INCOME TAX

National Internal Revenue Taxes

Section 22-23

Definition is important in case of doubt

Income Tax- tax impose on income

All wealth that flaws to the taxpayer other than the mere return of capital

Ex.

100, 000- principal at 10% interest

10,000- interest

The 10k is the income, the 100.000 is mere return of the capital. Only the 10k is taxable.

CASE: CIR v Javier (Melon Case)

$1M was credited but the intention of the one who sent was only $1k.

The spouses did not return the money but spent it on real estate properties.

They did not declare the amount in their income tax return but they attached a footnote.

The difference between the 1M and 1k, is the income.

Claim of Right Doctrine- a taxable gain is conditioned upon the presence of a claim of right to the alleged gain and
the absence of a definite and unconditional obligation to return or repay.

50% Surcharge was imposed, usually imposed on fraudulent income tax, but the SC ruled there was no fraud
because the taxpayer was in good faith considering they voluntarily disclosed in the footnote the amount they
received.

Income tax is classified as a direct tax- the person who is required to pay the tax also bears the burden.

The Philippines follow a mix of global and schedular tax system.

REQUISITES

1. There must be income or profit

2. Must be realized

3. The income gain or profit must not be exempt or subject to other taxes under a law or tax treaties

Ex.

You own a propert which you purchased in 2012 at 1M. you have the property appraise, 5M na ang value. In 2016,
you sold the property at 8M

Question, after you have the property appraised, would you consider the difference of 4M(5M-1M) as taxable
income? No, because it is still an unrealized income.

To be realized, the income must arise from a close and completed transaction.
So in 2016, when the property was sold, there is a realized income of 7M.

3 broad classifications of taxpayer

1. Individual

2. Corporate

3. Estate and Trusts

Corporate Taxpayer