GR 180356; (February, 2010) (Digest)
G.R. No. 180356; February 16, 2010
SOUTH AFRICAN AIRWAYS, Petitioner, vs. COMMISSIONER OF INTERNAL REVENUE, Respondent.
FACTS
Petitioner South African Airways is a foreign corporation with no landing rights in the Philippines. It sells passage documents for its off-line flights (flights not to/from the Philippines) through a general sales agent in the Philippines, Aerotel Limited Corporation. Petitioner is not registered or licensed to do business in the Philippines. For the taxable year 2000, petitioner filed quarterly and annual income tax returns and paid a total of PhP 1,727,766.38 as a 2.5% tax on its Gross Philippine Billings (GPB). It subsequently filed a claim for refund of this amount, arguing it was erroneously paid. The claim was unheeded, prompting a Petition for Review before the Court of Tax Appeals (CTA). The CTA First Division denied the petition, ruling that petitioner was a resident foreign corporation engaged in trade or business in the Philippines and was liable for the 32% income tax under Section 28(A)(1) of the 1997 National Internal Revenue Code (NIRC), not the 2.5% tax on GPB. The CTA En Banc affirmed this decision. Petitioner elevated the case to the Supreme Court.
ISSUE
1. Whether petitioner, as an off-line international carrier selling passage documents through an independent sales agent in the Philippines, is engaged in trade or business in the Philippines subject to the 32% income tax under Section 28(A)(1) of the 1997 NIRC.
2. Whether the income derived by petitioner from the sale of passage documents covering its off-line flights is Philippine-source income subject to Philippine income tax.
3. Whether petitioner is entitled to a refund or tax credit of the erroneously paid tax on Gross Philippine Billings for the taxable year 2000.
RULING
1. Yes, petitioner is subject to the 32% income tax under Section 28(A)(1) of the 1997 NIRC. The Supreme Court held that petitioner, as an off-line international carrier with a sales agent in the Philippines, is engaged in trade or business in the Philippines. The Court cited Commissioner of Internal Revenue v. British Overseas Airways Corporation, which ruled that off-line air carriers with general sales agents in the Philippines are doing business in the country. The amendment to the definition of GPB in the 1997 NIRC (Section 28(A)(3)(a))—which now bases GPB on carriage originating from the Philippines, irrespective of the place of sale—does not exempt off-line carriers from income tax. Since petitioner does not have flights to/from the Philippines, Section 28(A)(3)(a) does not apply, but the general rule under Section 28(A)(1) (32% tax on taxable income) applies. Legislative intent, as inferred from the statute’s plain language, does not support exemption for off-line carriers.
2. Yes, the income from the sale of passage documents in the Philippines is Philippine-source income. The Court affirmed the ruling in British Overseas Airways that income from sales of passage documents in the Philippines by an off-line carrier constitutes income from within the Philippines. The presence of a sales agent conducting business activities in the country establishes a taxable nexus.
3. The case is remanded to the CTA for further proceedings to determine petitioner’s exact tax liability and refund eligibility. The Supreme Court denied the immediate grant of a refund. It held that while petitioner is not liable for the 2.5% tax on GPB, it is liable for the 32% income tax on its taxable income. However, the records lack sufficient evidence to compute petitioner’s taxable income (gross income less deductions) under Section 28(A)(1). The tax liability under Section 28(A)(1) may differ from the amount paid under the GPB tax. Therefore, the CTA must receive evidence to determine petitioner’s correct tax liability. Only after this computation can it be established whether petitioner is entitled to a refund or has a tax deficiency.
DISPOSITIVE PORTION:
The assailed CTA En Banc Decision and Resolution are SET ASIDE. The case is REMANDED to the CTA En Banc for further proceedings, specifically the reception of evidence to determine petitioner’s tax liability under Section 28(A)(1) of the 1997 NIRC and for appropriate disposition.