CIR v. Algue, G.R. No. L-28896, February 17, 1988 (1) In general.
(1) In general.– All the ordinary and necessary expenses paid or incurred during the taxable year
FACTS:
The Philippine Sugar Estate Development Company appointed private respondent Algue as its
agent, authorizing it to sell its land, factories and oil manufacturing process.
Pursuant to such authority, Alberto Guevara, Jr., Eduardo Guevara, Isabel Guevara, Edith,
O’Farell, and Pablo Sanchez, worked for the formation of the Vegetable Oil Investment
Corporation, inducing other persons to invest in it.
Ultimately, after its incorporation largely through the promotion of the said persons, this new
corporation purchased the PSEDC properties. For this sale, Algue received as agent a
commission of P126,000.00, and it was from this commission that the P75,000.00 promotional fees
were paid to the aforenamed individuals.
The CIR contends that the claimed deduction of P75,000.00 was properly disallowed because it
was not an ordinary reasonable or necessary business expense.
The CIR claims that these payments are fictitious because most of the payees are members of
the same family in control of Algue, and suggests a tax dodge, an attempt to evade a
legitimate assessment by involving an imaginary deduction.
The CTA agreed with Algue, it held that the said amount had been legitimately paid by the
private respondent for actual services rendered, in the form of promotional fees.
ISSUE:
Whether or not the Collector of Internal Revenue correctly disallowed the P75,000.00 deduction
claimed by private respondent Algue as legitimate business expenses in its income tax returns.
RULING:
We agree with the respondent court that the amount of the promotional fees was not excessive.
The total commission paid by the PSEDC to the private respondent was P125,000.00. After
deducting the said fees, Algue still had a balance of P50,000.00 as clear profit from the
transaction. The amount of P75,000.00 was 60% of the total commission. This was a reasonable
proportion, considering that it was the payees who did practically everything, from the
formation of the Vegetable Oil Investment Corporation to the actual purchase by it of the Sugar
Estate properties.
This finding of the respondent court is in accord with the following provision of the Tax Code:
SEC. 30. Deductions from gross income.– In computing net income there shall be allowed as
deductions —
(a) Expenses:
in carrying on any trade or business, including a reasonable allowance for salaries or other
compensation for personal services actually rendered;
and Revenue Regulations No. 2, Section 70 (1), reading as follows:
SEC. 70. Compensation for personal services.–Among the ordinary and necessary expenses paid
or incurred in carrying on any trade or business may be included a reasonable allowance for
salaries or other compensation for personal services actually rendered.
The test of deductibility in the case of compensation payments is whether they are reasonable
and are, in fact, payments purely for service.
It is said that taxes are what we pay for civilization society. Without taxes, the government would
be paralyzed for lack of the motive power to activate and operate it. Hence, despite the natural
reluctance to surrender part of one’s hard earned income to the taxing authorities, every person
who is able to must contribute his share in the running of the government.
The government for its part, is expected to respond in the form of tangible and intangible
benefits intended to improve the lives of the people and enhance their moral and material
values. This symbiotic relationship is the rationale of taxation and should dispel the erroneous
notion that it is an arbitrary method of exaction by those in the seat of power.
But even as we concede the inevitability and indispensability of taxation, it is a requirement in
all democratic regimes that it be exercised reasonably and in accordance with the prescribed
procedure. If it is not, then the taxpayer has a right to complain and the courts will then come
to his succor. For all the awesome power of the tax collector, he may still be stopped in his tracks
if the taxpayer can demonstrate, as it has here, that the law has not been observed.
We hold that the claimed deduction by the private respondent was permitted under the Internal
Revenue Code and should therefore not have been disallowed by the petitioner.
BPI FAMILY SAVINGS BANK, INC., V CA G.R. No. 122480, April 12, 2000
Facts:
Petitioner bank’s annual corporate income tax return for 1989 showed that it suffered a loss of
P8,286,960, and that it had a total refundable amount of P297,492 inclusive of P112,491 being
claimed as tax refund in the present case. However, petitioner declared in its 1989 income tax
return as a tax credit in the succeeding taxable year.
On October 11, 1991, petitioner bank filed a written claim for refund of P112,491 with the BIR
alleging that it did not apply the 1989 refundable amount of P297,492 as tax credit to its 1990
annual corporate income tax return or either tax liabilities due to business losses it incurred for
the same year. Without waiting for respondent CIR’s action in its claim for refund, petitioner filed
a petition for review with the CTA.
