9.) javier vs. ancheta.pdf
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8/19/2019 9.) Javier vs. Ancheta.pdf
1/16
r ,., :n.
iC.
o Tli
: - ' O J ~ T O T
•
/ MELCHOR J . JAVIER , JR . ,
Pe t i t i one r ,
- .ver sus ...
C T . A. CASE NO. 339 3
R
UBE
N B. ANCHETA
in
is
ca
pac
i ty
as
Commiss i oner
of Intern a l Revenue ,
Respondent•
X - -
. .- .• .-
. - . -
.X
D E C I S I 0 N
The ques tion here
is
whethe ·r t he proceeds of
an
err
o
neous
bank
re
mi
t tance
to
a
taxpayer over
which
he exer c
is ed
c
omplete
.o
mini
on t.o the e x t.e
nt
.
of disposing them beyond a l l chance of r
ecover
y
const i tute ta
xable
i ncome to him.
The f acts
are
no · d i spu ted As
l l g e ~
by
peti t ioner Melchor J .
Javi
e r , J r .
in
his pe t i t ion
. .
for revi
ew
and admi t .ted by re spondent Commiss i one r
Qf. Inter nal Rev
enue
fn his answer:
COMES
NOW th
e
Peti t ioner
, t hr ough
i ts unders
igne
d counsel and t t
his
Honorable Cour t respectful ly alleges:
1 That he is a Fil ipino c i ti zen ,
of lega l a
ge
, m
ar r ied
and a re s i dent
of
· 108 now 3 6) Jose Abad
Santos
St ree t San J uan ; Metro
Man i l
a ; and
t hat the r e sponden t. Ruben B
Ancheta
is
the
C
ommissioner
of
.
Internal
Revenue
and holds h i s off ice a t the Bureau of
Inter na l R
evenue
i n Quezon
City
wh
er
e
he
may
be s e
rv
ed with s ummons and
othe
r .
proces
se
s of th is Honorable Court .
19
8
•
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8/19/2019 9.) Javier vs. Ancheta.pdf
2/16
DECISION .. .
C
TA
CASE . 3393
- 2 -
2.
That on or
a
bout
J une 3,
1977,
Victoria L. Javier ,
the wife
of. t he
pet..iti:oner, received fr om the Prudent ia l
Bank and Trust Company in Pasay Ci t y
the
amount of US$999;973.70 remitted
by her s i s t e r
Mr
s .
Do
lores Ve ntosa
,
thru so
me u.s.
banks amo ng which i s
Mellon Bank, N.A.
3.
That on
or
about J u n ~
29,
1977
Mellon
Bank, N.A. f i led a
compl
a in t
with
the Court of Fi rs t
I
nstance of
Riza l
(docketed
a s Civi l Case No. 26899)
agains t t
he pet i t ioner
his w i f ~ and
other
defend
an ts c l aiming t hat
i t s
remittance of US 1
, 000
,0
00
.00
was a
cler ica l
error and
should
have
been
US 1 ,0
00.00
only and
prayi
ng tha t the
excess
amount of US$999 , ooo·
.oo
be
re -
.
turned
on the ground that
.
the defendants
are
t ruste
es of
an
implied
t rus t
fo
r
the
benefi t
of
Mellon B
an
k with the
clear
i
mmediate and
continuing duty
to
r
eturn
the said
amount from
the m
oment
.·
i t . was
rece
ived
.
4. That
on or abou
t Novenb
cr
5 ,
1977,
t he Ci t y Fiscal of
Pasay
City
f i led
an
I nformation wi th the
Circ
ui t
Cri
minal
Court o c k e d as C C C ~ I I - .
2369-P.C .) ~ b a r g i n g the pet i t ione r and
his wife wit
h
the crime of Estafa al leg-
.
ing
tha t
t hey
misappropriated
,
misapplie
d
and con
v
er te
d
to
their oNn
pe
rsonal
us e
and
benef
t the
am
ount 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
mist
ake in the
remit tance by the l
a t
te r .
s.
Th
a t
on March 15, 1978 ,
the
pet i t ion e r f
i le
d h is I ncome Ta Re
t.urn
f o ~
the
taxable year
1977
showing a
gross
in
come
of P53,05 3.38 and
a
net
income
of
P48 , 05
3.38
and s ta t ing i n
the footnote
of
the
r e
turn
that.
