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Commissioner of Internal Revenues vs.

United States Lines Company

f G.R. No. L-16850, May 30, 1962


En Banc, Barrera, J.

Facts: US Lines Company (US Lines for brevity) is a foreign corporation duly licensed to do
business in the Philippines under the trade name “American Pioneer Lines”. US Lines is the

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operator of ocean-going vessels transporting passengers and freight to and from the Philippines.
It is also the sole agent and representative of the Pacific Far East Line, Inc., another shipping
company engaged in business in the Philippines as a common carrier by water. In the
examination of its books of accounts and other records for the period from January 1, 1950 to

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September 30, 1955, it was found that the Company also acted in behalf of the West Coast Trans-
Oceanic Steamship Lines Co., Inc., a non-resident foreign corporation, in connection with the
transportation of chrome ores from Masinloc, Zambales to the United States that was boarded “SS
Portland Trader”. Thus, as a consequence thereof, the CIR assessed and demanded from the

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Company, as deficiency tax, (a) the sum of P6,691.36 for its own business under the name
American Pioneer Lines; (b) P5,429.00 as agent of Pacific Far East Line, Inc.; and (c) P13,649.05
on the freight revenue of the West Coast Trans-Oceanic Steamship Lines Co. from the carriage or
transportation of the chrome ores, or a total of P25,769.41. US Lines questioned the correctness

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of the assessment made by the CIR more particularly the imposition of percentage tax on the
transportation of the chrome ores. The CTA ruled in favor of US Lines, finding that a shipping
agent is not personally responsible for the payment of the tax obligations of its principal,
reasoning that there is no law constituting a shipping agent as a withholding agent of the taxes
due from its principal. It further stated that a shipping agent can only be held liable for the
payment of the common carrier's percentage tax if such obligation is stipulated in the agency
agreement, or if the agent voluntarily assumes the tax liability.

Issue: Whether or not the CTA was correct in finding that US Lines was NOT liable to pay the

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percentage tax demanded by the CIR.

Decision:

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The CTA was incorrect. What the legal provision purports to tax is the business of transportation,
so much so that the tax is based on the gross receipts. The person liable is of course the owner or
operator, but this does not mean that he and he alone can be made actually to pay the tax. In
other words, whoever acts on his behalf and for his benefit may be held liable to pay, for and on

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behalf of the carrier or operator, such percentage tax on the business.

It is claimed that US Lines merely acted as a "husbanding agent" of the vessel with limited powers.
This appears not to be so. A "husbanding agent" is the general agent of the owner in relation to
the ship, with powers, among others, to engage the vessel for general freight and the usual

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conditions, and settle for freight and adjust averages with the merchant. But whatever may be the
technical functions of a "ship's husband", US Lines was considered and acted more as a general
agent. The records showed that US Lines as the shipowner's local agent or the ship agent
representing the ownership of the vessel. To adopt the view of the trial court would be to

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sanction the doing of business in the Philippines by non-resident corporations over which we
have no jurisdiction, without subjecting the same to the operation of our revenue and tax laws, to
the detriment and discrimination of local business enterprises.

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The Commissioner of Internal Revenue vs. Court of Tax Appeals Eastern Extension
Australasia and China Telegraph Co.
G.R. No. L-44007, March 20, 1991
First Division, Medialdea, J.

Facts: Eastern Extension Australasia and China Telegraph Co. is a foreign corporation that was
given a concession for the construction, operation and maintenance of submarine telegraph cable
from Hong Kong to Manila on 30 March 1898 by a Royal Decree of the Spanish Government.
When the concession expired in1952, RA 808 was approved, which granted the company a
legislative franchise “to land, construct, maintain and operate a submarine telegraph cable
connecting Manila to Hong Kong”. It also granted tax exemption from the payment of all taxes
except for a franchise tax of 5% of the gross earnings and the tax on its real property. In 1967, RA
808 was amended by RA 5002 by enlarging the scope of the franchise granting respondent
corporation a franchise to land, construct, maintain and operate telecommunications by cable or
other means known to science or which in the future may be developed for the transmission of
messages between any point in the Philippines to points exterior thereto. The controversy
commenced in 1971 when the CIR assessed deficiency income tax, inclusive of surcharges,
interests and penalties thereon for years 1965-1970, against the Eastern Extension Australasia
and China Telegraph Co on the belief that the RA 808 and RA 5002 was inoperative for failure to
conform with the constitutional requirement that franchise holders should be organized under
Philippine Laws and that 60% of its capital owned by Filipinos. Eastern Extension Australasia
and China Telegraph Co. filed a petition for review before the CTA contesting the legality of the
tax assessment. The CTA declared that the CIR’s assessment shall be held cancelled and without
legal force and effect and ruled that the franchise was unconstitutional.

Issue: Whether or not the provision in the franchise requiring the payment of only 5% of gross
receipts in lieu of any and all taxes is unenforceable and without effect.

