CIR vs Lednicky

Principle/s:

- Alien resident’s deduction of Income Taxation from Gross Income paid in their home country

- Double Taxation

Commissioner of Internal Revenue vs W.E. Lednicky and Maria Lednicky

GR Nos. L-18262 and L-21434, 1964

FACTS:

Spouses are both American citizens residing in the Philippines and have derived all their income from Philippine sources for taxable years in question.

On March, 1957, filed their ITR for 1956, reporting gross income of P1,017,287.65 and a net income of P 733,809.44. On March 1959, file an amended claimed deduction of P 205,939.24 paid in 1956 to the United States government as federal income tax of 1956.

ISSUE:

Whether a citizen of the United States residing in the Philippines, who derives wholly from sources within the Philippines, may deduct his gross income from the income taxes he has paid to the United States government for the said taxable year?

HELD:

An alien resident who derives income wholly from sources within the Philippines may not deduct from gross income the income taxes he paid to his home country for the taxable year. The right to deduct foreign income taxes paid given only where alternative right to tax credit exists.

Section 30 of the NIRC, Gross Income “Par. C (3): Credits against tax per taxes of foreign countries.

If the taxpayer signifies in his return his desire to have the benefits of this paragraph, the tax imposed by this shall be credited with: Paragraph (B), Alien resident of the Philippines; and, Paragraph C (4), Limitation on credit.”

An alien resident not entitled to tax credit for foreign income taxes paid when his income is derived wholly from sources within the Philippines.

Double taxation becomes obnoxious only where the taxpayer is taxed twice for the benefit of the same governmental entity. In the present case, although the taxpayer would have to pay two taxes on the same income but the Philippine government only receives the proceeds of one tax, there is no obnoxious double taxation.