r. ~ ,., -:n.iC.

o Tli
:-'O!J~T

OF T.;

/ MELCHOR J . JAVIER , JR . ,
Peti tione r ,
C.T . A. CASE NO. 339 3

- .ver su s ...
RUBEN B. ANCHETA in is
capac i ty as Commiss i oner
of Interna l Revenue ,
Respondent
X .. - -

.- .- . .- .- .- .X

DE C I S I 0 N

The question here is whether t he proceed s of

an err oneous bank remi t.tance to a taxpayer over
which he exer c is ed c omplete Cl.ominion t.o the e x t.e nt.
of disposing them beyond all chance of r ecover y
const i tute taxable i ncome to him.
The f acts are no d i spu ted.

As

all e ge~

by

petitioner Melchor J. Javie r , Jr.. in his pe t ition

for revi ew and admi t .ted by re spondent Commiss i oner
Qf.

Inter nal Revenue fn his answer:

COMES NOW the Petitioner , t hr ough
i ts unders igned counsel and to t his
Honorable Cour t respectfully alleges:
1. That he is a Filipino citi zen ,
of legal age , married and a re s i dent
of 108 (now 326 ) Jose Abad Santos
Street, San J uan ; Metro Man ila ; and
t hat the r e sponden t. Rube n B. Ancheta
is the Commissioner of. Internal Reve nue
and holds h i s off ice a t the Bureau of
Inter nal Revenue i n Quezon City wher e
he may be s e rved with s ummons and othe r .
processe s of this Honorable Court .

19 8

DECISION ..,.
CTA CASE NO . 3393
'

- 2 -

2. That on or a bout J une 3, 1977,

Victoria L. Javier, the wife of. t h e
pet..iti:oner, received fr om the Prude ntial
Bank and Trust Company in Pasay Ci t y
the amount of US$999;973.70 remitted
by her sister, Mr s. Do lores Ventosa ,
thru some u.s. banks among which is
Mellon Bank, N.A.
3. That on or about Jun~ 29, 1977
Mellon Bank, N.A. filed a compla int
with the Court of First I nstance of
Riza l (docketed a s Civil Case No. 26899)
against t he petitioner, his wi f~ and
other defendan ts c l aiming t hat its
remittance of US$1 , 000 ,0 00 .00 wa s a
clerical error and should have been
US$1 ,0 00.00 only and praying that the
excess amount of US$999 , ooo.oo be re- .
turned on the ground that. the defendants
are trustees of an implied trust fo r the
benefit of Mellon Ban k with the clear,
i mmediate and continuing duty to r eturn
the said amount from the moment. i t . was
rece ived .
4. That on or abou t Novenbcr 5 ,
1977, t he Ci t y Fiscal of Pasay City
filed an I nformation wi th the Circui t
Criminal Court (d ocke ~.e d as CCC-~II - .
2369-P.C .) ~barging the petitione r and
his wife with the crime of Estafa alleg- .
ing that t hey misappropriated , misapplie d
and converted to their oNn personal us e
a nd benef it the amoun t of US $99 9 1 000 . 00
which they received unde r an i mpl ied
tru s t for t he benefi t of Mellon Bank
and as a r esu lt. of t he mistake in the
remittance by the l at ter .

s. That on March 15, 1978 , the

petitione r f ile d h is I ncome Ta Re t.urn
fo~ the taxable year 1977 showing a
gross income of P53,05 3.38 and a net
income of P48 , 05 3.38 a nd stating i n
the footnote of the r e turn that. "Taxpayer
was recipient of some money r ece i ve d fr om
abroad which he presumed to be a gi f t but
tu rned out to be an .error and is now subject of litigation ."

