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Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. L-15113 January 28, 1961
ANTONO ME!NA, petitioner,
vs.
COLLECTOR O" NTERNAL RE#ENUE an$ T%E COURT O" TA& APPEALS
respondents.
Eusebio D. Morales for petitioner.
Office of the Solicitor General for respondents.
RE'ES, J.B.L. J.(
Petition to review a decision of the Court of Tax Appeals upholdin a tax assess!ent of
the Collector of "nternal Revenue except with respect to the i!position of so#called
co!pro!ise penalties, which were set aside.
The records show that on or about Ma$ %&, '()), petitionin taxpa$er Antonio Medina
!arried Antonia Rodriue*. Before '()+, the spouses had neither propert$ nor
business of their own. ,ater, however, petitioner ac-uired forest, concessions in the
!unicipalities of .an Mariano and Palanan in the Province of "sabela. /ro! '()+ to
'()0, the los cut and re!oved b$ the petitioner fro! his concessions were sold to
different persons in Manila throuh his aent, Mariano 1sorio.
.o!e ti!e in '()(, Antonia R. Medina, petitioner2s wife, started to enae in business
as a lu!ber dealer, and up to around '(3%, petitioner sold to her al!ost all the los
produced in his .an Mariano, concession. Mrs. Medina, "n turn, sold in Manila the los
bouht fro! her husband throuh the sa!e aent, Mariano 1sorio. The proceeds
were, upon instructions fro! petitioner, either received b$ 1sorio for petitioner or
deposited b$ said aent in petitioner2s current account with the Philippine National
Ban4.
1n the thesis that the sales !ade b$ petitioner to his wife were null and void pursuant
to the provisions of Article ')(& of the Civil Code of the Philippines 5for!erl$, Art. ')30,
Civil Code of '00(6, the Collector considered the sales !ade b$ Mrs. Medina as the
petitioner2s oriinal sales taxable under .ection '0+ of the National "nternal Revenue
Code and, therefore, i!posed a tax assess!ent on petitioner, callin for the pa$!ent
of P),337.3) as deficienc$ sales taxes and surchares fro! '()( to '(3%. This sa!e
assess!ent of .epte!ber %+, '(37 souht also the collection of another su! of
P+)7.() as deficienc$ sales tax and surchare based on petitioner2s -uarterl$ returns
fro! '()+ to '(3%.
1n Nove!ber 7&, '(37, petitioner protested the assess!ent8 however, respondent
Collector insisted on his de!and. 1n 9ul$ (, '(3), petitioner filed a petition for
reconsideration revealin for the first ti!e the existence of an alleed pre!arital
aree!ent of co!plete separation of properties between hi! and his wife, and
contendin that the assess!ent for the $ears '()+ to '(3% had alread$ prescribed.
After one hearin, the Conference .taff of the Bureau of "nternal Revenue eli!inated
the 3&: fraud penalt$ and held that the taxes assessed aainst hi! before '()0 had
alread$ prescribed. Based on these findins, the Collector issued a !odified
assess!ent, de!andin the pa$!ent of onl$ P7,7%3.+0, co!puted as follows;
3: tax due on P<,%&(.07 #'()( P 7+&.)(
3: tax due on '+,()3.33 # '(3& 0)<.%0
3: tax due on '+,0<).3% # '(3' 0)7.<3
3: tax due on '',&&(.() # '(3% 33&.3&
T1TA, sales tax due P%,+&%.&
%3: .urchare thereon +3&.3'
.hort taxes per -uarterl$ returns, 7rd -uarter, '(3& 30.3%
%3: .urchare thereon ').+7
T1TA, AM1=NT due > collectible P7,7%3.+0
Petitioner aain re-uested for reconsideration, but respondent Collector, in his letter of
April ), '(33, denied the sa!e.
Petitioner appealed to the Court of Tax Appeals, which rendered ?ud!ent as aforesaid.
The Court2s decision was based on two !ain findins, na!el$, 5a6 that there was no
pre!arital aree!ent of absolute separation of propert$ between the Medina spouse8
and 5b6 assu!in that there was such an aree!ent, the sales in -uestion !ade b$
petitioner to his wife were fictitious, si!ulated, and not bona fide.
"n his petition for review to this Court, petitioner raises several assin!ents of error
revolvin around the central issue of whether or not the sales !ade b$ the petitioner to
his wife could be considered as his oriinal taxable sales under the provisions of
.ection '0+ of the National "nternal Revenue Code.
