CTA Case No. 30 (Decision)

I ' f;EP'UBLIC OF Trm PHILIPPINEI , COU.B. .T OMF ATNAILXA A. PJ:>EALi, . WILliAM LI YIAO, C. T. A. CASE NO. 30 Petitioner, versus COLLECTOR OF INTERNAL REVENUE, Respondent. X� ~ � � - � � � - X DECISION This is an appeal from a decision of the res- pondent Collector of Internal Revenue dated August - 10, 1954, assessing against, and demanding of, the petitioner William Li Yao, the total sum of Pl,505,- 768.54 for alleged deficiency income taxes for the years 1945 to 1951, inclusive of surcharges. The assessment in question, which bears the stamp of approval of the respondent Collector of Internal Revenue, was arrived at by a third investigating team headed by BIR Examiner Conrado Quesada employ- ing the so-called Net Worth-Expenditure (Inventory) Method under authority of section 138 in relation to section 15 of the National Internal Revenue Code when the taxpayer does not employ the regular method of accounting or if the method empl~yed by him d~~s not clearly reflect his true income. As appearing in the working sheet, Exhibit 8, of BIR Examiner Conrado Quesada, the head of the third investigating team, the alleged income tax deficiency for the years in question totalling ~1,505,768.54 inclusive of surcharges, are broken down from year to year as follows: � '

\ - 2- 1945 Investment in Li Yao ~ Co. (Himself) p 29,131.38 Personal accounts in Li Yao & Co . 3, 700.00 Personal accounts in Li Yao & Co. (bo~us) 8, 207.12 Personal properties 500.00 Net Worth on December 31, 1945 Less Net Worth January 1, 1945 � 41,538.50 Increase in net worth 12,500.00 Add: Personal and living expenses Net income as per investigation � 29,038.50 Less: Personal exemptions 20,000.00 Amount subject to tax Tax due thereon i= 49,038.50 Less tax paid or assessed 3~500.00 Deficiency tax due 50% 1surcharge � 45,538.55 Total amount due for 1945 2,523.08 1,111.74 � 1,411.34 � .2,17~5z..o61 Shares of stock-Republic Textiles , N. J., u.s.A. ~ � 350,000.00 145,509.20 Investment: Li Yao (Himself) 1,967.57 Personal account Li Yao & Co. (a/~ # 2) 850.00 Personal properties (F & F) 498,326.77 Net Worth December 31, 1946 Less net worth December 31, 1945 �445~,.75~88,.2570 Increase in net worth '_ 20,~.00 Add: Personal and living expenses Net income per investigation �a76,18.27 Less: Personal exemption 3,500.00 Net Taxable income Tax due thereon �473,288.27 Less tax paid or assessed lll93 ,35S.37 Deficiency tax 50% surcharge 2,538.76 Total amount of tax due and collectible �19o,819.61 �2~56,.242099..48~ !2� Shares of stock - Republic Textiles, In c., New Jersey, U.S.A. Investments: Li Yao & Co. (Himself) �350,000.00 ' 171,607.54 Personal accounts Li Yao & Co. (a/c # 2) 5,995.91 Personal accounts Li Yao & Co . (Tan Ho Ti) 6,000.00 Personal Property (F & F) �534,485530..4050 Net worth as of December 31, 1947 Less: Net worth as of December 31, 1946 498,326.77 Increase in net worth � 36,126.68 Add: Personal and living expenses Net income per investigation 20,000.00 � 56,126.68 Less: Personal exemptions 3,500.00 Net taxable income Tax due thereon - � 52,626.68 Tax paid or assessed ~'- io~~9~a.oo � Deficiency tax -- iGlOB6. 78 50% surcharge p 912.22 456.11 Total amount of tax due and collectible � 1,368.33

DECISION - C. T. A. CASE NO. 30 - 3- Cash - Bank of America 11 3,651.59 Shares of Stock - Republic Textiles, 350 t ()(X) 00 Inc New Jersey, U S 167,532.17 Investments: Li Yao & Co (Himself) 2,000.00 Inves~~ent: Li Yao & Co. (Wife) 30,000.00 Investment: Tan Bee , Cu Yek Chin & Co. Personal accounts Li Yao (Acct # 2) 20,CXX>.OO Personal properties (F & F) 11 57141,9753031.7060 Net worth December 31, 1948 Less: Net worth December 31, 1947 11 53440,1448503.s3415 Increase in net worth Add: Personal and living expenses 20 a<X>Os00 Net income per investigation 11 60,480.31 Less: Personal exemptions Net taxable income I i3&!;5~0~0:0f0~ Tax due thereon 11,~7003..~64 Tax paid or assessed 5,786.88 Deficiency tax 50% &urcharge ~ 17,360:64 Total amount of the tax due and -collect- ible Cash - Bank of America 1,214.81 Time deposit - China Banking Corporation 60,000.00 Shares of stock �- Rep. Textiles, N.J. U. S. A. 350,000.00 Investments: Li Yao &Co. (Himself) 169,175.93 Investments: Li Yao & Co. (Wife) 2,000.00 Investments: Ian :Pee, Cu Yek Chin & Co. 30,000.00 Investments: Li Chay Too Sons, Inc. 166,533.32 Real property (Inherited land) Real property (Inherited building) ~ 23,938.09 9,387.49 2 3~3 . 81 21,544.28 J ) Less depreciation Personal accounts, Li Yao &Co. (a/c 53,800.00 Personal accounts, Li Yao &Co. (Tan Ho Ti a/c # 2) Personal properties (F & F) Net Worth December 31, 1949 Less: Net worth December 31, 1948 Increase in net worth Add: Personal and living expenses Taxable income before inheritance Less: Person.al exemptions Taxable income before inheritance Less: Inheritance Net taxable income Ta~due Tax paid or assessed Deficiency tax 87,256.76 ~ surcharge 43,628.38 Total amount of tax due and collectible 11 130.885.14 D

DECISION - C. T. A. CASE NO. 30 - 4- Cash - Bank of America Investment: Li Yao &Co. (Himself) Investment: Li Yao & Co. {Wife) Investment: Ferin (Himself &Wife � Investment: Ferin (Through others) Investment: Tan Pee, Cu Yek Chin & Co. Investment: Li Chay Too Sons, Inc. Real Property (land) Real Property (building) �23,938.09 Less depreciation 4,787.62 Accts. Rec. Li Chay Too Sons, Inc. Personal Property: Race Horses Furniture & Fixtures Automobile Net worth December 31, 1950 �1,286,773.50 Less: Net worth December 31, 1949 875,405,83 Increase in net worth Add: Personal and living expenses p 405,367.67 Net income per investigation 20,000.00 Less: Personal exemptions Taxable net income p 425,367.67 Tax due thereon 4,20.).00 Tax paid or assessed Deficiency tax � 421,167.67 50% surcharge 218,009.00 Total amount of tax due and collectible 3,837.00 lit 2]04,172.00 107,086.00 p 321 1 258,00 -1951 Cash - Security Ban~ & Trust Co. � 1,400.00 Cash - Bank of America 1,034.74 Investment: Li Yao & Co. (Himself) Investment: Li Yao & Co. (Wife) 283,966.84 Investment: Ferin (Himself &Wife) 55,179.89 Investment~ Ferin (Through others) Investment: Tan Pee, Cu Yek Chin &Co . 320,000.00 Investment: Li Chay Too So.ns, Inc. 480,000.00 Real property (land) Real property (building) ~23,938.09 30,000.00 166,533.32 9,387.48 Less depreciation 9 ,181.43 16,756.66 Accounts receivable: Ferln 750,000.00 Li Chay Too Sons , Inc . 20,000.00 Personal property: Race Horses 18,500.00 Furniture & Fixtures Automobile 2,400.00 4,000,00 Net Worth as of December 31, 1951 Less net worth as of December 31, 1950 Increase in net worth Add: Personal and living expenses Net income per investigation Less: Personal exemptions il 898,385.44 Net taxable income 4,800.00 Tax due thereon Less: Tax paid or assessed Deficiency tax p 497,700.00 50% surcharge 248,850.00 Total amount due and collectible � 746,550.00 \

... DECISION - C. T� .A. CASE NO. 30 - 5- Before proceeding to decide the factua~ as well as !ega~ issues in this case, we shall first give the background of petitioner and the present assessment against him for a clearer understanding of all the issues involved. The petitioner William Li Yao is a naturalized Filipino of Chinese parents and is the eldest son of a prosperous local businessman by the name of Li Chay Too who died sometime in 1948. After the death of his father, the petitioner being the eldest of the children and favorite of his father, was entrusted with the management of the business affairs of the family. In 1945, he organized Li Yao & Company, a limited co- partnership with himself as ma,naging partner. From 1948 to February, 1955, petitioner also owned shares and was president of the Li Chay Too & Sons, Inc., a corporation capitalized by him and his four brothers. In 1950 he organized a corporation known as the Far East Realty & Investment Co., (also known as FERIN for sh'ort) of which he was stockholder and president. It is admitted that from these three business enterprises, the petitioner received during the years covered by this appeal, salaries, bonuses and dividends. By his own admission, the petitioner gambles. Sometime in 1950, he was the owner of nine (9) race horses which he acquired by purchase from Aurelio P. Reyes and the late Johnny Ysmael assessed by BIR Examiner Quesada in the total amount of Pl8,500.00 but which the petitioner claims to be worth only ~11,500.00.

