CTA Case No. 4437 (Decision)

Republic of the Philippines CO URT OF TAX APPEALS Quez on City SABENA BELGIAN WORLD AIRLINES <Philippine Branc h), Petitioner, - versus - C.T.A. CASE NO. 4437 COMMISSIONER OF INTERNAL REVENUE, Respondent. X -- - ------- - ----- - ------------ -- X This is a petition for refund of alleged overpayments made by petitioner on its gross Philippine billings tax for the last quarter of 1987 and the year 1988, in the total amount of ~475,557.57. Petitioner is a resident foreign corporation licensed to do business in the Philippines, with branch office at the Ground Floor, Manila Pavilion Hotel, United Nations Avenue, Manila. It is engaged in the business of international passenger and cargo transportation. (i.e., I During the period covered by the claim last quarter of 1987 and the year 1988>, petitioner made the following payments of income tax on its gross Philippine billings <Exhibits "G" to "R-2", inclusive): 2uli

- DECISION - C.T.A. Case No. 4437 -2- Date of Pay~ent bount Paid Return for October 1987 12-10-87 jl 3,213.00 12-22-87 Return for Noveaber 1987 2,578.00 04 -14-88 Tentative Consolidated 202,776.00 Return for 1987 08-23-88 04-28-88 2,510.00 Aaended Consolidated 05-16-88 6, 720.00 Return for 1987 8,375.00 05-27-88 Return for Jan./Feb. 1988 05-16-88 212,298.78 07-12-88 11,982.00 Return for ftarch 1988 36,043.00 08-29-88 Quarterly Return for 221,094.73 Period Ending narch 1988 11-29-88 04 -17 -89 183,741.92 Return for April 1988 265,695.00 Return for ftay/June 1988 Quarterly Return for Period Ending June 1988 Quarterly Return for Period Ending Sept. 1988 Consolidated Annual Return For 1988 , 1,157,027.43 On January 11, 1990, petitioner filed with respondent Commissioner a claim for refund of alleged overpayments of the 1.51. tax on its gross Philippine Billings for the years 1987 and 1988 <Exhibit "W", pp. 172 - 175, Records). Petitioner alleged that it had erroneously declared as its �)u b, h-

- DECISION - C.T.A. Case No. 4437 -3- gross Philippine billings the amounts o:f ~68,038,8 2 5.00 and P63,639,447.00 :for 1987 and 1988, respectively. It claimed that it :failed to deduct :from its � declared "gross Philippine billings the total market discounts allegedly extended by its Head O:f:fice on both passenger ticket sales and :freight charges during the years in question. In support o:f its claim, petitioner submitted authenticated statements o:f market discounts on gross :fares in the Philippines issued by its Head O:f:fice <Exhibits "U" to "V-1b", pp. 166-170, Records>. On March 11, 1991, respondent Commissioner rendered a decision denying with :finality petitioner's claim, on the ground that market discounts are not deductible :from petitioner's gross Philippine billings <BIR Records, p. 58>. On April 11, 1990, petitioner :filed the instant petition. The sole issue presented be:fore the Court is whether petitioner is entitled to deduct the alleged market discounts extended by its Head O:f:fice :from its declared gross Philippine billings :for purposes o:f computation o:f the 1. 5/. international carrier's tax. 2u ,'

- DECISION - C.T.A. Case No. 4437 - 4- Petitioner contends that it is entitled to deduct the market discounts allegedly extended by its Head O��ice �rom the total amount o� its gross Philippine billings �or purposes o� computing its international carrier's tax liability. We �ind this contention untenable. It is settled that tax re�unds are in the nature o� exemptions and should there�ore be construed strictly against the claimant <Commissioner of In~erna1 Revenue v. 31 SCRA 95 [ 19701). Accordingly, it is incumbent upon the claimant to prove to the satis�action o� the court both the �actual and legal bases �or his claim. In the instant case, petitioner's claim �or re�und is anchored on the contention that it is entitled to deduct �rom its gross Philippine billings the amount o� the market discounts allegedly extended by it to its Philippine customers. Accordingly, to be entitled to a re�und, it was incumbent �or petitioner to show, by the required quantum o� proo�, �irst, that it actually extended the alleged market discounts; second, the exact amount o� said discounts; and ~Uo

- DECISION - C.T.A. Case No. 4437 -5- third, the legal justi�ication �or its claim that such discounts should be deducted �rom its gross Philippine sales in order to determine its "gross Philippine billings". Identical to the case at bar is that o� Quantas Airways Limited vs. CIR, CTA Case No. 4459, June 23, 1993, wherein the Tax Court held that the law is explicit on imposing the 2 - 1/2/. GPB tax on "gross revenue realized �rom upli�ts o� passengers. By "gross revenue" it means "whole, entire, total" without deductions. Correlatively is the case o� Commissioner o� Internal Revenue vs. British Overseas Airways Corporation; 149 S CRA 395, April 30, 1987. The High Court had occassion to rule that Gross Philippine billings includes gross revenue realized �rom upli�ts anywhere in the world by any international carrier doing business in the Philippines o� passage documents sold therein, whether �or passenger, excess baggage or mail, provided the cargo or mail originates �rom the Philippines. Moreover, the �oregoing provision ensures that international airlines are taxed on their

