CTA Case No. 3139 (Decision)

--- -- ._... REPUBLIC OF THE PHILIPPINES COURT OF TAX APPEALS QUEZON CITY DILLINGHAM (PHILIPPINE S ), INC . ~ F'r=~ti t .ionE?I'" MO.. '-1 F~ rr�-;:; u.~; ..... C.T.A. CASE NO. 3 1!.9 THE ACTING COMMI SS IONER OF INT ERNAL REVENUE~ F\E�' <::~ p u n d 12n t ,. M�M _, , , , ,.. -M 00'0� MO.. }{ - D� E C I S I D N Thi ~; in vo l vt:;>'"'' for Cl"f P4~035,7 3 0.87 - .> deficienc y agai n s t petitioner ~~~ :i. t h h nl d :\.n 9 t. a :-: �����<~ t. ����;; o 1.1r �c !':! un .::\c: c n ..1.e cl .i.. n tf:> t��es t. income for the years 1968 to 1972 due to Dilling ha m Int.Pr.. n<:~l. :i o n ,,,_J C: <~ pit. <.~ 1 Cor�po r �"' t �. i. on ~ D.i lli n q h E:\m s Cl \/E~ 1'" ~::; ;:,> .3 Cot.. po t��a. t:..i. o n and D:i. 1 J. .i. n !.J h <:l rn In 'l'.E~ r. r, .~, 1::..i. on a 1 Co 1... po r.. ''' t :i. on , :i. t. s �f o r�E�! .i q n c 1�.. ed :i. t.1 :J 1'"�;:; ~ oi.. l�l c: 1 u �::', .i.. v r,~ n�f On No ve mber 1 7, 1 976, petit i oner recei ve d fro m l etter of demand d a t ed Se p te mb er 22, 1976, a ssessing 1t for d e fici e n cy wit hho l di n g t ax - at�-source inc l usiv e of 50% s urc harge a nd de f icien cy 310

-- .. DECISION CTA CASE NO. 3139 2 interest far the years 1968~ 1969~ 1970~ 1971 and 19 7 2~ the details of which are as fallows: A � ~E-~.<::JJ.j;_g_r_..::......P..l.J....1J,JJ..9 .b..~.ffi.-_ny_~_r.:.2 e ~.?.. ~9X:P.9X~�.:\:;._.t_gn_ : Gross interest income p .._..!?...!_~�_Q_!...~.:~. 35% Withholding tax p 1~953.00 50% Surchar-�ge 976.50 12% annual int. from 4 - 16- 69 to 4 - 16 ~ 72 (36%) .. . . . ........._...zg:;:...~..Q.!=! Total amount due and collectible -- ------ --�---�----- --�-- B � ~~.r.S"si..!J::_gr___:::-____Q_i...LL.i.:.D._g_t}.�J!LJ..n:t;J.. E_.J....1_!1...:!.Z..~~--Q.Q. ~.QJTIP..~DY : F' 25~961.00 12 ~ 980. !:.'10 Grass interest income 35% withholding tax F' 48~ 2 87.46 50% sur�charge 12% annual int. from = = === ==-.::::=:::: ::::: = 4 - 16- 69 to 4 - 16- 7 2 (36%) Total amount clue and collectible c � ~~r_~_<::I_L� -.C?.r ...=-�-PAJ. l ..i.D..9. t..1.9. f!.l.....J.nJ:J . E:.:l,..<?.l.,. 9.?1..~..!?. 4 ~.!~' P.t.t&t_.r::.<::>..t.:::.P. = p 58~482.00 2 9 ~ 2.1.J.l. (H) Gross interest income 35% withholding tax F'108~776.52 50% sur-charge --------------- 12% annual int. from 4 - 16- 69 to 4-16- 72 (36%) Total amount due and collectible A � c r ~_g_!__t;._g..r:--=-...P.i.U .in.9 ..1J.~I!!.... J _n.il P-..!6...7.:::8:!...-2. -2-0.....-2_..5__ ~-~I! i t;_~_LJ~.Q.C.P.. : P237~3'77.00 Gross interest. income 35% withholding tax 31

DECISION - CTA CASE NO. 3139 ~ �-� -~ 50'/. sure harge P1.18~688.50 12% annual int. from 77~147.53 4-16- 71 to 12-31-72 14% annual int. from ...... ,_2..,.9..<J..�.~..�.<J... 1- 1-73 to 4-16-74 F-442~905.9 2 Total amount due and ============= collectible .. 1_97,<2, A � !;_r.-_g.Q...ttg_r___=_.P..t .U in g h ~.!!LlD_t 1_ p ~...L!..;l. 9__,,.;'?.1.:2..!..;?..�_ !;;;_~ i t~L_l::...Q.LQ. : p :::;.cn~735.00 Gross interest income 195~867.50 35% withholding tax 50% su r-charge 80,305.68 12% annual int. from . . . . . __,__?_Q.,.J3...:.~~hLJ. 4 - 16- 71 to 12-31-72 14% annual int. from F' T2.8, 746.91 1-1- 73 to 4 - 16-74 ============== Total a mount due and co llec tible A � !;_r:.~_Q.i..t.QL_.::__I2.t .L1. ,!ng_b.?..!l.!........J...n. tJ. E:..!_,_~1~. ,...Z.~.~--!...1.t ~-~Q i .t..s,J... .J=.:..9..!:P. : p 59:3 '855. 00 Gross interest income 296' 927. :=50 35% withholding tax 50% sur-charge 50~ 4 7'7.68 12% annual int. from 1 9 0 5 2 8 . 4 5 .....................................!!._ .....- ...........,_..._ .. 4-16- 72 to 12-31- 72 --F-'-1--~--1---:::::--.1.--'-7--8----8--.--6--3- 14% annual int. from 1- 1- 73 to 4 - 16-75 Total amount due and co llectible B � C rg d iJ q_r.::.__::_D i ..l.l.!.D.9.!}....<2:!TI.......Qv e r:-. - �_g.~.?......J;;.9..r...Q. : Gross interest income E:. . . .-.~-~ 5 �'- 3 ;~?..!_'!..�.. 35% withholding tax F' 89~367.00 50% surchar�ge 44~683.50 312

DECISION CTA CASE NO. ~ 139 -- 4 --� 1 2% annual int. from F' 7 ~ 596. ::~o 4 - 16-72 to 12- 31 -72 ��-�--- �--���--~St-~-.9..7J_L~)_.- 14% annual int. from 1 -�1 -7 3 to 4 - 16-75 F' 1. 7 0~318.61 Total amount due and ===== ====== ==::=== == collectible ! ..~.?.:;?_ A � f~_t:.:-_q_<::l..:i..t _gr..._::: ___pj,_LL!.Dg.b._~!.I!__] _Q.!:..L G.9.Ei..t.~.L _I;gr.:..P_: __ E_t.!-~2.'.:1: , _'.1.9~.~ - 9.9_ Gross interest income 35% withholding tax p 6EJ4~0 9 8.00 50% sur�char�ge :::::42 ~ 049.00 14% annual int. from 4 - 16- 73 to 4-16- 76 ��-��-����-��;:.Sl.?..!l..;~;?_l:__~. J.~ Total amount due and c:ollE?ctibJ.e F'l~ 3 13~468 . 1.6 : :: :::: =:::::::.::: ::.."":"::-.: = == :::::-.:::::::: :: -. B � ~..r:.~.<::l._.t..:t.ill:____::::. ...RJ,...LJ..tn..9..t'.9-ITI_.....Q.Y...?..r::�- 2 ?..~~ 2. .J~J?.U?..: e...._..J.t~.~. ZJH.~.~z. Gross interest income 35% withholding tax F' lJ.O ~ 524� . 00 ~50% st..wc: h a r-t:jt? 20, 2 62.00 14% a nnual int. from 4 - 16- 7 3 to 4 - 16-76 1 7 0 2 0 . 0 8 ...........................!!...�-���--�--��--����-����- Total a mount due and collectible F' 7 7 ~ 806 . OE3 ::.=:.::: = ::::: ::::::::::-.: ::;:: ::::::::::::-.: ::= ::: F'eti tic>ner- protes ted thE? a �for-em e n tioned as se s s ments~ through i t s a0ditors~ the.' SG~.J, letter dated November 20~ 1976 which was filed with re s pondent' s Bureau on November 22~ 1976. Respondent~ in a l e t t e r dated June 1 3~ 1.980~ denied petitioner ' s which c.h"'nial was posted on August 1.5~ 1980 and received by petitioner's auditors on August 29~ 1980. 13

DECISION CTA CASE NO. 3139 - 5- He nce, the instant petition for review. In his answer _t~ the petition for re v iew wherein respondent practically admitted the narration of facts as stated abov e by petitioner, res pondent alleges as special and affirmative defen s e s that: The liability of petition e r to withhold and pay the income tax withheld at source for the years 1968, 1969 , 1970, 1971 and 1972 from accrued interes t income on loan is a t the accrual of said payme nt and not at the time of a c tual r e mittance of payment thereof (BIR Ruling No. 7 1 - 003); Section 54 of the 19 77 Tax Code e x pres sl y provid es tha t pa yment of withholding ta x-at- source s h a ll be ma de within 2 5 d ays from th e cl os e of ea c h calend a r qua rte r; The asse ssment again s t petitioner in tt1e total sum of P4,0 ~ 5~730.87 repres enting deficiency withholding tax - at-source~ surcharge~ interest and compromis e penalty, is in accordance with law; The 50% surcharge was imposed as petitioner refused, neglected and failed to file the required withholding tax return and pay its tax liability notwithstanding the demand thereof; and 314

--- DECIS I ON CTA CASE NO. 3 1 39 -� 6 -- All pres umptions are in favor of correctness of ta:-: assessment ( Int e rp r o v in c i a l Autob us Co. , I nc. vs . Co l i . o f Int. R ev.~ G.R. No. L-6741~ Jan. 98 Phi 1 � 290; Comm . of In t. Rev. vs. A ve l i n e~ 8 SCRA 572 ) The pr�incipal issue for resolution posed by petitioner is wheth~r the duty to withhold the tax at source on an income payable to a non - resident ar�ises upon remittance or� payment of the amounts due to the foreign creditors~ or upon mere accrual ther-eof. And the corollary issues are (1) whether or not there is basis for the imposition of the 50% sur�char-gt=:.> ~ C~. nd (b) whether or not thf.�? def ic .iency t a s ses~.:;men ~ at least �for . the YE"!a r- ~;; 1. 96 8~ 1969 and 1970~ is already barred by prescription. Meantime~ ~-Jhenever�� thi s case was s e t few hearing~ counsel for petitioner would always make a manifestation that the principal issue in volved is similar� to that of CTA Case No. 2846~ entitled " Bayer Phar mac eut ic al s , I n c . vs. Commi s s i oner of Internal Revenue "~ whic h was s t i l l pending at the time ' with this Court. However~ in the hearing of t1arch 25 ~ lc 1 86~ after the ~~y_�'r case had already been decided~ counsel for petitioner without going 315

DECI S ION CTA CASE NO. 3 139 -� 7 "" into trial or pr~senting a n y evide n ce in sup port of e v en the other issues posed by h im~ s ubmitt e d this Petitioner's s ubmission that its liability to ~'-l.i.thh o ld thE' t.<:~.:-: a t ::; oun::('~ on -!:: h e ird:E~n;-~st. due t.o t.hl:"'' �f n1���c:;. i qn 1 E~n d c""' t��<.:; <~ r�� i ~:. �-?':5 o n ly at t. h f? t i ITl E' of p <:~ )-"fli('? l""l t or� r�E? m.i.. t t r.~. n c: f:~ D.nd not at. thE? tim E' of b c-,.~=; pd on t. h e E~.Y.~~- 1.::. dec: :i. ~:; i. on ( Bayer Pharma ce utical s , In~. vs . Commissioner of Internal t1 a.rc: h .16 ~ .1 979~ Revenue, ern Cf'-:1 1��� t i o r��c-:\ r �:i.. in Commi ssioner of Internal Revenue vs. Court of Ta x Appeals, et. al., G.R. No . 1.... �-� ?:;:~o;::lLl�, D e: t.ob(��~r- is positively without t. hr~ income=.� ( r�� n y a J. t.iF-~ ~5) co uld nut. t.n t. h f.~ non ��� . r�f.?~:;.i d< �? n t for�� E~ig n cn r �pol'"" <::\ t.i o n du e to Cr.::,nt.r�,':":\J. BD.nl :: . r�t"0 ~:; tr� .i ctio n ~:;, ~'-'h .i.le :.i.. n t h r:~ p t�� P ~5 c:> n t . c: c:\Sf�? th ere is no s h owinq of any on th e remittanc e of th ~;: i.nter-G?;;:;t in co me to the f oreign l Pndc r s. In t h e di s positive p o r� t.i..or1 o �f thi ~:; Cou r� t c lear�� I y �:; t: a l:.E�?d: 31o