DECISION - C. X. A. CASE NO. 30 -6 Although the petitioner is a naturalized Fil- ipino citizen, he was by his own admission during the years subject of the present review, a very active member in the Chinese community in the rais- ing of funds for civic and charitable purposes. Presumably, because of his well-known opulence, his reputation as a free spender and hiscapactty to con- ~ribute big amounts out of his own personal funds, he was made treasurer of several organizations en- gaged in raising funds for civic and charitable pur- poses. In 1950, he was designated Chairman of the Community Chest for Chinese throughout the Philip- pines, and treasurer of the Manila Police Trust Fund. In 1951, he was appointed by then Secretary of Na- tional Defense Ramon Magsaysay , treasurer in charge of contributions from the entire Chinese community for our expeditionary forces in Korea . At one time or another he also took charge of raising funds for the Philippine Anti-Tuberculosis Society. It is admitted, and on this score there is no dispute between the parties, that for the years 1945 to 1951, inclusive, the petitioner filed income tax returns for which he paid . the corresponding taxes thereon as declared, in the following manner: ~ NET It-COME INCOME TAX PAID .� 23,138.50 918.31 1945 1946 16,520.09 1,393.42 1947 37 , 8 9 8 . 3 4 5,923. 57 1948 12,118.02 700.34

DECISION - C. T. A. CASE NO. 30 1949 �- 7 - 538.07 ~ 10,869.74 1950 18,644.46 3,837.00 1951 22,097.00 2,971.00 Sometime in 1948, the income tax teturns for the years 1945 to 1947 of the petitioner were verified by respondent and deficiency income taxes in the total amount of ~5,470.98 were assessed against him for said years in the following manner: -YEAR ORIGINAL TAX DEFICIENCY TAX TOTAL TAX 1945 ~ 918.31 193.43 ~ 1,111.74 1946 1,393.42 1,145.34 2,538.76 1947 5.923.57 4.132.21 10,055,78 ~ 8,235,30 � 5,470,98 jl 13.706.28 which the petitioner readily paid. Sometime in the early part of 1952, the respondent Collector of Internal Revenue, believing perhaps that the petitioner had not reported his true income in his returns for the past seven years ordered his re- investigation for possible additional tax deficienci~s. For this purpose, three teams of investigators were formed. The first team headed by SIR Supervisor Felipe Aquino, with BIR Examiner Conrado Quesada as one of its members, after examining the books of petitioner for about eight months, recommended in their memorandum, Exhibit "N" (Urgent Motion) dated July 30, 1952, a deficiency income tax assessment against the petitioner in the total amount of . �898.,.794.03 for the years 1945 to 1951, inclusive, em- ploying for this purpose the ordinary and not the Net Worth-Expenditure (Inventory) Method of investigation,

l ;\ DECISION - CASE NO. 30 .- 8 - The then Collector of Internal Revenue Saturnino David was apparently not satisfied with the findings of his investigators as could be seen in his ~emo randum, Exhibit "BBBBB", dated January 15, 1953, to the Acting Chief -of thi BIR Intelligence Division. So, a second team of investigators was formed com- posed of Messrs. Vicente z. Lasquety, Pastor Blanco, E. M. Trinidad, and B. Francisco to investigate once again the deficiency income tax liability of peti- tioner for the years in question "as a means of strengthening the Government�s position in asserting the proposed deficiency��" In their first :report, Exhibit "J" Urgent Motion, dated June 30, 1953, this second team recommended a deficiency income tax assessment of �2,722,030.33 against the petitioner for the said years employing for this purpose the Net- Worth-Expenditure (Inventory) Method of investigation with emphasis on bank withdrawals. The respondent Collector of Internal Revenue was again not satisfied with this last finding of his investigators so he ordered a re-investigation by the same team. Em- ploying similar method but allowing deductions for alleged liabilities furnished by.:petitioner, the team modified its first finding by reducing the assessment from ~ 2,722,030.33 to � 30,119.43 as may be seen in their official : :!~port, Exhibit "K", Urgent Motion, dated September 2, 1953. Again, after wasting almost nine months investigating the deficiency tax liability of petitioner, the Collector of Internal Revenue was not satisfied with this last finding of his second

DECISION - C. T. A. CASE NO. 30 team so a third investlgating team was formed headed by BIR Examiner Conrado Quesada. The third team, employing once again t ,he Net Worth-Expenditure Method of investigation and after spending almost nine months for this purpose, recommended an assessment of ~1,505,768.54 against the petitioner as may be seen in the working sheet, Exhibit 8, of BIR Examiner Quesada. The respondent Collector of Internal Revenue was apparently satisfied with this assessment. On .August 10, 1954, he sent a formal letter of demand subject of the present appeal, to petitioner for the afore-mentioned amount as deficiency income taxes for the years in question thereby adopting as his own the findings of the third investigating team headed by BIR Examiner Quesada. Mention should likewise be made of the fact that aside from these three investigations, .the petitioner was also subjected to another investigation sometime in 1951 by the Ways and Means Committee of Congress headed by Congressman Cipriano Allas. The principal issues that have been raised by the parties, as may be gathered from the ir wellQ prepared and exhaustive memorandag may be iummarized as follow�; � 1. What are the assets and liabilities of the petitioner that should be considered in determining his net worth as of the end of each year beginning from 1945 to 1951, inclusive?; 2. Whether or not the Net Worth-Expenditure (In- ventory) Method of investigation should be applied

� DECISION - C. T. A. CASE NO. 30 - 10 - under the circumstances surrounding this case for the T purpose of determining the taxable net income of petitioner for the years in question?; 3. Whether or not certain non-taxable income and non-deductible items have been properly considered in determining the net income of petitioner subject to income tax?; 4. Whether or not the 50% fraud penalty should be imposed upon the taxpayer?; and 5. Whether or not the right of the government to assess and collect the deficiency income taxes in question has prescribed, in the light of the statute of limitations generally and specifically applicable to income taxes? We shall now proceed to decide these issues in the order given above. But before doing so, however, we would like to point out. that the barom~tric rise and fall of the deficiency income tax assessments against the peti- tioner for the same period of years (1945 to 1951) by the three investigating teams created by the Col- lector of Internal Revenue to investigate the tax liability of petitioner has, in the mind of the Court, considerably weakened the case for the govern- ment. The enormous discrepancies ranging at times to over a million pesos in the findings of the different investigating teams particularly of the second team which at first found the petitioner liable for �2,722,- 030.33 and subsequently for only P30,119.43, goes to prove that the Government agents entrusted with the

DECISION - C. T. A. CASE NO. 30 - 11 - task were either too harsh and unreasonable or were much too liberal towards the petitioner in their investigation of his tax liability. The highly dis- proportionate findings of the three teams, which petitioner's counsel have pointed out in bold relief to their advantage, has lead this Court to believe that the three different investigating teams created by the Collector of Internal Revenue for the purpose of investigating the deficiency income tax liability of petitioner were not sure of their stand; that their investigation was oftentimes a hit-and-miss affair; that there was no coordination in their work and that one group was out to impress their superiors with a fantastic assessment and tbe other to handle the tax- payer with kid gloves. True indeed, as pointed out by respondent's counsel, the Collector of Internal . Revenue disregarded the memorandum reports of the first two investigating teams and adopted as his own only the findings and recommendations of the third team headed by BIR Examiner Quesada. But then, the official written reports of the first two teams, Exhibits ttN", flJ", K 11 11 Urgent Motion, form part of the BIR records ~ and were introduced in evidence by the petitioner to prove that each investigating team made a finding grossly disproportionate from that of the others. This state of uncertainty, coupled with the fact that an actress by the name of Maria Corazon seems to have marred _ during the investigation the official dealings between BIR Examiner Quesada and the petitioner, have to a considerable extent

DECISION - C. T. A. CASE NO. 30 - 12 - affected the prima facie presumption of correctness of respondent's final assessment now subject of this appeal. In view of these circumstances, we have found it necessary, in fairness to petitioner, to scrutlnize with distrust the different disputed items / appearing in the working sheet, Exhibit 8, of BIR Examiner Quesada and to concede to the taxpayer the benefit of doubt where doubt exists. On the other hand, notwithstanding some flagrant errors committed by the third investigating team headed by BIR Examiner Quesada, in the computation of petitioner's deficiency income tax liability for the years in question, and the deficient manner by which said examiner investigated this case, we find ourselves with no other alternative but to sustain - as we shall hereinafter discuss more exhaustively - respondent's contention that the circumstances of this case permit and warrant the use of the Net Worth- Expenditure (Inventory) Method of investigation as applied by the respondent in arriving at the alleged deficiency income tax assessment of Pl,505,768.54. Having thus resolved primarily the use of the Net Worth Method in favor of respondent, the first issue therefore revolves around the inclusion or exclusion of certain assets and liabilities of petitioner to form part of his net worth at the. end of each calendar year. As a requisite to the use of the "increase in net worth method" the parties presented evidence to 5

DECISION C. T. A. CASE NO. 30 - 13 - establish the assets and liabilities of petitioner at the beginning of 1945 to serve as a basis in the computation of the opening net worth. Both parties are agreed that the petitioner owned personal pro- perties at the beginning of the year 1945 in the sum of �500. 00 and that he had no liabilities. There is . some dispute , however , on the question whether the � opening net worth of petitioner also includes funds claimed as held in trust by petitioner i~ ~ father Li . Chay Too , Sr . in the sum of �159 , 910.89 or only �12,000. ob as respondent contends . This sum of Pl2,000.00 forms part of the investment of petitioner in Li Yao &Co. One of the requisites in the application of the Net Worth Method is the fixing of the net worth at the end of each year . The admitted assets as well as the disputed items forming part of the net worth of petitioner at the end of each calendar year from 1945 to 1951 , inclusive , may be summarized as follows: Assets and Liabilities as of the end of Decem� ber 31, 1945: Admitted Assets:- Investment .~ .::-Li Yao & Co . (Personal) � 29 , 131 . 38 Personal Accounts: Li Yao & Co . 3 , 700.00 Li Yao &Co . (Bonus) 8,207.12 Personal properties. -:- others 500. 00 Disputed Items: Per BIR Per Li Yao none Funds held in trust by father , Li Chay Too �144,000.00