CTA dismissed the petition on the ground that petitioner bank failed to present as evidence its
1990 annual income tax return to prove that it had not yet credited the amount of P297,422,
inclusive of P112,491 which is the subject of the present controversy to its 1990 tax liability. Since
petitioner declared in its 1989 income tax return that it would apply the excess withholding tax
as tax credit for the following year, the tax court presumed that it did so. Petitioner failed to
overcome this presumption because it did not present its 1990 tax return which would have
shown that the amount was not applied as a tax credit. Hence, it was concluded that petition
was not entitled to a tax refund. The CA affirmed said decision of the CTA.
Issue:
Whether or not petitioner is entitled to a tax refund of P112,491 representing creditable
withholding tax paid for 1989.
Held:
The petition is meritorious. As a rule, the factual findings on the appellate court are binding on
the SC. This rule, however, does not apply where, inter alia, the judgment is premised on a
misapprehension of facts or when the appellate court failed to notice certain relevant facts
which if considered would justify a different conclusion. This case is one such exception.
Strict procedural rules generally frown up the submission of the return the trial. R.A. 1125, the law
creating the CTA, however, specifically provides the proceedings before it “shall not be
governed strictly by the technical rules of evidence”. The paramount considerations remains the
ascertainment of truth. Verily, the quest for orderly presentation of issues is not an absolute. It
should not bar courts from considering undisputed facts to arrive at a just determination of a
controversy.
While tax refunds are in the nature of the exceptions and are to the construct strictissimi juris
against the claimant, under the facts of this case, petitioner has established its claim.
Substantial justice equity, and fair play are on the side of petitioner. Technicalities and legalisms,
however, exalted, should not be misused by the government to keep money not belonging to
it and thereby enrich would be better by allowing to appeal.
LUTZ v. ARANETA 98 PHIL. 145 December 22, 1955
FACTS:
Appelant in this case Walter Lutz in his capacity as the Judicial Administrator of the intestate of
the deceased Antonio Jayme Ledesma, seeks to recover from the Collector of the Internal
Revenue the total sum of fourteen thousand six hundred sixty six and forty cents (P 14, 666.40)
paid by the estate as taxes, under section 3 of Commonwealth Act No. 567, also known as the
Sugar Adjustment Act, for the crop years 1948-1949 and 1949-1950. Commonwealth Act. 567
Section 2 provides for an increase of the existing tax on the manufacture of sugar on a
graduated basis, on each picul of sugar manufacturer; while section 3 levies on the owners or
persons in control of the land devoted tot he cultivation of sugarcane and ceded to others for
consideration, on lease or otherwise - "a tax equivalent to the difference between the money
value of the rental or consideration collected and the amount representing 12 per centum of
the assessed value of such land. It was alleged that such tax is unconstitutional and void, being
levied for the aid and support of the sugar industry exclusively, which in plaintiff's opinion is not
a public purpose for which a tax may be constitutionally levied. The action was dismissed by the
CFI thus the plaintiff appealed directly to the Supreme Court.
ISSUE:
Whether or not the tax imposition in the Commonwealth Act No. 567 are unconstitutional.
RULING:
Yes, the Supreme Court held that the fact that sugar production is one of the greatest industry
of our nation, sugar occupying a leading position among its export products; that it gives
employment to thousands of laborers in the fields and factories; that it is a great source of the
state's wealth, is one of the important source of foreign exchange needed by our government
and is thus pivotal in the plans of a regime committed to a policy of currency stability. Its
promotion, protection and advancement, therefore redounds greatly to the general welfare.
Hence it was competent for the legislature to find that the general welfare demanded that the
sugar industry be stabilized in turn; and in the wide field of its police power, the law-making body
could provide that the distribution of benefits therefrom be readjusted among its components
to enable it to resist the added strain of the increase in taxes that it had to sustain.
The subject tax is levied with a regulatory purpose, to provide means for the rehabilitation and
stabilization of the threatened sugar industry. In other words, the act is primarily a valid exercise
of police power.
ABAKADA Guro Party List vs. Ermita, G.R. No. 168056, September 1, 2005
Facts:
ABAKADA GURO Party List, et al., filed a petition for prohibition o questioning the constitutionality
of Sections 4, 5 and 6 of R.A. No. 9337, amending Sections 106, 107 and 108, respectively, of the
National Internal Revenue Code (NIRC).
