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Estates and Trusts CIR vs CA

CIR vs VISAYAN ELECTRIC CO - The GCL Retirement Plan is an employees’ trust which
Facts provides retirement, pension, and other benefits
- Visayan Electric Co. established a pension fund for the - GCL made investments and earned therefrom interest
benefit of its employees income
- The fund was later invested in stocks of San Miguel - This income was assessed 15% withholding final tax
Brewery, for which dividends had been regularly received. - GCL claims tax exemption, based on Sec 56(b) of Tax Code
These dividends, however, were not declared for tax —employees’ trusts are exempt from income tax
purposes - CIR denied exemption, based on PD 1959 which deleted
- The Provincial Auditor allowed VEC to declare the dividends provisions on tax exemption and preferential tax rates
as income for franchise tax purposes, thus tax exempt
- The Revenue Examiner, however, argued that the dividend Decision
were subject to corporate income tax - PD 1959 is a general law which cannot repeal by implication
Sec 56(b) of Tax Code which is a specific law
Decision - Tax Code clearly exempts employees’ trusts from
- The dividends were not income of VEC. They do not go to withholding tax. The reason for this is to promote the
the general fund of the company formation and establishment of employees’ trusts funds for
- The dividends were part of the pension fund which was the benefit of workers
solely for the benefit of the employees - Employees’ trust fund—an independent and additional
- To qualify for exemption, the employees’ trust (pension) source of protection for the working group. Moreover, it is
fund must refer to a definite program, scheme, or plan. It established for their exclusive benefit and for no other
must be set up in good, actuarially sound, and not to be purpose
used or controlled in any way by the company. It must
extend retirement and pension benefits for the employees
- Unquestionably, the VEC pension fund was created in good III.A Exempt individuals under tax treaty
faith. It was meant for the benefit of the employees
- There are, however, no sufficient data which would justify REAGAN vs CIR
the Court to make a conclusive statement that the VEC Facts
pension fund qualifies as a trust under the Tax Code. 1) - Reagan is an employee of an American firm that provides
The requirements for the formation of employees’ trust technical assistance to the US Air Force in the Philippines
funds for pension had not been strictly complied with—e.g., - Reagan imported an automobile to the Philippines and sold
the only record evidence of its creation is the minutes of a it to Johnson, a US Air Force member. Johnson, in turn, sold
board meeting; 2) No record to show that the fund was the automobile to a Filipino
actuarially sound - The transaction took place in Clark Field Air Base in
- Absent such data, the dividends are not tax exempt. Pampanga
Reason: Exemptions in tax statutes are never presumed. - For the profit realized from the sale, the CIR imposed on
Reagan an income tax
- Reagan decried the imposition, citing the opinion of Justice
Tuason in the Saura Case: “Transactions done in army
bases within the Philippines are contemplated to have been Decision
conducted on a US soil, thus tax exempt” - The RP-US Bases Agreement is very clear: to avail oneself of
tax exemption, one must be a national of US, employed in
Decision the naval base, and residing in the Philippines
- J. Tuason’s opinion was merely an obiter—not binding—and - Robertson et al meet all said requirements, therefore tax
was overturned in the 1962 Co Po case exempt
- The Philippines is an independent and sovereign state—its
authority may be exercised over its entire domain, where
there is no portion that is beyond its power III.B Exempt Corporations
- Although, under the concept of auto-limitation, state may
choose to limit its exercise of sovereignty over certain CIR vs SINCO
parts of its territory Facts
- Still, the auto-limited part remains a native soil—still subject - The VG Sinco Educational Institution is a non-stock, non-
to authority of the state. Jurisdiction may diminish but does profit corporation which was established to operate the
not disappear Foundation College of Dumaguete
- Clark Air Force is not a foreign territory for purposes for - CIR assessed the College an income tax on the following
income tax legislation—this power of taxation by the grounds: 1) Sinco personally received benefits from it; 2)
Philippines is preserved in the Military Bases Agreement Community Publishers, a stockholder, profits from it; 3) It
- The Agreement merely states that a US national serving or charges tuition fee; 4) It acquired buildings and other
employed in connection with the construction, property which will redound to the benefit of stockholders
maintenance, or operation of the military bases in the after dissolution of the corporation
Philippines is tax exempt unless the income is derived from - Sinco argued that under the NIRC, corporation organized
Philippine source or sources. In the sale of the automobile, and maintained exclusively for educational purposes and
the source was clearly the Philippines. Reagan is liable for no part of its net income inures to the benefit of any
the income tax. private individual

- VG Sinco Educational Institution is tax exempt
CIR vs ROBERTSON - The corporation has never distributed any dividends to its
Facts stockholders
- Robertson et al are American citizens (although some of - Remuneration for services rendered to the College is
them were born in the Philippines) employed at the US allowed by law. This covers the money given to Sinco (as
Naval Base in Subic Bay salary) and Community Publishers (for services)
- CIR claims Robertson et al should be imposed income taxes - Tuition fee is the only source of income to ensure that the
because they were in the Philippines not solely for College will keep its operations going—allowed by law
employment. Some of them were retired from the Federal - That the buildings and other property acquired by the
Civil Service and were living with their respective families corporation will benefit the stockholders upon dissolution—
here, while the others owned residential properties here too speculative
CIR vs CA (Oct 14, 1998) - Contract of sale requires transfer of ownership. Research
Facts data obtained by IPC remain with Ateneo, not transferred
- YMCA is a non-stock, non-profit corporation which conducts to the funding agency
various programs and activities that are beneficial to the - The research activity of Ateneo/IPC is in pursuance of
public. It leased out portions of its premises to small shop maintaining its academic integrity and of its university
owners and for parking slots status
- The CIR assessed against YMCA income tax for the profits it - Ateneo’s motive for doing research is not profits but public
earned from leasing out portions of its premises service (for education)
- YMCA claimed exemption for being one of the
organizations listed in Sec 27 of the NIRC and Art VI of the
1987 Constitution IV. Gross Income. A. Income from Whatever Source


