CTA Case No. 280 (Decision)

( t \1 ANGLO CALIFOfiNIA NATIO!IAL \OI\~,S ~ BAN.t<. (CROCKEI\-.ANGLO NATIONAL BANK) ' AS TRUSTEE FOR CALAMBA SUGAR ESTATR , INC . ~ Petitioner , - versus - C. T. A. C SE NO. 280 COLLECTOR OF INTERNAL R~ EMJE, Respondent . x- ~ - - ~ - - - - - ~ ~ - ~x DECISION Thio is an appeal from the decision of the Collector of Internal Revenue d ted May 14, 1956, requiring the Ca1amba Sugar Estate, Inc. t o pay the amounts of 138,855. 00 , 131,759 . 00 and � F393,459.00 as deficiency i~one !?~~ for the years 1953, 1954 and 1955, res p ctive1y, or a total of ~664,0 73.00 . These deficiency income t axes were assessed on the c~s realized by Calumba Sugar Estate, Inc. from the sale to Pasumil Planters, Inc. of 250,000 shares of the capital stock of Pam- panga Sugar Hills nnd a promissory note dated Jan- uary 1 , 1950 executed by Pampanga Suear MillD in. the amount of $500,000.00. The parties submitted the following "Stipula- tion of Factsn, . "1. P~ti t:toner is a forei&n cor- poration or~anized an existing under the National Banking Act of the United States of erica . 202

DECISION - C. T. A. CASE NO. 280 - 2- n2 . Peti tioner is the duly appoint ed Tru~te o ul am u a r E ~tate, lne . (hereinafter refer red to,!or brevity! a~ ), also a for ign corpora t on or ganized and existing under the l aws of the t te of California, U. � h . "3� 0 4ny 18, 1946 C LAMBA was duly licens ed to do business in t he Phil- ippines and cons i stently f iled i t s ~ nual Phi lippine income tax re t urns through i t s r sident attorney-in-fac~. �4. On May 1~, 1956 , Respondent addressed a lett er to CAIIMBA not ifying i t of alle ged deficienci inco e t axe s tor 1953, 195~ and 1955 in t he re pect- ive amount s of 138,855. 00, 131,~ 59.0 0 and P393,459. 00. "5. The aforesa id assessment notice c 111 for ~ ent f a l l e Led deficiency income taxes is ba1ed upon capital gains r liz C Ltu-..d.u. L 1 its s~.~.le to .Pasu- mil Planters, Inc., of 250,000 shares of 1..h c i tal stock of .?ampan a .:) ubar :!ills and a Promissory Not e executed by Pam� u Kills for ,.5ou , o 0. 00 , c:tS evidenced by the Agreement of Sale exe- cuted by u l(t bet ree t~ par ties in St1n Francisco, California on January 16, 1953. "6 . Pampanga Sugar Mills is a corpor- ation or~ _i zed ~lid e41Sti ng m1uer the law. of the Republ ic of the Ph i l ippines WlOS a s s et c onsist mainly of pr~per- ties situated in the Philippines, con- s eque 1) ~,he fore said 2)0 , 000 shares ot its ca pital s tock r epresent equity c l~imn to the .net wor t h of such ass ets consisting mainly ot proper t ie s situated in the Philippines . u7 . The ubjec t of the oale , namel;, , Stock Certificates Nos . 61, 56, 5?, 58, 69 Lnd 71 for U total Of 250 , 000 Shares ot the capital stock of Pampanga Sugar l�Ulls c;4nd the lat1.e1� ' s .t>romissory ~o t dated January 11,oo19,o5o0op.oaoyahbalde t o CALAMBA in the sur.u of a physical and bu~iness aitus in San Francisco, Cul1for n1a at the time of t he sale ~nd throughout the period of the pa~ nts m&de on i t s a cc ount. "8. Negotia tions leD-ding to the 203

DECISION - C. T.A. CASE NO . 280 - 3- execution ~na conclusion of the afore- sa id Agreement of Sale da t ed January 16 , 19;3 between CALA~ffiA nd the Pasumil flanters , Inc. took place in San rra.ncisco, Gnlifornia , U. S . A. "9. The Pacific Net:l.vnal r ank of San Francisco, San Francinco , Cali fornia , U. S. J~ . w"'s the escrow ag ent for CALA.ll- B and the Pasumil Ylanters, Inc. "10 . eymen ...s on account of the sale were made by Pasumil Planters , uI n. c . in San u.F~ailcisco, California , � A. in ~ o . currency. "11. The sale was m de under end accordance wui.th t�heA. laws of the State 1n alifornia, of a 12 . Petit ioner and Resno..~.dent hereby reserve the right to present t da.i ti.or: 1 evidence �11 In addition to the tr Stipt.dn tion of Factsu, the arties also agreed to the following factsa "On Uarch 8 , 1954- CALA..'1B.. dUly filed 1 ts income ta.x return 1'or 1953 . Res"' )rc..ent assessed CAL. MBA the sum of ~27, 989 . 00 ahown due and payable in its income tax return. In due course CALAMBA paid its income tax l iability for 1953, as assessed by Respondent . {Petition for Review, par . VI; swer, par . 2) "On Mnrc!i 10, 1955 CALAMB1 duly filed its income tax re turn for 1954. Respondent ssessed CALAtffiA the suo of 9,512 . 00 shown due and payable in its income tax return. I n due courae CALAME paid its income tax liability for 1954, as assessed by I espondent . (Petition for Review, par . VII; Answer, par . 2) tton December 5, 1955 C LAMBA filed its income t x return for the period .ran ry 1 to november 20, 1955 report- ing an income tax due ~nd payabl e in the sum of �8,220. 00. On December 20, 1955 C LAlffiA paid said income tax of �8,220.00. {Petition for Review, par . VIIIJ Answer , par . 2) c-P/;

