CONWI vs CTA 213 SCRA 83 were earning in their assigned nation's currency and were ALSO

spending in said currency. There was no conversion, therefore,

Facts: from one currency to another.
Petitioners are employees of Procter and Gamble (Philippine The dollar earnings of petitioners are the fruits of their labors in
Manufacturing Corporation, subsidiary of Procter & Gamble, a the foreign subsidiaries of Procter & Gamble. It was a definite
foreign corporation).During the years 1970 and 1971, petitioners amount of money which came to them within a specified period
were assigned to other subsidiaries of Procter & Gamble outside of time of two years as payment for their services.
the Philippines, for which petitioners were paid US dollars as
compensation.
Petitioners filed their ITRs for 1970 and 1971, computing tax due
by applying the dollar-to-peso conversion based on the floating
rate under BIR Ruling No. 70-027. In 1973, petitioners filed
amened ITRs for 1970 and 1971, this time using the par value of
the peso as basis. This resulted in the alleged overpayments,
refund and/or tax credit, for which claims for refund were filed.
CTA held that the proper conversion rate for the purpose of
reporting and paying the Philippine income tax on the dollar
earnings of petitioners are the rates prescribed under Revenue
Memorandum Circulars Nos. 7-71 and 41-71. The refund claims
were denied.

Issue:
Whether or not petitioners' dollar earnings are receipts derived
from foreign exchange transactions