Section 4 imposes a 10% VAT on sale of goods and properties;
Section 5 imposes a 10% VAT on importation of goods; and
Section 6 imposes a 10% VAT on sale of services and use or lease of properties;
These provisions contain a provision which authorizing the President, upon recommendation of
the Secretary of Finance, to raise the VAT rate to 12%, effective January 1, 2006, after specified
conditions have been satisfied.
Issues:

Whether or not there is a violation of Article VI, Section 24 of the Constitution.
Whether or not there is undue delegation of legislative power in violation of Article VI Sec 28(2)
of the Constitution.
Whether or not there is a violation of the due process and equal protection of the Constitution.
Ruling:
No, the revenue bill exclusively originated in the House of Representatives, the Senate was
acting within its constitutional power to introduce amendments to the House bill when it
included provisions in Senate Bill No. 1950 amending corporate income taxes, percentage, and
excise and franchise taxes.
No, there is no undue delegation of legislative power but only of the discretion as to the
execution of a law. This is constitutionally permissible. Congress does not abdicate its functions
or unduly delegate power when it describes what job must be done, who must do it, and what
is the scope of his authority; in our complex economy that is frequently the only way in which
the legislative process can go forward. In this case, it is not a delegation of legislative power but
a delegation of ascertainment of facts upon which enforcement and administration of the
increased rate under the law is contingent.
No, the power of the State to make reasonable and natural classifications for the purposes of
taxation has long been established. Whether it relates to the subject of taxation, the kind of
property, the rates to be levied, or the amounts to be raised, the methods of assessment,
valuation and collection, the State’s power is entitled to presumption of validity. As a rule, the
judiciary will not interfere with such power absent a clear showing of unreasonableness,
discrimination, or arbitrariness.
REYES v. ALMANZOR, GR Nos. L-49839-46, April 26, 1991
FACTS:
Petitioners JBL Reyes et al. owned a parcel of land in Tondo which are leased and occupied as
dwelling units by tenants who were paying monthly rentals of not exceeding P300. Sometimes
in 1971 the Rental Freezing Law was passed prohibiting for one year from its effectivity, an
increase in monthly rentals of dwelling units where rentals do not exceed three hundred pesos
(P300.00), so that the Reyeses were precluded from raising the rents and from ejecting the
tenants. In 1973, respondent City Assessor of Manila re-classified and reassessed the value of the
subject properties based on the schedule of market values, which entailed an increase in the
corresponding tax rates prompting petitioners to file a Memorandum of Disagreement averring
that the reassessments made were "excessive, unwarranted, inequitable, confiscatory and
unconstitutional" considering that the taxes imposed upon them greatly exceeded the annual
income derived from their properties. They argued that the income approach should have been
used in determining the land values instead of the comparable sales approach which the City
Assessor adopted.
ISSUE:
Is the approach on tax assessment used by the City Assessor reasonable?
HELD:
No. The taxing power has the authority to make a reasonable and natural classification for
purposes of taxation but the government's act must not be prompted by a spirit of hostility, or at
the very least discrimination that finds no support in reason. It suffices then that the laws operate
equally and uniformly on all persons under similar circumstances or that all persons must be
treated in the same manner, the conditions not being different
both in the privileges conferred and the liabilities imposed. Consequently, it stands to reason
that petitioners who are burdened by the government by its Rental Freezing Laws (then R.A. No.
6359 and P.D. 20) under the principle of social justice should not now be penalized by the same
government by the imposition of excessive taxes petitioners can ill afford and eventually result
in the forfeiture of their properties.
PAL v. Sec of Finance, GR No. 115852; 30 October 1995
FACTS:
The Value-Added Tax [VAT] is levied on the sale, barter or exchange of goods and properties as
well as on the sale or exchange of services. It is equivalent to 10% of the gross selling price or
gross value in money of goods or properties sold, bartered or exchanged or of the gross receipts
from the sale or exchange of services. Republic Act No. 7716 seeks to widen the tax base of the
existing VAT system and enhance its administration by amending the National Internal Revenue
Code.
These are various suits for certiorari and prohibition challenging the constitutionality of RA 7716:
In the case at bar, PAL attacks the formal validity of Republic Act No. 7716. PAL contends that
it violates Art. VI, Section 26[1] which provides that "Every bill passed by Congress shall embrace
only one subject which shall be expressed in the title thereof." It is contended that neither H. No.
11197 nor S. No. 1630 provided for removal of exemption of PAL transactions from the payment
of the VAT and that this was made only in the Conference Committee bill which became
Republic Act No. 7716 without reflecting this fact in its title.