Tax
pa
yer
was recipient of some money r ece i ved
fr
om
abroad which
he
presumed to
be
a gi f t but
tu rned
out to
be an .error and is now sub
j ec t
of
l i t iga t ion
.
2
•
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8/19/2019 9.) Javier vs. Ancheta.pdf
3/16
DECISION -
CTA ~ NO . 3393
- 3 -
6. Th a t
1
or before Decembe r 15 ,
19 80 , t he pet i t .i oner
re
c
eive
d a le t.t er
from t:he acting Comm i
ssione
r of I n te
rna
l
Revenue
dated Nove mber 14 , 1980 t ogethe r
with
i ncome
assess
m
ent
. no t ic es f o r t he
years 1976 and 19 77
de
manding
tha t
pe
t i -
.
t io
ne
r pay
on
or before Dec embe r 15, 1980
the
amount. of Pl,615.9G and P9 , 287
,2
97.Sl
as
deficiency
assessments
for
the
years
197 6 and 1977 respec t ive
ly
. A copy
of
the le t
ter of
the Act ing Commiss io
ner
of
In t ernal Revenue da te d November 14 , 1980
is attached hereto ma rked a s Annex A ,
and
copies of the asse ssme
n t
n
t.ic
es for
the
yea
rs
1976
and
1977
are
a t ta
ched
her eto
mar ked
Annexes A-1
and A -2
resp
ec t
i
vely
. · ·
7. T
ha
t
on
Dece
mb
e r 15 , 1980 , the
pet i t.
ioner
wrote t he
Bure
au of In tern a l
Revenue
that
he
was
pa
yi
ng
the
de f i
c i
enc
y
income
asse
s sme
nt
f or t he yea r 1976 bu t
denying t ha t he -had any . undeclared income
f
or
the year
1977
and r equested t ha t the
assessment fo r 197 7 be made to await
f i
nal
cou r t dec is ion
on the
C
-
8/19/2019 9.) Javier vs. Ancheta.pdf
4/16
DECISION -
CTA
CASE NO . 3393
- .4 -
l
Re ve
nue
on
t he pe t i t i oner vs. protest on the def i - .
ciency in
co'me tax assess
m
ent
. f or t h e y
ea
r 197 7
is
agains t the
law consideri
ng
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
nc
ome
tax
,
for
b
ein
g
mere
opinion
or
conclusion
on the
p
ar
t o f
pet i
-
t i o
ner
,
and e r r o n e o ~ s re spondent avers
i n his
ans
we r
as Special and
Affirmat
ive
De fE n
ses:
SPECihL
AND
AF FIRMATIVE DEFENSE S
3.
Sectio
n
29
a )
p
the
Tax
C
ode
pr
ovides:
Sec
.
29.
G
ross In
come . -
a) General de
f i n
i t ion
. .:. .'G.r oss
inco
me
• ·.i nc ludes gains , profi t s
and
i ncome
der ive
d
from
s alar
ies
wages,
or
compensation
for
p ~ r -
sona
l
se rv ices of
whatev r·t ki.nd
a
nd
in whate
ver
form pa id , or
fr
om
p
rofe
ssions, vo
cations
trades ,
businesses , c o m m ~ r c e
sa les
, or
deal
ings in prop
er ty w
he th
e r
re
a l
or p e r s n a
gr ow ing out
of
the
ownersh
ip or
use of or i n te r e st. in
such property , also f r om i nte re
s ts
,
r
ents
,
di
v
idends
, secur i t
ie.s, of
t he t
rans ac t ion
of busines s
carr
ied
or f or gain or prof i t
gains, pro-
.
f i t s and i ncome
de
rived fro
m any
source
whateve r .
4. Se
ct io
n 21
of
the Na t iona l
Internal Revenue Code provide s
th
a t a
tax
is i mposed upon t he taxable net
i ncom e r eceived during
each
tax
abl
e y
ea
r
from
a l l sources by e
ve
ry i
nd
iv idual,
whet
h
er
a c
i t izen
of
the
Phil ip
pin
es
res i ding
t
her
ein
or
an al ien
r
esiding in
the Ph i l ippines .