Decision:

No. A legislative franchise partakes of the nature of a contract. As the Court ruled in the case of
Province of Misamis Oriental v. Cagayan Electric Power and Light Company, Inc.: Franchises spring
from contracts between the sovereign power and private citizens made upon valuable
considerations, for purposes of individual advantage as well as public benefit. It is generally
considered that the obligation resting upon the grantee to comply with the terms and conditions
of the grant constitutes a sufficient consideration. It can also be said that the benefit to the
community may constitute the sole consideration for the grant of a franchise by the state. Such
being the case, the franchise is the law between the parties and they are bound by the terms
thereof. Petitioner, being a government agency, is also bound by the terms of the franchise. It
cannot declare the franchise as "ineffective and unenforceable" merely by stating that the private
respondent failed to comply with the requirements of the general statutes which are not
mentioned in RA 808. To allow it’s claim would be to defy and ignore the superiority of a
legislative franchise granted by a special enactment over a mere authorization or permit granted
in accordance with the provisions of laws of general application. Republic Act No. 808 as
amended by Republic Act No. 5002, is a special law applicable only to the respondent corporation,
while the Public Service Act and the Corporation Law are general statutes. The presumption is
that special statutes are exemptions to the general law because they pertain to special charter
granted to meet a particular set of conditions and circumstances.
Commissioner of Internal Revenue vs. Bank of Commerce
GR No. 149636, June 8, 2005
Second Division, Callejo, Sr., J.

Facts: In 1994 and 1995, the Bank of Commerce derived passive income in the form of interests
or discounts from its investments in government securities and private commercial papers. On
several occasions during the said period, it paid 5% gross receipts tax on its income, as reflected
in its quarterly percentage tax returns. Included therein were the bank’s passive income from the
said investments which had already been subjected to a final tax of 20%. Meanwhile in 1996, the
CTA rendered in one case, holding that the 20% final withholding tax on interest income from
banks does not form part of taxable gross receipts for Gross Receipts Tax (GRT) purposes.
Relying on the said decision, the respondent bank filed an administrative claim for refund with
the Commissioner of Internal Revenue on. Before the Commissioner could resolve the claim, the
bank filed a petition for review with the CTA, lest it be barred by the mandatory two-year
prescriptive period. The Commissioner interposed that alleged refundable/creditable gross
receipts taxes were collected and paid pursuant to law and pertinent BIR implementing rules and
regulations; hence, the same are not refundable. The bank must prove that the income from
which the refundable/creditable taxes were paid from, were declared and included in its gross
income during the taxable year under review. The bank must prove that the exclusions claimed
by it from its gross receipts must be an allowable exclusion under the Tax Code and its pertinent
implementing Rules and Regulations. Moreover, it must likewise prove that the alleged
refundable/creditable gross receipt taxes were neither automatically applied as tax credit against
its tax liability for the succeeding quarter/s of the succeeding year nor included as creditable
taxes declared and applied to the succeeding taxable year/s.

Issues: Whether or not the 20% final withholding tax on bank’s interest income forms part of
the taxable gross receipts in computing the 5% gross receipts tax.

Decision:

The final withholding tax forms part of the bank’s gross receipts in computing the gross receipts
tax. The word "gross" must be used in its plain and ordinary meaning. It is defined as "whole,
entire, total, without deduction." A common definition is "without deduction." "Gross" is also
defined as "taking in the whole; having no deduction or abatement; whole, total as opposed to a
sum consisting of separate or specified parts." Gross is the antithesis of net. Indeed, in China
Banking Corporation v. Court of Appeals, the Court defined the term in this wise: As commonly
understood, the term "gross receipts" means the entire receipts without any deduction.
Deducting any amount from the gross receipts changes the result, and the meaning, to net
receipts. Any deduction from gross receipts is inconsistent with a law that mandates a tax on
gross receipts, unless the law itself makes an exception.
Tambunting Pawnshop, Inc. vs. Commissioner of Internal Revenues
G.R. No. 179085, January 21, 2010
First Division, Morales, C

Facts: H. Tambunting Pawnshop, Inc. (Tambunting) is a domestic corporation duly licensed and
authorized to engage in the pawnshop business. Tambunting filed a petition for review with the
CTA claiming among others that pawnshops are not subject to VAT pursuant to Sec. 108 of the
NIRC. However, the First Division of the CTA ruled that Tambunting is liable for the payment of
VAT for the taxable ear 1999. Consequently, Tambunting filed a petition for review on certiorari
claiming that a pawnshop is not enumerated as one of those engaged in "sale or exchange of
services" in Section 108 of the NIRC, citing the case of Commissioner of Internal Revenue vs.
Michel J. Lhuillier Pawnshops, Inc., it contends that the nature of the business of pawnshops does
not fall under definition of "service".

Issue: Whether or not the CTA erred in ruling that Tambunting is subject to the payment of VAT
on the taxable year 1999.

Decisions:

The SC set aside the decision of the CTA regarding the VAT liabilities of Tambunting. At the time
of the disputed assessment, pawnshops were not subject to 10% VAT under the general
provision on "sale or exchange of services" as defined under Section 108 (A) of the Tax Code of
1997, which states: "'sale or exchange of services' means the performance of all kinds of services
in the Philippines for others for a fee, remuneration or consideration… Instead, due to the specific
nature of its business, pawnshops were then subject to 10% VAT under the category of non-bank
financial intermediaries.

