CTA Case No. 1039 (Decision)

UNE~;' Y PACIFIC TRANSPUHT INC . .. and its successor , STATES CTA CASE NO. 1039 STEAr/lSI II P COJ�.\PJ\NY , Pet it ioner, - versus - COMi<liSSIONER OF U!TEffilA L REVENUE, Respondent. X- - - - - - - - - - - - - X DECISION This is an appeal contesting the decision of respondent Conunis sione:~:� of Interna 1 Revenue dated February 8, 1961 and holding petitioner liable for def icienc y income .ta'< for the years 1951, 1952 and 1953 in the amounts of P44 , 560.00, 'P4,177.00 and fl42 ,875.00, respectively. This appeal a l s o involves a claim for the refund of 143,816.00 as allegedly overpaid income tax fnr the year 1955. Petitioner- is a foreign shipping company orga- nized unde r t he laws of the State of California , u-- .s.A'. Petitioner's first agent is the Everett Steamsh:i.p Lines, Inc., until 1955, when the agency wa s trans- ferred to t he Dcdwell & Co . in fllanila. ( P.ll, DIR rec.) ror the taxab le )rea r s 1951 , 1952, 1953 and 1955e petitioner had filed its income tax returns with the office of respondent in the? month of h pril of the taxable year covered by each of the said returns.(Par. 2, Petition for f eview; Pdmittedt Par. 2 , Answer.) On �~he dates stated below, petitioner received the assessr.~nt notices for alleged defi ciency, income

DECISION CIA CASE NO . 1039 (2) t x for the years i nvolved as fol l ows : Date of receipt Ye a r f _�..s s_es sment 6~~es~m~nt N�. ~QV~red iv1a rch 8 , 1957 ACR- 1303-56/51 195 1 P6 73 , 425. 00 Apr i l l , 1957 ACR-128 7-56/55 1955 538 , 015. 00 i\pri l 24 , 1957 ACR-1053- 56/52 1952 889 , 297 . 00 f'.pri l 24 , 1957 ACR- 1103-56/53 1953 906 , 509.50 (Paragraphs 3 , 5 , 7, Petition; Admitted , paragraphs 3, 5 & 7, Answer ; pp. 24 , 93, 70, 53 res pectively , BIR r ec .) The above assessme nts were arrived at on t he theory that he r ein petitioner was not duly licensed to do busi - ness i n the Philippines but it s vessels touc hed ports in the Philippines and , therefore , it should be consi- dered a non-resident foreign corporation not engaged i n tr a de or business in the Philip pines , hence , n ot en - tit l ed to de duct expenses a llocable to income derived from sources within the Philippines. On IVta rch 15 , 1957 , petitioner contested the assess - ment for 1951 (Paragraph 4, Petition : Admitted , Par agr aph 4 , Answer ) ; the assessment for 19 55 was lik ewise con - tested by petitioner in its l etter dated April 3 , 1957 (Paragraph 6 , Petition , Admitted, Pa r agraph 6, Answer); while the assessment s for ih e ye ar s 1952 and 19 :1 3 we re contested in its l etter dated April 25 , 1957 (Paragraph 8 , Petition ; Admitted , Paragraph 6 , Answer . ) On January 15 , 1958 , respondent ordere d the re - investig ation of the above - stated inco me tax liabili- t i e s of petitioner ( p. 105 , BIR rec . ) and , as a con - sequence thereof, in a Memoran dum to the Chief , Mar ila Examiners, dated Decefllber 16, 1958 , respondent ' s Exa - miner Bernardino Enerio subm itted his report finding that petitioner is a foreign corporation doing business

DECIS ION .' CIA CASE NO . 1039 ( 3) in the Philippines t hereby re versing the original theory that pet itioner is not entitled to deduct ex - pen ses al locab l e to income derived from sources with- in the Philippines . I t was determined however , that pe t itioner has stil l incurred def i ci enc y taxes in the total amount of �>135 , 428.00 . (Exh . 7, Hespondent , p. 160- 162 , BIR r e c. ) On this basis , respon dent , on Augu s t 13 , 1959 , a s sesse d and demanded from petitioner payment of de - ficienc y income tax for the ye ar s 19 5 1 , 1952 , 1953 and 1955 as follows : Philippine Gross Inc ome Le ss : Phi lip pine Expenses Net I nco me pe r investigat ion Amount subject to tax Tax due t hereo n Less : Amount already assessed DEFICIENCY TAX DUE & COLLECTIBLE Philippi ne Gross Inco me P2 , 145,231.62 Less : Phi lippine Expense s Net Income pe r inv estigation --~.t....l24.:..~42._~2.1 Amount s ubj ect to tax � r- _ _- _-_�-2?-:�-0).-.:~.8.-528.-fl-5~--".-3-3-88- DEFICIENCY TAX D~E & COLLECTIBLE p 4 177 . 00 =--=:=:!::.= ==--== Net income per return Add : Undeclared inco me Net inco0e per investi ga tion Amount subject to t a x Tax due t he re on Less : Amou nt alr ead y as sesse d DEFICIENCY TAX DUE & COLLECTIBLE 18()

