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  • CIR vs. Japan Air Lines, Inc. and CTA

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    Robinson Mojica
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    JAL, a foreign airline corporation, maintained an office in Manila for promotional purposes and appointed PAL as its ticket agent to sell tickets in the Philippines. The CIR assessed JAL for unpaid income taxes from 1959-1963. The Supreme Court ruled that the proceeds from ticket sales made in the Philippines by PAL constituted taxable income sources within the Philippines for JAL. As JAL engaged in the activity of ticket sales within the country through its appointed agent PAL, it was considered a resident foreign corporation doing business in the Philippines and thus subject to Philippine income taxes.

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    249. CIR vs. Japan Air Lines, Inc. and CTA

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    JAL, a foreign airline corporation, maintained an office in Manila for promotional purposes and appointed PAL as its ticket agent to sell tickets in the Philippines. The CIR assessed JAL for unpaid income taxes from 1959-1963. The Supreme Court ruled that the proceeds from ticket sales made in the Philippines by PAL constituted taxable income sources within the Philippines for JAL. As JAL engaged in the activity of ticket sales within the country through its appointed agent PAL, it was considered a resident foreign corporation doing business in the Philippines and thus subject to Philippine income taxes.

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    65 views1 page

    CIR vs. Japan Air Lines, Inc. and CTA

    Uploaded by

    Robinson Mojica
    JAL, a foreign airline corporation, maintained an office in Manila for promotional purposes and appointed PAL as its ticket agent to sell tickets in the Philippines. The CIR assessed JAL for unpaid income taxes from 1959-1963. The Supreme Court ruled that the proceeds from ticket sales made in the Philippines by PAL constituted taxable income sources within the Philippines for JAL. As JAL engaged in the activity of ticket sales within the country through its appointed agent PAL, it was considered a resident foreign corporation doing business in the Philippines and thus subject to Philippine income taxes.

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    © All Rights Reserved
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    of 1

    UNIVERSITY OF SANTO TOMAS

    FACULTY OF CIVIL LAW


    CFL – Atty. Ismael Sarangaya

    Commissioner of Internal Revenue vs. Japan Air Lines, Inc., and the Court of Tax Appeals
    G.R. No. 60714, 4 October 1991, Paras, J.

    Facts:
    Japan Air Lines, Inc. or JAL is a foreign corporation engaged in the business of International air carriage. JAL
    maintained an office at the Filipinas Hotel, Roxas Boulevard Manila.The said office did not sell tickets but was
    merely for the promotion of the company. On 17 July 1957, JAL constituted Philippine Airlines (PAL) as its
    ticket agent in the Philippines. PAL therefore sold tickets for and in behalf of JAL.
    On June 1972, JAL received deficiency income tax assessments notices and a demand letter from petitioner CIR
    for years 1959 through 1963. JAL protested against said assessments alleging that as a non-resident foreign
    corporation, it is taxable only on income from Philippines sources as determined by section 37 of the Tax Code,
    there being no income on said years, JAL is not liable for taxes.
    Issue:
    Whether or not the proceeds from sales of JAL tickets sold in the Philippines by Philippine Airlines (PAL) are
    taxable as income from sources within the Philippines.
    Ruling:
    YES. Under Section 20 of the 1977 Tax Code:
    (h) the term `resident foreign corporation' applies to a foreign corporation engaged in trade or business within
    the Philippines or having an office or place of business therein.
    (i) the term `non-resident foreign corporation' applies to a foreign corporation not engaged in trade or business
    within the Philippines and not having any office or place of business therein.
    Gross income includes gains, profits, and income derived from salaries, wages or compensation for personal
    service of whatever kind and in whatever form paid, or from profession, vocations, trades, business, commerce,
    sales, or dealings in property, whether real or personal, growing out of the ownership or use of or interest in
    such property; also from interests, rents, dividends, securities, or the transaction of any business carried on for
    gain or profit, or gains, profits and income derived from any source whatever. (Sec. 29[3])
    In citing the landmark case of Commissioner of Internal Revenue vs. British Overseas Airways Corporation, the
    Supreme Court ruled that "The source of an income is the property, activity or service that produced the
    income. For the source of income to be considered as coming from the Philippines, it is sufficient that the
    income is derived from activity within the Philippines. In BOAC's case, the sale of tickets in the Philippines is
    the activity that produces the income. The tickets exchanged hands here and payments for fares were also
    made here in Philippine currency. The situs of the source of payments is the Philippines. The flow of wealth
    proceeded from, and occurred within, Philippine territory, enjoying the protection accorded by the Philippine
    government. In consideration of such protection, the flow of wealth should share the burden of supporting the
    government.”
    There being no dispute that JAL constituted PAL as local agent to sell its airline tickets, there can be no
    conclusion other than that JAL is a resident foreign corporation, doing business in the Philippines. Indeed, the
    sale of tickets is the very lifeblood of the airline business, the generation of sales being the paramount objective
    (Commissioner of Internal Revenue vs. British Overseas Airways Corporation, supra).

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