Tax Digests

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Madrigal v. Rafferty

Facts: Vicente Madrigal and Susana Paterno were legally married prior to January 1, 1914, contracted under the provisions of law concerning conjugal partnerships !n 191", Madrigal filed a sworn declaration with the #!$ showing that his total net income for the year 1914 was P%9&,'(% )' Su*se+uently Madrigal su*mitted the claim that the said P%9&,'(% )' did not represent his income for the year 1914, *ut was in fact the income of the conjugal partnershipe,isting *etween himself and his wife Susana Paterno, and that in computing and assessing the additional income ta, provided *y the-ct of #ongress of .cto*er ', 191', the income declared *y Vicente Madrigal should *e divided into two e+ual parts, one/half to *e considered the income of Vicente Madrigal and the other half of Susana Paterno -fter payment under protest, and after the protest of Madrigal had *een decided adversely *y the #!$, action was *egun *y Madrigal and his wife Paterno in the #0! of Manila against #ollector of !nternal $evenue and the 1eputy #ollector of !nternal $evenue #0! decided against Madrigal and Paterno -ppellees contend that the ta,es imposed *y the !ncome 2a, 3aware as the name implies ta,es upon income ta, and not upon capital and property4 that the fact that

Madrigal was a married man, and his marriage contracted under the provisions governing the conjugal partnership, has no *earing on income considered as income, and that the distinction must *e drawn *etween the ordinary form of commercial partnership and the conjugal partnership of spouses resulting from the relation of marriage Issue: 5hether or not the additional income ta, should *e divided into two e+ual parts *ecause of the conjugal partnership Held: !ncome as contrasted with capital or property is to *e the test 2he essential difference *etween capital and income is that capital is a fund4 income is a flow - fund of property e,isting at an instant of time is called capital flow of services rendered *y that capital *y the payment of money from it or any other *enefit rendered *y a fund of capital in relation to such fund through a period of time is called an income #apital is wealth, while income is the service of wealth Susana Paterno, wife of Vicente Madrigal, has an inchoate right in the property of her hus*and 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 ac+uired as income after such income has *ecome capital Susana Paterno has no

a*solute right to one/half the income of the conjugal partnership 6ot *eing sei7ed of a separate estate, Susana Paterno cannot ma8e a separate return in order to receive the *enefit of the e,emption which would arise *y reason of the additional ta, -s she has no estate and income, actually and legally vested in her and entirely distinct from her hus*and9s property, the income cannot properly *e considered the separate income of the wife for the purposes of the additional ta, Moreover, the !ncome 2a, 3aw does not loo8 on the spouses as individual partners in an ordinary partnership 2he hus*and and wife are only entitled to the e,emption of P:,((( specifically granted *y the law 2he higher schedules of the additional ta, directed at the incomes of the wealthy may not *e partially defeated *y reliance on provisions in our #ivil #ode dealing with the conjugal partnership and having no application to the !ncome 2a, 3aw 2he aims and purposes of the !ncome 2a, 3aw must *e given effect

Fisher v. Trinidad

Facts: Philippine -merican 1rug #ompany was a corporation duly organi7ed and e,isting under the laws of the Philippine !slands, doing *usiness in the #ity of Manila 0isher was a stoc8holder in said corporation Said corporation, as result of the *usiness for that year, declared a ;stoc8 dividend; and that the proportionate share of said stoc8 divided of 0isher was P%4,:(( Said the stoc8 dividend for that amount was issued to 0isher 0or this reason, 2rinidad demanded payment of income ta, for the stoc8 dividend received *y 0isher 0isher paid under protest the sum of P::9 91 as income ta, on said stoc8 dividend 0isher filed an action for the recovery of P::9 91 2rinidad demurred to the petition upon the ground that it did not state facts sufficient to constitute cause of action 2he demurrer was sustained and 0isher appealed Issue: 5hether or not the stoc8 dividend was an income and therefore ta,a*le Held: 6o <enerally spea8ing, stoc8 dividends represent undistri*uted increase in the capital of corporations or firms, joint stoc8 companies, etc , etc , for a particular period 2he inventory of the property of the corporation for particular period shows an increase in its capital, so that the stoc8 theretofore issued does not show the real value of the stoc8holder9s interest, and additional stoc8 is issued

showing the increase in the actual capital, or property, or assets of the corporation !n the case of <ray vs 1arlington =:% > S , &"'?, the >S Supreme #ourt held that mere advance in value does not constitute the ;income; specified in the revenue law as ;income; of the owner for the year in which the sale of the property was made Such advance constitutes and can *e treated merely as an increase of capital !n the case of 2owne vs @isner, income was defined in an income ta, law to mean cash or its e+uivalent, unless it is otherwise specified !t does not mean unreali7ed increments in the value of the property - stoc8 dividend really ta8es nothing from the property of the corporation, and adds nothing to the interests of the shareholders !ts property is not diminished and their interest are not increased 2he proportional interest of each shareholder remains the same !n short, the corporation is no poorer and the stoc8holder is no richer then they were *efore !n the case of 1oyle vs Mitchell Aros #o =%4) > S , 1)9?, Mr Justice Pitney, said that the term ;income; in its natural and o*vious sense, imports something distinct from principal or capital and conveying the idea of gain or increase arising from corporate activity !n the case of @isner vs Macom*er =%"% > S , 1:9?, income was defined as the gain derived from capital, from la*or, or from *oth com*ined, provided it *e understood to