The title of Republic Act No. 7716 is:
AN ACT RESTRUCTURING THE VALUE-ADDED TAX [VAT] SYSTEM, WIDENING ITS TAX BASE AND
ENHANCING ITS ADMINISTRATION, AND FOR THESE PURPOSES AMENDING AND REPEALING THE
RELEVANT PROVISIONS OF THE NATIONAL INTERNAL REVENUE CODE, AS AMENDED, AND FOR
OTHER PURPOSES.
Furthermore, section 103 of RA 7716 states the following:
Section 103. Exempt Transactions.- The following shall be exempt from the value-added tax:
[q] Transactions which are exempt under special laws, except those granted under Presidential
Decree Nos. 66, 529, 972, 1491, 1590.
The effect of the amendment is to remove the exemption granted to PAL, as far as the VAT is
concerned.
Philippine Airlines [PAL] claims that its franchise under P.D. No. 1590 which makes it liable for a
franchise tax of only 2% of gross revenues "in lieu of all the other fees and charges of any kind,
nature or description, imposed, levied, established, assessed or collected by any municipal, city,
provincial, or national authority or government agency, now or in the future," cannot be
amended by Rep. Act No. 7716 as to make it [PAL] liable for a 10% value-added tax on revenues,
because Sec. 24 of P.D. No. 1590 provides that PAL's franchise can only be amended, modified
or repealed by a special law specifically for that purpose.
ISSUE:
Whether or not this amendment of Section 103 of the NIRC is fairly embraced in the title of
Republic Act No. 7716, although no mention is made therein of P. D. No. 1590
HELD:
The court ruled in in the affirmative. The title states that the purpose of the statute is to expand
the VAT system, and one way of doing this is to widen its base by withdrawing some of the
exemptions granted before. To insist that P. D. No. 1590 be mentioned in the title of the law, in
addition to Section 103 of the NIRC, in which it is specifically referred to, would be to insist that
the title of a bill should be a complete index of its content.
The constitutional requirement that every bill passed by Congress shall embrace only one
subject which shall be expressed in its title is intended to prevent surprise upon the members of
Congress and to inform the people of pending legislation so that, if they wish to, they can be
heard regarding it. If, in the case at bar, petitioner did not know before that its exemption had
been withdrawn, it is not because of any defect in the title but perhaps for the same reason
other statutes, although published, pass unnoticed until some event somehow calls attention to
their existence.
Republic Act No. 7716 expressly amends PAL's franchise [P. D. No. 1590] by specifically excepting
from the grant of exemptions from the VAT PAL's exemption under P. D. No. 1590. This is within
the power of Congress to do under Art. XII, Section 11 of the Constitution, which provides that
the grant of a franchise for the operation of a public utility is subject to amendment, alteration
or repeal by Congress when the common good so requires.
TOLENTINO vs. THE SECRETARY OF FINANCE, G.R. No. 115455, August 25, 1994
FACTS:
Herein various petitioners seek to declare RA 7166 as unconstitutional as it seeks to widen the tax
base of the existing VAT system and enhance its administration by amending the National
Internal Revenue Code. The value-added tax (VAT) is levied on the sale, barter or exchange of
goods and properties as well as on the sale or exchange of services. It is equivalent to 10% of
the gross selling price or gross value in money of goods or properties sold, bartered or
exchanged or of the gross receipts from the sale or exchange of services.
CREBA asserts that R.A. No. 7716 (1) impairs the obligations of contracts, (2) classifies transactions
as covered or exempt without reasonable basis and (3) violates the rule that taxes should be
uniform and equitable and that Congress shall "evolve a progressive system of taxation."
With respect to the first contention, it is claimed that the application of the tax to existing
contracts of the sale of real property by installment or on deferred payment basis would result
in substantial increases in the monthly amortizations to be paid because of the 10% VAT. The
additional amount, it is pointed out, is something that the buyer did not anticipate at the time
he entered into the contract.
It is next pointed out that while Section 4 of R.A. No. 7716 exempts such transactions as the sale
of agricultural products, food items, petroleum, and medical and veterinary services, it grants
no exemption on the sale of real property which is equally essential. The sale of real property for
socialized and low-cost housing is exempted from the tax, but CREBA claims that real estate
transactions of "the less poor," i.e., the middle class, who are equally homeless, should likewise
be exempted.
Finally, it is contended, for the reasons already noted, that R.A. No. 7716 also violates Art. VI,
Section 28(1) which provides that "The rule of taxation shall be uniform and equitable. The
Congress shall evolve a progressive system of taxation."
ISSUE:
Whether or not RA 7166 violates the principle of progressive system of taxation.