Since petitioner is a non-bank financial intermediary, it is subject to 10% VAT for the tax year
996 to 2002; however, with the levy, assessment and collection of VAT from non-bank financial
intermediaries being specifically deferred by law, then petitioner is not liable for VAT during
these tax years. But with the full implementation of the VAT system on non-bank financial
intermediaries starting January 1, 2003, petitioner is liable for10% VAT for said tax year. And
beginning 2004 up to the present, by virtue of RA 9238, petitioner is no longer liable for VAT but
it is subject to percentage tax on gross receipts from 0% to 5%, as the case may be. Since the
imposition of VAT on pawnshops, which are non-bank financial intermediaries, was deferred for
the tax years 1996 to 2002, petitioner is not liable for VAT for the tax year 1999.
Manila Electric Company vs. AL Yatco
G.R. No. 45697, November 1, 1939
En Banc, Moran, J.

Facts: Manila Electric Company is a Philippine corporation that had its certain real and personal
properties located in the Philippines insured with New York Insurance Company and the United
States Guaranty Company. The insurance was entered into in behalf of Manila Electric by its
broker in New York City. The insurance companies are foreign corporations not licensed to do
business in the Philippines and having no agents therein. Manila Electric Company paid the
insurance premiums through its broker which the CIR assessed and levied a tax of 1% of the
premium amount which the Manila Electric Company paid in protest. The protest having been
overruled, Manila Electric Company instituted the present action to recover the tax. The trial
court dismissed the complaint, thus Manila Electric Company took an appeal.

Issue: Whether or not the CIR was correct in imposing 1% tax on the insurance premiums paid
by Manila Electric Company to its foreign brokers covering properties situated in the Philippines.

Decision:

Yes. Where the insured is within the Philippines, the risk insured against also within the
Philippines, and certain incidents of the contract are to be attended to in the Philippines, such as,
payment of dividends when received in cash, sending of an adjuster into the Philippines in case of
dispute, or making of proof of loss, the Commonwealth of the Philippines has the power to
impose the tax upon the insured, regardless of whether the contract is executed in a foreign
country and with a foreign corporation. Under such circumstances, substantial elements of the
contract may be said to be so situated in the Philippines as to give its government the power to
tax. And, even if it be assumed that the tax imposed upon the insured will ultimately be passed on
to the insurer, thus constituting an indirect tax upon the foreign corporation, it would still be
valid, because the foreign corporation, by the stipulation of its contract, has subjected itself to
that taxing jurisdiction of the Philippines. After all, the Commonwealth of the Philippines, by
protecting the properties insured, benefits the foreign corporation, and it is but reasonable that
the latter should pay a just contribution therefor. It would certainly be a discrimination against
domestic corporations to hold the tax valid when the policy is given by them and invalid when
issued by foreign corporations.
Standard-Vacuum Oil Company vs. MD Antigua and the Municipality of Opon
G.R. No. L-6931, April 30, 1955
En Banc, Montemayor, J.

Facts: Standard Vacuum Oil Company (SVOC) is a foreign corporation duly licensed to transact
business in the Philippines engaged in the importation, distribution and sale of gasoline,
kerosene and other fuel oils. Some of its products, especially kerosene are placed in 5-gallon tin
cans and then distributed and sold throughout the Philippines. SVOC's branch in Cebu operates
and maintains an establishment in the Municipality of Opon where it stores the gasoline,
kerosene and other fuel oils it imports from abroad and where it manufactures gallon tin cans.
The evidence shows that for the years 1950 and 1951 manufactured 2,796,911 and 2,523,975 tin
cans, respectively, or a total of 5,320,886. Thus, the relatively large amount of tax collected by the
Municipality of Opon which the SVOC paid under protest. SVOC in its action to recover refund
from the Municipality of Opon sought the nullification of Ordinance No. 9 Series 1949 the latter
enacted which imposed graduated license tax on the business of manufacturing in cans based on
the maximum output capacity of the factory. SVOC contends that the graduated license tax
partake of the nature of a percentage or specific tax, being an indirect percentage tax on specified
articles, namely, the tin cans, and such percentage tax is outside the powers of a municipal
corporation; and that assuming that it is not a percentage but an occupation tax, still it does not
apply to the tin can factory of SVOC because it is not a business operated for profit but is merely
incidental to its main business of importing gasoline, kerosene and other fuel oils and later
placing them in tin cans for distribution and sale. The trial court held that the manufacture of tin
cans by SVOC to be used as containers of its gasoline, kerosene and other fuel oils is an
occupation by itself from which it derives benefit by not buying said tin cans from other persons
who would otherwise manufacture them; and that were the plaintiff exempted from paying the
tax on the cans manufactured and used for the distribution of its commodity while others
engaged in the manufacture of tin cans are required to pay the tax, then the said tax ceases to be
just and uniform.

Issue: Whether or not the imposition of occupation tax against SVOC was correct.

