CIR vs Estate of Toda

Facts:
Cibeles Insurance Corporation (CIC) authorized Toda to sell the Cibeles
Building and the 2 parcels of Land on which it stands for an amount not less than
90M. On 30 August 1989, Toda sold it to Altonaga for an amount of 100M and
Altonaga sold it to Royal Match, Inc. (RMI) for an amount of 200M.
On 16 January Toda died. On 29 March 1994, after the death of Toda, BIR
sent an assessment notice and a demand letter to the CIC for deficiency income tax
in the year 1989.
CIC asked for a reconsideration. As a response, BIR sent a notice of
assessment to the estate of Toda for the year 1989. The estate filed a protest which
the commissioner dismissed.
Thus, the case was file to the Court of Tax Appeals. The CTA ruled that the
estate is not liable for the failure of the commissioner to prove that there is fraud in
the 2 sales that were conducted. Therefore, CIC exercised Tax Avoidance.
Issue:
Whether the scheme made by CIC is tax evasion or tax avoidance
Held:
The Supreme Court ruled that it is Tax Evasion.
Tax avoidance is a tax saving device within the means sanctioned by law.
Such method must be used by the taxpayer in good faith and at arms length.
Tax evasion is a scheme used outside of the lawful means and when availed
of, it usually subjects the taxpayer to further or additional civil or criminal liabilities
It connotes the integration of 3 factors:
1. The end to be achieved which is the payment of less or non-payment of the
tax due to the government;
2. An accompanying state of mind which is described as being evil, in bad faith,
wilful, or deliberate or not accidental; and
3. Course of action or failure of action which is unlawful.
All factors are present in the scheme made by CIC. The SC noted that RMI
already paid CIC even before the alleged two sales.