200

DECISION CTA CAS ~ NO . 33 93

- 3 -

6. Th a t 01 or before Decembe r 15 ,
19 80 , t he peti t .i oner rec eive d a let.t er
from t:he acting Comm i ssione r of I n te rna l
Revenue dated November 14 , 1 980 t ogethe r
with i ncome assessment. no t ices f o r t he
years 1976 and 19 77 demanding that pe ti- .
tione r pay on or before Dec e mbe r 15, 1 980
the amount. o f Pl,615.9G and P9 , 287 ,2 97.Sl
as deficiency assessments for the years
197 6 and 197 7 respec t ive ly . A copy of
the let ter of the Acting Commiss ioner of
In t ernal Revenue da ted Novembe r 14 , 198 0
is attached hereto ma rked a s Anne x "A",
and copies of the asse ssment nc t.ic e s for
the years 1 976 and 1977 are atta ched
her eto mar ked Annexes "A-1" a nd "A-2 "
respect i vely .

-... ~

7. Tha t on Dece mbe r 15 , 1980 , the

peti t.ioner wrote t he Bureau of In terna l
Revenue that he was payi ng the de fi ciency
income asse s s ment f or t he yea r 1 976 but
denying t ha t he -had any . undeclared income
f or the year 1977 and r equ e sted t ha t the
assessment fo r 197 7 be made to await
fi nal c ou rt decision on the C <l S ' f i led
agai ns t him f or f iling an al l ~ g~d l y
frau dulen t return. A copy o f t he peti - .
titioner 's. letter dated Decembe r 15 , 1 98 0
is attac hed her eto, fllarked Anne x "B" and
made p a rt hereof e

..

8. Tha t on Novembe r 11, 1 981 , t he

petitione r r eceived from Acting Comm is sione r of I n t ern al Reve nue Romu lo Villa
a letter dated Oc tobe r 8 I 198 1 stating
in reply to hi s December 15, 1980 l e tte r
p rote st that "the a moun t . of P7 ,0 20 ,0 00. 00
representing that por tion of Me llon Bank 's.
errone ous r emittance which you were a ble
to di spose , is de fi n ite ly taxable" . A
c opy of s a id l ett er is attached hereto
marked as An nex "C" and made an integr a l
pa rt her eof .
I n specifica lly de nying t he allegati on i n
pa rag raph 9 of t he peti tion for r e vi ew "That the
.

dec ision of the Acting Comm issioner of In terna l

201

\~

DECISI ON CTA CASE NO . 339 3

- .4 .l

Reve nue on t he peti tioner v s. protest on the def i - .

ciency inco'me tax assessment. f or t h e year 197 7
is agains t the law considering

t.h a ~--

the amoun t. of

US$1 ,0 00 ,000.00 temitted allegedly by mistake to

h is wife is no t subject to i ncome tax " , for being
mere opi nion or conclusion on the par t o f petiti oner , and

err on e o~ s,

re spondent avers i n his

answe r as Special and Affirmative De fE nses:

SPECihL AND AF FIRMATIVE DEFENSE S

3. Section 29( a ) pf the Tax Code

p r ovides:
"Sec . 29. Gross Income . (a) General de fi n ition . -.:. .'G.r oss
income .i nc lu des gains , pr ofi ts,
and i ncome der ive d from s alar ies,
wages, o r compensation for p~r
sona l se rv ices of whatev rt ki.nd
a nd in whate ver for m pa id, or fr om
p rofe ssions, vocations, trades ,
businesses , comm~rce, sales , or
deal ings in pr operty, whe the r re a l
or pe rs o na l~ gr ow ing o ut of the
ownersh ip or us e of or i n ter e st. in
such property , also fr om i nte re sts ,
r ents , di v idends , secur i t ie.s, of
t he t rans ac tion of busines s carr ied
or f or gain or profi t, gains, pro- .
fits,and i ncome de rived from a ny
source whateve r . "
4. Section 21 of the Na tional
I nternal Rev enue Code provide s tha t a
tax is i mpo sed upon t he taxable net
i ncome r eceived during each taxable year
from all sources by e ve ry i ndividual,
whether a c itizen of the Philippines
resi ding t her ein o r an alien r esiding in
the Phil ippines . Ne t ncome under t h e
Tax Code means the gross income computed
unde r Sec t i on 29 of t he Code l ess the
ded uc tions allowe d by l aw ;

I)
1:;..

