CASE DIGEST: United Airlines vs. Commissioner of Internal Revenue (Gross Philippine Billings)

G.R. No. 178788

United Airlines vs. Commissioner of Internal Revenue

September 29, 2010

Facts:

International airline, petitioner United Airlines, filed a claim for income tax refund. Petitioner sought to be refunded the erroneously collected income tax from in the amount of P5,028,813.23 on passenger revenue from tickets sold in the Philippines, the uplifts of which did not originate in the Philippines, arguing that it cannot be considered as income from sources within the philipppines. The airlines ceased operation originating form the Philippines since February 21, 1998.

Court of tAx appeals ruled the petitioner is not entitled to a refund because under the NIRC, income tax on GPB also includes gross revenue from carriage of cargoes from the Philippines. And upon assessment by the CTA, it was found out that petitioner deducted items from its cargo revenues which should have entitled the government to an amount of P 31.43 million, which is obviously higher than the amount the petitioner prayed to be refunded.

Petitioner argued that the petitioner’s supposed underpayment cannot offset his claim to a refund as established by well-settled jurisprudence.

Issue:

Whether or not petitioner is entitled to a refund for its erroneously paid GPB  tax.

HELD:

IS PETITIONER SUBJECT TO GPB?

No, not anymore inasmuch as it ceased operations originating from the Philippines since 1998. 

If an international air carrier maintains flights to and from the Philippines, it shall be taxed at the rate of 2% of its GPB, while international air carriers that do not have flights to and from the Philippines but nonetheless earn income from other activities in the country will be taxed at the rate of 32% of such income.

IS PETITIONER ENTITLED TO REFUND?

NO.

Petitioner was correct in averring that offsetting his claim of refund with his alleged tax deficiency is unavailing in Article 1279 of the Civil Code. However, in citing Sec 72, Chapter XI of the NIRC (as was applied in the case of CIR vs CTA, it was Sec 82 then in the 1977 Tax Code), the grant of refund is founded on the assumption that the return is valid, that is, the facts stated therein are true and correct.

"The finding of the CTA that petitioner, although not liable under Sec. 28(A)(3)(a) of the 1997 NIRC, is liable under Sec. 28(A)(1), the correctness of the return filed by petitioner is now put in doubt. " It's a basic principle in taxation that tax refunds, like tax exemptions, are construed strictly against the taxpayer and liberally in favor of the taxing authority. Having underpaid the GPB tax due, petitioner is not entitled to a refund.

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