lJCCI ..~I CI !- CfJ:. CJ\..:)12 i .iCi . lOJr-' . ,, . (' '+) Phi 1 c C--- c s I ., c c� , e i c' . ���r- lr~� :~�ll,,.vc ' ..1.. ,, 1. . . L Qs s :� I-�:�~ i15 f.-f."'il�:e I~xcen~~os 1ie t j_nco:,~e f!e r inv cstigc1tion T l.iX o u c~ there en Less : ..:..r ;ou r:t a l. I' E.:ocl y c:sscs se d rJl l. e~_ed U rl;.Jcrstc~d~C!~.Cllt c;-;: ( e t i t io :tC:I' 1 ~ \:Or l d illCO I:l G 0 n C c to ~e ~ 5 , 195~ , ~ctit ione~ d ~ sr ute d the i.1CC.H."'.(.'? �for th:: ye ars l S51 , 1Sj 2 on~ l ~jJ on tMe ~ ~ ound of rrescrip- Thus , j:1 U :e c c:s~:~ o :- J.. �t s .1.. n c u .c -'c a;~ r et urn �for l ( .. .. ' ) ~) ..._) . ( \ -~. '"":.�, ' 1 ( . �>c: s p on--.icn t , ... \.. l. ,_ .. -:)� ' -:"~: I.!. . _r::-:. c � ',i - -� u -~ c: ls o -�i "+ ,, '--' > 18'7

DECISIOO- .' CTA CAS E NO . 1039 (5) t a x l.iab i l itiGs as ca lle d f or i n its lett er to res Jonden t dat e d Uctob er 5 0 19 59 can on l y b e ma de upon e xe c ut ion b y pe t i t i oner of t he waive r of t he de f e n&e of pre s cr i ption . ( P. ~D5 , DlR rec. ) Thus , on Sept e mbe r 7 , 1() 60 , pe ti t i oner e xe cuted a wa i - ver of th e s tat ut e of limi ta �i: :l.on wit h a prov isi on t hat pet itioner res er ve s the right to mainta in and purs ue at al l times the defense of pre s cript ion which it ha s set up aga i nst the for egoi ng as ses s - me n~~.. s . ( ~~- x.\-1 . 11, Respon de nt , pp. 2 12-2 13 , BIR rec .) : ,A s u pple ment a 1 prote st dated O ctob ,~ r 4 , 19 60 wa s fi led b y pet i tioner on Octcber 5 , 19 60 , reque s - ting f or the cancella tion of the a ss essme nt i n quest i on on t he grou nd that r e s ponde nt ' s r ight to as s e s s a ncJ co l le ct th e a l lecje d de'ii ciency i ncOi;1C t a xes for the ye ars 19 51, 19 ::>2 and 19 53 ha d already pres- cr i bt:�d . ( Pp . 215- 2 19 , Ir1\ r e co ) fi na l ly , r es .ondent on Febr u a ry 8 , 196 1, den l~d pet it ioner ' s re quest f or cance l l ati on a n d wit hdra- w� l o f t he ass e ssme nt. ( Ex h . l L0 pp . 221-223 , BIH re c.) On Apri l 11 , 1961. pe t itioner fil e d a claim f or r e f 1nd with re sponden t ( Pp . 226 - 227 , BI R r e c . ) and fi l ed it s petit ion fo r r ev iew with t his Court on the s a me date . S hortl y~ afte r the f3.ling of t his ap pe 3 l , res- pondent i s s ue d a wa rrant of di str a int <m el levy io enf orce c ollect ion of thG defic ienc y t a '< assessment � . On J uly 13 , 1961 , petitioner filed a "Mot ion To -~ Q Ji \. <.)

DECISION- CIA CASE. NO. 1039 (6) Quash Warrant of Distr aint and l�vy and to Enjoin Collect ion of Ta>�es" and on 1\il.arch 31, 1962, thts Court r�Emdered a resolution grantiny petitioner's motion to quash Warrant of D i~tz.�aint and levy sub- ject to the condition that petitioner files with this Court a surety bond . On March 26 , 1962 , pe- titioner file d a surety bond to guarantee payment of the deficiency taxes, posted by the Corm11onwea lth lnsurance Company. The issuES therefore to be decided by this Court are as follows: l. Whether or not the ri ght cf respondent to assess and collect the deficiency income tax for the years 19~:>1, 1952 and 1953 has already prescribed; 2. Whether or not� the deficiency assessments for said years are correct and in accordance with law, and 3. Wh(ether ti" e deficiency income tax for 1955 in the amount oi ~~4.:3 ~ 816.00 ond paid by petit io- ner on Octob ,~ r 15, 1959 under O.R. No. A-883371 was assessed and collected in accordance with law an d , therefore , pet i-r. i oner is not entitle d to a refund of the amount paid by it. We wil l now coma to the first issue. The law on prescr i ption involved i n this case is f ound in Sect ions 331, 332 dnd 333 of t he Tax Code at the time, stating as f ollows:

l 1l:.CJ.:.i h .. N C " c, .::..L 1 ,l_, . l uJ') (7 ) St:C . 3:?-l. I-' c;riocl of u _,,, :L t. ,.d;ion I): >On (:) ~):_;csS��- :_.:~'1}~ _�1 0 0 _ ~ gJ.l~_ci~Ii~ri-~ ��-:::� L.x-<: ~;rt - ~ ;---[)-ro-vi <.: c'"~;-� j_i1..t he s u c cc eci in �~: s c:: c t ion , intc r na l r c vu nw tux e s ~:;hall l.Je assesse e: within fiv e yc.:1r s a f t cr the retur n lrJ.J S f ilE< , iJ I1 �.l 110 pro c eedll l'J irt court \:itho ut as s ess :J1e 11t for th e collection of such taxt:s ..,h a ll be b e:\ un oftcr the cxpir d 'Li.u n of ~, ucl1 period . For the .; Jrno~>c s of tl1i s scctiu:1 '-' r e turn filc~ cl r1c[ orc~ t iw 'last 1il.ly prc�scribe('� Ly lavJ for �: he filitV"' th c::c o f s hc; ll :,f_' cum> id c'rcd .~s fil(~ C.1 o n ~; uch l. a st d<Jy : tT 9Fi. d~~ ~~ ' That t.L i s l:Lnt i ti:Jt: i o tl Sl! iJ ll not .:JO: ; ly to C c;~.; cs Dll:ca< ' Y inve:.ti n atcd pri 1~r t o liw � ~; pf'�I'OVcl l o f ~.iliS Co . 'u . J ::.-u::. 3J2 . i;;(.sc c:oticn~; a s to r:c ri orl of lh:i- +.1t.~..�}<-.:...i2ILQf_' _d. ~c ~,-- S',...,.-..~��, .-1 t-~...':..._C. o._l .1L.~;-f..:.t.:.:-�_'-:-_Q_.ll-_Q._:.;c:_--:--c-.)tX-ec~; -� �- - ( t:J) ln til <~ c;_, sc� oi ,_, f a be or L �,;u( ulcn t r e turn wi t h intent t o c v; (lc tu" ur of ,;, fed lu:.:�c to file: iJ rc-Lurn , the , i';! X r::<Jy be a s~-;, ; ss cd , or o Lc uro cc.:e c] in rJ in C�Jurt {u:>.' �;~ l!C: c olle c tion of sucl1 t<Jx uu y bcCJun v�J ithout uS~) es sLc nt , i..lt an y t i e ~'-' i thin t Qn yo u-r~ � ftcr the d is cov c r y of tile fa 1- si.ty , fruu d , or ou i s~,i on . ( b ) .J he:!.- c Lc fore: the cxpir ' tio n of the t i ,(' r-:::�c s cr iLed in tlic prc_ c c.:cli n �._; ~; c.:cU. on { o ~c tllc .JS S<~~s .. tcn t of t l1 c t <J x , bo th the: Co!.l. 1is :.:. i o ncr of 1 1rLr~rn.:.. 1 : ;cvc m :t: ;�n� the� tLJXt 1tJ yc r hc::v c~ con- s c nt cc1 in \�;ritin .; to it s a s ~:.o~~ 1dCi l'L .:Jftcr such ti;.le , tho tJx r~�ov ! 1(; <.IS~i(~sse d ut <Jny 'l.i .D , pr io r tot he c x p ir.:;tion o~ the r:c1�io c: a .. rce ci up on . Tht: pericd s o a (:L:od Uj un uay hl: c ; t cnt: ocJ by s ubsequ c r1t d \J r e,?r.c nts in writir .�: \,,,,(c !Jt:fm�c t he l y ' C,"f.'� l� T (o .1J~l� 0 ll 01r ..iL...ll-l (~ i;t)I'l�U(.,I p i' C Vl� UU~ cH__ rCC(J U ;o n . (c) .. hc.::-c Uw ti S SC S:J L!Ont o f. cJny intcr n a l revenue� t;.> x lws hcc n t:ii:I�:c v.itld.1 1 til e r �c'~ i( c: o { l]. uv ')'''''' c ���i � c ' ( c ' c ~ �tl l �l � ! , ,�l'"L� uc� �t �l� 01"& u�"' 1 ) - ..J� .....: ...., -� ..l. 1.) (J9 .J l I i .,n. l 1k..:.A, )~ J \. ( c o ll c c to( ~ b y distr <: int or l e vy 0 1� l� y a J.I'O c .e(J �- iW; in c ou r t , L ut unl y if i;c,,un (1) vd.tLin fi ve ye: ui.:S aft c: r t!H.: ass(~ss:.,cn t of �[. i!c ta x , o~:- (: ~ ) pr i or t ot he cx ,� i:C<i tic.;! o f .Jny t-'cr i o:. f o r culJ.c c - tion a~~.rc �orl ur.c}n i n ~;n: i L.,:�~. L y Ut,: t..., o .. i:.t i ~:.... io 1c r of lntCJ.' .i.l l lnt crna l hc v c: r1u c . Clil c: Lhc: t a x pu ye~ ... L�c i.' oTc t],'.: cnq:-. i _ ,Jt i o n o: :;ucll f iv � - vec;r � criu' ul y l'-� ' f .l. 'l!n...... !.1. i. Cr��.i.. 0'\. S� O '"r'� c�r�. r' ' L ' "1 ' ! J i' i lh C'''i' c� r,. �,,<', :.c I � �I I I '�-' .. - ~ '. .. � �� ' �- ~>1 1 1 :..i0.'flr~n�!~ -:.ic_,:cr�:::: !C;;,.:_:; irl r i l:~_tl ;_, ,:,.� , . c ;;�.� �tzJl'l'~ 'LI Jc expir :;;, �i_ ~)ll 0 1 �:'.1; :.orioc i �...-cv i ,, t;::;ly drJ r :=.:i_,(1 U[.' Ol l , '190