I )

DECIS ION CTA CASE NO . 3393

'

by
ly
in
to
21

- 5 -

5 . The u.s. $1,000,000 . 00 r eceived

pe t itioner from the Me llon Bank clear fa1~s under gross income as defined
... """'
Section 29( a ) a nd t her efore , s ubjec t
income t ax as pr ovided f o r under Secti on
o f the Nat i onal Intern a l Icvcn uc Code ;

6. A taxpayer , who re c e ived earnings ,

under a cla i m of right and wit out r e str ict i o
as to its disposition, ha s re c eive d i ncome
which he is requi red to r etur n, e ven though
it may s t ill be claimed tha t. he is no t . en- .
titled t.o reta in the money and e ve n t hough
he may still be adjudged li able to re st.ore
its equivalen t.
u.s. vs. Ellia R. Lewis,
34 0 u.s. 590-592
);
.
.
7. The r esponden t'~ def iciency i ncome
t a x assessment i ssued agairist pet ' tione r
in the amoun t of ~ 9,287,297.51 for t he
c alendar ye ar 1977 was issued in accordance
with l aw and existing r evenue r egulations;
and
8. Al l presumptions ar e i n fav or of
t he c orrectness of t he assessme nt . ( In ter- .
provincial Autobus co ., I nc . v s . Collector
of I nte rna l Revenue, G.R. No. L -~74 1, Ja n .
31 , 1 9 56 , 52 0 G ( 11) .P . 7 91 ) .
As shown in Annex

"A" of

the peti ti on f o r r ev i ew ,

the deficiency income t ax f o r t he year 1977 , which

is c ontested by petitione r, i s comput,ed as f ollows :

.!211
Net income per r eturn
o

.. P
48,053.38
Add: Undec lared income
7 ,020,000.00
Ne t income pe r i nvestigation
P7 , 068,053.38
Less: Person a l & additiona l exemptions
5, 000. 0~
Net taxable i ncome
. P7,063.L053 . 38
Income tax d ue thereon
P4 , 899 , 377 . 00
Less: Amoun t already assessed
1 0 ,7 62.0 0
B a 1 a n c e
. . . . . . . . . . . . . P4 , 888 , 615 800
Add : 50% s urcha rge
o

2 ,444 , 308 . 00
1 4 % i n t . f r 3-15- 7 8 t o 7-31- 8 0 1 , 62 7 , 57 3 9 5
20% i n t . fr. 7~~ - a:o to
- 3.0_.8.0.
326,800.56
TOTAL AMOUNT DUE & COLLECT IBLE - ~~~~~ z~&~z ~~~

203

DECIS ION
CTA CASE 08

393
'

.6 -

os t , i f

The rec or ds of t he ca s e r eveal t h at

r emi t.te

no t all , of t he US$999 , 00 0 . 00 mi staken l

to Mr. & Mr s . Melcho r J . J avier , Jr . by the Mellon

Bank , N. Ae have already be en i rretrievably spent
by t hem as f ol l ows : ( P e 78 , BIR re cord s 1 pp .

3 8- ~ 9 ,

CTA r ecor ds .. )
1.

Pu rchase of 160 acre l o t i n

Cal i fo r n ia City - ~ ~ ~ ~ ~

~ ~ ~ ~ ~3 , 25 0 , 000 . 00

2.

Bank deposits - .- .- .- .- .- .- .- .- .- .- .

3.

Mone y marke t placements

4.

Legal f ees

5.

