Limpan vs CIR

Facts

Limpan Investment Corp is a domestic corporation engaged in the business of leasing

real properties. Among its real properties are lots and buildings in Manila and Pasay
City acquired from Isabelo Lim and his mother. After filing tax returns for 1956, 1957,
the examiners of BIR discovered that the corporation has understated its rental incomes
by 20k and 81k during said years as well as claimed excessive depreciation amounting
to 20k and 16k. The CIR demanded payment for deficiency tax and surcharge.
Petitioners argue that these amounts were either deposited with the court by the tenants
or have yet to be received.

Issue:

W/N there was undeclared income

Held:

Yes, petitioner admitted that it had undeclared more than half of the amount, therefore it
was incumbent upon the corporation to establish the remainder of its pretensions by
clear and convincing evidence which was lacking in this case.

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 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 sub-tenant should have been reported as rental income in said
year as it in still income regardless of the source.

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.
RENTS/LEASES

FACTS:
BIR assessed deficiency taxes on Limpan Corp, a company that leases real property,
for under-declaring 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 corps 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 petitioners 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.