DECISION - C. T. A. CASE NO. 3b - 14 - Assets and Liabiliti~s as of the end of Decem- ber 31 , 1946: Admitted Assets: ~ 145,509.20 1,967.57 Investment - Li Yao & Co. (Personal) 850.00 Personal Accounts - Li Yao & Co. (a/c # 2) Personal properties - others Disputed Items: Per Li Yao Per BIR Cash Funds fron loans ~ 90,032.43 none Republic Textiles - 1!350,000.00 shares of stocks none Liabilities: 100,000.00 none Loans Payable Assets and Liabilities as of the end of Decem- ber 31 . 1947: Admitted As sets: Pl71 ,607.54 5,995.91 Investment - Li Yao & Co. (Personal) 6,000.00 Personal Accounts: Li Yao & Co. 850.00 (a/c # 2) Per BIR Li Yao &Co . none (Tan Ho Ti) P350,000.00 Personal properties - others Disputed Items: Per Li, Yao Assets: Cash funds from ll 78,036.52 loans none Republic Textiles - shares of stock Liabilities: 100,000.00 n o n e Loans Payable Assets and Liabilities as of the end of Decem- ber 31. 1948: Admitted Assets:- � 3,651. 59 Bank of America 167,532.17 2,000.00 Investments: Li Yao &Co . (Personal) 2,000.00 Li Yao & Co . (wife) 1,750.00 Personal account ~~� Li Yao & Co. Personal properties - others Disputed Items: Assets: Per Li Yao Per BIR none Cash funds from loans P90,384.93 11350 , 0 0 0 . 0 0 Shares of stock - Republic Textiles n o n e 30,000.00 Investments in Tan Pee Cu Yek Chim & Co. n o n e none Liabilities: Loans Payable f:l40 ,000.00 .... I

/' DECISI ON - C. T. JA . CASE NO. 30 - 15 - As sets and Liabilities as of the end of Decem- ber 31 , �1949: Admitted As�ets: Bank of America ~ 1 ' 214. 81 P 169 ,175. 93 Investments: Li Yao &Co . (Personal) Li Yao &Co . (Wife) 2 �,CXX). OO Investments in Li Chay Too Sons , Inc. Real Properties (Inherited) 166 , 533. 32 Building after deducting depreciation 9 , 387. 49 Personal Account: Li Yao &Co . (a/c 21 , 544. 28 # 2) Li Yao &Co . (Tan 53 , 800. 00 Ho Ti a/c # 2) Personal properties - others lO , CXX) . OO 1,750. 00 Disputed Items: Per Li Xao Per BIR Assets: n on e � 60 ,000.00 China Banking Corp. none time deposit none 350,000 00 Republic Textiles - shares of stock 30, CXX) . OO Investments in Tan Pee Ct,r Xek Chim & Co . Liabilities: 1! 2513,()(X).OO none Loans Payable Assets and Liabilities as of the end of Decem- ber 31 , 1950: Admitted Assets: Bank of Americ a � 44 , 404.64 Investments: Li Xao &Co . (Personal) 261 , 467.69 Li Yao &Co . (Tan Ho Ti, a/c # 2) 55,179.89 Investments in Ferin, Li Xao and his wife 260,000.00 Investments in Li Chay Too Sons , Inc. 166,533. 32 Real Properties, land inherited 9 ,387.49 Building, net after providing de- preciation 19,150. 47 Accounts receivable from Li Chay Too Sons Personal properties: Automobile 20 , CXX). 00 Others 4 , QCX) . OO Disputed Items: 2,150.00 Assets: Per Li Yao Per BIR Investment in Ferin (through others none ft 390,000. 00 Investment in Tan Pee Cu Yek Chim & Co. n o n e Personal Properties - 30,QCX).00 Race horses � 11,500.00 18,500.00 Liabilities: 580, 500.00 n o n e Loans Payable �

DECISION - C.T .A. CASE NO. 30 - 16 - Assets and Liabilities as of the end of Decem- ber 31 , 1951-: Admitted Assets: Security Bank and Trust Co . f; 1�, 400. 00 Bank of America 1,034. 74 Investments: Li Yao & Co . (Personal) 283 , 966. 84 1.-i Yao & Co . (Tan Ho Ti , a/c # 2 55Jl79 . 89 Investments in FERIN , Li Yao and his wife 320 , 000.00 Investments in Li Chay Too Sons , Inc . 166 , 533. 32 Land Inherit"ed 9 , 387. 49 Building after providing for depreciation 16,756. 66 Accounts Receivable from FERIN 750,000. 00 Accounts Receivable from Li Chay Too Sons , Inc . 20,000. 00 Personal properties: Automobile 4,000. 00 Others 2, 400. 00 Disputed Items: Per Li Yao Per BIR Assets: Investments in FERIN thru others none �480,000. 00 Investments in Tan Pee Cu Yek Chim & Co;. none 30,000. 00 Personal properties Race horses P 11 , 500. 00 18,500. 00 Liabilities: /1 1 , 355 , 500. 00 none Loans Payable Let us first go into the disputed items . AS S E TS THE OPENING NET WORTH OF PETITIONER AS OF JANUARY , 1945 The government is required , when the Net Worth Method is employed, to establish by clear , positive and convincing evidence the "opening net worth" of the taxpayer . In this particular case , upon the ex- amination made by BIR Examiner Quesada of the bal- ance sheet of Li Yao and Company as of 1945 and ' se~ing that the investments indicated therein to the credit of petitioner was ~12,000 . 00 , the former immediately concluded that such investment together with the latter's personal properties in the sum of ~ 500.00 or a total of �12,500.00, constituted

r f '. i . DECISION - C. T. A. CASE NO. 30 - 17 - his beginning net worth. BIR Examiner Quesada made no further investigation beyond this source of evidence except interviewing Gloria Pineda, petitioner's private secretary and accountant, and examining the 1945 balance sheet of Li Yao & Company. He did not inquire from petitioner himself as to his properties that may form part of the beginning net worth. The finding of Examiner Quesada on this score, though hastily done, was readily adopted by respondent in the computation of petitioner's deficiency income tax liability thus granting him an opening net worth of only ~12,500.00. Considering the limited scope of Quesada's investigation, we cannot give much cre- dit to it. We find the explanation given by the petitioner on the witness stand as to the amount of his assets at the beginning of 1945 which is corro- borated by other evidence more plausible. The petitioner testified that there was held in trust, funds in the name of Li Chay Too, Jr. by his father, Li Chay Too, Sr. since 1942 in the amount of �159,910.89 genuine Philippine Currency which was buried in his father's bodega during the Japanese occupation; that before the last world war he was also known as Li Cha y Too, Jr.; that after the liber- . ation, the said amount kept for him in trust by his father was excavated from its hiding place and was released to him gradually; and, that he later on went into business in his own name using the said funds obtained from his father totalling �159,910.89. We find the testimony of petitioner on this

DECISION - C. T. A. CASE NO. 30 - 18 - point quite credible in the absence of proof to the contrary, considering that during the Japanese occupa- tion, persons were generally prone to horde money in Philippine Currency in the belief that the so-called Japanese or "Mickey Mouse" money would not be re- deemed after - the war- as -in fact it was never re- deemed - while on the other hand, the genuine pre- war Philippine currency would a~ways be considered as legal tender after liberation. Moreover, it appears that before the war and after the liberation, peti- tioner operated a business of his own sepa~ate and distinct from that of his father. This is corrobor ted by witnesses Bi Huan Chay and Dy Po alias Ty Se Eng who had been dealing with petitioner even before the war and is supported by an !D1! litis declara- tion of petitioner in his application for naturaliza- tion, Exhibit 122, that he had been in business as far back as 1940. Immediately after the liberation, the petitioner organized the Li Yao &Co., Ltd. con- tributing Pl2,000.00 as his initial share of the capital (Exhibit AAAA) which capital contribUtion was subsequently increased in the later part of 1945 by ~4,000.00 (Exhibit AAAA-1). As explained by peti- tioner, Li Yao and Co. was converted into a general partnership (Exhibit BBBB), the funds of which were obtained from the Li Chay Too, Jr. funds previously held in trust by his father. The fact that peti- tioner was in business even before the war is further corroborated by his immigration record the name of Li Chay Too, Jr. and by the fact that the same ��

fiieiSION - C. T. A. CASE NO. 30 - 19 - person appears to have filed income tax returns and was duly investigat.ed as a taxpayer by the Ways and Means Committee of the House of Representatives some- time in 1951, then headed by Congressman Cipriano Allas, � to which committee BIR Examiner Epifanio Paragas was assigned. BIR Examiner Paragas himself admits in his certification, Exhibit 11A" Urgent Motion, that for the years 1936, 1937; i938 and 1940, Li Chay Too ttJh~ had a total income of ~159 ,910.89. We find this evidence convincing enough to sustain the finding that the beginning net worth of petitioner as of 1945, should include the sum ofll09,910.89 representing funds of Li Chay Too, Jr. held by his father Li Chay Too, Sr. and not alone the ~12,000.00 appearing in the records of Li Yao & Company plus the value of petitioner~s personal properties in the amount of ~5(X) .OO which are admit- ted by both parties. Since we have found, as we do find, that at the beginning of 1945, the net worth of William Li Yao was ~159,910.89 and since it is admitted th~t a por- tion thereof in the total amount of �16p000.00 was invested in Li Yao &Co. during the year 1945, it necessarily follows that at the end of that year, the available fund held in trust for Li Chay . Too, Jr. or petitioner himself, was only Pl43,910.89 after deducting from the original sum, his initial investments in Li Yao & Co. In the absence of better proof to the contrary, therefore, we have decided to premise the opening net worth of petitioner at