Hospital i zation a nd l ast i llness

o f fathe r

55 0 , 000 . 00

appr ox .) .-. 1 , 30 0,0 00 . 00

6.0 0 , 0 0 0. 0 0

..e

.-

.-

.-

. -

.-

.-

.-

.-

.. .

150 , 000 . 00
315 , 000. 00

6.

Dole outs t o r e latives and f ri ends-

7.

Household e xpenses

8.

Gambli ng l osse s

280 , 000 . 00

9.

others (US$12o , ooo . oo )

900,0 00.0 0

60 , 000.00

P7 , 405 000 . 00
vvvvvvvvvvvvv
Petit.i oner ' s pos i tion i s tha t th'e a moun t r ec eived
by him fr om t he Me l lon Bank 11

. A. " is no t

u i .ncome

.a s

t he term i s de fi ned i n Section 29 o f t h e Na tional

Interna l Revenue Code bec ause t he s a id amount is
ne ithe r c ompen sation f o r se r vic es

r ende ~ e d

no r ga i ns

o t pr o f i ts re a lized fr om business o r dealings in p r ope rty 1 a nd t hat under the r ule of eju sdem ge

eri~ ,

t he phrase ' a.n d i ncome deri ved from a ny sour ce what.- .

soever .f ound in the de fi n i t i on of g ross i ncome ' .

201

DEC I S I O
CTA CASE

O.

3.93
- .7

refe rs t:o

cornpe:ns a t.~ion

fo r se:r:\l i ces r ender:e

g,ain s or piofi t:s from business o

a nd

eal ings in

proper ty, a nd cannot::. be interpre te:d to mea n or

i nclude r.e c eipts 1 from any sourc.e what.soever".
(p . 1 04 1 CTA r e:c o r ds .)

" To be conside r ed

i .nc:ome

a receipt 8 _m ust have been either ( a ) _actively

sough t. by the r.ec:ipie:n

sue.

as. wa ges., salar:ies

a nd c ornpe:n s.a tion f or. se r vices or f or. the ex:e rcise

of one's prof e:s.sion , v oca ti on , tra de , bu s i ness ,
cornme rc.e , sa l e s o r dealings in prope:x t .y , or ( b )
produced o r d e:r i ved from the recipient ' s , ownership
or. use o f
di'Jidends. .

prope~r ty ,

such as. tents , i nte rests and

The amoun t i n quest i on was neither

act ively s ousht. by the petitioner., t.o r: the p roduct

or fr u its- of h i s pr ope r ty ._
not an i _n corne ' . "

It is a ur_e c:eipt ' _b ut

{J1. l OS. , CTA rec.)

Pet i tioner: concedes

1111

tha t unlawfu l gain s , garnb-

li ng win ni ngs , etc . a r e subje.ct. to income t a" although

such r ece i pts a r:e no t specifically mentioned i n t he
def in ition of gross i ncome 119
And rightly so .

( I?

1 06. , CTA r ecor ds. )

As a rnatte:r of fact , i n the Un i ted

Sta te s fr:om which Sec:t.io n 29 ( a ) _of t he Tax. Code

was copied a lmost verba tim f rom sim i la r: provis i ons
of the Un i ted Sta te s I nte rna

eve n e Code ( fo rmer -

ly Sec t ion 22@ ), and of the r egu la tions iss.ued in

20 5

DECISION CTA CASE NO . 339 3

- .8 -

connect ion t he rewith , it has been he ld tha t unlaw- .

ful gains a:s t hose f rom r ansom money pai d to a

... . ......

k i dnape r (Humphreys vse Commissioner , 42 B.T.A.

857 , affir med, 7 Cir. ,

25 F . 2d 340)

~fr a ud u le nt

misappl i ed mone ys of a client. by an at torne y (Uni ted

States vs . Wampler, D. C.. , 5 F., Supp . 79 6)

1.

graft

(Chadick vs . Uni ted State s , 5 Cir , 77 F. 2d 961 ,

ce rtior ar i denied , 296

u.s.