- DECISION - C.T.A. Case No. 4437 -6- income from Philippine sources. The 2 1/2Y. tax on gross Philippine billings is on income tax. If it had been intended as an excise or percentage tax it would have been place underr Title V of the Tax Code covering Taxes on Business. After going through the records of this case, the Court is of the opinion that petitioner has not satisfactorily proved exact amount of the total market discounts it allegedly extended to its Philippine customers for the taxable years in question. The documentary evidence adduced by it in support of its claim are at best self-serving and contradictory, and are therefore inconclusive. Consequently, even if we were to give said documents their "full probative <sic> value", it would do little to further petitioner's cause. To illustrate, petitioner's documentary exhibits do not clearly reflect the exact amount of the gross income it realized during the years in question from both passenger and freight sales. As shown in the following table, the entries found in petitioner's exhibits are highly confusing and contradictory. Thus: 210

- DECISION - C.T.A. Case No. 4437 -7- A. For 1987 GROSS SALES ENTRIES llonth ~!~~;!g_;~~ E~;!g_!i! Per Auditor's Per VP's Per Auditor's Per VP's Report Report Report Report !Exhibits !Exhibits Exhibits !Exhibits �s� &'T'l �u� &�v�1 �s� &'T'l �u� &�v�1 lin USDl lin USDl lin USDl lin USDl (lJ [21 [31 [41 January 127,786.21 132,830.00 51,627.53 37,037.00 186,091.00 88,500.59 52,789.00 February 177,075.41 315,053.00 80,553. 05 67,546.00 331,070.00 61,902.51 56,809.00 !larch 186,789.36 279,334.00 61,278.33 42,723.00 406,763.00 34,615.23 30,717.00 April 309,034.54 35,199.00 48,724.10 40,244.00 139,621.00 64,463.44 44,502.00 llay 309,932.52 128,149.00 105,079.36 88,704.00 92,671.00 72,307.74 56,412.00 June 279,670.43 157,625.00 64,942.39 42,743.00 941216.00 511897.09 381595.00 July 224,109.78 2,298,622.00 785,891.37 598,821.00 August 193,133.23 Septe11ber 211,137.88 October 173,498.79 Nove11ber 161,382.70 Dece�ber 1491370.82 2,502,921.68 Difference between [1] and [2] = USD 207,299.68 Difference b e tween [3] and [4] = USD 187,070.37

- DECISION - C.T.A. Case No. 4437 -8 - GROSS SALES ENTRIES Ito nth ~!~~~~g_~~~ [~~!.g_!il Per Auditor's Per VP's Per Auditor's Per VP's Report Report Report !Exhibits Report !Exhibits Exhibits !Exhibits �u� &�v�1 �u� & �v�1 'S' &'T'I �s� & 'T', lin PI lin PI� lin PI� lin PI (1] [21 [31 [41 January 2,614,876.50 2, 718,087.00 1,056,448.95 757,884.43 February 3,634,508.26 3,819,554.99 1,816,492.27 1,083,504.78 ltarch 3,840,856.28 6,478,277.31 1, 656, 372. 15 1,388,914.62 April 6, 336, 691. 52 6, 788,524.14 1,269,298.57 1,164,857.18 llay 6,345,310.46 5, 718,860.85 1,254,563.60 874,676.52 June 5,271,050.24 8,320,906.63 708,103.02 628,259.24 July 4,583,045.04 719,819.55 996,407.93 822,989.80 August 3,947,392.09 2, 853,671.73 1,317,548.94 909,563.03 Septe11ber 4,349,545.80 2,639,933.47 2,164,687.43 1,827,346.75 October 3,592,500.56 1,918,864.26 1, 497,218.55 1, 168, 078.15 Nove1ber 3,359,519.86 3,281,295.39 1,351,912.17 889,785.31 Dece1ber 3,109,108.89 1,961,077.77 1,080 222.27 803,343.35 51,434,405.51 44,527,966.96 16,169,275.83 12,193,303.16 ------------- ------------- ------------- ------------- Di��erence between [11 and [21 = 6,906,438.55 Di��erence between [3] and [41 = 3,849,972.67 Note: * Converted to PhP based on the same rate used in the Auditor's Report.

