CIR vs. British Overseas Airways Corporation

GR Nos. L-65773-74 dated April 30, 1987


BOAC, a resident foreign corporation, was “engaged in” business in the Philippines. BOAC has appointed a ticket sales agent in the Philippines  which is engaged in (1) selling and issuing tickets; (2) breaking down the whole trip into series of trips—each trip in the series corresponding to a different airline company; (3) receiving the fare from the whole trip; and (4) consequently allocating to the various airline companies on the basis of their participation in the services

CIR, assessed BOAC for deficiency income taxes covering the years 1959 to 1963. BOAC paid this assessment under protest.

BOAC filed a claim for refund of the amount of P858,307.79, which claim was denied by the CIR. 

BOAC filed a petition for review with the Tax Court assailing the assessment and praying for the refund of the amount paid. The Tax Court reversed the ClR for the reason that the proceeds of sales of BOAC passage tickets in the Philippines do not constitute as income from Philippine sources “since no service of carriage of passengers or freight was performed by BOAC within the Philippines”


Whether or not the revenue derived by private respondent British Overseas Airways Corporation (BOAC) from sales of tickets in the Philippines for air transportation, while having no landing rights here, constitute income of BOAC from Philippine sources, and, accordingly, taxable.


YES. the sale of tickets in the Philippines is the activity that produces the income. The tickets exchanged hands here and payments for fares were also made here in Philippine currency. The situs of the source of payments is the Philippines. The flow of wealth proceeded from, and occurred within, Philippine territory, enjoying the protection accorded by the Philippine government. In consideration of such protection, the flow of wealth should share the burden of supporting the government.

Section 37(a) of the Tax Code, which enumerates items of gross income from sources within the Philippines, namely: (1) interest, (2) dividends, (3) service, (4) rentals and royalties, (5) sale of real property, and (6) sale of personal property, does not mention income from the sale of tickets for international transportation. However, that does not render it less an income from sources within the Philippines. Section 37, by its language, does not intend the enumeration to be exclusive. It merely directs that the types of income listed therein be treated as income from sources within the Philippines.


The absence of flight operations to and from the Philippines is not determinative of the source of income or the situs of income taxation. The test of taxability is the “source”; and the source of an income is that activity x x x which produced the income. Unquestionably, the passage documentations in these cases were sold in the Philippines and the revenue therefrom was derived from a business activity regularly pursued within the Philippines.