Singapore Airlines, Ltd. v. Commissioner of Internal Revenue

SECOND DIVISION [CA-G.R. SP No. 69130. November 29, 2002.] SINGAPORE AIRLINES, LTD., petitioner, vs . COMMISSIONER OF INTERNAL REVENUE , respondent . D E C I S I O N GUERRERO , B. J. , J p : Before Us is a petition for review under Rule 43 of the decision of the Court of Tax Appeals, dated 05 November 2001, ordering petitioner to pay deficiency income and expanded withholding taxes for fiscal years 1989 and 1990. The pertinent facts: Petitioner Singapore Airlines, Ltd. (hereafter, Singapore Airlines) is a resident foreign corporation, organized under the laws of Singapore and licensed to do business in the Philippines as an international carrier. 1 On 12 March 1992, the Commissioner of Internal Revenue (hereafter, Commissioner) issued assessment notices to Singapore Airlines, which found the latter liable for deficiency income and expanded withholding taxes for the fiscal years that ended on 31 March 1989 and 1990 in the total amount of P5,054,570.58, computed as follows: "Deficiency Income Tax 1989 Basic Tax P1,514,255.27 Surcharge 378,563.86 Interest 898,036.77 Compromise 25,000.00 Total P2,815,856.10 =========== "Deficiency Withholding Tax 1990 Principal P358,782.28 Surcharge 89,695.57 Interest 233,955.65 Compromise 16,000.00 Total P698,433.50 =========== "Deficiency Income Tax 1990 Basic Tax P954,319.27 Surcharge 238,579.80 Interest 327,383.97 Compromise 20,000.00 Total P1,540,280.98" 2 In its annual income tax return for 1989, Singapore Airlines reported a net income of P465,702,560.38 on its Gross Philippine Billings and paid P7,002,029.02 in taxes. 3 For the year 1990, it reported a net income of P487,183,175.09 and paid P7,307,747.63 in taxes. 4 However, the Commissioner found discrepancies in the Gross Philippine Billings, as reported in the above income tax returns and as computed by Singapore Airlines itself in its Bank Settlement Plan Account and Cash Sales Account. The Bank Settlement Plan Account refers to tickets sold through travel agencies accredited with the International Air Transport Authority (hereafter, IATA), 5 while the Cash Sales Account refers to those sold directly by Singapore Airlines offices. After evaluation, the Commissioner came up with the following additional tax liabilities for Singapore Airlines: "Gross Philippine Fiscal Year Fiscal Year Billings 1989 1990 Bank Settlement Plan Account PHD P267,436,753.18 P315,756,130.90 USD 83,212,958.36 57,327,154.59 ADM Php 523,083.88 730,919.55 Commissions 7,175,655.64 9,736,123.20 Cash Sales Account Passenger-Php 50,032,542.58 41,548,983.38 USD 14,949,874.71 12,982,700.32 Cargo-Php 96,353,273.83 93,263,659.39 USD 43,261,319.40 16,303,452.54 Excess Baggage 2,069,862.52 2,214,943.99 Mail 974,524.00 830,901.00 Total P566,652,925.12 P550,804,455.86 Income Tax Due 8,499,793.88 8,262,066.84 Less: Income Tax Paid 6,985,538.41 7,307,747.63 Balance 1,514,255.47 954,319.21 25% Surcharge 378,563.86 238,579.80 Interest 898,036.77 327,383.97 Compromise Penalty 25,000.00 20,000.00 Total P2,815,856.10 P1,540,282.98" 6 =========== =========== In addition, the Commissioner assessed a withholding tax on the overriding commission of P7,175,655.64 reported in the above Bank Settlement Plan Account for the fiscal year 1989 7 The tax was computed as follows: "Commission P7,175,645.64 Rate of EWT 5% Withholding Tax Due P358,782.28 25% Surcharge 89,695.57 Interest 233,955.65 Compromise Penalty 16,000.00 Total P698,433.50" 8 ========= Aggrieved by these assessments, Singapore Airlines, on 14 April 1992, filed its protest but the Commissioner, on 29 December 1995, denied it. 9 On 27 January 1996, Singapore Airlines filed a petition for review with the Court of Tax Appeals (CTA) 10 but the latter, on 05 November 2001, dismissed the petition, in this wise: "It is Petitioner's submission that in order for the proceeds to be considered as part of its Gross Philippine Billings, the passenger and/or cargo covered by the ticket must have been actually flown by the airline company issuing the ticket pursuant to Section 25(a)(2)(A) of the 1997 Tax Code. Petitioner maintains that the Gross Philippine Billings as submitted by Petitioner's office in Singapore and testified on by its witness, is accurate and truly reflective of its income. xxx xxx xxx There is no dispute that what forms part of the Gross Philippine Billings are only those proceeds from ticket sales that were actually flown by the Petitioner. Hence, it is this Court's belief that proof must be shown to establish the fact that some of those tickets issued by the Petitioner were actually flown by other airline companies or refunded to ticket holders or were honored only in the following year that they were sold. On this score, Petitioner's evidence on record is scanty. Thus, in the absence of any proof to the contrary, the gross freight charges in the airway bills, bills of lading, and/or value of tickets sold by each international carrier doing business in the Philippines