.. ilEClS .. CJ1 J C" CJ\::iE ho . lO J~) (fJ ) SEC. 3 33 .- ~l-d:~.P.~n s ~g_!J..._Q.f 1~lmnin c of___?j;_a tt~.t~- Th e runn in q o f t lie s ta tute of l i<.:it <Jt, hms prov i c!ed in ~> e c 'l:.io n 331 or 332 on tile !.:ukin g of a ssessment Dnc' the be (J in n i niJ of d is tra int or l e v y or a pr O�� ceeding court for c olle ct i on , in r e s pe ct o f a ny deficie ncy , si .::Jl. l be s uspend e d for the) pE: riod <;u-� ri n~; wh ic h the Corwn i s::> i c ner of Internu 1 Ho ve nue is pr o h i b it e d f ro m nak i n 'J t he as ,:.cssJ:Je nt or be < in �- nin g clistr cJ in t or l (! Vy or d roce cd in y in court .J nd for s ixty clays ther eaf t er . Pe t i t iom: r c ont ends t hat the ri <,_i bt o f the ~J ov e rn- mc n t to ass e s ~-; an d colle c t t he defi ci e ncy in c one t ax for the ye e;rs 10~1, 10 5 2 and 19::-J J has o lrc a ci y pr es - c r ibed . i{espon dent , on the.~ ot her h.Jnd , mai nt ui n s tha t th e et it ioner is es t oppe d fro11 :t.J isinCJ the de - fense of pre s cr i ption becc:Juse it voluntar ily file d u vJritt e n "\\ aiver o f t he l.~e f en s e of Prescr i pt ion " on ~ epternbe r 7, ~9 60. He s pon dent c ites .: he case of ::,an -� ti ~g o ~ c nbr a n o vs . C o ur~ of Tax Appe a ls and Co lle ctor of lnten1a l H0 vc' nu e , c . 1 � l'�l o . L-n G5 2 , j. \<J r ch 30 , 19 :::) 7 , lOl Hli l. 1-1 ~ . l ie furth e r intimates that an us s os~> Iiient c ould huve be e n i s~>LK~cl v'>'ithin t he stututory period .. h el d the l ocJ l .:.H_;<:: nt of pet itioner not i;J islecl thE:~ res - pu n c!e nt into hol chn .. or dc l oyin <J t h e o s s e ss JdC nt of the tux b y virtue of l;etitioner ' s re pr os c:t r:~ u ti o n to con - sult wit h i ts pri n ci pu l , c it i. n (J t he c a~.> c of til~~ Col - l c c t or of 1 nt e ~- n d 1 l (e ve. n ue v ~> . ~HJ )fOC Con~; o l i da t e d ..i- of respon dent to assess <3rH i c o l l e ct t he defi c i en cy i n col!le t<Jxe ~> i 11 cp.w sti on has pre s c .::' i lH.:c ~ . l't is to Lc:

l :EC ISlCJiJ Clh C/1~)E LU . 1030 (9 ) not e d t h.:.: t put i ti oner had f ilccJ it ~.; inCO!:.e ta x r ct u:r�n in th e rllonth o f i .pri l corn., s )()ncJi n ~ to ea c h of the the f iv e -yc;;r peri od pre s cribed L y l aw to cJ SS ~ss the t ux for s o i d year s shall pre sc ribe in the month of n pri l , 1957 , 19:.=>8 u n d 1()50 , r e spe ct iv e ly . :;..;in ce the i ssued on ly on , ,U(J USt 13 , l0~J9 , i. h" ri.�..: ht of respon~- den~ to assess th e ta x e s i s a l read y bu r re d J y the st otute of li mitut i on . Hen ce:: , uvcn ass ur.1i n s t hdt the .J :nount s d CI110 ndcd urHA?:r asscs s Ltc nt not ic e s Los . t!Je S<Julc l:tay no lon ,_;c r be c o llected . In the instant c a se , it i s our -fi.nd i ng ftr.?..iJ.y, t l1a t n o pr ovi s:Lon of l<.m or effect iv e u z;; r cernc nt v1a s c it ed b y n~sponde nt t o shm1 tl.c.~t tlC \,_,a s _rrohib it cd f r o!n mJki nc) th e a ss e ss r:~e rt in 19':,7 , o r SO!IJCt i me the reafter . ~(Jcond ly , r es p ondent is sue r! in 19 ~) 7 r.1cnt a gains t pot i tior cr , un the C} ~~x� ( , ncous h(~ li c f th.:Jt pctit.i.o nc) r \VuS not li c c:ns'.: c.1 to �' o l� L:S :i.. ne ss i n re s po nd cnt in i nv it i n J fll't it ioner to ,l i r its ob j c c- t i ons to t. h::: p..c oposed a~ ~.:es~; ; ,:ent c antwt be c ons - �true d t o sus pend th e period v:i thin w!: ic h to � sscss

