Javier vs CA
1. WON the respondent is liable for the basic deficiency income tax. YES
Topic: Gross Income
 Tests in determining income; Claim of right doctrine
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COMMISSIONER OF INTERNAL REVENUE, petitioner,
vs.
MELCHOR J. JAVIER, JR. and THE COURT OF TAX APPEALS
GR No L-78953
January 22, 1990
Sarmiento, J.
Nature of the Case:
Petition for Review
Facts:
On May 27, 1977, Dolores Ventosa requested the transfer of USD1000 from the
First National Bank, West Virginia to Victoria Javier in Manila through the
Prudential Bank. Unfortunately, the wire sent by Mellon Bank to Manufacturers
Hanover Bank, a correspondent bank of Prudential Bank, indicated USD 1million
as the amount to be transferred instead of USD 1000.
Javier opened a new dollar account in the Prudential Bank and deposited USD
999,943.70. Thereafter, the spouses made withdrawals and deposited them in
several bank accounts only to withdraw them later in a plan to conceal, launder
and dissipate the erroneously sent amount.
Private respondent filed his income tax return for the taxable year 1977 showing a
gross income of PhP 53,053.38 and a net income of PhP 48.053.88 and stating in
the footnote of the return that “Taxpayer was a 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 to litigation.”
Private respondent wrote the BIR that he was paying the deficiency income
assessment for the year 1976 but denying that he had any undeclared income for
the year 1977 and requested that the assessment for 1977 be made to wait final
court decision on the case filed against him for filing an allegedly fraudulent return.
CIR, in its reply, stated that the amount of Mellon Bank erroneous remittance
which was deposed is definitely taxable. The Commission also imposed a 50%
fraud penalty against Javier.
Issue:
2. Whether or not a taxpayer who merely states as a footnote in his income
tax return that a sum of money that he erroneously received and already
spent is the subject of a pending litigation and there did not declare it as
income is liable to pay the 50% penalty for filing a fraudulent return. NO
Ruling and Ratio:
1. Javier candidly stated in his Memorandum,9 that he "did not appeal the
decision which held him liable for the basic deficiency income tax (excluding the
50% surcharge for fraud)." However, he submitted in the
same memorandum "that the issue may be raised in the case not for the purpose
of correcting or setting aside the decision which held him liable for deficiency
income tax, but only to show that there is no basis for the imposition of the
surcharge." This subsequent disavowal therefore renders moot and academic the
posturings articulated in as Comment10 on the non-taxability of the amount he
erroneously received and the bulk of which he had already disbursed. In any
event, an appeal at that time (of the filing of the Comments) would have been
already too late to be seasonable.
2. Under Sec 72 of the Tax Code, a taxpayer who files a false return is liable to
pay a fraud penalty of 50% of the tax due from him of the deficiency tax in case
payment has been made on the basis of the return filed before the discovery of
the falsity or fraud. The fraud contemplated by law is actual and not constructive.
In the case at bar, there was no actual and intentional fraud through willful and
deliberate misleading of the government agency concerned, the BIR. The
government was not induced to give up some legal right and place itself at a
disadvantage so as to prevent its lawful agents from proper assessment of tax
liabilities because Javier did not conceal anything. Error or mistake of law is not
fraud.
The imposition of the fraud penalty in this case is not justifies by the extant facts
because he did not conceal the facts that he received an amount of money
although it was a subject of litigation.
As ruled by respondent CTA, the 50% surcharge imposed as fraud penalty by the
petitioner against the private respondent in the deficiency assessment should be
deleted.
CIR vs. Marubeni
Topic: Source Rules- Income from turnkey contract with onshore and
offshore portions
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COMMISSIONER OF INTERNAL REVENUE, petitioner,
vs.
MARUBENI CORPORATION, respondent.
G.R. No. 137377
December 18, 2001
Ponente: PUNO, J.:
Facts: Marubeni Corp. of Japan has equity investments in AG&P of Manila. For
