Facts:
British Overseas Airways Corp. (BOAC) is a 100% Britis Government-owned corporation engaged ininternational airline business and is a member of the Interline Air Transport Association, and thus, it operatesair transportation service and sells transportation tickets over the routes of the other airline members. From1959 to 1972, BOAC had no landing rights for traffic purposes in the Philippines and thus did not carrypassengers and/or cargo to or from the Philippines but maintained a general sales agent in the Philippines --Warner Barnes & Co. Ltd., and later, Qantas Airwayus -- which was responsible for selling BOAC ticketscovering passengers and cargoes. The Commissioner of Internal Revenue assessed deficiency income taxesagainst BOAC.
Issue:
Whether the revenue derived by BOAC from ticket sales in the Philippines for air transportation, whilehaving no landing rights in the Philippines, constitute income of BOAC from Philippine sources, andaccordingly, taxable
Ruling:
Yes. 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 fromactivity within the Philippines. Herein, the sale of tickets in the Philippines is the activity that produced theincome. 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 considerationof such protection, the flow of wealth should share the burden of supporting the government. PD 68, inrelation to PD 1355, ensures that international airlines are taxed on their income from Philippine sources. The2 1/2 %tax on gross billings is an income tax. If it had been intended as an excise or percentage tax, it wouldhave been placed under Title V of the Tax Code covering taxes on business.
British Overseas Airways Corp. (BOAC) is a 100% Britis Government-owned corporation engaged ininternational airline business and is a member of the Interline Air Transport Association, and thus, it operatesair transportation service and sells transportation tickets over the routes of the other airline members. From1959 to 1972, BOAC had no landing rights for traffic purposes in the Philippines and thus did not carrypassengers and/or cargo to or from the Philippines but maintained a general sales agent in the Philippines --Warner Barnes & Co. Ltd., and later, Qantas Airwayus -- which was responsible for selling BOAC ticketscovering passengers and cargoes. The Commissioner of Internal Revenue assessed deficiency income taxesagainst BOAC.
Issue:
Whether the revenue derived by BOAC from ticket sales in the Philippines for air transportation, whilehaving no landing rights in the Philippines, constitute income of BOAC from Philippine sources, andaccordingly, taxable
Ruling:
Yes. 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 fromactivity within the Philippines. Herein, the sale of tickets in the Philippines is the activity that produced theincome. 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 considerationof such protection, the flow of wealth should share the burden of supporting the government. PD 68, inrelation to PD 1355, ensures that international airlines are taxed on their income from Philippine sources. The2 1/2 %tax on gross billings is an income tax. If it had been intended as an excise or percentage tax, it wouldhave been placed under Title V of the Tax Code covering taxes on business.
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