Decision:

The SC agreed that the graduated license tax imposed by the ordinance in question is an
occupation tax, imposed not under the police power of the municipality but by virtue of its taxing
power for purposes of revenue, and is in accordance with law. However, where the manufacture
of tin cans as in the present case is conducted not as independent business, and for profit but
merely as an incident to or part of its main business, then it may not be considered as an
occupation or business which may be taxed separately.
Where a person or corporation is engaged in a distinct business and, as a feature thereof, in an
activity merely incidental which serves no other person or business, the incidental and restricted
activity is not to be considered as intended to be separately or additionally taxed.
When a person or company is already taxed on its main business, it may not be further taxed for
doing something or engaging in an activity or work which is merely a part of, incidental to and is
necessary to its main business.
Commissioner of Internal Revenue vs. The Philippine American Accident Insurance
Company, Inc. et. al.
GR No. L-141658, March 18, 2005
First Division, Carpio, J.

Facts: PHILAM American Accident Insurance, PHILAM Assurance Company and PHILAM General
Insurance Company are domestic corporations licensed to transact insurance business in the
Philippines. In the taxable years of August 1971 to September 1972, the said insurance
companies paid in protest the 3% tax imposed on lending investors by Commonwealth Act 466.
They argued that they were not lending investors and as such were not subject to the 3% lending
investors’ tax hence entitled for refund. The CTA held that respondents are not taxable as lending
investors because "lending investors" does not embrace insurance companies. Originally, a
person who was engaged in lending money at interest was taxed as a money lender. The term
money lenders or lending investors was defined as including "all persons who make a practice of
lending money for themselves or others at interest." Under this law, an insurance company was
not considered a money lender and was not taxable as such. The lending of money at interest by
insurance companies constitutes a necessary incident of their regular business. For this reason,
insurance companies are not liable to tax as money lenders or real estate brokers for making or
negotiating loans secured by real property.

When the case was brought to the CA, the appellate court also ruled that domestic insurance
companies are not taxable as lending investors. Hence, the CIR raised the issue to the SC.

Issue: Whether or not domestic insurance companies are subject to the percentage tax of 3% as
lending investors.

Decisions:

No. Insurance companies and lending investors are different enterprises in the eyes of the law.
Lending investors cannot, for a consideration, hold anyone harmless from loss, damage or
liability, nor provide compensation or indemnity for loss. The underwriting of risks is the
prerogative of insurers, the great majority of which are incorporated insurance companies like
the respondents. Further, the granting of certain loans is one of several means of investment
allowed to insurance companies. No less than the Insurance Code mandates and regulates this
practice. Unlike the practice of lending investors, the lending activities of insurance companies
are circumscribed and strictly regulated by the State. The creation of investment income in the
manner sanctioned by the laws on insurance is thus part of the business of insurance, and the
fruits of these investments are essentially income from the insurance business. The Court has
also held that when a company is taxed on its main business, it is no longer taxable further for
engaging in an activity or work which is merely a part of, incidental to and is necessary to its
main business. Respondents companies already paid percentage and fixed taxes on their
insurance business. To require them to pay percentage and fixed taxes again for an activity which
is necessarily a part of the same business, the law must expressly require such additional
payment of tax. There is, however, no provision of law requiring such additional payment of tax.
CA 466 does not require insurance companies to pay double percentage and fixed taxes. They
merely tax lending investors, not lending activities. Respondents were not transformed into
lending investors by the mere fact that they granted loans, as these investments were part of,
incidental and necessary to their insurance business.
China Banking Corporation vs. Court of Appeals et al.
GR No. 146749, June 10, 2003
First Division, Carpio, J.

Facts: China Banking Corporation (CBC) is a universal banking corporation organized and
existing under Philippine law. CBC paid CIR gross receipts tax for its income from interests on
loan investments, commissions, services, collection charges, foreign exchange profits and other
operating earnings during the second quarter of 1994. In 1996, the CTA ruled in one case that the
20% final withholding tax on a bank’s passive interest income does not form part of its taxable
gross receipts. It was also contended that the inclusion of the 20% final withholding tax in the
computation of the gross tax receipt constitutes double taxation. Thus pursuant to said decision,
CBC filed for a tax refund or credit in the CTA. CIR however argued that the final withholding tax
on a bank’s interest income forms part of its gross receipts in computing the gross receipts tax
further contending that the term "gross receipts" means the entire income or receipt, without
any deduction. CTA ruled in favor of CBC and held that the 20% final withholding tax on interest
income does not form part of CBC’s taxable gross receipts. As decided by the CTA, it is but logical
to infer that the final tax, not having been received by CBC but instead went to the coffers of the
government, should no longer form part of its gross receipts for the purpose of computing gross
receipts tax. When the case was elevated to the CA, the appellate court affirmed the decision of
the CTA finding the 20% final withholding tax excluded in the computation of gross tax receipts.

Issues:
a) Whether or not the 20% final withholding tax be excluded in the computation of gross tax
receipts.
b) Whether or not there was double taxation.