- Under the NIRC, YMCA is exempt from the payment of Facts
property tax but not tax exempt from the profits it - In the period that the CIR assessed against BOAC income
earned from leasing out portions of its premise tax, BOAC had no landing rights for traffic purposes in the
- A reading from Sec 27 of the NIRC shows that the income Philippines. Consequently, it did not carry passengers
from any property of exempt organization, as well as that and/or cargo to and from the Philippines
arising from any activity it conducts for profit, is taxable - During the same period, however, BOAC maintained a
- Art VI of the Constitution exempts from payment of tax general sales agent in the Philippines which was
charitable, religious, educational institutions. Exemption responsible for selling BOAC tickets covering passengers
here applies only to property tax. Besides, YMCA is not a and cargoes
school or an educational institution - BOAC argued that the proceeds of sales of its passage
tickets in the Philippines do not constitute income from
Philippine sources since BOAC did not perform any service
CIR vs CA (Apr 18, 1997) of cargoes or passengers within the Philippines
- The Institute of Philippine Culture (IPC) is an auxiliary unit of Decision
the Ateneo de Manila University. Occasionally, IPC accepts - Gross income: includes gains, profits, and income derived
sponsorships from foreign international organizations for its from salaries, wages, or compensation for personal service
research activities of whatever kind and in whatever form paid, or from
- The CIR assessed a contractor’s tax against Ateneo, profession, vocations, trades, business, commerce, sales,
claiming that it—through IPC—is an independent contractor or dealings in property, whether real or personal, growing
selling its research to foreign organizations out of the ownership or use of or interest in such property;
also from interests, rents, dividends, securities, or the
Decision transactions of any business carried on for gain or profit, or
- Ateneo is not an independent contractor and, therefore, tax gains, profits, and income derived from any source
exempt whatever
- Ateneo does not sell its services for a fee. The funds it - The phrase “income from any source whatever” discloses a
receives for its research activities are technically not a fee legislative policy to include all income not expressly
but a gift, a donation
exempted within the class of taxable income under our - In her income tax return, Javier stated in a footnote that she
laws received $1M by mistake and therefore not subject to tax
- BIR, however, imposed a 50% fraud penalty against Javier


Facts - Fraudulent return is always considered an evasion of tax,
- Standard Oil, to readjust its capitalization, issued additional but a false return is not necessarily so
shares sufficient to constitute a stock dividend of 50% of - It can hardly be said that there was actual and intentional
the outstanding stock. Accordingly, the new stock was fraud on the part of Javier to induce the government to not
divided among the stockholders assess against her tax liabilities
- Macomber, being an owner of the old stock, received - Javier received money from abroad which she presumed to
certificates for the additional shares be a gift and spent some of it. That it turned out to be an
- Macomber was then imposed tax arising from the income error or mistake of fact cannot constitute fraud
supposedly derived from the additional shares - Fraud must be intentional, consisting of deception willfully
and deliberately done or resorted to in order to induce
Decision another to give up some legal right
- In income, the essential matter is not a gain accruing to - Javier did no such thing, 50% fraud penalty against should
capital, not a growth or increment of value in the be deleted
investment, BUT a gain, a profit, something of
exchangeable value, proceeding from the property,
severed from the capital, however invested or employed, CIR vs JAPAN AIRLINES
and coming in, being derived—that is, received or drawn by Facts
the taxpayer for his separate use, benefit, and disposal— - I957: JAL constituted PAL as its general sales agent in the
that is income derived from property Philippines, whereby PAL sold for and in behalf of JAL plane
- So is stock dividend an income, therefore, taxable? tickets and reservations for cargo spaces
- Far from being a realization of profits, stock dividend tends - 1959-1963: JAL did not have planes that landed or lifted
rather to postpone such realization. It merely shows that passengers and cargoes in the Philippines—having had no
the company’s accumulated profits have been capitalized CPCN (certificate of public convenience and necessity)
instead of distributed to the stockholders - CIR assessed against JAL deficiency income tax for the years
- The essential controlling fact is that the stockholder 1959-1963
received nothing out of the company’s assets for his - JAL protested, claiming it was a non-resident foreign
separate use and benefit corporation and, therefore, taxable only on income from
- Macomber not liable to income tax Philippine sources

Situs of Income - For CIR. The Court adopted the BOAC doctrine: “The source
of an income is the property, activity, or service that
CIR vs JAVIER produced the income. For the source of income to be
Facts considered as coming from the Philippines, it is sufficient
- Because of clerical error, $1M was transmitted to Javier’s
account at the Prudential Bank
that the income is derived from an activity within the
- When JAL constituted PAL as its sales agent, there is no
doubt that JAL is a resident foreign corporation doing
business in the Philippines. Sale of plane tickets, after all, is
the very lifeblood of the airline industry


Facts: supra

- BOAC is a resident foreign corporation subject to tax upon
its total net income received from all sources within the
- It was engaged in business in the Philippines through a local
agent during the period covered by the assessments
- The source of an income is the property, activity, or service
that produced the income. For the source of income to be
considered as coming from the Philippines, it is sufficient
that the income is derived from an activity within the