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Prof. Joselito Guianan Chan's The Labor Code of the Philippines, Annotated Labor Standards & Social Legislation Volume I of a 3-Volume Series 2019 Edition (3rd Revised Edition)
 

 
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UNITED STATES SUPREME COURT JURISPRUDENCE
 

 
PHILIPPINE SUPREME COURT JURISPRUDENCE
 

   
May-1939 Jurisprudence                 

  • G.R. No. 45383 May 2, 1939 - MARIA V. SERAPIO v. MARIANO SERAPIO, ET AL.

    067 Phil 701

  • G.R. No. 45502 May 2, 1939 - SAPOLIN CO., INC. v. CORNELIO BALMACEDA

    067 Phil 705

  • G.R. No. 45915 May 2, 1939 - ESCOLASTICO BUENAVENTURA v. GERINO Z. LAYLAY

    067 Phil 717

  • G.R. No. 45486 May 3, 1939 - TIBURCIO SUMERA v. EUGENIO VALENCIA

    067 Phil 721

  • G.R. No. 45322 May 4, 1939 - WALTER BULL v. REDO L. YATCO

    067 Phil 728

  • G.R. No. 45524 May 4, 1939 - MUNICIPALITY OF VICTORIAS v. VICTORIAS MILLING CO., INC.

    067 Phil 733

  • G.R. No. 45969 May 4, 1939 - TAN TIAH v. Yu JOSE

    067 Phil 739

  • G.R. No. 45122 May 5, 1939 - VISAYAN SURETY & INSURANCE CORPORATION v. FRUCTUOSA TABARES

    067 Phil 743

  • G.R. No. 45496 May 5, 1939 - ROMAN CATHOLIC ARCHBISHOP OF MANILA v. EL MONTE DE PIEDAD Y CAJA DE AHORROS DE MANILA

    068 Phil 1

  • G.R. No. 45662 May 5, 1939 - JUAN GOROSTIAGA v. MANUELA SARTE

    068 Phil 4

  • G.R. No. 45889 May 5, 1939 - CRISPINO ENRIQUEZ v. PEOPLE OF THE PHIL.

    068 Phil 8

  • G.R. No. 45987 May 5, 1939 - PEOPLE OF THE PHIL. v. CAYAT

    068 Phil 12

  • G.R. No. 46405 May 6, 1939 - RAYMUNDO TRANS. CO., INC. v. PUBLIC SERVICE COMMISSION

    068 Phil 22

  • G.R. No. 45667 May 9, 1939 - HARRY IVES SHOEMAKER v. TONDEÑA

    068 Phil 24

  • G.R. No. 45696 May 9, 1939 - GIL BUENDIA v. VICENTE SOTTO

    068 Phil 31

  • G.R. No. 45865 May 10, 1939 - PEOPLE OF THE PHIL. v. TI YEK JUAT

    068 Phil 37

  • G.R. No. 45993 May 11, 1939 - GERONIMO SANTIAGO v. FABIAN R. MILLAR

    068 Phil 39

  • G.R. No. 45318 May 12, 1939 - JACINTO MESINA v. PETRA DELINO

    068 Phil 43

  • G.R. No. 45427 May 12, 1939 - PHIL. NATIONAL BANK v. PHIL. TRUST CO.