the first quarter of 1981 ending March 31, AG&P declared and paid cash dividends
to petitioner in the amount of P849,720 and withheld the corresponding 10% final
dividend tax thereon. Similarly, for the third quarter of 1981 ending September 30,
AG&P declared and paid P849,720 as cash dividends to petitioner and withheld
the corresponding 10% final dividend tax thereon.
AG&P directly remitted the cash dividends to petitioner's head office in Tokyo,
Japan, net not only of the 10% final dividend tax in the amounts of P764,748 for
the first and third quarters of 1981, but also of the withheld 15% profit remittance
tax based on the remittable amount after deducting the final withholding tax of 10%
The 10% final dividend tax of P84,972 and the 15% branch profit remittance tax of
P114,712.20 for the first quarter of 1981 were paid to the BIR by AG&P, same with
the 10% final dividend tax of P84,972 and the 15% branch profit remittance tax of
P114,712 for the third quarter of 1981. Subsequently, the 10% final dividend tax of
P84,972 and the 15% branch profit remittance tax of P114,712.20 for the first
quarter of 1981 were paid to the BIR, same with the 10% final dividend tax of
P84,972 and the 15% branch profit
remittance tax of P114,712 for the third quarter of 1981.
Marubeni, through SGV and Co., sought a ruling from the BIR on on whether or
not the dividends petitioner received from AG&P are effectively connected with its
conduct or business in the Philippines as to be considered branch profits subject to
the 15% profit remittance tax imposed under Section 24 (b) (2) of the National
Internal Revenue Code as amended by Presidential Decrees Nos. 1705 and 1773.
In reply, Acting Commissioner Ancheta said that such dividends were not branch
profits for purposes of the 15% profit remittance tax imposed by Section 24 (b) (2)
of the Tax Code, as amended
Consequently, Marubeni filed with the CIR a claim for refund of or issuance of a
tax credit of P229,424.40, representing the profit tax remittance incorrectly paid on
the dividends remitted by AG&P to Marubeni’s head office in Tokyo. CIR denied
the claim, saying that while it is not covered by the 15% profit remittance tax and
the 10% intercorporate dividend tax, it, as a non-resident stockholder, is subject to
the 25 % tax pursuant to Article 10 (2) (b) of the Tax Treaty dated February 13,
1980 between the Philippines and Japan.
ISSUE: Whether or not respondent is liable to pay the income, branch profit
remittance, and contractor’s taxes assessed by petitioner.
RULING: A contractor’s tax is imposed in the National Internal Revenue Code
(NIRC) as follows:
“Sec. 205. Contractors, proprietors or operators of dockyards, and others.—A
contractor’s tax of four percent of the gross receipts is hereby imposed on
proprietors or operators of the following business establishments and/or persons
engaged in the business of selling or rendering the following services for a fee or
compensation:
(a) General engineering, general building and specialty contractors, as defined in
Republic Act No. 4566;
(q) Other independent contractors. The term “independent contractors” includes
persons (juridical or natural) not enumerated above (but not including individuals
subject to the occupation tax under the Local Tax Code) whose activity consists
essentially of the sale of all kinds of services for a fee regardless of whether or not
the performance of the service calls for the exercise or use of the physical or
mental faculties of such contractors or their employees. It does not include regional
or area headquarters established in the Philippines by multinational corporations,
including their alien executives, and which headquarters do not earn or derive
income from the Philippines and which act as supervisory, communications and
coordinating centers for their affiliates, subsidiaries or branches in the Asia-Pacific
Region.
Under the afore-quoted provision, an independent contractor is a person whose
activity consists essentially of the sale of all kinds of services for a fee, regardless
of whether or not the performance of the service calls for the exercise or use of the
physical or mental faculties of such contractors or their employees. The word
“contractor” refers to a person who, in the pursuit of independent business,
undertakes to do a specific job or piece of work for other persons, using his own
means and methods without submitting himself to control as to the petty details.