include profit gained through a sale or conversion of capital assets 5hen a corporation or company issues ;stoc8 dividends; it shows that the company9s accumulated profits have *een capitali7ed, instead of distri*uted to the stoc8holders or retained as surplus availa*le for distri*ution, in money or in 8ind, should opportunity offer 2he essential and controlling fact is that the stoc8holder has received nothing out of the company9s assets for his separate use and *enefit4 on the contrary, every dollar of his original investment, together with whatever accretions and accumulations resulting from employment of his money and that of the other stoc8holders in the *usiness of the company, still remains the property of the company, and su*ject to *usiness ris8s which may result in wiping out of the entire investment 2he stoc8holder *y virtue of the stoc8 dividend has in fact received nothing that answers the definition of an ;income ; 2he stoc8holder who receives a stoc8 dividend has received nothing *ut a representation of his increased interest in the capital of the corporation 2here has *een no separation or segregation of his interest -ll the property or capital of the corporation still *elongs to the corporation 2here has *een no separation of the interest of the stoc8holder from the general capital of the corporation 2he stoc8holder, *y virtue of the stoc8 dividend, has no separate or individual control over the interest represented there*y, further than he had *efore the stoc8 dividend was issued Be cannot use it for the

reason that it is still the property of the corporation and not the property of the individual holder of stoc8 dividend certificate of stoc8 represented *y the stoc8 dividend is simply a statement of his proportional interest or participation in the capital of the corporation 2he receipt of a stoc8 dividend in no way increases the money received of a stoc8holder nor his cash account at the close of the year !t simply shows that there has *een an increase in the amount of the capital of the corporation during the particular period, which may *e due to an increased *usiness or to a natural increase of the value of the capital due to *usiness, economic, or other reasons 5e *elieve that the 3egislature, when it provided for an ;income ta,,; intended to ta, only the ;income; of corporations, firms or individuals, as that term is generally used in its common acceptation4 that is that the income means money received, coming to a person or corporation for services, interest, or profit from investments 5e do not *elieve that the 3egislature intended that a mere increase in the value of the capital or assets of a corporation, firm, or individual, should *e ta,ed as ;income ; - stoc8 dividend, still *eing the property of the corporation and not the stoc8holder, may *e reached *y an e,ecution against the corporation, and sold as a part of the property of the corporation !n such a case, if all the property of the corporation is sold, then the stoc8holder certainly could not *e charged with having received an income *y virtue of the issuance of the stoc8 dividend >ntil the dividend is declared and paid, the corporate profits still *elong to the corporation, not to the stoc8holders, and are lia*le for

corporate inde*tedness 2he rule is well esta*lished that cash dividend, whether large or small, are regarded as ;income; and all stoc8 dividends, as capital or assets !f the ownership of the property represented *y a stoc8 dividend is still in the corporation and not in the holder of such stoc8, then it is difficult to understand how it can *e regarded as income to the stoc8holder and not as a part of the capital or assets of the corporation !f the holder of the stoc8 dividend is re+uired to pay anincome ta, on the same, the result would *e that he has paid a ta, upon an income which he never received Such a conclusion is a*solutely contradictory to the idea of an income -s stoc8 dividends are not ;income,; the same cannot *e considered ta,es under that provision of -ct 6o %:'' 0or all of the foregoing reasons, S# held that the judgment of the lower court should *e [email protected]@1

Limpan Investment Corp. v. CIR
Limpan Investment Company deemed to have constructively received rental payments in 1957 when they were deposited in court due to its refusal to receive them.

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

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

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

although the corporation did not actually receive the rent, it is deemed to have constructively received them.

Conwi et al. v. CT

and CIR

Facts: Petitioners are employees of Procter and <am*le =Philippine Manufacturing #orporation, su*sidiary of Procter D <am*le, a foreign corporation? 1uring the years 19)( and 19)1, petitioners were assigned to other su*sidiaries of Procter D <am*le outside the Philippines, for which petitioners were paid >S dollars as compensation Petitioners filed their !2$s for 19)( and 19)1, computing ta, due *yapplying the dollar/to/peso conversion *ased on the floating rate under A!$ $uling 6o )(/(%) !n 19)', petitioners filed amened !2$s for 19)( and 19)1, this time using the par value of the peso as *asis 2his resulted in the alleged overpayments, refund andEor ta, credit, for which claims for refund were filed #2- held that the proper conversion rate for the purpose of reporting and paying the Philippine income ta, on the dollar earnings of petitioners are the rates prescri*ed under $evenue Memorandum#irculars 6os )/)1 and 41/ )1 2he refund claims were denied Issues: =1? 5hether or not petitioners9 dollar earnings are receipts derived from foreign e,change transactions4 6. =%? 5hether or not the proper rate of conversion of petitioners9 dollar earnings for ta, purposes in the prevailing free mar8et rate of e,change and not the par value of the peso4 F@S

Held: 0or the proper resolution of income ta, cases, income may *e 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 >nless otherwise specified, it means cash or its e+uivalent !ncome can also *e though of as flow of the fruits of one9s la*or Petitioners are correct as to their claim that their dollar earnings are not receipts derived from foreign e,change transactions 0or a foreign e,change transaction is simply that G a transaction in foreign e,change, foreign e,change *eing ;the conversion of an amount of money or currency of one country into an e+uivalent amount of money or currency of another ; 5hen petitioners were assigned to the foreign su*sidiaries of Procter D <am*le, they were earning in their assigned nation9s currency and were -3S. spending in said currency 2here was no conversion, therefore, from one currency to another 2he dollar earnings of petitioners are the fruits of their la*ors in the foreign su*sidiaries of Procter D <am*le !t was a definite amount of money which came to them within a specified period of time of twoyears as payment for their services -nd in the implementation for the proper enforcement of the 6ational !nternal $evenue #ode, Section '': thereof empowers the Secretary of 0inance to ;promulgate all needful rules and regulations; to effectively enforce its

provisions pursuant to this authority, $evenue Memorandum #ircular 6os )/)1 and 41/)1 were issued to prescri*ed a uniform rate of e,change from >S dollars to Philippine pesos for !62@$6-3 $@V@6>@ 2-H P>$P.S@S for the years 19)( and 19)1, respectively Said revenue circulars were a valid e,ercise of the authority given to the Secretary of 0inance *y the 3egislature which enacted the !nternal $evenue #ode -nd these are presumed to *e a valid interpretation of said code until revo8ed *y the Secretary of 0inance himself Petitioners are citi7ens of the Philippines, and their income, within or without, and in these cases wholly without, are su*ject to income ta, Sec %1, 6!$#, as amended, does not *roo8 any e,emption

