JOHN L. GARRISON, FRANK ROBERT­SON, ROBERT H. CATHEY, JAMES W. ROBERTSON, FELICITAS DE GUZMAN AND EDWARD MCGURK, PETITIONERS, VS. COURT OF APPEALS AND REPUBLIC OF THE PHILIPPINE…

Sought to be overturned
in these appeals is the judgment of the Court of Appeals,^[1] which affirmed the decision of the Court of
First Instance of Zambales at Olongapo
City — convicting the petitioners “of violation of Section 45 (a) (1) (b) of
the National Internal Revenue Code, as amended, by not filing their respective
income tax returns for the year 1969” and sentencing “each of them to pay a
fine of Two Thousand (P2,000.00) Pesos, with subsidiary imprisonment in case of
insolvency, and to pay the costs proportionately.”^[2]

The petitioners have
adopted the factual findings of the Court of Appeals,^[3] viz.:.

1.       JOHN L. GARRISON “was
born in the Philippines
and ** lived in this country since birth up to 1945, when he was repatriated
and returned to the United States.  He stayed in the United
States for the following twenty years until May 5, 1965, when he entered the Philippines
through the Clark Air Base.  The said
accused lived in the Philippines
since his return on May 6, 1965.  He lives with his Filipino wife and their
children at No. 4
Corpus Street, West Tapinac, Olongapo City, and they own the house and lot on which they
are presently residing.  His wife
acquired by inheritance six hectares of agricultural land in Quezon Province.”

2.       JAMES W. ROBERTSON
“was born on December 22, 1915
in Olongapo, Zambales and
he grew up in this country.  He and his
family were repatriated to the United States
in 1945.  They stayed in Long
Beach, California until the
latter part of 1946 or the early part of 1947, when he was re-assigned
overseas, particularly to the Pacific area with home base in Guam.  His next arrival in the Philippines
was in 1958 and he stayed in this country from that time up to the
present.  He is presently residing at No.
25 Elicaño Street, East Bajac-bajac, Olongapo
City, and his house and lot are
declared in his name for tax purposes.”

3.       FRANK W. ROBERTSON
“was born in the Philippines and he lived in this country up to 1945, when he
was repatriated to the United States along with his brother, his co-accused
James W. Robertson.  He stayed in the United
States for about one year, during which time
he resided in Magnolia Avenue, Long
Beach, California. 
Sometime in 1946 or early 1947, he was assigned to work in the Pacific Area,
particularly Hawaii.  At
that time he had been visiting the Philippines off and on in connection with his work.  In 1962, he returned once more to the Philippines and he has been residing here ever
since.  He is married to a Filipino
citizen named Generosa Juico
and they live at No. 3 National Road, Lower Kalaklan, Olongapo City.  The
residential lot on which they are presently residing is declared in his wife’s
name for tax purposes, while the house constructed thereon was originally
declared in his name and the same was transferred in his wife’s name only in
February, 1971.”

4.       ROBERT H. CATHEY was
born in Tennessee, United
States, on April 8, 1917; his first arrival in the Philippines,
as a member of the liberation forces of the United
States, was in 1944.  He stayed in the Philippines
until April, 1950, when he returned to the United
States, and he came back to the Philippines
in 1951.  He stayed in the Philippines
since 1951 up to the present.”

5.       FELICITAS DE GUZMAN
“was born in the Philippines
in 1935 and her father was a naturalized American citizen.  While she was studying at
the University of Sto. Tomas, Manila,
she was recruited to work in the United States Naval Base, Subic Bay, Philippines. 
Afterwards, she left the Philippines to work in the United States Naval Base, Honolulu, Hawaii, and she returned to the Philippines on or about April 21, 1967.  The
said accused has not left the Philippines since then. 
She is married to Jose de Guzman, a Filipino citizen, and they and their
children live at No. 96 Fendler Street, East Tapinac, Olongapo City.  Her
husband is employed in the United States Naval Base, Olongapo City, and he also works as an insurance manager of
the Traveller’s Life.”

