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Facts:
On March 31, 1952, Petitioner 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, a loss consisting in a portion of
his war damage claim which had been duly approved by the
Philippine War Damage Commission under the Philippine
Rehabilitation Act of 1946 but which was not paid and never has
been paid pursuant to a notice served upon him by said Commission
that said part of his claim will not be paid until the United States
Congress should make further appropriation, as a deductible item
from his gross income pursuant to General Circular No. V-123 issued
by the Collector of Internal Revenue.
DECISION AFFIRMED.
---------------------------------------------------------------------------------------------CIR v. Toda, Jr.
GR No. 147188; 14 September 2004
F A C T S: On 2 March 1989, CIC authorized Benigno P. Toda, Jr.,
President and owner of 99.991% of its outstanding capital stock, to
sell the Cibeles Building. On 30 August 1989, Toda purportedly sold
the property for P100 million to Rafael A. Altonaga, who, in turn,
sold the same property on the same day to Royal Match Inc. (RMI)
for P200 million. Three and a half years later Toda died. On 29 March
1994, the BIR sent an assessment notice and demand letter to the
CIC for deficiency income tax for the year 1989. On 27 January
1995, the Estate of Benigno P. Toda, Jr., represented by special coadministrators Lorna Kapunan and Mario Luza Bautista, received a
Notice of Assessment from the CIR for deficiency income tax for the
year 1989. The Estate thereafter filed a letter of protest. The
Commissioner dismissed the protest. On 15 February 1996, the
Estate filed a petition for review with the CTA. In its decision the CTA
held that the Commissioner failed to prove that CIC committed
fraud to deprive the government of the taxes due it. It ruled that
even assuming that a pre-conceived scheme was adopted by CIC,
the same constituted mere tax avoidance, and not tax evasion.
Hence, the CTA declared that the Estate is not liable for deficiency
of income tax. The Commissioner filed a petition for review with the
Court of Appeals. The Court of Appeals affirmed the decision of the
CTA, hence, this recourse.
I S S U E S:
(1) Is respondent Estate liable for the 1989 deficiency income tax of
Cibeles Insurance Corporation?
(2) Whether or not this is a case of tax evasion or tax avoidance.
1.
A corporation has a juridical personality distinct and separate
from the persons owning or composing it. Thus, the owners or
stockholders of a corporation may not generally be made to answer
for the liabilities of a corporation and vice versa. There are,
however, certain instances in which personal liability may arise. It
has been held in a number of cases that personal liability of a
corporate director, trustee, or officer along, albeit not necessarily,
with the corporation may validly attach when:
1. He assents to the (a) patently unlawful act of the
corporation, (b) bad faith or gross negligence in directing its
affairs, or (c) conflict of interest, resulting in damages to the
corporation, its stockholders, or other persons;
2. He consents to the issuance of watered down stocks or,
having knowledge thereof, does not forthwith file with the
corporate secretary his written objection thereto;
3. He agrees to hold himself personally and solidarily liable
with the corporation; or
4. He is made, by specific provision of law, to personally
answer for his corporate action.38
It is worth noting that when the late Toda sold his shares of stock to
Le Hun T. Choa, he knowingly and voluntarily held himself
personally liable for all the tax liabilities of CIC and the buyer for the
years 1987, 1988, and 1989. Paragraph g of the Deed of Sale of
Shares of Stocks specifically provides:
g. Except for transactions occurring in the ordinary course of
business, Cibeles has no liabilities or obligations, contingent
or otherwise, for taxes, sums of money or insurance claims
2.
Tax avoidance and tax evasion are the two most common
ways used by taxpayers in escaping from taxation. Tax avoidance is
the tax saving device within the means sanctioned by law. This
method should be used by the taxpayer in good faith and at arms
length. Tax evasion, on the other hand, is a scheme used outside of
those lawful means and when availed of, it usually subjects the
taxpayer to further or additional civil or criminal liabilities.23
Tax evasion connotes the integration of three factors: (1) the end to
be achieved, i.e. the payment of less than that known by the
taxpayer to be legally due, or the non-payment of tax when it is
shown that a tax is due; (2) an accompanying state of mind which is
described as being evil, in bad faith, willfull, or deliberate
and not accidental; and (3) a course of action or failure of action
which is unlawful. All these factors are present in the instant case.
The scheme resorted to by CIC in making it appear that there were
two sales of the subject properties, i.e. from CIC to Altonaga, and
then from Altonaga to RMI cannot be considered a legitimate tax
FACTS:
Olimpio Fernandez and his wife Angelina Oasan had a net worth of
P8,600 on December 8, 1941. During the Japanese occupation the
spouses acquired several real properties, and at the time of his
death on February 11, 1945 he had a net worth of P31,489. The
Collector of Internal Revenue assessed a war profits tax on the
We have applied the above principle in the cases of Mekin vs. Wolf,
2 Phil. 74 and Ongsiako vs. Gamboa, 47 Off. Gaz., No. 11, 5613,
5616.
It has also been held that property taxes and benefit assessments
on real estate, retroactively applied, are not open to the objection
that they infringe upon the due process of law clause of the
Constitution (Wagner vs. Baltimore, 239 U. S. 207, 60 L. Ed.
230); that taxes on income are not subject to the constitutional
objection because of their retroactivity. The universal practice has
been to increase taxes on incomes already earned; yet
notwithstanding this retroactive operation, income taxes have not
been successfully assailed as invalid. The uniform ruling of the
courts in the United States has been to reject the contention that
the retroactive application of revenue acts is a denial of the due
process guaranteed by the Fifth Amendment (Welch vs. Henry, 305
U. S. 134, 83 L. Ed. 87).
It has also been held that in order to declare a tax as transgressing
the constitutional limitation, it must be so harsh and oppressive in
its retroactive application (Idem.). But we hold that far from being
unjust or harsh and oppressive our war profits tax is both wise and
just. Those who were able to retain their properties found
themselves possessed of increased wealth because inflation set in,
the currency dropped in value and properties soared in prices. It
would have been unrealistic for the legislature to have ignored all
these facts and circumstances. After the war it could not, with
justice to all concerned, apportion the expenses of government
equally on all the people irrespective of the vicissitudes of war,
equally on those who had their properties decimated as on those
who had become fabulously rich after the war. The law may not be
considered harsh and oppressive because the force of its impact fell
on those who had amassed wealth or increased their wealth during
the war, but did not touch the less fortunate. The policy followed is
the same as that which underlies the Income Tax Law, imposing the
burden upon those who have and relieving those who have not. No
one can dare challenge the law as harsh and oppressive. We declare
it to be just and sound and overrule the objection thereto on the
ground of unconstitutionality.