DECISION - C. T. A. CASE NO. 30 - 20- r �160,410.89 which includes his investments in Li Yao &Co. and his personal properties worth i!500.00. SHARES OF STOCKS IN THE REPUBLIC TEXTILES, INC. OF NEW JERSEY, U. S . A. , IN THE AMOUNT OF �350 ,CXX> FROM 1946 TO 1949 Another contested item consists of the shares of stocks allegedly owned by petitioner in the Republic Textiles, Inc. of New Jersey, U. s. A. in the amount of ~350 ,000.00 which was considered by BIR Examiner Quesada as an asset of petitioner for the years 1946, 1947, 1948 and 1949. It has been clearly shown by the petitioner that the Republic Textiles, Inc _. of New Jersey is a small indenting firm which came into existence only on June 24, 1948, as evidenced by a photostat copy of its Certificate of Incorporation, Exhibit uN", Ur- gent Motion , duly authenticated by Felino Mefiez , Filipino Vice-Consul for New York. Nowhere in the aforementioned certificate of incorporation does the name of the petitioner appear either as incorporator or stockholder. In fact, the secretary of the Re- public Textiles, Inc. of New Jersey issued a duly authenticated certification, Exhibit "I-1", dated September 22, 1954, to the effect that "MR. William . Li Yao a Philippine citizen residing at 549 Nueva Street, Manila, P.I. has never been a stockholder of Republic Textiles, Inc. from the time of its incep- tion to this date." Respondent's O\-vn witness, George Litton, a well-known local textile dealer, testified that :.he knows the Republic Textiles, Inc. of New �J

DECISION - C. T. A. CASE NO. 30 - 21 - Jersey and saw for himself during one of his post- war visits to the United States that it was a very small corporation with a meager capital of only $5,000.00 engaged in the indenting business and that " the nature of the business of said corporation do~s not require a large capital with which to operate. In the face of all these evidences, we cannot sustain the finding of respondent to the effect that petitioner invested the amount of ~350,000.00 in shares of stocks of the Republic Textiles, Inc. ~f New Jersey from 1946 to 1949. Obviously, from the evidence presented by petitioner of which we have no reason to doubt, it would have been both physically and legally impossible for petitioner to own shares of stocks in the said corporation as early as 1946 when the same was organized only in 1948. On the other hand, the only evidence introduced by the res- pondent and upon which BIR Examiner Quesada based his conclusion that the said amount was an invest- ment or asset of the petitioner for the years 1946 to 1949, are the unsigned letters, Exhibits 12 and 14, purportedly Written by petitioner to the Republic Textiles, Inc. and the lat.t er t s unsigned reply thereto, Exhibit 13. But as explained by petitioner and his secretary, Oscar Vergara, who likewise tes- tified before this Court, the aforesaid letters were written by him (Vergara) on his own initiative with- out petitioner's consent and were contrived by him (Vergara) solely for the purpose of bolstering the credit standing of his employer here and abroad and

DECISION - C. T. A. CASE NO. 30 . �- 22- to help him raise additional funds for his numerous ventures. In fact, according to petitioner, he ob� jected to the use of the aforementioned letters for the purpose intended by his secretary, Oscar Vergara. As between the unsigned letters, Exhibits 12, 13 and 14, on the one hand, and the Articles of Incorpora- tion of the Republ~c Textiles Inc. of New Jersey and the certification of the secretary of said corpora- tion showing that the petitioner was never a stock- holder of the same since its organization up to the present time, on the other, we find the latter evi- dence of more weight. Thus, we find the contention of petitioner that at no time between 1946 and 1949 was he a stockholder of the Republic Textiles, Inc., to be true and correct, and therefore, the alleged investment of �350,000.00 in the said corporation should not be considered as his asset for the years 1946 to 1949 as erroneously considered by the res- pondent. ~~STMENT OF �30,000.00 IN iAN PEE, CU YEK CHIM & CO. BIR Examiner Quesada, in the course of his in- vestigation of petitioner's income tax deficiency for the years in question, considered among his unreported assets an investment of �30,000.00 in the firm of Tan Pee, Cu Yek Chim &Co., Inc. representing thirty (30) shares of stocks of said corporation. His find- ing in this regard is based on the fact that in the Stock Certificate Book of Tan Pee, Cu Yek Chim & Co., Inc., there is an entry which shows that on November 18,

DECISION - C. T. A. CASE NO. 30 � - 23- 1948, thirty (30) shar~s of stocks of said corpora- tion were issued to petitioner. Stub No. 106 of the Stock Certificate Book of said corporation, Exhibit 17, for ten (10) shares, and Stub No. 107 of the same book, Exhibit 19, for 20 shares, clearly show that a total of thirty (30) shares were issued in the name of petitioner by the corporation on November 18, 1948. It appears, and this fact is admitted by petitioner, that these shares originally belonged to Tan Pee, petitioner's father-in-law. Respondent contends that pursuant to section 35 of Act 1459, otherwise known as the~orporation LawP there has been a valid legal transfer of said shares of stocks to petitioner and therefore the same should be considered as forming part of his assets for the years 1948 to 1951. However, in order to destroy the presumption of valid legal transfer of ownership of the aforementioned shares in his name for a consider- ation, the petitioner and his father-in-law offered the following explanation: that Tan Pee, petitioner's father-in-law, became seriously ill in 1948 and was in such imminent danger of death that he decided to transfer to him� (petitioner) the shares in question without any consideration because of Tan Pee's love and affection for his (petitioner 9 s) wife, Juanita Tan Ho Ti; and, that neither he nor his wife Juanita was ever informed of this transfer until 1952, when Tan Pee recovered his health and decided to recall said transfer by requesting petitioner to endorse the stock certificates, Exhibits 18 and 20, back to him.

DECISION - C. T. A. CASE NO. 301 - 24 - �we find this explanation quite weak to rebut the pre- sumption that the transfer of said shares of stocks was made for a valid consideration and in the ordinary course of business . If , as claimed by Tan Pee, it was his profound love for his daughter , as well as his failing healt~,which prompted him in 1948 to transfer said shares without consideration , why did he not transfer the same directly to his daughter but in- stead to his son- in- law, a professed gambler and a playboy who admittedly keeps a secret notebook con- taining a list of his girl friends? Moreover , it will be noted from the evidence for the petitioner, that when the petitioner and his wife needed money to invest in Li Yao and Co. it was petitioner's wife and not he who obtained a loan of P50,000. 00 from Tan Pee. It was his wife who also signed the promis- sory notes. Petitioner's counsel contend that the petitioner never became the owner of the shares in question- that the transfer was a meaningless act- - because it was neither a donation mortis causa nor a donation inter vivos. If this be so, then it does not sit well . on the lips of petit ioner t s witness , Tan Pee , to repudiate the transfer while on the other hand - in the same breath - he would want us to believe that the transfer was sincere, well- meant and motivated by his state of health and profound love for his daughter whom he wanted to protect in the event of his untime- ly death. In the absence of better and convincing proofs

DECISION - C. T. A. CASE NO. 30 � .- 25- to the contrary, as a general rule the corporate books and records are the best evidence against stockholders with respect to subscription of stocks and as to their stock holdings {p. 548, Vol. 5 - Fletcher Cyclopedia Corporation). With respect to this disputed item of ~30,000.00, we find it to be an unreported asset of petitioner for the years 1948 to 1951, as found by the respon- dent. CASH FUNDS FROM LOANS In "Annex B11 of petitioner's memorandum, there are three entries showing that there was cash on hand at the end of the years 1946, 1947 and 1948, the sums of �90,032.43, ~78,03G.52 and ~90,384. 73, respectively, which it is claimed should be taken up as part of the assets o~the petitioner for those years. After obtaining loans from the following persons - Iy Suan 1946 11 2 0 , 0 0 0 . 0 0 1946 30,000.00 Li Yek 1946 20,000.00 Go Se Un 1946 30,000.00 Teodoro Santos 1948 20,000.00 Ong Tiao Seng 1948 20,000.00 Li Chiu Ka the petitioner claims that ,he acquired the corr~spond ing cash as part of his assets and in turn incurred from these persons the corresponding liabilities. At the end of each year, the petitioner claims to have left as balances of the cash loaned the amounts first indicated above after investing a part in other assets. Based on the evidence which we shall discuss

DECISION - C. T. A. CASE NO. 30 - 26 - hereafter_:under liabilities in a more detailed manner, we are giving credence only to the obligations owing to the first-four persons named above incurred in 1946 and consequently, we must consider that the peti- tioner could have cash on hand from such loans at the end of the year 1948 only out of the liabilities previously incurred. We , therefore , find and hold that the amount of assets in the form of cash ob- tained from these loans should be only as follows: 1946 � 90,032.43 1947 78,036.52 1948 50,384.93 � 60,0CX).00 TIME DEPOSIT \WITH THE CHINA BANKIOO CORPORATION AS OF THE END OF 1949. In his working sheet, Exhibit 8, BIR Examiner Quesada. listed among the assets of petitioner as of the end of 1949, a time deposit of �60,000.00 with the China Banking Corporation which was made in the name of petitioner. It is admitted that this amount was deposited by petitioner in said bank during the year 1949. However, petitioner questions Quesada's finding in this regard claiming that the amount in question, though deposited in his name, should not have been treated as part of his assets for that particular year because the same was held by him merely in trust for and in behalf of a certain James Li. He claims that James Li, who is one of his in- timate friends, came to the Philippines from Hongkong in 1949 carrying with him $30,000.00 in cash which he intended to invest in the local textile business. Petitioner avers that the sum was entrusted to him

�I DECISION ~ C. T. A. CASE NO. 30 � - 27 - by said person with infotructions to deposit the amount with the China Banking Corporation pending its final investment, as he in fact did by depositing the sum in his (petitioner 9 s) name with the afore- said bank� , It is further alleged that the amount in question was never invested in the textile busi- ness, as agreed upon, because of our foreign exchange and import control laws. Consequently, in 1950, the - money was allegedly withdrawn upon instructions of James Li, and delivered to an emissary of the latter by the name of Chen Heng. To corroborate his tes- timony, petitioner presented the records of the China Banking Corporation, Exhibits "VWV� and ttVWV- 1", and an employee of said bank by the- name- of L-eonardo Solidum to prove that in 1949 he did in fact deposit to his credit $30,000.00 in cash with the China Bank- ing Corporation. As we see it, the records, Exhibits 11VWV11 and 11 VWV-1��, of the China Banking Corporation and -the testimony of Leonardo Solidum tend to prove only one thing - that� $30,000.00 in cash were deposited with the China Banking Corporation in petitioner's name in 1949. As to the allegation that the sum belonged to '� James Li and not to the petitioner, we have the sole testimony of the latter uncorroborated by any document- ary or testimonial evidence. Neither James Li nor Chen Heng, the supposed emissary, were presented in Court to corroborate petitioner 9 s claim that the money in question really belonged to James Li. Neither was it explained why these two persons