6.       EDWARD McGURK “came to the Philippines
on July 11, 1967 and he stayed
in this country continuously up to the present time.”

ALL THE PETITIONERS “are United States citizens, entered this
country under Section 9 (a) of the Philippine Immigration Act of 1940, as
amended, and presently employed in the United States Naval Base, Olongapo City.  For
the year 1969 John L. Garrison earned $15,288.00; Frank Robertson, $12,045.84;
Robert H. Cathey, $9,855.20; James W. Robertson,
$14,985.54; Felicitas de Guzman, $8,502.40; and
Edward McGurk, $12,407.99 * *.

ALL SAID PETITIONERS
“received separate notices from Ladislao Firmacion, District Revenue Officer, stationed at Olongapo City, informing them that they had not filed their
respective income tax returns for the year 1969, as required by Section 45 of
the National Internal Revenue Code, and directing them to file the said returns
within ten days from receipt of the notice. 
But the accused refused to file their income tax returns, claiming that
they are not resident aliens but only special temporary visitors, having
entered this country under Section 9 (a) of the Philippine Immigration Act of
1940, as amended.  The accused also
claimed exemption from filing the return in the Philippines by virtue of the provisions of Article XII,
paragraph 2 of the US-RP Military Bases Agreement.”

The petitioners contend
that given these facts, they may not under the law be deemed resident aliens
required to file income tax returns. 
Hence, they argue, it was error for the Court of Appeals –

1) to consider their “physical or bodily presence” in the country
as “sufficient by itself to qualify ** (them) as resident aliens despite the
fact that they were not ‘residents’ of the Philippines immediately before their
employment by the U.S. Government at Subic Naval Base
and their presence here during the period concerned was dictated by their
respective work as employees of the United States Naval Base in the
Philippines,” and

2) to refuse to recognize their
“tax-exempt status ** under the pertinent provisions of the RP-US Military
Bases Agreement.”

The provision alleged to
have been violated by the petitioners, Section 45 of the National Internal
Revenue Code, as amended, reads as follows:

“SEC. 45. 
– Individual returns.  (a) Requirements.  – (1) The following individuals are required
to file an income tax return, if they have a gross income of at least One
Thousand Eight Hundred Pesos for the taxable year; * * *

(b) If alien residing in the Philippines,
regardless of whether the gross income was derived from sources within or
outside the Philippines.”

The sanction for breach
thereof is prescribed by Section 73 of the same code, to wit:

“SEC. 73. 
Penalty for failure to file return or to pay tax.  – Anyone liable to pay the tax, to make a
return or to supply information required under this code, who refuses or
neglects to pay such tax, to make such return or to supply such information at the time or times herein specified each year, shall be punished by a
fine of not more than Two
Thousand Pesos or by imprisonment for not more than six months, or both * * *.”

The provision under which
the petitioners claim exemption, on the other hand, is contained in the
Military Bases Agreement between the Philippines
and the United States,^[4]
reading as follows:

“2. No national of the United States serving in or employed in the
Philippines in connection with construction, maintenance, operation or defense
of the bases and reside in the Philippines by reason only of such employment,
or his spouse and minor children and dependents, parents or her spouse, shall
be liable to pay income tax in the Philippines except in regard to income
derived from Philippine sources or sources other than the US sources.”

The petitioners claim that they are covered by this exempting
provision of the Bases Agreement since, as is admitted on all sides, they are
all U.S. nationals, all employed in the American Naval Base at Subic Bay (involved in some way or other in “construction, maintenance, operation or defense” thereof),
and receive salary therefrom exclusively and from no
other source in the Philippines; and it is their intention, as is shown by the unrebutted evidence, to return to the United States on
termination of their employment.

