TITLE: CU UNJIENG SONS, INC., petitioner, vs.

THE BOARD OF TAX APPEALS and THE COLLECTOR OF

INTERNAL REVENUE, respondents.
G.R. NO. [G.R. No. L-6296. DATE: September 29, 1956.]
PONENTE: CONCEPCION, J p: NATURE: ILLUSTRATION OF RULE
FACTS:
The petitioner filed with the Philippine War Damage Commission a claim for compensation in accordance with the
provisions of Philippine Rehabilitation Act of 1945, for losses sustained during the battle of liberation of Manila and
other parts of the Philippines, in the total sum of P1,079,388.05, representing the appraised value of the properties lost.
The Philippine War Damage Commission notified the petitioner that only the sum of P671,770.19 was approved by the
said Commission and that of this amount the sum of P470,239.13 will be paid. The Philippine War Damage
Commission transmitted to the petitioner U.S. Treasury Warrant No. 1382483 for the sum of P202,531.06 as partial
payment of the approved claim of the petitioner.

The Philippine War Damage Commission transmitted a second United States Treasury Warrant No. 1471286 for the
sum of P151,148.31 together with a notice to the petitioner that the said amount of P151,148.31 would be the last
payment to be made by the Commission covering the claim of the petitioner, unless the United States Congress makes
further appropriation therefor. The petitioner filed its income tax returns for the years 1945, 1946, 1947, 1948, 1949
and 1950, copies of which are marked Exhibits 'A', 'B', 'C', 'D', 'E' and 'F', respectively. The petitioner paid no income
tax for the years 1945 and 1946, but it paid to the respondent the following sums:
1947 P2,483.32 1948 51,150.14 1949 59,925.87 1950 47,243.00
According to the returns filed by the petitioner, it deducted the following war losses for the years set forth below:
1945 22,492.50 1946 7,875.00 1947 94,315.25

The petitioner claimed no further war losses for any of the returns filed by it for the years 1948 and 1950, inclusive. The
respondent disallowed the deductions for war losses claimed by the petitioner for the years 1946 and 1947 on the
ground that all the war losses sustained by the petitioner should have been claimed as deduction for the year 1945
when the said losses were actually sustained, pursuant to Section 30(d) (2) of the National Internal Revenue Code;
By reason of the said disallowance by the respondent, the latter sent assessment notices dated April 11, 1949 and
March 10, 1949 to the petitioner demanding the payment of the sums of P9,540.88 and P23,949.88 as deficiency
income taxes for the years 1946 and 1947, respectively.
The war damage loss in the amount of P329,682.75 was allowed by the respondent and as per investigation, it was
allowed as a deductible item in 1945, in accordance with Section 30(d) (2) of the National Internal Revenue Code.

Whether the losses, aggregating P1,079,388.05, admittedly suffered by Cu Unjieng Sons, Inc., during the battle for the
liberation of Manila and other parts of the Philippines in 1945, were deductible, for income tax purposes, in 1945, when
the losses were physically sustained, or in 1950, when petitioner was advised by the Philippine War Damage
Commission that no payments, other than those effected by said Commission in June and November, 1950, would be
made for said losses.
RULING:
The determination of this question hinges on the interpretation and construction of section 30 of Commonwealth Act
No. 466, otherwise known as the National Internal Revenue Code, from which we quote:
"Deduction from gross income. — In computing net income there shall be allowed as deductions —
"(d) Losses:
"(2) B y corporations. In the case of a corporation, all losses actually sustained and charged off within the taxable
year and not compensated for by insurance or otherwise." (National Internal Revenue Code or C. A. No. 466.)
(Emphasis supplied.)
This legal provision is implemented by Revenue Regulations No. 2, otherwise known as Income Tax Regulations,
issued by the Secretary of Finance, pursuant to Sections 4(1) and 338 of said Commonwealth Act No. 466. Sections
94 and 96 of the aforementioned regulations read:
"SEC. 94. Losses by corporations. — Domestic corporations may deduct losses actually sustained and charged off
within the year and not compensated for by insurance or otherwise.
"SEC. 96. Losses generally. — Losses must usually be evidenced by closed and completed transactions. Moreover,
the amount of loss must be reduced by the amount of any insurance or other compensation received, and by the
salvage value, in any, of the property . . ."