DECISION CTA CASE NO. 3139 -- 8 -�- "~�J e , acc: on.iingl y , r�ul e th a t si n ce the royalties in ques tion could not be pai d or remitted in 1972 by petitioner BayeJ�-� F'harmaceu tiE: a 1 s ~ In c . to non -�- resident foreign corpora tion Baye r Aktiengese ll sc halft, Leverkusen Bayermerk due to Central Bank restrictions, pe ti tion r�,, r was und e r no obligation to I.'Ji t.hho 1 d ind p ay income ta:�:�-- a t -sou.r ce on sai d royalties and~ th e refor e ~ it. is not J. i.ab l e for the def ic ienc:y t.-Ji thho l ding t a:-:- a t-source assess ment. of respondent Commissioner of Inte rn a l Re venue in the amount of F' 36 ~8 :3 4 .T~r. for- th e year 1972. " In a l a ter- case , th at o f Western Palawan Lumber Corporation vs. Commissioner of Internal Revenue , CTA Case No. 35 4-4 ~ Jun e 5 ~ 1 987 ~ this Court e lu cidat ing the n .tl e 1 aid doi,\J n in the ~-~.Y.�'L case said further : "This Court unequivocally ruled that ~~.~.~1. <;:-~..:t. h~.-..J.'~.Q.'t.:.9.1..tJ:-~2-. _.<;Q.!::Ll.f.J..__r.J.9 .t_. __Q.~..-...r.:.~.f!l.J.J �t.~~.c::l- .t_g_.._...t.b-~. --D-9!J..:::_r._~_2._.t_g~_o..t.___._t .Q.C<?...:!:.QlJ._....__<; _q.r.::.D..9..r.- ac.t.,!.Q!l 9.~~~'LJ:._q .. _G_5'D..!:.r.:.s._LJ~!.s.nJs._ . r~.s>-?..tr._:i.:.<;J;J.Q.O.?._ ~ t. he time o f payment of the royalties is the maturation point. of the wi thholding dut y. It. bears e mph asis ~ therefore~ that i f the income payable to a non - resident f o reign co rporation ca n be p a id or r e mit ted beca u se there ~r~ no restrictions agai n st i t s pa y me nt or remittance thereof~ the liab i l i ty to withhold and pay the tax thereon attaches at th e tim e of accr ual~ not. at. the time of ac t.ua l rend. t t.ance." In the instant c ase~ there is nothing in the i ndi cates that petitioner Dillingham (Philippin es )~ Inc., wa s r es t r i c t e d by the Central Bank from remitting in 1968, 1969, 1970~ 1971 a nd 317

DECISION CTA CASE NO. 3139 on .it ~:; 1 nan~::; In the <~. b sr:~ n cr.:- o �f rr: <:; '1-. r� :i. c: t. ion fnt�-e.i. (Jn p(:0 t.i t.iont: r� ~ the 1 i <:\hi.l.i. t. y t.o \-J.i..thho ld .;~nd p .~.~y t�. tl F~ ,"\cc:t�- I.J. ,-~1 ~ not ,.-, t, t. h r,~ t.irnP n �f c\c:tu <,'\ 1 po:1ymr--:nt CH'" !' f�:~m.i . tt.ance The Agr ee me nt e nt ere d into by p e titioner a nrl i t s foreign creditors (pp. 90-93~ BIR reco rd s) ex p ress l y a ~d clear ly provides that in c:o n �::;:.i d e r�;,,tiun u�f t. hP J n a n <:;. p e titioner Dillingham F'h .i.l i.pp.i.n t:?'=>, In .-: ., t. Cl l'"t? f. !<-'.l. y f D I " " E�? i ( ] f l '\".h P p t �i n c i p ;�,, 1 ;:~ mD I...II"l t CJ i ' plus int.er �e s t at 8% payabl e qu a rte r l y in in s t .a llm Pnt s:; .i. n t �.tH-::� ,3.mCJ r -- t: i;.: a. t .i.on ~;c 1� 1 (:~ d u. l E?S <:~ t �La.c h t::d t.o Th e� �fact�. that p e t-. i t.i.onE-? r� s ubseq uentl y en tered into a l o an agreement with the C�:-~ hu Dc�vP 1 up, nc-: rl t Co,,. por-"'' t ..i. ()f"l r,'o/ h :i. r:: h c.�,, 1 1 e q�:- d 1 y v.Ja s in a sta t e of s u s pended oper a tion, a s a ptl y stated b y responde nt~ i s of no mom e nt~ being ,,,, unil a teral ac t of petitioner, san s participation whatsoever~ of th e foreign c r e ditors. And thf�~ t.E,; l'' ill ':':; ~J.I'l cl C Of\ d :i. t .ion e.; 0 f thE.> i::l.i) f " E?E?m E'I"l t ;:;.t i::\ t E~ cl I!.,IU U J. d pC?t.i t i.. one t-� � s �.:. 313

DECISION CTA CASE NO. 3139 - 10 - contention that it "p ractically acted onl y as<'-" conduit between the �foreign lenders a nd Cebu Development Corporation~ ~Ji th the understanding interests that petitioner would pay the foreign l en ders would be the amounts of interest that it cou ld collect from Cebu Development At any rate~ suc h bare state me nt of peti tione1��� ~ u n a c c o m p- a n i e d by adequate evidence has ~ petitioner having no we.i.qht t-.Ji th submitted this cas e for deci s ion on the pleadings and r�ecords without presenting to this effect. As to t he coro ll ary issue of the p roprie ty of the i mp osition of the 50% surcharge~ r� esponden t petitioner i~ li ab l e thereto as it refused~ neglected and failed to f i le the required ~>-Ji thholding t..::1:-: r�eturn a nd pay its ta:�: 1 iabi 1 i ty notwithstanding the d e ma nd thereof. In case of willful nc>glect to file the return or li s t within the time p r e s c r i b e d by 1 <::IW ~ the Commissioner of Internal Revenue~ pur sua nt to Section 72 of the t hen applicable National Interna l Revenue Code s h a 11 add to the ta :�: or� to the defici e ncy ta x a surc harg e of ::_;o% of the-:? amount of suc h ta:�: or 313

DECISION CTA CASE NO. 3139 1.1. defici<e ncy ta ::. Petitioner h as not introduced a n y evidence or testimony that its failure to tile the required withholding ta:-: r� etur� n within time prescr ibe d by law was due to a reasonable cause. As a matt<:?r- o"f "fac:t~ this question of the impos ition of the 50% surcharge ha s n ot been raised in the ad mini stra t i ve l eve l~ and petitioner is now apparently estopped fr�� om r� ais.ing the sa me for the f i.r-st time in this appeal. (Aguinaldo Industries Corp. vs. Commissioner of Intern a 1 Revenue~ Lo..:fr.._c:\_�) Tn.le, peti. t.icmer in its prote s t. of Nove mber 20~ 19 7 6 ~s t. a. ted that. i t re serv ed the right to qu e stion a t t. h c~ p t'"� o pP r�� impor:; .i. t..ion of the 50% .. this Cour-t. is not the proper pl ace to ,~ '"' i ~3 <�? t.h i~; is~:;ue �f it'�s t time. Then~ petitioner mere l y s ubmitted thi s case for judgment on th e b as i s o"f thP pleadings without offering pt'� oof a ~:; to the tn.l th o f i t s all e gat.icm in the p r~ ti tion fot'- r� evif.~ W that the i rnpo s .i. t..ion of 50% ~; u r-�c: ha r-�g e h<3.S no in l.:n~ and in f ac t . P etitioner mu s t therefore be understood to have c\dmi t-i: ed the truth of the allegation of respondent t hat: peti tionr-~r- refused~ negl ec ted and failed to file the required withholding ta x retu r n a nd pay 320

DECISION CTA CASE NO. 3139 -- 12 -��� liability notwithstanding demand ther-eof. (Bauer-mann vs. Casas~ 10 Phil. 386 ; Evangelista vs. DelaRosa~ et. al. 70 Phil. 115.) Er-r-or- or- mi stake of l aw may not constitute fr-aud but vJillful neglect~ which is the ba sis o�f the imposition of the 50% sur-c har-ge in this case~ is not equivalent Coming to the question of pr-escr-iption of the r-ight of the gover-nmE?ht to assess the ta:�: ~ it wi 11 be noted, as ar-gued by r-espondent~ that i t is also by pt--?ti tionpr- for- the this Cour�t. It vJas never- r-aised at the administrative leve l. To allovJ a l.i.. tigan t to assume a different posture when he comes before the court a nd cha llenge the position he had accepted at the administrative 1 F.?Ve J. ~ WDU J d be to sanction a procedure wher-eby the Cour-t - which is su pposed to review administrative deter-minations - would not r-eview, bu t deter-mine and dec idF.~ for- the fir-st time, a question not r-aised at the administrative forum. Thus , it is well settled that under- the same under� I y inc] pr-inciple e:-: h a u s t.i on of admi ni s tr-ative r-emedies~ on the judicL~l level, i SSLIE:�~<;;, not. l'�aised in the administr-ative le ve l 32 1

DE C ISION CTA CASE NO. 3139 - 13 - cah not be raised for fhe first ti me o n appeal. ( Aguinaldo Industries Corporation vs. Commissioner of Internal Revenue , L-29790 , Feb. 25 , 1982, 11 2 SCRA 136; Commissioner of Internal Revenue vs. Wander Philippines~ Inc.~ and Court of Tax Appeals , G.R. No . 68375, April 15, 1 988 ; Commissioner of Internal Revenue vs. Procter & Gamble Philippine Manufac turing Corporation and Court of Tax Appea l s, G.R. No. 608 38, April 15, 1988.) Even more, n o evi d ence whats oever was presente d by petitioner to the effect that the right of res pondent to assess and/or to col l ect the tax in volved herei n has presc ribed. The defense of pres cription i s an a ffirm ative a lleg ati on and the burden of proof i s upon t he pa rty lay ing claim to it. (Bo llo zos v s. Court of Tax Appeal s~ L- 16441, March 31, 1965, 1 3 SCRA 469.) Pr escriptio n being a matter of defen se , the burde n is on the petitioner to prove that the full period of limitation has ex pired, s o that they s hould positi ve ly esta bl ish th e date when t he period s tarted to ru n and wh e n it ended. (Querol vs. Collector of Internal Revenue , L- 16705, Octo b er 20, 1962, 6 SCR A 3 04.)

DECISION CTA CASE NO. 3 1 3 9 �-- 1. lJ. ��-� In a n y e v ent~ si n ce there was failure on the part. of pet.i ticmer- to file the return~ res p onde nt h as the right to assess the ta :-: within ten (10) years from di scove ry of s uch omission. Section 319(a) of th e a pplicable N~tional Internal Revenue Code pr-ovides that in case of failure to file a r-e t .ur� n ~ the ta x may be assessed or a proceeding in cour-t. fo1~ th e co ll ection of such t ax may be begun without assessment~ at. any time ~AJi thin ten year��s after the discovery of the omission. It appear-s that the omission to file the required returns in thi s caS(? ~-'Ia s di sc ove n:?d , as st;:;~.ted in the on October 23 , 1.972. ( pp. 62�- 64) BIR ) l'"� econ:l~-;. Since the assessment herein was .i s.s ued on Se pt. F.�? mb E~ r� 22 ~ 1.9 76 ~ the same wa s well - within the prescriptive period of ten (10) years . Accordingly, petitioner Dillingham (Philippines), Inc., is ordered to pay to respondent Commissioner of Internal Revenue the amount of P4,035,730.87 as deficiency withholding tax-at-source from 1968 to 1972, plus surcharges and interest incident to delinquency pursuant to

DECISION - CTA CASE NO. 3139 - 1 ~5 - the provisions of Section 51(e)(2)(3) of the applicable National Internal Revenue Code, as amended. WHEREFORE~ the ~ Court hereby denies the petition for review for lack of merit and affirms the decision appealed from at petitioner's costs. SO ORDERED. Quezon City, Metr o M anila~ April 29 , 1 988. F'r-es.idi g ,Judge I CONCUR: z~ A"""' ciate Judge (Di sse nt s .in se par-�ate opinio n) CONSTANTE C. ROAQUIN Assoc iate .Ju d(.Je

DECISION CTA CASE NO. 3139 - 16 - C ~ RI ! F I c B I I Q~ I hereby certify that this decision was reached after due consultation among the me mbers o f the Cour t of Tax Appeals in accordance with Sec tion 13~ Article VIII of the Co n stitut ion. Pres idi g Judge Court of Ta x Appeals 325

: REPUBLI C OF THE ' PHILIPPINES COURT OF TAX APPEALS QUEZON CITY DI LL INGHAM ( PHILIPPINES ), INC .~ Petitioner, - versus C .T.A. CASE NO . 3 1 3 9 THE ACTING COMMI SS IONER OF INT ER NAL REV ENUE~ Respo nd ent. X- - - - ----- X DI SSENTING OPINION Thi s case involves a n a ssessment of P4,035,730.87 against peti t ioner f or deficiency with h olding t ax-a t -s ource on a~c ru e d in t e re st i.ncome f or the yea r s 1968 to 1 972 du e to Di llingha m Inte rn ation a l Capital Corporation, Dillingham Overseas Cor por a tion a nd Dillingh a m Intern ati on a l Corpora t ion, its . for ei gn creditors, i n c lusive of 50% s urc h arge and i nterest. On Novemb er 1 7, 1 97 6, p etiti on er rece i ve d from respondent a l e tt e r o f dem a nd d a t e d Se pt e mb er 22, 1976, assessin g i t for de f i ciency withholding ta x- at-sou rce i n c lu s i ve o f 50% s urcharge a nd d eficien cy

