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FACTS
In 1915, Vicente Madrigal filed a sworn declaration with the CIR showing a total net
income for the year 1914 the sum of P296K. He claimed that the amount did not
represent his own income for the year 1914, but the income of the conjugal
partnership
existing between him and his wife, Susana Paterno. He contended that since there
exists such conjugal partnership, the income declared should be divided into 2
equal
parts in computing and assessing the additional income tax provided by the Act of
Congress of 1913. The Attorney-General of the Philippines opined in favor of
Madrigal,
but Rafferty, the US CIR, decided against Madrigal.
After his payment under protest, Madrigal instituted an action to recover the sum of
P3,800 alleged to have been wrongfully and illegally assessed and collected, under
the provisions of the Income Tax Law. However, this was opposed by Rafferty,
contending that taxes imposed by the Income Tax Law are taxes upon income, not
upon capital or property, and that the conjugal partnership has no bearing on
income
considered as income.
The CFI ruled in favor of the defendants, Rafferty.
ISSUE
Whether Madrigals income should be divided into 2 equal parts in the assessment
and computation of his tax
HELD
NO. Susana Paterno, wife of Vicente Madrigal, still has an inchoate right in the
property of her husband 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 has no absolute right to
onehalf
the income of the conjugal partnership. Not being seized of a separate estate, she
cannot make a separate return in order to receive the benefit of exemption, which
could arise by reason of the additional tax. As she has no estate and income,
actually
and legally vested in her and entirely separate from her husbands property, the
income cannot be considered the separate income of the wife for purposes of
additional tax.
Income, as contrasted with capital and 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. A tax on income is not tax on
property.
not the fault of its tenants; hence, petitioner is deemed to have constructively
received such rentals in 1957.
The payment by the sub-tenant should have been reported as rental income in said
year as it in still income regardless of the source.
Conwi, et.al. vs. CTA and CIR
Post under case digests, Taxation at Thursday, January 26, 2012 Posted by
Schizophrenic Mind
Facts: Petitioners are employees of Procter and Gamble (Philippine Manufacturing
Corporation, subsidiary of Procter & Gamble, a foreign corporation).During the years
1970 and 1971, petitioners were assigned to other subsidiaries of Procter & Gamble
outside 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.
Issues:
(1) Whether or not petitioners' dollar earnings are receipts derived from foreign
exchange transactions; NO.
(2) Whether or not the proper rate of conversion of petitioners' dollar earnings for
tax purposes in the prevailing free market rate of exchange and not the par value of
the peso; YES.
Held: 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 though 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 were earning in their assigned
nation's currency and were ALSO spending in said currency. There was no
conversion, therefore, from one currency to another.
The dollar earnings of petitioners are the fruits of their labors in the foreign
subsidiaries of Procter & Gamble. It was a definite amount of money which came to
them within a specified period of time of two years as payment for their services.
And in the implementation for the proper enforcement of the National Internal
Revenue Code, Section 338 thereof empowers the Secretary of Finance to
"promulgate all needful rules and regulations" to effectively enforce its provisions
pursuant to this authority, Revenue Memorandum Circular Nos. 7-71 and 41-71
were issued to prescribed a uniform rate of exchange from US dollars to Philippine
pesos for INTERNAL REVENUE TAX PURPOSES for the years 1970 and 1971,
respectively. Said revenue circulars were a valid exercise of the authority given to
the Secretary of Finance by the Legislature which enacted the Internal Revenue
Code. And these are presumed to be a valid interpretation of said code until revoked
by the Secretary of Finance himself.
Petitioners are citizens of the Philippines, and their income, within or without, and in
these cases wholly without, are subject to income tax. Sec. 21, NIRC, as amended,
does not brook any exemption.
DENIED FOR LACK OF MERIT.
Baas Jr. v. Court of Appeals [G.R. No. 102967. February 10, 2000]
Petitioner entered into a deed of sale purportedly on installment. He discounted the
promissory note covering the future installments for purposes of taxation.
ISSUE
Whether or not the promissory note should be declared cash transaction for
purposes of taxation.
RULING
YES. A negotiable instrument is deemed a substitute for money and for value.
According to Sec. 25 of NIL: value is any consideration sufficient to support a
simple contract. An antecedent or pre-existing debt constitutes value; and is
deemed such whether the instrument is payable on demand or at a future time.