Ne
t ·
nco
me under t he
Tax Code me
ans
the
gross
inc
ome computed
un
de
r S
ec
t i on 29 of t he Co
de
l ess the
deduc t i
o
ns allowe
d
by
l
aw
;
I
0
1:;
•
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8/19/2019 9.) Javier vs. Ancheta.pdf
5/16
DEC
IS
ION -
CTA CASE
NO
. 3393
- 5 -
5 . The u.s. 1,000,000 . 00 r
ec
e ived
by pe t i t ioner from the Me l lon Bank c l
ear
ly
f a 1 ~ s under gross in
come
as
defined
i n
Section 29(
a ) and t h
er efore
, s ubjec t
to inco
me t
ax
as ·
provided
f o r under Se
c t i
on
21 o f the Nat i onal Intern a l Icv
cn
uc Code ;
.
'·
6.
A ta
xpa
y
er
, who
re
c e
ived earnings
,
under
a
c la
i m
of
r ig h t
and
wit out
r e
s tr ic t
i o
as
to
i t s dispos i t ion, ha s re ceived i ncome
which he
is requi red
to
r
etur n,
e ven though
i t may s t
i l
l
be
claimed tha t. he i s no t . en - .
t i t l ed t.o
re t
a in the money and even t hough
he may
s t i l l
be
adjudged
l i
able to re
st.ore
i t s
eq
uiv
a l
en t . u
.s. vs. Ell ia
R. Lewis,
34 0 u.s. 590-592 ;
.
.
7. The e s p o n d e n t ~ def iciency i ncome
t ax
assessment
i
ssued agairist
pe t '
t ion
e r
in
the
amount of
~ 9 , 2 8 7 , 2 9 7 . 5 1
for t he
c alendar
ye
ar
1977
was issued
in
acco
rd
ance
with l aw and exis t ing r evenue r
egula tions;
and
8. Al
l presumptions ar e i n
fav
or of
t
he
c
orrectness
of t
he assessm
en t . ( In
t e r -
.
provincial
Autobus co . , I
nc
. vs .
Collecto
r
of
I n
te
rna l Revenue, G.R. No. L - ~ 7 4 Ja n .
31 , 19 56 , 52
0 •
G (
11) .P
. 791 ) •.
-
As shown in Annex A of
the
pe t i t i on f or r
ev
i
ew
,
the deficie ncy inc
ome
t ax f or t he year 1977 , which
is
c
ontested by pet i t ione
r , i s
co
mput,ed
as
f
ollows
:
. 211
Net income
per r
eturn
o • • • • • .. • P 48,053.38
Add: Undec lared
inco
me ••• •••• • 7
,020,000.00
Ne t income
pe
r i
nvest igat io
n
••••• 7
,
068,053.38
L
ess: Person
a l & a
ddit iona
l exemptions •
5 , 0 0 0 .
0 ~
Net taxable i ncome • • • • • • • • • 7,063.L053 . 38
Income tax due thereon • • • • • • • •
4
, 899 , 377 . 00
Less:
Amoun t
already assessed
• • • • • 10
,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
14% i n t . f r • 3
-15
- 78 t o 7-31- 80 • • 1 , 627 , 57 3 •9 5
20%
i n t . f r .
~ ~ -a:o to
- 3.
0_.8
.0. •
326,800.56
TOTAL AMOUNT D
UE &
COLLECT IBLE •••• ~ ~ ~ ~ ~ z ~ ~ z ~ ~ ~
2 3
•
•
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8/19/2019 9.) Javier vs. Ancheta.pdf
6/16
DECIS ION
CTA
CASE 08 393
.6 -
The
rec
ords
of
t he ca s e r evea l t ha t os t ,
i f
no t a l l , of t he US$999 , 000 . 00 mi
staken
l
r emi
t.t
e
to
Mr .
&
Mr s .
Melch
or J . J avier , Jr . by
the Mellon
Bank , N. Ae have already been i r re t r ie vably spen t
by
t hem
as
f
ol
l ows :
( P e
78 , BIR
re
co
rd
s 1 pp .
8
~
CTA r ec
or
ds )
1 . Pu rchase of 160 acre l o t i n
Ca l i fo r n
ia
Ci ty -
~ ~ ~ ~ ~
~ ~
~
~ ~ 2 5 0 0 0
0 0
2. Bank
deposi t
s - .- .- .- .- .- .-
.-
.- .- .- .
55 0, 000 . 00
3. Money marke t pla
ce
ments appr
ox
. . . 1 , 3
0,0
00 . 00
4 . Lega l f ees
5 . Ho
spi ta
l i
zat
io
n and l
as t
i
n
ess
o fathe r e .- . - .- . •- . - - - . - . - . - . .