HELD:
No, there is no justification for passing upon the claims that the law also violates the rule that
taxation must be progressive and that it denies petitioners' right to due process and that equal
protection of the laws. The reason for this different treatment has been cogently stated by an
eminent authority on constitutional law thus: "When freedom of the mind is imperiled by law, it is
freedom that commands a momentum of respect; when property is imperiled it is the
lawmakers' judgment that commands respect. This dual standard may not precisely reverse the
presumption of constitutionality in civil liberties cases, but obviously it does set up a hierarchy of
values within the due process clause."
Petitioners contend that as a result of the uniform 10% VAT, the tax on consumption goods of
those who are in the higher-income bracket, which before were taxed at a rate higher than
10%, has been reduced, while basic commodities, which before were taxed at rates ranging
from 3% to 5%, are now taxed at a higher rate.
Just as vigorously as it is asserted that the law is regressive, the opposite claim is pressed by
respondents that in fact it distributes the tax burden to as many goods and services as possible
particularly to those which are within the reach of higher-income groups, even as the law
exempts basic goods and services. It is thus equitable. The goods and properties subject to the
VAT are those used or consumed by higher-income groups. These include real properties held
primarily for sale to customers or held for lease in the ordinary course of business, the right or
privilege to use industrial, commercial or scientific equipment, hotels, restaurants and similar
places, tourist buses, and the like. On the other hand, small business establishments, with annual
gross sales of less than P500,000, are exempted. This, according to respondents, removes from
the coverage of the law some 30,000 business establishments. On the other hand, an occasional
paper of the Center for Research and Communication cities a NEDA study that the VAT has
minimal impact on inflation and income distribution and that while additional expenditure for
the lowest income class is only P301 or 1.49% a year, that for a family earning P500,000 a year or
more is P8,340 or 2.2%.
Lacking empirical data on which to base any conclusion regarding these arguments, any
discussion whether the VAT is regressive in the sense that it will hit the "poor" and middle-income
group in society harder than it will the "rich," is largely an academic exercise. On the other hand,
the CUP's contention that Congress' withdrawal of exemption of producers cooperatives,
marketing cooperatives, and service cooperatives, while maintaining that granted to electric
cooperatives, not only goes against the constitutional policy to promote cooperatives as
instruments of social justice (Art. XII, § 15) but also denies such cooperatives the equal protection
of the law is actually a policy argument. The legislature is not required to adhere to a policy of
"all or none" in choosing the subject of taxation.
Nor is the contention of the Chamber of Real Estate and Builders Association (CREBA), petitioner
in G.R. 115754, that the VAT will reduce the mark up of its members by as much as 85% to 90%
any more concrete. It is a mere allegation. On the other hand, the claim of the Philippine Press
Institute, petitioner in G.R. No. 115544, that the VAT will drive some of its members out of
circulation because their profits from advertisements will not be enough to pay for their tax
liability, while purporting to be based on the financial statements of the newspapers in question,
still falls short of the establishment of facts by evidence so necessary for adjudicating the
question whether the tax is oppressive and confiscatory.
Indeed, regressivity is not a negative standard for courts to enforce. What Congress is required
by the Constitution to do is to "evolve a progressive system of taxation." This is a directive to
Congress, just like the directive to it to give priority to the enactment of laws for the
enhancement of human dignity and the reduction of social, economic and political inequalities
(Art. XIII, § 1), or for the promotion of the right to "quality education" (Art. XIV, § 1). These provisions
are put in the Constitution as moral incentives to legislation, not as judicially enforceable rights.
CIR vs. CEBU PORTLAND CEMENT, G.R. No. L-29059 December 15, 1987
FACTS:
By virtue of a decision of the CTA, as modified on appeal by the Supreme Court, the CIR was
ordered to refund to Cebu Portland Cement Company the amount of P 359,408.98, representing
overpayments of ad valorem taxes on cement produced and sold by it. When respondent
moved for a writ of execution, petitioner opposed on the ground that the private respondent
had an outstanding sales tax liability to which the judgment debt had already been credited.
In fact, it was stressed, there was still a balance owing on the sales taxes in the amount of P
4,789,279.85 plus 28% surcharge. The CTA granted the CIR’s motion.
The CIR claims that the refund should be charged against the tax deficiency of the private
respondent on the sales of cement under Section 186 of the Tax Code. His position is that cement
is a manufactured and not a mineral product and therefore not exempt from sales taxes. The
petitioner also denies that the sales tax assessments have already prescribed because the
prescriptive period should be counted from the filing of the sales tax returns, which had not yet
been done by the private respondent.
