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G.R. No.

L-53961 June 30, 1987




The National Development Company (NDC) entered into contracts in Tokyo with several Japanese shipbuilding
companies for the construction of 12 ocean-going vessels. Initial payments were made in cash and through irrevocable
letters of credit. When the vessels were completed and delivered to the NDC in Tokyo, the latter remitted to the
shipbuilders the amount of US$ 4,066,580.70 as interest on the balance of the purchase price. No tax was withheld.
The Commissioner then held the NDC liable on such tax in the total sum of P5,115,234.74. Negotiations followed but
failed. NDC went to CTA. BIR was sustained by CTA. BIR was sustained by CTA. Hence, this petition for certiorari.

ISSUE: WON the Tokyo shipbuilders are subject to tax?

The law specifies: interest derived from sources within the Philippines, and interest on bonds, notes, or other interest-
bearing obligation of resident, corporate or otherwise. Nothing there speak of the 'acts or activity' of non-residential
corporation in the Philippines, or place where the contract is signed.

The residence of the obligor who pays the interest rather than the physical location of the securities, bonds or notes or
the place of payment, is the determining factor of the source of interest income. Accordingly, if the obligor is a resident
of the Philippines the interest payment paid by him can have no other source than within the Philippines. The interest
is paid not by the bond note or other interest-bearing obligations, but by the obligor.

G.R. No. L-17518 October 30, 1922

FREDERICK C. FISHER, plaintiff-appellant,

WENCESLAO TRINIDAD, Collector of Internal Revenue, defendant-appellee.


Facts: Philippine American Drug Company was a corporation duly organized and existing under the laws of the
Philippine Islands, doing business in the City of Manila. Fisher was a stockholder in said corporation. Said corporation,
as result of the business for that year, declared a "stock dividend" and that the proportionate share of
said stock divided of Fisher was P24,800. Said the stock dividend for that amount was issued to Fisher. For this reason,
Trinidad demanded payment of income tax for the stock dividend received by Fisher. Fisher paid under protest the sum
of P889.91 as income tax on said stock dividend. Fisher filed an action for the recovery of P889.91. Trinidad demurred
to the petition upon the ground that it did not state facts sufficient to constitute cause of action. The demurrer was
sustained and Fisher appealed.

Issue: Whether or not the stock dividend was an income and therefore taxable.

Held: No. Generally speaking, stock dividends represent undistributed increase in the capital of corporations or firms,
jointstock companies, etc., etc., for a particular period. The inventory of the property of the corporation for particular
period shows an increase in its capital, so that the stock theretofore issued does not show the real value of the
stockholder's interest, and additional stock is issued showing the increase in the actual capital, or property, or assets of
the corporation.

In the case of Towne vs. Eisner, income was defined in an income tax law to mean cash or its equivalent, unless it is
otherwise specified. It does not mean unrealized increments in the value of the property. A stock dividend really takes
nothing from the property of the corporation, and adds nothing to the interests of the shareholders. Its property is
not diminished and their interest are not increased. The proportional interest of each shareholder remains the same. In
short, the corporation is no poorer and the stockholder is no richer then they were before.

In the case of Doyle vs. Mitchell Bros. Co. (247 U.S., 179), Mr. Justice Pitney, said that the term "income" in its natural
and obvious sense, imports something distinct from principal or capital and conveying the idea of gain or increase
arising from corporateactivity.

In the case of Eisner vs. Macomber (252 U.S., 189), income was defined as the gain derived from capital, from labor,
or from both combined, provided it be understood to include profit gained through a sale or conversion of capital

G.R. No. L-12287 August 7, 1918

VICENTE MADRIGAL and his wife, SUSANA PATERNO, plaintiffs-appellants,

JAMES J. RAFFERTY, Collector of Internal Revenue, and VENANCIO CONCEPCION, Deputy Collector of
Internal Revenue, defendants-appellees.



Vicente Madrigal and Susana Paterno were legally married and have conjugal partnership. Madrigal filed his total net
income for the year is P296,302.73. Madrigal submitted the claim that the said total net income did not represent his
income for the year 1914, but was in fact the income of the conjugal partnership existing between himself and his wife,
and the computing and assessing the additional income tax provided by the Act of Congress of Oct. 3, 1913, the
income declared by Madrigal and the other half of Paterno. The spouses brought action against CIR for the recovery of
the sum P3,786.08. The burden of the complaint was that if the income tax for the year 1914 had been correctly and
lawfully computed there would have been due payable by each of the plaintiff the sum of P2,921.09, which taken
together amount of P5842.18 instead of P9,668.21.

Issue: WON the additional income tax should be divided into equal parts because of the conjugal partnership existing
between them?


NO. Paterno has an inchoate right in the property of her husband Madrigal during the lifetime of the conjugal
property. She has an interest in the ultimate ownership of property acquired as income of the conjugal partnership. Not
being seized of the separate estate, Paterno cannot make a separate return in order to receive the benefit of the
exemption which would arise by reason of the additional tax. As she has no estate or income, actually and legally
vested in her and entirely distinct from her husband property, the income cannot properly be considered the separate
income of the wife for the purpose of the additional tax. The income tax law does not look on the spouses as individual
partners in an ordinary partnership.