A contractor’s tax is a tax imposed upon the privilege of engaging in business. It is

generally in the nature of an excise tax on the exercise of a privilege of selling
services or labor rather than a sale on products; and is directly collectible from the
person exercising the privilege. Being an excise tax, it can be levied by the taxing
authority only when the acts, privileges or business are done or performed within
the jurisdiction of said authority. Like property taxes, it cannot be imposed on an
occupation or privilege outside the taxing district.

In the case at bar, it is undisputed that respondent was an independent contractor

under the terms of the two subject contracts.

Clearly, the service of “design and engineering, supply and delivery,

construction, erection and installation, supervision, direction and control of
testing and commissioning, coordination…”of the two projects involved two
taxing jurisdictions. These acts occurred in two countries – Japan and the
Philippines. While the construction and installation work were completed
within the Philippines, the evidence is clear that some pieces of equipment
and supplies were completely designed and engineered in Japan. The two
sets of ship unloader and loader, the boats and mobile equipment for the
NDC project and the ammonia storage tanks and refrigeration units were
made and completed in Japan. They were already finished products when
shipped to the Philippines. The other construction supplies listed under the
Offshore Portion such as the steel sheets, pipes and structures, electrical
and instrumental apparatus, these were not finished products when shipped
to the Philippines. They, however, were likewise fabricated and
manufactured by the sub-contractors in Japan. All services for the design,
fabrication, engineering and manufacture of the materials and equipment
under Japanese Yen Portion I were made and completed in Japan. These
services were rendered outside the taxing jurisdiction of the Philippines and
are therefore not subject to contractor’s tax.
HENDERSON VS. COLLECTOR
Topic: Gross Income- De minimis benefits
Doctrine: Generally, the value to the employee of living quarters and meals
furnished in addition to salary constitutes income subject to tax. However, where
the quarters and meals are furnished for he convenience of the employer, the
ratable value of the same need not be added to the salary or cash compensation
of the employee for income tax purposes.
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G.R. No. L-12954 February 28, 1961
COLLECTOR OF INTERNAL REVENUE, petitioner,
vs.
ARTHUR HENDERSON, respondent.
x---------------------------------------------------------x
G.R. No. L-13049 February 28, 1961
ARTHUR HENDERSON, petitioner,
vs.
COLLECTOR OF INTERNAL REVENUE, respondent.
Facts:
Arthur Henderson and Marie Henderson filed their annual income tax with the BIR.
Arthur is president of American International Underwriters for the Philippines, Inc.,
which is a domestic corporation engaged in the business of general non-life
insurance, and represents a group of American insurance companies engaged in
the business of general non-life insurance.
The BIR demanded payment for alleged deficiency taxes. In their computation, the
BIR included as part of taxable income: 1) Arthur’s allowances for rental,
residential expenses, subsistence, water, electricity and telephone expenses 2)
entrance fee to the Marikina Gun and Country Club which was paid by his
employer for his account and 3) travelling allowance of his wife
The taxpayers justifications are as follows:
1) as to allowances for rental and utilities, Arthur did not receive money for the
allowances. Instead, the apartment is furnished and paid for by his employer-
corporation (the mother company of American International), for the employer
corporation’s purposes. The spouses had no choice but to live in the expensive
apartment, since the company used it to entertain guests, to accommodate
officials, and to entertain customers. According to taxpayers, only P 4,800 per year
is the reasonable amount that the spouses would be spending on rental if they
were not required to live in those apartments. Thus, it is the amount they deem is
subject to tax. The excess is to be treated as expense of the company.
2) The entrance fee should not be considered income since it is an expense of his
employer, and membership therein is merely incidental to his duties of increasing
and sustaining the business of his employer.
3) His wife merely accompanied him to New York on a business trip as his
secretary, and at the employer-corporation’s request, for the wife to look at details
of the plans of a building that his employer intended to construct. Such must not be
considered taxable income.
The Collector of Internal Revenue merely allowed the entrance fee as nontaxable.
The rent expense and travel expenses were still held to be taxable. The Court of
Tax Appeals ruled in favor of the taxpayers, that such expenses must not be
considered part of taxable income. Letters of the wife while in New York
concerning the proposed building were presented as evidence.
Issue: Whether or not the rental allowances and travel allowances furnished and
given by the employer-corporation are part of taxable income?
Ruling and Ratio:
No, substantial evidence supports the claim of the Hendersons. The allowance
given to them are used to further the business of the company (hence, are
company expenses) and are not used for their personal benefit, thus, are not part
of their income. Being such, it does not form part of the taxable income.
No part of the allowances redounded to their personal benefit nor was such
amounts retained by them.
The accounting books of the corporation showed that the bills were paid directly by
the employer-corporation to the creditors.
The SC sustains the claim of the CTA regarding the rental expenses & subsistence
allowances that such are necessary to Arthur’s high executive position and social
standing. Hence, must not form of the taxable income.
a. Arthur’s high executive position and social standing, demanded and compelled
the couple to live in a more spacious and expensive quarters.
b. The ‘subsistence allowance’ was a SEPARATE account from the account for
salaries and wages of employees.
c. The company did not charge rentals as deductible from the salaries of the
employees. These expenses are COMPANY EXPENSES, not income by
employees which are subject to tax.
CIR VS PROCTER AND GAMBLE PHILIPPINE

Topic: Gross Income- Rules on Taxation Dividends- Recipient is a non-

resident foreign corporation.