- DECISION - C.T.A. Case No. 4437 -9 - B. For 1988 GROSS SALES ENTRIES ltonth E!~~~!!~~!i~ [~~!.~!!1 Per Auditor's Per VP's Per Auditor's Per VP's Report Report Report !Exhibits Report !Exhibits !Exhibits !Exhibits '5' &'T'I '5' &'T'I 'U' &'V'I 'U' &'V'I tin USDI tin USDI tin USDI tin USDI [31 [41 (11 �21 48,765.15 44,416.00 January 119,635.41 159,908.00 63,609.49 52,810.00 February 167,587.30 225,855.00 69,193.53 53,688.00 Karch 254,974.49 270,636.00 42,015.21 17,670.00 April 236,184.32 182,944.00 45,341.78 36,834.00 ltay 191,213.23 230,494.00 63,140.12 57, 129.00 June 233,793.28 202,172.00 45,889.78 35,585.00 July 153,544.29 22,323.00 53,822.44 43,532.00 August 182,241.01 201,207. 00 50,726.23 27,494.00 Septe11ber 171,272.00 176,667.00 45,994.52 26,892.00 October 194,304.50 128,818.00 38,179.25 34,872.00 Hoveaber 251,381.28 141,453.00 411899.47 251665.00 Dece11ber 2261197.36 2231598.00 608,578.58 458,628.00 2,382,328.47 2,206,025.00 ---------- ---------- ------------ ------------ Difference be tween [ 1 ] and [2] = 176, 3 03.47 Differenc e between [3] and [ 4] = 149,950.58

- DECISION - C.T.A. Case No. 4437 - 10 - GROSS SALES ENTRIES Ito nth ~~~~~~!!~~~ [~~!.!!!!! Per Auditor's Per VP's Per Auditor's Per VP's Report Report Report Report <Exhibits !Exhibits <Exhibits <Exhibits 'S' &'T'I 'U' &'V'I 'S' &'T'I �u� &�v�1 !in PI <in PI <in PI � <in PI� [11 [2) [3) [4) January 2, 493,931.74 3,333,458.16 1,016,563.26 925,900.38 1,329,622.85 1,103,882.15 February 3,503,050.66 4, 721,024.48 1,454,980.85 1,128,935.16 Itarch 5,361,527.08 5,690,852.62 883,558.92 371,591.27 948,049.52 770,143.69 April 4,966,838.08 3,848,272.32 1,322, 703.47 1,196, 778.28 964,800.40 748,149.72 Kay 3, 997, 981. 82 4,819,283.80 1,133,452.09 916,577.74 1,077,856.34 605,454.76 June 4, 897, 665. 18 4,235,240.58 982,516.46 574,446.15 816,170.68 745,458.74 July 3, 228, 161. 24 469,325.45 894,805.14 548, 101.74 12,825,079.97 9,635,596.78 August 3, 837, 831. 59 4,237,238.33 ------------- ------------ Septe�ber 3,639,273.08 3, 753,908.75 October 4,150,655.09 2,751,758.59 Nove1ber 5,373, 777.73 3,023,840.78 Dece1ber 4,830,670. 79 4,445,158.89 50,281,374.09 45,659,362.75 ------------- ------------- Difference between [ll and [2] = 4,622,011.34 Difference between [3] and [4] = 3,189,483.19 Note: * Converted to PhP based on the same rate used in the Auditor's Report.

- DECISION - C.T.A. Case No. 4437 - 11 - In addition to the foregoing discrepancies, the figures given by petitioner with respect to the alleged market discounts are themselves of doubtful veracity. For instance, in its ~tatement of Market Discount on Gross Fares for the year 1988 <Exhibit "V-1a" >, petitioner allegedly had gross passenger sales of USD 22,323.00 for July of that year. However, the same statement also claims to have extended a total market discount of USD 25,179.50, or USD2,856.50 more than its reported gross sales for the same month. In addition, petitioner's claimed average discount rates of 55Y. and 46Y. for passenger sales in 1987 and 1988, respectively, and 41Y. and 2 5Y., respe c tively, on freight sales during the same period, are likewise highly dubious. Petitioner cannot simply brush these inconsistencies aside by claiming that "<T>he average discount per centage represents a valid indication of the difference between lATA gross fares and Market fare. " The discrepancies noted by the Court are simply too significant to be explained in such a cavalier manner. As a result, no accurate determination can be made of the exact amount of discounts extended by petitioner and

.. . . - DECISION - C.T.A. Case No. 4437 - 12 - whic h it c laims are deductible from its "gross Philippine billings". WHEREFORE, premises considered, judgment is hereby rendered dismissing the petition for lack of merit. No pronouncement as to costs. SO ORDERED. Quezon City, Metro Manila, 18 March 1994. ;iuu K. GRUBA Associate Judge WE CONCUR: Presiding Judge AN-I p._~ I- RAMON 0. DE , V~RA Associate Juage CERTIFICATION I hereby certify that this decision was reached after due consultation among the members of the Court of Tax Appeals in accordance with Section 13, Article VIII of the Constitution. ~Q_.~ ERNESTO D. ACOSTA Presiding Judge Court of Tax Appeals