Ruling:
No. For the proper resolution of income tax cases, income may
be defined as an amount of money coming to a person or
corporation within a specified time, whether as payment for
services, interest or profit from investment. Unless otherwise
specified, it means cash or its equivalent. Income can also be
thought of as flow of the fruits of one's labor.
Petitioners are correct as to their claim that their dollar earnings
are not receipts derived from foreign exchange transactions. For
a foreign exchange transaction is simply that — a transaction in
foreign exchange, foreign exchange being "the conversion of an
amount of money or currency of one country into an equivalent
amount of money or currency of another." When petitioners were
assigned to the foreign subsidiaries of Procter & Gamble, they
VICENTE MADRIGAL v. JAMES J. RAFFERTY, GR No. 12287,
1918-08-07
Facts:
Vicente Madrigal and Susana Paterno were legally married...
contracted under the provisions of law concerning conjugal
partnerships Vicente Madrigal filed a sworn declaration on... the
prescribed form with the Collector of Internal Revenue, showing,
as his total net income for the year 1914, the sum of
P296,302.73... did not represent his income for the year 1914,
but was in fact the income... of the conjugal partnership existing
between himself and his wife Susana Paterno... the income
declared by Vicente Madrigal should be divided into two equal
parts,... one-half to be considered the income of Vicente Madrigal
and the other half the income of Susana Paterno
After payment under protest, and after the protest of Madrigal had
been decided adversely by the Collector of Internal Revenue,
action was begun by Vicente Madrigal and his wife Susana
Paterno in the Court of First Instance of the city of Manila against
the Collector of
Internal Revenue... for the recovery of the sum of P3,786.08,
alleged to have been wrongfully and illegally assessed and
collected
The income of Vicente Madrigal and his wife Susana Paterno for
the year 1914 was made up of... three items: (1) P362,407.67,
the profits made by Vicente Madrigal in his coal and shipping
business; (2) P4,086.50, the profits made by Susana Paterno in
her embroidery business; (3) P16,687.80, the profits made by
Vicente Madrigal in a pawnshop company.
The sum of these three... items is P383,181.97, the gross income
of Vicente Madrigal and Susana Paterno for the year 1914.
Issues:
with the additional income tax, is that it should be divided into two
equal parts, because of the conjugal partnership existing
between them.
Ruling:
IMPERIALIST SWINE
The Income Tax Law of... the United States, extended to the
Philippine Islands... the result of an effect on the part of legislators
to put into statutory form this canon of taxation and of social
reform... to mitigate the evils arising from inequalities of wealth by
a progressive scheme... of taxation,... Susana Paterno, wife of
Vicente Madrigal, has an inchoate right in the property of her
husband Vicente Madrigal during the life of the conjugal
partnership. She has an interest in the ultimate property rights
and in the ultimate ownership of property acquired as income
after... such income has become capital. Susana Paterno has no
absolute right to one-half the income of the conjugal partnership.
Not being seized of a separate estate, Susana Paterno cannot
make a separate return in order to receive the benefit of the
exemption which would arise by... reason of the additional tax.
As she has no estate and income, actually and legally vested in
her and entirely distinct from her husband's property, the income
cannot properly be considered the separate income of the wife
for the purposes of the additional tax.
The Income Tax Law does not look on the spouses as individual
partners in an ordinary partnership.
Principles:
Income as contrasted with capital or property is to be the test.
The essential difference between capital and income is that
capital is a fund; income is a flow. A fund of property existing at
an instant of time is called capital. A flow of services rendered by
that capital... by the payment of money from it or any other benefit
rendered by a fund of capital in relation to such fund through a
period of time is called income. Capital is wealth, while income is
the service of wealth.
"The fact is that property is a tree, income is the fruit; labor is a
tree, income the fruit; capital is a tree, income the fruit."
A tax on... income is not a tax on property. "Income," as here
used, can be defined as "profits or gains."
FREDERICK C. FISHER v. WENCESLAO TRINIDAD, GR No.
17518, 1922-10-30
Facts:
Philippine American Drug Company was a corporation- duly
organized and existing under the laws of the Philippine Islands,
doing business in the city of Manila... ppellant was a stoekohlder
in said corporation; that said corporation, as a... result of the
business for that year, declared a "stock dividend;... proportionate
share of said stock dividend of the appellant was P24,800... the
appellant,... upon demand of the appellee, paid, under protest,
and involuntarily, unto the appellee the sum of P889.91 as
income tax on said stock dividend.
recovery of that sum (P889.91) the present action was
instituted... appellant cites and relies on some decisions of the
Supreme Court of the United States
In each of said cases an effort was made to collect an "income
tax" upon "stock dividends" and in each case it was held that
"stock dividends" were capital and not an "income" and therefore
not subject to the "income tax" Jaw.
The appellee admits the doctrine established in the case of Eisner
vs. Macomber (252 U. S., 189), that a "stock dividend" is not
"income" but argues that said Act No. 2833, in imposing the tax
on the stock dividend, does not violate the provisions of the Jones
Law.
further argues that the statute of the United States providing for
tax upon stock dividends is different from the statute of the
Philippine Islands, and therefore the decision of the Supreme
Court of the United States should not be followed in interpreting
the statute... in force here.
It will be rioted from a reading of the provisions of the two laws
above quoted that the writer of the law of the Philippine Islands
must have had before him the statute of the United States. No
important argument can be based upon the slight difference in
the wording of the two... sections.
There is no question that the Philippine
Legislature may provide for the payment of an income tax, but it
cannot, under the guise of an income tax, collect a tax on property
which is not an "income." The Philippine Legislature cannot
impose a tax upon "property" under a law which provides for a tax
upon "income" only.
The Philippine Legislature has no power to provide a tax upon
"automobiles" only, and under that law collect a tax upon a
carreton or bull cart.
A statute providing for an income tax cannot be construed to
cover property which is not, in fact, income. The Legislature
cannot, by a... statutory declaration, change the real nature of a
tax which it imposes. A law which imposes an importation tax on
rice only cannot be construed to impose an importation tax on
corn.
Issues:
Are the "stock dividends" in the present case "income" and
taxable as such under the provisions of section 25 of Act No.
2833 ?
Ruling:
stock dividends represent undistributed increase in the capital of
corporations or firms, joint stock companies, etc., etc., for a
particular period.
used to show the... increased interest or proportional share in the
capital of each stockholder.
the inventory of the property of the corporation, etc., for a
particular period shows an increase in its capital, so that the stock
theretofore issued does not show the real value of the...
stockholder's interest, and additional stock is issued showing the
increase in the actual capital, or property, or assets of the
corporation, etc.
The New Standard Dictionary, edition of 1915, defines an income
as "the amount of... money coming to a person or corporation
within a specified time whether as payment for services, interest,
or profit from investment."
Webster's International Dictionary defines an income as "the
receipts, salary; especially, the annual receipts of a private
person or a... corporation from property."
Bouvier, in his law dictionary, says that an "income" in the federal
constitution and income tax act, is used in its common or ordinary
meaning and not in its technical or economic sense.
Mr. Black, in his law... dictionary, says: "An income is the return
in money from one's business, labor, or capital invested ; gains,
profit, or private revenue." "An income tax is a tax on the yearly
profits arising from property, professions, trades, and offices."
Gray vs. Darlington (82 U. S., 63), said in speaking of income that
mere advance in value in no sense constitutes the "income"
Such advance constitutes and can be treated merely as an
increase of capital.
Mr. Justice Hughes
"income" in an income... tax law, unless it is otherwise specified,
to mean cash or its equivalent. It does not mean choses in action
or unrealized increments in the value of the property
Towne vs. Eisner, supra, Mr, Justice Holmes
'A... stock dividend really takes nothing from the property of the
corporation, and adds nothing to the interests of the
shareholders. Its property is not diminished and their interests are
not increased. * * * The proportional interest of each shareholder
remains the same. * * *' In... short, the corporation is no poorer
and the stockholder is no richer than they were before.
Mr. Justice Pitney
Eisner vs. Macomber
"An income may be defined as the gain derived from capital, from
labor, or from both combined, provided it be understood to include
profit gained through a sale... or conversion of capital assets.
when stock dividends are declared, the corporation or company
acknowledges a liability, in form, to the stockholders
If profits have been made by the... corporation... they create
additional bookkeeping liabilities under the head of "profit and
loss,"
None of these, however, gives to the stockholders as a body,
much less to any... one of them, either a claim against the going
concern or corporation, for any particular sum of money, or a right
to any particular portion of the asset, or any share unless or until
the directors conclude that dividends shall be made and a part of
the company's assets... segregated from the common fund for
that purpose.
The dividend normally is payable in money and when so paid,
then only does the stockholder realize a profit or gain, which
becomes his separate property, and thus derive an income from
the capital that he has invested. Until that... is done the increased
assets belong to the corporation and not to the individual
stockholders.
When a corporation or company issues "stock dividends" it shows
that the company's accumulated profits have been capitalized,
instead of distributed to the stockholders or retained as surplus
available for distribution, in money or in kind, should opportunity
offer.
it tends rather to postpone said realization, in that the fund
represented by the new stock has been transferred from surplus
to assets, and no longer is available for actual distribution.
The essential and controlling fact is... that the stockholder has
received nothing out of the company's assets for his separate use
and benefit
The stockholder who receives a stock dividend has received
nothing but a representation of his increased interest in the capital
of the corporation.
There has been no separation or segregation of his interest.
All the property or capital of the corporation still belongs to... the
corporation.
no separation of the interest of the stockholder from the general
capital of the corporation
The stockholder, by virtue of the stock dividend, has no separate
or individual control over the interest represented thereby, further
than he had before... the stock dividend was issued
He cannot use it for the reason that it is still the property of the
corporation
A certificate of stock represented by the stock dividend is simply
a statement of his proportional... interest or participation in the
capital of the corporation.
We believe that the Legislature, when it provided for an "income
tax," intended to tax only the "income" of corporations, firms, or
individuals, as that term is generally used in its common
acceptation;... that the income means money received, coming to
a person or corporation for services, interest, or profit from
investments.
We do not believe that the Legislature intended that a mere
increase in the value of the capital or assets of a corporation, firm,
or individual,... should be taxed as "income."
Mr. Justice Pitney, in the case of Eisner vs. Macomber
"That the fudamental relation of 'capital' to 'income' has been
much discussed by economists, the former being likened to the
tree or the... land, the latter to the fruit or the crop... the former
depicted as a reservoir supplied from springs; the latter as the
outlet stream, to be measured by its flow during a period of time."
There is a clear distinction between an extraordinary cash
dividend, no matter when earned, and stock dividends declared,
as in the present case.
The one is a disbursement to the stockholder of accumulated
earnings, and the corporation at once parts irrevocably with all...
interest thereon. The other involves no disbursement by the
corporation. It parts with nothing to the stockholder.
The latter receives, not an actual dividend, but certificate of stock
which simply evidences his interest in the entire capital, including
such as by investment of... accumulated profits has been added
to the original capital.
They are not income to him, but represent additions1 to the
source of his income, namely, his invested capital.
Gibbons vs. Mahon
The ownership of that property is in... the corporation, and not in
the holders of shares of its stock.
DeKoven vs. Alsop
Mr. Justice Wilkin said: "A dividend is defined as 'a corporate
profit set aside, declared, and ordered by the directors to be paid
to the stockholders on demand or at a fixed time. Until the
dividend is... declared, these corporate
profits belong to the corporation, not to the stockholders, and
are liable for corporate indebtedness.'"
When a cash dividend is declared and paid to the... stockholders,
such cash becomes the absolute property of the stockholders
and cannot be reached by the creditors of the corporation in the
absence of fraud. A stock dividend, however, still being the
property of the corporation, and not of the stockholder, it may be
reached by... an execution against the corporation, and sold as a
part of the property of the corporation
The rule is well established that cash dividends, whether large or
small, are regarded as "income"... and all stock dividends, as
capital or assets.
if the holder of the stock... dividend is required to pay an income
tax on the same, the result would be that he has paid a tax upon
an income which he never received. Such a conclusion is
absolutely contradictory to the idea of an income. An income
subject to taxation under the law must be an actual income... and
not a promised or prospective income.
The appellee emphasizes the "income from dividends." Of
course, income received as dividends is taxable as an income,
but an income from "dividends" is a very different thing from a
receipt of a "stock dividend." One is... an actual receipt of profits;
the other is a receipt of a representation of the increased value of
the assets of a corporation.
Yuck imperyalismo
In- asmuch, however, as appeals may be taken... from this court
to the Supreme Court of the United States, we feel bound to
follow the same doctrine announced by that court.
"stock dividends" are not "income," the same cannot be taxed
under that provision of Act No, 2833 which provides for a tax upon
income.
Under the guise of an income tax, property which is not an...
income cannot be taxed.
Principles:
We believe that the Legislature, when it provided for an "income
tax," intended to tax only the "income" of corporations, firms, or
individuals, as that term is generally used in its common
acceptation; that... is, that the income means money received,
coming to a person or corporation for services, interest, or profit
from investments. We do not believe that the Legislature intended
that a mere increase in the value of the capital or assets of a
corporation, firm, or individual,... should be taxed as "income."
"That the fudamental relation of 'capital' to 'income' has been
much discussed by economists, the former being likened to the
tree or the... land, the latter to the fruit or the crop; the former
depicted as a reservoir supplied from springs; the latter as the
outlet stream, to be measured by its flow during a period of time."
When a cash dividend is declared and paid to the... stockholders,
such cash becomes the absolute property of the stockholders
and cannot be reached by the creditors of the corporation in the
absence of fraud. A stock dividend, however, still being the
property of the corporation, and not of the stockholder, it may be
reached by... an execution against the corporation, and sold as a
part of the property of the corporation.
The rule is well established that cash dividends, whether large or
small, are regarded as "income"... and all stock dividends, as
capital or assets.
if the holder of the stock... dividend is required to pay an income
tax on the same, the result would be that he has paid a tax upon
an income which he never received. Such a conclusion is
absolutely contradictory to the idea of an income. An income
subject to taxation under the law must be an actual income... and
not a promised or prospective income.
The appellee emphasizes the "income from dividends." Of
course, income received as dividends is taxable as an income,
but an income from "dividends" is a very different thing from a
receipt of a "stock dividend." One is... an actual receipt of profits;
the other is a receipt of a representation of the increased value of
the assets of a corporation.
"stock dividends" are not "income," the same cannot be taxed
under that provision of Act No, 2833 which provides for a tax upon
income. Under the guise of an income tax, property which is not
an... income cannot be taxed.
Javier vs. CA and Leonardo Tiro

Javier vs. CA and Leonardo Tiro

183 SCRA 171
Art. 1181, Suspensive Condition

Issue
W/N an agreement may be nullified for non-performance of the
conditions stipulated therein

Facts
Petitioner and private respondent entered into an agreement into
which Petitioner bound himself to transfer his rights(shares of
stocks) on Timberlwealth Corp to private respondent
That for and in consideration of the transfer of rights, Petitioner
undertake to pay Private Respondent subject to the condition that
the application of Private Respondent for an additional area for
forest concession be approved by Bureau of Forestry
Private Respondent did not obtain the approval