DISSENTING OPINION - CTA CASE NO . 3139 i nt e r es t for th e yea r s 196 8~ 1969, 1 97 0~ 1 97 1 a nd 1 972, th e d eta il s o f which a r e as foll o ws: (.'l � r;;;_c.~~!H..:t.f.J_!:::..._:::~__.1?_J.J .J _t iJ.9J.1<~.f.!L..Qv ~L.2f~~~-~-:; r_;;_q_.r::.P._g__r~-~:..!::.J-.9Xl. : Gros s int e r es t in co me t~------~i.,..d~}g_ _.._B_l 35% Withho lding t ax F' .l ~ <:1~)3 . 00 ~:'.i 0 'i~ Ei u r-c h <.:\ ~-� ~~ f:~ 976. ~5 0 1 2% annu a l i nt . f ro m 4 - 16- 6 9 to 4 - 1 6 -72 ( 3 6%) To t a l a mount due a nd c o J.lr'-' C:: t..i.bl e ::::::::::::::::::: :::: ::=:-::: :::: ::=:::.":::::: D " . Gx.::.~?..9_J_t9r._....::::__ 1UJ:_.L.iJ:l9l.l~~-~.!)__.I.r.!.:t.. L F.:::... Z.1..!\..!.:Z..~...!-Q.<2. G_Q.Q}l.J._0..Q_Y. : r:: 25 ~ 96.1.0 0 Gros s i nt eres t in co me .1. 2 !i 98 0. 5 0 35% wit hho ld i ng t a x ::-~-:: ::::: :::: ::::: :::: :--.: :-.::: ::.-: ====-~ :=:: ~':10% c::_; u I~ C ~"l <A r��<;Je 1 2% an nu a l i n t . f rom 4 - 16- 69 to 4 -1 6� - 72 ( 3 6 %) T ota l a mo unt du e a nd co ll c;;,c:t :i.hl r" c � Gx~_q.s;tt..t_g_r::....::::____Q.J,..J_.Jj,__r_!..9.L1.~~-!!.!.......LrltJ_ e.t .t.~z !I(2?J,. ~...t~_1_ r~ .~:. P..L t.9..L.....GS?.. t::..P..: F' 5 fJ , !.f8~2 .. 00 2 Ct ~ :-? .l.J-.1. � 0 0 Gross .i nt e r e s t in co me 35% wit hh o ld i ng ta x F' l 0f3, 7 7b. ~.'i2 ~-'� 0 :�~ ~3 U I'""C h C:\ r--!]E' ==:::: : : : ::.: ::: ::~ :!::: ::: =.~ :::.-: l.2% a nnu a l int . f r om 4 - 16 - 69 t o 4 - 1 6 - 72 ( 36%) T o t a l a mo unt du e a nd c:o ll. E~ct i.bl f.'.' (1 n GL.ft(_:J..A.i~2L__::::.....P.L.J:. .Jj ,_r::l__gJ:"].~.~n-..I.t:!. !~L G.~P .t.J:~~-L... .~~P.Cf.l : Gross i nt e r est in co me 3 5% withho lding t ax

DISSENTING OPINION - CTA CASE NO . 3139 ~:.o:~: ":; u r��c h .:,, r� ~1 E' F' 118 , 688 � ;:.iO 1 2% a nnu a l int. from 77, 147. ~)3 4-16-70 to 12- 3 1-72 ---��-9-'---6��~��"�-F--2--.--�0����9�-- 14% a nnu a l int. from :-:::::::::::.: :::;.::::-.:::::-.: === 1 - 1 -73 to 4 - 16- 73 Tota l amount due and co l l f'~ c t i b 1 t-? - �.:. A � ~~T~~~;J...iJ: q_t~~--.::::......I.!..t.J. .Jc.!.U.9Llf\.!T.!.......Lr_1_};. L E:.J:..9...1-...:t...9...1..:.:~.'.:L:2. !...~~!2. G<::U?.J t.S:~_LJ.:..9.r:.n = P :: :91. ~ T3 !'5 � 00 Gruss interes t i n c ome 35% withholding tax 19~':i~D67.~'i 0 !")()';.~ =:; u1���� c h a t-�qe no ~ ::. o~~. 68 12% an nu a l int. from 4 - 1 6-7 1 to 1 2-31- 72 ----- �-�7��-�0��-��1-B--�-:�.:-m��--��.�-��T���T--.��� 14% an nual i nt. f rom F' TS8,7 4h. 9 1 1 - 1 -7 3 t o 4 -� 16-�7 4 :.::.:::::-.: ::: ::::: =:.: ::::. ::::: :::: ~-": :-;:: :::: :::: ::::: Tota l a mount due an d c: ull ec: t.iblP ,') � t;r~:f::�.~:!..~J.!,:?.~~---�--:~.:...._P.i:. .J:..l..i.Jl9.Ll.~f!.t....J .u.t.! . ~::...t ,J?..2.{.?. .!1 .L?..~J.~. :�..:t G.<2:.D._i... t~:31..J. . . .G.c;~r.:.P. = p ~j93 ~ f:355. 00 Gr uss i nter es t in c um e "2. '76, f;'27. ~i(l ::; 5 ~~ \..., i t h t )(] 1 d .i. f1 q t: ,3, ~�~ ;.:;oz. ~:; u r��c h ,=" r�� rJ E~ .1. 2 % :culnu ,:,;d i nt . fr�orn 4-16- 72 to 12-3 1-72 ~:.o ~ �1- T7 � bB 1 4% an nu al int. frorn 1- 1 -7 3 to ~ - 16-75 Tot a l a mount due a nd co l l E>cti bl e = = :.-:: :=---= ::::: :::: ;::; ::::: ::: :::: =:::::. :-.:: B � r~~~-�-!.!-1 ; ts.) ~~--=--���P_i.J..Lt.r.J_gJJ~~-f!!. _.q~~t~.c--� 2.~~-~.?........C!:::,_r.:p_~ Gross interest in c ome r::.......... ;~,~-~-s,~_,__:I:=::.~--~--~:ll 35% withholding ta x F' !:39, ::::. 6"7 . 00 ~.'i0i~ S LH"C hi":\ t��qe �1.Lf. , bB :~; � 50

DISSENTING OPINION CTA CASE NO. 3139 ..... 4 ��- 12% a nnu~l ~int. from F' 7,596 . 20 4---� 16�- 72 to 1 2 -- ~5 .1. -� 72 ---~~J~_,__ 0L1.!..7.1 14% annual int . from .1. - 1 - 73 to 4 - 16- 75 F' .1. 7 0, ~:~ 1.8 .6 1 Total amount due and :::: :.-_-: ::: :::: :..oo:: :::: ::-.: ::::: :.::: :::: :::: :::::: ::=: CD 1 1 '>C t. :i. b 1 (-~ f-) � GX~.!=.~~.tt_t9_t.:::____::-::_..P..A.LL.t. ~l.Q_t~-'~.m....J..n.t.1 . F2_.1__,_..2~.:� L1.Q..~--~-.f.~<2. G~~QJJ;.S:. 1:.. -..r~;_9E.P. : F' bt3LJ. '091.:3. 00 :y ]. 2, 0 49. 00 Gross interest income 35% withholding tax ::::::::::::::::::::::::::: :.-:::::::::::'::::=:::==: ~50 f.. ~:; u. r�� c h c:\ n :J P 14% a nnual int. from 4 - 16- 73 to 4 - f6 - 76 Tota l amount due and CD llPc::t.ii:Jl(:~ B . G. U'2.~J-:1~ tq!::......~::__P_i..l.J::i:..D.9tl.~!n... .P_Y.<.::~.c:�� 2 .Q.~~,?.......~~gx:.r:?..!.. Gross interes t income E____...J.,L.~"'..,. .:Z..Q.4_!_.9...:~ 35% withholding tax F' 40, ~)24. 00 ~50% c,; ur �c:: h c:\ t"�� qr.::' 20,262.00 14% a nnual int. from 4 - 16-73 t.o 4 �- 16-7 6 --�-�-����-�--L?._,__.Q_?~2..~..Q13.. Tot a l a moun~ due a nd c ollc:,c t.ible T7,806.0 E3 =::::::::::==::::=:::::::::: ::::::-..:::::::::= P r:~ t .:i. t:. .i. c: nr:~ r�� p r�o t.~;~ ~; ted the assess me nts, through its auditor s , in a let ter d ated November 20, 1976 which was filed with res pond e nt 's Bureau on No v ember 22, 1976. Respondent, in a l etter dated Jun e 13, 1980, denied p e titioner' s pr��ote<.:; t, which denial was t Augu ~; .1. ~), .l9BO ~:md r�ecei ved by p eti tion e r' s a udito~ s on Augu s t 29, 1980. 32J

DISSENTING OPINION CTA CASE NO. 3139 .... 5 -- for- wi 'l:hho 1ding ta:�:-�- a '!: - sour-ce i s pre mi sed on res pond e nt' s Ruling (BIR Ruling No. 7 1 �����0 03 d.:O\t t-~ d Febru a ry 2 6, 1971) to the effect that 9..h.t.r.::..?.. � ) (.')ccol-� d inq 1 y, re s pondent contends that. petitioner shou ld -~l.::tve wi thhE;.>ld and paid i:l1e 35% withh o lding t .:�J.:-~ �~ favor- of c ol�-por-a t ion ~;, although u.n r- f~ mi t: t.E~ d. Petitioner ' s li a bility fD I"' to its fo1 �� e.iqn f1�� om loan s f r�om said c r e ditors , the procee d s o f which, in turn, ha d been lent to Ce bu Deve lopment ~orpora'l:.i.o n , a Philippine c o r porat i on in a s t a te of s u s pended opera tion; thus it.~:; .in a b.i l .i. 'l:y t o pay interests on the loan s . Such be ing the case , pe titioner has not been able to C:Dllf.~ C t (:':l.CC: rU F~d .i. n t.!�:-? r�r,?~; t s from Cebu Development c:ol�-� pol���.,?! t .i. on � Hence, petitioner ha s not been able to remit and, in fact~ has not. yet remitted any i. ts �fon:;.oi.gn Thi s hc:\s not be en d e nied by respondent. 33G

DISSENT I NG OPINION CTA CASE NO. 3139 -- 6 .... On September 8~ 1980, peti tion(er� filed its pE~t. i t.:i.u n �for. I'"PV lPV.J. RE~ ~:. ponclen t , on h<:':1.nd, �f .i l e d '�� J.. s i:':1. n S \-'Jer on aanu .':':\t"Y :2 1, .1. 98 1. The i ssues for reso lution are as follows: (.l) Whether or not the duty to withhold the t ax-a t -source on income paya ble to a non - resident for e ign cor poration arises upon remittance or payment of the amounts due to the foreign c: t"l':.' d .i. tor. s or� upc:m ac:c r�ua 1 t:. hen:'!o �f; (2) Wh et her or not ther e i s va lidity for the imposition of 50% surcharge; and ( 3 ) Whether or not the d e ficiency assessment, a t l east for the years 1968, 1969 a nd 1970 is a lready barred h y pt"f.:~sc r.. i pt. .ion. Regarding the fir s t issue, pe titioner contend s that its li a bility to wi thhold the tax - at-source on the interests due to on l y a t th e time of their pa y ment or r e mi tt a nce and not at - �.:. t.he t:. .i. Hl P 0 �f c:\CC:Y"Ual t h~?. t��eo f . On t. hE~ otherha nd, respondent's basis for the assessment i s BIR Ruling No . 71-003, datPd F e bruar y 26 ~ .1,Cf7j, I��Jhic h dec 1 at"�es-. that ''withholding ta:�: is not depr.:mdPn t. em the remittance of the income pa ya ble to t.Ge non - resi dent foreign corporation but upon �l<;.~...r.::~::'B.1 th e r�pof" rr Tht> sa id BIR ruling has already dt> c l a red Prroneous b y thi s Cot.1rt in its

DISSENTING OPINION CTA CASE NO. 3139 7 --� df.�?C .i. S i CJ n i n the c ast: CJf Bayer Pharmaceuticals, Inc., vs. Commissioner of Internal Revenue, CTA 2 846, prDmulgat:.ed on March 1 6 ~ .l CJ ]9 � (C e rtior a ri Denied in G.R. ND . L -72 054~ Sept. 2 9, l9f:16. ) In sai d ca s e, i t was ruled that th e duty to "~it. hh o ld e:1nd p ay the income cluF~ t.n non - r es ident s i s upo~ p a yment:. or remitt a nce a nd not:. upon me re ac c rual. In s aid Baye r d ec i s ion, this note of the fact that in issuing Ruling 1\!n. 7 1. -��003 , Int�-~ l'"� n e:ll n ;:? J. iF~ d upon a ,,.u 1 i n q CJ f thf.�? u.s. Intern a l Reve nu e S e r v ic e whi c h h a d b ee n d e c lan:~ d the?. U.S. Int e rn a l Reve nu e Se r v ice in it s Re v e nue Ruling No. 7 0 -29 3 dat e d Jun e 9 ~ 1 97 0. I t:. i ~;;~ tha t the duty to withhold the inte r es t s due to for e ign l e nd e r s ar i ses not "' t the tirm? they were ac c rued in the book s of p e t i t.i.nnE'I'.. � br.-:> no b <":lc.; .i. s the wi thh o lding tax not only becau s e i:. hc-:?r��f."'? \I'Ja s no remittanc e but mainl y because the re was nothing to in �f..1.. I'" St' pl<::IC:E' . The�?. pf?. c:ul i <"'l r. c: .i r��c: um ~~- t e:1ncE>s of t.h e fo,.�ei.gn loan s wer e s u c h that 33;..;