!anas" #r. $. C
%.R. &o. '()*+, Fe-ruary '(" )(((

!I!I &. $. ! / 0" #R." petitioner, vs C.1RT .F 223 L0" 41ILI&. T. L RI&" R.5.LF. T1 6.& &5 2R.C.2I. T L.&" respondents 41I01M!I&%" J.: 0or review is the 1ecision of the #ourt of -ppeals in #-/# $ #V 6o 1)%"1 promulgated on 6ovem*er %9, 1991 !t affirmed in toto the judgment of the $egional 2rial #ourt =$2#?, Aranch '9, Manila, in #ivil #ase 6o :%/1%1() Said judgment disposed as followsI 0.$ -33 2B@ 0.$@<.!6< #.6S!1@$-2!.6S, this #ourt here*y renders judgment 1!SM!SS!6< the complaint against all the defendants and ordering plaintiff Jherein petitionerK to pay defendant 3arin the amount of P%((,((( (( =2wo Bundred 2housand Pesos? as actual and compensatory damages4 P%((,((( (( as moral damages4 and P"(,((( (( as e,emplary damages and attorneys fees of P1((,((( (( 1 2he facts, which we find supported *y the records, have *een summari7ed *y the #ourt of -ppeals as followsI .n 0e*ruary %(, 19)&, petitioner, Ai*iano V AaLas Jr sold to -yala !nvestment #orporation =-F-3-?, 1%:,%&" s+uare meters of land located at Aayanan, Muntinlupa, for two million, three hundred eight thousand, seven hundred seventy =P%,'(:,))( ((? pesos 2he 1eed of Sale provided that upon the signing of the contract -F-3- shall pay four hundred si,ty/one thousand, seven hundred fifty/four =P4&1,)"4 ((? pesos 2he *alance of one million, eight hundred forty/seven thousand and si,teen =P1,:4),(1& ((? pesos was to *e paid in four e+ual consecutive annual installments, with twelve =1%M? percent interest per annum on the outstanding *alance -F-3issued one promissory note covering four e+ual annual installments @ach periodic payment of P4&1,)"4 (( pesos shall *e paya*le starting on 0e*ruary %(, 19)), and every year thereafter, or until 0e*ruary %(, 19:( 2he same day, petitioner discounted the promissory note with -F-3-, for its face value of P1,:4),(1& ((, evidenced *y a 1eed of -ssignment signed *y the petitioner and -F-3- -F-3issued nine =9? chec8s to petitioner, all dated 0e*ruary %(, 19)&, drawn against Aan8 of the Philippine !slands with the uniform amount of two hundred five thousand, two hundred twenty/four =P%(",%%4 ((? pesos !n his 19)& !ncome 2a, $eturn, petitioner reported the P4&1,)"4 initial payment as income from disposition of capital asset % Selling Price of 3and 3ess !nitial Payment >nreali7ed <ain P%,'(:,))( (( 4&1,)"4 (( P1,:4),(1& ((
'

19)& 1eclaration of !ncome on 1isposition of #apital -sset su*ject to

2a,I !nitial Payment 3essI #ost of land and other incidental @,penses !ncome !ncome su*ject to ta, =P':",%(& 1( , "(M? P4&1,)"4 (( = )&,"4) 9(? P':",%(& 1( P19%,&(' &"

!n the succeeding years, until 19)9, petitioner reported a uniform income of two hundred thirty thousand, eight hundred seventy/seven =P%'(,:)) ((? pesos 4 as gain from sale of capital asset !n his 19:( income ta, amnesty return, petitioner also reported the same amount of P%'(,:)) (( as the reali7ed gain on disposition of capital asset for the year .n -pril 11, 19):, then $evenue 1irector Mauro #alaguio authori7ed ta, e,aminers, $odolfo 2ua7on and Procopio 2alon to e,amine the *oo8s and records of petitioner for the year 19)& 2hey discovered that petitioner had no outstanding receiva*le from the 19)& land sale to -F-3- and concluded that the sale was cash and the entire profit should have *een ta,a*le in 19)& since the income was wholly derived in 19)& 2ua7on and 2alon filed their audit report and declared a discrepancy of two million, ninety/five thousand, nine hundred fifteen =P%,(9",91" ((? pesos in petitioner9s 19)& net income 2hey recommended deficiency ta, assessment for two million, four hundred seventy/three thousand, si, hundred seventy/three =P%,4)',&)' ((? pesos Meantime, -+uilino 3arin succeeded #alaguio as $egional 1irector of Manila $egion !V/- -fter reviewing the e,aminers9 report, 3arin directed the revision of the audit report, with instruction to consider the land as capital asset 2he ta, due was only fifty ="(M? percent of the total gain from sale of the property held *y the ta,payer *eyond twelve months pursuant to Section '4 " of the 19)) 6ational !nternal $evenue #ode =6!$#? 2he deficiency ta, assessment was reduced to nine hundred thirty si, thousand, five hundred ninety/eight pesos and fifty centavos =P9'&,"9: "(?, inclusive of surcharges and penalties for the year 19)& .n June %), 19:(, respondent 3arin sent a letter to petitioner informing of the income ta, deficiency that must *e settled him immediately .n Septem*er %&, 19:(, petitioner ac8nowledged receipt of the letter *ut insisted that the sale of his land to -F-3- was on installment .n June :, 19:1, the matter was endorsed to the -cting #hief of the 3egal Aranch of the 6ational .ffice of the A!$ 2he #hief of the 2a, 0raud >nit recommended the prosecution of a criminal case for conspiring to file false and fraudulent returns, in violation of Section "1 of the 2a, #ode against petitioner and his accountants, -ndres P -lejandre and #onrado AaLas .n June 1), 19:1, 3arin filed a criminal complaint for ta, evasion against the petitioner .n July 1, 19:1, news items appeared in the now defunct @vening @,press with the headlineI ;A!$ #harges $ealtor; and another in the defunct @vening Post with a news itemI ;A!$ raps $ealtor, % accountants ; -nother news item also appeared in the July %, 19:1, issue of the Aulletin 2oday entitledI ;'/face P1/M ta, evasion raps ; -ll news items mentioned petitioner9s false income ta, return concerning the sale of land to -F-3-

