CTA Case No. 4459 (Decision)

REPUALXC OF THE PHYLTPPXNEB COURT OF TAX APPEALS GIUE:ZON C:XTV .J QANTAS AIRWAYS LIMITED, Petitioner, -versus - C.T.A. CASE NO. 4459 THE COMM ISSIONER OF INTERNAL REVENUE, )( - - - - - R-es-po-nd-en-t. )( This case involve s a cla im for refund in the alleged overpay111 e nt of two and one- h al f (2 1/2) per centum tax on Gross Philippine Billings <GPB> for the per iod January 1 to June 30, 1988 in the amoun t of P1,494,387.92. Petitioner is� a r esident forei gn ' corporation, organized and existing under the laws of Queensland, Australia, a nd is duly authorized to engage in business in the Philippines as an internati onal carrier. L. t . - d/ lJ

_, DECISI ON - CTA CASE NO. 4453 2- For the two quarters ended Ma rch 31 and June 30, 1988, peti tioner pai d a total amount of P2,802,278.37 as taxes on its Gross Ph ilipp ine Billings <GPB) pursuant to Section 25 <a> <2 > of the National Internal Reven ue Code, as amended. The aforesaid t axes were paid as follows: Quarterly Tax Gross Phillip pin e Due at 2 1/2~ Quarter Ended Billings and Paid Mt:n�ch 31, 1988 p L�5 , 536 9 536 P 1, 138,413.40 --- ~Jis..Q;i_~-'-~-'2I June 30, 1988 G~~""~j~:::L9=~:.ts-~~1-;3. ___1_,Ji~-~-'-~_g ~ �...lZ. Total ~~?:"-""~~'?:f.:..t.Kll?d'.~.?.. <See Annexes A and B and s ub - markings> using th amount refl cted in its t icket as cost of s uch tick t .. "In r eal ity, however, such amount is not pet i tioner's actual revenue from the sale of the ticket as the amount reflected t h ere in did not consider the discount being given by the i suing airline to the travel agency to whose client th e ticket is being issued. " <Petitioner's Memorandu�, p. 3. ) What wa s r eceived by the petit ioner, there~ore, was not the a11ount .) reflected in its ticket but the di scounted price thereof. Hence, the ~ .. , iJ I ~

DECI S i otJ -� CTA CASE NO. 4 4 59 3- actual flown revenue of petiti~ne r fo r the same period as dete rm ined at the end of the taxable year upon receipt of the corresponding figures from its Head Off ice in Au tr li a sho uld only amount to P52, 315,G26. Consequently , the tax due on the actua l flown revenue, according to the pet: it i oner, should onl y be P1,307,890~G5 computed ag follows: Quart r Ended Actual GPB 2 1/2" GPB t x that should onl y be paid Mcn' ch 31, 1'988 p 27 ,761,702 P 594, (lL~ 2. 55 J�.1ne 30 , 1988 �-��-��&.�~-' -~-~-~-�.~:?~.1. E~.,,,.~,?,, , ,"~U~~= ''"~-?,�, ,__ JiJ. ~ t . 8.L~8- ~. t Q Total ~}"".!."~g_z,~�2:_~,~" �~= Consider ing, therefore, that the ta x due on the reporte d GPB of P11 2,09 1 ,143.00 was P2,802 ,278.57 while the actual f lown revenue of P52 , 31 5,626. 18 was only P1,307,890 .. 65, logically, there was, acc ord ing to the petitioner, a GPB tax ove rpayme nt of P1,494,387.92. Hence , thi s cl aim for refund. The issue to be res olved here is : wheth e r or not �' the two nd one- half percen t ( 2 1/ 2~ ) tax on GPB b based on th e amount ref lected in the pet itioner's

DECISIO!II - CTA CflSE tlO. 4459 - 4- airline ticket or on th discounted price thereof. The law applicable in resolving the issue is quoted, thus: "Sec. 25. Rates of ta>< on fc:n~ e i gn corpor tion. - (a) Ta>< on t'e s i de n t foreign corporations (1) In gene t'a 1. Unle s otherwise provided, a col ' pOl�' at ion ot�g.?.n i zed, 6\t.lth ot�i zed o t� f? >< i t i 11 g u n d ~ t' t h e 1a w o f an y f o t' e i g n country, e ngaged in tr d~ or bus ine s ~'llitt i.ll th Philippines, shall be ~ubjict to ~ tax equivalent to 35~ of � h o t ~ ><., b 1e income d H' i v e d i n the pr ce1in taxable ye r from all pour ces within the Philippines. ( �::� ) JJlti.t:.D..~.~--tO. l1Jl1 P_@.t:t~J~ .t~?- � �- International carrier g doing bu siness in the Phi 1 i pp in e s ?JJ.~J .l__ P.~.Y..---~ - :t- ~.?:<......Qf.. ~- ~ q__ ----~-TJ. 9___q.n.R:::.b_~J..t __P __ ~.t.~q-~_n_~ t?..~:J l . ~.~l-9.'1. i;,..h Et~ t~......._ ' Gr ~.~..1S...-. EbJ. l ..' g P...i.IUL_J~- U . lJJJ-biJt' a s def ned heraunderc CAl Internation 1 air carrier. - ' Gt~_Q. ~--~--.._..-E.t.:LUJ PPJ.!lf#____JU U .tDQ s_ 111@ i1AD.S....... Qt.~P5. ~.-...t."...e v ~..n .�.l .e___~~-e ~l. i . ;:: ed. .f ~� .0 rn..............1"\ P.U ..f.~JL..........o_f ........ P a.~- ~. I!!. Dg .E?.t' s.. ~J:! .Y. W.b.!.il.r:..:t......-..Jn........:t h.E?...-......W.Pt:'.l c;i____.. ~l) <:.i. ~- >:< P ~JL1i...... ...... P.~.gg a. g .~ ,. . ..___ qa.n: a.Q....._. ?.nd. fl.l t.~J.t . ._.____ p_r.~J.9. i,.J.1..~~ -~D. 9 .....-...fJ.~.Q_I!.I____i= b. e_ r:� h.J J.J. PpJJJ..~ .~- t ....- ................P .9.'!.@..!:.:_q d.-..----�--- b..Y.. g_a..$...?..~ Q..~................ d o~ '�'�111Jto..t ..!:!......... s.oj_g___ .. i D. ~ !1. ~..-.. -. t~b.tl.~. P. PJ.:O..~..S..: ><X>< XXX'' <Underscoring supplied> Petition ' 5 �contention that "the amount actually rec ived by the ) petitioner c"dnsid r tion for its ticket i its rev nue which should be subject �t: 0 th 2 - 1/2-;( GPB tax nd not the

