Bañas, Jr. vs.

CA
G.R. No. 102967, Feb. 10, 2000

FACTS: In February 20, 1976, petitioner Bibiano V. Bañas Jr. sold to Ayala
InvestmentCorporation 128,265 square meters of land in Muntinlupa for P2,308,770.00.
AYALA issued onepromissory note covering four equal annual installments. On
the same day, petitionerdiscounted the promissory note with AYALA. AYALA then
issued 9 checks to petitioner, all datedFebruary 20, 1976 with uniform amount of P205,
224.00.
In his 1976 Income Tax Return, petitioner reported the P461, 754 initial payment
asincome from disposition of capital asset. In the succeeding years, until 1979, petitioner
reporteda uniform income of P230,877.00 as gain from sale of capital asset. After an
examination by thetax examiners, Rodolfo Tuazon and Procopio Talon, on April 11, 1978,
they recommended adeficiency of tax assessment for P2,473,673.00

ISSUE: Whether or not the promissory note should be declared cash transaction for
purposes of taxation.

RULING: YES. A negotiable instrument is deemed a substitute for money and for value.
According to Sec. 25 of NIL: “value is any consideration sufficient to support a simple
contract. An antecedent or pre-existing debt constitutes value; and is deemed such
whether the instrument is payable on demand or at a future time”. Although the proceed
of a discounted promissory note is not considered part of the initial payment, it is still
taxable income for the year it was converted into cash.