The higher schedules of the additional tax directed at the incomes of the wealthy may not be partially defeated by
reliance on provisions in our Civil Code dealing with the conjugal partnership and having no application to the Income
Tax Law.
G.R. No. 48532 August 31, 1992


SOQUES, petitioners,


Facts: Petitioners are employees of Procter and Gamble (Philippine Manufacturing Corporation, subsidiary of Procter
& Gamble, a foreign corporation).During the years 1970 and 1971, petitioners were assigned to other subsidiaries of
Procter & Gamble outside the Philippines, for which petitioners were paid US dollars as compensation.

Petitioners filed their ITRs for 1970 and 1971, computing tax due by applying the dollar-to-peso conversion based on
the floating rate under BIR Ruling No. 70-027. In 1973, petitioners filed amened ITRs for 1970 and 1971, this time
using the par value of the peso as basis. This resulted in the alleged overpayments, refund and/or tax credit, for which
claims for refund were filed.

CTA held that the proper conversion rate for the purpose of reporting and paying the Philippine income tax on the
dollar earnings of petitioners are the rates prescribed under Revenue Memorandum Circulars Nos. 7-71 and 41-71.
The refund claims were denied.

(1) Whether or not petitioners' dollar earnings are receipts derived from foreign exchange transactions; NO.

(2) Whether or not the proper rate of conversion of petitioners' dollar earnings for tax purposes in the prevailing free
market rate of exchange and not the par value of the peso; YES.

Held: For the proper resolution of income tax cases, income may be defined as an amount of money coming to a
person or corporation within a specified time, whether as payment for services, interest or profit from investment.
Unless otherwise specified, it means cash or its equivalent. Income can also be though of as flow of the fruits of one's

Petitioners are correct as to their claim that their dollar earnings are not receipts derived from foreign
exchange transactions. For a foreign exchange transaction is simply that a transaction in foreign exchange, foreign
exchange being "the conversion of an amount of money or currency of one country into an equivalent amount of
money or currency of another." When petitioners were assigned to the foreign subsidiaries of Procter & Gamble, they
were earning in their assigned nation's currency and were ALSO spending in said currency. There was no conversion,
therefore, from one currency to another.

The dollar earnings of petitioners are the fruits of their labors in the foreign subsidiaries of Procter & Gamble. It was a
definite amount of money which came to them within a specified period of time of two years as payment for their

And in the implementation for the proper enforcement of the National Internal Revenue Code, Section 338
thereof empowers the Secretary of Finance to "promulgate all needful rules and regulations" to effectively enforce its
provisions pursuant to this authority, Revenue Memorandum Circular Nos. 7-71 and 41-71 were issued to prescribed a
uniform rate of exchange from US dollars to Philippine pesos for INTERNAL REVENUE TAX PURPOSES for the years
1970 and 1971, respectively. Said revenue circulars were a valid exercise of the authority given to the Secretary
of Finance by the Legislature which enacted the Internal Revenue Code. And these are presumed to be a
valid interpretation of said code until revoked by the Secretary of Finance himself.

Petitioners are citizens of the Philippines, and their income, within or without, and in these cases wholly without, are
subject to income tax. Sec. 21, NIRC, as amended, does not brook any exemption.
G.R. No. 78953 July 31, 1991





In 1977, Victoria Javier received a $1 Million remittance in her bank account from her sister abroad, Dolores Ventosa.
Melchor Javier, Jr., the husband of Victoria immediately withdrew the said amount and then appropriated it for himself.
Later, the Mellon Bank, a foreign bank in the U.S.A. filed a complaint against the Javiers for estafa. Apparently,
Ventosa only sent $1,000.00 to her sister Victoria but due to a clerical error in Mellon Bank, what was sent was the $1
Meanwhile, Javier filed his income tax return. In his return, he place a footnote which states:
Taxpayer was recipient of some money received from abroad which he presumed to be a gift but turned out to be an
error and is now subject of litigation.
The Commissioner of Internal Revenue (CIR) then assessed Javier a tax liability amounting to P4.8 Million. The CIR
also imposed a 50% penalty against Javier as the CIR deemed Javiers return as a fraudulent return.
ISSUE: Whether or not Javier is liable to pay the 50% penalty.
HELD: No. It is true that a fraudulent return shall cause the imposition of a 50% penalty upon a taxpayer filing such
fraudulent return. However, in this case, although Javier may be guilty of estafa due to misappropriating money that
does not belong to him, as far as his tax return is concerned, there can be no fraud. There is no fraud in the filing of the
return. Javiers notation on his income tax return can be considered as a mere mistake of fact or law but not fraud.
Such notation was practically an invitation for investigation and that Javier had literally laid his cards on the table. The
government was never defrauded because by such notation, Javier opened himself for investigation.
It must be noted that the fraud contemplated by law is actual and not constructive. It must be intentional fraud,
consisting of deception willfully and deliberately done or resorted to in order to induce another to give up some legal

[G.R. No. 108576. January 20, 1999]

APPEALS and A. SORIANO CORP., respondents.

