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