DECISION CTA CASE NO. 4459 - 5- f'ace value of' the ticket" <see Petitioner's Me�orandu�, p. 7) is unacceptable. The law is eMplicit on i�posing the 2-1/2~ GPB taM on "'gross revenue realized uplif'ts of' .. passengers By "gross revenue" it "'whole, entire, total"' <Appeal . o~ Braun, 105 Pa. 415, 41� 5> "without deductions..... <First Tru�t Co. of' St. Paul v. Co��onwealth Co., C.C.A~S.D . , 98 F. 2d 27, 31). It is synony�ous with ' 11 gross inco���" The TaM Code def'ines .. gross inco�e .. thus: "Gt"' oss income" incl�.tdes gains, profits, and income derived fro m salat.. ies, wages ot.. compensation fot.. personal service of whatever kind and in whatever form paid, or from pt.. ofession, vocations, tt"'ades, tna i DJ! s s, co mme rc_e , sa 1 e s_ ot.. de a 1 i n g in property, whether real or personal, growing out of the ownership or use of or interest in such property; also from interests, rents, dividend s, securities or the transactions of �-~ t:~_wness cat..t.. ied on fot.. gain or profit or g~ins, profits, and income derive.d_ ft:QJ!I any sol.tt..ce whatevet.. xxx <Sec. 29 C3J;undescoring supplied). Petitioner in trying to buttress his .' weak stand �ade use of' an analogy, thus: "mere increase in the value of shares of stocks does not make th e stockholder taxable thereon as no

DECISION CTA CASE NO. 4459 - 6- income is received by such stockhol d er unless a sale of the shares is ma de for an amount in excess of its ot�iginal cost. <Umali on Taxation, 1985 ed., p. 78>. Similarly, the fact that a plane ticket is valued et particular amount does not make the issuing airline subject to GPB tax on such amount unless a sale of the ticket is made based on the mount appearing on its face. If the airline sold the ticket for less, then it is only logical that its GPB tax liability shou ld be based only on the amo�.mt act�.tally received ." <See Petitioner's Memorandum, p. 8>. Such contention is based neith r in law nor in jurisprudence. It is erroneous because GPB tax is considered a tax on gross inco�e ) Internal Revenue vs. British 0 erseas Airways Corporation, Apri 1, 30, 1987, 149 SCRA 395) ���ning the inco� based on the price of the ticket on its f'ac value, whole, entire, tot 1 and without deduct ions. In the sale of shares of' stocks, value by itself is v rily not an inco11e, as correctly put by the petitioner since . the price is beyond the control of the seller. It is erratic and ~~predictable. But "value by itself is not n inco�e" is not

DECISION CTA CASE NO. 4459 - 7- the sales o~ tickets since the ~ace value of' the ticket can be re~lized had the petitioner chosen to. But it did not. Petitioner could have sold the ticket~ using discounts to travel agencies. But it did not. Instead, it opted to avail .of' the s rvices agencies as a �arketing strategy thereby giving the� discounts. The respondent cannot question the generosity of' the petitioner to these travel agencies. However, it was absolutely right f'or the respond n t to protect the interest of' the govern�ent in seeing to it that its share, by way of' on the given discounts, would not be given away but should be shouldered by the petitioner. The when it gave aw y ) discounts to travel agencies, was also giving away the by way of' taxes on the said discounts. I.,. ever the petitiDner would like to show �agnani�ity �arketing ( i. e.' the travel agencies), it

DECISION - CTA CASE NO. 4459 - 8- should not be at the expense of the govern�ent. WHEREFORE, in all the foregoing, the petition for review is hereby DISMISSED ~or lack of �erit. SO ORDERED. Quezon City, Metro Manila, June 23, 1993. WE CONCURa I Q~\Q.Q~ ERNESTO D. ACOSTA Pr siding Judge GRUBA Judge � .'

'. DECISION - CTA CASE NO. 4459 - 9- I hereby certify that thi~ decision was reached after due consultation among the members of the Com"'t of Tax Appeals in .!'.ccot"'dance wi'th Section 13, Art icle VIII of the Constitution. J e~'<-~ ERNESTO D. ACOSTA Pt"esidi ng Judge Court of Tax Appeals -'