DECISION - C. I . A. CASE NO. 30 - 28 - were not brought bef'ore this Court to corroborate petitioner ' s claim regarding the ownership of the $30,000. 00. The testimony of petitioner , standing by it- self , without benefit of corroboration either by documentary or testimonial evidence , cannot over- come the presumption established under section 69 (j), Rule 123 of the Rules of Court, "that things which a person possesses, or exercises acts of owne-r�hip over, are owned by him" . By way of further elaboration , it should be noted that the amount of $30 , 000.00 or ~60 , 000 . 00 which James Li allegedly delivered to petitioner for safekeeping and investment in the textile business is quite substantial. This notwithstanding, petitioner failed to produce in support of his allegation regard- ing the ownership of the sum in question , even one piece of documentary evidence say a receipt; the p~rtnership agreement ; a written authority from James Li authorizing him to withdraw the 30,000. 00 or ~ 60 , 000.00 from the China Banking Corporation and to deliver th e amount to one Chen Heng; or a receipt from the latter to petitioner acknowledging receipt of the amount for James Li. On the other hand, with respect to his alleged liabilities which we are going to take up later in. this decision, particularly that loan of ~ 30,000.00 which he claims to have obt ained from his sister Li Hong Eng , the petitioner readily presented the promissory note, Exhibit "JJJ", evidencing the � indebtedness . According to the petitioner , his father placed

:! 7 I. DECISION - C. T. A. CASE NO. 30 - 29 - him on probation befdre r~l ea sing to him i n fu l l the Li Chay Too . Jr . funds amounting to approximately ~ 160 , 000 . 00 . He showed his worth as a promising young businessman , so he claims , and thus won the full confidence of his sire. We ask: As a shrewd and promising young businessman and considering the big amount involved in his alleged transaction with James Li , did it not occur to petitioner to require a counter receipt from the emissary, Chen Heng , be- fore delivering to the latter the amount of � 60 ,000. 00 intended for J ames Li for his (petitionerts) personal protection just in case those two should deny having received the amount. And if the said amount was returned by check issued by petitioner from his de- posit with the China Banking Corporation, would not the cancelled check be one of the best corDoborative evidence regarding the ownership of the sum in ques- tion? A businessman , and for that matter any taxpayer, who does not keep books of accounts or to say the least a systematic record of his transactions, should be prepared to face adverse consequences if, upon being involved in a ruinous tax litigation , he encounters all kinds of obstacles in~ Jlis attempt to sustain his case. We are therefore constrained to hold that the uncorroborated testimony of petitioner regarding the ownership of the $30 , 000. 00 or ~ 60 , 000.00 is much too strained to deserve credibility. The finding of the respondent that this amount forms part

DECISION - C. T. A. CASE NO. 30 , 30- of the hidden assets of the petitioner as of the end of 1949 is therefore sustained. INVESTMENT IN FERIN OF ~390 ,000.00 IN 1950 (Exhibit 8-FFF) AND �480 ,000.00 IN 1951 (Exhibit 8-III). In his _working sheet, Exhibit 8, BIR Examiner Quesada considered all the shares of stocks of FERIN in the total amount of ~390 , 000.00 in 1950 (Exhibit 8-FFF) and �480,000. 00 in 1951 (Exhibit 8-III) as assets of the petitioner although they stand recorded in the books of said corporation as belonging to other persons in the following manner: Stockholder !2.�2 ~ Murray Goldberg ~170,000 .00 increased to ~215 ,000.00 Vicente Duazo 85,000.00 increased to 100,000.00 Gloria Pineda 25,000.00 increased to 40,000.00 Delfin Fulay Carmen McFerran 85,000.00 increased to 100,000.00 25,000.00 25,000.00 Tot a1 P ~2o.ooo.oo P480 I (X)(). QQ Examiner Quesada 's finding with respect to these two items is based principally on the ground that Carmen McFerran, who appears to have invested P25 ,000.00 in said corporation has never filed an income tax return after the liberation. And with respect to the other four who did, it is claimed that their returns do not show enough income to render credible the sub- stantial investments in FERIN attributed to them. Examiner Quesada also gave much significance to the close relationship existing between petitioner and his employees, Gloria Pineda and Delfin Fulay, and the relationship of employer and employee existing

DECISION - C. <E. A. CASE NO. 30~ \ - 31 - between petitionerts mother and Vicente Duazo. In deciding the question as to the ownership of the 30,000.00 worth of shares in Tan Pee, Cu Yek Chim &Co. registered in the name of petitioner during the years 1948 to 1951, we adopted the general- ly accepted rule that in the absence of positive proofs to the contrary, the corporate books and rec- ords of a corporation are the best evidence against stockholders with respect to subscription of stocks and as to their stock holdings. Applying the same rule in the instant case of the shares of stocks of FERIN registered in the names of Murray Goldberg, Carmen McFerran, Vicente Duazo, Delfin Fulay and Gloria Pineda, we hold that the corporate books and records of said corporation are the best evidence with respect to the stockholdings of these persons. The burden of proof is on the government to show that these persons were utilized for some ulterior motive by petitioner as dummies, and that the subscriptions and paid-up capital listed in their respective names actually belong to peti- tioner. The respondent presented three income tax returns, Exhibits 111, 112, 113, of Murray Goldberg; two of Gloria Pineda, Exhibits 61 and 62; three of Vicente Duazo, Exhibits 63, 64 and 65; and two of Delfin Fu- lay, E~hibits 66 and 67, to prove that their res- pective incomes as reflected in their returns are much too small as compared to their big investments in FERIN. And with respect to Carmen McFerran, who

DECISION - C. T. A . CASE NO. 30' - 32- from the records of the Bureau of Internal Revenue, . has never filed any income tax return before , during and after the period of her �25 ,000. 00 investment in FERIN , the respondent argues that with more reason she could not have been in a financial position to invest such a big amount in said corporation. In addition to these grounds, the respondent points out that Gloria Pineda was employed as private secretary and accountant of the petitioner at the time she in- vested �25,000. 00 in FERIN; that Delfin Fulay was his bodyguard and driver and Vicente Duazo , a body- guard and driver of petitioner's mother . Ergo , they must be dummies of petitioner. Petitioner's counsel contend on the other hand that the income reflected in one's return or the failure to file one are not important factors in the determination of the issue as to whether or not a person is financially capable of investing money in a corporation or partnership. And by way of alternative argument, counsel maintain that even granting that the above- named personsparticularly Gloria Pineda, Delfin Fulay and Vicente Duazo are mere dummies be- cause of their financial inability to invest the amounts imputed to them in FERIN as reflected in their respective income tax returns, this fact, stand- ing by itself, cannot serve as a logical basis to consider them dummies of petitioner. �It is argued that they could have as well been the dummies of other persons as in the case of Vicente Duazo who, it is- possible, could be the dummy of petitioner's mother,

DECISION - C. T. A. CASE NO. 30 � - 33 - he being her driver and bodyguard and not of the peti- tioner . Of the five , Gloria Pineda and Delfin Fulay are the two persons upon whom suspic ion could rest be- cause of their close association with petitioner. As we have said , Gloria Pineda is the private secre- tary and accountant of petitioner and Delfin Fulay is his driver and bodyguard . However , with respect to Gloria Pineda, who is single, her income tax returns Exhibits 58, 59 , 60 , 61 and 62 for 1946 to 1951, inclusive , show that she had a total net income of � 25,299 . 50 during those years . From these returns, it is quite apparent that the investment of �25,000.00 attributed to her in 1950 which was increased to �40,000. 00 in 1951 is not far beyond her reach. The relationship of employer and employee between peti- tioner and Gloria Pineda cannot be considered , there fore , as a decisive factor in determining whether she could well afford to invest P40,000.00 in the corpora- tion headed by her employer. The case of Delfin �Fulay, who is admittedly a bodyguard and driver of petitioner, is quite differ- ent. The books of PERIN show that Delfin Fulay in- vested ~85,000.00 in said corporation in 1950, which he increased to ~ 100,000.00 in 1951. His income tax return for the years 1949, Exhibit 66, and his return for 1951, Exhibit 67, show that he had a total net income of only ~8,560.00 during those two years. Could it be possible for a mere hireling like Delfin Fulay, with such a moderate income, to have invested

DECISION - C. T. A. CASE NO. 30 ' - 34 - such an enormous amount as �100 ,000.00 in FERIN? The investment of Fulay in FERIN is so highly dispro- portionate to his income, that we find it impossible to believe the investment to be his own. And if the investment did not come from his own personal funds with his meager salary as driver and bodyguard, from who else could it have come but petitioner , con- sidering the latter's admission that he purposely saw to it that the incorporators of FERIN were his close friends and persons whom he could trust. From all appearances, the petitioner could not have chosen a person more trustworthy than Delfin Fulay, the "Man Friday" entrusted with the protection of his lile and limb. The case of Vicente Duazo, who is admittedly a bodyguard and driver of petitioner's mother would seem at first blush to be entirely different from that of Delfin Fulay as far as relationship with :peti- tioner is concerned. It appears from the evidence for the respondent that Vicente Duazo declared a net income in his ~eturn for 1948, Exhibit 63, the amount of ~2 ,345. 00; for 1949, Exhibit 64, the amount of ~1,640 . 00 and for 1950, Exhibit 65, the amount of P3,480.00 or a total of P7 ,465 . 00. His invest- ment in FERIN in 1950 was ~85 , 000 .00 and in 1951, it was increased to �lOO ,OOO.OO. It will be noted that the net income of Vicente Duazo for three years (1948, 1949, 1950) is much less than that of Delfin Fulay for two years (1949, 1951). Yet, far from being just a mere coincidence, they invested �25,000.00 each