.n July %, 19:1, petitioner filed an -mnesty 2a, $eturn under P 1 1)4( and paid the amount of forty/one thousand, seven hundred twenty/nine pesos and eighty/one centavos =P41,)%9 :1? .n 6ovem*er %, 19:1, petitioner again filed an -mnesty 2a, $eturn under P 1 1:4( and paid an additional amount of one thousand, five hundred twenty/five pesos and si,ty/two centavos =P1,"%" &%? !n *oth, petitioner did not recogni7e that his sale of land to -F-3- was on cash *asis $eacting to the complaint for ta, evasion and the news reports, petitioner filed with the $2# of Manila an action&for damages against respondents 3arin, 2ua7on and 2alon for e,tortion and malicious pu*lication of the A!$9s ta, audit report Be claimed that the filing of criminal complaints against him for violation of ta, laws were improper *ecause he had already availed of two ta, amnesty decrees, Presidential 1ecree 6os 1)4( and 1:4( 2he trial court decided in favor of the respondents and awarded 3arin damages, as already stated Petitioner seasona*ly appealed to the #ourt of -ppeals !n its decision of 6ovem*er %9, 1991, the respondent court affirmed the trial court9s decision, thusI 2he finding of the court a quo that plaintiff/appellant9s actions against defendant/appellee 3arin were unwarranted and *aseless and as a result thereof, defendant/appellee 3arin was su*jected to unnecessary an,iety and humiliation is therefore supported *y the evidence on record
1âwphi1.nêt

1efendant/appellee 3arin acted only in pursuance of the authority granted to him !n fact, the criminal charges filed against him in the 2anod*ayan and in the #ity 0iscal9s .ffice were all dismissed 5B@$@0.$@, the appealed judgment is here*y -00!$M@1 in toto ) Bence this petition, wherein petitioner raises *efore us the following +ueriesI ! 5B@2B@$ 2B@ #.>$2 .0 -PP@-3S @$$@1 !6 !2S !62@$P$@2-2!.6 .0 P@$2!6@62 2-H 3-5S, 2B>S !2 0-!3@1 2. -PP$@#!-2@ 2B@ #.$$@#26@SS -61 -##>$-#F .0 P@2!2!.6@$9S $@2>$6 .0 2B@ !6#.M@ 1@$!V@1 0$.M 2B@ S-3@ .0 2B@ 3-61 2. -F-3!! 5B@2B@$ 2B@ [email protected]@62 #.>$2 @$$@1 !6 6.2 0!61!6< 2B-2 2B@$@ 5-S -6 -33@<@1 -22@MP2 2. @H2.$2 JM.6@F 0$.MK P@2!2!.6@$ AF P$!V-2@ [email protected]@62S !!! 5B@2B@$ 2B@ [email protected]@62 #.>$2 @$$@1 !6 !2S !62@$P$@2-2!.6 .0 P$@S!1@62!-3 1@#$@@ 6.S 1)4( -61 1:4(, -M.6< .2B@$S, P@2!2!.6@$9S !MM>6!2F 0$.M #$!M!6-3 P$.S@#>2!.6 !V 5B@2B@$ 2B@ [email protected]@62 #.>$2 @$$@1 !6 !2S !62@$P$@2-2!.6 .0 5@33/ @S2-A3!SB@1 1.#2$!6@S .0 2B!S B.6.$-A3@ #.>$2 -S $@<-$1S 2B@ -5-$1 .0 -#2>-3, M.$-3 -61 @H@MP3-$F 1-M-<@S !6 0-V.$ .0 [email protected]@62 3-$!6 !n essence, petitioner as8s the #ourt to resolve seriatim the following issuesI 1 5hether respondent court erred in ruling that there was no e,tortion attempt *y A!$ officials4