Although the proceed of a discounted promissory note is not considered part of the
initial payment, it is still taxable income for the year it was converted into cash.
PANSACOLA v. CIR
Facts: Petitioner Pansacola filed his income tax return for the taxable year 1997 that
reflected an overpayment of P5950. In it he claimed the increased amounts of
personal and additional exemptions, although his certificate of income tax withheld
Rep. Act 7167 says that the increased personal exemptions shall be available after
the law shall have become effective. These exemptions are available upon the filing
of personal income tax returns, done not later than the 15th day of April after the
end of a calendar year. Thus, under Rep. Act 7167, which became effective, on 30
January 1992, the increased exemptions are literally available on or before 15 April
1992 [though not before 30 January 1992]. But these increased exemptions can be
available on 15 April 1992 only in respect of compensation income earned or
received during the calendar year 1991. The personal exemptions as increased by
Rep. Act 7167 are not available in respect of compensation income received during
the 1990 calendar year; the tax due in respect of said income had already accrued,
and been presumably paid (The law does not state retroactive application). The
personal exemptions as increased by Rep. Act 7167 cannot be regarded as available
as to compensation income received during 1992 because it would in effect
postpone the availability of the increased exemptions to 1 January-15 April 1993.
The implementing regulations collide with Section 3 of Rep. Act 7167 which states
that the statute "shall take effect upon its approval.
The revenue regulation should take effect on compensation income earned or
received from 1 January 1991. Since this decision is promulgated after 15 April
1992, those taxpayers who have already paid are entitled to refunds or credits.
Furthermore, Pool Agreement or an association that would handle all the insurance
businesses covered under their quota-share reinsurance treaty and surplus
reinsurance treaty with Munich may be considered a partnership because it contains
the following elements: (1) The pool has a common fund, consisting of money and
other valuables that are deposited in the name and credit of the pool. This common
fund pays for the administration and operation expenses of the pool. (2) The pool
functions through an executive board, which resembles the board of directors of a
corporation, composed of one representative for each of the ceding companies. (3)
While, the pool itself is not a reinsurer and does not issue any policies; its work is
indispensable, beneficial and economically useful to the business of the ceding
companies and Munich, because without it they would not have received their
premiums pursuant to the agreement with Munich. Profit motive or business is,
therefore, the primordial reason for the pools formation.
PASCUAL v. Commissioner of InternalRevenue #10 BUSORG
FACTS:
On June 22, 1965, petitioners bought two (2)parcels of land from Santiago
Bernardino, et al.and on May 28, 1966, they bought anotherthree (3) parcels of land
from Juan Roque. Thefirst two parcels of land were sold by petitionersin 1968 to
Marenir Development Corporation,while the three parcels of land were sold
bypetitioners to Erlinda Reyes and Maria Samsonon March 19,1970. Petitioner
realized a netprofit in the sale made in 1968 in the amount of P165, 224.70, while
they realized a net profit of P60,000 in the sale made in 1970. Thecorresponding
capital gains taxes were paid bypetitioners in 1973 and 1974 .Respondent
Commissioner informed petitionersthat in the years 1968 and 1970, petitioners
asco-owners in the real estate transactions formedan unregistered partnership or
joint venturetaxable as a corporation under Section 20(b)and its income was subject
to the taxesprescribed under Section 24, both of theNational Internal Revenue Code;
that theunregistered partnership was subject tocorporate income tax as
distinguished fromprofits derived from the partnership by themwhich is subject to
individual income tax.
ISSUE:
Whether petitioners formed an unregisteredpartnership subject to corporate income
tax(partnership vs. co-ownership)
RULING:
Article 1769 of the new Civil Code lays down therule for determining when a
transaction shouldbe deemed a partnership or a co-ownership.Said article
paragraphs 2 and 3, provides:(2) Co-ownership or co-possession does not itself
establish a partnership, whether such co-ownersor co-possessors do or do not share
any profitsmade by the use of the property; (3) Thesharing of gross returns does not
of itself establish a partnership, whether or not thepersons sharing them have a
joint or commonright or interest in any property from which thereturns are
derived;The sharing of returns does not in itself establish a partnership whether or
not thepersons sharing therein have a joint or commonright or interest in the