DD...:l...)I Ul'i - �� ( l t_; ) t i w~ t ;...�...,x � ( l.l. ut.' ''�' l ~.... f) l '� �1' l~..t,.. ; �1��. .i.... t JP..... �.�.:) , I.nc � v -� ~ . C cJ,':1l.1 . of I.... lt . c ' :.JV . , C1.1''1 c: s e 1 ~1 ()[2 . ) o r c on cc ll0cl i s n ot o~:>S(:ssr;J e n t ot a l L ,:her e an a ss - ;~ e t a s id e ur :od i f i ed by Dn ot her , t he LL ve - ye ;: r f c.:rioci v:i � hin u lli ci1 t o a s :;r: ss in [i C C t i on 3 :31 of t he In t er n al hE~ 'e m w Lod e i ~; t o be c ounted f r u::l ii :c d a t e ui t h e f ili tHJ the r e t L r l1 t o n c 1:�! .; s s e s s -� ,'.�,.<...,: !�1 t ,J.�.: c.. ,~. .ro�l o---\...i.n; . ( ~� .�i�.rIC' C.;.") V S� � ColL of Int . liC V � , (. � ;1 . OJ. th e D ~;c~nt of ! e t i t io r1er , :U odv;c l l ::. Co ., to c on - sult wit h it ~; p :i.n c i ; �ol \�1:\. th r e s pe c t to t il e) p .copo~:; e d as s e s smen t h ;, ci U1 (~ e f [ e c t o f p e rs u ;::J d :i. r J c~ th e r e s p vn-� d e n t t o : o st i:r.)n c t h e <:i S ; c ss t:lerrt of t he d ef i c i e ncy t .::x . J ~ or:herc- du os t !:o l av: r e c og n i z e s the f ;:1 c t t lL'OJ t a s imr l e .t� oc.ue s t t su ch as i n t h e: i ~ 1S -:.: ;m L c <.; ::.c: , u 11 - � c t i t i o iJe r Vit1 iv c s hi.~; :d. 1h t to a s ::_;c~r t U 1c.: ck: f c:r1 ~~ e� J �. Of l-'�� "'"' "' .... -..-~ Cr " '.L J ; .jL. J.;..O I' I ) �r'lu��"~"> t i�l '-..'; c-..sL: i�c., c �L~-.. o Jl..� l c v . v s � . , uy o c C o ns o l.id ;� :.r~ d . �. in :i. n~; C o ., c: t a l . , C- � .i . J ~, O . L' - 11'",�.:"/ , 1' C ) V ~ '")~ ~..) ' ..,i <) ,~;. ~.). . ) ..J The c a s o \' h i c h r c �-pond c nt ci t ed CI S ;:ut hcu::1_ty t o -~ q .., l ... ,)

UL C I S I O! ~ CTI\ C11!...>E i :u . l.U ~J~) ( ll ) o f !ic:mt i aQ o ::i crdJ rcJno vs. Court o f l ex t' ppc:a ls 8. Col -� l e c tor of lnt cJ: na l Hcv e nue ( n m'J ComJ.lis :) i onc r of In - ternd l 1" c vc 1��1u<-' ) , ("' � 1u, � I '�; ; � L - u, , vr�. ,~-) '")- , n. .a r c11 .'.~:'-"u" , ]_9� :.:.J 7 , pe - t i tionc r therc in t ca nti.:HJO ~:icmbrr:mo , VJ<J S usscssed ard re si c!c n ce ta xes for 1 9�'1~ to 194[3, and per ce nta ge tax from 19:39 to 194 1 , in c lus i v e~ of surcharge a n d pc - na l t i cs . lnst cu d of c ontest irHJ the asses st,lent , pe t i - tioncr Sc rnb rcmo paic! '1- 17 , ~1 ~:0 . 40 , a n cl ex e c uted a c hat- t E~ l lltort gagc on 67 of h is TPU buses to secure pa yment of hi s ob l i iJ.J tion , anc.l t r ie c~ to <.~xec u tc an ot her lflOrtgu <J C c ove r i n '.) 20 buses , ul tho u g; . t his was not approved b y the Pu b 1 ic ~erv ice Co m;:o i s S0n . Uron fu i l ure t o c omp l y \'lith the condition s of t!J(; ltiOl'tgurJe , the Col l e ctor of Inter na 1 Bev cnu c i ss u<:~c.l iJ wJ r r a nt o f ciist r aint and l e v y o n !.Jeptcm or 27 , E �t';2 <mel sc: i zcc1 GJ d Lrto--t' uSt:!~ of S<:J i d pet i ti oner to bn so l cl for the s c.t i sfrJction of i t s t u x ob li ~J d tions . T he S <lle \'Id S h ovJe ver , sus - ponded \'ihe n pet it 2.one r prur~os L: <l to uukc substc.mt i <J l f.oCJ'f'l ~ lc n t but ��l tc L : .:c on f<J ilcd to co1.1p l y ti1crew i th . Th e' Coll e ctor tl tc n s e t the sul e o f pr:t i tione r ' s pro- perties , "m e pet i tioner pro :..pt ly fi .c (i J petit i on l.Jc: fo:i::c tt: E.: CCH.!l'"l of Ta x ! .ppe .J l S to c� n jo in the s~;le.