Held
When a contract is subject to a suspensive condition, its birth and
effectivity can take place only if and when the event which
constitutes the condition happens or is fulfilled. If the suspensive
condition does not take place, the parties would stand as if the
conditional obligation had never existed.
Art. 1461 of the Civil Code, the efficacy of the sale of a mere hope
or expectancy is deemed subject to the condition that the thing
will come into existence
TUASON vs. LINGAD
[July 31, 1974; G.R. No. L-24248]
CASTRO, J
TOPIC: Ordinary gain, capital asset, NIRC Sec. 39 A (1)
DOCTRINE:
Captial Assets; definition: The term "capital assets" includes all
the properties of a taxpayer whether or not connected with his
trade or business, except: (1) stock in trade or other property
included in the taxpayer's inventory; (2) property primarily for sale
to customers in the ordinary course of his trade or business; (3)
property used in the trade or business of the taxpayer and subject
to depreciation allowance; and (4) real property used in trade or
business. If the taxpayer sells or exchanges any of the properties
above-enumerated, any gain or loss relative thereto is an
ordinary gain or an ordinary loss; the gain or loss from the sale or
exchange of all other properties of the taxpayer is a capital gain
or a capital loss.
In the case at bar, Taxpayer operated a substantial rental
business of several properties, not only those subject in this case,
such that the Taxpayer had to a real estate dealer's tax.
Taxpayer's sales of the several lots forming part of his rental
business cannot be characterized as other than sales of non-
capital assets.
FACTS:
The mother of Taxpayer (Petitioner Antonio Tuason) owned a 7
hectare parcel of land located in the City of Manila. She
subdivided the land into twenty-nine (29) lots. Possession of the
land was eventually inherited by Taxpayer in 1948.
Taxpayer instructed his attorney-in-fact to sell the lots. Twenty-
eight (28) out of the twenty-nine parcels were all sold easily. The
attorney-in-fact was not able to sell the twenty-ninth lot
(hereinafter Lot 29) immediately because it was located at a low
elevation.
In 1952, Lot 29 was filled, subdivided and gravel roads were
constructed. The small lots were then sold over the years on a
uniform 10-year annual amortization basis. The attorney-in-fact,
did not employ any broker nor did he put up advertisements in the
matter of the sale thereof.
In 1953 and 1954 the Taxpayer reported his income from the sale
of the small lots (P102,050.79 and P103,468.56, respectively) as
long-term capital gains. The CIR upheld Taxpayer's treatment of
this tax.
In his 1957 tax return the Taxpayer as before treated his income
from the sale of the small lots (P119,072.18) as capital gains. This
treatment was initially approved by the CIR, but by 1963, the CIR
reversed itself and considered the Taxpayer's profits from the
sales of the lots as ordinary gainsc
The CIR assesed a deficiency of P31,095.36 from the Taxpayer.
Contention of Taxpayer: As he was engaged in the business of
leasing the lots he inherited from his mother as well other real
properties, his subsequent sales of the mentioned lots cannot be
recognized as sales of capital assets but of “real property used in
trade or business of the taxpayer.”
ISSUE/S:
Whether or not the properties in question which the Taxpayer had
inherited and subsequently sold in small lots to other persons
should be regarded as capital assets.
HELD:
No. It is Ordinary Income
As thus defined by law, CAPITAL ASSETS include all properties
of a taxpayer whether or not connected with his trade or business,
except:
stock in trade or other property included in the taxpayer's
inventory;
property primarily for sale to customers in the ordinary course of
his trade or business;
property used in the trade or business of the taxpayer and subject
to depreciation allowance; and
real property used in trade or business.
If the taxpayer sells or exchanges any of the properties above,
any gain or loss relative thereto is an ordinary gain or an ordinary
loss; the loss or gain from the sale or exchange of all other
properties of the taxpayer is a capital gain or a capital loss.

Under Section 34(b)(2) of the old Tax Code, if a gain is realized

by a taxpayer (other than a corporation) from the sale or
exchange of capital assets held for more than 12 months, only
50% of the net capital gain shall be taken into account in
computing the net income.

The Tax Code's provisions on so-called long-term capital gains

constitutes a statute of partial exemption. In view of the familiar
and settled rule that tax exemptions are construed in strictissimi
juris against the taxpayer and liberally in favor of the taxing
authority, it is the taxpayer's burden to bring himself clearly and
squarely within the terms of a tax-exempting statutory provision,
otherwise, all fair doubts will be resolved against him.

In the case at bar, after a thoroughgoing study of all the

circumstances, this Court is of the view and so holds that
Petitioner-Taxpayer's thesis is bereft of merit. Under the
circumstances, Taxpayer's sales of the several lots forming part
of his rental business cannot be characterized as other than sales
of non-capital assets. the sales concluded on installment basis of
the subdivided lots do not deserve a different characterization for
tax purposes.

This Court finds no error in the holding that the income of the
Taxpayer from the sales of the lots in question should be
considered as ordinary income.
Calasanz vs CIR 144 SCRA 664

Facts:
Ursula Calasanz inherited from her father an agricultural land.
Improvements were introduced to make such land saleable and
later in it was sold to the public at a profit. The Revenue examiner
adjudged Ursula and her spouse as engaged in business as real
estate dealers and required them to pay the real estate dealer’s
tax.

Issue:
Whether or not the gains realized from the sale of the lots are
taxable in full as ordinary income or capital gains taxable at
capital gain rates

