Hilado vs. CIR [G.R. No. L-9408. October 31, 1956.

]
En Banc, Bautista Angelo (J): 8 concurring
Facts: On 31 March 1952, Emilio Y. Hilado filed his income tax return for 1951 with the treasurer of
Bacolod City wherein he claimed, among other things, the amount of P12,837.65 as a deductible
item from his gross income pursuant to General Circular V-123 issued by the Collector of Internal
Revenue. This circular was issued pursuant to certain rules laid down by the Secretary of Finance.
On the basis of said return, an assessment notice demanding the payment of P9,419 was sent to
Hilado, who paid the tax in monthly installments, the last payment having been made on 2 January
1953. Meanwhile, on 30 August 1952, the Secretary of Finance, through the Collector of Internal
Revenue, issued General Circular V-139 which not only revoked and declared void his general
Circular V- 123 but laid down the rule that losses of property which occurred during the period of
World War II from fires, storms, shipwreck or other casualty, or from robbery, theft, or
embezzlement are deductible in the year of actual loss or destruction of said property. As a
consequence, the amount of P12,837.65 was disallowed as a deduction from Hilados gross
income for 1951 and the Collector of Internal Revenue demanded from him the payment of the
sum of P3,546 as deficiency income tax for said year. When the petition for reconsideration filed by
Hilado was denied, he filed a petition for review with the Court of Tax Appeals. In due time, the
court rendered decision affirming the assessment made by Collector of Internal Revenue. Hence,
the appeal to the Supreme Court.
The Supreme Court affirmed the decision appealed from, without pronouncement as to costs.
1. Amount cannot be deducted as a loss in 1951
Assuming that the amount claimed as a loss represents a portion of the 75% of his war damage
claim which was not paid, the same would not be deductible as a loss in 1951 because, according
to Hilado, the last installment he received from the War Damage Commission, together with the
notice that no further payment would be made on his claim, was in 1950. In the circumstance, said
amount would at most be a proper deduction from his 1950 gross income. In the second place,
said amount cannot be considered as a business asset which can be deducted as a loss in
contemplation of law because its collection is not enforceable as a matter of right, but is dependent
merely upon the generosity and magnanimity of the US government.
2. No law allowing Hilado compensation for the property destruction in 1945; Payment
discretionary under Philippine Rehabilitation Act of 1946
As of the end of 1945, there was absolutely no law under which Hilado could claim compensation
for the destruction of his properties during the battle for the liberation of the Philippines. And under
the Philippine Rehabilitation Act of 1946, the payments of claims by the War Damage Commission
merely depended upon its discretion to be exercised in the manner it may see fit, but the nonpayment of which cannot give rise to any enforceable right, for, under said Act, All findings of the
Commission concerning the amount of loss or damage sustained, the cause of such loss or
damage, the persons to whom compensation pursuant to this title is payable, and the value of the
property lost or damaged, shall be conclusive and shall not be reviewable by any court. (section
113).
3. Opinion of the Secretary of Justice, whom the Secretary of Finance sought advice from
... it might be argued that war losses were not included as deductions for the year when they were
Taxation Law I, 2003 ( 57 )
Haystacks (Berne Guerrero)
sustained because the taxpayers had prospects that losses would be compensated for by the
United States Government; that since only uncompensated losses are deductible, they had to wait
until after the determination by the Philippine War Damage Commission as to the compensability in
part or in whole of their war losses so that they could exclude from the deductions those
compensated for by the said Commission; and that, of necessity, such determination could be
complete only much later than in the year when the loss was sustained. This contention falls to the
ground when it is considered that the Philippine Rehabilitation Act which authorized the payment
by the United States Government of war losses suffered by property owners in the Philippines was
passed only on August 30, 1946, long after the losses were sustained. It cannot be said therefore,
that the property owners had any conclusive assurance during the years said losses were
sustained, that the compensation was to be paid therefor. Whatever assurance they could have
had, could have been based only on some information less reliable and less conclusive than the

