[ G.R. No. 27766. December 06, 1927 ] 51 Phil. 154
[ G.R. No. 27766. December 06, 1927 ]
LA COMPAÑIA GENERAL DE TABACOS DE FILIPINAS, PLAINTIFF AND APPELLEE, VS. THE COLLECTOR OF INTERNAL REVENUE, DEFENDANT AND APPELLANT. D E C I S I O N
STATEMENT
Plaintiff is a corporation organized and existing under the laws of the Kingdom of Spain, duly licensed to transact business in the Philippine Islands, with its principal office in the City of Manila. The defendant is the Collector of Internal Revenue. Plaintiff alleges that during the year 1922 it exported from the Philippine Islands and sold in the United States certain quantities of centrifugal sugar, manufactured tobacco, copra and coconut oil, at a net profit of P400,324.85. That the defendant, acting and pretending to act under the provisions of Act No. 2833, as amended by Act No. 2926, unlawfully and illegally levied and assessed against the plaintiff a tax of 3 per centum on the amount of such profit during the year 1922 amounting to P12,009.75, which plaintiff paid under written protest on the ground that the profit which it obtained from the sugar and tobacco sold by it in the United States was subject to the income tax levied by the government of that country. That no part of plaintiff’s profit was derived from sources within the Philippine Islands. That plaintiff’s protest was overruled and denied, and defendant has refused to return the amount of such tax. Wherefore, it prays for a corresponding judgment, with costs. For answer the defendant made a general and specific denial of all of the material allegations of the complaint, except that which is specifically admitted. Defendant admits paragraphs 1, 2, 3 and 5 of plaintiff’s complaint, except as to the amounts, and alleges that the taxes which plaintiff seeks to recover were lawfully levied, assessed and collected under the provisions of Act No. 2833, as amended by Act No. 2926, and defendant prays that plaintiff’s complaint be dismissed, with costs. The case was tried and submitted upon the following “Agreed Statement of Facts:”
“I. That plaintiff is a corporation duly organized and existing under the laws of the Kingdom of Spain, duly licensed to do business in the Philippine Islands, and maintaining its principal office in said Islands in the City of Manila. “II. That defendant is the duly appointed, qualified, and acting Collector of Internal Revenue for the Philippine Islands. “III. That plaintiff is the owner of several ‘haciendas,’ sugar and oil mills and tobacco factories located in the Philippine Islands destined to the production or manufacture of tobacco, sugar, copra, and coconut oil for sale therein and in foreign countries; and has been and is still engaged, in the Philippine Islands, in the shipping business and in the buying and selling of tobacco, sugar, copra, and oil and in the exportation of the same, and that its business has been, and is being done mainly in the Philippine ‘Islands. “IV. That the Philippine branch of the plaintiff corporation on various dates during the year 1922 exported from the Philippine Islands a quantity of centrifugal sugar, of which ten per centum was produced and ninety purchased by it in the Philippine Islands, and which was sold in the United States by the agency therein of the plaintiff’s Philippine branch, the sale being subject to confirmation and absolute control as to price and other terms and conditions thereof, by the plaintiff’s Philippine branch; and that from such transactions on centrifugal sugar during said year 1922, the plaintiff made a profit of P114,226.80, Philippine currency. “V. That, likewise, the plaintiff’s Philippine branch on various dates during said year 1922, exported from the Philippine Islands a certain quantity of manufactured tobacco produced by it in the Philippine Islands which was sold in the United States by the agency therein of the plaintiff’s Philippine branch, the sale being likewise subject to confirmation and absolute control as to price and other terms and conditions thereof, by the plaintiff’s Philippine branch, deriving from such transactions a profit of P296,341.19, Philippine currency. “VI. “That, likewise, the plaintiff’s Philippine branch on various dates during the said year 1922, exported from the Philippine Islands a certain quantity of copra and a certain quantity of coconut oil, produced, purchased, or manufactured by it in the Philippine Islands, which were sold in the United States by the agency therein of the plaintiff’s Philippine branch, such sales being likewise subject to confirmation and absolute control as to price and other terms and conditions thereof, by the plaintiff’s Philippine branch, and that from such transactions on copra and coconut oil the plaintiff suffered losses amounting to P10,243.14, Philippine currency. “VII. That deducting the sum of P10,243.14, the losses mentioned, in paragraph VI of this stipulation, from the sum of P410,567.99, the aggregate of the profits mentioned in paragraphs IV and V, there remained a net profit of P400,324.85. “VIII. That the said net profit of P400,324.85, together with other gains, profits, or income were accounted for by the plaintiff on its books of accounts kept in the Philippine Islands as earnings made by and accruing to the Philippine branch, thereby subjecting such profits, gains, or incomes to further business deductions—management expenses, losses, etc. “IX. That the defendant Collector of Internal Revenue, acting and pretending to act under the provisions of Act No. 2833 (Philippine Income Tax Law), as amended by Act No. 2926, levied and assessed against plaintiff a tax of three (3) per centum on the amount of the aforesaid net profits (P400,324.85) earned by plaintiff, as recited in paragraphs IV, V and VI hereof, in the sum of P12,009.75, Philippine currency. “X. That on the 18th day of. October, 1923, plaintiff, in order to avoid the infliction upon it of fines and penalties and the distraint of its property by defendant, did pay to defendant, under instant protest in writing, the said sum of P12,009.75, Philippine currency. “XI. That plaintiff’s protest against the payment of the aforesaid tax was overruled and denied by defendant on the 20th day of October, 1923, and defendant has refused, and still continues in his refusal, to return to plaintiff, on demand, the said sum of P12,009.75, Philippine currency, or any part thereof. “XII. That the parties hereto reserve the right to introduce evidence, direct or rebuttal, on any point not herein stipulated and which may be deemed material and necessary for the proper determination of this case.”