Ruling:
They are taxable as ordinary income. The activities of Calasanz
are indistinguishable from those invariably employed by one
engaged in the business of selling real estate. One strong factor
is the business element of development which is very much in
evidence. They did not sell the land in the condition in which they
acquired it. Inherited land which an heir subdivides and makes
improvements several times higher than the original cost of the
land is not a capital asset but an ordinary asses. Thus, in the
course of selling the subdivided lots, they engaged in the real
estate business and accordingly the gains from the sale of the
lots are ordinary income taxable in full.
[G.R. No. L-19450. May 27, 1965.]
THE PEOPLE OF THE PHILIPPINES, Plaintiff-Appellee, v.
SIMPLICIO VILLANUEVA, Defendant-Appellant.
Magno T. Bueser, for Defendant-Appellant.
Solicitor General for Plaintiff-Appellee.
SYLLABUS
1. ATTORNEYS-AT-LAW EMPLOYED IN THE GOVERNMENT;
PROHIBITION TO ENGAGE IN PRIVATE PRACTICE;
MEANING. — Practice is more than an isolated appearance, for
it consists in frequent or customary actions a succession of acts
of the same kind. The practice of law by attorneys employed in
the government, to fall within the prohibition of statute has been
interpreted as customarily or habitually holding one’s self out to
the public, as a lawyer and demanding payment for such
services. The appearance as counsel on one occasion, is not
conclusive as determinative of engagement in the private practice
of law. The word private practice of law implies that one must
have presented himself to be in the active and continued practice
of the legal profession and that his professional services are
available to the public for a compensation, as a source of his
livelihood or in consideration of his said services.
2. ID.; ID.; ASSISTANT CITY ATTORNEY HANDLING CASE
FOR RELATIVE WITH PERMISSION OF SUPERIOR NOT IN
PROHIBITED PRIVATE PRACTICE. — The isolated appearance
as a private prosecutor, previously authorized by his superior, of
an assistant city attorney in a criminal case for malicious mischief
before a justice of the peace court where the offended party is his
relative, does not violate Section 32, Rule 127, now Sec. 35, Rule
138, Revised Rules of Court, which bars certain attorneys from
practicing.
DECISION
PAREDES, J.:
On September 4, 1959, the Chief of Police of Alaminos, Laguna,
charged Simplicio Villanueva with the crime of Malicious Mischief,
before the Justice of the Peace Court of said municipality. Said
accused was represented by counsel de oficio, but later on
replaced by counsel de parte. The complainant in the same case
was represented by City Attorney Ariston Fule of San Pablo City,
having entered his appearance as private-prosecutor, after
securing the permission of the Secretary of Justice. The condition
of his appearance as such, was that every time he would appear
at the trial of the case, he would be considered on official leave
of absence, and that he would not receive any payment for his
services. The appearance of City Attorney Fule as private
prosecutor was questioned by the counsel for the accused,
invoking the case of Aquino, Et Al., v. Blanco, Et Al., 79 Phil. 647
wherein it was ruled that "when an attorney had been appointed
to the position of Assistant Provincial Fiscal or City Fiscal and
therein qualified, by operation of law, he ceased to engage in
private law practice." Counsel then argued that the JP Court in
entertaining the appearance of City Attorney Fule in the case is a
violation of the above ruling. On December 17, 1960 the JP
issued an order sustaining the legality of the appearance of City
Attorney Fule.
Under date of January 4, 1961, counsel for the accused
presented a "Motion to Inhibit Fiscal Fule from Acting as Private
Prosecutor in this Case," this time invoking Section 32, Rule 127,
now Sec. 35, Rule 138, Revised Rules, which bars certain
attorneys from practicing. Counsel claims that City Attorney Fule
falls under this limitation. The JP Court ruled on the motion by
upholding the right of Fule to appear and further stating that he
(Fule) was not actually engaged in private law practice. This
Order was appealed to the CFI of Laguna, presided by the Hon.
Hilarion U. Jarencio, which rendered judgment on December 20,
1961, the pertinent portions of which read:jgc:chanrobles.com.ph
"The present case is one for malicious mischief. There being no
reservation by the offended party of the civil liability, the civil
action was deemed impliedly instituted with the criminal action.
The offended party had, therefore, the right to intervene in the
case and be represented by a legal counsel because of her
interest in the civil liability of the accused.
"Sec. 31, Rule 127 of the Rules of Court provides that in the court
of a justice of the peace a party may conduct his litigation in
person, with the aid of an agent or friend appointed by him for
that purpose, or with the aid of an attorney. Assistant City
Attorney Fule appeared in the Justice of the Peace Court as an
agent or friend of the offended party. It does not appear that he
was being paid for his services or that his appearance was in a
professional capacity. As Assistant City Attorney of San Pablo he
had no control or intervention whatsoever in the prosecution of
crimes committed in the municipality of Alaminos, Laguna,
because the prosecution of criminal cases coming from Alaminos
are handled by the Office of the Provincial Fiscal and not by the
City Attorney of San Pablo. There could be no possible conflict in
the duties of Assistant City Attorney Fule as Assistant City
Attorney of San Pablo and as private prosecutor in this criminal
case. On the other hand, as already pointed out, the offended
party in this criminal case had a right to be represented by an
agent or a friend to protect her rights in the civil action which was
impliedly instituted together with the criminal action.
"In view of the foregoing, this Court holds that Asst. City Attorney
Ariston D. Fule may appear before the Justice of the Peace Court
in Alaminos, Laguna as private prosecutor in this criminal case
as an agent or a friend of the offended party.
"WHEREFORE, the appeal from the order of the Justice of the
Peace Court of Alaminos, Laguna, allowing the appearance of
Ariston D. Fule as private prosecutor is dismissed, without
costs."cralaw virtua1aw library
The above decision is the subject of the instant proceedings.
The appeal should be dismissed, for patently being without
merits.
Aside from the considerations advanced by the learned trial
judge, heretofore reproduced, and which We consider plausible,
the fallacy of the theory of defense counsel lies in his confused
interpretation of Section 32 of Rule 127 (now Sec. 35, Rule 138,
Revised Rules), which provides that "no judge or other official or
employee of the superior courts or of the office of the Solicitor
General, shall engage in private practice as a member of the bar
or give professional advice to clients." He claims that City
Attorney Fule, in appearing as private prosecutor in the case was
engaging in private practice. We believe that the isolated
appearance of City Attorney Fule did not constitute private
practice, within the meaning and contemplation of the Rules.
Practice is more than an isolated appearance, for it consists in
frequent or customary action, a succession of acts of the same
kind. In other words, it is frequent habitual exercise (State v.
Cotner, 127, p. 1, 87 Kan. 864, 42 LRA, N.S. 768). Practice of
law to fall within the prohibition of statute has been interpreted as
customarily or habitually holding one’s self out to the public, as a
lawyer and demanding payment for such services (State v. Bryan,
4 S. E. 522, 98 N. C. 644, 647). The appearance as counsel on
one occasion, is not conclusive as determinative of engagement
in the private practice of law. The following observation of the
Solicitor General is noteworthy:jgc:chanrobles.com.ph
"Essentially, the word private practice of law implies that one
must have presented himself to be in the active and continued
practice of the legal profession and that his professional services
are available to the public for a compensation, as a source of his
livelihood or in consideration of his said services."cralaw
virtua1aw library
For one thing, it has never been refuted that City Attorney Fule
had been given permission by his immediate superior, the
Secretary of Justice, to represent the complainant in the case at
bar, who is a relative.

CONFORMABLY WITH ALL THE FOREGOING, the decision

appealed from should be, as it is hereby affirmed, in all respects,
with costs against Appellant.

Bengzon, C.J., Concepcion, Reyes, J.B.L., Barrera, Dizon,

Regala, Makalintal, Bengzon, J.P. and Zaldivar, JJ., concur.

Bautista Angelo, J., took no part.

124 Phil. 97 buildings in the sums of P4,260 and P16,338.00 covering the
same period. On the basis of these findings, respondent
REYES, J.B.L., J.: Commissioner of Internal Revenue issued its letter-assessment
and demand for payment of deficiency income tax and surcharge
Appeal interposed by petitioner Limpan Investment Corporation against petitioner corporation, computed as follows:
against a decision of the Court of Tax Appeals, in its CTA Case 90-AR-C-348-58/56
No. 699, holding and ordering it (petitioner) to pay respondent
Commissioner of Internal Revenue the sums of P7,338.00 and
P30,502.50, representing deficiency income taxes, plus 50% Net income per audited return
surcharge for the years 1956, and 1957, respectively, plus 5% P3,287.81
surcharge and 1% monthly interest from June 30, 1959 to the Add: Unallowable deductions:
date of payment, with costs. Undeclared Rental Receipt
(Schedule A)
The facts of this case are:
P20,199.00
Petitioner, a domestic corporation duly registered since June 21, Excess Depreciation (Sched. B)
1955, is engaged in the business of leasing real properties. It 4,260.00
commenced actual business operations on July 1, 1955. Its P24,459.00
principal stockholders are the spouses Isabelo P. Lim and
Purificacion Cañiza de Lim, who own and control ninety-nine per _________
cent (99%) of its total paid-up capital. Its president and chairman Net income per investigation
of the board is the same Isabelo P. Lim. 27,746.00