DECISION - C. T. A. CASE NO. 30 ' - 35 - in FERIN on August 25, 1950. On September 13, 1950, they invested ~ 30,000.00 each in the same corporation. On September 25, 1950, they invested an additional �30,000.00 each. Lastly, on January 23, 1951, they both invested an additional �15,000.00 thus increas- ing the total amount of their investment in FERIN to ~100,000.00 each. This striking similarity in the amounts invested by Duazo and Fulay in FERIN, and . the glaring fact that the different � amounts were invested at the same time, let alone the disparity in the amounts of their respective incomes, has lead us to the conclusion that the investments of these two persons in said corporation came from only one source. And the evidence on record indubitably point to petitioner as the source considering his admission that after the death of his father, he was entrusted with the buiiness affairs of his family he being the eldest son and favorite of t he deeefJ.sed . With respect to Murray Goldberg and Carmen Mc- Ferran, we find the evidence for the petitioner suf- ficiently convincing to sustain the conclusion that these two owned the shares registered in their res- pective names with FERIN as we had found in the case of Bloria Pineda. It appears that Goldberg was, at . the time of his investment, the representative of several manufacturing firms in America aside from his own company, the Republic Textiles, Inc. of New Jersey. And with respect to Carmen McFerran, we have I the testimony of Alfredo Veloso; whose credibility we have no reason to doubt. Veloso declared that

DECISION C. T. A. CASE NO. 30 - 36 - r Carmen's family is well-to-do; that some members of her family used to gamble heavily sometimes losing as much as by the thousands; and, that her father was a high ranking official in the China Banking Corporation. We find, therefore, that of the ~390 , 000 .00 worth of shares in FERIN registered in 1950 in the names of the five persons mentioned above, which the respondent considered fully as personal investments of petitioner, only �170,000.00 worth belong to petitioner viz., the shares registered in the names of Vicente Duazo and Delfin Fulay whom we have held to be dummies of petitioner. The balance of ~220,000 . 00 should be considered as personal invest- ments of Murray Goldberg , Gloria Pineda and Carmen McFerran and not that of petitioner. And for 1951, the �200 ,000.00 worth of shares registered in the names of these same two persons (Duazo and Fulay) should likewise be considered as investments of petitioner in FERIN , leaving a balance of i-280,000.00 which should be considered as belonging exclusively to Murray Goldberg, Gloria Pineda and Car- men McFerran. CHECKS OF LI CHAY TOO SONS INC. AND LI YAO & CO. FOR ii200,000.00 AND ~50,000 . 00 , RESPECTIVELY. BIR Examiner Quesada , after discovering that the initial capital of FERIN in the amount of P250 ,000.00 came from two checks issued by Li Chay Too Sons , Inc. and Li Yao and Co., immediately concluded that the amounts in question belonged to petitioner solely

DECISION - C. T. A. CASE NO. 30 - 37 - because the latter was a stockholder of the two corporations. e find this conclusion rather precipitate and unreasonable. . The :. respondent does not deny that Li Yao & Co. as well as Li Chay Too Sons, Inc. are two in- dependent corporations endowed. with separate and dis- tinct personalities from that of petitioner. There is not the least insinuation on the part of respon- dent that the two corporations are mere fronts or alter egos of petitioner. It is likewise admitted by respondent that neither Li Chay Too Sons, Inc. nor Li Yao &Co., is owned solely by petitioner. The fact, therefore, that the two checks came from these two corporations to provide FERIN with its initial capital does not necessarily mean that the said amount is petitioner's own investment as found by the investigating agents. Under section 69(f) and (g), Rule 123, of the Rules of Court, there is that pre- sumption that money :paid by one to another was due to the latter and that the ordinary course of busi- ness has been followed. With these presumptions in mind and in the absence of positive proofs to dispute it, we may safely conclude, therefore, that the pay- ments in question were made by Li Chay Too Sons, Inc. and Li Yao &Co. and not by petitioner. Granting, for the sake of argument, that the petitioner was a controlling stockholder of both corporations at the time said payments were made to FERIN, this fact standing by itself cannot serve as a reasonable basis

DECISION - C. T. A. CASE NO. 30 . - 38 - for the conclusion that Li Chay Too Sons , Inc. and Li Yao & Co . are mere alter egos of petitioner. A presumption cannot be drawn from another presumpt- ion . (Manni~g vs . John Hancock Mutu al Loan and In- surance Co . 100 u. s . 693 , 25 L. Ed . 761) In other words , we cannot infer that the aforesaid shares of stocks belong to petitioner , simply because he was at the time an officer and stockholder of the two corporations who appear to have paid for the shares. On the other hand , we consider quite plausible the explanation of petitioner to the effect that checks were exchanged for cash to facilitate and simplify the transactions concerning the opening investments in FERIN after going over and checking the corresponding entries in the books of Li Chay Too Sons , Inc . and Li Yao & Co . It should be noted that BIR Examiner Quesada derived his conclusion regarding this alleged investment in FERIN in the amount of �250 , 000. 00~ which he considered as petitioner's own investment, solely on the books of accounts of said corporation. He did not bother to examine the books of the other two corporations on this particular item. Had he done so, as is naturally to be expected of him if he were after the true facts , he would have un- doubtedly understood that the transaction as explained by petitioner was a usual prac:tic.e :adopted and common to all the three corporations concerned . We notice from 'the books of accounts of these three corporations that from time to time they issue checks in exchange for cash which are entered in the corporate books ,

Dc.EC�rIS. IOAN. - NO. 30 CASE - 39 - as was done with respect to the two checks now in question amounting to ~250 ,000.00. As explained by an accountant of these corporations and an expert witness who took the witness stand for petitioner, these checks were issued in exchange for cash as they appear in the books, there being an entry of cash as well as entries of disbursements charged against the checking accounts of said corporations. BIR Examiner Quesada , however, refused to give credit to the entries simply because they were not entered with all the necessary details and for lack of sup- porting vouchers showing the names of the persons from whom the cash had been received. Be that as it may , from the standpoint of both Li Chay Too Sons , Inc. and Li Yao & Co ., Inc., these requirements im- posed by BIR Examiner Quesada would not have material- ly altered the finandial position, much less the cash position, of the two corporations. Even respondent's expert witness, Dr . Felipe Ollada, former Chairman of the Board of Accountancy, admitted that even if the entries had been more detailed as expected by the government agents, they would have arrived at the same result. From the standpoint of FERIN, which obviously was more concerned with the receipt of the sum of money, this 11 exchange for cash" transaction is explained by the fact that cash received by it was made in payment of investments and the corresponding shares of stocks were issued in exchange for such payments. The logical conclusion, therefore, would be that the issue of the shares of stocks was made

DECISION - C. T. A. CASE NO. 30 , - 40- r to the person making the payment. As explained by petitioner, he received all of the payments for the shares of stocks in cash so in turn he had to ex- change the cash for checks of the two corporations~ to protect himself from the danger of carrying large amounts of cash to be deposited with the China Bank- ing Corporation in the name' of FERIN. We concur in the view of petitioner1 s counsel that the issuance of the checks in exchange for cash did not materially affect the financial, much less the cash positions, of any of these corporations, because the payments were conveniently made in checks simply to facilitate and expedite the transactions regarding the opening investments in the FERIN. BANK OF Al'AERICA CHECK NO. A-318953 FOR ~ 160,000.00 Respondent gives as additional ground in support of his finding that all of the incorporators of FERIN are mere dummies of petitioner, the discovery by BIR Examiner Quesada of Bank of America Check No. BA-318593 in the amount of �160,000.00 issued from the personal funds of petitioner and used for the purchase of a parcel of land from the Heirs of D. Tuazon, Inc. by FERIN. According to respondent, petitioner tried to hide this asset of his in FERIN by making it to appear that the said incorporatqrs increased their investments in FERIN. On the other hand, petitioner came out with an explanation~ to show Why he had to use his personal funds for the pur- chase of said parcel of land from the Heirs of D.

DECISION - C. T. A. CASE NO. 30 - 41 - Tuazon, Inc. According to him, some of the incorpora- tors of FERIN like Murray Goldberg, paid for the in- crease of their shares of stocks in post-dated checks. Inasmuch as time was of the essence for the succes- ful and immediate closure of the contract of sale between FERIN and the Heirs of D. Tuazon, Inc., the petitioner had to advance the amount of ~160,000.00 by issuing his own Bank of America check as part payment to complete the ~400,000.00 down payment of the land .purchased. This had to be done, according to petitioner, because the President of the Heirs of D. Tuazon, Inc. did not like to accept post-dated checks. Petitioner explained that of this amount of �160,000.00, ~64,000.00 belonged to him and his wife � as part payment of their subscription to the increased capitalization of FERIN, and the remaining amount of P96,000.00 were provided by him temporarily by way of accommodation to cover the post-dated checks paid by other subscribers of FERIN. Petitioner further testified that he subsequently deposited the said post-dated checks in his bank account when they be- came due, to reimburse himself of the cash advanced for him. I Petitioner's explanation with respect to this particular item has not been contradicted by respond- ent. And what is more, theie is no showing that res- pondent made any attempt to verify the same or to investigate the veracity of any statements related thereto. We note further that the bank account of petitioner, Exhibit 31, for the month of September �

i DECISION C. T. A. CASE NO. 30 - 42- 1950, during which the payment was made, shows that after such payment, petitioner deposited in his bank account the sum of ~37,005.70. In the absence of evidence to the contrary, coupled with respon- dent's failure to investigate thoroughly and follow the leads furnished by petitioner on this point, we have to give due credit to the explanation of peti- tioner on this particular item which, from all appear- ances, is highly~robable. The amount of ~160,000.00 paid by funds belonging to petitioner should not, therefore, be considered as an investment of peti- tioner in FERIN but merely an accommodation loan given by petitioner to FERIN. Hence, it should not be con- sidered as forming part of his ~nreported assets in the form of hidden investments in said corporation as found by the respon~ent. RACE HORSES ASSESSED AT �18,500 In his computation, Exhibit 8, of petitioner's deficiency income tax liability for the years in question, BIR Examiner Quesada, included as part of the assets of the petitioner unde~ the column per- sonal properties for the years 1950 and 1951, a stable of nine (9) race horses which he assessed without much ado in the total amount of �18,500.00. The petitioner admits that he acquired by pur- chase, eight (8) of these horses from A. P. Reyes sometime in 1950 for �9,000.00 and another from the late Johnny Ysmael for � 2,500.00 or a total of ~ 11,500.00. Neither the petitioner nor the respondent pre-