passage of the Act itself. Hence, as diligent property owners, they should adopt the safest
alternative by considering such losses deductible during the year when they were sustained.
4. General Circular V-139 revokes V-123, and laid down rules RE losses of property occurred in
WWII
In line with the opinion of the Secretary of Justice, the Secretary of Finance, through the Collector
of Internal Revenue, issued General Circular V-139 which not only revoked and declared void his
previous Circular V-123 but laid down the rule that losses of property which occurred during the
period of World War II from fires, storms, shipwreck or other casualty, or from robbery, theft, or
embezzlement are deductible for income tax purposes in the year of actual destruction of said
property. Thus, as to the present case, it is clear that the loss of the corresponding asset or
property could only be deducted in the year it was actually sustained. This is in line with section 30
(d) of the National Internal Revenue Code which prescribes that losses sustained are allowable as
deduction only within the corresponding taxable year.
5. Internal revenue laws are not political nature and were in force during enemy occupation
Philippine internal revenue laws are not political in nature and as such were continued in force
during the period of enemy occupation and in effect were actually enforced by the occupation
government. As a matter of fact, income tax returns were filed during that period and income tax
payment were effected and considered valid and legal. Such tax laws are deemed to be the laws of
the occupied territory and not of the occupying enemy.
6. Law, except those of political nature, once established continues until changed by competent
legislative power
It is a legal maxim, that excepting that of a political nature, Law once established continues until
changed by some competent legislative power. It is not changed merely by change of sovereignty.
(Joseph H. Beale, Cases on Conflict of Laws, III, Summary section 9, citing Commonwealth vs.
Chapman, 13 Met., 68.) As the same author says, in his Treatise on the Conflict of Laws
(Cambridge, 1916, section 131): There can be no break or interruption in law. From the time the
law comes into existence with the first-felt corporateness of a primitive people it must last until the
final disappearance of human society. Once created, it persists until a change takes place, and
when changed it continues in such changed condition until the next change and so forever.
Conquest or colonization is impotent to bring law to an end; inspite of change of constitution, the
law continues unchanged until the new sovereign by legislative act creates a change. (Co Kim
Chan vs. Valdes Tan Keh and Dizon, 75 Phil., 113, 142-143.)
7. Secretary of Finance vested to revoke, repeal or abrogate acts or previous rulings of
predecessor
The Secretary of Finance is vested with authority to revoke, repeal or abrogate the acts or previous
rulings of his predecessor in office because the construction of a statute by those administering it is
not binding on their successors if thereafter the latter become satisfied that a different construction
should be given. [Association of Clerical Employees vs. Brotherhood of Railways & Steamship
Clerks, 85 F. (2d) 152, 109 A.L.R., 345.] Thus, in the present case, when the Commissioner
determined in 1937 that the petitioner
Taxation Law I, 2003 ( 58 )
Haystacks (Berne Guerrero)
was not exempt and never had been, it was his duty to determine, assess and collect the tax due
for all years not barred by the statutes of limitation. The conclusion reached and announced by his
predecessor in 1924 was not binding upon him. It did not exempt Hilado from tax (This same point
was decided in this way in Stanford University Bookstore, 29 B. T. A., 1280; affd., 83 Fed. (2d)
710.; Southern Maryland Agricultural Fair Association vs. Commissioner of Internal Revenue, 40 B.
T. A., 549, 554).
8. Vested right cannot spring from a wrong interpretation
General Circular V-123, having been issued on a wrong construction of the law, cannot give rise to
a vested right that can be invoked by a taxpayer. A vested right cannot spring from a wrong
interpretation.
9. Erroneous interpretation of a statute is a nullity; Erroneous construction of law does not preclude
government from collecting tax
An administrative officer can not change a law enacted by Congress. A regulation that is merely an
interpretation of the statute when once determined to have been erroneous becomes nullity. An

erroneous construction of the law by the Treasury Department or the collector of internal revenue
does not preclude or estop the government from collecting a tax which is legally due. (Ben Stocker,
et al., 12 B. T. A., 1351.)
10. Article 2254 of the New Civil Code
Article 2254 provides that No vested or acquired right can arise from acts or omissions which are
against the law or which infringe upon the rights of others. (Article 2254, New Civil Code.)