% 5hether respondent court erred in holding that P 1 1)4( and 1:4( granting ta, amnesties did not grant immunity from ta, suits4 ' 5hether respondent court erred in finding that petitioner9s income from the sale of land in 19)& should *e declared as a cash transaction in his ta, return for the same year =*ecause the *uyer discounted the promissory note issued to the seller on future installment payments of the sale, on the same day of the sale?4 4 5hether respondent court erred and committed grave a*use of discretion in awarding damages to respondent 3arin 2he first issue, on whether the #ourt of -ppeals erred in finding that there was no e,tortion, involves a determination of fact 2he #ourt of -ppeals o*served, 2he only evidence to esta*lish the alleged e,tortion attempt *y defendants/appellees is the plaintiff/appellant9s self serving declarations -s found *y the court a quo, ;said attempt was 8nown to plaintiff/appellant9s son/in/law and counsel on record, yet, said counsel did not ta8e the witness stand to corro*orate the testimony of plaintiff ;: -s repeatedly held, findings of fact *y the #ourt of -ppeals especially if they affirm factual findings of the trial court will not *e distur*ed *y this #ourt, unless these findings are not supported *y evidence 9 Similarly, neither should we distur* a finding of the trial court and appellate court that an allegation is not supported *y evidence on record 2hus, we agree with the conclusion of respondent court that herein private respondents, on the *asis of evidence, could not *e held lia*le for e,tortion .n the second issue of whether P 1 6os 1)4( and 1:4( which granted ta, amnesties also granted immunity from criminal prosecution against ta, offenses, the pertinent sections of these laws stateI P 1 6o 1)4( #.61.6!6< P@6-32!@S 0.$ #@$2-!6 V!.3-2!.6S .0 2B@ !6#.M@ 2-H 3-5 >P.6 V.3>62-$F 1!S#3.S>$@ .0 >61@#3-$@1 !6#.M@ 0.$ !6#.M@ 2-H P>$P.S@S -61 $@N>!$!6< P@$!.1!# S>AM!SS!.6 .0 6@2 5.$2B S2-2@M@62 ,,, ,,, ,,,

Sec 1 Voluntary Disclosure of Correct Taxable Income G -ny individual who, for any or all of the ta,a*le years 19)4 to 19)9, had failed to file a return is here*y, allowed to file a return for each of the aforesaid ta,a*le years and accurately declare therein the true and correct income, deductions and e,emptions and pay the income ta, due per return 3i8ewise, any individual who filed a false or fraudulent return for any ta,a*le year in the period mentioned a*ove may amend his return and pay the correct amount of ta, due after deducting the ta,es already paid, if any, in the original declaration =emphasis ours? ,,, ,,, ,,,

Sec " Immunity from Penalties G -ny individual who voluntarily files a return under this 1ecree and pays the income ta, due thereon shall *e immune from the penalties, civil or criminal, under the 6ational !nternal $evenue #ode arising from failure to pay the correct income ta, with respect to the ta,a*le years from which an amended return was filed or for

which an original return was filed in cases where no return has *een filed for any of the ta,a*le years 19)4 to 19)9I Pro i!e!, howe er, 2hat these immunities shall not apply in cases where the amount of net ta,a*le income declared under this 1ecree is understated to the e,tent of %"M or more of the correct net ta,a*le income =emphasis ours? P 1 6. 1:4( G <$-62!6< - 2-H -M6@S2F .6 >62-H@1 !6#.M@ -61E.$ 5@-32B @-$6@1 .$ -#N>!$@1 1>$!6< 2B@ 2-H-A3@ F@-$S 19)4 2. 19:( -61 $@N>!$!6< 2B@ 0!3!6< .0 2B@ S2-2@M@62 .0 -SS@2S, 3!-A!3!2!@S, -61 6@2 5.$2B Sec 1 Co era"e G !n case of voluntary disclosure of previously unta,ed income andEor wealth such as earnings, receipts, gifts, *e+uests or any other ac+uisition from any source whatsoever, reali7ed here or a*road, *y any individual ta,payer, which are ta,a*le under the 6ational !nternal $evenue #ode, as amended, the assessment and collection of all internal revenue ta,es, including the increments or penalties on account of non/payment, as well as all civil, criminal or administrative lia*ilities arising from or incident thereto under the 6ational !nternal $evenue #ode, are here*y condoned provided that the individual ta,payer shall pay =emphasis ours? Sec % Con!itions for Immunity G 2he immunity granted under Section one of this 1ecree shall apply only under the following conditionsI a? Such previously unta,ed income andEor wealth must have *een earned or reali7ed in any of the years 19)4 to 19:(4 *? 2he ta,payer must file an amnesty return on or *efore 6ovem*er '(, 19:1, and fully pay the ta, due thereon4 c? 2he amnesty ta, paid *y the ta,payer under this 1ecree shall not *e less than P1,((( (( per ta,a*le year4 and d? 2he ta,payer must file a statement of assets, lia*ilities and net worth as of 1ecem*er '1, 19:(, as re+uired under Section & hereof =emphasis ours? !t will *e recalled that petitioner entered into a deed of sale purportedly on installment .n the same day, he discounted the promissory note covering the future installments 2he discounting seems +uestiona*le *ecause ordinarily, when a *ill is discounted, the lender = e.". *an8s, financial institution? charges or deducts a certain percentage from the principal value as its compensation Bere, the discounting was done *y the *uyer .n July %, 19:1, two wee8s after the filing of the ta, evasion complaint against him *y respondent 3arin on June 1), 19:1, petitioner availed of the ta, amnesty under P 1 6o 1)4( Bis amended ta, return for the years 19)4 / 19)9 was filed with the A!$ office of Valen7uela, Aulacan, instead of Manila where the petitioner9s principal office was located Be again availed of the ta, amnesty under P 1 6o 1:4( Bis disclosure, however, did not include the income from his sale of land to -F-3- on cash *asis !nstead he insisted that such sale was on installment Be did not amend his income ta, return Be did not pay the ta, which was considera*ly increased *y the income derived from the discounting Be did not meet the twin re+uirements of P 1 1)4( and 1:4(, declaration of his unta,ed income and full payment of ta, due thereon #learly, the petitioner is not entitled to the *enefits of P 1 6os 1)4( and 1:4( 2he mere filing of ta, amnesty return under P 1 1)4( and 1:4( does not ipso facto shield him from immunity against prosecution 2a, amnesty is a general pardon to ta,payers who want to start a clean ta, slate !t also gives the government a chance to collect uncollected ta, from ta, evaders without having to go through the tedious process of a ta, case 2o avail of a ta, amnesty granted *y the

