FACTS
British Overseas Airways Corporation (BOAC), a 100 percent British Government-owned corporation and existing under the laws of the United Kingdom, was assessed by the CIR for deficiency income taxes for the years 1959 to 1963.
BOAC challenged the validity of the assessment, arguing that while it has local sales agents who sell airline tickets, its revenue was really derived from rendering transportation services, not from the mere ticket sales. Further, it argued that since it did not transport passengers and cargo to and from the Philippines, its income did not come from Philippine sources, therefore not taxable.
The Tax Court reversed the CIR, holding that the proceeds of sales of BOAC passage tickets in the Philippines by its sale agents did not constitute BOAC income from Philippine sources, hence not subject to Philippine income tax.
RULING
The Supreme Court ruled in favor of the CIR.
Being a resident foreign corporation, BOAC is subject to tax upon its total net income in the preceding taxable year from all sources within the Philippines. 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. In the present case, the BOAC derived its revenue from ticket sales in the Philippines; payment for the tickets were made in the Philippines and handed in Philippine currency; and the flow of wealth proceeded from, and occurred within, Philippine territory, enjoying the protection accorded by the Philippine government. In consideration of such protection, the flow of wealth should share the burden of supporting the government.
