CIR v. BOAC G.R. No. L-65773, April 30, 1987
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Rizchelle Sampang-ManaogCIR v. BOAC G.R. No. L-65773, April 30, 1987
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Rizchelle Sampang-ManaogCIR
v. British Overseas Airways Corporation, G.R. No. L-65773, April 30, 1987, Melencio-Herrera, J.:
Topic: Income Taxation-Resident Foreign Corporation
Doctrine: There should be no doubt then that BOAC was "engaged in" business in the Philippines through a local agent during the period
covered by the assessments. Accordingly, it is a resident foreign corporation subject to tax upon its total net income received in the preceding
taxable year from all sources within the Philippines.
Facts: BOAC operates air transportation service and sells transportation tickets over the routes of the other airline members. It had no landing
rights and was not granted a certificate of public convenience which are both necessary to operate in the Philippines except for a 9-month
period, partly in 19611 and partly in 1962 when it was granted a temporary landing permit. It did not carry passengers and/or cargo to or
from the Philippines, although during the period covered by the assessments, it maintained a general sales agent in the Philippines which was
responsible for selling BOAC tickets covering passengers and cargoes.
CIR assessed BOAC with an aggregate amount of Php2,498,358.56 for deficiency income taxes covering 1959-1963. BOAC protested and after
subsequent investigation, it resulted to the new assessment of Php858,307.79 which BOAC paid in protest.
BOAC was again assessed this time for the 2 fiscal years covering 1968-1971 with the amount Php549,327.43 for deficiency income taxes,
interests, and penalty plus Php1,00.00 and Php1,800.00 as compromise penalties. BOAC requested that it be countermanded and set aside
which the CIR denied.
Tax court held that proceeds of sales of BOAC passage tickets in the Philippines do not constitute BOAC income from Philippine sources "since
no service of carriage of passengers or freight was performed by BOAC within the Philippines" and, therefore, said income is not subject to
Philippine income tax. The CTA position was that income from transportation is income from services so that the place where services are
rendered determines the source. Tax Court ordered petitioner to credit BOAC with the sum of P858,307.79, and to cancel the deficiency income
tax assessments against BOAC in the amount of P534,132.08 for the fiscal years 1968-69 to 1970-71. A petition for review on certiorari of the
decision of tax court was filed.
Issue: Whether or not, during the fiscal years in question, BOAC is a resident foreign corporation doing business in the Philippines.
Ruling: Yes, BOAC is a resident foreign corporation doing business in the Philippines.
It is our considered opinion that BOAC is a resident foreign corporation. There is no specific criterion as to what constitutes "doing" or
"engaging in" or "transacting" business. Each case must be judged in the light of its peculiar environmental circumstances. The term implies a
continuity of commercial dealings and arrangements, and contemplates, to that extent, the performance of acts or works or the exercise of
some of the functions normally incident to, and in progressive prosecution of commercial gain or for the purpose and object of the business
organization. "In order that a foreign corporation may be regarded as doing business within a State, there must be continuity of conduct and
intention to establish a continuous business, such as the appointment of a local agent, and not one of a temporary character.
BOAC, during the periods covered by the subject - assessments, maintained a general sales agent in the Philippines, That general sales agent,
from 1959 to 1971, "was engaged in (1) selling and issuing tickets; (2) breaking down the whole trip into series of trips — each trip in the
series corresponding to a different airline company; (3) receiving the fare from the whole trip; and (4) consequently allocating to the various
airline companies on the basis of their participation in the services rendered through the mode of interline settlement as prescribed by Article
VI of the Resolution No. 850 of the IATA Agreement." 4 Those activities were in exercise of the functions which are normally incident to, and
are in progressive pursuit of, the purpose and object of its organization as an international air carrier. In fact, the regular sale of tickets, its
main activity, is the very lifeblood of the airline business, the generation of sales being the paramount objective. There should be no doubt
then that BOAC was "engaged in" business in the Philippines through a local agent during the period covered by the assessments.
Accordingly, it is a resident foreign corporation subject to tax upon its total net income received in the preceding taxable year from
all sources within the Philippines.
The source of an income is the property, activity or service that produced the income. For the source of income to be considered as coming
from the Philippines, it is sufficient that the income is derived from activity within the Philippines. In BOAC's case, the sale of tickets in the
Philippines is the activity that produces the income. The tickets exchanged hands here and payments for fares were also made here in
Philippine currency. The site of the source of payments is the Philippines. The flow of wealth proceeded from, and occurred within, Philippine
territory, enjoying the protection accorded by the Philippine government. In consideration of such protection, the flow of wealth should share
the burden of supporting the government.
The absence of flight operations to and from the Philippines is not determinative of the source of income or the site of income taxation.
The appealed decision of the court of tax appeals is hereby set aside. Private respondent, the British Overseas Airways Corporation (BOAC), is
hereby ordered to pay the amount of P534,132.08 as deficiency income tax for the fiscal years 1968-69 to 1970-71 plus 5% surcharge, and
1% monthly interest from April 16, 1972 for a period not to exceed three (3) years in accordance with the Tax Code. The BOAC claim for refund
in the amount of P858,307.79 is hereby denied.
