Conwi et al. v.

CTA and CIR

Facts: Petitioners are employees of Procter and Gamble (Philippine Manufacturing Corporation, subsidiary of Procter & Gamble, a foreign corporation).During the years 1 !" and 1 !1, petitioners #ere assigned to other subsidiaries of Procter & Gamble outside the Philippines, for #hich petitioners #ere paid $% dollars as compensation. Petitioners filed their &'(s for 1 !" and 1 !1, computing ta) due byapplying the dollar*to*peso con+ersion based on the floating rate under ,&( (uling -o. !"*".!. &n 1 !/, petitioners filed amened &'(s for 1 !" and 1 !1, this time using the par +alue of the peso as basis. 'his resulted in the alleged o+erpayments, refund and0or ta) credit, for #hich claims for refund #ere filed. C'1 held that the proper con+ersion rate for the purpose of reporting and paying the Philippine income ta) on the dollar earnings of petitioners are the rates prescribed under (e+enue MemorandumCirculars -os. !*!1 and 21* !1. 'he refund claims #ere denied. Issues: (1) 3hether or not petitioners4 dollar earnings are receipts deri+ed from foreign e)change transactions5 -6. (.) 3hether or not the proper rate of con+ersion of petitioners4 dollar earnings for ta) purposes in the pre+ailing free mar7et rate of e)change and not the par +alue of the peso5 89%.

Held: :or the proper resolution of income ta) cases, income may be defined as an amount of money coming to a person or corporation #ithin a specified time, #hether as payment for ser+ices, interest or profit from in+estment. $nless other#ise specified, it means cash or its e;ui+alent. &ncome can also be though of as flo# of the fruits of one4s labor. Petitioners are correct as to their claim that their dollar earnings are not receipts deri+ed from foreign e)change transactions. :or a foreign e)change transaction is simply that < a transaction in foreign e)change, foreign e)change being =the con+ersion of an amount of money or currency of one country into an e;ui+alent amount of money or currency of another.= 3hen petitioners #ere assigned to the foreign subsidiaries of Procter & Gamble, they #ere earning in their assigned nation4s currency and #ere 1>%6 spending in said currency. 'here #as no con+ersion, therefore, from one currency to another. 'he dollar earnings of petitioners are the fruits of their labors in the foreign subsidiaries of Procter & Gamble. &t #as a definite amount of money #hich came to them #ithin a specified period of time of t#oyears as payment for their ser+ices. 1nd in the implementation for the proper enforcement of the -ational &nternal (e+enue Code, %ection //? thereof empo#ers the %ecretary of :inance to =promulgate all needful rules and regulations= to effecti+ely enforce its

pro+isions pursuant to this authority, (e+enue Memorandum Circular -os. !*!1 and 21*!1 #ere issued to prescribed a uniform rate of e)change from $% dollars to Philippine pesos for &-'9(-1> (9@9-$9 '1A P$(P6%9% for the years 1 !" and 1 !1, respecti+ely. %aid re+enue circulars #ere a +alid e)ercise of the authority gi+en to the %ecretary of :inance by the >egislature #hich enacted the &nternal (e+enue Code. 1nd these are presumed to be a +alid interpretation of said code until re+o7ed by the %ecretary of :inance himself. Petitioners are citiBens of the Philippines, and their income, #ithin or #ithout, and in these cases #holly #ithout, are subCect to income ta). %ec. .1, -&(C, as amended, does not broo7 any e)emption.
Limpan Investment Corp. v. CIR
Limpan Investment Company deemed to have constructively received rental payments in 1957 when they were deposited in court due to its refusal to receive them.

FACTS:
BIR assessed deficiency taxes on Limpan Corp, a company that leases real property, for underdeclaring its rental income for years 1956-57 by around P20K and P81K respectively. Petitioner appeals on the ground that portions of these underdeclared rents are yet to be collected by the previous owners and turned over or received by the corporation. Petitioner cited that some rents were deposited with the court, such that the corporation does not have actual nor constructive control over them. The sole witness for the petitioner, Solis (Corporate Secretary- Treasurer) admitted to some undeclared rents in 1956 and1957, and that some balances were not collected by the corporation in 1956 because the lessees refused to recognize and pay rent to the new owners and that the corps president Isabelo Lim collected some rent and reported it in his personal income statement, but did

not turn over the rent to the corporation. He also cites lack of actual or constructive control over rents deposited with the court.

ISSUE:
Whether or not the BIR was correct in assessing deficiency taxes against Limpan Corp. for undeclared rental income

HELD:
Yes. Petitioner admitted that it indeed had undeclared income (although only a part and not the full amount assessed by BIR). Thus, it has become incumbent upon them to prove their excuses by clear and convincing evidence, which it has failed to do. When is there constructive receipt of rent? With regard to 1957 rents deposited with the court, and withdrawn only in 1958, the court viewed the corporation as having constructively received said rents. The non-collection was the petitioners fault since it refused to refused to accept the rent, and not due to nonpayment of lessees. Hence, although the corporation did not actually receive the rent, it is deemed to have constructively received them.