    068 Phil 48

  • G.R. No. 45433 May 12, 1939 - ROSARIO GONZALEZ CASTRO VIUDA DE AZAOLA v. GASTON O’FARRELL

    068 Phil 74

  • G.R. No. 45648 May 12, 1939 - DIRECTOR OF LANDS v. ANICETO ABA

    068 Phil 85

  • G.R. Nos. 46119-46121 May 12, 1939 - PEOPLE OF THE PHIL. v. IGNACIO BELTRAN

    068 Phil 90

  • G.R. No. 46584 May 13, 1939 - MARIANO MARCOS v. ROMAN A. CRUZ

    068 Phil 96

  • G.R. No. 45616 May 16, 1939 - FELICIANO SANCHEZ v. FRANCISCO ZULUETA

    068 Phil 110

  • G.R. No. 45543 May 17, 1939 - SURIGAO MINE EXPLORATION CO. v. C. HARRIS

    068 Phil 113

  • G.R. No. 46432 May 17, 1939 - PEOPLE OF THE PHIL. v. TEODORICO MARTIN

    068 Phil 122

  • G.R. No. 45924 May 18, 1939 - CELESTINO RODRIGUEZ v. EUGENIO YAP

    068 Phil 126

  • G.R. No. 45160 May 23, 1939 - JOSE GREY v. SERAFIN FABIE

    068 Phil 128

  • G.R. Nos. 45705-45707 May 23, 1939 - TEODORA DOMINGO v. MARGARITA DAVID

    068 Phil 134

  • G.R. No. 45842 May 23, 1939 - MARCARET STEWART MITCHELL MCMASTER v. HENRY REISSMANN & CO.

    068 Phil 142

  • G.R. No. 46177 May 23, 1939 - PEOPLE OF THE PHIL. v. MELCHOR TAGASA

    068 Phil 147

  • G.R. No. 46437 May 23, 1939 - EUFEMIO P. TESORO v. DIRECTOR OF PRISONS

    068 Phil 154

  • G.R. No. 45213 May 24, 1939 - H. P. L. JOLLYE v. EMETERIO BARCELON

    068 Phil 164

  • G.R. No. 45486 May 24, 1939 - ASIATIC PETROLEUM CO. v. JOSEFA VALENCIA VIUDA DE MOLINA

    068 Phil 172

  • G.R. No. 45218 May 26, 1939 - CONSUELO CEMBRANO v. CARMEN PARDO DE TAVERA DE GONZALEZ

    068 Phil 175

  • G.R. No. 45446 May 25, 1939 - C. N. HODGES v. PEOPLE OF THE PHIL.

    068 Phil 178

  • G.R. No. 45530 May 25, 1939 - CHINA INSURANCE v. Y. CHONG

    068 Phil 189

  • G.R. No. 45615 May 25, 1939 - TEOFILO SINCO v. SILVESTRA TEVES

    068 Phil 200

  • G.R. No. 46000 May 25, 1939 - PEOPLE OF THE PHIL. v. JOSE M. BAES

    068 Phil 203

  • G.R. No. 46024 May 25, 1939 - SOTERA ARAVEJO v. ALFONSO DORONILA

    068 Phil 210

  • G.R. No. 46078 May 25, 1939 - GREGORIA REYNOSO v. JOSE E. TOLENTINO

    068 Phil 213

  • G.R. No. 45189 May 26, 1939 - PHIL. SUGAR ESTATE DEV’T. CO., INC. v. JUAN POSADAS

    068 Phil 216

  • G.R. No. 45264 May 26, 1939 - JOSEFA CASTELLTORT v. BALBINA PASION

    068 Phil 224

  • G.R. No. 45736 May 26, 1939 - CONCEPCION LOPEZ v. ADELA LOPEZ

    068 Phil 227

  • G.R. No. 46100 May 26, 1939 - ALFREDO HIDALGO RIZAL v. JOSEFA RIZAL MERCADO

    068 Phil 231

  • G.R. No. 43585 May 27, 1939 - RIZALINA DE LA ROSA v. MAXIMIANA EDRALIN

    068 Phil 234

  • G.R. No. 45307 May 27, 1939 - COMPAÑIA GENERAL DE TABACOS DE FILIPINAS v. COLLECTOR OF INTERNAL REVENUE

    068 Phil 238

  • G.R. No. 45324 May 27, 1939 - GOVERNMENT OF THE PHIL. v. FRANCISCO ABADINAS

    068 Phil 254

  • G.R. No. 45374 May 27, 1939 - MANUEL RODRIGUES v. DANIEL TIRONA

    068 Phil 264

  • G.R. No. 45608 May 27, 1939 - JESUS AZCONA v. PACIFIC COMMERCIAL CO.

    068 Phil 269

  • G.R. No. 46248 May 27, 1939 - TIMOTEO TAROMA v. ROMAN A. CRUZ

    068 Phil 281

  • G.R. No. 45350 May 29, 1939 - BACHBACH MOTOR CO. v. ESTEBAN ICARAÑGAL

    068 Phil 287

  • G.R. No. 45121 May 31, 1939 - DEMETRIO GAMBOA v. SERAFIN GAMBOA

    068 Phil 304

  •  





     
     

    G.R. No. 45189   May 26, 1939 - PHIL. SUGAR ESTATE DEV’T. CO., INC. v. JUAN POSADAS<br /><br />068 Phil 216

     
    PHILIPPINE SUPREME COURT DECISIONS

    FIRST DIVISION

    [G.R. No. 45189. May 26, 1939.]