D I SSENTING OP I NION CTA CASE NO. 3139 ��- f3 . -- p e titioner herein h ,':\d only a s a conduit t. hE~ �for-eiqn and the CPbU De v elopment Corporation, 1!-J.i.th t h!:? '�.1.n d ~;.~ r-s t. ~3. n din q t .h ,:-,1. t. t~ h r:-~ pet.itionr-?r.. \r�.'oulcl pay the for e ign lenders would be the amounts of interest that it could collect from the Cebu Dev elopment Cor- pot�- ;,:~t. :i.on. Since petition e r c annot collect from t he:� CE' b1..1 [)(;:~\' E�:~ l o pmPn t:. Cor-po r-at.ion ~ i t. c r.:1nnot:.~ in t.o thE~ foreign c r e ditors the interes t s due and accrued in its book s in favor of t~ h!�::> l i::~t.ter- . There h a ving been no collection s and remittan c e s made~ i s nothir1q t.o rem i t t.o foreign creditor s ~ p e titioner ha s incurred no li i:Olb .il.it y to withhold and pay to the go v ernm e nt a n y withholding ta x-at-s ource for the y e ar s 1968 to 197 :;,;~" We held in the ca s e of Bayer~ thu s The lone question tendered fot�- res olution i s whether or not t.he obligation tQ withhold and pay in c ome ta:-: .- at -source on the roy alties is upon the accrual of the royalties or upon the actual remittance or payment thereof. Petition~r~maintains that there no obligation to deduct~ withhold, and P<':\y the withholding tax in 1972 s ince th~;? ro y altie s could not be re mitted due to Ce ntr a l Bank restriction s . In submitting~ howe v er, that t:.hP liability to withhold and pay the income tax withheld at s ource from roya l ty payments to a non - resident

DISSENTING OP IN ION CTA CASE NO. 3139 9 . .. fo~eign co~po~ation~ like Ba y e~ Aktiengesellschaft~ Le ve ~ku se n B aye ~me~k~ is at the time of the acc ~ual of said ~oyalties and not at the time of the a c t ual ~emittance o~ payment the~eof, ~e s pondent ~elie s mainl y on Bu~eau of Int e~ nal Revenue Ruling No. 71-003~ dated Feb~ua~y 26, 1971, the pertinent po~tions of which a~e quoted as follows: ''Thi s r�� p"fet��~::; to your� l P t .tcr-� dated Feb~uary 16, 1971 r��F!q u. P~:::. t .i. n q '"' r��u 1 in q i::""l<.; t.o thE? basis of the withholding tax due o1�1 �f :i. 1m ,.��r:'n t:a 1 s; o I"" r-�ny E1 J. t .i. r~o:::. p aya ble by you to non - res ident "foreign film cn~pn~ations. II ''In y ou1'� J. E~t t.E-~ r�� , you ccntended that the 35% w: t hholrling t ax should be based onl y nn actua ll y ~em.i.ttable i:"Hno t.nlt undF~ t�� CE-?ntr� r.\1 Bc:Hik r�� f.?CJUl i:~. t: inn ~:; r,,1n d not. on t.I1E' E'ntil'e amou nt due and payable to the non - ~es.i.dent fo~eign co~po~atinn. This contention has no leg a l b as is . Withholding tax 1s not d e p e ndent on ~ e mitt a nce o"f the income pa ya ble to the non - ~e s ident foreign co~pn~ation but on i:".C:C:I'"" I...tal th!:"!r � �f'~Of. Such b(�?.i.ng the case, although a po~tion of the amount due to the non- ~esident fo~eign co~po~ation cannot be ~emitted on account of Central Bank ~e s t~ictions, the tax due on said po~tion should be deducted and withheld as if the~e i s no ~est~iction.

DISSENTING OPINION CTA CASE NO. 3 139 .... 10 .... snu n i::\<:; t.hE! act.ui:\ 1 i ""� eli :::,c 1 o~:;ec:l . ' .1.969 ~ \/o 1 . IJ.[-37 ;:, � 40 5) In v iew thereof~ this Office hr:~ l i !'�? VF' ~.;; ;:\n d so hold ::; t .h .:" t:. t t lf:? 35% withholding t ax s hould be deducted a nd withheld on the e ntire amnunt of film rentals or royalties payable to the n un- resident foreign film corporations including that portion which~ on account of Central Bank restrictions, cannot a�:;:. yPt bf.':' r�emittecl c:~ br.. oacl.'' As express l y stated therei n , the Bureau of Internal Revenue ruled that withholdi ng t ax is not dependent on re mittance of the income payable to the non -resi dent foreign corporation but on accr. ual t h e r.. eo �f . ' {)n d 0':\~; suc h, alt h ough the income cannot be remitted on account of Centra l Bank restrictions~ t h e t ax due t hereon s ho ul d be d e ducted and withheld as i t ther ~ i s nn re s triction.

DI SSENTING OPINION CTA CASE NO . 3 1 39 -- l J �r 1�1!:�? ~:::. 1::.::~ -1:-.t .t tE? i r-1 v o 1. v r�? d :i.. c:; Uc:' c t ..i. o n 53 ( h )( 2 ) o f the Na tion a l Int e rn a l Re v o nu e Cod e , the c ontro ll ing pr ov i s ion s o f whi c h r�� c��::,cl t i C:'; i'n 11 ot,.,,s;: 11 ~3 E�~ C " ~5 ::;. ( b ) ( ~? ) f.~:!.~?.!::). ~::..r.:.~?.~.=:);..(_:t~? r:�~. t:. :f_q1~ qig.r. 1. !:..9X :P .f:?.t:=''3. :L.i,q r.J ':', I r-�, th e case o f for e ign c or porat ion s subj ec t to ta x und er thi s Ti tl e. not e ng a ged in tr a d e o r bu si n ess \�\' i t: hi r-�, t:. h F! F' hi 1 i [".,p i n ('.' ~;:; , 1�. 1�.,C� r F' <::; 1�,;:,\ ll he-! dE?c:luc:t r-:-> d ;:,.nd \�J :.i.. t :h!��,c lr:J E:\ t. th e so urce in th e sa me ma nn er a nd u~nn the sa me it e ms as is p 1���u v .i cl r::! d .in ~:; t.t b <:; F:� c:: t :i.nn ( b) ( J o �f t. hi ~;; <:':.ec t . io n , :-~ :< :~ ;:;1 "1"�.<3:-:: r��' q<..ti:J l tn 3 5 pe r c e nt thP r e of . rhi s s h a ll b e return e d a nd p a i.d t h e ~:;:.;). ir< F' m::,\nn r:-:o r�� ii:\n cl ~:, tt bj f:' r:: t . t �. o -1:.: h r.:-! in An d Sec tion 53 (b)(1) of th e s a me Co de p n r t i nen t l y pro v id es ~ ( h ) t�IL'L!.:::.t::.r:::~.~!!:..i ! 1.~?_1.1 t <''.].j.~ ~~~~ .~ "....J '.f' r l f'.qx::.r:~ . i...~~Ji '������c:: .q .I'.":.P~:l.r,: }::'..J:.::\.f-. >1) S.:. ( l ) l,lu n -��� t�� F! <;;:. j ci n f::.:O t .. ........... ..~~;IJ . :i:.f:~r.1_?. " F ��..' F' r �y ind .iv iclual, corporati on , part n er ~::; 11 :i. p , or� a <;;;.'"; D c i. a l : i on !' .i. n t'Jh i::\ t .c~ v P I'� ca pac ity acting, in c lucl5n g a l esse e or mo rt ga gor nf r ea l or p c:~ 1��� ~;:. n n a 1 p t��o p F:� r�� t .y ~ l .t� ,..I <:;:, l :E�'f:-? t :\ C t . j n q in any tr�� u ~::. t. C: <':\p i~c: i-1-:. y !, ('"!>~c:>c::<..<. t:. or�� ~ a clmin.i. s trator, rec e i ve r , c on se r - va t o r~ fidu c i a r y , e mp l o ye r, a nd e ve ry officer or e mploy ee of the Go v ernme n t of the Republic:: of th e Philippines havin g t he contro l , r e ceipt, cus tod y , di s posa l , or p ,,, y mt:! r1 t. o �f .i. n t r,~ r-�c ~''� t . d i vi cl E�! n d ~''� !' r e nts , roy a l ties , sa l a ri es, wa g es , premiums , a nnuities , comp e n s atio n~ remun e r a t i on s , e molument s , or other fi xed or determin a b l e a nn ua l , per.i.od.i. ~a l, o r c a s ual gain s . profit s . a ncl � 33 u

DISSENTING OPINION --"" CTA CASE NO. 3139 -�� 1 2 --� i n co me , and ca p i t a l g a in s ~ o f a n y non - res id e nt a lien not eng a g e d in t rad e or bus in ess within the F'h:ilipp.in F'<:!:. , ~:; t1 i::\ ll i n ( P: : c::f'~ pt. t.J--�, r-~ cases prov id e d i n s ub-sec ti o n ( a )(l) of thi s Sec t i on) d e duc t ;,;~.n d ~�J .i t�.h hold fl'"� om th E~ l .::~ n rl Ll i::l ~ per iodi ca l, o r c asu a l g a in s , profit s , and in c om e , a nd c a pit a l g a in s , a t ax e q ua l to 3 0% t�.h E' r��p u f � ,.- e T hE'~;r.,, p r��o\/ i !;; in n s, b y th e \I'.! a y ~ ~'J f~ me r e l y impo r t e d and cop ie d a lmo s t ve rb a tim f rom s im i l ar withholding ta x prnv i s i o n s of th P Un i t e d S t a te s Reve nuP Cod e [ Sect ion 143( b)] . Acc ur0ingl y , in c on s on a n ce with se ttl e d r ules of s t a tu to r y con s truction , the inte rpre t a tion thPy have r e c eived i.n th e Un i t e d S tat es h ave a uth o r ita ti ve ef f ec t in ths prope r con s truct inn a nd i nt e rpr wta tj.on nf ou r l a w . I hu<o;, a�;; c o rrec tl y note d by PE' t�.i t .i U P c~ r�� d .:,:~ n wh i ch i s n o t di sp ut e d b y r � p<:; pund E�~ rlt. ~ 1 . In arrivi ng a t BIR Rulinq No. 7 1 - 003, d a t e d Febru a r y 2 6, 1 97 1 , our Bur ea u of Inte rnal Re venue q u o ted as a uthor ity the excerpt . uf a United S t a t es Intern a l Reve nu e Se r v ic e ruling wh ic h i s found a t pa r . 487 5 . 405 of CCH, 1 9 69 , Vnlume 5. It a p pea r s tha t the s aid U. S. rulin g is ac tu a ll y Mimeograph Ruling No . 5 0 75 , whi c h was i ssu e d b y the Offic e of the Comm iss ioner of Inte rn a l Rev enue , Was hington D.C . , on July 8 ~ 1 9 40 a nd c a n be f o und at the Cumulati ve Bull e tin 1940- :-z !' Ci\t:. p e:\~Je .1.4.1. " 2. Th e sa id Mim e ogr a ph Ruling No . 5 0 7 ~:'1 h E,\ S be p n c:I E~ C: l <::H .. E? d qJ:J.S.~?J .<::?. t~. b y t l l f :? Unit e d States Int e rn a l Revenu e Ser v ice i Ls �;~ 1 �f in it ~" R t:~V E~ n UP F~ u 1 in q No . 7 0 -- :zc.r~!;.