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It is not disputed that the losses in question could only be charged off in the income tax return for the year 1945, unless
compensated for "by insurance or otherwise." Petitioner maintains that said losses were so compensated for "by
insurance or otherwise"; that the said losses were not evidenced by "closed or completed transaction," until notice by
the Philippine War Damage Commission that further compensation therefor would not be forthcoming; and that,
inasmuch as such notice was given in 1950, it follows that the losses in question were not chargeable as deductions in
the year 1945. The Collector of Internal Revenue and the Board of Tax Appeals held, however, that the said losses
were not compensated for by insurance or otherwise, and that, accordingly, the corresponding deduction was
permissible, in 1945, only, not in any other year.

As above stated, this law was approved, and became effective, on April 30, 1946. In order to be entitled to defer
deductions for losses materially sustained within a given year, the right to compensation therefor, "by way of insurance
or otherwise", if any, must exist, however, prior to the conclusion of said year. Consequently, the approval of the
Philippine Rehabilitation Act of 1946 did not constitute in 1945 a compensation "otherwise" than by insurance, and did
not authorize petitioner herein to postpone, to another year, its claim for deduction arising from the war losses in
question.
In other words, it is claimed that the acts and declarations of responsible o􏰁cials and organs of the Government of the
United States before the end of 1945 were such as to constitute "conclusive assurances that property owners had
reasonable expectation, that their war losses would be compensated for." This "reasonable expectation", it is said,
su􏰁ced to place the losses of herein petitioner, during 1945, within the purview of the phrase "compensated for . . .
otherwise" than by insurance in section 30 of our National Internal Revenue Code.

Upon careful consideration of the reasons adduced, and the authorities cited, by counsel for the petitioner and the
amici curiae to bolster up this contention, we find that same is untenable. In general, the word "otherwise" means but
for, or under other circumstances (Shepherd vs. Davis, 110 A, 17, 19, 91, N. J. Eq. 468, 30 W & P 496); in a different
manner; in another way, or in other ways (Safe Deposit & Trust Co. of Baltimore vs.New York Life Insurance Co., D.C.
Md., 14 F Supp. 721, 726). However, when said term is immediately preceded by an enumeration, it should receive an
ejusdem generis interpretation, or be limited in its application by the rule noscitur a sociis. In this connection, words
and phrases uses the following language:
"Under the 'ejusdem generis' rule, a 'clean-up' phrase, such as the term 'otherwise' with respect to a classification
which immediately precedes it, includes only things of a like or similar kind, and nothing of a higher class than that
which it immediately follows. Hodgson vs. Mountain & Gulf Oil Co., D. C. Wyo. 297 F. 269, 272.
"'Otherwise,' as used in Rev. St. sec. 811, denouncing punishment against whoever shall be found guilty of
attempting to rob from the person by cutting or tearing the clothes, or thrusting the hand into the pockets, or
'otherwise,' is intended to include all similar acts to those speci􏰃ed, resorted to in an attempt to rob. State vs. West,
30 So. 848, 106 La. 274.
In other words, the vocable "otherwise" in the clause "compensated for by insurance or otherwise" (in section 30 of
our National Internal Revenue Code) should be construed to refer to compensation due under a title analogous or
similar to insurance. Inasmuch as the latter is a contract establishing a legal obligation (Sec. 2, Art. No. 2427), it
follows that in order to be deemed "compensated for . . . otherwise", the losses sustained by a taxpayer must be
covered by a judicially enforceable right, springing from any of the juridical sources of obligations, namely: law,
contract, quasi- contract, torts or crime (Art. 1157, Civil Code of the Philippines; Art. 1089, Civil Code of Spain).
Hence, Mertens, in his work on the "Law of Federal Income Taxation" (Vol. 5, p. 104), states:
". . . The term 'or otherwise' is broad enough to cover any form of off- setting bene􏰃t as well as acutal recoupment.
However, there must be a measurable right to compensation for the loss with ultimate collection reasonably clear."
(Emphasis supplied.)

The accuracy of this self-evident propositions is impliedly admitted in petitioner's brief. Thus, in an effort to distinguish
the case at bar from that of U. S. vs. White Dental Manufacturing Co., (supra,) cited in the decision of the Board of Tax
Appeals, petitioner stresses the fact that "the obligation to pay . . . compensation for war losses sustained by the
petitioner during the war was expressly provided by law" (referring evidently to the Philippine Rehabilitation Act of
1946), and that no such legislation existed in the case of the White Dental Manufacturing Co. This is an implicit, but,
clear, acknowledgment of the fact that petitioner's right to indemnity for its war losses accrued upon the approval of
said Act of Congress of the United States. In short, such right did not exist, in legal contemplation, during the year
1945. In fact, petitioner says that its right to compensation "was created by law" and entered into the statute book" (p.
39, Petitioner's Brief). Hence, it could have no legal recognition, much less any juridical effect, prior to April 30, 1946,
when said legislation was approved and became effective.
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