Tax 2 Case Digests

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RAFAEL ARSENIO S.

DIZON, in his capacity as the Judicial Administrator of the Estate of the deceased
JOSE P. FERNANDEZ vs. COURT OF TAX APPEALS and COMMISSIONER OF INTERNAL REVENUE

G.R. No. 140944 April 30, 2008

Facts:

1. On November 7, 1987, Jose P. Fernandez died.

2. Thereafter, a petition for the probate of his will was filed.

3. The probate court then appointed retired Supreme Court Justice Arsenio P. Dizon and petitioner,
Atty. Rafael Arsenio P. Dizon as Special and Assistant Special Administrator.

4. Justice Dizon authorized Atty. Jesus M. Gonzales (Atty. Gonzales) to sign and file on behalf of the
Estate the required estate tax return and to represent the same in securing a Certificate of Tax
Clearance.

5. On April 27, 1990, BIR Regional Director issued Certification stating that the taxes due on the
transfer of real and personal properties of Jose had been fully paid and said properties may be
transferred to his heirs.

6. Petitioner requested the probate court's authority to sell several properties forming part of the
Estate, for the purpose of paying its creditors.

7. Petitioner manifested that Manila Bank, a major creditor of the Estate was not included, as it did
not file a claim with the probate court since it had security over several real estate properties forming
part of the Estate.

8. However, on November 26, 1991, the Assistant Commissioner for Collection of the BIR, issued
Estate Tax Assessment Notice demanding the payment of P66,973,985.40 as deficiency estate tax.

Issue:

Whether the actual claims of the creditors may be fully allowed as deductions from the gross
estate of Jose despite the fact that the said claims were reduced or condoned through compromise
agreements entered into by the Estate with its creditors

Ruling:

It is admitted that the claims of the Estate's aforementioned creditors have been condoned -
mode of extinguishing an obligation.

The U.S. court ruled that the appropriate deduction is the value that the claim had at the date of
the decedent's death. Also, as held in Propstra v. U.S., where a lien claimed against the estate was
certain and enforceable on the date of the decedent's death, the fact that the claimant subsequently
settled for lesser amount did not preclude the estate from deducting the entire amount of the claim for
estate tax purposes. These pronouncements essentially confirm the general principle that post-death
developments are not material in determining the amount of the deduction.

The court expresses its agreement with the date-of-death valuation rule.

First. There is no law, nor do we discern any legislative intent in our tax laws, which disregard the date-
of-death valuation principle and particularly provide that post-death developments must be considered
in determining the net value of the estate. It bears emphasis that tax burdens are not to be imposed,
nor presumed to be imposed, beyond what the statute expressly and clearly imports, tax statutes being
construed strictissimi juris against the government. Any doubt on whether a person, article or activity is
taxable is generally resolved against taxation.

Second. Such construction finds relevance and consistency in our Rules on Special Proceedings wherein
the term "claims" required to be presented against a decedent's estate is generally construed to mean
debts or demands of a pecuniary nature which could have been enforced against the deceased in his
lifetime, or liability contracted by the deceased before his death.

Therefore, the claims existing at the time of death are significant to, and should be made the basis of,
the determination of allowable deductions.
MANUEL G. ABELLO, JOSE C. CONCEPCION, TEODORO D. REGALA, AVELINO V. CRUZ vs.
COMMISSIONER OF INTERNAL REVENUE and COURT OF APPEALS

G.R. No. 120721. February 23, 2005

Facts:

     1.        During the 1987 national elections, petitioners, who are partners in the Angara, Abello,
Concepcion, Regala and Cruz (ACCRA) law firm, contributed P882,661.31 each to the campaign funds of
Senator Edgardo Angara, then running for the Senate.

     2.        The BIR assessed each of the petitioners P263,032.66 for their contributions.

     3.        Petitioners questioned the assessment.

     4.        They claimed that political or electoral contributions are not considered gifts under the NIRC,
and that, therefore, they are not liable for donors tax.

     5.        The claim for exemption was denied by the Commissioner.

Ruling:

(1)   Whether or not the political contribution is considered donation

Section 91 of the National Internal Revenue Code (NIRC) reads:

(A)   There shall be levied, assessed, collected and paid upon the transfer by any person, resident or
nonresident, of the property by gift, a tax, computed as provided in Section 92

(B)   The tax shall apply whether the transfer is in trust or otherwise, whether the gift is direct or
indirect, and whether the property is real or personal, tangible or intangible.

Donation has the following elements: (a) the reduction of the patrimony of the donor; (b) the increase in
the patrimony of the donee; and, (c) the intent to do an act of liberality or animus donandi.

The present case falls squarely within the definition of a donation. Petitioners, each gave P882,661.31 to
the campaign funds of Senator Edgardo Angara, without any material consideration. All three elements
of a donation are present. The patrimony of the four petitioners were reduced by P882,661.31 each.
Senator Edgardo Angaras patrimony correspondingly increased by P3,530,645.24. There was intent to
do an act of liberality or animus donandi was present since each of the petitioners gave their
contributions without any consideration.
(2)   Whether or not there is intention to do an act of liberality

First of all, donative intent is a creature of the mind. It cannot be perceived except by the material and
tangible acts which manifest its presence. This being the case, donative intent is presumed present
when one gives a part of ones patrimony to another without consideration.