DISSENTING OPINION CTA CASE NO. 3139 -- .l ::~; .... ( 1...1 � S .. I n t E:' l'' n :':'. l Re v enue Bulletin No. 1970 - a ::?~~; ~� d a t.f:~c:l un p B~ 1970) It is thus evid(�?n�l~. that in issuing i t s BIR Rul ing No. 71 - 003 on February 26, 1971, our own Bureau of Intern a l Re v e nue has relied on a United State~ ~Intern al Revenue Service ru ling t h at h as already been overru l ed~ the sa me h aving be e n declared obsolete as of ,June~ .1.970. 3. Following the decision of the 1...1 n .i.. t: e d f3 t. '"� t (? �.; D .i.. s t .,... i c t. Co u ,.. t�. i n t,.~� .P..~.... Gs,.!,�,},J:;.. (~:..f:?. �~.� .Y.~~-~- llni �~:�~d. .. f3"\". a. l:.~.s. , 116 F. ~!ttpp. ErY.'i, rendered on No ve mb er 19, .1.953, to the e ff ect that corporation which held licenses under patents owned by n on- resident a li e n s who as result of blocking proc l amation were forbidden right to recei v e or dispose of royalties was not boun d to withhold t6x before pa yment of roya lt i.e s , the rule that i s now observed in the United States is that the ob li gation to withhold and pay the t ax is upon payment or remi ttance of the income to a non - res ident alien . In the .. I,,,�..~. P. ~ G<':~~!J.J:~. Lq.. c <"- !'"~e, ~�,� hE:.> r� r::~ t. h~? factual s e t ti ng, l aw involve d and i ssue litigated are practically on al l fours wit h the case at bar, plaintiff, a Delaware corporation , he ld li cen s e s under patents owned b ~ two non - resident aliens, Robert Doge anc:l Em ma nu el de Tr ey. Both patentees were Swiss. Und er the licen s ing agreeme nts , plaintiff ob li gated its elf to pa y ro~alties to Doge a nd d e Trey.. In its t.r��e c:!t.mE�. t. of t.he impact o �f r� Dy ,':\1 tiE~s on its operations, plaintiff, ad hering to the acc ru a l met h od of acco un ting, entered n et roya lti es a nd wit hheld taxes as accrued l iabilities of 1941 and 1942, the periods involved in the case. Thus, 194.1. a nd 1 9 4 2 ro y a lt j.es a nd taxes were set up as accounts payable on p l ain tiff' s books and as part of its cost o f doing business for tho se yea r s. No withholding r eturn s for n on-re s i d e nt aliens Doge a nd c:le Tr ey were ,.., ,.., . u. �'. ) �( tJ

DISSENTING OPINION CTA CASE NO. 3139 1 �1 -�- p repa re d fo r 1941 or 1942 . Wh i l e th e c r- itic ,; , � i s"''-UE�' i s "~h c~ n th e r�� e t .tl r-�n s. \�J E.~ r- e due f or r o ya lti es a ttr i buta bl e to sa l e s ma d e b y pl a i nt i ff durin g th e y e~ r s 1 9 41 ;:~ nd .1. 7 -f.J-~? r. t .h e;~ .i. nqu i r y !==; 1�1.i. f l".F! d f r-u m II ~�J h r?n '-'�J Cl ~-:: t:. h e l' �e t .u t'Tl cl U t:' " to " \�J h ��?n ~ .i.. �f E:d :. a 1 1 ~ ,,.., ,::~. �:o p 1 a .i.n t i ff r�-c:? q u .i r� e d t o \�,t .i t:. l�1h o 1 d t .h e t <'l.:< �fr� o m t�. h e? r�� oy ."t lt. i r~ s. 11 Th F!r-�e \�J .:~s n o que s t i on r a i sed by p l a i ntiff as to exi s t e n ce o f i t s dut y t:. o wi thh o ld o n th e r- o y<.~ 1 t . i (�?S> . Th E> '1 vJh e n II o �f t:.h e rn a t tpr�� ~ no t:. t .h e " vJh n " o r� t.J��H::� "I�Jh <:l t" WD. !:-~ t.h e p oi n t o �f di s pute a nd .inq ui r y bec a u s e, a s res u l t o f h l oc: k :i n q p r��� u c:: 1 <':\rn a t..i. o n , rH:m �-T f:~ <::..; :i. cl E:'! n t <:11 i P n ~:; we r e f o rbidd e n r ig ht t o r e c ei v e o r d is po s e o f ro y a lti e s clu e th e m u nd e r c o ntrac t wi th cor po r a t ion wh ic h h e ld l icen s es und e r a l i e ns ' pa t e n t s . (L .D. Ca ul k Co . vs. Un .i. tc' d ~3 t ,':\ b �? S� !' l l 6 F . 8 ~~ ~j , 84�0. ) S t;:l t E' d ot h e r wise, th e qu es t i on as to whe n t o wi thh o ld th e t a x fr o m t h e .1. 9 41 a nd 1 9 4 2 roya l ties aro s e bec a u s e , a ltho u g h the r��� o y;::~ lt: iE�?S "~ e r�- f.~ .::~c cr��u e d i r1 t h e pl .':\.i. n t i �f f ' s boo ks in 1 9 41. and 19 4 2 as li ab ili ty to the non - re s i d e nt l ice n so r s~ th e s a me c ould n o t be paid or r e mitte d to the l a t te r a s a r es u l t o f a bl ocki ng pr oc l a mat i o n . Th e Unite d Sta t ~s Fede r a l Cou rt ru l e d t hat whe re, as r es ul t o f b l ack in g p ro c l a mation, n o n - re s i d e nt a l j e n s we re forbid d e n rig ht t o receive or d i s pos e o f t-� o �'/,,,,_l t.i.e s:. d ue th e m u ncl t:> r- r.:o n t r��,:-.,_r.: t , \�Jit. h c or p ora tion wh ic h h e ld l ice n ses und er ;:, 1 i r,:-~ n ~:; ' p .;, t e nt. !::~. , ~;. u c: h D. l :\.e n ~:; h <:lc:l no '1 qai n <:; , pr�o �f i t s ;::~ nd in c om E':~�� ,.., :Lth i n i ntern a l r evenue s t atute r e qu iri n g a ll p e r s o n s ha v in g co ntr o l ~ r ecei p t ~ c u s t od y, di s pos al or p a ym e nt of fi x e d or d e t er mi n a bl e a nn ua l or p e riodi ca l g ai n s ~ profits, a nd income o f a n y non - r esid e nt a l i e n to wi t hh o ld t ax a nd , th ere for e ~ n o n ecessi t y o f fi l i nq Wi t hh o ld i n g tax r e turn d evo l ved on co rpo r a tion whil e c orpo r a ti o n r e t ai n e d blocke d roya lt ies. .The n e t res ult i s th .::~ t th e o bl i g a tion to withhold and pay th e t ax i s upon p ay me nt o r

DISSENTING OPINION CTA CASE NO. 3139 ����� l ~'.i ����� r e mitta nc e o f the United States deri ved income to the non - r esi d e nt r ec ipi e nt. Because of its s tro ng persuasive force , if not controlling effects~ on the pr ese nt case, we will quote at length from the cl ec::isi<:::.n. "Th ~? c:mu �.; o'f' th E~ ''Ji t.hholcl:.i.nq requirement on pl ai ntiff is impu~"'t:> d by r.:; .lLJ. ::) (b), I. P. C.~ * * * 1 1 11 wh a -1:<-::~VF~ r- ( .) , f?E:~ r-~; on ~; :i. n capa city act ing , hav in g the receipt, custody, * * co ntrol~ di s po sa l~ or payment of t fi xed or dete rmin a bl e a nnu a l or p e r-:ioc:l:i.c:EI.-1 .. q ,::\in<::; , pt�u�f :i t .o::;!1 i'~n cl * * * income * * * alien of a n y non -resi d e nt s hall c:l ec:l uc: t and withhold from s uch a nnua l or * * *. " pE:�r'.. ioc:lic:<'~ l <J i:':l. .in~::- , pr'-o 'f.it ~::; , a nc:l income iJ. �t ,?~>: Cln t .ll E:' whole, this pro v i.s ion c:l oes n ot r: or1c E' f"l'l i t .':::.; e l f ~�J :i t .h II \l�lht~ n 11 t �.h e ��\�:ithhr::J ld .i..nq ~:; houlc:l t �.t:\ k E' pl .::\C::F:� . . , r-~:.::l.t:. h t~ l' i t �:::.i mply ~::; p ecific>~.;; 11 Hh0 11 �::; h,:;-o. l 1 cl C\ t 11 ~''h .:�,, 11 Hot,-.J PVE~ t'" , t hi c.::. � mu c: h l :i..q l"'t t �. .i. t . cl 0'~�?~::~ , !':; 11 c~cl The c:l uty to withh o ld pre s upposPs th e r:~>~ .i ~:; t:. r'~nc:e of 11 i':'. nnu. <:~ l or. p F�? f .. i 0 d j C:: i::l. J. CJ i::\ i n:<::; !I p I'" 0 f i t_ ~:; ' cl n d .inc omr~ 11 � �r h f:> ~::;p t~: t:. i or.., d :i. r.. Pc:: t ~:; t .h<? '�' J.i. t h hu l d .i l"llJ f i"' Offl <,:;uc 1�1 <::; urn<::; E�.~;:; o':\ I'" P :i. d P n t .i. f .i E~ h 1 f:=' ;," :;:; 11 q a i n <:; , p r. o f i t ;::; ~ ;., nd :i n c:n mE� 11 o i ' thr:�~ nont"'P'"' ident a li e n . Oh vin u s l y ~ i f thc:>re are l"l C) ~::. \ .\ C:: h II <J .0:\ i f'l <::> ' p t"' C) �f .i t (::; , c':\ rJ d j..n c::c:Hm? " !I t. h F~ duty t:o with h old is n o n ex istent. On th e other h a nd, if ther e are s uc:h s um s ava il a ble:>~ the:> s tatutor y langu age is inconcluss.i\/!:�~ in de ci dinq 11 !,J hF'!r't 11 the withholdjng duty arose. I do not uround my d ec i sio n o n any hut I s ubtl ety of construction, VJ~�~�,.:�:' do advert, in f a ct, to it. thP r. u,/alt.ir::�~ s. ''q .o:\.i n s ,

DISSENTING OPINION CTA CASE NO. 3139 1 6 -��� p t..� o f.i.. -1-:.~::; ~ ""nd i n com !�:�~�� to th !:? a l ie n s Do g e ~ nd d e Tr ey whil e pl ai nt i ff r e t a in e d t h e m und er t: h r;�~::;r:-~ c ir��c um.~5 t <::\ nc: r;�~:;? I t . hink n o t . upon a r ea l is t i c v i ew o f the ma tt er. Th e blo c kin g pr oc l a- ma ti o n plu c k e d every e leme nt o f c on t r� o 1 o ve r. t .h E' �fun cl ~; �f t��o m t h e-~ .;,\l "'~ n �~:; thf.:>o r �<-:,, t.i c.:~. l bundl f.�~ o �f <:::.vJ I I c 1... .,,, h .i p r. J !.J h t <::'., T h i<;:; l D ~:::.<::; of esse n ce of pr ivate o wn e r s hip occ u rre d whil e th e ro ya lti es we r e s t i ll in pl a intiff 's p ossess i Dn, s il �, cr::� -1:-.h P hl c.-. c kirlq �f1�� ee:?P <'=t ppli F�' cl t o i ndi vi dua l d e bto r s o f Swiss n a t ion a l s. As s oon as roya lt ies accrued t o the a li e n s und e r the co nt rac t , thi s cr azy p re d ica me nt face d th e m: th ey h a d th e or e ti ca l r Jgh t to coll e ct the ro ya lt ies but we r e forb i dd e n r ight t o rpc:eive the m o r di s pose of lthe m. No econ o mic a d vanta g e was the irs. ~) u r:: h ;:,\ h o l 1 O I;�J '' r. i q h t:. '' d D C�'<:::. not h i:':\\.' !�2 t:. h <-:-~ C: OI'.. Q of ben r:- f .i.. t . s::.u 'f �f i c :i E~n t t .o co n s +.i tt.lE-' '' q ,,,, in <.:. , p 1��o -r :i.. t:. �;-; , -':'< l"i d :\. n c c�m c': '' . E:::vP n t !� �, E~ ubi qu .i t u t.t�::. do c t t.. i n f:~ o'f c:o n ~:::...... t r u cti v e rPcP ipt u f i n c om e h as n o te nt ac l F! l o nq e nough t o rea ch these ro ya lt ies . Cf . Re g . 103, S 1 9- 4 2-2. As sai d with r e f e r ence t o ~:3 ::?2�- (l::i)( ? ), I.r-~.c., in Indus t ria l Trus t Co . v. Br o d e rick, 1 Cir . , 9 4 F .?d 927 , ,,,, t.�. p <:IC:J C�~ - ~r'!; o, "Thr�ou.q h o u t th e Revenue Laws the word s ga in, prDfit, or in c om e mean an act u a l, * * *. " n o t a f ic titiou s g a in or profit C f.�~ r- t .::l.i. n 1 y ~ t. h e~:e �tJf.�~ r-�e nut ''.incomr:-> '' r.:\nd, if ''q ;:,\.i.n s, ot- P r. o 'f .it.'' , ltJE-: r-E-: un t-�c a 1 .i ;-: r:-> cl .::~n cl highl y a rti-fi cia l. Furthe r , the a l ie n s h e r e h a c! no pow P r to co mm a nd paym e nt to th P mse l v e s or o the r s , unlik e the d o n o r o'f the .i. n t.!-:�? r.. !-::>~5 i::. c c.-.u pon ~:> in HE0 l ve r- .inq v .