6 . Dole outs t o r e la t ives
and
f
r i
ends -
7 .
Househol
d expenses
8 .
G
ambli
ng l
osse
s
9 . others (US$12o , oo·o . oo )
00, 000. 00
150 , 000 . 00
315 , 000. 00
60 , 000.00
280 , 0
. 00
900,0 0
0.0
0
P7
, 405 000 . 00
vvvvv
vvv
vvv
vv
Pe t i t.i oner ' s pos i t i
on
i s tha t th'e amoun t r eceived
y
him fr om t he Me l lon Bank
1
. A. is no t
u
i .ncome • .a s
t
he
term i s de f i
ne
d i n Section 29 of t he Na t i ona l
Intern a l
Re
venue Code
bec
ause t he s a id
amo
un t is
ne i the r c ompensat ion f or se rvices e n d e e d nor ga i ns
ot
pr
of i
t s
re
a
l ized fr
om
busin
es
s o r
dealin
gs
in
pr o-
pe r ty 1 and t hat under
the
r
ule
of eju sdem ge e r i ~
t he ph
rase
' a.nd i ncome
der i
ved from a ny
so
ur
ce what
.- .
soever
• .f ound in
the de f i
n i t i on
of
•gross i ncome ' ·.
201
•
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8/19/2019 9.) Javier vs. Ancheta.pdf
7/16
DEC
I SI O
CTA C
ASE
O. 3.93
.7
refe rs
t:o
o r n p n s i o n fo
r se:r:
\l
i ces r
ende
r:e a nd
g,ain s
or piof
i t:s from business o · ea l ing s in
proper
ty,
a
nd
cannot::. be
in terpr
e
te
:d
to
me
·an
or
i n
c lude
• r.ec
e ip t s
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 •
rece ip t
8
_
must hav
e
been e i the r
(a ) _
act ive ly
soug
h t. by the r
.ec:ipie:n
sue.
as.
wa
ges.
,
sa l a r
:
ie
s
a nd c ornpe:ns
a t i
on f
or
. se r vices
or
f
or
. the
ex
:e
rc i se
of one ' s prof
e:s.
s io
n , v
oca t on
,
t ra de
,
bu
s i
ness
,
corn
me
rc.e ,
sa
l e s o r
deal ings
in pr
ope:x
t .
y,
or
(b )
pro
duced
or de:r i
ved
from
the
rec ip ien t
' s , owne
rs
h i
p
or.
use
o f
p r o p t y such as. te
n ts , i
nte r e s t s and
di'Jidends.
. T
he
amoun t i n
que
·
s t
i on w
as
n
e i the r
ac
t
ive
ly s
ousht.
by
the pe t i t i oner
. ,
t.o r: the
p roduct
or f r
u
i t s
-
of
h i s
pr ope
r
ty
_
I t
i s
a ur_
c:eipt
' _b
u t
not an
• i _
nco
rne
' .
{
J1 l
OS
, CTA rec .)
P
e t
i t ioner:
conced
es
tha
t u
nlawfu
l
gain
s ,
garnb-
ng
win
ni
ngs
,
e tc
. a r e
subje
.
c t
. to
income
t
a
al though
such
r e·
ce
i
pt s
a r:e no t
speci f ica l ly
mentioned
i n t
he
def in i t ion of gross
i n
come
9
• ( I?
1 06 , CTA r eco r ds. )
And
r igh t ly
so
. As a
rna t te
:r
of
fac
t , i n
the Un
i
ted
Sta
te s
f r
:
om
w
hich Sec:t.i
on 29 (a ) _
of
t
he
Tax.
Code
w
as
copied
a
lmost
verba
tim
f rom
sim
i
la
r:
provis i
ons
of
the
Un i
ted
Sta te s I n te rna eve n e Cod e ( fo rmer -
ly Se·c t ion 22@ ) , and
of the
r
egu
la t ions iss.ued · in
.
20 5
•
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8/19/2019 9.) Javier vs. Ancheta.pdf
8/16
DECI SION -
CTA C
AS
E NO . 3393
•
- .8 -
connect ion t he rew h , i t has been he
ld
tha t
unl
aw- .
ful gains a:s
t hose f rom r ansom money paid
t
a
ki dnape r (
Hump
hreys vse Commissioner , 42 B.T.A.