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COMMISSIONER OF INTERNAL REVENUE, petitioner,
vs.
PROCTER & GAMBLE PHILIPPINE MANUFACTURING CORPORATION and
THE COURT OF TAX APPEALS, respondents.

G.R. No. L-66838

December 2, 1991
FELICIANO, J.

Facts:
Procter and Gamble Philippines declared dividends payable to its parent company
and sole stockholder, P&G USA. Such dividends amounted to Php 24.1M. P&G
Phil paid a 35% dividend withholding tax to the BIR which amounted to Php 8.3M It
subsequently filed a claim with the Commissioner of Internal Revenue for a refund
or tax credit, claiming that pursuant to Section 24(b)(1) of the National Internal
Revenue Code, as amended by Presidential Decree No. 369, the applicable rate of
withholding tax on the dividends remitted was only 15%.

Issue: Whether or not P&G Philippines is entitled to the refund or tax credit.

Ruling and Ratio:

YES. P&G Philippines is entitled to tax refund.

Sec 24 (b) (1) of the NIRC states that an ordinary 35% tax rate will be applied to
dividend remittances to non-resident corporate stockholders of a Philippine
corporation. This rate goes down to 15% ONLY IF he country of domicile of the
foreign stockholder corporation “shall allow” such foreign corporation a tax credit
for “taxes deemed paid in the Philippines,” applicable against the tax payable to
the domiciliary country by the foreign stockholder corporation. However, such tax
credit for “taxes deemed paid in the Philippines” MUST, as a minimum, reach an
amount equivalent to 20 percentage points which represents the difference
between the regular 35% dividend tax rate and the reduced 15% tax rate. Thus,
the test is if USA “shall allow” P&G USA a tax credit for ”taxes deemed paid in the
Philippines” applicable against the US taxes of P&G USA, and such tax credit must
reach at least 20 percentage points. Requirements were met.
CIR vs. St. Luke’s
Topic: Gross Income- Exemption of non-stock profit corporations
Doctrine: The exemption contemplated in the Constitution covers real estate tax on
real properties actually, directly and exclusively used for religious, charitable or
social welfare purposes. It does not cover exemption from the imposition of income
tax.
Luke’s contended that the BIR should not consider its total revenues, because its
free services to patients was P218,187,498 or 65.20% of its 1998 operating
income of P334,642,615. St. Luke’s also claimed that its income does not inure to
the benefit of any individual.
Luke’s maintained that it is a non-stock and non-profit institution for charitable and
social welfare purposes under Section 30(E) and (G) of the NIRC. It argued that
the making of profit per se does not destroy its income tax exemption.