609, 8 0 L. Ed. 432 ) ~

l otterie s (Droge v s . Commissioner , 35 B. T. A. 829 ;

Hunti ngton v s . Commissioner, 35 S.T.A . 835 ; Voye r
vs . Comm issione r, 4 B T.A .

11 9 2)~

illegal prize

fighting pictur es (Rickard vs . Commi ssione r, 15

B. 'l'.,A . 316) ;_ unlawf ul i ns urance polic ies

Pat t erson

vs . Ande r s on , D.C .. 1 20 F . Supp. 799 ) . race- t;rack

bookmaking

M'K.e nna vs . Commissione r , 1 B. T A. 326);

ca rd playing (Weine r v s . Comm is s i oner, 10 B T.A

905) ;_ illicit t ra f fi c i n liquor (U nited States vs .
Sulliva n , 27 4

u. s.

t axable income .

259# 71 L. Ed . 1 03 7)
. .c ons ti tute

In an a ttemp t to sta y c lea r of

such de c isions , however, peti tioner would take

r efu ge i n the l ack o f any effort on his par t,
alle gedly , to s ee k the gain i nvolved her ein .
Petitioner misse s the point.
The

c on t~olling

Nationa l I nternal

s tatu te i s Sec tion 29( a ) _of t he

evenue Code befor e its ame ndmen t .

20ti

DECISION - .
CTA CASE NO

39
"

.. .9 -

by Batas Pambansa Bl g . 135e

It de fines

~ gro s s

i ncome" , which t e r m is employed i n Section 28

.....

'""'

(also before its amendmen t by Batas Pambans a

Blg . 135 .as part of the definiti on of "net i ncome" subject to income tax under Sect.ion 21 in
t he case of i ndividuals and Section 2 4 in the
c ase of corpor at ions.

The def i nition combines

a descriptive list of broad scope enumerating

variou s activities givi ng ris e to items of income
\'lith the catchal l phras e "gains, pr ofits and i ncome
derived from any source whateve r 111
is in sweep i ng terms .

The defini t i on

Thus , i nsofa r as per tinent

hereto , "Gross i ncome i ncludes gains, profits , and

i ncome derived from
perty

d eul t ~gs

in p ro- .

growi ng out o f the ownership or

use of cr in te rest in such prope r ty1 also from

X

gains , profi ts , and i ncome dez:ived from

any source whate ver "' .

T e broad sweep of this

language i ndica tes t he purpose of Cong res s to us e

the full mea s ure of i ts t ax i ng power within thos e
definable categories .
3 09

u. s .

(He lvering vs. Cl ifford,

331 , 334; 60 S o Ct. 554 , 5 5 6 7 84 L .

Ed ~

788 .) .
According l y

th

Governmen t may tax , no t only

owne r sh ip , but any righ t or p r iv ilege t ha t i s a

20 '?

,~

DECISI ON CTA CASE NO e 3393

- 10 -

.
'

c onstituent of ownership

Li ab il 'ty roa y r est

upon t he e nj oymen t by the taxpaye r of privilege s .,'"'

and benEfits so s ubstantial and i mportan t as to
make it r easonable a nd jus t to dea l with him a s
if he were the owner , and to t ax him on that
bas is.
53

s.

(Burne t vs . We lls , 289

ct. 761 ,

76 4 ~

u.s.

670 ,

678 ~

77 L. Ed . 1439 .) . Although

t axes are public duties attached t o the owner ship

of prope r ty , t he state should be able to exact
their per fo r mance without being compe l led to t ake
si des in pr ivate controve r s ies .

Po s se ssion is

gene ral prima f acie evidenc e pf owne r ship , and

is perhaps i ndeed the sou r ce of the c oncep t itself,
t houg h the time is l ong pas t when it
with it .