    PHILIPPINE SUGAR ESTATE DEVELOPMENT CO., INC., Plaintiff-Appellee, v. JUAN POSADAS, Collector of Internal Revenue, Defendant-Appellant.

    Solicitor-General Hilado for Appellant.

    Eusebio Orense and Nicolas Belmonte for Appellee.

    SYLLABUS


    l. INCOME TAX; DEDUCTION OF LOSSES SUSTAINED FROM INCOME TAX RETURNS. — A taxpayer who does not deduct his losses from his income tax returns for the year in which he may have sustained them on account of the opposition of an internal revenue agent-examiner to that deduction, but makes this ten years thereafter without objection on the part of the Collector of Internal Revenue, should not, in equity, answer for the additional payment for that omission after the lapse of fifteen years for the reason that he has acted in good faith.

    2. ID.; ID. — The difference in the total value of the shares of stock of a bank resulting from the reduction of the number of said shares which keep their par value, while the assets of the bank remain intact, cannot be considered as a loss until the assets are liquidated.

    3. ID.; ID.; ERRONEOUS RETURNS. — Although the Collector of Internal Revenue has no authority to make an administrative summary collection of the tax upon discovery of erroneous, false and fraudulent tax returns, after the three years fixed by law counting from the filing of said income tax returns have elapsed, when the taxpayer paid the additional tax under protest and brought the corresponding action to recover the protested additional payment, the collection became judicial and the right of the Collector of Internal Revenue to effect the collection through that means has not prescribed.


    D E C I S I O N


    VILLA-REAL, J.:


    Upon the submission of the present case to the Court of First Instance of Manila on an stipulation of facts, a decision was rendered, the dispositive part of which reads:jgc:chanrobles.com.ph

    "In view of the foregoing, the court finds the action brought by plaintiff to be in accordance with law, and, therefore, orders the Collector of Internal Revenue to refund to plaintiff the sum claimed of P2,915.45, without costs."cralaw virtua1aw library

    From this decision defendant Juan Posadas, in his capacity as Collector of Internal Revenue, took an appeal, assigning six alleged errors committed by the court a quo in its judgment referred to, which we shall presently discuss.

    The first question to be determined is that raised by the first assignment of alleged error, namely whether or not the court a quo erred in not finding that the amount of P63,855.25 which had been defrauded from the funds of the plaintiff corporation in the year 1917 by Federico Rodriguez Almela should be considered a loss incurred by that entity in the year 1928.

    According to the .stipulation of facts above-mentioned, on June 28, 1918 the plaintiff corporation transferred from its "Losses and Profits" account to its "Items in Suspense" account the amount of P63,831.71 as a loss actually sustained by the corporation. On December 21, of the same year, when it considered said amount as definitely lost, the corporation made it thus appear in its book by transferring it from its "Items in Suspense" account to that of "Losses and Profits" ; but at the instance of the internal revenue agent-examiner, said entry was returned from the "Losses and Profits" account to that of "Items in Suspense" and entered in its book on December 31, 1918. The return of the defrauded sum to the "Items in Suspense" account at the instance of the internal revenue agent-examiner, prevented the plaintiff from excluding from its income tax returns for 1918 the amount swindled in 1917, and was able to do so only in the month of December, 1928, when it was definitely known that it was no longer possible to recover the said loss, charging it to the losses account and excluding it from its income tax returns for 1918. The Bureau of Internal Revenue not only ignored that deduction, but also in view of the returns filed by said plaintiff the Collector of Internal Revenue assessed the tax for that year which was paid under protest by plaintiff. Five years thereafter, or in 1923, the Collector of Internal Revenue claimed for the first time that said amount had been erroneously deducted as a loss sustained by plaintiff corporation in 1928 and should have been excluded from its income tax returns, which was filed in 1918, as a loss sustained in 1917, and demanded of the plaintiff corporation the payment of the additional tax on said sum, which plaintiff had to pay under protest as above-stated.