***************************************************** Issue: Whether or not St. Luke’s is liable for deficiency income tax in 1998 under
COMMISSIONER OF INTERNAL REVENUE, PETITIONER, Section 27(B) of the NIRC, which imposes a preferential tax rate of 10% on the
vs. income of proprietary non-profit hospitals. YES
ST. LUKE'S MEDICAL CENTER, INC., RESPONDENT.
x-----------------------x
G.R. No. 195960 Ruling and Ratio:
ST. LUKE'S MEDICAL CENTER, INC., PETITIONER,
vs. The Court finds that St. Luke’s is a corporation that is not “operated exclusively” for
COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. charitable or social welfare purposes insofar as its revenues from paying patients
are concerned. This ruling is based not only on a strict interpretation of a provision
G.R. No. 195909 granting tax exemption, but also on the clear and plain text of Section 30(E) and
September 26, 2012 (G). Section 30(E) and (G) of the NIRC requires that an institution be “operated
CARPIO, J. exclusively” for charitable or social welfare purposes to be completely exempt from
income tax. An institution under Section 30(E) or (G) does not lose its tax
Facts:
exemption if it earns income from its for-profit activities. Such income from for-
profit activities, under the last paragraph of Section 30, is merely subject to income
Luke’s Medical Center, Inc. is a hospital organized as a non-stock and non-profit
corporation. tax, previously at the ordinary corporate rate but now at the preferential 10% rate
pursuant to Section 27(B).
The BIR assessed St. Luke’s deficiency taxes amounting to P76,063,116.06 for
St. Luke’s fails to meet the requirements under Section 30(E) and (G) of the NIRC
1998, comprised of deficiency income tax, VAT, withholding tax on compensation
and expanded withholding tax. to be completely tax exempt from all its income. However, it remains a proprietary
non-profit hospital under Section 27(B) of the NIRC as long as it does not distribute
Luke’s filed an administrative protest with the BIR against the deficiency tax any of its profits to its members and such profits are reinvested pursuant to its
assessments. corporate purposes. St. Luke’s, as a proprietary non-profit hospital, is entitled to
the preferential tax rate of 10% on its net income from its for-profit activities.
The BIR argued before the CTA that Section 27(B) of the NIRC, which imposes a
10% preferential tax rate on the income of proprietary non-profit hospitals, should St. Luke’s is therefore liable for deficiency income tax in 1998 under Section 27(B)
be applicable to St. Luke’ of the NIRC. However, St. Luke’s has good reasons to rely on the letter dated 6
June 1990 by the BIR, which opined that St. Luke’s is “a corporation for purely
The BIR claimed that St. Luke’s was actually operating for profit in 1998 because charitable and social welfare purposes” and thus exempt from income tax.
only 13% of its revenues came from charitable purposes. Moreover, the hospital’s
board of trustees, officers and employees directly benefit from its profits and
assets. St. Luke’s had total revenues of P1,730,367,965 or approximately P1.73
billion from patient services in 1998.
COMPAGNIE FINANCIERE vs. CIR ISSUE: Whether the Court of Appeals erred in holding that the assignment of
deposits on stock subscriptions is subject to documentary stamps tax and capital
Topic: Shares of stock of a domestic corporation gains tax. NO

RULING:
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COMPAGNIE FINANCIERE In the Capital Gains Tax Return on Stock Transaction, which petitioner filed with
SUCRES ET DENREES, the Bureau of Internal Revenue, the acquisition cost of the shares it sold, including
Petitioner, the stock subscription is P69,143,630.28. The transfer price to Kerry Holdings, Ltd.
- versus - is P70,332,869.92.Obviously, petitioner has a net gain in the amount
of P1,189,239.64. As the CTA aptly ruled, a tax on the profit of sale on net capital
COMMISSIONER OF INTERNAL gain is the very essence of the net capital gains tax law. To hold otherwise will
REVENUE, ineluctably deprive the government of its due and unduly set free from tax liability
Respondent. persons who profited from said transactions.

G.R. No. 133834

August 28, 2006

Facts:

Compagnie Financiere Sucres et Denrees, petitioner, is a non-resident private

corporation duly organized and existing under the laws of the Republic of France.

On October 21, 1991, petitioner transferred its eight percent (8%) equity interest in
the Makati Shangri-La Hotel and Resort, Incorporated to Kerry Holdings Ltd.
(formerly Sligo Holdings Ltd), as shown by a Deed of Sale and Assignment of
Subscription and Right of Subscription of the same date. Transferred were (a)
107,929 issued shares of stock valued at P100.00 per share with a total par value
of P10,792,900.00; (b) 152,031 with a par value of P100.00 per share with a total
par value of P15,203,100.00; (c) deposits on stock subscriptions amounting
to P43,147,630.28; and (d) petitioners right of subscription.

On November 29, 1991, petitioner paid the documentary stamps tax and capital
gains tax on the transfer under protest.

On October 21, 1993, petitioner filed with the CIR, a claim for refund of overpaid
capital gains tax in the amount of P107,869.00 and overpaid documentary stamps
taxes in the sum of P951,830.00 or a total of P1,059,699.00. Petitioner alleged that
the transfer of deposits on stock subscriptions is not a sale/assignment of shares
of stock subject to documentary stamps tax and capital gains tax.