CIR V. BOAC (TAX)

British Overseas Airways Corp (BOAC) is a 100% British Government-owned corporation engaged in international airline business and is a member of the Interline Air Transport Association, and thus, it operates air transportation services and sells transportation tickets over the routes of the other airline members.

From 1959 to 1972, BOAC had no landing rights for traffic purposes in the Philippines and thus, did not carry passengers and/or cargo to or from the Philippines but maintained a general sales agent in the Philippines - Warner Barnes & Co. Ltd. and later, Qantas Airways - which was responsible for selling BOAC tickets covering passengers and cargoes. The Commissioner of Internal Revenue assessed deficiency income taxes against BOAC.

Issue: Whether the revenue derived by BOAC from ticket sales in the Philippines, constitute income of BOAC from Philippine sources, and accordingly taxable.

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. Herein, the sale of tickets in the Philippines is the activity that produced the income. the tickets exchanged hands here and payment for fares were also made here in the Philippine currency.

The situs of the source of payments is the Philippines. 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. PD 68, in relation to PD 1355, ensures that international airlines are taxed on their income from Philippine sources. The 2 1/2% tax on gross billings is an income tax. If it had been intended as an excise tax or percentage tax, it would have been placed under Title V of the Tax Code covering taxes on business.

RE: REQUEST OF ATTY. BERNARDO ZIALCITA, 190 SCRA 851 (TAX)

Since terminal leave is applied for by an officer or employee who has already severed his connection with his employer ans who is no longer working, then it follows that TERMINAL LEAVE PAY, which is the cash value of his accumulated leave credits, should not be treated as compensation for services rendered at that time. It cannot be viewed as salary for purposes which would reduce it. There can be no "commutation of salary" when a government retiree applies for terminal leave because he is not receiving it as salary. what applies for is a commutation of leave credits. It is an accumulation of credits intended for old age or separation from the service. Hence, Section 286 of the Revised Administrative Code is not applicable. It cannot be construed as limiting the basis of the computation of terminal pay to monthly salary only.

COMMISSIONER V. CA (TAX)

Issue: Whether terminal leave pay is subject to income tax.

NO.

Ruling: TERMINAL LEAVE PAY received by a government official or employee is not subject to withholding income tax. In the exercise of sound personnel policy, the Government encourages unused leaves to be accumulated. The Government recognizes that retirement pay for public servants is less than generous, if not meager or scrimpy. Terminal payments are given thus not only at the same time but also for the same policy considerations governing retirement benefits. Not being part of the gross salary or income of a government official or employee but retirement benefit, terminal leave pay is not subject to income tax.