~n s

synonymous

It wou ld be in tole r a bl e that the tax mus t

be assessed against b<;>th t he putative tortfeasor

and the claiman t; collection of t he revenue c a no t
be delayed, no r s hould the Treasury

b~

c ompe lled

to decide when a possessor s. clai ms are without.

l ega l warran t

(N at ional City Bank of New York vs .

Helver i ng , 2 Cir., 98 F. 2d 93 , 96.)

Now , to t he c ase a t ba r.

He r e , petitioner ' s

a ssert i on of c omplete domin i on over Me llon Bank 0

er r oneous remit t ance of f unds to hi s wife , his
J

exerci s e

f ow e r ship ove r t hem t o the ex t en t of

di s posing of almos t e very c en t a vo of t he fun ds , a nd

203

DECISIO

CTA CASE NO .

393
- ll -

his c ons equen t t rans f e r of posse ss ion , use and

title t o tHe

r ecipi ~n ts

a s to ma ke the m t he

owne~ ....s..

the r e of , we re f or a ll i ntents and pur pos e s e xe r - .

cise and en joyme n t o f rig hts and privileges tha t
a re c onst ituen ts of owner sh ip .

He d emonstr a t ed

po siti ve l y and une qu ivocally his right to di s pose

of the Mellon

Bank'~

fu nds , and he d id even spend

th em , almos t to t he l ast cen tavo , beycnd a ll chance

of t heir recove r y .
Mel l on

B ank

This was clear l y a us e of t he

f unds by

p e tition~r

f or his own

enj oyment and bene fi t j us t a s a mply a nd fully a s

though he had title to t hem .

Such enjoymen t and

exercise by pe titi oner o f "privile ge s a nd benefits

so substanti a l a nd importa n t as t o

w - ~c

able and just to de a l with him as if

it r eason-

e were t h e

owner, and t o t a x him on that basis" (Burne t v s &

Wel l s , .e_up r a ) ' c an have no different t ax c onsequences when the f unds a r e e a r ned i n p lawful manne r
t han whe n t hey are de rived f r om il lega l source s .
An unl awfu l ga in , as well as a l a wfu l one ,
constitutes t axable i ncome when i ts r ecipi e nt ha s
such control ove r i

t ha t, as a practic a l matt er,

he de rives re adi l y rea liz able economic va lue from

it
143 9 ~

(Burnet vs . We lls , 289 US 67 0 , 678 1 77 L. Ed .

44 ; Co rl i s

74 L. Ed .

16 , 91 7.)

v s . Bowe s , 281 US 376 , 378r

That occ urs whe n c a sh , as

20 ~

DECISION CTA CASE NO . 3393

- .1 2 -

here , is del i vered by i ts owne r t o t he taxpayer

in a man ner which allows the recipien

freedom

....

""(.

to dispose of it a t will p' even though it may have

been obtained by fr au d o r mistake and

is fr eedom

t o use it may be assailable by someone with a

bette r t it.le to i t .
343 US 131 ,

(Rut ki n vs . Un i ted States ,

37: 96 L . Ed . 835 , S39 o) .

Such ga ins are t axable i n t he year during which

they are reali zedo

This statutory policy is i nvoked

in t he i nterest of orde r l y adminisbat i on .

(Rutkin

vs. Unite d S tates , supr.ao ) . Col l ection of the r evenue c annot be delayed, nor sbou ld t he Government be

compelled to decide when a posses sor ' claims are

wi thou t l ega l warran t .
He lver ing

LeA

2g7 98

(National

Ci~ y

Bank vs .