Don Andres Soriano (American), founder of A. Soriano Corp. (ASC) had a total shareholdings of 185,154 shares.
Broken down, the shares comprise of 50,495 shares which were of original issue when the corporation was founded
and 134,659 shares as stock dividend declarations. So in 1964 when Soriano died, half of the shares he held went to
his wife as her conjugal share (wifes legitime) and the other half (92,577 shares, which is further broken down to
25,247.5 original issue shares and 82,752.5 stock dividend shares) went to the estate. For sometime after his death,
his estate still continued to receive stock dividends from ASC until it grew to at least 108,000 shares.
In 1968, ASC through its Board issued a resolution for the redemption of shares from Sorianos estate purportedly for
the planned Filipinization of ASC. Eventually, 108,000 shares were redeemed from the Soriano Estate. In 1973, a tax
audit was conducted. Eventually, the Commissioner of Internal Revenue (CIR) issued an assessment against ASC for
deficiency withholding tax-at-source. The CIR explained that when the redemption was made, the estate profited
(because ASC would have to pay the estate to redeem), and so ASC would have withheld tax payments from the
Soriano Estate yet it remitted no such withheld tax to the government.
ASC averred that it is not duty bound to withhold tax from the estate because it redeemed the said shares for purposes
of Filipinization of ASC and also to reduce its remittance abroad.
Issue: Whether or not a person assessed for deficiency withholding tax under Sec. 53 and 54 of the Tax Code is being
held liable in its capacity as a withholding agent.

Held: An income taxpayer covers all persons who derive taxable income. ANSCOR was assessed by petitioner
for deficiency withholding tax, as such, it is being held liable in its capacity as a withholding agent and not in its
personality as taxpayer. A withholding agent, A. SorianoCorp. in this case, cannot be deemed a taxpayer for it to avail
of a tax amnesty under a Presidential decree that condones the collection of all internal revenue taxes including the
increments or penalties on account of non-payment as well as all civil, criminal, or administrative liabilities arising from
or incident to voluntary disclosures under the NIRC of previously untaxed income and/or wealth realized here or
abroad by any taxpayer, natural or juridical. The Court explains: The withholding agent is not a taxpayer, he is a mere
tax collector. Under the withholding system, however, the agent-payer becomes a payee by fiction of law. His liability is
direct and independent from the taxpayer, because the income tax is still imposed and due from the latter. The agent is
not liable for the tax as no wealth flowed into him, he earned no income.

G.R. No. 172231 February 12, 2007




Facts: Isabela Cultural Corporation (ICC), a domestic corporation received an assessment notice
for deficiency income tax and expanded withholding tax from BIR. It arose from the disallowance of ICCs claimed
expense for professional and security services paid by ICC; as well as the alleged understatement of interest income
on the three promissory notes due from Realty Investment Inc. Thedeficiency expanded withholding tax was allegedly
due to the failure of ICC to withhold 1% e-withholding tax on its claimed deduction for security services.

ICC sought a reconsideration of the assessments. Having received a final notice of assessment, it brought the case to
CTA, which held that it is unappealable, since the final notice is not a decision. CTAs ruling was reversed by CA,
which was sustained by SC, and case was remanded to CTA. CTA rendered a decision in favor of ICC. It ruled that the
deductions for professional and security services were properly claimed, it said that even if services were rendered in
1984 or 1985, the amount is not yet determined at that time. Hence it is a proper deduction in 1986. It likewise found
that it is the BIR which overstate the interest income, when it applied compounding absent any stipulation.

Petitioner appealed to CA, which affirmed CTA, hence the petition.

Issue: Whether or not the expenses for professional and security services are deductible.

Held: No. One of the requisites for the deductibility of ordinary and necessary expenses is that it must have been paid
or incurred during the taxable year. This requisite is dependent on the methodof accounting of the taxpayer. In the
case at bar, ICC is using theaccrual method of accounting. Hence, under this method, an expense is recognized when
it is incurred. Under a Revenue Audit Memorandum, when the method of accounting is accrual, expenses not being
claimed as deductions by a taxpayer in the current year when they are incurred cannot be claimed in the succeeding

The accrual of income and expense is permitted when the all-events test has been met. This test requires: 1) fixing of a
right to income orliability to pay; and 2) the availability of the reasonable accurate determination of such income
or liability. The test does not demand that the amount of income or liability be known absolutely, only that a taxpayer
has at its disposal the information necessary to compute the amount with reasonable accuracy.

From the nature of the claimed deductions and the span of time during which the firm was retained, ICC can be
expected to have reasonably known the retainer fees charged by the firm. They cannot give as an excuse the delayed
billing, since it could have inquired into the amount of their obligation and reasonably determine the amount.