G.R. No. L-2910 June 29, 1951
THE MANUFACTURERS LIFE INSURANCE CO., plaintiff-appellant, vs. BIBIANO L. MEER, in the capacity as Collector of Internal Revenue, defendant-appellee.

FACTS

The Manufacturers Life Insurance Company, a Canadian corporation licensed to do business in the Philippines, maintained a branch office in Manila. It issued life insurance policies containing non-forfeiture clauses, including an “Automatic Premium Loan” clause. This clause provided that if a premium was not paid after the policy had been in force for three full years, and the policy’s cash value exceeded the premium due, the company would treat the premium as paid by advancing the amount. The advanced amount, with interest, would become a lien on the policy. From January 1, 1942, to December 31, 1946, due to non-payment of premiums by insureds, the company’s head office in Toronto applied this clause, advancing a total of P1,069,254.98. The Collector of Internal Revenue assessed a 1% tax on this amount under Section 255 of the National Internal Revenue Code, amounting to P17,917.12, which the company paid under protest. The company’s Manila branch was closed from 1942 to September 1945 due to the war. The company sued to recover the tax paid, arguing the advances were not “premiums collected” subject to tax.

ISSUE

Whether the premium advances made by the insurance company under the automatic premium loan clause of its policies constitute “premiums collected” subject to the 1% tax under Section 255 of the National Internal Revenue Code.

RULING

Yes. The Supreme Court affirmed the lower court’s decision dismissing the complaint. The premium advances made under the automatic loan clause are considered “premiums collected” subject to tax. The Court reasoned that when the company advanced the premium amount, it was, in effect, loaning that sum to the policyholder, who then used it to pay the premium. Therefore, the company collected the premium through a “credit” or “substitute for money,” which is explicitly taxable under Section 255. The Court rejected the argument that this constituted double taxation, noting there is no constitutional prohibition against it. It also held that the company was “doing business” in the Philippines during the war years (1942-1945) because it continued to maintain its existing insurance contracts and collect premiums, even though its branch was closed. The place where the advance was made (Toronto) was immaterial, as the tax applies to companies doing insurance business in the Philippines.