DISSE NT I NG OP I NION CTA CASE NO. 3139 -- .l / -�� Horst , 3 11 U. S . 11 2 , a t p a ge 118, 61 S.Ct. 144 , 147, 85 L . Ed . 75, t VJ h e r� ~;:~ .i. "The p C:H�'i f? r�� t .o d ir.,~. p o~:'.e o �f incomE�' i. <:=, t .h <:'�~ (�::-~ qu i v c.� 1 r~n t:. o "f o~�Jn r::~ r�"; h :i. p n �f i t . '' lt would seem, the n , the r e be ing , no '' q ,~. i n ~::; , p r�� o "f i t .~=� or�� i nc om Ee '' u �f the aliens at l e a s t during the time pl ai ntiff re tai n e d the ir block e d ro ya lti es, n o wi thholdinq dut y d evo l ved on pl ai ntiff and no PE~ r� a l tiE�~'"-' <'-" I'".E' pr.. nppr�� . '' Against this b ac kdrop, the si tu a tion he r e presented, while t he roya lty in the a mou nt:. o"f P6 9, 5 29 .00 ( a lthough was se t up in the bon k s of pe tition P r as a l iabi lit y t o Bayer) cou ld not be remitt e d t:.n Baye r duP to Centra l Bank r es tri c tion s at that t�.i l"fl F' , \�JOI...\ J d not. c r�� e "" t '! '' CJ ,.,, in <: '� , p r�� ~:J "f .i 1: ~; o ,.- .inc CHilE~ " to flD'J -� �r�p ~:.j ( I P i l l �fol'"�c�.i.un c::cn-�po���- r���E:\ l�. .i. o n Ba y<=>. r- � No economi c ben e fits were deri ved b y Bayer; he nce , t he re ~'i c::\ ,,~, n0 income sub j ec t to withholding of t i':\ :-:��-�;,:1. t .����� so ur ce. Ac::c::ordingly, pe ti tion e r h i:'l d no dut '/ t:o I'Ji t .hh cdd' i':\ nd pi:J y thE' t .i:J:-: . Eve n mure, adopted bas i s "for the d ecision o f the Un i t e d States Court i s the l egis l a ti ve hi s tor y of Section 143 (b) of United States Tax Code , "from which Sec ti o n 53(b) o f our Na tional Int e rn a l Reve nu e Code was pr ac ti ca l l y c opi e d, and hint s d e ri ved from the publi s he d pronounceme nt s of the United States Burea u of Intern a l v,, F\t:.:�v r:~n t .t E' i::>.n c:l Cou r � t .s ~� h .i c h eli ~:.c: 1 n <::;E-~ t. h ,;, t dut y o f t�J.i.thh o lc:linq .::~. 1�-.i.sE's ;,~t:. t:.5,.f.f.lf.?.... of P.0Y.!n<::!..IJ. I~, . vk� q u.cd: ~ �fr-o m L~.P.. .!! ..... G.~~: U :u::. : ��p,.- r:.,�=-:; ent. fi J..LJ.:3(b) ~ I . .. F~.c , is tr aced b ac k to the Act of Oc tober 3, 1913 . D ~ a r a qraphs and E of tha t Act are pertin0 nt. * F'a r,3qr-;3.ph D pr��nv idr?d: ' ' * * * a l l person s * * h av inu the control, receipt, di s po sa l , or pa y me nt of fixed or d e t ermin a ble a nnua l or

DISSENT I NG OP IN IO N CTA CASE NO. 3 139 ..... 1. f:3 -�� periodical g a in s , profits , a nd income of a n o ther person s ubj ec t t o t. E:\~-:~, s h ,.3. l l in h (�=~ h ,:\lf o t s t. tc h person deduct a nd withhold trom * *. the p ay me nt an a mount e qui va l e nt 11 to +�J�,e no r�m c::\ 1 .i.n c orne t c:\ :-: ;t P a ragr a ph E ot the sa me Act * * * .in p ;,u �t r:::. p ec'i f �ied~ " t n l per��scm ~=.; havi ng the control, * * * rec e ipt, custody, di s posal, or p ;::1~ -' mr-:::> nt of ot.hf? t'"� fi :�:ed o r- d e !�e rminahle a nnua l g a in s , pr�;, f i t. �,:. , ;::~. nd in co m e~ o �f <'~. not h e r- * * * p erso n , excee d i ng $3,000 for a n y t axa b l e year who are t���eq u j r-p d to makE' ,:�,, ,., d r r��c~ nd E' ":' * * * retur n i n b e h a lf of a n ot h er, as prov ided he r P in, are he reby aut h o ri zed and require d to deduct ;;, nd ht i t .l�lh o ld �fr�nm ~:; u c h ;:,\nnu;::, l g a in s, profits, a nd income s uch * * * c."'�,_,n .:, c.:. ~" :i. 1 J. hE-~ ~; u �f f :i. c :i. (�?n t. to p 0.y the n orma l t ax a nd they are eac h h ere b y ma d e p e r s onally 1 i_;:,\h l r-? �f en - C.'.d ..tc h t .d>: .. " i=' i�H��,;HJ I'"" r::1ph D i ~ explicit i n dir ec ting t,�,ti t .hho l cl inq f r� om th~~ 11p ::,, y rnE!n t 11 while its compa nion section ;,�. u.t .l�1c:r ,,. j_ ;.~ E�~'"' t:.h e' d r~d u.c t .ion a nd imposes pe r s onal li a bility o n the Nithholding a gent. In its Report t o th P Ho u se o t Re pr esent atives o n the Bill, the Committee on 1.<.1 <::\'f<.; ;:,, nd t1 P<:\n c.:; Si:":\ i d, 11 Pr� uh ,:\b 1 y two-t. hi0d s of the income tax proposed as tu indi v iduals wuulcl hP deducted a nd withheld at the * * * so urc e ot th e income a nd p a id in "f u l 1 t.o _t. b E~ Gn vt:.�,,. n mr.~n t . � By thi s method the amount of ta x due or to b pc ome due upon every fix e d or d P t. er min a ble an nu a l i.n co rne i s withheld a nd pai.d to

.. DISSENTING OPINION CTA CASE NO. 3139 -�� 19 .... th E~ Uovf::> r� n men t. before th e income r��e,_':\C: h p<:;; th e~ t�. c.'":\:-:p EIYPI'"�''. Nonr� es:.i.-- d e nt l ;,;~ :.i.. f.�?n~'i a s well as citizens ~�JPt-�f:~ <;:; ubj t�~C t. to thi s withholding ~::;ys t r:~ m. In the 1916 Act~ quotc~ d p i::\ r��,:~. q r��.::~ ph D ,,.. (:�~ p (:�~ '' t:. e d i:~.S ~::;c-?c t. :i. on 8(c:l) uncle!'" the ~::; i. q n i �f .i. c ,,, n t. ~�le EH:I.i.nq "l:\e tur�� n s 11 � F' < r��<':' qr �,;,,ph E, as quot e d, was r��c, e,':\ ted as sec tion 9(b) und er th F~ h c~a c:l.inq 11 (:>t <::;s.r~ss mE�~ I""l t ,,,n d P1 d rn .i. n is t r�� at ion '' � By the Reve nu e Ac t of 191 7 ~ p a r� agra ph 8(c:l) of th e 1916 Ac t (par. D of the 1913 Act) was repealed s o as to r e nd e r t.lrln ecc�'"'�'=';,;,, ,,.. y i::t n y '1 ~"' i thho 1 c:l i nq E\ t the sourc e of the ta x due on profits or jncomes of resi dent t .<::\ :�: "'' b l p ppr�~:; on s '1 � In �f or� mi:3. +-.ion i::l t the s ourc e wa s s ubstituted. Acc ordinq to the Hou se Report , t. hi ~':i c:h ;:,,_n(JP 1-'J i::t s; ma d e for�� '' a mor-�E� eff e ctive admini s trat ion of the J.,':\vJ' 1 c:\ nd thE? <:'ii':\Vinq of a nno y<.:\ nc:: r~ a nd ex pen s e to the t ax paye r s a nd \'~it. hhulc:l.i.nq ,'�\C]E:�nt <:'> '1 � B�l thE> ~,;,;:\m E-' Act, p ara gr <::\ ph 9(b) of th e 1916 Ac t (par. E of th e 1 9 1 3 Act) was <::~ m c? nc:lr:�? d t�.u l .i .rn :i. t \�Jithholdinq <:�t. t hr�~ "''�U I..t ~�� c: F~ tu non r��c�~::..:i.clt:�? n t . a 1 :i. en<::; . Th e Ar:: t�. �ft. .l r�� t h r? ,,. .inc:: l ud f.~ d 5. n "h�:> r� e<::; t:. from ta x- fre e cove n a nt bunc:l s as a ~::; u b j f.? c t n f ~�J i t .h h o l cl i n q � The-R~ ve nu e Act uf 1918 ma de no change in the pertinent lanqua ge o f the amended S 9 (b) but did increase the withholding r a te and renumbered the sec tion s as 221. H owever~ the Re port of the Way s a nd Me a n s Committee of the House a ids search in its c:: CHTHnPn t. ~::. on II Co J 1 PC:: t. .ion at the

DISSENTING OPINION CTA CASE NO. 3139� f:!our-� cE~��: ''The pr-�oposc:::~ d b i l l , ,:;~.s under existing l aw, requires only the wit hho lding of income in the c:: ,::\<:''�E' c' f P�"'YmE'n ts hy i ncl :i. vi dt .li"' 1 s ~ corporation s, a nd partnerships of fixed and dt-tE>rminable annual or periodic a l gains, profit s ~ and income to nonresi dent alien individua l s or nonresident cn r� pol���a t.ion!:::. ". Thi s commr~ nt. i ~:=. a n indication the intent of Cun IJ l'". e!:ss ttJ<"\ ~; E~)< pr-�t::~SSE' d in D o f p <':lr- ,:~g1'",3 ph � thE~ 191~:. (.~c t i:\nd k.,l i':l ~"; c: n n t..i.n u.E:' c:l J�. n ,C.::)' 9( b) of the 1917 Ac::t wh<:-?n thf~ for� mp r� p r��ov .i. ~=; :i. on ~--.1<.:1 ~''� Y"E�pE�'i':\ J. eel. J'.lo ch,;;~. ngf:? ~�.1 ,3<5 in l:.c::� nc:l e d t��JhF?n the withho lcl :i. nu p r-�ov i s ion ~:; ~�~e r�E? delimited to C:l.pply onl y to nonrt-sident. aliens. The time o�f payment was the time when the withholding c:luty arose. The Revenue Act of 1921 made no amendments to the BE>ction pertinent td inquiry, nor c:lid the Ac::t of 1924. However, both the House Report and the Senate REnort on the 192 4 Act have thi s c:c mP nt. : "~3c-::>ctic:m :?~2.1.: f.3ubdi - v i.sion (a) of this sec tion of the present l aw provides for the with holding of a ta x , on fix e d or detc-::>rminable income paid to a nonresident a li en individual, or a partnership composed in whole or in part of nonresident c.1 l .i F! n s � '' Bo t h a l ~,; o r� e f E' r� i::.o '' r-�r::~ qu i. r� i nq t. h E� withhold i nq o �f ta :-: fr� om paym E? nt ~:;' ' to a p i':lr� tner:;h.ip. Rates of withholding were .increased by the Revenue Ac t of 1926~ anc:l the Conference Report of t he Committees of the House and Senate refers to the effect of the l 1.i. k t,:�? in r. ,,~ i:'.r?s: ''Thi s

9j1iiiU4 DISSENTING OPINION CTA CASE NO. 3139 amRndment requires the withhold- ing of a tax of 12 1/2 per cent :i.n r�es. p E:>c t of a. l 1 P <3.ym!�? rl t ~; of income made before the enactment * * * of this Act to foreign corpo- ,.. t,,t:io l�l<:> <:">pE�c.i.�f :.i.e d br:~lnvl. * * * Because the persons making payments h ad no notice that the corporation income tax would be increased, the withholding rate is not increased with res- * * *". pect to payments mad e before the cn<=''.ct.rne nt of thi�s (~ct:; (.~11 t:. hou.c1h r.. r.-~f~::-~r"F'nc::e .i..~-::; t .o "for.. r~ictn corporations, the withholding on P <'='�yrm:>n t .<:'; t.o t. h!�.'�~m :i. <,, hut "' P �'H.. t oi' the sa me system embracing ind:.i.v :i. du c:\1"-.; . .> In the Revenue Act of 19?8 a wholesale departure wa s made from the arrangement of prior Acts . ~=; :.?:?J.. h r:~c;:unr~ f:3 J..IJ.![. In comme nt �-� i.ng on part (a) of t he Section, b o th the Hous e Report a nd the Hi-:-:' n ;,,_ tF~ F:;:r:�:� po r. t�. <;:; t..:�,, t .er:l : 11 T hF:� p r-�e ..... sent law prov ides for the withholding a t the source, in the case of bonds, of a tax of 5 per * * *- cent of the interest when paid to 11 f'l()l'lt'"E~<:;i cl(7? rlt c":\ l i e n s . the f~c::t 1932, the sec tion was renumb e red .ll]. :::!; ,,.,, n d '1':. t l P !�'" i':l t E~ ~c' ~,,,f.:' I'" E�~ :.i. n C: f" E~ i:\ ~;:; P d without af fecting the aspect of the prov i s ion under consider- <:~ t .ion. nn changes bearing 1...1 pon Cl'..l. r� inquiry, but agai n in th P f..lousr::~ Report a nd in Se nate F\r? po r-�t. references to withholding of ta:-: on interes t obligations I,>) PI'" (?. couched in t e rm s of payment.