government, and to *e immune from suit on its delin+uencies, the ta, payer must have voluntarily disclosed his previously unta,ed income and must have paid the corresponding ta, on such previously unta,ed income 1( !t also *ears noting that a ta, amnesty, much li8e a ta, e,emption, is never favored nor presumed in law and if granted *y statute, the terms of the amnesty li8e that of a ta, e,emption must *e construed strictly against the ta,payer and li*erally in favor of the ta,ing authority 11 Bence, on this matter, it is our view that petitioner9s claim of immunity from prosecution under the shield of availing ta, amnesty is untena*le .n the third issue, petitioner asserts that his sale of the land to -F-3- was not on cash *asis *ut on installment as clearly specified in the 1eed of Sale which statesI 2hat for and in consideration of the sum of 25. M!33!.6 2B$@@ B>61$@1 @!<B2 2B.>S-61 S@V@6 B>61$@1 S@V@62F =P%,'(:,))( ((? [email protected] Philippine #urrency, to *e paid as followsI 1 P4&1,)"4 ((, upon the signing of the 1eed of Sale4 and, % 2he *alance of P1,:4),(1& ((, to *e paid in four =4? e+ual, consecutive, annual installments with interest thereon at the rate of twelve percent =1%M? per annum, *eginning on 0e*ruary %(, 19)&, said installments to *e evidenced *y four =4? negotia*le promissory notes 1% Petitioner resorts to Section 4' of the 6!$# and Sec 1)" of $evenue $egulation 6o % to support his claim Sec 4' of the 19)) 6!$# states, !nstallment *asis G =a? 1ealers in personal property G =*? #ales of realty an! casual sales of personalty G !n the case =1? of a casual sale or other casual disposition of personal property =other than property of a 8ind which would properly *e included in the inventory of the ta,payer if on hand at the close of the ta,a*le year?, for a price e,ceeding one thousand pesos, or =%? of a sale or other disposition of real property if in either case the initial payments do not e,ceed twenty/five percentum of the selling price, the income may, under regulations prescri*ed *y the Minister of 0inance, *e returned on the *asis and in the manner a*ove prescri*ed in this section -s used in this section the term ;initial payment; means the payments received in cash or property other than evidences of inde*tedness of the purchaser during the ta,a*le period in which the sale or other disposition is made =emphasis ours? $evenue $egulation 6o %, Section 1)" provides, #ale of real property in ol in" !eferre! payments G >nder section 4' deferred/payment sales of real property include =1? agreements of purchase and sale which contemplate that a conveyance is not to *e made at the outset, *ut only after all or a su*stantial portion of the selling price has *een paid, and =*? sales in which there is an immediate transfer of title, the vendor *eing protected *y a mortgage or other lien as to deferred payments Such sales either under =a? or =*?, fall into two classes when considered with respect to the terms of sale, as followsI

=1? Sales of property on the installment plan, that is, sales in which the payments received in cash or property other than evidences of inde*tedness of the purchaser during the ta,a*le year in which the sale is made do not e,ceed %" per cent of the selling price4 =%? 1eferred/payment sales not on the installment plan, that is sales in which the payments received in cash or property other than evidences of inde*tedness of the purchaser during the ta,a*le year in which the sale is made e,ceed %" per cent of the selling price4 !n the sale of mortgaged property the amount of the mortgage, whether the property is merely ta8en su*ject to the mortgage or whether the mortgage is assumed *y the purchaser, shall *e included as a part of the ;selling price; *ut the amount of the mortgage, to the e,tent it does not e,ceed the *asis to the vendor of the property sold, shall not *e considered as a part of the ;initial payments; or of the ;total contract price,; as those terms are used in section 4' of the #ode, in sections 1)4 and 1)& of these regulations, and in this section 2he term ;initial payments; does not include amounts received *y the vendor in the year of sale from the disposition to a third person of notes given *y the vendee as part of the purchase price which are due and paya*le in su*se+uent years #ommissions and other selling e,penses paid or incurred *y the vendor are not to *e deducted or ta8en into account in determining the amount of the ;initial payments,; the ;total contract price,; or the ;selling price ; 2he term ;initial payments; contemplates at least one other payment in addition to the initial payment !f the entire purchase price is to *e paid in a lump sum in a later year, there *eing no payment during the year, the income may not *e returned on the installment *asis !ncome may not *e returned on the installment *asis where no payment in cash or property, other than evidences of inde*tedness of the purchaser, is received during the first year, the purchaser having promised to ma8e two or more payments, in later years Petitioner asserts that Sec 4' allows him to return as income in the ta,a*le years involved, the respective installments as provided *y the deed of sale *etween him and -F-3- #onse+uently, he religiously reported his yearly income from sale of capital asset, su*ject to ta,, as followsI Fear 19)) ="(M of P4&1,)"4? 19): 19)9 19:( P%'(,:)) (( %'(,:)) (( %'(,:)) (( %'(,:)) ((

