Qantas Airways Limited v. Commissioner of Internal Revenue

FIRST DIVISION [CA-G.R. SP No. 32109. June 7, 1995.] (CTA Case No. 4459) QANTAS AIRWAYS LIMITED , petitioner , vs. THE COMMISSIONER OF INTERNAL REVENUE , respondent . D E C I S I O N DE PANO, JR. , J p : Sought to be reviewed and set aside for being in error is the decision of the Court of Tax Appeals dated June 23, 1993 in CTA Case No. 4459, "Qantas Airways, Ltd. versus The Commissioner of Internal Revenue," dismissing the petition for review, as well as the motion for reconsideration of the said decision by the petitioner. The petitioner an international airline company had filed with the Commissioner of Internal Revenue a claim for tax refund on May 8, 1990, but had not awaited the ruling of the Commissioner and had, instead, filed a petition for review before the respondent Court in order to reserve its right to appeal. The petition claimed that the airline had overpaid taxes on income for the quarters ending March 31, 1988 and June 30, 1988 in the total amount of P1,494,387.92. The petition further alleged that the airline had reported Gross Philippine Billings of P45,536,536 and P66,554,607 respectively for the above-stated quarters, a total of P112,091,143.00, for which it paid P2,802,278.57 in taxes. It was also claimed that the said reported Gross Philippine Billings were based on "mere estimates only as the actual flown revenues were determined only at the end of the taxable year upon receipt of the corresponding figures from its Head Office in Australia, computed as, follows: "Actual GPB for quarter ended March 31, 1988 P27,761,702 June 30, 1988 P24,553,924" Total P52,315,626 Thus, under these facts, the actual GBP tax due was only P1,307,890.66 and, therefore, the airline had overpaid its GBP tax by P1,494,387.92, for which the petitioner claimed refund under Section 25 (a), (2). (A) of the Tax Code, as amended. The Commissioner resisted the claim, saying that the claim was still under investigation; that the taxes are deemed to have been paid according to law; that since the claim amounts to a claim for tax exemption, such is not favored by law under the rule of strictissimi juris ; and that the petition is bereft of merit. On June 23, 1993, after hearing in which the petitioner airline presented both testimonial and documentary evidence, the respondent Court of Tax Appeals rendered its decision adverse to the airline which subsequently filed a motion for reconsideration, and which was denied by resolution of the respondent Court on September 16, 1993. The respondent Commissioner resists the petition, specifying the following as grounds for the dismissal thereof: "I. RESPONDENT COURT OF TAX APPEALS DECIDED A QUESTION OF SUBSTANCE IN ACCORDANCE WITH LAW AND EVIDENCE. A) PETITIONER'S CASE DOES NOT INVOLVE ILLEGALLY OR ERRONEOUSLY COLLECTED TAXES. B) THE PETITION FAILS TO POINT OUT ANY ERROR OR FACT AND/OR LAW COMMITTED BY RESPONDENT COURT OF TAX APPEALS." (p. 72, rec.) The petition contains no specific assignment of error, but presents the issue of "whether the 2-1/2% on Gross Philippine Billings is based on the amount of fare as reflected on the airline tickets or on the revenue actually realized by the petitioner on discount price thereof." This issue was decided against the petitioner Airline by the respondent court under Section 25 of the Tax Code, the specific provision of which is quoted hereunder: "Sec. 25. Rates of tax on foreign corporation . . . . "(A) International air carrier . 'Gross Philippine Billings means gross revenue realized from uplifts of passenger anywhere in the world and excess baggage, cargo and mail originating from the Philippines, covered by passage documents sold in the Philippines: . . ." The Court agrees with the respondent Court of Tax Appeals. The petitioner argues that the above GBP taxes collected from it by the Commissioner of Internal Revenue were in excess of that which is due from its income "realized" from the sale of tickets in the Philippines for the taxable periods involved in the claim, after deduction therefrom of discounts that the petitioner had given to its travel agents. It is argued that the basis of the said GBP tax should not be the total of ticket sales made in the Philippines, but the computation of such total sales minus discounts that it had extended "to travel agencies to generate sales," and that it had, consequently, received a considerably lesser amount than that reflected in the plane tickets." The airline submits that "realized" income means only such income that it had actually received, which excludes discounts that it had extended to travel agents. Discounts to travel agencies so extended should not be included in the determination of Gross Philippine Billings, because such "are not part of gross proceeds" of sales under the taxing statute. In effect, the airline suggests that the discounts it had extended to travel agencies is part of expenses of operations, and should be excluded in the determination of Gross Philippine Billings. But the petitioner argues from a non-existent base, for the simple reason that the law speaks very clearly that the basis of the tax of 2-1/2% tax is Gross Philippine Billings . When the law speaks of gross , it means gross and, therefore, does not exclude any item in the production of the income. In "Commissioner of Internal Revenue vs. British Overseas Airways Corporation, 149 SCRA 395, the Supreme Court incited the compass of the term GROSS, to wit: "The TaxCode defines 'gross income' thus: 'Gross income includes gains, profits, and income derived from salaries, wages, or compensation for personal service of whatever kind and in whatever form paid, or from possession, vocation, trades, business , commerce , sales or dealings in property, whether real or personal, growing out of the ownership or use of or interest to such property; also from interests, rents, dividends, securities, or the transactions of any business carried on for gain or profit , or gains profits and income derived from any source whatever ' (Sec. 29[3]; {emphasis} supplied) "The definition is broad and comprehensive to include proceeds from sales of transport documents. 'The words 'income from any source whatever' disclose a legislative policy to include all income not expressly exempted within the class of taxable income under our law.' Income means 'cash received or its equivalent;' it is the amount of money coming to a person within a specific time . . .; it means something distinct from principal or capital. For, while capital is a fund, income is a flow. As used in our income tax law, 'income' refers to the flow of wealth." (pp. 406-407) The term "gross", therefore, is all-inclusive. It also speaks of Philippine Billings and, therefore, clearly excludes any other basis for the determination of the 2-1/2% tax to be imposed. Philippine Billings can only refer to the price of the tickets stated thereon, ISSUED IN THE PHILIPPINES to airline users, whether for personal travel and/or forwarding of freight from the Philippines. It is quite clear from the language of the statute that the moment the airline ticket is issued, and the price thereof paid to the airline agency, the revenue or income is immediately realized , because it has been paid to the airline through its travel agency in the Philippines. On the basis of the petitioner's condition in the Philippines that is, that its ticket sales are effected through travel agencies the discounts that it extends or had extended to the travel agency are part of a deliberate and systematic effort to persuade travel agencies to sell the airline tickets to prospective travellers or customers. This being so, it must be presumed that the petitioner has taken a deliberate risk of either making a gain or taking a loss on the sale of the tickets. And this being so, the reduction of revenue actually received by reason of a deliberate marketing strategy should not be charged against the Government, but that the airline must pay the 2-1/2% on the gross billings that it had made in the Philippines by way of tickets sold to passengers or customers in the Philippines. There should not be any controversy regarding the term "realized", if only for the simple reason that the moment a ticket is paid to the airline agency, income is generated. The petition, it may be inferred, by failing to make a specific assignment of error, has failed to present a prima facie that the respondent court had committed an error of fact or of law that would warrant reversal or modification. WHEREFORE, the petition for review is DENIED DUE COURSE, and is DISMISSED, for lack of merit. SO ORDERED. Montoya and Hofilea , JJ ., concur.