That claim had been rejected by the Court of Appeals with the terse statement that
the Bases Agreement “speaks of exemption from the payment of income tax,
not from the filing of the income tax
returns * *.”^[5]

To be sure, the Bases Agreement very plainly identifies the
persons NOT “liable to pay income tax in the Philippines
except in regard to income derived from Philippine sources or sources other
than the US
sources.” They are the persons in whom concur the
following requisites, to wit:

1) nationals of the United
States serving in or employed in the Philippines;

2) their service or employment is “in
connection with construction, maintenance, operation or defense of the bases;”

3) they reside in the Philippines
by reason only of such employment; and

4) their income is derived exclusively
from “U.S.
sources.”

Now, there is no question (1) that the petitioners are U.S.
nationals serving or employed in the Philippines; (2) that their employment is
“in connection with construction, maintenance, operation or defense” of a base,
Subic Bay Naval Base; (3) they reside in the Philippines
by reason only of such employment since, as is undisputed, they all intend to
depart from the country on termination of their employment; and (4) they earn
no income from Philippine sources or sources other than the U.S. sources. 
Therefore, by the explicit terms of the Bases Agreement, none of them “shall be liable to pay income tax in the Philippines ** .” Indeed, the
petitioners’ claim for exemption pursuant to this Agreement had been sustained by the Court of Tax Appeals
which set aside and cancelled the assessments made against said petitioners by
the BIR for deficiency income taxes for the taxable years 1969-1972.^[6] The decision of the Court of Tax Appeals to
this effect was contested in this Court by the Commissioner of Internal
Revenue,^[7] but the same was nonetheless affirmed on August
12, 1986.^[8]

But even if exempt from paying
income tax, said
petitioners were, it is contended by the respondents, not excused from filing income tax returns.  For
the Internal Revenue Code (Sec. 45, supra) requires the filing of an income tax
return also by any “alien residing in the Philippines, regardless of whether
the gross income was derived from sources within or outside the Philippines;”
and since the petitioners, although aliens residing within the Philippines, had
failed to do so, they had been properly prosecuted and convicted for having
thus violated the Code.

“What the law requires,” states the challenged judgment of the
Court of Appeals, “is merely physical or bodily presence in a given place for a
period of time, not the intention to make it a permanent place of abode.  It is on this proposition, taken in the light
of the established facts on record to the effect that almost all of the
appellants were born here, repatriated to the US and to come back, in the
latest in 1967, and to stay in the Philippines up to the present time, that
makes appellants resident aliens not merely transients or sojourners which
residence for quite a long period of time, coupled with the amount and source
of income within the Philippines, renders immaterial, for purposes of filing
the income tax returns as contra-distinguished from the payment of income tax,
their intention to go back to the United States.”

Each of the petitioners does indeed fall within the letter of the
codal precept that an “alien residing in the Philippines”
is obliged “to file an income tax return.” None of them may be considered a non-resident alien, “a mere transient or sojourner,” who
is not under any legal duty to file an income tax return under the Philippine
Tax Code.  This is made clear by Revenue
Regulations No. 2 of the Department of Finance of February 10, 1940,^[9]
which lays down the relevant standards on the matter:

“An alien actually present in the Philippines
who is not a mere transient or sojourner is a resident of the Philippines
for purposes of income tax.  Whether he
is a transient or not is determined by his intentions with regards to the
length and nature of his stay.  A mere
floating intention indefinite as to time, to return to another country is not
sufficient to constitute him as
transient.  If he lives in the Philippines and has no definite intention as to his stay,
he is a resident.  One who comes to the Philippines for a definite purpose which in its nature
may be promptly accomplished is a transient. 
But if his purpose is of such a nature that an extended stay may be
necessary to its accomplishment, and to that end the alien makes his home
temporarily in the Philippines, he becomes a resident, though it may be his
intention at all times to return to his domicile abroad when the purpose for
which he came has been consummated or abandoned.”