. .
857 , af f i rmed, 7 Ci r . , 25 F . 2d 340)
~ f r
a
u d
u l e n t
misappl
i
ed
mon
e
ys
of
a
c l ien t
.
by
an a t
to
rn
ey
(U
ni ted
States
vs .
Wampler,
D.C , 5 F., Supp . 796) 1 graf t
Chadick
vs
. Uni ted State s , 5
Cir
, 77 F. 2d 961 ,
ce r t ior
ar
i
denied
, 296
u.s. 609,
80 L.
Ed.
432 )
l ot te r ie s (Droge vs . Commissioner , 35 B. T. A. 829 ;
Hunti n
gton
vs . Commissio
ner,
35 S.T.A . 835 ; Voye r
vs
. C
omm
i s s i
one
r
4 B T.A .
2 ~
i l l
egal
prize
fighting
pictur es (Rickard vs.•
Co
mmi ss ione r 15
B.
l .,A
. 316) ;_ unlawf ul i nsurance polic ies Pat t
erso
n
vs . Ande r s on , D.C 20 F . Supp. 799 ) •. race - t;rack
bookmaking MK.enna vs . Co
mmissione
r , 1 B. T A. 326) ;
ca rd
playing (Weine r vs .
Co
mm
is
s i
one r
10 B T.A •
905) ;_ i l l i c i t t
ra
f f i c i n l iq uor (United
States
vs
.
Sul l iv an , 274 u.s. 259 71 L.
Ed
. 1037) cons t i tute
t axab
le
inc
ome
. In
an
a emp t to s tay c lea r of
such
dec is ions , howe
ver,
pe t i
t ioner
wo uld take
r efu
ge
i n
the
l ack of any effor t
on
his par
t
al le g
edly
, to s
ee
k the
gain
i nvolved h
er
ein .
Peti t ioner misse s the
point
.
The c
o n
t ~ o l l i n g s tatu te i s Sec t ion 29( a ) _of t he
Nationa l I ntern
a l
evenue Code befo r e
i t s
ame ndmen t .
20ti
•
•
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8/19/2019 9.) Javier vs. Ancheta.pdf
9/16
DECISION - .
CTA
CASE
NO
39
..
.9 -
by
Batas
Pambansa Bl g .
135e t
de
f ines
g r o
i ncome ,
which
t e r m
i s employed
i n S
ec t
ion
8
(also
before i t s
am
endmen
t by
Batas
Pambans a
Blg
. 135 .as par t of
the
de f in i ti on
of n
e t i n
co
m
e
subject
to
inc
om
e
tax
under
Sect
.
ion
21
in
t
he case
of i
ndividuals
and Section
24 in the
c ase
of corpora t
ions The def i nit ion
combines
a
descript ive l i s t of broa
d scope enumerating
. ·
vari
ous
ac t iv i t i
es givi
ng
r is
e
t items of incom
e
\
' lith the catcha l
l ph ras e
gains, pro f i t
s
and
i ncome
derived
from
any
source
what
eve
r
111
•
The
defini
t i on
is
in
sweep i ng terms .· Thus , · i
nsofa
r
as
per t in ent
hereto ,
Gross
i
nc
om
e i
nclude
s gains,
pro
f i t s
,
and
i ncome
derived from
x
x e u l
~ g s in
p
ro
- .
per ty x growing out of the ownership
or
use of cr
in
te res t
in
such prope
r
ty1
also
from
X
x
gai
ns
,
prof i
ts
,
and
i ncome dez:i
ve
d
fro
m
any source whate
ver . T
e
broad
sw
eep
of this
lan
g
uage
i n
dica
tes
t
he purpose of
Congres s
to
use
the fu l l
mea
s
ure
of i
ts
t
ax
i ng power within
tho
s e
definabl
e categori
es
. (
He lvering
vs.
Cl i fford,
309 u. s . 331 , 334; 60 S o Ct
. 554
, 556 7
84
L.
788
.)
.
Ac cording l y t h Governmen t may tax , no t
only
o
wne
r
sh ip
, but
an
y
r i
gh t
or
pr iv
i lege
t
ha
t i s a
?
