G.R. No. L-21913 November 18, 1967
COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. MALAYAN INSURANCE COMPANY, INC., respondent.

FACTS

Malayan Insurance Company, Inc. (MALAYAN), a domestic corporation, had a reinsurance contract with Orion Insurance Company, Ltd. of London (ORION), a non-resident foreign corporation. Without prior authorization, MALAYAN filed ORION’s income tax return for 1958 and paid the tax due of P958.00. MALAYAN later discovered that ORION had commissioned Filipinas Compañia de Seguros (FILIPINAS) as its agent to file the income tax return, and FILIPINAS had paid P778.00 as income tax for ORION for the same year. MALAYAN requested a refund of the P958.00 from the Commissioner of Internal Revenue and, upon inaction, filed a petition in the Court of Tax Appeals. The Commissioner, in his amended answer, alleged that in 1958, MALAYAN had ceded reinsurance premiums to ORION amounting to P64,327.36, which was subject to a withholding tax of P15,416.96. He demanded payment from MALAYAN as the withholding agent and sought to dismiss MALAYAN’s petition, asking instead that MALAYAN be ordered to pay P14,458.96 (after crediting the P958.00). The Court of Tax Appeals ordered the refund of P958.00 to MALAYAN and dismissed the Commissioner’s counterclaim for the withholding tax, reasoning that FILIPINAS was ORION’s duly authorized representative. The Commissioner appealed.

ISSUE

Whether the payment of income tax by FILIPINAS, as ORION’s authorized agent, relieved MALAYAN of its statutory obligation as a withholding agent to withhold and pay the tax on the reinsurance premiums it ceded to ORION.

RULING

No. The Supreme Court modified the decision of the Court of Tax Appeals. The obligation of a withholding agent under Section 53(b) of the National Internal Revenue Code is compulsory and personal. This provision broadly requires any person having control, receipt, custody, or payment of fixed or determinable periodic income (such as reinsurance premiums) for a non-resident foreign corporation not engaged in business in the Philippines to withhold a tax. This mechanism is essential for the government to collect taxes from entities outside its jurisdiction. The Court had previously held that reinsurance premiums ceded to non-resident foreign corporations constitute taxable income from Philippine sources subject to withholding. The fact that ORION had an authorized representative (FILIPINAS) to file its income tax return is immaterial to MALAYAN’s separate and distinct duty as a withholding agent. There was no evidence that the tax paid by FILIPINAS covered the specific reinsurance premiums from MALAYAN, and the amount paid (P778.00) was significantly less than the required withholding tax (P15,416.96). Furthermore, the appointment letter for FILIPINAS expressly reserved ORION’s right to contest tax liability, indicating the payment was not final. Therefore, MALAYAN remained liable for the withholding tax on the premiums it ceded. The Supreme Court reversed the dismissal of the Commissioner’s counterclaim and held that MALAYAN was liable for the withholding tax of P15,416.96, subject to being credited with the P958.00 it erroneously paid.