Beruflich Dokumente
Kultur Dokumente
-versus-
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DECISION
FILINVEST DEVELOPMENT Taxation; Taxes, being burdens, are not to be presumed beyond what
CORPORATION, the applicable statute expressly and clearly declares; While it is true
Respondent. that taxes are the lifeblood of the government, it has been held that
their assessment and collection should be in accordance with law as
any arbitrariness will negate the very reason for government itself.—
x-------------------------------------x G. R. No. 167689 Even if we were, therefore, to accord precipitate credulity to the CIR’s
bare assertion that FDC had deducted substantial interest expense
COMMISSIONER OF Present: from its gross income, there would still be no factual basis for the
INTERNAL REVENUE, imputation of theoretical interests on the subject advances and assess
Petitioner, CORONA, C.J., deficiency income taxes thereon. More so, when it is borne in mind
CARPIO, that, pursuant to Article 1956 of the Civil Code of the Philippines, no
VELASCO, JR., interest shall be due unless it has been expressly stipulated in writing.
LEONARDO-DE CASTRO, Considering that taxes, being burdens, are not to be presumed
BRION, beyond what the applicable statute expressly and clearly declares, the
-versus- PERALTA, rule is likewise settled that tax statutes must be construed strictly
BERSAMIN, against the government and liberally in favor of the taxpayer.
DEL CASTILLO, Accordingly, the general rule of requiring adherence to the letter in
ABAD, construing statutes applies with peculiar strictness to tax laws and the
FILINVEST DEVELOPMENT VILLARAMA, JR., provisions of a taxing act are not to be extended by implication. While
CORPORATION, PEREZ, it is true that taxes are the lifeblood of the government, it has been
Respondent. MENDOZA, and held that their assessment and collection should be in accordance with
SERENO,* JJ.
law as any arbitrariness will negate the very reason for government Same; Tax revenues are not intended to be liberally construed; the
itself. rule is settled that the findings and conclusions of the Court of Tax
Appeals (CTA) are accorded great respect and are generally upheld
Same; Requisites for the non-recognition of gain or loss under Section by the Court, unless there is a clear showing of a reversible error or
34 (c) (2) of the 1993 National Internal Revenue Code (NIRC).—As an improvident exercise of authority.—Alongside the principle that tax
even admitted in the 14 February 2001 Stipulation of Facts submitted revenues are not intended to be liberally construed, the rule is settled
by the parties, the requisites for the non-recognition of gain or loss that the findings and conclusions of the CTA are accorded great
under the foregoing provision are as follows: (a) the transferee is a respect and are generally upheld by this Court, unless there is a clear
corporation; (b) the transferee exchanges its shares of stock for showing of a reversible error or an improvident exercise of authority.
property/ies of the transferor; (c) the transfer is made by a person, Absent showing of such error here, we find no strong and cogent
acting alone or together with others, not exceeding four persons; and, reasons to depart from said rule with respect to the CTA’s finding that
(d) as a result of the exchange the transferor, alone or together with no deficiency income tax can be assessed on the gain on the
others, not exceeding four, gains control of the transferee. supposed dilution and/or increase in the value of FDC’s shareholdings
in FAC which the CIR, at any rate, failed to establish. Bearing in mind
Same; Rulings, circulars, rules and regulations promulgated by the the meaning of “gross income” as above discussed, it cannot be
Bureau of Internal Revenue (BIR) have no retroactive application if to gainsaid, even then, that a mere increase or appreciation in the value
so apply them would be prejudicial to the taxpayers; Exceptions to the of said shares cannot be considered income for taxation purposes.
rule.—In its appeal before the CA, the CIR argued that the foregoing Since “a mere advance in the value of the property of a person or
ruling was later modified in BIR Ruling No. 108-99 dated 15 July 1999, corporation in no sense constitute the ‘income’ specified in the
which opined that inter-office memos evidencing lendings or revenue law,” it has been held in the early case of Fisher vs. Trinidad,
borrowings extended by a corporation to its affiliates are akin to that it “constitutes and can be treated merely as an increase of capital.”