---- DI SSE NT ING OP INION CTA CASE NO . 3 139 ...,...:.:,;��~ ::. The 1 9 36 Act did not c h a nge the t e rm s of S 143 a s t h ey aff ec t t i 1P p t,.� ub l e m I.Jnd e t'- .i. n vf.~c.; t i. q a. t ion. l���l o w c~vE' I'" ~ a c � <HlHTH? flt. in t .h P Sr:~ n c:d: E~ R e port co n fi r ms t he pr io r �:; t ,::\ t. P mP nt s : ~~ ~~; E:' c:: ti o n ~~; ~? nt th P ex i s ti n g l a w p r o v id es tha t the t 2x with h e ld a t t h e s ource und e r sc - tion 1 43 from pa y me n t s to a n indi v idu a l t ax p ayer s h a l l be a credit a g a i.n st s u c h t ax p aye r 's t i':\ >: 1 . P r,:-~�f r? l' ' (�:�:-~ n r:::P .:i. c.;; i'�\ l '" O mE:\d r.-:> to ' ~ ~ ~�-J i.t�. J �lh o ld i nq :i.n t .l'lt:.:' C i:'l ':;e o�f P <":\ y-� m P nt. ~:'. t .u f nr� e iqn c or� por�� d t:i. o n ".; 11 � Th e Hou se R e port~ w h i c h t h e Se n a t e a dopt e d~ on th e Reve nu e Ac t of 1 937 i s e qui voca l i n s t a ting wit h r e t e ren c e to a c: h ,,~ n q c~ i n ~3 ~;.~ .1. 1. ( "' ) : 11 T h (�? r� F! ,_,J i 1 1 h r:~ \1�--' it-.h hr.:? 1 d �f r��o m t h r? c:1m o un t s:;. r ece i va b l e b y a n o nres id e nt a lien t axed und e r the n e w p r o v i s ion s the a mounts r e quired to b e '-'~ .i th J��, e ld u n d e r�� �::: (? C:t. .i.on .1.4 :::!; of th e p i'' P~'::.r-~ nt:. l <H�J " . " F\ ec Pi v.:-,\h l e " ~ of c c.:;. ' .I r� ~;:;. r.:.- , .i. s cl F-~ <=; c t�� i p t. j v P o i' m .i n u t e di vis ion s o f time tro m t h e fi r s t mo me nt o t a cc ru a l to the l as t sec ond b e for e re ce ipt o f p ay me nt . T h e Hou se Re po r t o n the Revenue Ac t o f 193 8 appe a r s to reaf firm t h e e a rli e r inte rpre t - a ti o n s e ven it t h e 1 937 Re p o rt b e v .i. F-' V�-J f:-~ c:l i:\1:> '" <''1. r:IP v.i.a t io n . In re f er rinq t o c on se nt di v id e nd s ~ th e Committ ee o n Ways ~ nc:l Mea n s r. P po r. t <;:, d : " In c i:t ~o; E~ .:H �l y s ha r<'~ -� h o l rler ma k ing a co n se nt i s a p e r s on s ubj ec t to t h e p r o v i s ion s of s ection 1 4 3 (b) and sec tion 144, r e l a ting to t h e deduc tion ,,., ,., c:l 1-'J:i. thhn l c:l:i.nq n 'f t. <'~)-: �'" t th e so urce~ sect i on 2 8(d)5 requir es th ;;,\t. ~; t.1 c:: h con c5 r.-~ nt:. �f .i l r:~c:l b y l .h P co rpo r a t i on wi t h it s return s h a ll

.. DISSENT I NG OPI NION CTA CASE NO. 3 1 39 * * * b e acco mp a n ie d b y cas h e qu a l t o th e a mou nt wh i ch th e co rp o r at i o n wo uld h ave b ee n r� F�' q 1. 1. .i r. r::�d t n cl E~ d uc t �. ,:-,\n d vJi 1.: h h o 1 cl b y s u c h sec ti o n 143 (b) or 144 jf the a mount s pe c i fi e d i n s u c h c onsent had been pa id to s u c h <:':. l�l;:,,,-�f:? holcl e r.. , on th r-:.-:� l a~c; t d c:\y o'f the t axa bl e yea r o f t he c:o r. por. r.-,\ t.i. o n, :in c:E,\<:; h "''~"� E\ t c.'\ ~;a bl f~ cl i v i d E�~ nd. 11 �rh c~ ~:;('~ r l.:':\ 'l:. r? . F;.: E~ por t u se d sa me l ang u a g e jn re f e r r in g t:C) ~3 j l J.:} ( h ) � r\lo p t-e~ r�~ t ..i r1 f?n t . c n mm c:~n t . \�J <',\ ''; f o und i n th e Committ ee Re p orts o n t .h e Cl t �.h F~ Y" r;: f"VP I"l\.I.C' fl c t "'; dO\l�Jn tu 194 1 a nd 19 4 2, the tax years in qL ~s ti . o n . How eve r~ o n e fu r th er re r e r e n ce is ma d e t u a l a t e r co mm i tt ee r e port re fl ec ting c u rrent think i n g. Th e Ho u se Re p or t o n t h e Reve nu e Act of 1 950 i n r e f e rrin g t o a p ro po sed S .l ;::: l.l ( "'' ) <:"�t c-:t 1.:. F! S : II T h :i <::; c::;t...\ b <::;E:�c: t io n a l so p rovi d e s that a n y person r e qu i r ed to d e duc t a nd withho ld a * * * ta x u nd e r s ec ti o n 143 o r 1 4 4 o n th e p a y me nt o f a divi d e nd s ha ll n o t be r e quire d t o ded u c t a nd wi t hho ld a t ax u nd e r l .h .i.<::" '::;E!c:t j.. o n up o n s u c h p dy mr?n t" . F~P<J I.I.l E,\t:. :i o n <:; pt. � o mulu .:,\t E~ cl hy �I� hr:> Co nirn .i.. <:;;<:; .i. o n e t... c: o n t .'3 i n a.bu.nd a nt. re f e r e n ces to p ay me nt as i ndi ca ting t he c r ys t a lli z a t i o n of t he withho lding duty. Treasury Regulati o n s 111 , S 29. 143- l( a ) * * * "'' t .c:\ t�. E� ~:; : i 11 1,1.! t hh u 1 d .i. n cJ of c:\ t <,, :-: o i' 3 0 pe r c ent i s r e quire d in t h e c ~s~ of f ixe d o r d e t e rm i n a bl e a nnu a l o r p e r i odic a l in co me p a id * * *". t o a non r e s id e n t a l ie n indi vi du a l Th e s uh ~::; r:>c l�. i on~; o �f ~3 vJ i t.h ~?9 . .1.'1�:~~ - ""'r"E-'~ r� F, p l ~~ t e r e f e r e n ces t o withho lding upon 348

- ------ ........ DISSENTING OPINION CTA CASE NO. 3 139 -� :?I.J� --� p E~)ifTH:~ nt~ ~;uch i::IS "The tc'1 >: ffii.I.St b r:;> withheld at the s ource from the gr~ss amount of any di s tribution ''" c: or- pot'"i':\ t:. i Ol'l 11 ( �:,:'9. J. 4 ::=; ..... i:\n a.nnt.t e:\ 1 r-e -1-:. u.t'� n * * * * * * fll i:: � 0 by J.), 11 s howing the amount of tax * * * r e quired to he withheld from eac h nonresi dent a li en t o which in~ome other th a n interest was paid d uri ng th e previou s t axa bl e * * * vc-::~''" '' . 11 ('.?9 . .1.-t.l :~; ..... 7); vJit:hhelcl ll 'f ;:~>: .i. r 1c ornE~ <':\ t the <:':- DU r-c: E' upon nonres id e nt * * * p aid to a li e n f :i.cl u c: .i. ,':1, t'"' :i.p ~:..II ( ~2 9 . l .t.j. :~; ..... S�' ) � And e v en on the question of whe ther withholding s hould be at the rate in e ffect a t the tim e p ay me nt s wer e due or at the rate i.n effec t a t the time pay ments we re ac tu a ll y ~ a de, th e United States Cul..lf"'" t r �ulf?d t .tl c":\t. th e-:� t:..imr��~ p <'\ ',' fllPnt. i ~:=; r_Tl ~'.=~~.I.E.?. q u v E' ,,.. n <:; t h c~ r� t:\ t r~ � l,J F' <:~ q d .i n quo t:. F'! "f r-om t: he r;: i':) l..t.:t ..L dc~ c i s; .ion : 11 Un thF�' :.i ~:;s; u e o'f' ~�-.lh e th E~ r ~�-' i �1::. h J�,o :t d .i. n q <;:; h u u 1 cJ h r~ at. t .h f'! ,... iJ. t. ~;' in e ff ec t a t the time p ayments were due or at the r a te whe n p ay me nts were ac tu a ll y made, th e Ot..\I''Pi:H .t f�~;,:~~i t�� t.ll <�:;> d the:-~ t.im F:' c:d p ay men t go ver n s thP rate. O.D. 1 6 7 , .1. C . lJ . .1. 9 :2 ; I . T . l ~'.i ~.? l , I �<? C . B. 197; I.T. 302 0 , XV-2, C.B. l 06; I .. T.. :~;::::~ el l ~ .19 :~;<:_;' --- .1. , C. Et . 1. ' I�U. C f . J . T .. ::~: ~'"~ ::~: ~.'.i , 1 �:.r <1- ~;;:: ..... l , C � B � l :;:: 9 ; I . T . 3342, 1940- 1, C.B . 58. In fact, l a ngu age s ufficientl y broad to encompass the problem Wd S e mploy e d in G.C. M. 2 467, 7 - 2 C.B. 1.88 (modifi ed on other ground s in G .. C . M. 8594, 9-l C.8. 354): "* * * ~�J.i. thhnld:i.nq * * * r e quired when i s only income i s r:1;,J :i.c1 t .u a nonres i d e nt alien a nd <'-\ '!-. t .h P rate in fur c:e a t th e time

U � we W* DISSENT I N!3 C. �IN I CJN CTA CASE NCJ. 3 1 39 As in the a bo ve, so Southe~n Pacific Rai l ~oad Co . v. C.I.R., ~? l H" T "() " '170' hE! 1 d I'" E~. t F� C) f l\1.ithholdi1�1q ,\1a�:;:. th i':l t . \�Jhic::h h' E:�.<:'� effec t i ve on the d ate n -t' "'�c: t:.1..1 <J. l pa y me nt. In th a t c ;:,, ~;; C:' !I -1::. h c pr:�~ tit:. :.i. on :i.nq cnmp ,�,:\n \' c:<:Jr�, t: c nd ro~ c:l '�� 'n "::. uc:c:e ~::;�;:;. fu. l l y 'fur- ;:., r � (�:��~;;u 1 t �::; irnildi" tu t:. ll E" nne, h c> t-c~ ~;:;o �.Jq h t b y l : he F~uvc:�l'"�n mc~nt. . Bond in t .C t'"C' '=' t cii J~'~ .:1 nd p <:~. y �'.' b 1 C' di.J r�� i 1�1q 1.. '7' .1. -t.f.- � .1. (i J 7 could nut the n be p E.-I :.i.c:l t .O non res j.dent a l iens b ec:du se of war ros tric::tiuns. It was, in fac t, paid in� 1921. and 19 23 , afte~ the withholding rat c>s hac:! be e n incr eas ed. The comp a n y i::l rguecl l :. h t:-:~ -fur-mE:' ,.. , 1 01�-.�c I'" r� "'' t-.c~~"' ~:; hou l cl i::~pp1y bec d u se the intere s t was -1:: h c� r1 cluE' ~- .. ~:;:. u �f -f :i_c .i \�:~ n t:. t 1..1. n cl !:', \�'l r:.-::� ,,.. f':� ;;,, 1 l t . i rn f? ~:=. fOI'" pa y ment; a nd th e el ate of c c:1n !:;. 1�. r��u c: t i \/ P r-c, c: r-:' i p -1::. by t:. llr:? hor-, cl l��,u 1 cl F�l ,.... <:~- q ;;,, vc-~ r-i ~:;c:~ t.:<:::. th e dut y of withholding. ThP Board of Tax Appea l s rejected these a rgume nt s , say ing, 2 1 B.T.A. at pa q es 995 ;.,-,.,�ld 996~ ''Th e� p F�I L:i.tinr�,e,..� ~:; c:lid nut a nd were not ca lled upun to p ;:,,_y t:. l�1r::-1 in t .F�I I' . F:!'::; t . 1.1r�l L :i. 1 1. 9>':5 ~ i::\n c:l the n o nresidPnt ali e n s did not an d for a ll th a t dp pedrs coulc:l * * *. not r Pceive the interest until +�. h c�\rl (.1)1--�,pn ttH:'�~ .ird�.E~t��r-:,�;;. t was actual l y pai d to a nd r ece i v ed b y the honc:lhu l c:lers they r Pce :i. v ed income t axa ble at the r a te then p ff e cti ve , anc:l the petitioner s were unde~ the dut y of p ay ing so much thereof as b y the statute the n in effect they wPre required t�.o \'�J.it.hholcl ancl pE:\y . '' O h l i q u.P s upport i s thus gi v en to adoption of the time of payment as the f!l iJ t .ur-i'.\t..i.on p o i n t�. uf t:h e IN.it. hhulcl :i. r�,(.=.~ ,clu.t:.y , p c:.-1ym F1nt h c!! ing both a n Pas ily r ecognizabl e act