Upon such issues and stipulated facts, the lower court rendered judgment for the plaintiff as prayed for in its complaint, without costs, to which the defendant duly excepted and filed a motion for a new trial, which was over-ruled. On appeal the defendant assigns the following errors:
“I. The lower court erred in declaring that the plaintiff’s income taxed by the defendant was received from sources not within the Philippine Islands and therefore not subject to taxation. “II. The lower court erred in condemning the defendant to return to the plaintiff the sum of P12,009.75, amount of the tax in question, instead of dismissing the complaint. “III. The lower court erred in not granting a new trial.”
JOHNS, J,: Upon the stipulation of facts, the question involved on this appeal is the legal construction to be placed on section 10 of Act No. 2833, as amended by section 7 of Act No. 2926, which provides as follows:
“There shall be levied, assessed, collected, and paid annually upon the total net income received in the preceding calendar year from all sources by every corporation, joint-stock company, partnership, joint-account (cuenta en participation), association, or insurance company, organized in the Philippine Islands, no matter how created or organized, but not including duly registered general co-partnerships (compañias colectivas), a tax of three per centum upon such income; and a like tax shall be levied, assessed, collected, and paid annually upon the total net income received in the preceding calendar year from all sources within the Philippine Islands by every corporation, joint-stock company, partnership, joint-account (cuenta en participation), association, or insurance company, organized, authorized, or existing under the laws of any foreign country, including interest on bonds, notes, or other interest bearing obligations of residents, corporate or other-wise, and including the income derived from dividends or net profits subject to the tax established in this sub-section.” In its final analysis, that question involves the legal meaning and construction to be placed on the words “sources within the Philippine Islands,’ as they are used in that section, in connection with, and founded upon, the stipulation of facts. It will be noted that the section above quoted has two separate and distinct provisions; one for a tax of three per centum for each calendar year on the annual total net income derived from all sources by a domestic corporation, and the other for a like tax “upon the total net income received in the preceding calendar year from all sources within the Philippine Islands” by any corporation organized and “existing under the laws of any foreign country.”