DbCISIOU - C.T.A. C SE NO. 280 - 4- "On or about December 2, 1955 CAAKMDA through its undersigned cow1sel, notified Respon.1 ent of th"' forme r's contemplated dissolution in accordance \vith Section 78 of the Tax Code x x x. Said notice was SU!'plemented by another letter dr.. ted December 17, 1955 x x x." (Peti- tion for Review, p...r . III; ~swer, par. 2) . At the hearing of the case, petitioner pre- sented evidence to show and establish the fact that on December 16, 1955, the Securities and Exch nge Commission cancelled C MBA '8 license to transact business 1n the Philippines, and on December 30, 1955, C LAMBA was dissolved inS an Francisco, California , U. s . � in accor ance with California Law. On the other r1and , respouuent did not present any evidence rested his case on the ustipulation of Facts". The only question to be decide is whether or not CALAMBA is subject to the Yhilippine 1 come tax on the gai ns der1ved by it from the saJ.e of 250,000 shares of stock of the ampanga Sugar Mills, Inc. and a promissory note issued by the latter for $50o,ooo. oo . As disclosed by the records and agreed to by was, during the taxable years in question, a foreign corporation or�aniz d, authorized, and existin under che law of 'the United S-. tes . By Section 24 of the atior...a.l Inter- nal Revenue Code, a domes~ic corporution is taxed on 1 ts income !'rom sources within and without the 205

DECISION - , C. T. A. CASE NO . 280 5- Phi lippines, ~b~u~=-~f~or~~i~g~n~~c~o~r~p~o~r~~~t~i~o~n~i~s~t~a~x~e~d ollY on it income fron sources within the Philip- pi s , (Section 16, Revenue Regulations No. 2, 39 o. G. 32?.) \!ere the gains derived from the s le of the shares of stock ar~ promissory note in question incomes from sources within or without the Philippines? Section 37 of the Revenue Code enumerates the incomes which nre considered derived from sources withinamd without the Philippines and incomes de- rived partly within and partly without the Philip- pi nes . In the case of gsi ns, profits and income derived from the nale of personal property, par- agraph (e) of said section provides: "Gains, profits, and income derived from the purchase o perso 1 pro- perty within and its sale without the PnilippiiiCS or �rom the purcht.se of personal property without and its sale within the Pnilippines, shall be treeted as ~enived entirely from sources wit in the country in which sold. " ; The shares of stock and promissory note in question are undoubtedly personal properties . (See Sec. 35, Act No . 1~?9, as amended; Art. ~17, New Civil Code . ) This is~ admitted on page 3 of Respondent ' s m~morandum. Ther .fore, the liability of CAlamba tor the income t ax on t he gains derived by it from the sale of said shares of s to ck and promissory note depends upon the place of sale . nlnc ome deriv d from the purchase and sale of personal property shall be 206

DECIS!Olf - C, T. A. CASE NO . 280 - 6- treated as derived entirely from the country in which s old. Tne word �sold' includes �exchong~d ' . The �c ountry in wh1.cll. sold' ordinar ily means the place where the operty 1 marketed . This section does not apply to in- com from t he sale of nersonal pr o- perty prod.uced (in hole or in part) by the taxpayer within and sold With- out t he ~h111ppine or pro uced (in whole or in part) by the taxpayer with- out and sold within the I'h1lippl.nes .' . (S ec. 159 , Revenu Regula tion s llo . 2, 39 O. G. 325. ) Respondent has admitted the fact that the sha~es ot toe~ and p~omissory note in questioc vere all sol d by CALAMB.A to Pasumi l ...>lan-cers, Inc. in an Francisco, California. a i d counsel for respond- entJ 11 I4e oti ionii loudi. to ...he execution"'" nd_ co clu ion of ~he breemeLt o ~ule dat Jan ua1�y 16 , 19!)3 a.s "Well s pa;yments on eccu�mt of he sale were made by Pasumil Plan ...ers, Inc. in Sun Fr ncisco, ~aliforn1a 1 U. s . A. in u. s . currency . (.Pars . 8 aud 10, Sti~ula-:: ion ofF cts).n (lo.ge 2, l�1emora dum tor 1iespon ent.) e cannot see how CALA}1- , a f oreign corporation, can be hel d liable to tho Philippi e income tax on income derived entire- 11 fro~ sources without the hilippines . But it is arguea on behalf of respondent that the shares of~ock of ~he aupanga Suuar. lls "have a situs in the Philippin s , for purpo$eS of taxation, and even if s ol d a broad are taxable with- in Philippine jurisd~ction since they represent property located in the Philippin['�" This argument 1 norec the specific provision of Section 24 of 207

DECISION - C.T.A. CASE NO . 280 - 7- the Revenue Code which imnoses irico:rne tax on < foreign corporations only on income~ived from sources within the Philippines, and Section 37 (e) which prov1Ges tha~ income derived !rom the sale of personal pr operty is deern ~d income derivea in the country where the sale took place~ despondent has obviously failed to see the distinction be~ween the situs of personal property and the situs of the income derived from the sec or exchange of such property . The citation by respondent of two cases, Jcanila Gas aorp . v. Collector of Int . Rev., Phil . 89, has not i n the least strengthened his stond for th~y are absolutely not in point . Finding the decision anpealed from ot in accordance with law, the same is hereby reversed, without pronouncement as to costs . SO ORDERED . (b. d.. ) ROl1A M. IDA.ALI Associa. te Judge I COh(..URa ( 5& . ) 'il l 0 ABLE Presiding Judge AUGU~TO M. LU~IA~O ssoci ce Judge (On Leave) ", �' 208