promissory notes, hence, subject to documentary stamp taxes. In Hence, the CIR has no factual and legal basis in assessing income
brushing aside the foregoing argument, however, the CA applied tax on the increase in the value of FDC’s shareholdings in FAC until
Section 246 of the 1993 NIRC from which proceeds the settled the same is actually sold at a profit.
principle that rulings, circulars, rules and regulations promulgated by
the BIR have no retroactive application if to so apply them would be DE CASTRO, J., Concurring Opinion:
prejudicial to the taxpayers. Admittedly, this rule does not apply: (a)
where the taxpayer deliberately misstates or omits material facts from Taxation; Income Taxation; Words and Phrases; Income in tax law is
his return or in any document required of him by the Bureau of Internal an amount of money coming to a person within a specified time,
Revenue; (b) where the facts subsequently gathered by the Bureau of whether as payment for services, interest, or profit from investment.—
Internal Revenue are materially different from the facts on which the I likewise agree that any increase in the value of the shareholdings of
ruling is based; or (c) where the taxpayer acted in bad faith. Not being FDC in Filinvest Asia Corporation (FAC) is not yet taxable income for
the taxpayer who, in the first instance, sought a ruling from the CIR, it remains unrealized until said shareholdings are sold or disposed of.
however, FDC cannot invoke the foregoing principle on non- Income in tax law is “an amount of money coming to a person within
retroactivity of BIR rulings. a specified time, whether as payment for services, interest, or profit
from investment.” It means cash or its equivalent. It is gain derived
and severed from capital, from labor, or from both combined. Income
should be reported at the time of the actual gain. For income tax Assailed in these twin petitions for review on certiorari filed
purposes, income is an actual gain or an actual increase of wealth. In
this case, FDC will only enjoy actual gain if it is able to sell its pursuant to Rule 45 of the 1997 Rules of Civil Procedure are the
shareholdings in FAC at a price higher than the cost of acquiring the decisions rendered by the Court of Appeals (CA) in the following
same. In fact, as along as FDC holds on to its shareholdings in FAC, cases: (a) Decision dated 16 December 2003 of the then Special Fifth
FDC is at risk of suffering loss should the value of its shareholdings in
Division in CA-G.R. SP No. 72992;[1] and, (b) Decision dated 26
FAC decrease in the future.
January 2005 of the then Fourteenth Division in CA-G.R. SP No.
Same; Justice de Castro joins the majority opinion in classifying the 74510.[2]
instructional letters, journals, and cash vouchers evidencing the
advances Filinvest Development Corporation (FDC) extended to its The Facts
affiliates as loan agreements, upon which documentary stamp taxes
may be imposed.—I join the majority opinion in classifying the
instructional letters, journals, and cash vouchers evidencing the The owner of 80% of the outstanding shares of respondent Filinvest
advances FDC extended to its affiliates as loan agreements, upon Alabang, Inc. (FAI), respondent Filinvest Development Corporation
which documentary stamp taxes (DST) may be imposed. Regardless
of whether or not the CIR may impute interest on the cash advances, (FDC) is a holding company which also owned 67.42% of the
there is no dispute that said advances were in the nature of loans, outstanding shares of Filinvest Land, Inc. (FLI). On 29 November
which were extended by FDC to its affiliates as financial assistance 1996, FDC and FAI entered into a Deed of Exchange with FLI whereby
for the latter’s operational and capital expenditures, and which were
repaid by the affiliates to FDC within the duration of one week to three the former both transferred in favor of the latter parcels of land
months. appraised at P4,306,777,000.00. In exchange for said parcels which
were intended to facilitate development of medium-rise residential and
PETITIONS for review on certiorari of the decisions of the Court of
commercial buildings, 463,094,301 shares of stock of FLI were issued
Appeals.
to FDC and FAI.[3] As a result of the exchange, FLIs ownership
The facts are stated in the opinion of the Court. structure was changed to the extent reflected in the following
tabular prcis, viz.:
The Solicitor General for petitioner.
Estelito P. Mendoza and Lorenzo Timbol for respondent. Stockhold Number and Number of Number and
Percentage of Additional Percentage of
er Shares Held Prior Shares Shares Held After
to the Exchange Issued the Exchange