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8/19/2019 9.) Javier vs. Ancheta.pdf
10/16
DECI SI O -
CTA CASE
NO e
3393
- 10 -
const i tuent of ownership
Li
ab
i l y
ro
ay r
est
upon t he e
nj
oyment by
the
taxpaye r
of pr iv i l
ege s .' '·
and benEfits so s ub
s tant
i a l and i mportan t as to
make
i t
r easonable and ju s t to
dea
l with
him
a s
i f
he were
the
o
wn
er
,
and
to
t
ax
him
on
that
bas
i s .
(Burne t vs . We
l l s
, 289 u.s. 670 , 7 8
53 s . c t . 761 , 7 77 L. Ed . 1439 . . Although
t axes
are
public
dut ies
attached t o the owner ship
of prope r
ty
, t he s ta te
should be
able
to
exact
their per fo r mance without being compe l led to t ake
s i
d
es in
pr
iv
ate
co
ntrov
e r s
ies
. Pos
se
ssio
n
i s
gene
ra l
prima f acie evidence p own e r ship , and
is perhap s i ndeed the sou r ce of the concep t i t se l f
t hough
the t i
me is l ong pas t when
i t
~ n synonymous
with i t . I t wou ld be in to le r abl e tha t the tax mus t
-
be ass
essed against
bth t he
putat iv
e to
r tfeasor
and
the c laiman t ;
col lec t ion
of t
he
revenue c a no t
be delayed, nor s hould the Treasury
b ~
c ompe l led
to
decide when a posse ssor
•s
. c la ims are without.
l
ega
l warran t
(Na t ional C
i ty
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 , pe t i t ioner s
asse r t i on of c omp le te domin i
on
over Me l lon Bank
0
•
er
r
oneous
remi t t
anc
e of f unds to hi s wife , his
J·
exerci s e
f
ow e r ship
ove
r t he m t o the ex t
en
t of
•
di s
po
sing of
a l
m
os
t every c en t avo
of
t
he
fun
ds
, and
203
•
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8/19/2019 9.) Javier vs. Ancheta.pdf
11/16
DECISI
O
CTA
CASE NO
. 393
-
ll
-
his
c ons equent t
ra
ns f e r of
po ss
e
ss ion
, use
an
d
t i t l e t o tHe
e c i p i
~ n t s a s to ma ke them t he
o w n e ~
s
th
e r eof , we
re
f
or
all i ntents
and
pur
po
s e s exe r - .
cise and en joyment o f
r ig
ht s
and
privi leges tha t
a
re
c
onst
i tue
n
ts
of
o
wn
er
sh
ip
.
He
d
em
onstr
a t ed
pos i t i ve l y
and
unequ ivocal l y his r ight
to
di s
pose
of the
Mell
on
B a n k ~ fu
nd s ,
and
he d
id
even
spend
th em
,
a l
mos t
to
t
he
l
ast cen
ta
vo
, beycnd a
l l ch
ance
of
t
heir
recove r y . This was clea r l y a us e
of
t he
Mel l on
B a n k ~
f un
ds by p t i t i o n ~ r
f or
his
own
enj
o
yment and ben
e
f i
t j
us
t a s am
ply
and ful ly a s
though
he had t i t l e t t hem . Such enjoymen t and
exercise
by pe t i t i o
ner
of
pr iv i l
ege s and
benef i ts
so substantia l and important as t o
w ~ c t
r
ea
son-
able and jus t to
dea l with him as
i f
e
were
t he
-
owner,
and t o t ax him on
tha t
basis (B
urn
e t ·vs
Wel l s ,
e_
up r a ) '· c
an
ha
ve no
different
t
ax
c o
nse
quenc
es
when the f unds a r e e a r ned i n lawful man
ne
r
t h
an whe
n t h
ey are
de
rived
f r om
i l
leg a l
source
s .
An unl
aw
fu
l ga
in
, as
well
as a l awfu l o
ne
,
cons t i tu tes t axable i ncome when i ts r ecipien t has
such control
o
ve
r i t ha
t ,
as a prac t ic a l
mat
t
er ,
he
de r iv es re adi l y rea l iz able economic va lue
from
t (B
urn
e t vs .
Well
s , 289 US 67 0, 678 1 77 L.
Ed
.
1 4 3
; Co
r l
i s v s . Bowe s , 281
US
376 , 378r
74 L. Ed . 16
,
917
.)