The petitioners concede
that the foregoing standards have been “a good yardstick,” and are in fact not
at substantial variance from American jurisprudence.^[10] They acknowledge, too, that “their exemption
under the Bases Agreement relates simply to non-liability for the payment of
income tax, not to the filing of ** (a return).” But, they argue^[11] –

“ *
* after having expressly recognized that petitioners need not pay income
tax here, there appears to be no logic in requiring them to file income tax
returns which anyhow would serve no practical purpose since their liability on
the amounts stated thereon can hardly be exacted.  The more practical view, taking into account policy considerations that
prompted the Government of the Republic of the Philippines to exempt the petitioners, as well as other
American citizens similarly situated, from the payment of income tax here, is
to recognize the lesser act of filing within the exemption granted.  This is simply being consistent with the
reason behind the grant of tax-exempt status to petitioners.”

Pointing
out further to what they consider “the administrative implementation of that
(tax-exemption) provision (of the Bases Agreement) by both governments for
about 22 years (which did not require the filing of income tax returns by
American citizen-employees holding 9-A special visas like petitioners), and to
“the higher plane of political realities which prompted the Philippine
Government to partially surrender its inherent right to tax,” petitioners
submit that “the particular problem involved in these cases is a matter that
has to find solution and ought to be dealt with in conference tables rather
than before the court of law.”^[12]

Quite apart from the
evidently distinct and different character of the requirement to pay
income tax in contrast to the requirement
to file a tax return, it appears
that the exemption granted to the petitioners by the Bases Agreement from
payment of income tax is not absolute. 
By the explicit terms of the Bases Agreement, it exists only as regards
income derived from their employment “in the Philippines in connection with construction,
maintenance, operation or defense of the bases;” it does not exist in respect
of other income, i.e., “income derived from Philippine sources or sources other
than the US sources.” Obviously, with respect to the latter form of income,
i.e., that obtained or proceeding from “Philippine sources or sources other
than the US
sources,” the petitioners, and all other American nationals who are residents
of the Philippines,
are legally bound to pay tax thereon.  In
other words, so that American nationals residing in the country may be relieved
of the duty to pay income tax for any given year, it is incumbent on them to
show the Bureau of Internal Revenue that in that year they had derived income
exclusively from their employment in connection with the U.S. bases, and none
whatever “from Philippine sources or sources other than the US sources.” They
have to make this known to the Government authorities.  It is not in the first instance the latter’s
duty or burden to make unaided verification of the sources of income of
American residents.  The duty rests on
the U.S.
nationals concerned to invoke and prima facie establish their tax-exempt
status.  It cannot simply be presumed
that they earned no income from any other sources than their employment in the
American bases and are therefore totally
exempt from income tax.  The
situation is no different from that of Filipino and other resident
income-earners in the Philippines
who, by reason of the personal exemptions and permissible deductions under the
Tax Code, may not be liable to
pay income tax year for any particular year; that they are not liable to pay
income tax, no matter how plain or irrefutable such a proposition might be,
does not exempt them from the duty to file an income tax return.

These considerations impel affirmance
of the judgments of the Court of Appeals and the Trial Court.

WHEREFORE, the petition for review on certiorari is
DENIED, and the challenged decision of the Court of Appeals is AFFIRMED.  Costs against petitioners.

SO ORDERED.

Cruz, Gancayco, Griño-Aquino,
and Medialdea,
JJ., concur.

^[1]
Rendered on May 17, 1976, the ponente being
Lim, J., with whom concurred Gatmaitan
and Domondon, JJ.

^[2]
Rendered on May 28, 1983 by Judge Augusto M.
Amores (Branch I)

^[3]
In turn adopted from the Trial Court, Rollo,
pp. 10-12; 27-29

^[4]
ART. XII, L.-par. 2, part 2, see Rollo, p. 32

^[5]
Rollo, pp. 31-32

^[6]
Decision dated Dec. 14,
1984, written for the
Court by Associate Judge Alex Z. Reyes

^[7]
G.R. Nos. 70116-19

^[8]
143 SCRA 397; the decision having been written for the Second Division of the
Court by Paras, J., with whom concurred Feria, Fernan, Alampay, and Gutierrez, Jr., JJ.

^[9]
SEC. 5

^[10]
Petitioners’ brief (Rollo,
p. 90), pp. 10, 11

^[11]
Id., p. 11

^[12]
Id., pp. 14-15