COMMISSIONER OF INTERNAL REVENUE vs. THE ESTATE OF BENIGNO P. TODA, JR.

G.R. No. 147188. September 14, 2004

Case No. 1
FACTS: Benigno P. Toda is the President and owner of 99.991% of its issued and
outstanding capital stock of Cibeles Insurance Corporation. Sometime in 1989,
CIC authorized Toda to sell the Cibeles building and the two lots on which the
building stands for an amount not less than P90 million.
Toda sold the property to Rafael Altonaga for P100 million, who on the same day,
sold the same property to Royal Match Inc. for P200 million pesos.
Altonaga paid capital gains tax for the sale of the property to RMI in the amount
of P10 million.
In April 1990, CIC filed its annual income tax return for the year 1989. It
paid P26,341,20 for its net taxable income of P75,987,725. Later that year, Toda
sold his entire shares of stock to a third person. And three and half years later,
he died.
In 1994, The BIR sent an assessment notice and demand letter to the CIC for
deficiency income tax for the year 1989 in the amount of P79,099,999.22.
The new CIC asked for reconsideration and asserted that the claim should be
directed against the estate of Toda because CIC is now owned by a new set of
stockholders and are not privy to the sale transactions in question. The BIR then
sent a Notice of Assessment to the administrators of Todas estate. In answer,
the Estate filed a protest. The CIR dismissed the protest stating that a fraudulent
scheme was adopted by CIC and Toda which changed the income structure of the
proceeds of the sale to an individual capital gains, thus evading the higher
corporate income tax of 35%.
The Estate filed a petition for review with the CTA alleging that the CIR erred in
holding the Estate liable for the claims of fraud were not reasonable unsupported
and
that
the
CIRs
right
to
collect
had
already
prescribed.
In his Answer, the CIR argued that the two sale transactions were
simulated and that Altonaga was used as a mere conduit in order to evade the
payment of the higher corporate income tax of 35%. And since the tax return
was filed with intent to evade payment, it was thus fraudulent. Furthermore, the
CIR claimed that the 1994 assessment was still well within the prescriptive
period as the fraud was discovered only in 1991, and as the law provides, a tax
may be assessed within ten years from the discovery of the falsity or fraud.
The CTA ruled in favour of the Estate and held that the CIR failed to prove that
CIC committed prove. And even assuming that there was a pre-conceived
scheme adopted to evade payment of taxes, the same is mere tax avoidance,

and not tax evasion. It further ruled that the right of the government to assess
had already prescribed since the law provides that assessment shall be made
within 3 years after the last day prescribed by law for the filing of a return.
The CIR filed a motion for reconsideration which was denied by the CTA. And
thereafter a petition for review with the Court of Appeals, which affirmed the
decision of the CTA. Hence, the present petition.

ISSUE:
1. Whether or not this case is a case of mere tax avoidance or tax evasion.
2. Whether or not the right of the government to assess had already
prescribed.
Petitioners Argument: This case involves a case of tax evasion. It is but clear
that the participation of Altonaga in the two sale transactions was a mere sham.
He acted as a mere conduit in order to that the transfer of the property to RMI
would only constitute 5% individual capital gains tax, and not the 35% corporate
income tax.
As to the second issue, petitioner alleges that the right to assess has not yet
prescribed as in this case, since the return filed was false and fraudulent, the
applicable period of assessment as provided by law is ten years from the
discovery
of
fraud.
Respondents Argument: The inference made that there was fraud in the two
sale transactions as unreasonable and not supported by evidence such as the
showing by the petitioner that Altonaga had no financial capacity to buy the
Cibeles property. They further allege that although there was indeed a change of
structure in the proceeds of the sale and payment of a lower tax, the same falls
under the scheme of tax planning which is allowed by the Tax Code.
As to the second issue, the respondent contends that the power to assess had
already prescribed since the period provided by law for the assessment of tax is
three years after the last day of filing prescribed by law. Since the transactions
occurred in the year 1989 and the return was filed on the same year, the power
to assess had already prescribed in 1993.