DECISION- .. eTA CA~:i E NO. 1039 ( 12) was fully asse rted. While petitioner had executed a waiver of the statute of limitation , it was with the conditi on that it res e rved its right to ma in- t a in and pursue at all times the defer'lS e of pres cri p- tion which it has already set u p a ga in~t the assess- ments . Moreover, t his Court bas alr ea dy ruled that the period of prescription ca n only be ru_<j:�n.Qed_ before the expiration o f said pa r iod. Thus, in Rattan t~rt & Decorations, Inc . vs . Col le ctor of Internal Revenue , CfA Case No. 567 , promulgated August 1 , 1960 \) this Court s a id : "But it is a lleged that pet5.tioner express- ly waived the tatutc of limit ation prescribed in Sections 331 and 332 on ~cpt embe r 19 , 1955 . Section 332(b ) provides : '(B) Where bef:gre th~ exgi:c:ati_q_n_Qf :t.llit t;l. me ..,m:-~ribed ).�L the pre s~ din g se ction for the assess ment of the tax both the Col- lector of Internal Re venue an d t he taxpayer have c ons ented in writing to its assessment afte r such t:tme, the ta)t may be assessed a ny time prior to the e:x pirat ion of t he period agreed u poony. The per�i.od a gre ed upon may be extende d subsequent agre ements in w1�iting made !1�_fore the .ru<.J?l...rQtion of t he Qeriod pre vious 1y agreed upon. ' "I t will be observe d that the period of li- mitation upon assessment ma y be suspended under Section 33 2( b ) if the a<Jrcem:nt is made before t ht.tJl~i_,,?'l t\QD. of t he period fixed in Sect i on 331 . I n this ca se , the a g:ceement was entered i nto between petitioner and the Commissione:r; of Interna Heve nue on September 19 , 19 55 , after the peri0d for assessment of the deficienc y sa les tax for the year 1949 and first quarter of 1950 had a lready lapsed. The a gr 0err.ent is, therefore , ineffective as t o such period. lt x x 11 /lI j.,J\ 0'

DECISiuN- CTA C/\SE NO~ 1039 ( 13) And , in the case of Suyoc Consolidated Mining Co., s.YP,'l:".�1. , the ta xpayer there j~n has bee n found to have , to by positive acts, i.nQ!LC!@d .�.!1.�..29JH.i~nt SIJ~penq th~ ~..9l:Jection Qf _}:.he t<!A cH>se s sed agai 1st it. On the oth' er handj in the present case , at no time did petitioner induced' by pos itive acts , the respondent to de l ay the assessment. The local age nt of petitio�- ner had merely :cequest ed respondent that it be fur- nishe d with the computation of the deficiency :tn- come ta ~ for 1951 , 1952 , 1953 and 195:) for t he pur- pose of transmitting .it to its princi pal and t o have a basis for conference upon rece ipt of its prin- cipa l ' s reply . It wi l l be noted alno that in the of ab ove c ited case of Suyoc 0 it 1., the ri ght the responde nt to colle ct (not the right to asses s) which has been he J.d ba r~�ed by pres cription . Certainly, the alleg.::Jtion then of respondent Jhat the assess rn;;mt cou ld have been is s ue d by him we 11 within t he st a tutory period hc:1d the loca 1 age nt of peti.t i oner not mi sled him into holding and delaying the assess me nt of the tax b y virtue o petitioner's agent ~epresentation to cons u lt with its pr i ncipa 1, is without n12rit . It .:s suffJ.- ciont t o state ,Lat pet :..t ioner had ,;.) 1:.:.erfect 1y legitimate right t o consult. with it& pr inci pal and this act wil l not suffi:e to stop it from invoking , -.~i..:.J G

DECISION- eTA CASE NO. 1039 ( lL). ) the statute of limitation . (Coll. of Int. Rev. vs. Pine da, 2 SCRA 402.) Fin 11y � it is always in cum- bent upon respondent to t a ke the necessary moa- sures and steps to prevent t he s e tting of pres- cription of his right to assess and collect taxes. Having disposed of the f irst is sue on pres- cription adverse to respondent, we f ind it unne- cessary to determine the related question of whe- ther or not the assessmen ts for 1951, 1952 and 1953 arc correct and in accordanc e with l aw. With res pe ct to the last issue, i. e., vhe - ther the 1955 assessment for deficien cy income t ax in the amount of P43p816 .00 and paid by peti- t i oner on October 1:,, 1959 under o.n. No . A883371 wa s in a cc orda nce with law and , therefore, peti- tioner iG not entit led t o a r efund of the amount paid by it, the Court be l ieves that the assess- ment was wron1J an d the amount paid therefor :l.s refundable to petit i oner. Petitioner maintains in con ne ct ion with this issue that ln the a pportionment of a pa ..-t of the wor ld ex pense of the Phi l i ppine operations , it is er roneous to i nclude as par t of "world gross in- carne" the amounts \'Vhich are cle a rly from sources without the P'1i l ippines und clearly bear no rela- tionship to t he expe nse being allocated or appor- tioned. _, {' 1"'7 .1 .j '