2d 93 , 96 .) . The r e is no

adequate r eason why apsa ilable unlawfu l gains shou ld

be tr eated differently in this r espect fr om
able lawf ul

gains ~

Certainly t here

for t reating t hem mor e leniently .

i~

assai l ~

no r eason

Unite d States

vs . Sul l ivan, 274 US 259, 263 f 71 L. Ed . 1 037,

1039 . )
As to peti t i one r

allegation (par. 5 , petition

for r eview) .tha t i n the f ootnote of h is 1977 i ncome

tax r eturn he stated tha t he
mone y r eceive

~ wa s

r ecipient of some

rom a r oad which he pre sumed to be

21 0

DECISION -

CTA CASE

O. 3393
- .13 -

a gift bu

tu~ned

out t o be a n error and is now

su bject of lit igation w, and his submiss i on t ha t

any a ssessment covering th is matte r should awai t

... ""'

final cour t decis i on " (p . a, CTA r ecords )' there

is noth ing in the National I n t e r na l Revenue Code
wh ich expr essly r equ ires, as a c ondition of t he e x i ste nce of a t axable gain , tha t there als o be an a bsenc e
of a de fin ite , unconditiona l o bliga t ion t o r epay or
r e tur n t ha t which wou ld otherwise c onEtitute a gai n.
In t he case of National City Ban k of Ne w Yo rk vs .
Helve ring , supra , 98 F. 2d 9S , t he taxpaye r was t axed
on bond s whic h he had unlawfully withheld from t he
corporati on of which .he wa s an officer .

These bond s

wer e the property of t he c orpor a tion i n the s ense

that it c ou ld have reclaimed the m.

r ~~

Cour t s aid -

"Bu t there are several c ases in whic h persons have

be en t axed upon property which could be r ecovered

f rom t hem .

For example, t he l ender upon usu rious

i nte r e st - if on an accr ua l bas is - must i nclude h i s

appa rent p rofi t in his retu rn , though pos si bly he may
be all owed to deduc t it as a loss if t he borrowe r
re c laims it.
95 F. 2d 22 . ) *

(Barker vs. Magr uder, 68 App .

o.c .

211 ,

Agai n , when a r ai lr oad c ollects too

*The fac t t hat. i nte r es t is usurious unde r the

l aw , and may be r e cove red bac k by t he borrowe ,
does no t preve n it f rom being incom , he n rec eived ,
t o a t axpaye r on t he c ash bas is . Likew i se , the t.axabi lity of an a cc rua l of usurious i n tere s t i s not
aff ected because of i ts illegal ity.. If in a su b- .
sequent year the amount becomes uncollectible , or a
l oss is sustained in r e spect t her eof , a deducti on
on accou n t thereo f i s t hen allowable . (Umali , R. M.,
Re viewe r in Taxation, 1 98 0 ed ., pp . 87-~ 8 , ci t ing
1955 PH Fed . Taxes , Pa r . 8010. )

211

'
I
-,~ ~

.:.:.-....

DECISION - .
CTA CASE NOe 33 93
.1
\

..'.

l arge f are s the exces s i s i ncome , t houg h the

passenge rs !'have a t heoretical r ight. of res ti tu- .. ""
tion e

(Ch icago , R. I. &

P ~R .

Co . vs . Commissioner ,

7 Cir . 47 F. 2d . 990

We note t hat in t he .def iciency i ncome tax

assessment unde r cons ideration , r e spondent. furthe r
reques t ed petitioner to pa y 50' surc ha rge as pro- .
vided for in Section 72 of

t h~

Tax coe a , in add i t i on

to t,he de f icienc y i ncome tax of P4 , 888 , 615 .. 00 and

inte rest due t hereon .

Since petiti one r file d his

income tax r eturn fo r taxable year 197 7, the SO%

surcharge was i mposed, i n all .p robability , by r es-

pondent becau se he c onside red t he r eturn fi l ed f alse

or

This additi ona l requ

fr a udu~ent .

~ cm en t,

to our

mind , i s much les s c alled f or bec aus e pe titi oner ,

as stated ear lie r,

r eflec t ed

in h is 197 7 r eturn a

footnote t ha t "Taxpaye r was r ecipient of s ome money

r ece i ved from ab,oad wh ich he
but t urned out

pre sume~

to be gi ft

be an error and i s now subject

of litigation"
From t h is ,

~~

can ha r dly be said t hat ther e

was actua l a nd i ntent ional f raud , consisting of

dec eption willfully and de liberate ly done or r esorted t o by
ove r nme n

etiti one r in or de r to induce t he

to give up some lega l r igh t , or the

21 2

r.