RULING: The Supreme Court ruled that there is tax evasion in this case. The
Court laid down the three factors in determining the presence of tax evasion: (1)
the end to be achieved, that is, the payment of less than that known by the
taxpayer to be legally due, or the non-payment of tax when it is shown that a tax
is due; (2) an accompanying state of mind which is described as being evil, in
bad faith, willfull,or deliberate and not accidental; and (3) a course of
action or failure of action which is unlawful.

These factors are present in the instant case. The scheme resorted to by the
respondent in making it appear that there were two transactions to reduce the
tax to be paid by them cannot be considered a legitimate tax planning as it is
tainted with fraud. It is obvious here that the purpose of Altonage in acquiring
and selling the property in the same day was to create a tax shelter. He has
never controlled the property nor enjoyed the benefits and burdens of ownership.
The execution of the two sales was calculated to mislead the BIR with the end in
view of reducing the consequent income tax liability.

Anent the second issue, the Court ruled that prescription has not yet set in citing
as basis Section 269 of the NIRC which provides the exceptions as to period of
limitation of assessment and collection of taxes. Under he said Section, in case of
a false or fraudulent return with intent to evade tax, the tax may be assessed at
any time within ten years after the discovery of the falsity, fraud, or omission.

Republic vs. Marcos III

G.R. No. 130371 & 130855
August 4, 2009
FACTS: On January 1996, The RTC of Pasig, acting as probate court, issued an
Order granting letters testamentary in solidum to Ferdinand R. Marcos II and
Imelda Marcos as executors of the Last Will and Testament of the late Ferdinand
E. Marcos.
The executors were required by the court to file a bond. And a Notice was
ordered to be given to the known heirs and creditors of the decedent, or any
person who has an interest in the estate to lay their claim or forever hold their
peace.
On the same month, but four days after the granting of letters testamentary,
petitioner Republic of the Philippines file a Motion for Partial Reconsideration in
so far as the RTC Order granting letters testamentary to the respondents. On the
other hand, respondent Imelda Marcos filed her own motion for reconsideration
on the ground that the will is lost and that petitioner has not proven its existence
and validity.
The RTC later issued an Order denying, for lack of merit, the motion for partial
reconsideration filed by the Republic and the motion for reconsideration filed by
respondent Imelda Marcos holding that a decedents testamentary privilege must
be accorded with utmost respect.
Thereafter, petitioner filed with the Supreme Court a Petition for Review on
Certiorari questioning the RTC Orders granting letters testamentary to the
respondents. The Court referred the action to the Court of Appeals, which
dismissed the petition for having taken the wrong mode of appeal. Hence, the
present petition. Petitioners assail the RTC decision claiming that respondents are
disqualified from being appointed as executor of the Will as they are both
convicted of a crime involving moral turpitude. In the case of Ferdinand R.
Marcos II is the violation of Section 45 of the NIRC.
ISSUE: Whether or not the failure to file a return constitutes moral turpitude as
would disqualify a person to be appointed as executor of the Will of a decedent.
PETITIONERS ARGUMENT:
Hence, in order to reverse the findings of the RTC, this Court must evaluate the evidence
presented or alleged by petitioner in support of its petition for disqualification. However, after a
painstaking review of the records and evidence on hand, this Court finds that the RTC committed
no error or gross abuse of discretion when it ruled that petitioner failed to substantiate its
allegation.