DECISIGI- CTA CASE NO. 1039 ( 15) Jl,e s pendent, on th E. other hand, contends that t he deficie ncy tax pc:dd for 1955 should be computed in accordance v.;ith the formula of general apportion- ment prescrib e d un der Section 37(e) of the Tal\ Code and i mple nEnted by Section 163 of Revenue Regula- tion No. 2. And u der the prov1.sion of Se ct ion 163 of the Income Tax Re gulation No. 2 and its accom- panying for mula, nothing therein implies that the denominat ti>vr: "'Norld gross income " is strictly limi- ted to inc ome pa r tly within andpartly without the Philippines . Thus, it is orgued that "world gross i ncome" connotes all kinds of income of foreign shippin g companies whose vesse b touch Philippine ports irrespect ive a s to whethe r or not such in- come is derived f rom sources outside or inside the Philippines s or part 1y v:ithin a nd part 1y without the Phili ppines . Moreover , as suming that the de- nominator "worl d gross income" r e f e rs ex clusively to income partly der.ive d with i n and partly without t he Phili ppines, pet.itioner failed to present evi- dence showing that the ab ove-me nt i one d it ems were indeed income obta ine d exclusive ly outside the Philippines . Ve r il y , t he view of r esponde nt i s not well taken. !he question involved i e not of first irn- pressi on. I n severa l cnses, to wit: States !:>team- ship Compan y vs. Co mmissioner o f I rrtc rn ~ l Reven~e,

.. DECISION- CIA CASE NO. 1039 ( 16) C'fl\ Cbse No . 1401 e J�u 1y 16 � 1975; Da i i cr�:i Cbuo Kisen K~ if;lha vs. Commissioner of Inte rnal Rovenue, CTA Case No . 1277, tv\a y 31 ~ 1969 ; United States Lines Company v s . Commissioner of Internal He ve nue, CTA Case No . 1305, June 28 , 1973; Ginn & Compnny vs. Corru:'lissioner of Interna 1 Hevonue, CTJ\ Case No . 674 , tviay 21 , 196 2 and Hol land East Asia Lines vs . Col- l e ctor of I nterna 1 Reve nu e , Cf/-\ Ca se No. 383 , August 5, 19 58 , th i s Court has ruled on t he interpretation of Section 37 a n d th e i rnp lenEnting income ta x r e- gu lation . Thus, i n States Ste ams hip Company case, sup~, our Court he l d : S 11 e ct ion 37 of the Na t ion a l lnterna 1 Re ven ue Co t ~ c la s& ~fied inc on~ of fore ign co:'porations i rt o three categorie;; , t o wit: ( l) lncome wh ich is derive d i n full f.;r;_q.m .�..Q!.J;t:f!.=_~_w i.tbj.n the Phi li pp ines; ( 2) income \Nh ich :l.s derived i n ful l r om sour~.2_.:.wit.h. p.J:!l t he Ph ilippine s ; an d 3 income which i::; de riv ed Q~.Ji:~-l.ID.�. SP.!Jrces vt!.t.b).:.!1 an_Q u:il.tl..lJ.L.from ~ur ces w:i..t h out the Ph i i!lippines" Non-res i dent fvre ign cor por a t i ons, like petit ionex: here in, a re t axable only on income from sources wit hi n t.he Phi li p r.) ines , whether der i ved exclusively f rom s o~rc es within the Philippines or part ly f r om source s within and partly f r om sources without the Phi lippines provided the y a re allocable to s ources within the Phi l i ppines . ( Da i i c hi Chu o Kis en lla isha v. Comm of Intern.c~ l Hevenue, CTJ\ C'iSe No. 1277, U.ay 31 , 19c9; U$t: . LinesCompa ny v . Commi ssicr;er of In t �.rn a 1 I-1-evenue, CTA Case No . 1305, J u ne 28 , 19 73 ; Gi nn and Company v, Comrnissioner of Int . Internal Revenue , CTA Case No. 674, May, 21 1962; Ho lland East Asia l:i.nes v , Coll. ' of Rev. , CT/\ Ca se No. 383, August 5 ~ 1958 . ) Nee d- l ess to say , inC..Q.mg_Q[_$2�.ll.ti one~:_deililt<t 1n iD.....iQ]..j__i�2l!.L.~Qll!...C..Q.�._Q~.Q!:_t h c_Lh i l l�. ;ln es i~�t ..~.SL..tJ1e Pl!t'li f.~ o Sect ion of t he :37 rc ji._n?~.._..lQlPl.!.:}gL.J..;....Q.tlJ<_: l, t lefore a __�_ub pursu ant t