DECI SION CTA CAS E 0

3393
5 -

l a t te r , due t o a f alse r e t ur n, was p l ace

at a

d isadvan ta<_ie so as to pr even t its l awfu l age nt s

.... "'"~!( .

from prope r a ssessmen t o f . t ax liab i l i ti es (Aznar

vs . Cou r t of Tax Appea ls ,

L- ~ 056 9 ,

Aug ust 23 ,

197 4 , 56 SCRA 519) ' because pet it i oner li t er a l ly

"la id h i s c a r ds on t he t able " for r e sponden t t o
e xami ne .
f r aud.

Error o r mi stake of f ac t o r l aw is no t
(I ns u l ar

L u~b e r

vs . Collector,

L -~190 ,

Apri l 28 , 1956 .) . Be sides , Sec tion 29 is no t too

plain a nd s imp l e to unders tand . S i nc e the question
invo lved in this case i s of f irs t i mpr ession i n
th i s j ur i s d ic tion ,
5 0~

u ~der

t h e c ir cums t a nces , t he

surc har ge imposed in the def i ciency a ssessmen t

s hould be de l eted .
With t he f orego i ng c onclu s i ons ar r ived at ,
t he 1977 def iciency income- tax lia b ili ty of pe ti- .
t ione r i s he reby c omputed as f ollows :
Net i nc ome per r e t urn
Add : Undeclared i ncome ..
Ne t i ncome pe r i nves tiga t i on
Le s s : Pe sona l & add i t ional
exemp tions

Ne t t axable i ncome
I ncome t ax due t he r eon
Less: Amoun t a l r e ady a s s es sed o
B ~ l a n
e

Add : 14~ i nte re s t fr om 3- l S- 18
t o 7 -~ 1 - ~ 0
2 0!5 i nte r e s t fr om 8-l.- 8.0
t o l -~4 - ~0 o
TOTAL AMOUNT DUE & COLLECTIBLE
0

21 3

p
48 , 05 3.3 8
. 7 , 020 , 00 0 .0.Q.
P7 , 068,053 .. 38

5,000 .0 0
P7 , 063,053 . 38
P4 , 899,3 77 . 00
10, 762 . 00
P4 , 888,615 e00
1, 625 , 46 4 . 48
282 ,4 53 . 32
6 ,79 6 , 532. 80
vvvvvvvvvvvvv

'
[.

II

.'

DECI SI ON CTA CASE NO ~ 3393

- 16 -

Accordingly, petitioner Me l chor Je J av i er , Jr .

is he r eby

to pay to responden t Commi ss i one.....r

o~der ed

o f I nternal Re venue t he s um of P6 , 7 96 , 53 2.80 as

de ficien c y i nc ome tax fo r 1977 , plus 1 0% su r charge
and 20% per ann um i nte re s t f rom Novembe r 1 4 , 1 98 0
up t o f ull payment ther eof but no

t o exceed the

amount c orrespond i ng t o three years pur suant t o

Sec t i on Sl(e )

~f

I nter~ a l

t he Na tlpna l

R~venu e

Code

as amendeq by Pre siden ti a t Decree No s 17 05 .

WH ER~ FO ~ ,

mod ~ fied

Court .

as
With

t h e decision appealed fr om i s

i nqip~t~p
'. !

'

cost e~ .

in

~ he

above opinion of the

'

'

' SO ORDERED .
Quezon City , Metro Ma n ila ,

J~:.:

27, 1983 .

~ Q_ )
AMANTE F~
Pr esidi ng J udge

WE CONCUR :

-::!::~~.~Ju~UIN
~~
Associate