Decision:

a) No. The SC ruled that the amount of interest income withheld in payment of the 20% final
withholding tax forms part of CBC’s gross receipts in computing the gross receipts tax on banks.
The concept of a withholding tax on income obviously and necessarily implies that the amount of
the tax withheld comes from the income earned by the taxpayer. Since the amount of the tax
withheld constitutes income earned by the taxpayer, then that amount manifestly forms part of
the taxpayer’s gross receipts. Because the amount withheld belongs to the taxpayer, he can
transfer its ownership to the government in payment of his tax liability. The amount withheld
indubitably comes from income of the taxpayer, and thus forms part of his gross receipts. In
addition, Section 8 of Revenue Regulations No. 12-80 expressly states that interest income, even
if subject to the final withholding tax and excluded from gross income for income tax purposes,
should still form part of the bank’s taxable gross receipts.

b) There is no double taxation. The gross receipts tax is a business tax under Title V of the Tax
Code, while the final withholding tax is an income tax under Title II of the Code. There is no
double taxation if the law imposes two different taxes on the same income, business or property.
The second interpretation, of a prohibition on "a tax on a tax," is as illusory as the prohibition on
double taxation. The gross receipts tax falls not on the final withholding tax, but on the amount of
the interest income withheld as the final tax. What is being taxed is still the interest income. The
law imposes the gross receipts tax on that portion of the interest income that the depository bank
withholds and remits to the government.
Compania Maritima vs. Acting Commissioner of Internal Revenue
CTA Case No. 1426

Facts: Compania Maritima (Compania) is a domestic corporation engaged in inter-island and


inter-ocean transportation of passengers and cargoes by ship. Compania was found among others
that when it made its quarterly and monthly gross receipts in the taxable years 1956 to 1960, it
deducted 10% which corresponds to an estimated reserve amount paid by customers on
accouant of unshipped freights and returned passengers tickets. The said reserve of 10% after
liquidation was thereafter declared and returned for taxation in the following month after due
date of payment. On the theory that the 2% common carrier's tax due on the said unliquidated
balance, although subsequently paid by Compania was not paid on or before its due date, thus the
investigating revenue imposed 25% surcharge in accordance with Section 183 NIRC. In answer
to the petition for review, the CIR for the first claimed that the common carrier's tax returns filed
during the period covered by the assessment were false or fraudulent and they did not reflect the
actual gross receipts of Compania. Thus in addition to the surcharge, it now seeks to collect the
deficiency percentage tax and also 50% ad valorem penalty.

Issue:

a) Whether or not the Compania Maritima is subject to the 25% surcharge on the percentage tax
due on the unliquidated balance of the 10% reserve;

b) Whether or not the Compania Maritima is subject to the 50% surcharge or ad valorem penalty
for filing false or fraudulent returns as a common carrier.

Decisions:

a) No. The method adopted by the Compania in deducting from its monthly gross receipts 10%
thereof as a reserve for the cost of unshipped cargoes and returned passenger tickets is not
sanctioned by the Tax Code. It is a cardinal rule in taxation that the matter of deduction from
gross receipts, gross earnings or gross income of a taxpayer is an act of legislative grace. Where
the law does not provide a deduction from a taxpayer’s taxable gross receipts he cannot do so
without violating the provision of the law itself despite the plausible reason therefor. Moreover, if
petitioner intended to minimize errors in declaring and returning its taxable gross receipts
during the month and thereby avoid future claims for refund, the practical, easy and legal way to
do it is to make a true and complete return of the amount of its monthly gross receipts and within
10 not later 20 days after the end of each month, pay the tax due thereon as required by Section
183 of NIRC.

b) No. Compania’s failure to declare for taxation the unliquidated 10% on its due date does not
constitute fraud with intent to evade the tax it appearing that the deductions were resorted to
because of the inaccuracy of the figures shown in the monthly passenger and cargo manifests.
Collection of Internal Revenue vs. Manila Jockey Club, Inc.
G.R. No. L-8755, March 23, 1956.
First Division, Bautista Angelo, J.

Facts: The Manila Jockey Club, Inc. is the owner of the San Lazaro Hippodrome which is used
principally for holding horse races either by the club itself or by the PCSO or other charitable
institutions authorized by law to hold horse races. During the fiscal years 1951 and 1952, the
PCSO held benefit races for charitable, relief and civic purposes in said hippodrome for the use of
which the Club was paid in the form of rentals which were included in its total income declared in
its return for said years. It is on this theory that the Club now seeks refund for the amount thus
collected by the CIR as such is claimed to be tax exempt pursuant to Section 3 of RA 79 which
states: The racing club holding these races shall be exempt from the payment of any municipal or
national tax.

After hearing, the CTA rendered a decision holding that the rentals received by the Club from the
PCSO for the use of its premises were exempt from income tax and, as a consequence, it ordered
the CIR to refund to the Club of the amount thus paid. From this decision, the CIR brought the
case on appeal to the Supreme Court.

Issue: Whether or not payment of rentals received by The Manila Jockey Club, Inc. from PCSO for
the use of its hippodrome was exempt from tax as contemplated in Section 3 of RA 79.