DECISION- CIA Ct\SE NO o 1039 ( 17) Tax Code whi ch provide s as follows.: S EC. 37 t j:.J.l�.QI!le _frQIU...5JO.Y!,'.J; E~�...J11:t h iD_.the E_hi;Ji ..PQ ?. ns;_~ . - XXX (c) Qro�..~..-I..f1c.Q!gL.fX.Q.!Il..~.Q.tl.r�? s_~i::~h Q1':t i!l<L.Yh.i Jj_Jlf.d.nes . - The followin g i te ms o f qross income s ha 11 be tre ated as in- co me from source s without the Phi lip pines: wi (1} IntPrest other t han tha t derived from s ourc2s- thi.n the Phi.l i pp:i.nes as orov i de d in paragra ph ( 2 ) of subse ct ion {a ) of this sec tion; ( 2 j Qty~_dq_ngs other th,:m t hose de- rived from sct1rces v-:ithi n the Philtppines ~ s provide d in para graph ( ~ ) of subsection (a) of thi s sect ion; ( 3 ) g!?!~Jl?Cit i on for la bor or r~-e :r.so-� 1~211 se:,: �v iC ES r~(..lj~f. OI' ITlf:{.~ V�.J t +rlGUt. t lH? f1rl i - l:Lppines; ( 4 ) Renta ls or royaltie s fr om pro- perty l o cated wi t hout the Phi ]_ i ppi nos or f rom a ny inten~">t in such property , in - cl.udincJ r ent.<Jls or roya lt ies f or the use of or f or the pr i vile ge of using wi thout t he Phili ppi nes , pa tents , co p yrights , secre t proces se s and forn.ula s, ~J oodwi ll, trademarks, t rade brands , franchise,, and - other l ike propert ies; and ( 5) Q? in ~..~_..�rq_fJ.if .2J...l..LI.;1f.9lf!�. fro m t he S3le of real propert y l ocate d with out thc P1l.. U� 1-l� pp�:I�.nes . II (See also Se ct ion 158 of lncon~ Tax or Re VHlue Hegu1 r.rL:i.cns f o. ~~ ) . Petitioner r~ce ive d t!~ a gen c y fee s, c on~ mis�:>ions and ot. 1er shipping inco1ne from a gen cy S�2l'Vices for othe r steams hip lines in its s c ve- r~l offices in the Un ited States ( Exh . Pat � p . 95, CTA rec. ): the inte re~t in come was ea rned front Govern me nt securities and time depos i ts in t hE: Un ite d Stc:t f' S; J nd the other ne t incomr;: was r ea lize d fr om th e gai ns on s ~ l es of fix ed a";;");':�;=. ,>. JL..,--.,. .-t....n. . +, .t.{.,,.,..., i'-�i nJ!.+..e~,-~ c....:. +~ 'cl, .....,,,:_> c_:, (I b J...r..l ' f-J-� n;.;' ,A.,.� i\ � C�l�,f,\ , 0~ � ["J" ."..~), 'o' ~" - '..J)<Q.J V~~ s r!\-. 1.~0� c v. ) ,� I CT re.�, c � �~ s e e' "' o ., x J 'r, ::::1.........:... !:L-.:5c.!--.� ..J : .

.. DECISION- CIA CASE NO. 1039 ( 18) the proceeds of ins ura nce take n on the life of Eric Wroldsen and re fun d of Federal Income tax were derived in full from s ources out side i hi.Q., the Fhilippines. r(eI Qc)..._dJ, p. 95 , CTA rec ., pp. 384 -385 , CTI\ Under the provis ions of Section 37 of the Tax Code , as i11plemented by Section 158 of the Income Tax Regu l at ions , the inc owe menttoned above shou ld not be included in t he gross in- c ome of petitioner for j;he . po.. pose of deter- mining its Philippine income under Sect ion 16~' of the Income Tax Regulations be cause, if an item of income e mana ted actually from sour- ce s within or without the Philippin@ under the provisions of Se ction 37(a ) and (c) of the Tax Code � then Sect i on 37( e) and Secti on 163 of the Income Tax Re oulations above-ment ioned will no longer apply- (United !::itates Lines v. Gominis s ione r of Interna l Rev""nue , SUQ!:'!�) as the s aid income are not subject to allocation or a pportionrrent to sources within or wi thout t he Phi lippines . As to the allegation of respondent that peti- tioner f aile d to pre.sent evidence showing that the a) OVe-me ntione d items we e in 'e ed income obtained exclusively outside the Philippines , suffice it to state that G orge G. Lit t l c: , .1\s s t . Se cretary-Trea �- surer of States Steamship Company at the time he testified, explained tho nature of the it ems in question when he appeared before the Phili ppine Con s ul at the Consular Di strict of San Fran cisco, California, U. S. A. (Pleasr;: see , pp . 162-165 , CTA r e co) No cross-interroga t ions wer e submitted by respondent . Also , at the hearing of this case bb- fore the Co\..\r t, no evide nce was present ed rebut - ttng the testimony of George C o Little . t~ee dless to say, the testimony of th(:? witness for petitioner

DECISION- erA CJ\SE NO. 1039 ( 19) iden~ ifie d t he iterr5 in question as earned outside of the Philippines a nd ha d nothing to do with Phi- lippine operc:.;tiuns . Therefore, since th(~ s c ite ms we re cle a r 1y iden- tif:ted as earne d outside: the Phi li;.> pines , the y should not be included in the "wo::ld CJross in coTl'? 11 � M!EREFOH E, the decision of r e s pon de nt Commis- .. s ioner of I nt ernrJ l Ht:NGnw: uPDGH led fr om j,!> hereby reversed, and the r E !-1. potlde nt i s her~by ordered to refun d or o,r.'int a tax c:A.~e di t to petitioner the a mount ot ~'43, B l6 . 0C repr o s c::~ti ng crrone ou :=, ly p.; id in c on;e ta x for the y'ear 1955 . No �osts. SU ORDER l-.D . Que zon Ci t y, Apr ��l 29 , 198 1. /. /. lt!E CONCUH: -HOA(J.JI N J ud')<? -~ 'fI~. . .UJ\av~. ~�AN~ IJ~NT: LLER Presid u;;� .Jud ge