Its real properties consist of several lots and buildings, mostly _________
situated in Manila and in Pasay City, all of which were acquired Tax due thereon
from said Isabelo P. Lim and his mother, Vicenta Pantangco Vda. 5,549.00
de Lim. Less: Amount already assessed
657.00
Petitioner corporation duly filed its 1956 and 1957 income tax
returns, reporting therein net incomes of P3,287.81 and _________
P11,098.36 respectively, for which it paid the corresponding Balance
taxes therefor in the sums of P657.00 and P2.220.00. 4,892.00
Add: 50% Surcharge
Sometime in 1958 and 1959, the examiners of the Bureau of 2,446.00
Internal Revenue conducted an investigation of petitioner's 1956
and 1957 income tax returns and, in the course thereof, they _________
discovered and ascertained that petitioner had undeclared its DEFICIENCY TAX DUE
rental incomes by P20,199.00 and P81,690.00 during these 7,338.00
taxable years and had claimed excessive depreciation of its
======== Court, questioning the correctness and validity of the above
assessment of respondent Commissioner of Internal Revenue. It
90-AR-C-1196-58/57 disclaimed having received or collected the amount of
P20,199.00, as unreported rental income for 1956, or any part
Net income per audited return thereof, reasoning out that "the previous owners of the leased
buildings has (have) to collect part of the total rentals in 1956 to
P11,098.00 apply to their payment of rental in the land in the amount of
Add: Unallowable deductions: P21,630.00" (par. 11, petition). It also denied having received or
Undeclared Rental Receipt collected the amount of P81,690.00, as unreported rental income
(Schedule A) for 1957, or any part thereof, explaining that part of said amount
totalling P31,380.00 was not declared as income in its 1957 tax
P81,690.00 return because its president, Isabelo P. Lim, who collected and
Excess Depreciation (Sched. B) received P13,500.00 from certain tenants, did not turn the same
16,338.00 over to petitioner corporation in said year but did so only in 1959;
P98,028.00 that a certain tenant (Go Tong) deposited in court his rentals
_________ amounting to P10,800.00, over which the corporation had no
_________ actual or constructive control; and that a sub-tenant paid
Net income per investigation P4,200.00 which ought not be declared as rental income.
109,126.00
________ Petitioner likewise alleged in its petition that the rates of
Tax due thereon depreciation applied by respondent Commissioner to its buildings
22,555.00 in the above assessment are unfair and inaccurate.
Less: Amount already assessed
2,220.00 Sole witness for petitioner corporation in the Tax Court was its
_________ Secretary-Treasurer, Vicente G. Solis, who admitted that it had
Balance omitted to report the sum of P12,100.00 as rental income in its
20,335.00 1956 tax return and also the sum of P29,350.00 as rental income
Add: 50% Surcharge in its 1957 tax return. However, with respect to the difference
10,167.50 between this omitted income (P12,100.00) and the sum
________ (P20,199.00) found by respondent Commissioner as undeclared
DEFICIENCY TAX DUE in 1956, petitioner corporation through the same witness (Solis),
P30,502.50 tried to establish that it did not collect or receive the same
======== because, in view of the refusal of some tenant to recognize the
Petitioner corporation requested respondent Commissioner of new owner, Isabelo P. Lim and Vicenta Pantangco Vda. de Lim,
Internal Revenue to reconsider the above assessment but the the former owners, on one hand, and the same Isabelo P. Lim,
latter denied said request and reiterated its original assessment as president of petitioner corporation, on the other hand, had
and demand, plus 5% surcharge and the 1% monthly interest verbally agreed in 1956 to turn over to petitioner corporation six
from June 30, 1959 to the date of payment; hence, the per cent (6%) of the value of all its properties, computed at
corporation filed its petition for review before the Tax Appeals P21,630.00, in exchange for whatever rentals the Lims may
collect from the tenants. And, with respect to the difference
between the admittedly undeclared sum of P29,350.00 and that
found by respondent Commissioner as unreported rental income
(P81,690.00) in 1957, the same witness Solis also tried to
establish that petitioner corporation did not receive or collect the
same but that its president, Isabelo P. Lim, collected part thereof
and may have reported the same in his own personal income tax
return; that same Isabelo P. Lim collected P13,500.00, which he
turned over to petitioner in 1959 only; that a certain tenant (Go
Tong) deposited in court his rentals (P10,800.00), over which the
corporation had no actual or constructive control and which were
withdrawn only in 1958; and that a subtenant paid P4,200.00
which ought not be declared as rental income in 1957.
With regard to the depreciation which respondent disallowed and
deducted from the returns filed by petitioner, the same witness
tried to establish that some of its buildings are old and out of style;
hence, they are entitled to higher rates of depreciation than those
adopted by respondent in his assessment.
Isabelo P. Lim was not presented as witness to corroborate the
above testimony of Vicente G. Solis.
On the other hand, Plaridel M. Mingoa, one of the BIR examiners
who personally conducted the investigation of the 1956 and 1957
income tax returns of petitioner corporation, testified for the
respondent that he personally interviewed the tenants of
petitioner and found that these tenants had been regularly paying
their rentals to the collectors of either petitioner or its president,
Isabelo P. Lim, but these payments were not declared in the
corresponding returns; and that in applying rates of depreciation
to petitioner's buildings, he adopted Bulletin "F", of the U.S.
Federal Internal Revenue Service.
On the basis of the evidence, the Tax Court upheld respondent
Commissioner's assessment and demand for deficiency income
tax which, as above stated in the beginning of this opinion,
petitioner has appealed to this Court.
Petitioner corporation pursues the same theory advocated in the
court below and assigns the following alleged errors of the trial
court in its brief, to wit:
"I. The respondent Court erred in holding that the petitioner had
an unreported rental income of P20,199.00 for the year 1956.
"II. The respondent Court erred in holding that the petitioner had
an unreported rental income of P81,690.00 for the year 1957.
"III, The respondent Court erred in holding that the depreciation
in the amount of P20,598.00 claimed by petitioner for the years
1956 and 1957 was excessive."
and prays that the appealed decision be reversed.
This appeal is manifestly unmeritorious. Petitioner having
admitted, through its own witness (Vicente G. Solis), that it had
undeclared more than one-half (1/2) of the amount (P12,100.00
out of P20,199.00) found by the BIR examiners as unreported
rental income for the year 1956 and more than one-third (1/3) of
the amount (P29,350.00 out of P81,690.00) ascertained by the
same examiners as unreported rental income for the year 1957,
contrary to its original claim to the revenue authorities, it was
incumbent upon it to establish the remainder of its pretensions by
clear and convincing evidence, that in the case is lacking.
With respect to the balance, which petitioner denied having
unreported in the disputed tax return, the excuse that Isabelo P.
Lim and Vicenta Pantangco Vda. de Lim retained ownership of
the lands and only later transferred or disposed of the ownership
of the buildings existing thereon to petitioner corporation, so as
to justify the alleged verbal agreement whereby they would turn
over to petitioner corporation six percent (6%) of the value of its
properties to be applied to the rentals of the land and in exchange
for whatever rentals they may collect from the tenants who
refused to recognize the new owner or vendee of the buildings, is
not only unusual but uncorroborated by the alleged transferors,
or by any document or unbiased evidence. Hence, the first
assigned error is without merit.
As to the second assigned error, petitioner's denial and
explanation of the non-receipt of the remaining unreported Wherefore, the appealed decision should be, as it is hereby,
income for 1957 is not substantiated by satisfactory corroborate. affirmed. With costs against petitioner-appellant, Limpan
As above noted, Isabelo P. Lim was not presented as a witness Investment Corporation.
to confirm accountant Sol is nor was his 1957 personal income
tax return submitted in court to establish that the rental income Concepción, C. J., Barrera, Dizon. Regala, Makalintal, Bengzon,
which he allegedly collected and received in 1957 were reported J. P. Zaldivar, Sanchez and Ruiz Castro, JJ., concur.
therein.
Decision affirmed.
The withdrawal in 1958 of the deposits in court pertaining to the
1957 rental income is no sufficient justification for the non-
declaration of said income in 1957, since the deposit was
resorted to due to the refusal of petitioner to accept the same,
and was not the fault of its tenants; hence, petitioner is deemed
to have constructively received such rentals in 1957. The
payment by the subtenant in 1957 should have been reported as
rental income in said year, since it is income just the same
regardless of its source.

On the third assigned error, suffice it to state that this Court has
already held that "depreciation is a question of fact and is not
measured by theoretical yardstick, but should be determined by
a consideration of actual facts'', and the findings of the Tax Court
in this respect should not be disturbed when not shown to be
arbitrary or in abuse of discretion (Commissioner of Internal
Revenue vs. Priscila Estate, Inc. et al, L-18282, May 29, 1964),
and petitioner has not shown any arbitrariness or abuse of
discretion on the part of the Tax Court in finding that petitioner
claimed excessive depreciation in its returns. It appearing that the
Tax Court applied rates of depreciation in accordance with
Bulletin "F" of the U.S. Federal Internal Revenue Service, which
this Court pronounced as having strong persuasive effect in this
jurisdiction, for having been the result of scientific studies and
observation for a long period in the United States, after whose
Income Tax Law ours is patterned (M. Zamora vs. Collector of
Internal Revenue & Collector of Internal Revenue vs. M. Zamora;
E. Zamora vs. Collector of Internal Revenue & Collector of
Internal Revenue vs. E. Zamora, Nos. L-15280, 15290, 15289 &
15281, May 31, 1963), the foregoing error is devoid of merit.
124 Phil. 1493
ZALDIVAR. J.:
This is an appeal from the decision of the Court of First Instance
of Manila, dated December 23, 1961, in its Civil Case No. 46494,
dismissing the complaint of the Republic of the Philippines
against the heirs of the late Esteban de la Rama for the collection
of 956,032.50 as deficiency income tax, inclusive of 50%
surcharge, for the year 1950.
The estate of the late Esteban de la Rama was the subject of
Special Proceedings No. 401 of the Court of First Instance of
Iloilo. The executor-administrator, Eliseo Hervas, filed on March
12, 1951, income tax returns of the estate corresponding to the
taxable year 1950, declaring a net income of 922,796.59, on the
basis of which the amount of P3,919.00 was assessed and was
paid by the estate as income tax. The Bureau of Internal Revenue
later claimed that it had found out that there had been received
by the estate in 1950 from the De la Rama Steamship Company,
Inc. cash dividends amounting to 966,800.00, which amount was
not declared in the income tax return of the estate for the year
1950. The Bureau of Internal Revenue then, on March 7, 1956,
made an assessment as deficiency income tax against the estate
in the sum of 956,032.50, of which amount 937,355.00 was the
deficiency and 918,677.50 was the 50% surcharge.
The Collector of Internal Revenue wrote a letter, dated February
29, 1956, to Mrs. Lourdes de la Rama-Osmeña informing her of
the deficiency income tax and asking payment thereof. On March
13, 1956 the letter's counsel wrote to the Collector acknowledging
receipt of the assessment, but contended that Lourdes de la
Rama-Osmeña had no authority to represent the estate, and that
the assessment should be sent to Leonor de la Rama who was
pointed to by said counsel as the administratrix of the estate of
her late father. On the basis of this information the Deputy
Collector of Internal Revenue, on November 22, 1956, sent a
letter to Leonor de la Rama as administratrix of the estate, asking
payment. The tax, as assessed, not having been paid, the Deputy
Commissioner of Internal Revenue, on September 7, 1959, wrote
another letter to Mrs. Lourdes de la Rama-Osmeña demanding,
through her, upon the heirs, the payment of the deficiency income
tax within the period of thirty days from receipt thereof. The
counsel of Lourdes de la Rama-Osmeña, in a letter dated
September 25, 1959, insisted that the letter should be sent to
Leonor de la Rama. The Deputy Commissioner of Internal
Revenue wrote to Leonor de la Rama another letter, dated
February 11, 1960, demanding, through her as administratrix,
upon the heirs of Este-ban de la Rama, the payment of the sum
of P56,032.50, as deficiency income tax including the 50%
surcharge, to the City Treasurer of Pasay City within thirty days
from receipt thereof.
The deficiency income tax not having been paid, the Republic of
the Philippines filed on March 6, 1961 with the Court of First
Instance of Manila a complaint against the heirs of Esteban de la
Rama, Making to collect from each heir his/her proportionate
share in the income tax liability of the estate. An amended
complaint dated August 31, 1961, was admitted by the court.
The defendants-appellees, Lourdes de la Rama-Osmeña, Leonor
de la Rama, Estefanla de la Rama-Pirovano, Dolores de la
Rama-Lopez, Charles Miller, and Aniceta de la Rama-Sian, thru
counsel, filed their respective answers, the gist of their allegations
and/or defenses being (1) that no cash dividends of 966,800.00
had been paid to the estate; (2) that the administration of the
estate had been extended by the probate court precisely for the
purpose of collecting said dividends; (3) that Leonor de la Rama
had never been administratrix of the estate; (4) that the executor
of the estate, Eliseo Hervas, had never been given notice of the
assessment, and consequently the assessment had never de la Rama-Osmeña and Leonor de la Rama was proper and
become final; and (5) that the collection of the alleged deficiency valid; and (6) in not holding that said court had no jurisdiction to
income tax had prescribed. Fausto F. Gonzales, Jr., one of the take cognizance of appellees1 defense that the assessment in
defendants, not having filed an answer, was declared in default. question was erroneous.