Petitioner says that his ta, declarations are accepta*le modes of payment under Section 1)" of the $evenue $egulations =$$? 6o % 2he term ;initial payment;, he argues, does not include amounts received *y the vendor which are part of the complete purchase price, still due and paya*le in su*se+uent years 2hus, the proceeds of the promissory notes, not yet due which he discounted to -F-3- should not *e included as income reali7ed in 19)& Petitioner states that the original agreement in the 1eed of Sale should not *e affected *y the su*se+uent discounting of the *ill .n the other hand, respondents assert that ta,ation is a matter of su*stance and not of form $eturns are scrutini7ed to determine if transactions are what they are and not declared to evade ta,es #onsidering the progressive nature of our income ta,ation, when income is spread over several installment payments through the years, the ta,a*le income goes down and the ta, due correspondingly decreases 5hen payment is in lump sum the ta, for the year proportionately

increases >ltimately, a declaration that a sale is on installment diminishes government ta,es for the year of initial installment as against a declaration of cash sale where ta,es to the government is larger -s a general rule, the whole profit accruing from a sale of property is ta,a*le as income in the year the sale is made Aut, if not all of the sale price is received during such year, and a statute provides that income shall *e ta,a*le in the year in which it is ;received,; the profit from an installment sale is to *e apportioned *etween or among the years in which such installments are paid and received 1' Sec 4' and Sec 1)" says that among the entities who may use the a*ove/mentioned installment method is a seller of real property who disposes his property on installment, provided that the initial payment does not e,ceed %"M of the selling price 2hey also state what may *e regarded as installment payment and what constitutes initial payment !nitial payment means the payment received in cash or property e,cluding evidences of inde*tedness due and paya*le in su*se+uent years, li8e promissory notes or mortgages, given of the purchaser during the ta,a*le year of sale !nitial payment does not include amounts received *y the vendor in the year of sale from the disposition to a third person of notes given *y the vendee as part of the purchase price which are due and paya*le in su*se+uent years 14 Such disposition or discounting of receiva*le is material only as to the computation of the initial payment !f the initial payment is within %"M of total contract price, e,clusive of the proceeds of discounted notes, the sale +ualifies as an installment sale, otherwise it is a deferred sale 1" -lthough the proceed of a discounted promissory note is not considered part of the initial payment, it is still ta,a*le income for the year it was converted into cash 2he su*se+uent payments or li+uidation of certificates of inde*tedness is reported using the installment method in computing the proportionate income1& to *e returned, during the respective year it was reali7ed 6on/dealer sales of real or personal property may *e reported as income under the installment method provided that the o*ligation is still outstanding at the close of that year !f the seller disposes the entire installment o*ligation *y discounting the *ill or the promissory note, he necessarily must report the *alance of the income from the discounting not only income from the initial installment payment 5here an installment o*ligation is discounted at a *an8 or finance company, a ta,a*le disposition results, even if the seller guarantees its payment, continues to collect on the installment o*ligation, or handles repossession of merchandise in case of default 1) 2his rule prevails in the >nited States 1: Since our income ta, laws are of -merican origin, 19 interpretations *y -merican courts an our parallel ta, laws have persuasive effect on the interpretation of these laws %( 2hus, *y analogy, all the more would a ta,a*le disposition result when the discounting of the promissory note is done *y the seller himself #learly, the inde*tedness of the *uyer is discharged, while the seller ac+uires money for the settlement of his receiva*les 3ogically then, the income should *e reported at the time of the actual gain 0or income ta, purposes, income is an actual gain or an actual increase of wealth %1 -lthough the proceeds of a discounted promissory note is not considered initial payment, still it must *e included as ta,a*le income on the year it was converted to cash 5hen petitioner had the promissory notes covering the succeeding installment payments of the land issued *y -F-3-, discounted *y -F-3- itself, on the same day of the sale, he lost entitlement to report the sale as a sale on installment since, a ta,a*le disposition resulted and petitioner was re+uired *y law to report in his returns the income derived from the discounting 5hat petitioner did is tantamount to an attempt to circumvent the rule on payment of income ta,es gained from the sale of the land to -F-3- for the year 19)& 3astly, petitioner +uestions the damages awarded to respondent 3arin

