CIR vs JAL

Facts:
JAL is a foreign corporation engaged in the business of International air carriage. Since mid-July of 1957, JAL had 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 July 17 1957, JAL constituted PAL as its agent in the Philippines. PAL sold tickets for and in behalf of JAL. On June 1972, JAL then received deficiency income tax assessments notices and a demand letter from petitioner for years 1959 through 1963. JAL protested against said assessments alleging that as a non-resident foreign corporation, it as 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:
WON proceeds from sales of JAL tickets sold in the Philippines are taxable as income from sources within the Philippines

Ruling:
Yes, Citing the case of CIR v BOAC, the court reiterated 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. The absence of flight operations to and from the Philippines is not determinative of the source of income or the situs of income taxation. The test of taxability is the source, and the source of the income is that activity which produced the income. In this case, as JAL constitutes PAL as its agent, the sales of JAL tickets made by PAL is taxable.