Second, donative intent is not negated when the person donating has other intentions, motives or
purposes which do not contradict donative intent. This Court is not convinced that since the purpose of
the contribution was to help elect a candidate, there was no donative intent. Petitioners’ contribution of
money without any material consideration evinces animus donandi. The fact that their purpose for
donating was to aid in the election of the donee does not negate the presence of donative intent.

(3)   The definition of an electoral contribution under the Omnibus Election Code is essential to
appreciate how a political contribution differs from a taxable gift

Section 94(a) of the said Code defines electoral contribution as follows:

The term "contribution" includes a gift, donation, subscription, loan, advance or deposit of money or
anything of value, or a contract, promise or agreement to contribute, whether or not legally enforceable,
made for the purpose of influencing the results of the elections but shall not include services rendered
without compensation by individuals volunteering a portion or all of their time in behalf of a candidate
or political party. It shall also include the use of facilities voluntarily donated by other persons, the
money value of which can be assessed based on the rates prevailing in the area.

Since the purpose of an electoral contribution is to influence the results of the election, petitioners again
claim that donative intent is not present. Petitioners attempt to place the barrier of mutual exclusivity
between donative intent and the purpose of political contributions. The Court reiterates that donative
intent is not negated by the presence of other intentions, motives or purposes which do not contradict
donative intent. Petitioners would distinguish a gift from a political donation by saying that the
consideration for a gift is the liberality of the donor, while the consideration for a political contribution is
the desire of the giver to influence the result of an election by supporting candidates who, in the
perception of the giver, would influence the shaping of government policies that would promote the
general welfare and economic wellbeing of the electorate, including the giver himself.

 The fact that petitioners will somehow in the future benefit from the election of the candidate to whom
they contribute, in no way amounts to a valuable material consideration so as to remove political
contributions from the purview of a donation.

Senator Angara was under no obligation to benefit the petitioners. The proper performance of his duties
as a legislator is his obligation as an elected public servant of the Filipino people and not a consideration
for the political contributions he received. In fact, as a public servant, he may even be called to enact
laws that are contrary to the interests of his benefactors, for the benefit of the greater good.
(4)   Final Note

Subsequent to the donations involved in this case, Congress approved Republic Act No. 7166 on
November 25, 1991, providing in Section 13 thereof that political/electoral contributions, duly reported
to the Commission on Elections, are not subject to the payment of any gift tax. These all the more shows
that the political contributions herein made are subject to the payment of gift taxes, since the same
were made prior to the exempting legislation, and Republic Act No. 7166 provides no retroactive effect
on this point.
CIR v. BF Goodrich Philippines

Facts: Private respondent BF Goodrich Philippines Inc. was an American corporation prior to July 3,


1974. As a condition for approving the manufacture of tires and other rubber products, private
respondent was required by the Central Bank to develop a rubber plantation. In compliance therewith,
private respondent bought from the government certain parcels of land in Tumajubong Basilan, in 1961
under the Public Land Act and the Parity Amendment to the 1935 constitution, and there developed a
rubber plantation.

On August 2, 1973, the Justice Secretary rendered an opinion that ownership rights of Americans over
Public agricultural lands, including the right to dispose or sell their real estate, would be lost upon
expiration on July 3, 1974 of the Parity Amendment. Thus, private respondent sold its Basilan land
holding to Siltown Realty Phil. Inc., (Siltown) for P500,000 on January 21, 1974. Under the terms of the
sale, Siltown would lease the property to private respondent for 25 years with an extension of 25 years
at the option of private respondent.

Private respondent books of accounts were examined by BIR for purposes of determining its tax
liability for 1974. This examinationresulted in the April 23, 1975 assessment of private respondent for
deficiency income tax which it duly paid. Siltown’s books of accounts were also examined, and on the
basis thereof, on October 10, 1980, the Collector of Internal Revenue assessed deficiency donor’s tax of
P1,020,850 in relation to said sale of the Basilan landholdings.

Private respondent contested this assessment on November 24, 1980. Another assessment dated March


16, 1981, increasing the amount demanded for the alleged deficiency donor’s tax, surcharge, interest
and compromise penalty and was received by private respondent on April 9, 1981. On appeal, CTA
upheld the assessment. On review, CA reversed the decision of the court finding that
the assessment was made beyond the 5-year prescriptive period in Section 331 of the Tax Code.

Issue: Whether or not petitioner’s right to assess has prescribed.

Held: Applying then Sec. 331, NIRC (now Sec. 203, 1997 NIRC which provides a 3-year prescriptive period
for making assessments), it is clean that the October 16, 1980 and March 16, 1981 assessments were
issued by the BIR beyond the 5-year statute of limitations. The court thoroughly studied the records of
this case and found no basis to disregard the 5-year period of prescription, expressly set under Sec. 331
of the Tax Code, the law then in force.

For the purpose of safeguarding taxpayers from any unreasonableexamination, investigation


or assessment, our tax law provides astatute of limitations in the collection of taxes. Thus, the law or
prescription, being a remedial measure, should be liberally construed in order to afford such protection.
As a corollary, the exceptions to the law on prescription should perforce be strictly construed.

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