'� DECISION - 30 C. T. A. CASE NO. ' - 43 - sented any documentary evidence, say the deeds of sale of the nine (9) horses or the corresponding re- ceipts of payment, upon which this Court may base with accuracy its assessment of this asset. However, taking judicial notice of the document- ary evidence presented before this Court in c. T. A. Case No. 42, entitled "A. P. Reyes vs. Collector of Internal Revenue11 we find Exhibits LL, TT and TTT, which confirm petitionerts declaration that sometime in 1950, he paid A. P. Reyes �9 ,000.00 for eight race horses. With this confirmation, we find the valuation given by petitioner of the nine (9) horses owned by him in 1950 and 1951, in the total amount of ~11 ,500. 00 more reliable and convincing than the amount fixed by BIR Examiner Quesada . LIIABILITIES The petitioner, in order to offset the increase of his net worth as determined by the respondent, submitted a long list of alleged liabilities incurred during the taxable years in question to whittle down the enormous deficiency income tax assessment arrived at by respondent thru the inventory method. All of these alleged liabilities are from loans incurred in favor of private parties numbering around thirty- four (34) as listed in petitioner's Exhibit "QQQQ". These alleged liabilities may be divided into two general classifications,namely, those loans incurred by petitioner for the FERIN amounting to �750 ,000. 00 and personal loans obtained for his own 0

DECISION :. I C. I. A. CASE NO. 30 - 44 - account totalling _approximately �1 ,355,500.00 unpaid or outstanding as of the end of 1951. Although in practically all instances the peti- tioner produced the promissory notes evidencing the indebtedness and in some instances the receipts evidencing payment, BIR Examiner Quesada disregarded all of them as genuine liabilities including on.e � obligation where the creditor went to the extent of suing the petitioner in court for the recovery of the amount loaned. The petitioner on ' the other hand maintains that all of these loans should have been credited in his favor. by the respondent in the deter- mination of his deficiency income tax liability. We cannot adopt either extremes as suggested by the petitioner and the respondent. In fairness to all parties concerned, the surrounding circumstances of each loan must be looked into. A judicial sieve, so to speak, must be employed to separate the chaff from the grain, the obviously fictitious loans from the apparently genuine ones. While it is true that as a general rule, when a person admits either orally or in writing that he owes money to another, his sole manifestation or admission to this effect would suffice without need of further ~- :~ corroboration, it being an admission against pecuniary interest (section 7, Rule 123, Rules of Court), the same rule cannot and should not apply to tax cases when the obvious purpose of the taxpayer in making such admission is to minimize his tax liability. (Richmond vs. Anchuelo , 4 Phil. 596; I

DECISION - C. T. A. CASE NO. 30 - 45 - � Lim Chingco vs. Terar!ray, 5 Phil. 120; People vs. Tolentino, 69 Phil. 715.) In other words, an ad- mission by the taxpayer that he owes money to ano- ther, is a double bladed we~pon. It might be an admission against the taxpayer's pecuniary interest or a statement intended to serve his own purpose de- pending on whichever would suit his personal con- venience. Like the defense of alibi in criminal cases, which is so easily manufactured and usually so unreliable (People vs. Timbang, 74 Phil. 294h in tax cases, it is just as easy to concoct a litany of fic- titious loans to reduce one 1 s tax liability, especial- ly so if this is the last remedy left to the unscru- pulous taxpayer to save himself from financial ruin. On our part we come out with the general proposi- tion that when a taxpayer claims he owes money to another for the purpose of reducing his tax liability, particularly when the Net Worth-Expenditure (Inven- tory) Method of investigation is employed against him, his admission must be corroborated by other evidence independent of the admission itself. For example, the promissory note, if there be any, should be pro- duced for the inspection of the Court and government counsel. The alleged creditor must be produced in Court to confirm the taxpayer's admission and to give goJ~,ernment' s counsel an opportunity to cross-examine him, unless he is dead, outside of the Philippines or unable to testify for one reason or another. If the taxpayer is in business. his books as required of him by the National Internal Revenue Code should

/ DECISION - C. T. A. CASE NO. 30 - 46 - be produced showing the corresponding entry or entries of his alleged liabilities. If for one reason or another the alleged creditor is not available as a witness, his financial capacity to extend the loan should at least be established. e realize that without these requisites, we would be opening the flood - gates to wholesale tax frauds and abetting the skillful evasion of taxes. e would be establishing a bad precedent by indis- criminately accepting as genuine liabilities, loans evidenced 'by the mere say so of a taxpayer or by giving weight to promissory notes which bear the �ear- marks of an eleventh hour effort to minimize the tax- payer's liability. After all, a promissory note drawn by a taxpayer is nothing more than a statement of an alleged liability the truth of which can never be ascertained unless it is corroborated by some other evidence other than the note itself. With these requisites e~umerated above as guiding factors, let us now examine the alleged liabilities / of petitioner for the account of FERIN, as well as the personal loans obtained for his own account. ACCOUNTS RECEIVABLE FROvi FERIN IN THE AMOUNT OF �-750,000.00 The loans incurred by petitioner for FERIN appear in the balance sheet of the corporation for the year 1951 as accounts receivable from FERIN, in ' the total amount of ~750,000.00. Inasmuch as BIR Examiner Quesada saw this amount appearing in the cash receipts and cash account books of FERIN, he

� DECISION - C. T. A. CASE NO. 30 - 47 - considered the same as forming part of the assets of petitioner for the year 1951. The evidence on this point however does not sustain BIR Examiner � Quesada's conclusion. It has been definitely established to the satis- faction of this Court that by virtue of a resolution, Exhibit "B", Urgent Motion , of the Board of Directors of the FERIN, dated February 10, 1951, the petitioner was granted authority to negotiate and contract loans in his name for the benefit of the corporation in an amount not exceeding ~750,000 . 00 . Pursuant to said resolution, petitioner allegedly contracted loans from the following persons in the amounts stated opposite their names: Murray Goldberg ll 150, 000 Louis Batt 200,000 Edward Garinger 100,000 J . Crisosto,n Chavez 100,000 Li Chiok En{ ( i ister) 50,000 Li Siu Eng sister) Li Hong Eng (sister) 50,CXX) Jose P. Benrzon Li Bee Eng sister) 30,DOO Li Kim Po (cousin) 10,000 Dee K. Chiong 20,000 30p000 l0 1(X)() p 750 ,000 While we do not doubt the authority given to peti- tbner by FERIN to �contract in his name the loans listed above by virtue of a resolution of the Board of Directors of said corporation, such an authority does not, however, render ipso facto indisputably genuine all the loans obtained by him by virtue of such authority. The requisites we have heretofore enumerated must still be met with respect to these loans as well

DECISION - C.I.A. CASE NO. 30 - 48 - as the other alleged personal loans of petitioner. LIABILITIES ALLOVED .. After going over the mass of evidence regarding these loans , with the requirements we have imposed as guiding factors, we find that the following have all the earmarks of genuineness. MURRAY GOLDBERG ' S LOAN OF il l 50 , CXJO. CX:h�- This loan is evidenced by a promissory note executed on November 28, 1951, a photostatic copy of which is marked as Exhibit "HHHH" . This loan appears to have been unpaid up to the present . Goldberg was not presented to corroborate petitionervs testimony re- garding the loan because, as admitted by respondent ' s counsel , he is a non- resident alien . Respondent bases the inability of Goldberg t o extend such a loan mainly on the fact that in his income tax returns for 1947 , Exhibit 113; 1949, Exhibit 112 and 1950 , Exhibit 111 , he declared a total net income of only � 22, 838 . 23. The evidence shows , however , that Goldberg is the representative of several manufacturing firms in America aside from his own company , the Republic Textiles, Inc. of New Jersey. It is not a remote possibility that the amount loaned came from his in- come in the United States . Moreover , he was a substantial stockholder of FERIN and as such there was good reason for him to help out the corporation. LOUIS BATT ' S LOAN OF ~ 200 . 000 , 00: - The loan is evidence by a promissory note , Exhibit C, Urgent Motion , dated November 25, 1951, and appears to have been

DECISION - C. T. A. CASE NO. 30 - 49 - paid on July 3, 1952; as evidenced by a voucher marked Exhibit D, Urgent Motion~ Batt was a supplier of textiles of many firms in Manila since before the war and is one of the owners of a manufacturing com- pany in New York . Like Goldberg, Batt is admittedly a non-resident alien and therefore his failure to I take the witness stand to corroborate petitioner's testimony 'hould not be held against the petitio'ner. Edward Garinger's loan of ~100 , 000 . 00: This loan is evidenced by a promissory note , Exhibit F, Urgent Motion , dated November 23 , 1951 , and appears to have been paid on July 7 and 14, 1952, as appearing in the vouchers , Exhibits G and G- 1 , Urgent Motion. The promissory note , Exhibit F, ,Urgent Motion , is even of United States print. Garinger was a supplier of textiles of Li Chay Too Sons , Inc . and Li Yao &Co. and was naturally interested in maintaining the goodwill of petitioner as well as the two corporations managed by the peti- tioner and with whom Garinger was doing big business . The money which he loaned to FERIN could have come from his income in the United States where he was a resident. Jose P. Bengzon's loan of ~10 1 000 . 00: This loan is evidenced by a promissory note , Exhibit III , dated November 18 , 1951 . The loan was paid by peti- tioner with FERIN funds sometime in July, 1952 as evidenced by Exhibit D, Urgent Motion . The creditor , ~/ a former Secretary of Justice, toom the witness stand