shall be prima facie evidence of its gross lifted revenue (Section 2, Revenue Regulations No. 6-78) Other than the testimony of its witnesses, Petitioner, in the course of the trial utterly failed to prove that some of the recorded ticket sales in the Bank Settlement Plan Account and Cash Sales Account were actually flown by other airline companies or refunded to ticket holders or were honored only in the following year that they were sold. In this respect, We cannot accord weight to the testimony of its witness, Ms. Paz S. King, since it merely showed and established the fact that the Bank Settlement Plan Account reflected the original ticket sales. In the same breath, this Court finds no relevance with the testimonies of Ms. Lorna Sandiko and Ms. Ang May Hong inasmuch as they tend to explain only Petitioner's manner of accounting/reporting of its actual flown revenue without showing any documentary evidence to corroborate their respective declarations. Our analysis and evaluation or the pleadings and evidence on record reveals that Petitioner, in order to discharge the onus satisfactorily, should have presented in evidence, among others, the cancelled/returned tickets due to refunds, reports/billings from other airline companies or receipts of remittances made by Petitioner to other airline companies with regard to the tickets that were actually flown by the latter, the 1989 and 1990 Flown Revenue Reports and a schedule, that would reconcile the ticket sales reported under the Bank Settlement Plan and Cash Sales Accounts with those reflected in Petitioner's income tax returns. In the absence of these documents, this Court cannot determine with particular certainty Petitioner's actual flown revenues for 1989 and 1990. . . . We now proceed to the issue on expanded withholding tax. Petitioner posits the view that overriding commissions paid by it to other airline companies should not be equated with the travel agent's commission subject to the expanded withholding tax under BIR Revenue Regulations No. 6-85. This was allegedly due to the fact that only payments made to persons enumerated in the said regulation are subject to the expanded withholding tax. . . . From the foregoing definition, it is quite unequivocal that 'all persons . . ., who for profit or compensation, sell or bring about sale or purchase of merchandise for other persons, or bring proposed buyers and sellers together . . .' shall be considered as commercial broker. And it is of general acceptance that travel agencies sold Petitioner's tickets with the aim in view of receiving commissions therefrom. Thus, We sustain Respondent's findings that Petitioner is subject to the 5% withholding tax on gross commissions paid by it to travel agencies. xxx xxx xxx After considering the above premises, Petitioner should be held liable to pay deficiency income and expanded withholding taxes, computed as follows: Deficiency Expanded Deficiency Income Tax W/holding Tax 1989 1990 1989 Total Basic Tax P1,514,255.47 P954,319.21 P358,782.28 Surcharge 387,563.86 238,579.80 89,695.57 Interest 898,036.77 327,383.97 233,955.65 P2,790,856.10 P1,520,282.98 P682,433.50 P4,993,527.58 WHEREFORE, in view of all the foregoing, the instant petition foregoing, the instant Petition for Review is hereby DENIED for lack of merit. Accordingly, Petitioner is hereby ORDERED to pay to the Respondent the aggregate amount of P4,993,572.58 representing deficiency income and expanded withholding taxes for fiscal years 1989 and 1990 inclusive of surcharge and deficiency interest plus 20% delinquency interest computed from April 23, 1992 until fully paid pursuant to Section 249 (c) (3) of the 1989 Tax Code 11 Hence, this petition which raises the following issues: "(1) Whether or not the Court of Tax Appeals erred in sustaining the assessment of the respondent on the petitioner for deficiency income tax for fiscal years ended March 31, 1989 and 1990. (2) Whether or not the Court of Tax Appeals erred in sustaining the assessment of the respondent on the petitioner for deficiency expanded withholding tax for fiscal year ended March 31, 1990." 12 We dismiss the petition. The only issue here is whether the additional taxes assessed on petitioner Singapore Airlines are proper and much of the controversy revolves around the meaning of Gross Philippine Billings. Section 25(2)(A) of the National Internal Revenue Code of 1997, as amended, which was then in effect provides this definition: "(A) International air carrier . Gross Philippine Billings' means gross revenue realized from uplifts of passengers anywhere in the world and excess baggage, cargo and mail originating from the Philippines, covered by passage documents sold in the Philippines: Provided, That documents sold outside the Philippines under a 'prepaid ticket advice' scheme for passengers originating from the Philippines shall be considered as documents sold in the Philippines. Gross revenue from chartered flights originating from the Philippines shall likewise form part of the 'Gross Philippine Billings' regardless of the place of sale or payment of the passage documents. For purposes of determining the taxability of revenues from chartered flights, the term 'originating from the Philippines' shall include flights of passengers who stay in the Philippines' for more than forty-eight [48] hours prior to embarkation. 