DISSENTING OPINION CTA CASE NO. 3139 u -r u h j o:::.:c l:~.i. �} e ""� �i.1�_! �: i.. I' i. c :,;~n c: P �J r ld .;�:�. t .t l f:;! '::; t ,;,,n c:l i'�'�r �c:l <:c.i::1. 'f r.::�q tl t �r �c:l in q -3.fl'ICJ III"l -1.-. c:: c1 l l. r.:: c: i�:. :i.o n O'f �l �. f�IE' r:1r � up c~ r� n �f t- :'�\ ~- .. " I;.Jt 1,,,1l pn~::;.::; :i. b 1 P q 1'. u 1.1r�, cl c:: n.n t.f� �r::-' r �r:-:� h P �fur� ' �' ''''� r;u t . l:�.u a ppl y t- c:' r::or-:� -l:: .i. l :i.u nE! r� t. h ~-::;o l'"l...l.l. :i_n,:1 u f t .l�1c�! I Jn i t.c-:-� d ~3 t:. <":\ t c-~::; F ;::.� cl ,,, 1� ;�, l Cu1..1.1'� �1.�. .i ri L. � D � f:; i) I. I__J 1:::.. ~ <=;\. I. p I" ,;:-\ ~ f C:1 ~-. I.�J h j C: h JJ i::\ �y' (�:�:~ I'" r�,.,;:.)I' .Ill ii:1("' f:�' u 1':. :.i.c:: i:'\ 1 ~" , I n 1.::: " ~ i �::; c::. :.i Ill j l. ii:\ r� J 'l ~::: j +: 11 .:,:1l:.r:> c:l '�:.' t1 c:IE�c:�i ..,:> :i.. un hl_l �l� l:. l� r::c'<:"�"'; '�'�'r l b y t. l �, c-~ 1 i:':l. l.-'.1, �.�.1h :.i.. r:: h i s clo se l y if n ot exactly �::::. �j i P .i 1 i:l I' . +:. IJ () U t��� J ~~1. ~l�) :: n cl ,.... E-~ (�::l c:; f) 1 � ~ .::~ l C) q i C: :.i. ;5 ,�,pl.� 1: 1.-J h P <:'; .im p 1 y h r� 11 "''� h r:: cl ;:,, "'' :i. d r:~ t. o �:'':l.cc::umrnuc:l,3l:.c ...~. ,,. ,Jl.i.n c..J c�f u� ..1~�� Ol-'��''' nu r�F:."~ U of Tr�, tc> l'� n ,,,_ l. h: t::.~vc� r�, ue \!�J h.i c:: J�, v m te:~ r� l"' l q u.u t:. c�d ,.,, <::. '''�I I.�1,-. h Cl r� :i. t:. '( -J.: f�l f~ E~ >~ r:: 1-::' I'" p l:. C) 'f ,;). I..Jn :i. t �:'! d ~:; t �. '':1. t E' ~;:: fl �ll': c-� r� ri ;:, J r;� c~'-/F' rli...I E�~ r�u:J.inq h�.. �.t . 1.'/ )�,.-i c ll C>:cc�r�pt II E1. <:::. h r.:-: F' n d r:.! ;::: 1 �:':1. I' E~ d c::�J:J. 'Y:? J ~~~J:._q h V �t.h C~ ""� -:~ In,.,. I ..1 r1 .i. l :. C! r:l H �1�..:,;\ 1'.r�::� �:::. In t �. i:'�' 1" 1"1 ,;;\ 1 n F'VE' n I . I.E~ ~::~ (.' \ I'"\! :i. .-:: f? ,_n.. ;::, I' .C' <:::. 1..1. J t : (") �f t: h E� L,__ ~. c:::,,, u l J< d ec: :i ''''��'- r::�n . l�J C� ,_ ,. :i. C'l.'-' t.l.. ..i. ~::; l F:' q D. 1 p r� ul::�� l c~rn ~ ,,\,1'::' �f .in cl n u c c� r_J ''�' n t . '�~- n d v ''" l .i cl r� t�:c! ,.,,,,"'�o n '1�. u m.-:Jd oi.. f �7� ~ fliU.c: h J'''":: r::. c:l r::p;:,,l� t- 'fv� urn th F:' ccH�Jc:..l.u.�:::..-iun r T� ,,-,,c h c~cl .in I, ..~ . P.'-: .....r.:.~::IIJ..J..I<.~ ,,,,~:::. E'>: pr� ~:: ~ "::~:::.c>d :i. n th ;::., ,-:_1. h C:l \.' r�:�~-� q u c� �I C' c:l c:� r:1 oi '' .i.u r�, o �f t:. 1�1E~ Ll r1 oi. t .f:} r:l '::; +�,., +c~ �::; r:::u u.r � t l:�.f�l ;::� 1� r:-:' ~ ;;\ 11,:1 l �. J�,r:> <;:;,,;1. rn E! ~::. h C'' .I :1 d t�� r~ <=:; n l \1 f.' t .h r�' �i.r:i;::,r�,t. �i.; �;�., l ., ,,., ,::;� .�F�' n u �.-�J br� uunh l:.-. hr.-�'fC� I'"E' 1...1.~"' in l.:.!1j <;: pi' UC: I ' I�.! di.nq, ~'I C" c ;:Ji l!.I U I��. :i. ;:.l!l� :'l i''C~ -J:.: h F~ wr lJ -sp tfl p r:J prin c.io l e o f c:o n ~ truction -1,- i ;;.:l'f:. t:o :i. r; .-::: E! CHJ I'- :.i.. r; .-:::r::J (I) i'�~ 1::. ;;>, ::< :J ,;'1 \',1 !,'.) ,::~ �:::. r:'r� .;,, c tic 1 J. y� cu pi c c:l 'f't �r:Jm I:.IJ .,Jt. u f +: tJ c L.lri.i. t .c:-' c:l :.:; t .:.�!. 1-.C'. �:..; '-' l:.J�I C' n i 1"1 t. F:! ,.... p 1�� ;:.:> -(-- ;:;,, �1:�. �(. r:l <::; .i.. t 1�1ii:\ �=:, 1�� r�-:�c e :.i \lE� d .i 11 tJ�;p 1. Jr 1 j t c� tf b t :. "''�t c�~:::. h e�\ v�E� �':1 \ !. 1�:. f�l() t" j -J::. iCJ -J-:. �1. �,I C::! E' f f t:�! C t. t:h c cu n t::; t:. l'' l.tc:t..iun i:1.r1c:l <':1 p p 1 .i c: i'\ I i. u r1 u'f' ou r 1.::\ l-'J. l"'lor�F! ~:::u �.i. n t:. h e ,�:: ,;�~ <:". E~ U f Ol...l r� \�! .i. t:hho l d inq tax -a t-so u rce pru v i.siun cm bodi. ~c:l in Sec tion 53(b) u'f our Na tional Int e rn a l RPve nuc Code which, a s s hown above, was mcrel y impor t e d a nd copied almos t ver batim from Section 143 (b) uf the Unit ed States T i::l>~ Cnclr~ dur.. inq t:h <-:' v<::~;:~ r- i rl v ul\;Pd in -l:: l�1e L,.�J) ~- - � G;,;~ ~ LLL c:f i".~c:: :i ~'� i un . (\c: c n r�cl.i n q 1 y ~ t .h r-~ c u n c: 1 u :-::..i. u n r� c~ "'' c: h t::' d i n tJ. I,,...~J) . '!... .....G.~:! t.. I�::.. , '" h .i c:: h i. �::; fu lluw e c:l b y the United S t a te s Intern a l R1:~ vc� n :..If? ~3c~ ,,.. \1 .i c (�:�? ..... t h i:'l.t : t:. h E-~ t i. fli P u f p .,::~ y m(�? n t. 351

- DISSENTING OPINION CTA CASE NO . 3139 ..... :?l .... of 1��. hf::�~ ~o ya 1ti es i s the m a tu~ation point o "f' thE' withholding duty - s hould qove~n t. h.i.c:; PI'" OC:E~E? d.i.nq" Not much n eed be sa i .d on ~e s pond e nt ' s ,;�,, <::; c:;r:-:r�� t: .i un �t.l��,a t . ~~ h ,=�~ <:5 r:�d on t:. h e r��p po r�� t . o f' the:' in ves tigating exa min e~, nothing i s s tated t �.i�l .::J-1.:. p c�t: .i. t: oionE?r�� c.:~ tt�.r~ mpt.Pr::l t �. u r'�c m �i. t:. t:. h(-:7 ro ya lt.ie s to Ba ye ~. By ~e s pondent 's own dec: :i. ,;; ion , .i. t . i '3 P ~ ~ p l i c: .i. t . 1 y d f" c l ,,, ,,.. c d II t:. h E1t�. t h e ~oya lti es in th e amount o"f' P 69,529 .0 0 were not ~emitted h y BP I (petition e r h e' r�� F� in ) +�. u � �B ,:�, yE-:� r� d u.c: t .o Ce nt.r��C.:' 1 B,~ n k rr��r:?<=; t .,,..i c: t ..i . I"Jfl ~:;, . I I .... p . :'.'.i' F ( ~ - ~h.. II .1 ' II 1.~ >~ h. II F~: II 30, BlR ~ec: ord s ) S i.nc: e the ro ya lt ies C CH .I. 1 d fl 0-1:. h E�' 1'""!'-:' ffi .i. t:. t. Pd t: U 0�'~ )IE7 r� C:l 1..1. ~ "1:: 0 r:::C:' n t r�,,,, 1 Bi':\ n k r E:>.S="� t . r��� .i. c t. i. on r.�:. , El ~;;. . ~""� t .�':\ t .c c:l b y ~ espnn d e nt himse lf in hi s d ec oi.s ion ;::1. r:' r:o t?i:l. l (:�:> d �f y��u rn' �::; u f"'? 1 y ' r.. r:;: <:c� pond e n t .' �:::. (::n r..rn ~:C�(�?:~J c:; hnulc:l n ut E'>~ p c-~c:: t�. pc~t. it:..i .t::JnE?I'"' to mi::O. 1:: F- E:�~ �f f or� t ."''� , i'~ 1 be i t \.In 1 t <"=' ,_..,, u 1 , t o r. c�m i t t h e sa me . Anc:l un respondent 's point that :::; ..i.r�rc: '='�~ t:. h P r. ny ,,, 1 ti c~=; h "''�cl b E~ F:n E\ c: c: ,.. u f��:- d .in pet.i . t io n e ~ �s bonk s thP income the r eon i::I C�'C: i:':'l. lnE~ c;:. u h j F-:C t t. U ~�! i -1:.: ,..., t l U l cl i fl q C'V I:'rl .i. �f +� I'" I'? in .i. -1:�. i::\ n C:: P \.'.1(�:\ ~;; E! f f PC -f::. F �cl ]. .;:,\ -f::. ~:> I'" , '3 1..1 "f �f i C: e .i.. -f::. to say tha t the acc rua l nt the roya lti es in p e tition p ~ �s hook s , as held i.n the L .D. r;~~:=o, r.,~lJ::., dicl not. a mou nt t o "q ;,:\.i. n ~:; , pr�.. c:d'.i. t s .:-,1rr d .inc r::orn e 1 nr1 t .hE- p .:-,,.r. t . <J �f n C'n ..... r� ,,,�.: ~:; :i. cl c~ n t ' Ba y e~ a nd . th e refn~ e, no n ec:es~ it ; tn vJ :i. t llh o lcl t. <'-1>~ ci E�vu1 vF:� cl nn pF�� t.i. L. iun e r �. 1,\1 1'�'' , �''''�c c o r. d .i. n q 1 '1' , r. r..r l P t�.h ;;,~. t:. �::; :i.r1< : E' t h r:-~ t... u y �'I 1 t �..i r"'"� .in q u p~:; t ion c: oul cJ r~1_q_ '!'; hE' r::~ <'�'� .i. cl o t... ~ Pm itted in 1 972 h y petitiu n e ~ Bayer F'h ;::\ r�.. m;:,,_c:: f-?! u.t.i.c<::\ 1 ""� , Inc., t.o nun -..�r. E!c"'�.iclt:': n t . foreign c:n~ pn~ atinn Baye~ Aktienge se 1l - ~::;c: h a l �f t , t .F!\I E't... k u<:::.E' n Bi:'\ Y\':'I'.. fllE'r.. k c:lr ..rP to Cent.r. a l [! ;:~n k r. F!S t.r� .i. c: t �.i on�3 , p E' t ..i. t i <:ln (~r- f.-'1 <'~ ~:; under no obligation to withhold a nd pay income tax-at -s ou~c: e on sa id ro ya l t i es <":HH:I , I:�Jlr:::����.. e �fu ��� c-~ , i t :.i.<::; nn t l.i .::\blc� for .. the

- � *' ... DISSENTING OPINION CTA CASE NO . 3139 ��- ~~:~H --� dE' fir::: i r-:��rJc:y ,,,Ji t hh u 1 d in<J '\: ;::�.>: �-a t ..... ~. CJ I J I'" C:f:? r:�, <.':'1. �;; �::::. �::; ~::: n ' :� n t. o �f r. ;::.~ �:::; p on d E� n t Co mrn i <:;:. '""� :.i. u r 1E�~ ,,. u �f Tn �l �. c;' t�� n ;c;�. Hr:c:>v f.'!l"l Lt e :�: :< :-: � '' ~ -1 -::! V .i. r-J (.:I t. hu.<:::. secon d a nd third i ssue v.l h r:�? �!�. 1�1r-:'� !"" n o t. .i ~::; s t.th .i r-:�:'. r�:�l... <:5 u r.. c: h "'' r� q <�::�' ~ t.--J hE~ t. h e' r. 01"" not. t: hr::� cl r::;:� �f i c: :.i. en c: y E:\.fl.J .J .CJ''/ !) .i. <:=; hy :.i.<:::. c:l<�:"! c~ rned c"i nd dC: .;�,\c:l !�:��~ (T\ :.i.. c " For these reas ons, I v igorous l y interpose thi s r::l i<::'.'"� F'n t:. inr] up :Lnin n " Que z on Cit y, Me tro Ma nil a, May 18 ~ 1988. r-;: � OUIN ,J i...tdg r::;> 35 j