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Rel$in !ainl$ on testi!onial evidence that before their !arriae, he and his wife
executed and recorded a prenuptial aree!ent for a rei!e of co!plete separation of
propert$, and that all trace of the docu!ent was lost on account of the war, petitioner
i!putes lac4 of basis for the tax court2s factual findin that no aree!ent of co!plete
separation of propert$ was ever executed b$ and between the spouses before their
!arriae. @e do not thin4 so. Aside fro! the !aterial inconsistencies in the testi!on$
of petitioner2s witnesses pointed out b$ the trial court, the circu!stantial evidence is
aainst petitioner2s clai!. Thus, it appears that at the ti!e of the !arriae between
petitioner and his wife, the$ neither had an$ propert$ nor business of their own, as to
have reall$ ured the! to enter into the supposed propert$ aree!ent. .econdl$, the
testi!on$ that the separation of propert$ aree!ent was recorded in the Reistr$ of
Propert$ three !onths before the !arriae, is patentl$ absurd, since such a prenuptial
aree!ent could not be effective before !arriae is celebrated, and would
auto!aticall$ be cancelled if the union was called off. Aow then could it be accepted for
recordin prior to the !arriaeB "n the third place, despite their insistence on the
existence of the ante nuptial contract, the couple, stranel$ enouh, did not act in
accordance with its alleed covenants. Cuite the contrar$, it was proved that even
durin their taxable $ears, the ownership, usufruct, and ad!inistration of their
properties and business were in the husband. And even when the wife was enaed in
lu!ber dealin, and she and her husband contracted sales with each other as
aforestated, the proceeds she derived fro! her alleed subse-uent disposition of the
los D incidentall$, b$ and throuh the sa!e aent of her husband, Mariano 1sorio D
were either received b$ 1sorio for the petitioner or deposited b$ said aent in
petitioner2s current account with the Philippine National Ban4. /ourth, althouh
petitioner, a law$er b$ profession, alread$ 4new, after he was infor!ed b$ the Collector
on or about .epte!ber of '(37, that the pri!ar$ reason wh$ the sales of los to his
wife could not be considered as the oriinal taxable sales was because of the express
prohibition found in Article ')(& of the Civil Code of sales between spouses !arried
under a co!!unit$ s$ste!8 $et it was not until 9ul$ of '(3) that he alleed, for the first
ti!e, the existence of the supposed propert$ separation aree!ent. /inall$, the Ea$
Boo4 of the Reister of Eeeds on which the aree!ent would have been entered, had
it reall$ been reistered as petitioner insists, and which boo4 was a!on those saved
fro! the ravaes of the war, did not show that the docu!ent in -uestion was a!on
those recorded therein.
@e have alread$ ruled that when the credibilit$ of witnesses is the one at issue, the trial
court2s ?ud!ent as to their deree of credence deserves serious consideration b$ this
Court 5Collector vs. Bautista, et al., F.R. Nos. ,#'%%3& > ,#'%%3(, Ma$ %<, '(3(6. This
is all the !ore true in this case because not ever$ cop$ of the supposed aree!ent,
particularl$ the one that was said to have been filed with the Cler4 of Court of "sabela,
was accounted for as lost8 so that, appl$in the Gbest evidence ruleG, the court did riht
in ivin little or no credence to the secondar$ evidence to prove the due execution and
contents of the alleed docu!ent 5see Co!!ents on the Rules of Court, Moran, '(3<
Ed., Hol. 7, pp. '&.'%6.
The foreoin findins notwithstandin, the petitioner arues that the prohibition to sell
expressed under Article ')(& of the Civil Code has no application to the sales !ade b$
said petitioner to his wife, because said transactions are conte!plated and allowed b$
the provisions of Articles < and '& of the Code of Co!!erce. But said provisions
!erel$ state, under certain conditions, a presu!ption that the wife is authori*ed to
enae in business and for the incidents that flow therefro! when she so enaes
therein. But the transactions per!itted are those entered into with straners, and do not
constitute exceptions to the prohibitor$ provisions of Article ')(& aainst sales between
spouses.
Petitioner2s contention that the respondent Collector can not assail the -uestioned
sales, he bein a straner to said transactions, is li4ewise untenable. The overn!ent,
as correctl$ pointed out b$ the Tax Court, is alwa$s an interested part$ to all !atters
involvin taxable transactions and, needless to sa$, -ualified to -uestion their validit$ or
leiti!ac$ whenever necessar$ to bloc4 tax evasion.
Contracts violative of the provisions of Article ')(& of the Civil Code are null and void
5=$ .ui Pin vs. Cantollas, <& Phil. 338 =$ Co-ue vs. .ioca )3 Phil. )76. Bein void
transactions, the sales !ade b$ the petitioner to his wife were correctl$ disrearded b$
the Collector in his tax assess!ents that considered as the taxable sales those !ade
b$ the wife throuh the spouses2 co!!on aent, Mariano 1sorio. "n upholdin that
stand, the Court below co!!itted no error.
"t is also the petitioner2s contention that the lower court erred in usin illeall$ sei*ed
docu!entar$ evidence aainst hi!. But even assu!in arguendo the truth of
petitioner2s chare reardin the sei*ure, it is now settled in this ?urisdiction that illeall$
obtained docu!ents and papers are ad!issible in evidence, if the$ are found to be
co!petent and relevant to the case 5see @on > ,ee vs. Collector of "nternal Revenue,
F.R. No. ,#'&'33, Auust 7&, '(306. "n fairness to the Collector, however, it should be
stated that petitioner2s i!putation is vehe!entl$ denied b$ hi!, and rel$in on .ections
7, (, 77< and 770 of the Tax Code and the pertinent portions of Revenue Reulations
No. H#' and citin this Court2s rulin in =... vs. Aviado, 70 Phil. '&, the Collector
!aintains that he and other internal revenue officers and aents could re-uire the
production of boo4s of accounts and other records fro! a taxpa$er. Aavin arrived at
the foreoin conclusion, it beco!es unnecessar$ to discuss the other issues raised,
which are but pre!ised on the assu!ption that a pre!arital aree!ent of total
separation of propert$ existed between the petitioner and his wife.
@AERE/1RE, the decision appealed fro! is affir!ed, with costs aainst the petitioner.
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