    Defendant tried to detract from the validity and force of the opposition of his agent-examiner to the deduction of said loss from the income tax returns filed by the plaintiff corporation in the year 1918, alleging that said agent had no authority or power to interpose that opposition, and that the annotation which appears in the books of the plaintiff corporation, made on December 31, 1918, and which says: "Returned to the Debit of the first account (Items in Suspense) — amounts swindled by Federico R Almela which we paid on June 28 last and charged to the respective accounts of this column (Losses and Profits) at the instance of the agent-examiner of the Bureau of Internal Revenue for the determination of the income tax for previous years — P63,831.77", is self-serving, that is, a statement made in favor of the plaintiff corporation itself, and hence not admissible.

    As to the examination made by the internal revenue agent of the books of the plaintiff corporation in the year 1918, although it has been proved that agents-examiners have no authority to order the entry or nonentry, the inclusion or exclusion, the reduction or increase of any item in income tax returns filed by a taxpayer, but should make a report to the Collector of Internal Revenue of any anomaly which they may discover in said returns; yet it appearing, as it does, that said internal revenue agent opposed plaintiff corporation’s deduction from its income tax returns for the year 1918 the loss it sustained on account of the estafa committed by its treasurer and accountant, and that plaintiff corporation believing in good faith that said internal revenue agent had authority to act as he did, eliminated said loss from the "Losses and Profits" account and returned it to that for "Items in Suspense", and did not deduct it until the year 1928 when the loss was definitely determined, said plaintiff corporation should not, in equity, be made to answer for the payment of the additional tax which has been collected from it after fifteen years have elapsed, notwithstanding that the loss was sustained in 1917 and should have been deducted from the income tax returns for 1918.

    As to the annotation which appears on the books of the plaintiff corporation under date of December 31, 1918 in reference to the opposition of the aforementioned internal revenue agent to the deduction of the loss from the income for the year 1918, although said annotation favors the corporation, it is not inadmissible as evidence inasmuch as it is a contemporaneous entry made in the ordinary and regular course of business (sec. 328, Act No. 190).

    It also appears in the stipulation of facts that from the year 1909 to the year 1911, the plaintiff corporation acquired 623 shares of stock of the Banco Español del Rio de la Plata, a corporation organized under the laws of Argentina, with a branch at London, England, of the value of $100, Argentinian currency, per share, and with a total value of P101,195.91; that in the year 1925, by virtue of the articles of the aforementioned bank, as amended and approved by the national government of Argentina, dated March 7, 1924, and pursuant thereto, its capital stock was reduced from $100,000,000 to $25,000,000, divided into 250,000 ordinary shares of the par value of $100 each, with the issuance of 250,000 new preferred shares of the total sum of $25,000,000 with a par value of $100 each being authorized. In view of said reduction of the capital stock of the bank, the original shares were cancelled and new shares of stock were issued on January 26, 1925 in the proportion of one (1) new share for every four (4) old ones. As a result of this arrangement, the 623 shares of stock of the plaintiff of the par value of $100 each, were cancelled, and in their place 155 ordinary shares of the par value of $100 each were issued. The difference between the original value of the old 623 shares, which amounted to P101,195.51, and that of 155 new shares amounting to P25,298.88, is P75,896.63 set forth as a loss in its income tax returns for the year 1928. The plaintiff corporation has paid the entire amount of the income tax for the year 1928 in accordance with the assessment made by the defendant, based upon the income tax returns filed by the plaintiff corporation for that year.

    It likewise appears from the correspondence (Exhibits D, C, G, and S) presented by plaintiff corporation that the assets of the bank remained the same and that the only reorganization which was effected was the reduction of the value of its capital stock.

    The Department of the Treasury of the United States has issued the following opinion:jgc:chanrobles.com.ph

    "In the case cited the $5,000,000 capital stock issued in payment for the assets (tangible and intangible) of the first company is in fact of no greater actual value than is that of the $500,000 of the first company, for the reason that in each case the value of the stock is based upon and supported by the same assets, and until the stock issued by the purchasing or reorganized company in payment for the assets of the first company is converted into cash or its equivalent, no taxable income will have been realized from he transaction. In other words the excess of the nominal par value of the stock of the selling company, the stock n both cases being supported by the same assets, does not constitute income within the meaning of the Federal income tax law." (Letter to A. G. Dickson, Philadelphia, Penn. signed by Commissioner W. H. Deborn, and dated May 3, 1915.)