That occurs whe n c a sh , as
2
~
•
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8/19/2019 9.) Javier vs. Ancheta.pdf
12/16
DECISION -
CTA C
ASE
NO . 3393
- .12 -
here ,
is
del i
vered
by i
ts
owne r t o t he
taxpayer
in a man ner which al lows the recipien
freedom
(.
to
dispose of t a t wil l p
even though t
may have
been
obtained by
fr
au d or mi s take and
is fr
eedom
t o
use
i t
may
be
assai lable
by
so
meone
with
a
bette
r t
i t .le to
i t . Rut
ki
n
vs
.
Un
i
te
d
States
,
343 US 131 ,
37:
96 L . Ed . 835 , S39 o .
Such
ga ins are t axable i n t
he year
during which
they
are
rea l i
ze do
This
statutory pol i
cy is
i
nvoke
d
in t he i nteres t of orde r l y adminisbat i on . Rutkin
vs.
Unit
ed S
ta tes
, supr.ao ) . Co l l
ect io
n
of
the
r
eve
nue
c
annot be delayed, no
r
sbou ld
t he G
overnmen t be
compelled
to decide when a posses sor • c l aims
are
wi thou t l ega l warran t . National
i ~
Bank
vs
.
He lv
er
ing
Le
2g7
98 F 2d 93 , 96 .) . The r e
is
no
adequate r eason
wh
y apsa
i la
ble unlawfu l gain s shou ld
be t r
eated
different ly
in
th is
r
espect
fr
om s s i
~
ab le
lawf
ul g i n s Ce r ta in ly t
here
~
no r eason
for t
reat in
g t hem more
lenient ly
. United
States
vs . Sul l ivan, 274 US 259, 263 f 71 L. Ed . 1037,
1039 . )
As · to pet i t i one r
0
•
a l
l ega t ion (par 5 , pet
i t io
n
for r evie w) .
th
a t i n the f o
otnote
of h
is
1977 i ncome
tax
r eturn
he
s t
ated
tha t he w r
ecipient
of some
money r
eceive
rom a r oad which
he
pre
sumed
to
be
21
0
•
•
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8/19/2019 9.) Javier vs. Ancheta.pdf
13/16
DECISI
ON
-
C
TA
CASE O. 3393
- .
13
-
a
g i f t
bu t u ~ n e d
out
t o be an
error and
is n
ow
subjec t of lit igation w, and his submiss i on • t ha t
any a ssessment covering th
i s
matte r should
awai
t
f inal
cour t d
ecis
i on · (p • . a,· CTA r
ecords )
· there
is noth
ing
in the Nationa l I n t e r na l
Revenue
Code
. ·
wh
ic
h
ex
pr
essly
r
equ i res ,
as
a c
ondit ion
of
t
he
ex i
s t
ence of a t axable gain , th a t
th
ere a l s o be an absence
of a de fin i t e ,
unconditiona
l o
bl iga
t ion t o r epay or
r e tur n t ha t which wou ld otherwise c o
nEti tute
a gai n.
In t
he
case of
National
Ci ty Ban k of New
Yo
rk vs .
Helve
ring , supra , 98
F.
2d 9S , t he taxpaye r was t
axe
d
on b
ond
s w
hic
h he had
unla
wful ly withheld from t he
co
rporat i
on
of
w
hich
.he wa s an of f icer .
These
bond s
wer e the property of t he corpor a t i
on
i n the s ense
that it cou ld
ha
ve
reclaimed the
m ~ ~ Cour t s aid -
Bu t there are several c ases
in
which pers
ons
have
be
en
t
axed
upon property
which
co
uld
be r ecovered
.
f rom t hem . For examp
le ,
t he l ender upon usur i
ous
i
nte
r es t - i on
an accr
ua l b
as
is - must i nclude h i s
appa rent pro f i t in his retu rn , though pos s i bly he may
be
a l
l owed to d
educ
t i t
as
a loss i f t he
borrow
e r
re c la i
ms
i t . (Barker
vs.
Magruder 68 App . o.c . 211 ,
5 F. 2d 22 . ) Agai n , when a r
ai
l r oad col lec t s too
The
fac
t t hat. i
nte
r es t is usurious unde r
the
l aw ,
and may be
r ecove
red ba
c k by t he
borrowe
,
does no t preven it f rom being
in
com , he n rece ived ,
t o a t
ax
paye r
on
t
he
c
as
h bas is . Likew i se , the t.ax
abi lity
of
an a
cc rua
l
of
u
surious
i n tere s t i s
not
aff ected because
of
i
t s
i l lega l ity.. I f in a sub- .
sequent year the
amo
unt
becomes
uncol lect ible , or a
l oss is sustained in r e spec t t her eof , a d
educt
i on ·
on account
thereo
f i s t hen
allow
able . (Uma l i , R.