-ny person who see8s to *e awarded actual or compensatory damages due to acts of another has the *urden of proving said damages as well as the amount thereof %% 3arin says the e,tortion cases filed against him hampered his immediate promotion, caused him strong an,iety and social humiliation 2he trial court awarded him two hundred thousand =P%((,(((,((? pesos as actual damages Bowever, the appellate court stated that, despite pendency of this case, 3arin was given a promotion at the A!$ Said respondent courtI 5e find nothing on record, aside from defendant/appellee 3arin9s statements =2S6, pp &/), 11 1ecem*er 19:"?, to show that he suffered loss of seniority that allegedly *arred his promotion !n fact, he was promoted to his present position despite the pendency of the instant case =2S6, pp '"/'9, (4 6ovem*er 19:"? %' Moreover, the records of the case contain no statement whatsoever of the amount of the actual damages sustained *y the respondents -ctual damages cannot *e allowed unless supported *y evidence on the record %42he court cannot rely on speculation, conjectures or guesswor8 as to the fact and amount of damages %" 2o justify a grant of actual or compensatory damages, it is necessary to prove with a reasona*le degree of certainty, the actual amount of loss %& Since we have no *asis with which to assess, with certainty, the actual or compensatory damages counter/claimed *y respondent 3arin, the award of such damages should *e deleted Moral damages may *e recovered in cases involving acts referred to in -rticle %1 %) of the #ivil #ode %: -s a rule, a pu*lic official may not recover damages for charges of falsehood related to his official conduct unless he proves that the statement was made with actual malice !n $abst, et al s %ational Intelli"ence $oar!, et al , 1'% S#$- '1&, ''( =19:4?, we reiterated the test for actual malice as set forth in the landmar8 -merican case of %ew &or' Times s #ulli an,%9 which we have long adopted, in defamation and li*el cases, i( I with 8nowledge that it was false or with rec8less disregard of whether it was false or not 5e appreciate petitioner9s claim that he filed his 19)& return in good faith and that he had honestly *elieved that the law allowed him to declare the sale of the land, in installment 5e can further grant that the pertinent ta, laws needed construction, as we have earlier done 2hat petitioner was offended *y the headlines alluding to him as ta, evader is also fully understanda*le -ll these, however, do not justify what amounted to a *aseless prosecution of respondent 3arin Petitioner presented no evidence to prove 3arin e,torted money from him Be even admitted that he never met nor tal8ed to respondent 3arin 5hen the ta, investigation against the petitioner started, 3arin was not yet the $egional 1irector of A!$ $egion !V/-, Manila .n respondent 3arin9s instruction, petitioner9s ta, assessment was considered one involving a sale of capital asset, the income from which was su*jected to only fifty percent ="(M? assessment, thus reducing the original ta, assessment *y half 2hese circumstances may *e ta8en to show that 3arin9s involvement in e,tortion was not indu*ita*le Fet, petitioner went on to file the e,tortion cases against 3arin in different fora 2his is where actual malice could attach on petitioner9s part Significantly, the trial court did not err in dismissing petitioner9s complaints, a ruling affirmed *y the #ourt of -ppeals Ceeping all these in mind, we are constrained to agree that there is sufficient *asis for the award of moral and e,emplary damages in favor of respondent 3arin 2he appellate court *elieved respondent 3arin when he said he suffered an,iety and humiliation *ecause of the unfounded charges against him Petitioner9s actions against 3arin were found ;unwarranted and *aseless,; and the criminal charges filed against him in the 2anod*ayan and #ity 0iscal9s .ffice were all dismissed '( Bence, there is ade+uate support for respondent court9s conclusion that moral damages have *een proved

6ow, however, what would *e a fair amount to *e paid as compensation for moral damages also re+uires determination @ach case must *e governed *y its own peculiar circumstances '1 .n this score, Del )osario s Court of *ppeals,'% cites several cases where no actual damages were adjudicated, and where moral and e,emplary damages were reduced for *eing ;too e,cessive,; thusI !n the case of P%$ C.*., J%"& S#$- '(9 =199&?K, this #ourt +uoted with approval the following o*servation from )CPI )o!ri"ue(, i(I 77 77 6evertheless, we find the award of P1((,((( (( as moral damages in favor of respondent $odrigue7 e,cessive and unconsciona*le !n the case of Pru!encia!o *lliance Transport #ystem,Inc =14: S#$- 44( J19:)K? we saidI J!Kt is undisputed that the trial courts are given discretion to determine the amount of moral damages =-lcantara v Surro, 9' Phil 4)%? and that the #ourt of -ppeals can only modify or change the amount awarded when they are palpa*ly and scandalously e,cessive ;so as to indicate that it was the result of passion, prejudice or corruption on the part of the trial court; =<ellada v 5arner Aarnes D #o , !nc , ") . < J4K )'4), )'":4 Sadie v Aacharach Motors #o , !nc , ") . < J4K &'& and -done v Aacharach Motor #o , !nc , ") . < &"&? Aut in more recent cases where the awards of moral and e,emplary damages are far too e,cessive compared to the actual loses sustained *y the aggrieved party, this #ourt ruled that they should *e reduced to more reasona*le amounts =@mphasis ours ? !n other words, the moral damages awarded must *e commensurate with the loss or injury suffered !n the same case =P6A v #-?, this #ourt found the amount of e,emplary damages re+uired to *e paid =P1,(((,(((,((? ;too e,cessive; and reduced it to an ;e+uita*le level; =P%",((( ((? !t will *e noted that in a*ove cases, the parties who were awarded moral damages were not pu*lic officials #onsidering that here, the award is in favor of a government official in connection with his official function, it is with caution that we affirm granting moral damages, for it might open the floodgates for government officials counter/claiming damages in suits filed against them in connection with their functions Moreover, we must *e careful lest the amounts awarded ma8e citi7ens hesitate to e,pose corruption in the government, for fear of lawsuits from vindictive government officials 2hus, conforma*ly with our declaration that moral damages are not intended to enrich anyone,'' we here*y reduce the moral damages award in this case from two hundred thousand =P%((,((( ((? pesos to seventy five thousand =P)",((( ((? pesos, while the e,emplary damage is set at P%",((( (( only 2he law allows the award of attorney9s fees when e,emplary damages are awarded, and when the party to a suit was compelled to incur e,penses to protect his interest '4 2hough government officers are usually represented *y the Solicitor <eneral in cases connected with the performance of official functions, considering the nature of the charges, herein respondent 3arin was compelled to hire a private lawyer for the conduct of his defense as well as the successful pursuit of his counterclaims !n our view, given the circumstances of this case, there is ample ground to award in his favor P"(,(((,(( as reasona*le attorney9s fees 5B@$@0.$@, the assailed decision of the #ourt of -ppeals dated 6ovem*er %9, 1991, is here*y -00!$M@1 with M.1!0!#-2!.6 so that the award of actual damages are deleted4 and that petitioner is here*y .$1@$@1 to pay to respondent 3arin moral damages in the amount of

P)",((( ((, e,emplary damages in the amount of P%",((( ((, and attorney9s fees in the amount of P"(,((( (( only
1âwphi1.nêt

6o pronouncement as to costs S. .$1@$@1

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