From the evidence introduced at the trial, both oral and
documentary, the lower court found that the dividend of
966,800.00 declared by the De la Rama Steamship Co. in favor
of the late Esteban de la Rama was applied to the obligation of
the estate to the company declaring the dividends; that Leonor
de la Rama was not the administratrix of the estate, but it was the
late Eliseo Hervas who was the executor-administrator; that the
administration of the estate was extended for the purpose of
recovering for the estate said dividends from the De la Rama
Steamship Co., Inc; and that the question of whether the
deceased Esteban de la Rama was a debtor to the entity known
as the Hijos de I. de la Rama, which was also indebted to the De
la Rama Steamship Co., Inc., was not a settled one.
Plaintiff-appellant argues that the deficiency income tax in this
case was assessed in the sum of 986,800. 00 representing cash
dividends declared in 1950 by the De la Rama Steamship Co.,
Inc. in favor of the late Esteban de la Rama and was applied as
payment of the latter's account with the former. The application
of payment appears in the books of said creditor company as
follows:
"Against accounts receivable due from Esteban de la Rama. . . .
......
P25,255.24

After trial, the lower court rendered its decision, dated December
23, 1961, dismissing the complaint. The Republic of the
Philippines appealed from said decision to the Court of Appeals,
but the appeal was later certified to this Court because only
questions of law are involved.
"Against the account due from Hijos de I. de la Rama, Inc., of
which Don Esteban de la Rama was the principal owner . . . . . . .
..............

P61,544.76
Plaintiff-appellant contends that the trial court erred (1) in holding
that there was no basis for the assessment upon the ground that
it waa not proved that the income in question was received by the
Total . . . . . . . . .
estate of Esteban de la Rama or by his heirs; (2) in not holding
that the income was constructively received by the estate of the
late Esteban de la Rama; (3) in not holding that the heirs and
legatees of the late Esteban de la Rama were liable for the P86,800.00"
payment of the deficiency income tax; (4) in not holding that the
assessment involved in the case had long become final; (5) in not
holding that the service of the notice of assessment on Lourdes
The plaintiff-appellant maintains that this crediting of accounts in
the books of the company constituted a constructive receipt by
the estate or the heirs of Esteban de la Rama of the dividends,
and this dividend was an income of the estate and was therefore,
taxable.
It is not disputed that the dividends in question were not actually
paid either to the estate, or to the heirs, of the late Esteban de la
Rama. The question to be resolved is whether or not the said
application of the dividends to the personal accounts of the
deceased Esteban de la Rama constituted constructive payment
to, and hence, constructively received by, the estate or the heirs.
If the debts to which the dividends were applied really existed,
and were legally demandable and chargeable against the
deceased, there was constructive receipt of the dividends; if there
were no such debts, then there was no constructive receipt.
Inc.," this fact being, as found by the lower court, not a settled
question because the same was denied by the administrator.
Under the National Internal Revenue Code, income tax is
assessed on income that has been received. Thus, Section 21 of
the Code requires that the income must be received by an
individual before a tax can be levied thereon.
"Sec. 21. Rates of tax on citizens or residents. There shall be
levied, collected, and paid annually upon the entire income
received in the preceding taxable year from all sources by every
individual, or citizen or resident of the Philippines, x x x."
Section 56 also requires receipt of income by an estate before an
Income tax can be assessed thereon. It provides:

The first debt, as above Indicated, had been contested by the

executor-administrator of the estate. It does not even appear that "Sec. 56. Imposition of tax (a) Application of tax. - The taxes
the De la Rama Steamship Co., Inc. had ever filed a claim against imposed by this Title upon individuals shall apply to the income
the estate in connection with that indebtedness. The existence of estates or of any kind of property held in trust including
and the validity of the debt is, therefore, in dispute, and there was
no proof adduced to show the existence and validity of the debt.
(3) Income received by estate of deceased persons during the
period of administration or settlement of the estate; x x x."
The second debt to which the dividends were partly applied were
accounts "due from Hijos de I. de la Rama, Inc." The alleged
debtor here was an entity separate and distinct from the
Hence, if income has not been received, no income tax can be
deceased. If that was so, its debts could not be charged against
assessed thereon. Inasmuch as the income was not received
the deceased, even if the deceased was the principal owner
either by the estate, or by the heirs, neither the estate nor the
thereof, in the absence of proof of substitution of debtor. There is
heirs can be liable for the payment of income tax therefor.
no evidence in the instant case that the late Esteban de la Rama
substituted the "Hijos de I. de la Rama" as debtor to the De la
Rama Steamship Co., Inc.; nor was there evidence that the estate
of the late Esteban de la Rama owned the "Hijos de I. de la Rama, The trial court, therefore, did not err when it held in its decision
that:

"After a study of the proofs, the Court is constrained to sustain
the position of the defendants on the fundamental issue that there
could have been no correct and real basis for the assessment or
that there is no proof that the income in question had been
received; it was not actually delivered unto the Estate since it was
retained by the De la Rama Steamship Co., Inc.; which applied
said dividends to certain accounts receivable due from the
deceased allegedly, Exh. A-l; now if truly there had been such
indebtedness owing from the deceased unto said De la Rama
Steamship Co., Inc., the Court will agree with plaintiff that the
offsetting of the dividends against such indebtedness amounted
to constructive delivery; but here has not been presented any
proof to that effect, i.e., that there was such an indebtedness due
from deceased; on the contrary what the evidence shows is that
the former administrator of the Estate had challenged the validity
of said indebtedness, Exh. D, motion of 4 June, 1951; this being
the case, there is no clear showing that income in the form of said
dividends had really been received, which is the verb used in
Section 21 of the Internal Revenue Code, by the Estate whether
actually or constructively; and the income tax being collected by
the Government on income received, the Government's position
is here without a clear basis; the position becomes worse when it
be considered that it is not even the Estate that is being sued but
the heirs themselves, who admittedly had not received any of said
dividends themselves; the fiction of transfer of ownership by
succession from the death of the decedant will have to give way
to. acttual fact that the dividends have not been adjudicated at all
to the heirs up to now at least so far as the evidence shows. This
being the conclusion of the Court, there will be no need to discuss
the question of whether the action has or has not prescribed."
The factual findings of the trial court, as stated in the above-
quoted portion of the decision, is decisive in the determination of
the legal issues in this case.
Appellant cites the case of Herbert v. Conmissloner of Internal
Revenue 81 F (2d) 912 as authority that the crediting of dividends
against accounts constitutes payment and constructive receipt of
the dividends. The citation of authority misses the point in issue.
In that case the existence of the indebtedness of Leon S. Herbert
to the corporation that declared the dividends and against which
indebtedness the dividends were applied, was never put in issue,
and was admitted. In the instant case, the existence of the
obligations has been disputed and, as the trial court found, has
not been proved. It having been shown in the instant case that
there was no basis for the assessment of the income tax, the
assessment itself and the sending of notices regarding the
assessment would neither have basis, and so the assessment
and the notices produced no legal effect that would warrant the
collection of the tax.
The appellant also contends that the assessment had become
final, because the decision of the Collector of Internal Revenue
was sent in a letter dated February 11, 1960 and addressed to
the heirs of the late Esteban de la Rama, through Leonor de la
Rama as administratrix of the estate, and was not disputed or
contested by way of appeal within thirty days from receipt thereof
to the Court of Tax Appeals. This contention is untenable. The
lower court found that Leonor de la Rama was not the
administratrix of the estate of Esteban de la Rama. The alleged
deficiency income tax for 1950 was chargeable against the estate
of the deceased Esteban de la Rama. On December 5, 1955,
when the letter of notice for the assessment of the deficiency
income tax was first sent to Leonor de la Rama (See Annex "A"
of Answer of defendant Lourdes de la Rama-Osmeña, pp. 16-17,
Record on Appeal), the administration proceedings, in Special
Proceedings No. 401 of the Court of First Instance of Iloilo, were
still open with respect to the controverted matter regarding the
cash dividends upon which the deficiency assessment was
levied. This is clear from the order dated June 21, 1951 (Exhibit
"E") of the Court of First Instance of Iloilo which in part provides:
"El albacea-administrador hace constar, sin embargo, que
quedan por cobrar ciertos dividendos declarados y devengados
por las acciones del finado Esteban de la Rama en The De la
Rama Steamship Co., Inc., que los funcionarios de dicha
corporation x x x no nan pagado aun x x x y que por tales motivos
habria necesidad de prolongar la administracion, solamente para
que esta continúe atendiendo, con autorizacion, a tales
menesteres.
"Se ordena el cierre de la Administración; pero se provee, sin
embargo, la extensión de la misma, solamente para el proposito
de iniciar y proseguir hasta eu terminacion una accion contra The
De la Rama Steamship Co., Inc. para el cobro de dividendos
declarados por dicha corporación en Diciembre 31, 1950 sobre
las 869 acciones del finado Esteban de la Rama en la misma x x
x.
"Y finalmente, queda relevado al Administrador Sr. Eliseo Hervas
de toda responsibilidad en relaci&ón con su administración,
excepto en lo que respecta al cobro de dividendos x x x."
The estate was still under the administration of Eliseo Hervas as
regards the collection of said dividends. The administrator was
the representative of the estate, whose duty it was to pay and
discharge all debts and charges on the estate and to perform all
orders of the court by him to be performed (Rule 81, Section 1),
and to pay the taxes and assessments due to the Government or
any branch or subdivision thereof (Section 7, Rule 89, Old Rules
of Court). The tax must be collected from the estate of the
deceased, md it is the administrator who is under obligation to
pay such claim (Estate of Claude E. Haygood, Collector of
Internal Revenue v. Haygood, 65 Phil., 520). The notice of
assessment, therefore, should have been sent to the
administrator. In this case, notice was first sent to Lourdes de la
Rama-Osmeña on February 29, 1956, and later to Leonor de la
Rama on November 27, 1956, neither of whom had authority to
represent the estate. As the lower court said in its decision:
"Leonor de la Rama was not the administratrix of the estate of the
late Esteban de la Rama and as such the demand unto her, Exh.
Def. 8, p. 112, was not a correct demand before November 27,
1956, because the real administrator was the late Eliseo Hervas;
x x x." (p. 45, Record on Appeal) The notice was not sent to the
taxpayer for the purpose of giving effect to the assessment, and
said notice could not produce any effect. In the case of Bautista
and Corrales Tan v. Collector of Internal Revenue, L-12259, May
27, 1959, this Court had occasion to state that "the assessment
is deemed made when the notice to this effect is released, mailed
or sent to the taxpayer for the purpose of giving effect to said
assessment." It appearing that the person liable for the payment
of the tax did not receive the assessment, the assessment could
not become final and executory (R. A. 1125, Section 11).
Plaintiff-appellant also contends that the lower court could not
take cognizance of the defense that the assessment was
erroneous, this being a matter that is within the exclusive
jurisdiction of the Court of Tax Appeals. This contention has no
merit. According to Republic Act 1125, the Court of Tax Appeals
has exclusive jurisdiction to review by appeal decisions of the
Collector of Internal Revenue in cases involving disputed
assessments, and the disputed assessment must be appealed by
the person adversely affected by the decision within thirty days
after the receipt of the decision. In the instant case, the person
adversely affected should have been the administrator of the
estate, and the notice of the assessment should have been sent
to him. The administrator had not received the notice of
assessment, and he could not appeal the assessment to the
Court of Tax Appeals within 30 days from notice. Hence the
assessment did not fall within the exclusive jurisdiction of the
Court of Tax Appeals.
IN VIEW OF THE FOREGOING, the decision appealed from
should be, as it is hereby, affirmed, without costs.
Concepcion, C.J., Reyes, J.B.L., Barrera, Dizon, Regala,
Makalintal, Bengzon, J.P., Sanchez and Ruiz Castro, JJ., concur.
CIR vs. MARUBENI On Aug 2, 1986, EO 41 declared a tax amnesty for unpaid income
taxes for 1981-85, and that taxpayers who wished to avail this
11 should on or before Oct 31, 1986. Marubeni filed its tax amnesty
FEB return on Oct 30, 1986.
GR No. 137377| J. Puno
On Nov 17, 1986, EO 64 expanded EO 41’s scope to include
estate and donor’s taxes under Title 3 and business tax under
Facts: Chap 2, Title 5 of NIRC, extended the period of availment to Dec
15, 1986 and stated those who already availed amnesty under
EO 41 should file an amended return to avail of the new benefits.
CIR assails the CA decision which affirmed CTA, ordering CIR to Marubeni filed a supplemental tax amnesty return on Dec 15,
desist from collecting the 1985 deficiency income, branch profit 1986.
remittance and contractor’s taxes from Marubeni Corp after
finding the latter to have properly availed of the tax amnesty
under EO 41 & 64, as amended. CTA found that Marubeni properly availed of the tax amnesty and
deemed cancelled the deficiency taxes. CA affirmed on appeal.

Marubeni, a Japanese corporation, engaged in general import

and export trading, financing and construction, is duly registered Issue:
in the Philippines with Manila branch office. CIR examined the
Manila branch’s books of accounts for fiscal year ending March W/N Marubeni is exempted from paying tax
1985, and found that respondent had undeclared income from
contracts with NDC and Philphos for construction of a wharf/port
complex and ammonia storage complex respectively. Held:
Yes.
On August 27, 1986, Marubeni received a letter from CIR
assessing it for several deficiency taxes. CIR claims that the
income respondent derived were income from Philippine sources, 1. On date of effectivity
hence subject to internal revenue taxes. On Sept 1986,
respondent filed 2 petitions for review with CTA: the first,
questioned the deficiency income, branch profit remittance and CIR claims Marubeni is disqualified from the tax amnesty
contractor’s tax assessments and second questioned the because it falls under the exception in Sec 4b of EO 41:
deficiency commercial broker’s assessment.