Petitioner conveniently omits to state that the two cases against respondent Imelda Marcos have
already been reversed by this Court. Her conviction in Criminal Case No. 17453 was reversed by
this Court in Dans, Jr. v. People.34 Likewise, her conviction in Criminal Case No. 17450 was
reversed by this Court in Marcos v. Sandiganbayan.35 Hence, the so-called "convictions" against
respondent Imelda Marcos cannot serve as a ground for her disqualification to serve as an
executor.
On the other hand, the eight cases filed against respondent Ferdinand Marcos II involve four
charges for violation of Section 45 (failure to file income tax returns) and four charges for
violation of Section 50 (non-payment of deficiency taxes) of the National Internal Revenue Code
of 1977 (NIRC).
It is a matter of record, that in CA-G.R. CR No. 18569, 36 the CA acquitted respondent Ferdinand
Marcos II of all the four charges for violation of Section 50 and sustained his conviction for all the
four charges for violation of Section 45. It, however, bears to stress, that the CA only ordered
respondent Marcos II to pay a fine for his failure to file his income tax return. Moreover, and as
admitted by petitioner,37 said decision is still pending appeal.
Therefore, since respondent Ferdinand Marcos II has appealed his conviction relating to four
violations of Section 45 of the NIRC, the same should not serve as a basis to disqualify him to be
appointed as an executor of the will of his father. More importantly, even assuming arguendo that
his conviction is later on affirmed, the same is still insufficient to disqualify him as the "failure to
file an income tax return" is not a crime involving moral turpitude.
In Villaber v. Commision on Elections,38 this Court held:
As to the meaning of "moral turpitude," we have consistently adopted the definition in Black's
Law Dictionary as "an act of baseness, vileness, or depravity in the private duties which a
man owes his fellow men, or to society in general, contrary to the accepted and
customary rule of right and duty between man and woman, or conduct contrary to justice,
honesty, modesty, or good morals."
In In re Vinzon, the term "moral turpitude" is considered as encompassing "everything which is
done contrary to justice, honesty, or good morals."
xxxx
We, however, clarified in Dela Torre vs. Commission on Elections that "not every criminal
act involves moral turpitude," and that ''as to what crime involves moral turpitude is for the
Supreme Court to determine."39
Moreover, In De Jesus-Paras v. Vailoces:40
Indeed, it is well-settled that "embezzlement, forgery, robbery, and swindling are crimes which
denote moral turpitude and, as a general rule, all crimes of which fraud is an element are
looked on as involving moral turpitude" (58 C.J.S., 1206).
The "failure to file an income tax return" is not a crime involving moral turpitude as the mere
omission is already a violation regardless of the fraudulent intent or willfulness of the individual.
This conclusion is supported by the provisions of the NIRC as well as previous Court decisions

which show that with regard to the filing of an income tax return, the NIRC considers three
distinct violations: (1) a false return, (2) a fraudulent return with intent to evade tax, and (3) failure
to file a return.
The same is illustrated in Section 51(b) of the NIRC which reads:
(b) Assessment and payment of deficiency tax xxx
In case a person fails to make and file a return or list at the time prescribed by law, or makes
willfully or otherwise, false or fraudulent return or list x x x. (Emphasis Supplied)
Likewise, in Aznar v. Court of Tax Appeals,41 this Court observed:
To our minds we can dispense with these controversial arguments on facts, although we do not
deny that the findings of facts by the Court of Tax Appeals, supported as they are by very
substantial evidence, carry great weight, by resorting to a proper interpretation of Section 332 of
the NIRC. We believe that the proper and reasonable interpretation of said provision should be
that in the three different cases of (1) false return, (2) fraudulent return with intent to evade
tax, (3) failure to file a return, the tax may be assessed, or a proceeding in court for the
collection of such tax may be begun without assessment, at any time within ten years after the
discovery of the (1) falsity, (2) fraud, and (3) omission. Our stand that the law should be
interpreted to mean a separation of the three different situations of false return, fraudulent
return with intent to evade tax, and failure to file a return is strengthened immeasurably by
the last portion of the provision which segregates the situations into three different
classes, namely, "falsity," "fraud" and "omission."42 (Emphasis Supplied)
Applying the foregoing considerations to the case at bar, the filing of a "fraudulent return with
intent to evade tax" is a crime involving moral turpitude as it entails willfulness and fraudulent
intent on the part of the individual. The same, however, cannot be said for "failure to file a return"
where the mere omission already constitutes a violation. Thus, this Court holds that even if the
conviction of respondent Marcos II is affirmed, the same not being a crime involving moral
turpitude cannot serve as a ground for his disqualification.