Decisions:

No. What the law contemplated in exempting payment of tax is the holding of horse races, not
merely under its auspices, but by the PCSO itself, even if for that purpose it has to lease or make
use of race tracks belonging to private racing clubs. The purpose of the law undoubtedly is to give
to said Office full control of the horse races considering that they involve the handling of funds.
And evidently this is also the interpretation entertained by the officials of said Office, when,
instead of employing the personnel of the Manila Jockey Club, Inc., employed its own personnel
and assumed full control of the races. It is because of this view of the law that we believe that the
provisions of section 3 should be interpreted as conveying the meaning that the one holding the
races is not the racing club but the PCSO and that the exemption therein provided only refers to
those taxes, municipal or national, that the law requires to be paid in connection with said races.
In other words, said section should be read to mean “the racing club where the races are held” in
order that it may be consistent with the purpose of the law.
Sy Chiuco vs. Collector of Internal Revenue
GR No, L-13387, March 28, 1960
En Banc, Bautista Angelo, J.

Facts: Sy Chiuco was the owner and operator of the La Loma Cabaret from 1926 to 956. The
customers who patronized the cabaret were charged P0.30 per dance, P0.10 to be paid before
entering the dance hall and the remaining P0.20 to be paid to the "bailarinas" after the dance.
During the period from January, 1947 to August, 1950, petitioner failed to include in its declare
for tax purposes the P0.20 dance fee payable to the "bailarinas" which petitioner collected as part
of his business, respondent assessed against him a deficiency amusement tax, including 50%
surcharge. From the such assessment, Chiuco took the case on appeal to the CTA where, after due
hearing, said court rendered decision affirming the contention of CIR holding Chiuco liable to pay
deficiency amusement tax and surcharge. Chiuco contends that gross receipts should only include
what he collects as admission fee, and not those representing the dance fee because they do not
go to the operator, but to the "bailarinas". In other words, petitioner contends that because those
dance fees go to the "bailarinas", they could not be considered as part of the gross receipts of the
cabaret.

Issue: Whether or not the dance fee being collected by La Lorna Cabaret shall be included in the
gross receipts thus subject to amusement tax.

Decision:

A cabaret is a place of amusement where customers go because of their desire to dance and
where the "bailarinas" are the main attraction. Dancing is the main business and customers
patronize the place attracted by the "bailarinas". As a matter of fact, "bailarinas" are the
indispensable factor in the operation of the business. Whatever is paid to them should, therefore,
be considered as paid on account of the business, and as such it should be considered as part of
petitioner's gross receipts. Gross receipts in the operation of the cabaret includes mainly all
receipts "irrespective of whether or not any amount is charged or paid for admission." The law
undoubtedly mainly contemplates to include the fees that may be paid by the customer for the
privilege of dancing for it considers as incidental what may be paid by the customer as admission
fee. In other words, the law in effect considers the amount charged against the customers for
dancing with the "bailarinas" as the main gross receipts of the cabaret, the admission fee thereto
being merely incidental. In this respect, the Court is in full accord with the following
pronouncement of the CTA: We hold that when an operator, proprietor or lessee of a cabaret
takes it upon himself to set a fixed dance fee and thereby tends to the collection of the same for
the benefit of his "bailarinas" or hostesses, the income derived therefrom forms part of his gross
receipts and therefore subject to amusement tax. By such imposition, the operator becomes the
principal party to the implied contract of lease of services with his customers in place of the
"bailarinas" or hostesses under his employ and therefore subject to the resulting liabilities as
such contracting party.
GR No. 168584, October 2007
Republic of the Philippines vs. Hon. Ramon Caguioa
En banc, Carpio Morales, J.

Facts: Indigo Distribution Corporation et al pursuant to RA 7227 applied for and were granted
Certificates of Registration and Tax Exemption by the SBMA. These certificates allowed them to
engage in the business either of trading, retailing or wholesaling, import and export, warehousing,
distribution and/or transshipment of general merchandise, including alcohol and tobacco
products, and uniformly granted them tax exemptions. Congress subsequently passed RA 9334.
On the basis of Section 6 of RA 9334, SBMA issued a Memorandum declaring all importations of
cigars, cigarettes, distilled spirits, fermented liquors and wines into the SBF, including those
intended to be transshipped to other free ports in the Philippines, shall be treated as ordinary
importations subject to all applicable taxes, duties and charges, including excise taxes.
Meanwhile, former BIR Commissioner requested then Customs Commissioner to immediately
collect the excise tax due on imported alcohol and tobacco products brought to the Duty Free
Philippines (DFP) and Freeport zones. Accordingly, the Collector of Customs of the port of Subic
directed the SBMA Administrator to require payment of all appropriate duties and taxes on all
importations of cigars and cigarettes, distilled spirits, fermented liquors and wines; and for all
transactions involving the said items to be covered from then on by a consumption entry and no
longer by a warehousing entry. Upon its implementation, Indigo et al., sought for a
reconsideration of the directives on the imposition of duties and taxes, particularly excise taxes
by the Collector of Customs and the SBMA Administrator. Their request was subsequently denied
prompting them to file with the RTC of Olongapo City a special civil action for declaratory relief
to have certain provisions of R.A. No. 9334 declared as unconstitutional. They prayed for the
issuance of a writ of preliminary injunction and/or TRO and preliminary mandatory injunction.
The same was subsequently granted by Judge Ramon Caguioa. The injunction bond was approved.

