the tax imposed under the

Rental income derived by a tax-exempt organization from the lease of

its properties, real or personal, is not exempt from income taxation,
even if such income is exclusively used for the accomplishment of its