    "It has accordingly been held that no loss allowable as a deduction was sustained through an exchange of stock of the par value of $100 for an equal number of shares of the par value of $50 upon the reorganization of a company which had sustained an operation deficit. — Comm. Rec. 665, 5 C. B., 59, quoting the statutory provisions." (1927 Consolidated U. S. Income Tax Laws, p. 178.)

    "Where upon the reorganization of a corporation, a stockholder received stock in the new corporation of a lesser aggregate par value than the stock which he held in the old corporation, no deductible loss was allowed the stockholder; — Appeal of Gordon, Dec. 475, 1 B. T. A. 1223. Appeal of Breuchaud, Dec. 571, 2 B. T. A. 162." (1927 Consolidated U. S. Income Tax Laws, p. 178.)

    In accordance with the foregoing opinion, the difference resulting from the mere change in the number of shares of the same par value without reduction of the assets does not constitute a loss which must be deducted from the income subject to the corresponding income tax, when, unless the new shares are sold, it cannot be known whether reduction has resulted in a loss or not.

    With respect to the fourth assignment of alleged error consisting in whether or not the court a quo erred in finding that the right of the Collector of Internal Revenue to assess and collect the income tax in question in the year 1933 has already prescribed, this court, in the case of Collector of Internal Revenue v. Villegas (56 Phil., 554), held:jgc:chanrobles.com.ph

    "It is therefore a matter established by the American jurisprudence that the three-year prescription refers to the discovery of erroneous, false, or fraudulent returns, and to tax assessments and their summary collection, but not to their collection through judicial channels. The motion filed by the Collector of Internal Revenue in this case, is equivalent to a judicial action for the collection of the accrued income tax. Therefore, the fact that the omission of the net income from the administrator’s return was discovered after the period of three years from the filing of such return, on March 13, 1926, does not prevent the collection of the proper tax assessed after such discovery."cralaw virtua1aw library

    According to the doctrine above-cited, after three years have elapsed from the date on which income tax returns which have been found to be false, fraudulent or erroneous, may have been made, the Collector of Internal Revenue cannot make any summary collection through administrative methods, but must do so through judicial proceedings. Although the Collector of Internal Revenue had no power to make the summary collection which he effected administratively since three years had already elapsed when he discovered the erroneous returns, yet after said collection and after the plaintiff corporation has paid the additional tax under protest and brought this action to recover said tax, the administrative method for the collection of the tax becomes judicial, for which there is no prescription in accordance with the doctrine above-cited.

    In view of the foregoing considerations, we are of the opinion and so hold: First, that a taxpayer who does not deduct his losses from his income tax returns for the year in which he may have sustained them on account of the opposition of an internal revenue agent-examiner to that deduction, but makes this ten years thereafter without objection on the part of the Collector of Internal Revenue, should not, in equity, answer for the additional payment for that omission after the lapse of fifteen years for the reason that he has acted in good faith; second, that the difference in the total value of the shares of stock of a bank resulting from the reduction of the number of said shares which keep their par value, while the assets of the bank remain intact, cannot be considered as a loss until the assets are liquidated; and third, that although the Collector of Internal Revenue has no authority to make an administrative summary collection of the tax upon discovery of erroneous, false and fraudulent tax returns, after the three years fixed by law counting from the filing of said income tax returns have elapsed, when the taxpayer paid the additional tax under protest and brought the corresponding action to recover the protested additional payment, the collection became judicial and the right of the collector of Internal Revenue to effect the collection through that means has not prescribed.

    Wherefore, the judgment appealed from is affirmed as far it orders the refund of the additional tax collected under protest on account of the fact that no deduction was made of the loss of the sum of P63,855.27 from the income tax returns for the year 1917 when said loss was sustained; and is reversed in all other respects, without special pronouncement as to costs. So ordered.

    Avanceña, C.J., Imperial, Diaz, Laurel, Concepcion, and Moran, JJ., concur.

    G.R. No. 45189   May 26, 1939 - PHIL. SUGAR ESTATE DEV’T. CO., INC. v. JUAN POSADAS<br /><br />068 Phil 216


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