FACTS
The CIR assessed Manila Gas with withholding tax imposed upon dividends, bonds, and other indebtedness that the company had paid to its foreign affiliates. Manila Gas challenged the validity of said assessment, arguing that such matters were not income generated within the Philippines, all of them having been paid abroad. As such, the company claimed that said expenses should not be taxed.
RULING
The Supreme Court ruled in favor of the CIR.
The Manila Gas Corporation operates its business entirely within the Philippines. Its earnings, therefore come from local sources. As such, the place of material delivery of the interest to the foreign corporations paid out of the revenue of the domestic corporation is of no particular moment. The SC reiterated the rule that no state may tax anything not within its jurisdiction without violating the due process clause of the constitution.
The taxing power of a state does not extend beyond its territorial limits, but within such it may tax persons, property, income, or business, as is the case in the instant controversy.