“Sec. 4. Exceptions.—The following taxpayers may not avail

themselves of the amnesty herein granted: xxx b) Those with
income tax cases already filed in Court as of the effectivity
hereof;”
Petitioner argues that at the time respondent filed for income tax
amnesty on Oct 30, 1986, a case had already been filed and was
pending before the CTA and Marubeni therefore fell under the
exception. However, the point of reference is the date of
effectivity of EO 41 and that the filing of income tax cases must
have been made before and as of its effectivity.
EO 41 took effect on Aug 22, 1986. The case questioning the
1985 deficiency was filed with CTA on Sept 26, 1986. When EO
41 became effective, the case had not yet been filed. Marubeni
does not fall in the exception and is thus, not disqualified from
availing of the amnesty under EO 41 for taxes on income and
branch profit remittance.
The difficulty herein is with respect to the contractor’s tax
assessment (business tax) and respondent’s availment of the
amnesty under EO 64, which expanded EO 41’s coverage. When
EO 64 took effect on Nov 17, 1986, it did not provide for
exceptions to the coverage of the amnesty for business, estate
and donor’s taxes. Instead, Section 8 said EO provided that:
“Section 8. The provisions of Executive Orders Nos. 41 and 54
which are not contrary to or inconsistent with this amendatory
Executive Order shall remain in full force and effect.”
Due to the EO 64 amendment, Sec 4b cannot be construed to
refer to EO 41 and its date of effectivity. The general rule is that
an amendatory act operates prospectively. It may not be given a
retroactive effect unless it is so provided expressly or by
necessary implication and no vested right or obligations of
contract are thereby impaired.
2. On situs of taxation
Marubeni contends that assuming it did not validly avail of the
amnesty, it is still not liable for the deficiency tax because the
income from the projects came from the “Offshore Portion” as
opposed to “Onshore Portion”. It claims all materials and
equipment in the contract under the “Offshore Portion” were
manufactured and completed in Japan, not in the Philippines, and
are therefore not subject to Philippine taxes.
(BG: Marubeni won in the public bidding for projects with
government corporations NDC and Philphos. In the contracts, the
prices were broken down into a Japanese Yen Portion (I and II)
and Philippine Pesos Portion and financed either by OECF or by
supplier’s credit. The Japanese Yen Portion I corresponds to the
Foreign Offshore Portion, while Japanese Yen Portion II and the
Philippine Pesos Portion correspond to the Philippine Onshore
Portion. Marubeni has already paid the Onshore Portion, a fact
that CIR does not deny.)
CIR argues that since the two agreements are turn-key, they call
for the supply of both materials and services to the client, they
are contracts for a piece of work and are indivisible. The situs of
the two projects is in the Philippines, and the materials provided
and services rendered were all done and completed within the
territorial jurisdiction of the Philippines. Accordingly, respondent’s
entire receipts from the contracts, including its receipts from the
Offshore Portion, constitute income from Philippine sources. The
total gross receipts covering both labor and materials should be
subjected to contractor’s tax (a tax on the exercise of a privilege
of selling services or labor rather than a sale on products).
Marubeni, however, was able to sufficiently prove in trial that not
all its work was performed in the Philippines because some of
them were completed in Japan (and in fact subcontracted) in
accordance with the provisions of the contracts. All services for
the design, fabrication, engineering and manufacture of the
materials and equipment under Japanese Yen Portion I were
made and completed in Japan. These services were rendered
outside Philippines’ taxing jurisdiction and are therefore not
subject to contractor’s tax. Petition denied.
National Development Company v CIR (1987)

National Development Company v CIR GR No L-53961, June 30,

1987

FACTS:
The National Development Company (NDC) entered into
contracts in Tokyo with several Japanese shipbuilding companies
for the construction of 12 ocean-going vessels. Initial payments
were made in cash and through irrevocable letters of credit. When
the vessels were completed and delivered to the NDC in Tokyo,
the latter remitted to the shipbuilders the amount of US$
4,066,580.70 as interest on the balance of the purchase price. No
tax was withheld. The Commissioner then held the NDC liable on
such tax in the total sum of P5,115,234.74. Negotiations followed
but failed. NDC went to CTA. BIR was sustained by CTA. BIR
was sustained by CTA. Hence, this petition for certiorari.

ISSUE:
Is NDC liable for the tax?

RULING:
Yes.
Although NDC is not the one taxed since it was the Japanese
shipbuilders who were liable on the interest remitted to them
under Section 37 of the Tax Code, still, the imposition is valid.
The imposition of the deficiency taxes on NDC is a penalty for its
failure to withhold the same from the Japanese shipbuilders.
Such liability is imposed by Section 53c of the Tax Code. NDC
was remiss in the discharge of its obligation as the withholding
agent of the government and so should be liable for the omission.
Sison vs Ancheta
GR No. L-59431, 25 July 1984
Facts: Section 1 of BP Blg 135 amended the Tax Code and
petitioner Antero M. Sison, as taxpayer, alleges that "he would be
unduly discriminated against by the imposition of higher rates of
tax upon his income arising from the exercise of his profession
vis-a-vis those which are imposed upon fixed income or salaried
individual taxpayers. He characterizes said provision as arbitrary
amounting to class legislation, oppressive and capricious in
character. It therefore violates both the equal protection and due
process clauses of the Constitution as well asof the rule requiring
uniformity in taxation.
uniformity or perfect equality, because this is hardly
unattainable." When the problem of classification became of
issue, the Court said: "Equality and uniformity in taxation means
that all taxable articles or kinds of property of the same class shall
be taxed the same rate. The taxing power has the authority to
make reasonable and natural classifications for purposes of
taxation..." As provided by this Court, where "the differentation"
complained of "conforms to the practical dictates of justice and
equity" it "is not discriminatory within the meaning of this clause
and is therefore uniform."

Issue: Whether or not the assailed provision violates the equal

protection and due process clauses of the Constitution while also
violating the rule that taxes must be uniform and equitable.

Held: The petition is without merit.

On due process - it is undoubted that it may be invoked where a
taxing statute is so arbitrary that it finds no support in the
Constitution. An obvious example is where it can be shown to
amount to the confiscation of property from abuse of power.
Petitioner alleges arbitrariness but his mere allegation does not
suffice and there must be a factual foundation of such
unconsitutional taint.
On equal protection - it suffices that the laws operate equally and
uniformly on all persons under similar circumstances, both in the
privileges conferred and the liabilities imposed.
On the matter that the rule of taxation shall be uniform and
equitable - this requirement is met when the tax operates with the
same force and effect in every place where the subject may be
found." Also, :the rule of uniformity does not call for perfect
IR vs WYETH SUACO LABORATORIES, INC 202 SCRA 125
Facts:
On December 19, 1974, Wyeth Suaco received notice of
assessment from the BIR for its failure to remit withholding tax at
source for the 4th quarter of 1973 on accrued royalties,
remuneration for technical services paid abroad and cash
dividends, including the deduction of non-deductible raw
materials from its reports. The company, thru its tax consultant,
SVG & co., sent BIR two letters dated January 17, 1975 and
February 8, 1975 protesting the assessment and requesting their
cancellation or withdrawal on the ground that said assessments
lacked factual or legal basis. Also, there were letters from the
company to the BIR to such effect. On September 12, 1975, the
CIR offered to compromise but only resulted to a slight reduction
of the tax as per the acting Commissioner’s decision on
December 10,1979. On January 18, 1980, Wyeth Suaco filed
petition for review with the CTA, praying that CIR be enjoined
from enforcing the assessments by reason of prescription and
that assessments be declared null and void for lack of legal and
factual basis. The CTA decided against the CIR holding that while
the assessments for the deficiency taxes were made within the
five-year period of limitation, the right of CIR to collect the same
has already prescribed, in accordance with Sec. 319(c) of the
NIRC.
reinvestigation or reconsideration of the assessment. Wyeth
Suaco admitted that it was seeking reconsideration of the tax
assessments as shown in a letter of its president and General
Manager. Further, although the protest letters prepared by SGV
& Co. did not categorically state or use the words reinvestigation
and reconsideration, the same are to be treated as letters of
reinvestigation and reconsideration.
As to Wyeth Seaco’s argument that withholding tax at source
should only be remitted to the BIR once the incomes subject to
withholding tax at source have actually been paid, the SC cited
the lifeblood doctrine, the express provision of the law which
requires the filing of monthly return and payment of taxes withheld
at source within 10 days after the end of each month. Further, the
company uses accrual method of accounting and therefore the
effect of transactions and other events on assets and liabilities
are recognized and reported in the time periods to which they
relate rather than only when cash is received or paid.

Issue:
Whether or not the right of CIR to collect has already prescribed
Ruling:
No. CTA is wrong. The letters of Wyeth Suaco interrupted the
running of the five-year perspective period to collect the
deficiency taxes. Settled is the rule that the prescriptive period
provided by law to make a collection by distraint or levy or by a
proceeding in court is interrupted once a taxpayer requests for