13 " Petitioner argues that proceeds from ticket sales form part of the Gross Philippine Billings only if the passenger or cargo covered was actually flown by the airline company that issued the ticket. In instances where (a) passage documents sold by the issuing airline were honored and flown by another airline; or (b) tickets purchased on a given year were used only on the following year; or (c) tickets were not used within their validity date of one year and were refunded to the ticket holder, such ticket sales are not part of the Gross Philippine Billings. Petitioner thus assails the Commissioner for assessing additional taxes based on ticket sales recorded in the Bank Settlement Plan Account and Cash Sales Account because such documents do not reflect actual revenues from flights made. 14 If, for example, tickets were refunded or were honored by other airlines, such data would not be reflected in the above documents. Thus, petitioner would seem to have more income than it actually had and it would be assessed taxes for unrealized income. This is the issue as perceived by petitioner. However, the CTA does not argue with these principles invoked by petitioner. It absolutely agrees that only proceeds from tickets actually flown form part of the Gross Philippine Billings. 15 The only issue as far as the CTA is concerned is factual, to wit: What is the actual revenue of petitioner? The Commissioner made the assessments because he was not convinced that the incomes stated in petitioner's income tax returns for 1989 and 1990 were accurate. For this purpose, the commissioner examined petitioner's Bank Settlement Plan Account and Cash Sales Account to get a more comprehensive view of the flow of revenues. Assessments made by the Bureau of Internal Revenue are presumed correct and made in good faith. 16 The taxpayer has the duty of proving otherwise; he has the burden of proving that assessment is erroneous. If no irregularities are shown, the assessment would not be disturbed. 17 We agree with the CTA that petitioner had not successfully discharged its burden of proving the assessments wrong. Petitioner claims that the Bank Settlement Plan Account does not include tickets, which were not used by passengers and which were thus refunded; it contains only the original tickets sold, not those subsequently refunded. 18 If, as petitioner contends, the Bank Settlement Plan Account and Cash Sales Account do not reflect its actual revenues, it should have presented the refunded tickets or a report on tickets honored by other airlines. This is not an impossible task and all documents that could prove the assessments wrong are under petitioner's control. But petitioner failed to do this and we have no alternative but to uphold the Commissioner's assessment. As regards the withholding taxes, petitioner argues that the overriding commissions it paid are not covered by the expanded withholding tax system under Revenue Regulation No. 6-85 because these are not among the subjects enumerated in the regulation 19 Among those covered are income payments made to brokers and agents. A broker is an agent employed to make bargains and contracts between other persons, in matters of trade, commerce or navigation for compensation. His duty is to bring the buyer and seller to an agreement; he must be the efficient agent or procuring cause of the transaction. 20 Petitioner, in the instant case, admitted that it paid overriding commissions to other airlines, that honored its tickets or portions of the journey; it considered these airlines as its agents. 21 In view of this admission, we share the CTA's bewilderment at petitioner's insistence that such other airlines and travel agencies should not be treated either as brokers or agents when such entities clearly acted on behalf of petitioner or honored some of its commitments to its passengers. WHEREFORE, the instant petition is hereby DISMISSED and the decision of the Court of Tax Appeals, dated 05 November 2001, is AFFIRMED. SO ORDERED. Regino and Del Castillo JJ ., concur. Footnotes 1. Rollo , p. 9 2. Rollo , p. 34 3. Ibid, p. 228 4. Ibid, p. 243 5. Ibid. , p. 25 6. Rollo, p. 35 7. Ibid p. 11 8. Ibid p. 36 9. Rollo, p. 36 10. Ibid., p. 13 11. Rollo, pp. 37-44 12. Ibid, p. 16 13. Nolledo, Jose N. The National Internal Revenue Code of the Philippines, as amended, 1995 ed., p. 23 14. Rollo, p. 16-17 15. Ibid., p. 38 16. Interprovincial Autobus Co., Inc, v. CIR, 98 Phil. 290 [1956]; CIR v. Construction Resources Asia, Inc., 145 SCRA 671 [1986]; Sy Po v. CTA, 164 SCRA 524 [1988] 17. Marcos II v. Court of Appeals, 273 SCRA 47, 66-67 [1997] 18. Rollo, p. 26