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Case Digest: William C. Reagan v. CIR, G.R. No. L-26379, December 27, 1969

William C. Reagan v. CIR, G.R. No. L-26379, December 27, 1969

TOPIC: Elements of a State: National Territory: The Philippines as a State: Attributes of a State


In the decision appealed from, the Court of Tax Appeals, after stating the nature of the case, started the recital of facts thus: “It appears that petitioner, a citizen of the United States and an employee of Bendix Radio, Division of Bendix Aviation Corporation, which provides technical assistance to the United States Air Force, was assigned at Clark Air Base, Philippines, on or about July 7, 1959 … . Nine (9) months thereafter and before his tour of duty expired, petitioner imported on April 22, 1960 a tax-free 1960 Cadillac car with accessories valued at $6,443.83, including freight, insurance and other charges.”4 Then came the following: “On July 11, 1960, more than two (2) months after the 1960 Cadillac car was imported into the Philippines, petitioner requested the Base Commander, Clark Air Base, for a permit to sell the car, which was granted provided that the sale was made to a member of the United States Armed Forces or a citizen of the United States employed in the U.S. military bases in the Philippines. On the same date, July 11, 1960, petitioner sold his car for $6,600.00 to a certain Willie Johnson, Jr. (Private first class), United States Marine Corps, Sangley Point, Cavite, Philippines, as shown by a Bill of Sale . . . executed at Clark Air Base. On the same date, Pfc. Willie (William) Johnson, Jr. sold the car to Fred Meneses for P32,000.00 as evidenced by a deed of sale executed in Manila.”

As a result of the transaction thus made, respondent Commissioner of Internal Revenue, after deducting the landed cost of the car as well as the personal exemption to which petitioner was entitled, fixed as his net taxable income arising from such transaction the amount of P17,912.34, rendering him liable for income tax in the sum of P2,979.00. After paying the sum, he sought a refund from respondent claiming that he was exempt, but pending action on his request for refund, he filed the case with the Court of Tax Appeals seeking recovery of the sum of P2,979.00 plus the legal rate of interest.

As noted in the appealed decision: “The only issue submitted for our resolution is whether or not the said income tax of P2,979.00 was legally collected by respondent for petitioner.”6 After discussing the legal issues raised, primarily the contention that the Clark Air Base “in legal contemplation, is a base outside the Philippines” the sale therefore having taken place on “foreign soil”, the Court of Tax Appeals found nothing objectionable in the assessment and thereafter the payment of P2,979.00 as income tax and denied the refund on the same. Hence, this appeal predicated on a legal theory we cannot accept. Petitioner cannot make out a case for reversal.


WON the Philippines has jurisdiction to tax in the Clark Air Base



the first and crucial error imputed to the Court of Tax Appeals to the effect that it should have held that the Clark Air Force is foreign soil or territory for purposes of income tax legislation is clearly without support in law. As thus correctly viewed, petitioner’s hope for the reversal of the decision completely fades away. There is nothing in the Military Bases Agreement that lends support to such an assertion. It has not become foreign soil or territory. This country’s jurisdictional rights therein, certainly not excluding the power to tax, have been preserved. As to certain tax matters, an appropriate exemption was provided for.

Petitioner could not have been unaware that to maintain the contrary would be to defy reality and would be an affront to the law. While his first assigned error is thus worded, he would seek to impart plausibility to his claim by the ostensible invocation of the exemption clause in the Agreement by virtue of which a “national of the United States serving in or employed in the Philippines in connection with the construction, maintenance, operation or defense of the bases and residing in the Philippines only by reason of such employment” is not to be taxed on his income unless “derived from Philippine source or sources other than the United States sources.”13 The reliance, to repeat, is more apparent than real for as noted at the outset of this opinion, petitioner places more faith not on the language of the provision on exemption but on a sentiment given expression in a 1951 opinion of this Court, which would be made to yield such an unwarranted interpretation at war with the controlling constitutional and international law principles. At any rate, even if such a contention were more adequately pressed and insisted upon, it is on its face devoid of merit as the source clearly was Philippine.

In Saura Import and Export Co. v. Meer,14 the case above referred to, this Court affirmed a decision rendered about seven months previously,15 holding liable as an importer, within the contemplation of the National Internal Revenue Code provision, the trading firm that purchased army goods from a United States government agency in the Philippines. It is easily understandable why. If it were not thus, tax evasion would have been facilitated. The United States forces that brought in such equipment later disposed of as surplus, when no longer needed for military purposes, was beyond the reach of our tax statutes.

Philippines as a State:

Nothing is better settled than that the Philippines being independent and sovereign, its authority may be exercised over its entire domain. There is no portion thereof that is beyond its power. Within its limits, its decrees are supreme, its commands paramount. Its laws govern therein, and everyone to whom it applies must submit to its terms. That is the extent of its jurisdiction, both territorial and personal. Necessarily, likewise, it has to be exclusive. If it were not thus, there is a diminution of its sovereignty.

It is to be admitted that any state may, by its consent, express or implied, submit to a restriction of its sovereign rights. There may thus be a curtailment of what otherwise is a power plenary in character. That is the concept of sovereignty as auto-limitation, which, in the succinct language of Jellinek, “is the property of a state-force due to which it has the exclusive capacity of legal self-determination and self-restriction.” A state then, if it chooses to, may refrain from the exercise of what otherwise is illimitable competence.

Its laws may as to some persons found within its territory no longer control. Nor does the matter end there. It is not precluded from allowing another power to participate in the exercise of jurisdictional right over certain portions of its territory. If it does so, it by no means follows that such areas become impressed with an alien character. They retain their status as native soil. They are still subject to its authority. Its jurisdiction may be diminished, but it does not disappear. So it is with the bases under lease to the American armed forces by virtue of the military bases agreement of 1947. They are not and cannot be foreign territory.



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