It is very apparent that it was the purpose and intent of the Legislature that a foreign corporation which has a branch office in the Philippines and engaged in business here should pay the same amount of income tax on that business as a domestic corporation would have to pay; otherwise, a foreign corporation with a branch office in the Philippines and doing business here would have an advantage of the amount of such annual income tax over a domestic corporation engaged in the same line of business. Under paragraph 4 of the agreed statement of facts, it is stipulated that during the year 1922, plaintiff exported from the Philippine Islands a quantity of centrifugal sugar, of which ten per centum was produced and ninety purchased by it in the Philippine Islands, and which was sold in the United States by and through the agent of the plaintiff’s Philippine branch, and that the sale was subject to confirmation and absolute control as to price and other terms and conditions by the plaintiff’s Philippine branch. The same stipulation is made as to the tobacco, copra and coconut oil mentioned and described in the complaint. It is further stipulated that the profits or incomes in question were accounted for by the plaintiff on its books of account “kept in the Philippine Islands as earnings made by and accruing to the Philippine branch, etc.,’ That is to say, that although the sales of the products from which the incomes in question were derived were made in the United States, they were made there by an agent of the Philippine branch of the plaintiff, and all of them were made subject to the confirmation and absolute control as to price, terms and conditions by the plaintiff’s Philippine branch. In other words, no sale was actually consummated until after it was ratified and approved by the local branch, and all profits or incomes from such sales were accounted for by the plaintiff on its books kept in the Philippine Islands “as earnings made by and accruing to the Philippine branch.’ It is further stipulated that the sugar, tobacco, copra and coconut oil in question, from which the net incomes were derived, were exclusively the products of the Philippine Islands in which and where they were produced on the properties of the plaintiff or by it purchased at or through its branch office in the Philippines, and from which country they were shipped to the United States and there sold in the same form and condition as when they were shipped from the Philippine Islands. That is to say, the income in question was derived and received by the plaintiff from the exclusive products of the Philippine Islands which were purchased or produced by and through its branch office in the Philippine Islands and which it shipped from the Islands to the United States, where such products were sold in the identical condition in which they were shipped from the Philippine Islands. Hence, it must follow that the net income of the plaintiff as to such products was from “sources within the Philippine Islands” where the products were purchased or produced and where the plaintiff maintains its branch office for that specific purpose. The appellee cites and relies upon the following opinion of the Attorney-General of the United States:
“A corporation organized under the laws of Scotland owns and operates two sawmills in the United States. The mills saw logs into plank squares called ‘handle blanks’ and also roughly turn hammer handles. These products are exported to Glasgow where they are finished at the home mill. In addition the manager of the American plant buys logs in the United States and exports them as such to Great Britain, No part of the products of the mills located in this country or of the logs purchased here is sold in the United States, but the entire output is sold in Great Britain. The plants and operations of the manager in the United States are conducted solely from funds sent to this country from the home office in Glasgow, Scotland, and no funds are sent to the home office from the American plants.”
Based upon such facts, the Attorney-General held that the Scotland corporation was not liable to the tax in question. Assuming that to be the law, there is a very marked distinction between the facts in that case and the stipulated facts in this case. There the two sawmills in the United States sawed logs into plank squares called “handle blanks” and also “roughly turn hammer handles.” In that condition, they were shipped to Glasgow where “they were there finished at the home mill” and then placed on the market. It further appears that all of the operations in the United States “are conducted solely from funds sent to this country from the home office in Glasgow, Scotland, and no funds are sent to the home office frdm the American plants.” In the instant case, it is stipulated that the plain- tiff exported the products in question from the Philippine Islands to the United States where they were sold by an agency of the plaintiff’s Philippine branch, and that such sale was “subject to confirmation and absolute control as to price and other terms and conditions thereof by the plaintiff’s Philippine branch,” and that all of such net profits were kept and accounted for by the plaintiff “on its books of account kept in the Philippine Islands as earnings made by and accruing to the Philippine branch.” That opinion is not in point upon the stipulated facts in this case. Appellee’s contention if sustained would give a preference to a foreign corporation doing business through a branch office in the Philippine Islands over a domestic corporation engaged in the same line of business to the amount of the 3 per cent tax upon the income in question. That was not the purpose and intent of the Legislature. It is very apparent that the Legislature intended that a foreign corporation with a branch office in the Philippine Islands could do business here upon the same terms and conditions as a domestic corporation, and that it never intended that a foreign corporation with a branch office and doing business in the Philippines should have any preference over a domestic corporation engaged in the same line of business. In the instant case, the record is conclusive that all of the sources of plaintiff’s income in question had their origin in or were derived from its branch office in the Philippine Islands by and through the products of the Philippine Islands, which were purchased or produced by its branch office in the Philippine Islands, and that all of the sales in question were made through its branch office, and that no sale was actually consummated until such time as it was approved by the branch office both as to terms and conditions, and that an account of all of such sales made in the United States was rendered to the branch office, together with the proceeds, where a full and complete record was kept and made of all of such transactions. Plaintiff’s source of income in question was from the products of the Philippine Islands which were derived through its branch office, and it appears from the stipulation of facts that all of such products when shipped by the branch office to the United States were there sold in the identical condition in which they were shipped from the Philippine Islands, and that an account of all of such sales was rendered to the branch office. Upon the record, we are clearly of the opinion that upon the products in question, plaintiff’s net income was derived from “sources within the Philippine Islands.” The judgment of the lower court is reversed and the complaint dismissed, with costs for the defendant. So ordered. Avanceña, C.J., Street, Malcolm, Villamor, Ostrand and Villa-Real, JJ., concur.