Issue: Whether or not Indigo Distribution Corporation et al are exempt from paying duties and
taxes on all importations of cigars and cigarettes, distilled spirits, fermented liquors and wines.

Decision:

The rights granted under the Certificates of Registration and Tax Exemption of Indigo
Distribution Corporation et al are not absolute and unconditional as to constitute rights in esse –
those clearly founded on or granted by law or is enforceable as a matter of law. These certificates
granting private respondents a "permit to operate" their respective businesses are in the nature
of licenses, which the bulk of jurisprudence considers as neither a property nor a property right.
The licensee takes his license subject to such conditions as the grantor sees fit to impose,
including its revocation at pleasure. A license can thus be revoked at any time since it does not
confer an absolute right. While the tax exemption contained in the Certificates of Registration of
private respondents may have been part of the inducement for carrying on their businesses in
the SBF, this exemption, nevertheless, is far from being contractual in nature in the sense that the
non-impairment clause of the Constitution can rightly be invoked.

Silkair (Singapore) Pte. Ltd. vs. Commissioner of Onternal Revenue


GR. No, 166482, January 25, 2012
First Division, Villarama, Jr. J.

Facts: Silkair (Singapore) Pte. Ltd. is a foreign corporation duly licensed to do business in the
Philippines as an on-line international carrier. In the course of its international flight operations,
Silkair purchased aviation fuel from Petron and paid the excise taxes thereon. The payment was
advanced by Singapore Airlines, Ltd. on behalf of Silkair. Silkair filed an administrative claim for
refund of an amount representing the excise taxes on the purchase of jet fuel from Petron, which
it alleged to have been erroneously paid. The claim is based on Section 135 (a) and (b) of the Tax
Code. Silkair also invoked Article 4(2) of the Air Transport Agreement between the Government
of the Republic of the Philippines and the Government of the Republic of Singapore. The CIR,
however, contends that since the excise tax paid by Silkair is an indirect tax, payment of which is
the direct liability of the manufacturer, Petron, and not the Silkair hence the latter is not the
proper party to claim for the refund.

Issue: Whether or not Silkair is entitled for the refund it had been claiming.

Decision:

No. Excise taxes, which apply to articles manufactured or produced in the Philippines for
domestic sale or consumption or for any other disposition and to things imported into the
Philippines, is basically an indirect tax. While the tax is directly levied upon the
manufacturer/importer upon removal of the taxable goods from its place of production or from
the customs custody, the tax, in reality, is actually passed on to the end consumer as part of the
transfer value or selling price of the goods, sold, bartered or exchanged. A person liable for tax
has been held to be a person subject to tax" and properly considered a "taxpayer." The terms
"liable for tax" and "subject to tax" both connote a legal obligation or duty to pay a tax. The excise
tax is due from the manufacturers of the petroleum products and is paid upon removal of the
products from their refineries. Even before the aviation jet fuel is purchased from Petron, the
excise tax is already paid by Petron. Petron, being the manufacturer, is the "person subject to
tax." In this case, Petron, which paid the excise tax upon removal of the products from its Bataan
refinery, is the "person liable for tax." Petitioner is neither a "person liable for tax" nor "a person
subject to tax." There is also no legal duty on the part of Silkair to pay the excise tax; hence, it
cannot be considered the taxpayer. Petron remains the taxpayer because the excise tax is
imposed directly on Petron as the manufacturer. Hence, Petron, as the statutory taxpayer, is the
proper party that can claim the refund of the excise taxes paid to the BIR.

Exxonmobil Petroleum and Chemical Holdings, Inc. - Philippine Branch vs, Commissioner
of Internal Revenue
GR No. 180909, January 19, 2011
Second Division, Mendoza, J.

Facts: Exxon is a foreign corporation authorized to do business in the Philippines through its
Philippine Branch. It is engaged in the business of selling petroleum products to domestic and
international carriers. Exxon purchased from Caltex and Petron Jet A-1 fuel and other petroleum
products, the excise taxes on which were paid for and remitted by both Caltex and Petron. Said
taxes, however, were passed on to Exxon which ultimately shouldered the excise taxes on the fuel
and petroleum products. From November 2001 to June 2002, Exxon sold liters of Jet A-1 fuel to
international carriers, free of excise taxes. Exxon filed a petition for review with the CTA claiming
a refund or tax credit an amount representing the excise taxes it paid on Jet A-1 fuel and other
petroleum products it sold to international carriers. The CTA Division and En Banc dismissed the
actions and ruled on the basis that Exxon has no personality to claim refund. The CTA stated that
Section 130(A)(2) makes the manufacturer or producer of the petroleum products directly liable
for the payment of excise taxes. Therefore, it follows that the manufacturer or producer is the
taxpayer and has the personality to claim for the refund. The CTA also emphasized that tax
refunds are in the nature of tax exemptions and are, thus, regarded as in derogation of sovereign
authority and construed strictissimi juris against the person or entity claiming the exemption

Issue: Whether or not the CTA is correct in holding that Exxon is not a proper party to ask for a
refund.