Meanwhile, the private respondent disclaims liability for the sales taxes, on the ground that
cement is not a manufactured product but a mineral product. As such, it was exempted from
sales taxes. Also, the alleged sales tax deficiency could not as yet be enforced against it
because the tax assessment was not yet final, the same being still under protest and still to be
definitely resolved on the merits. Besides, the assessment had already prescribed, not having
been made within the reglementary five-year period from the filing of the tax returns.
ISSUE:
Whether or not sales tax was properly imposed upon private respondent.
HELD:
Yes, because cement has always been considered a manufactured product and not a mineral
product. This matter was extensively discussed and categorically resolved in Commissioner of
Internal Revenue v. Republic Cement Corporation, decided on August 10, 1983, stating that
cement qua cement was never considered as a mineral product within the meaning of Section
246 of the Tax Code, notwithstanding that at least 80% of its components are minerals, for the
simple reason that cement is the product of a manufacturing process and is no longer the
mineral product contemplated in the Tax Code (i.e.; minerals subjected to simple treatments)
for the purpose of imposing the ad valorem tax.
The argument that the assessment cannot as yet be enforced because it is still being contested
loses sight of the urgency of the need to collect taxes as "the lifeblood of the government." If
the payment of taxes could be postponed by simply questioning their validity, the machinery of
the state would grind to a halt and all government functions would be paralyzed.
US vs Bull, 15 Phil 7
Facts:
On December 2, 1908, a steamship vessel engaged in the transport of animals named Stanford
commanded by H.N. Bull docked in the port of Manila, Philippines. It was found that said vessel
from Ampieng, Formosa carried 674 heads of cattle without providing appropriate shelter and
proper suitable means for securing the animals which resulted for most of the animals to get hurt
and others to have died while in transit.
This cruelty to animals is said to be contrary to Acts No. 55 and No. 275 of the Philippine
Constitution. It is however contended that cases cannot be filed because neither was it said
that the court sitting where the animals were disembarked would take jurisdiction, nor did it say
about ships not licensed under Philippine laws, like the ships involved.
commission agent. It was agreed that respondent will receive 10% sales commission on all sales
actually concluded and collected through her efforts.
In 1995, respondent received the amount of PhP1,707,772.64 representing her sales commission
income from which JUBANITEX withheld the corresponding 10% withholding tax amounting to
PhP170,777.26 and remitted the same to the BIR. Respondent filed a claim to refund the amount
PhP170,777.26 alleged to have been mistakenly withheld and remitted by JUBANITEX to the
BIR. Respondent contended that her sales commission income is not taxable in the Philippines
because the same was a compensation for her services rendered in Germany considered as
income from source outside the Philippines.
ISSUE:
WON respondent's sales commission income is taxable in the Philippines?
HELD:
YES. Commission received by respondent were actually her remuneration in the performance
of her duties as President of JUBANITEX and not as a mere sales agent. The income derived by
respondent is therefore an income taxable in the Philippines because JUBANITEX is a domestic
corporation.

Issue:
Whether or not the court had jurisdiction over an offense committed on board a foreign ship
while inside the territorial waters of the Philippines.
Pursuant to the foregoing provision of the NIRC, non-resident aliens, whether or not engaged in
trade or business, are subject to Philippine income taxation on their income received from all
sources within the Philippines.
Respondent failed to discharge the burden of proving that her income was from sources outside
the Philippines and exempt from the application of our income tax law.

Held:

Yes. When the vessel comes within 3 miles from the headlines which embrace the entrance of
Manila Bay, the vessel is within territorial waters and thus, the laws of the Philippines shall apply.
A crime committed on board a Norwegian merchant vessel sailing to the Philippines is within the
jurisdiction of the courts of the Philippines if the illegal conditions existed during the time the ship
was within the territorial waters - regardless of the fact that the same conditions existed when
the ship settled from the foreign port and while it was on the high seas,

In light of the above restriction, the defendant was found guilty and sentenced to pay a fine of
two hundred and fifty pesos with subsidiary imprisonment in case of insolvency, and to pay the
costs.

Commissioner of Internal Revenue vs. Juliane Baier-nickel

FACTS:

Respondent Juliane Baier-nickle, a non-resident German citizen, is the President of JUBANITEX, a

domestic corporation engaged in manufacturing, marketing on wholesale only embroided
textile products. The corporation appointed and engaged the service of respondent as