M.
Re
viewe r in T
axation
198 0 ed . , pp .
8 7 ~
c i t ing
1955
PH Fed . Taxes , Pa r . 8010. )
211
•
•
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8/19/2019 9.) Javier vs. Ancheta.pdf
14/16
I • •
\
\
.
.:.:.
DECI
S ION - .
CTA C
ASE
NOe 3393
.1
l arge f are s the e
xces
s i s i ncome , t hough the
passenge rs 'have a t heoretica l r ight.
of
res t i tu - .. ·
t i
on e (
Ch icago
, R.
I .
& P ~ R Co . vs . Commissio
ner
,
7 Cir . 47 F. 2d . 990
We
not
e t
hat
in
t he .d
ef
ic i
ency
i ncome
tax
assessment unde r
co
ns ideration , r e spondent. furthe r
re
ques
t ed pet i t ioner to pay 50' su rcha
rge
as pro- .
vided for in
Sect i
on 72
of
t h ~ Tax coe a , in add i t i on
to t,he de f iciency i ncome
tax
of
P4
, 888 , 615 00
and
in te
res t
due t hereon .
Sin
ce
pet i t
i oner f i le d his
inc
ome
tax
r
eturn
fo
r
taxa
ble
year
1
97
7,
the
·
SO%
surcharge was i mposed, i n a l l .p ro
babili ty
, y r
es
pondent becau
se
he conside red t he r eturn
f i
l ed f
alse
or f r a
u d u ~ e n t
This addi t i ona l requ
m e n t
to our
mind , i s much les s called f or because pe t i t i oner ,
-
as
state
d ear
l i
e
r
r eflec t ed
in
h
is
1
97
7 r eturn a
.
footnote
t
ha
t
Taxpaye
r was r e
cipi
en
t
of
s
om
e money
r
ece
i ved
fro
m ab,oad wh
ic
h he p r e
s u m e ~
to be gi
f t
but t
urne
d out be an erro r and i s now sub jec t
of l i t iga t ion"
From t h is , ~ ~
ca
n har d ly be said t ha t
th
er e
was actua l and i n tent ion
a l
f raud , consisting of
de
ception wi l
l f
ul ly and de
l ibera t
e ly done or r e
sorted t o by e t i ti one r in or der to induce t
he
ove r nmen to g ive up some lega l r igh t , or the
21
2
•
•
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8/19/2019 9.) Javier vs. Ancheta.pdf
15/16
r
DE
CI S
ION
-
CTA CAS E 0
3393
5 -
l a t te r , due t o a f
a ls
e r e t ur
n,
was pl
ace
a t a
d
isadvan ta
-
8/19/2019 9.) Javier vs. Ancheta.pdf
16/16
.
DECI SI ON -
CT C SE N O 3393
- 16 -
Accordingly,
pe t i t ioner Me l chor
Je
J av i er , r .
i s he r eby o ~ d e r e d to pay to responden t Comm i
ss
i one r
.
of I nterna l Re
venue
t he s um
of
P6 , 796 , 53 2.80
as
de
f icien
c y i nc
om
e
tax fo
r 1977 , pl
us
10% su r charge
and
2
0
per
ann
um
i
nte re
s t f
ro
m Novembe r 14 , 1980
up t o f u payment
ther eo
f
but no
t o exceed the
amount c orresp
ond
i ng t o
three
years pur suant t o
Sec t i on
Sl e
) ~ f t he Na
t lp na
l n t e r ~
a ~ v e n u e
Code
as amendeq by Presiden t i a t Decree No s 17 05 .
W H
E R ~
F O ~ t he
decision
appealed
fr
om i s
m o d f i e d
a s
n q i p ~ t ~ p
in
~ h e
above
o
pinio
n
of
the
' • . '·
Court .
With
c o s t ' ·
' SO ORDERED .
Quezon C
i ty
,
Metro
Man i l a ,
J ~ : :
2
7,
1983 .
M NTE ~
Presid i ng J udge
WE C
ON
CUR
:
: : : : ~ ~
~
~ ~
ssociate
u ~ U I N
•
'
.
I
I
I
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