Decision:

Under Section 135, petroleum products sold to international carriers of foreign registry on their
use or consumption outside the Philippines are exempt from excise tax, provided that the
petroleum products sold to such international carriers shall be stored in a bonded storage tank
and may be disposed of only in accordance with the rules and regulations to be prescribed by the
Secretary of Finance, upon recommendation of the Commissioner. The confusion here stems
from the fact that excise taxes are of the nature of indirect taxes, the liability for payment of
which may fall on a person other than he who actually bears the burden of the tax. Indirect taxes
are those that are demanded, in the first instance, from, or are paid by, one person to someone
else. Accordingly, the party liable for the tax can shift the burden to another, as part of the
purchase price of the goods or services. Although the manufacturer/seller is the one who is
statutorily liable for the tax, it is the buyer who actually shoulders or bears the burden of the tax,
albeit not in the nature of a tax, but part of the purchase price or the cost of the goods or services
sold.

The proper party to question, or seek a refund of, an indirect tax is the statutory taxpayer, the
person on whom the tax is imposed by law and who paid the same even if he shifts the burden
thereof to another. Although the burden of an indirect tax can be shifted to the purchaser, the
amount added or shifted becomes part of the price. Thus, the purchaser does not really pay the
tax per se but only the price of the commodity. Indirect taxes were defined as those that are
demanded, in the first instance, from, or are paid by, one person to someone else. When the seller
passes on the tax to the buyer he in effect shifts only the tax burden and not the liability to pay for
it. As Exxon is not the statutory taxpayer, it is not entitled to claim a refund of excise taxes paid.

Commissioner of Internatl Revenue vs. Pilipinas Shell Petroleum Corporation


GR No. 188497, Februar 19, 2014
First Division, Villarama, Jr. J.

Facts: Pilipinas Shell is engaged in selling & delivering petroleum products to various
international carriers of the Philippines or foreign registry for their use outside the Philippines
from 2000 to 2001. A portion of these sales and deliveries was sourced by Pilipinas Shell from
Petron Corporation (Petron) through a "loan or borrow agreement". The excise taxes paid by
Petron were passed on to Pilipinas Shell and the latter, in turn, sold these to international
carriers net of excise taxes. The other portion was sourced by Pilipinas Shell from its tax-paid
inventories. Pilipinas Shell subsequently filed two separate claims for the refund or credit of the
excise taxes paid on the foregoing sales. Due to the inaction of the BIR on its claims, Pilipinas
Shell decided to file a petition for review with the CTA. The CTA Second Division rendered its
Decision granting Pilipinas Shell's claim but at a reduced amount. The reduced amount was
computed based on Pilipinas Shell's sales and deliveries of petroleum products to international
carriers sourced from its own tax-paid inventories. The claim for refund/credit of the excise taxes
from the sales and deliveries coming from the portion sourced from Petron was disallow. The CIR
claims that Pilipinas Shell is not entitled to a refund/credit of the excise taxes paid on its sales
and deliveries to international carriers for the following reasons: (1) excise taxes are levied on
the manufacturer/producer prior to sale and delivery to international carriers and, regardless of
its purchaser, said taxes must be shouldered by the manufacturer/producer or in this case,
Pilipinas Shell; (2) the excise taxes paid by Pilipinas Shell do not constitute taxes erroneously
paid as they are rightfully due from Pilipinas Shell as manufacturer/producer of the petroleum
products sold to international carriers; (3) the intent of Section 135 of NIRC is to exempt the
international carriers from paying the excise taxes but not the manufacturer/producer; and (4)
BIR Ruling No. 051-99, Revenue Regulations No. 5-2000 and other BIR issuances allowing tax
refund/credit of excise taxes paid on petroleum products sold to tax-exempt entities or agencies
should be nullified for being contrary to Sections 129, 130 and 148 of the NIRC.[11]

Issue: Whether or not Pilipinas Shell is entitled for the refund.

Decision:

Yes. The Chicago Convention provides that fuel and lubricating oils on board an aircraft of a
Contracting State, on arrival in the territory of another Contracting State and retained on board
on leaving the territory of that State, shall be exempt from customs duty, inspection fees or
similar national or local duties and charges. Subsequently, the exemption of airlines from
national taxes and customs duties on spare parts and fuel has become a standard element of
bilateral air service agreements (ASAs) between individual countries. With the prospect of
declining sales of aviation jet fuel sales to international carriers on account of major domestic oil
companies' unwillingness to shoulder the burden of excise tax, or of petroleum products being
sold to said carriers by local manufacturers or sellers at still high prices, the practice of
"Hankering" would not be discouraged. This scenario does not augur well for the Philippines-
growing economy and the booming tourism industry. Worse, the Government would be risking
retaliatory action under several bilateral agreements with various countries.. Evidently,
construction of the tax exemption provision in question should give primary consideration to its
broad implications on the country’s commitment under international agreements.

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