DECISION - C. T. A. CASE NO. 30 ' - 50- and confirmed the testimony of petitioner. We do not doubt the credibility of this witness as well as his financial capacity to extend the loan. Dee K. Chiong' s loan of itlO:,.<XJO.OO: Although this loan is not evidenced by a promissory note be- cause, as explained by the creditor himself, he is a very close friend of petitioner, we find it to be a valid liability of the latter. This creditor, who is the Vice-President of the China Banking Corporation, took the witness stand and confirmed the testimony of petitioner. He testified that the petitioner subsequently paid the obligation in full. We do not doubt in the least the credibility of this creditor as well as his financial capacity to extend the loan. Li Siu Eng's loan of P50 1000.00: This loan is evidenced by a promissory note, Exhibit QQQ, which was partially �paid in the amount of ~20,000.00 by the petitioner as evidenced by the receipt, dated October 12, 1954 appearing on the back of the same promissory note. The credito~who is a sister of peti- . tioner,took the witness stand to corroborate her brother's testimony. This c�reditor also explained the source of the money loaned to her brother. Li Hong Eng's loan of ~ 30.000.00: This loan is evidenced by a promissory note, Exhibit JJJ, dated November 21, 1951. The creditor, who is a sister of petitioner, took the witness stand to corroborate her brother's testimony. She explained the source of the money loaned to her brother. The loan appears

DECISION - The cre- C. I . A. CASE NO. 30 - 51 - � to be still unpaid up rto the present time . ditor declared that she has demanded payment of the � amount from her brother but due to financ ial difficul - ties the latter has not been able to settle the same as yet. LI BEE ENG ' S LOAN OF 20 ,000. 00: - This loan is evidenced by a promissory note , Exhibit VVV , dated Nov- -ember 20 , 1951 . At the time the loan was extended , the creditor , who is the youngest sister of petitioner, was only nine years old . The loan was given by Ty Suan , mother of petitioner and guardian of Li Bee Eng. Ty I Suan took the witness stand and explained the circum- stances under which the loan was granted . She also de- clared that her daughter Li Bee Eng had at least ~ 20 , 000 . 00 as her share in the inheritance from the estate of her father , Li Chay Too Sr . LI KIM PO'S LOAN OF ~30 , 000 . 00: - This loan is evi- denced by a promissory note, Exhibit YYY , dated Novem- ber 21 , 1951 . The loan appears to have been fully paid on July 7 , 1952, as evidenced by Exhibit YYY- 1 from the funds of FERIN as shown by the voucher marked Exhibit D, Urgent Motion. This creditor took the witness stand and explained the circumstances surrounding the loan and the source of the amount loaned. It appears from the evidence for the petitioner, that this creditor filed income tax returns for the years 1947, 1948 and 1951 , Exhibits ZZZ , ZZZ-1 and ZZZ- 2 showing a total net income for those years of Pl3 ,051 . 13. From the evidence , we accept this loan as a legi- timate and settled liability of petitioner.

\ ,, �' DECISION - C.I . A. CASE NO. 30 - 52 - DISALLOWED LIABILITIES ie are not convinced by the evidence presented by petitioner in support of the following loans and therefore consider them as fictitious and non- exist- ing . J . CRISOSTOMO CHAVEZ ' S LOAN OF �100 . 000, 00: - Although this loan is evidenced by a duplicate prom- issory note , Exhibit JJJJ , we find the explanation of petitioner regarding the repDDduction of the original note marked Exhibit 55- A fro m which i xhibit JJJJ was taken , to be highly fantastic . This alleged creditor was seen by the Cout t on several occasions loitering in the Court premises during the early stages of the trial of this case . However , when his turn came to testify as witness for the res- pondent , he could not be served with a summon. He was cited by respondent's counsel precisely to confirm or repudiate the c ontents of an affidavit which he executed dated July 6 , 1955 denying having made such a loan. Considering the past criminal record of this alleged creditor , his failure to testify before this Court upon being cited to do so ~nd the explanation of petitioner regarding the two controversial promis- sory notes, Exhibits 55 and JJJJ , which we believe to be much too strained and fantastic , we c annot give credit to this alleged liability of petitioner. LI CHIOI" ENG' S LOAN OF ~ 50,000 . 00 : - Although this loan is evidenced by a promissory note (p . 177 , Vol . III , BIR rec . ) , we cannot accept it as genuine liability of petitioner for failure on the part of the latter to present her as a witness to corroborate

DECISION - C.I.A. CASE NO. 30 - 53 - his testimony. No explanation was offered by peti- tioner why this alleged creditor, who is ~is sister, was not presented as a corroborative witness like the rest of his three sisters. In resum~, we find that of the ~ 750,000.00 worth of loans contracted by petitioner in his name for the FERIN, only ~ 600,000.00 worth thereof may be considered as his legitimate ~!abilities. The alleged loans in favor of J. Crisostomo Chavez for ~100,000.00 and Li Chiok Eng for ~ 50,000.00 are fictitious liabilities of petitioner based on the quantum of evidence we have heretofore set for taxpayers in support of alleged liabilities. OTHER ALLEGED LIABILITIES OF PETITIONER INCURRED FOR HIS OWN PERSONAL ACCOUNT ALLOWED LIABILITIES We find the evidence in support of the existence of the following loans to be satisfactory and therefore declare them to be legitimate liabilities of petitioner. CHUA GUI TIAN 1S LOAN OF P 20.000,00:- Chua Tian testified that he loaned ~20,000.00 to petitioner as evidenced by the promissory note, Exhibit GGG, dated December 27, 1949. According to the creditor, the loan has not been paid up to the present and he has not pressed for its payment because he is a "compadre" and a very good friend of petitioner. He further declared that the loan extended to his 11 compadre" came mostly from money borrowed from others, ~ the amount of ~1,000.00 having come from his eldest brother; � 3,000.00 from a second brother; � 2,000.00 from a cousin, and another � 2,oOo.OO from another cousin. The rest of the money according

DECISION - C.I.A. CASE NO. 30 - 54 - r to this witness, came from his savings of $8,(X)().OO which he accumulated in Kunning Hinam Province, China, some .years ago during the time when he was engaged there in the purchase and sale of cosmetics and other articles. According to this creditor, he has partly paid off the loans he contracted from his brothers to accommodate petitioner. The respondent maintains that this loan should be disregarded because of the discrepancy in the date appearing in the original note, Exhibit GGG, and the photostat, Exhibit 116. Whereas in the original pro- missory note, the date appears to be December 27, 1949, the photostat is dated December 27, 1948� . This discre- pancy has been satisfactorily explained by petitioner. According to him, his clerk who copied the original of the promissory note committed a ~ypographical error and it was a photostat of said reproduction which he sub- mitted to the investigators. LI BAN CHiaNG'S LOAN OF Pl3,000.00:- Li Ban Chiong, � a Chinese merchant, testified that he loaned petitioner the sum of �13,000.00 as evidenced by the promissory note, Exhibit SS, dated December 29, 1949. According to this creditor, who is a brother of petitioner, the money loaned came partly from his savings and partly from his inheritance. We have no cause to doubt the financial capacity of this creditor to lend petitioner the aforesaid amount. Neither can we disregard the lia- bility simply because the creditor is a brother of pe- titioner. Borrowing among brothers is a common every- day occurrence.

DECISION - C. I .A. CASE NO. 30 - 55 - JUANITA ONG 1S LOAN OF �30 , CX)(). OO: - This loan is evidenced by a promisso'ry note , Exhibit KKKK , dated July 15 , 1949 . � The creditor Juanita Ong, who is a sister- in- law of petitioner's wife , explained the cir- cumstances surrounding the loan and the source of the money which she loaned to petitioner. The loan was paid on November 20, 1953 , as evidenced by the receipt , Ex- hibit KKKK- 1. GO BUN CHIONG 1S LOP~ OF ~ 20 , 000 , 00:- Go Bun Chiong, a Chinese merchant, and brother~in- law of petitioner's wife , testified that he loaned to the petitioner the sum of ~20 , 000 . 00 as evidenced by the promissory note, Exhibit LLLL, dated August 20 , 1951. According to this credxtor , the loan was paid sometime in March , 1955. He further testified that it was petitioner's wife who signed the promissory note for her husband, but that he had always considered petitioner to be his debtor , Go Bun Chiong ' s income tax returns for 1948 , 1949 and 1950, Exhibits HHH, HHI-I- 1 and HHH- 2 show that he had a total net income of � 27 ,007 . 73 during those three years, thereby disproving the claim of respondent as to his financial inability to extend a loan of �20,000.00 to the couple in 1951. UN AH CHIOhG'S LOAN OF �5 ,000. 00: - This loan is - evidenoed by a promis sory note, Exhibit KKK, dated Jan- uary 8, 1951 . The creditor testified regarding the loan which according to him is still unpaid up to the present as well as the source of the amount loaned to petitioner in the sum of ' 5,000. 00. It appears from the testimony of this witness that he was employed in the firm, Tan Pee Cu Yek Chim &Company at a salary of 250.00 per

DECISION - C.I .A. CASE NO. 30 - 56 - month, with free board, lodging, plus allowance for laundry and haircut during the time when he extend the loan in question . And from his income tax returns for 1947 to 1950 , Exhibits LLL , LLL- 1, LLL- 2 and LLL- 3 , it appear that he had a total net income during those years of ~ 10,300 . 00 . We find the testimoljly of this witness quite credible as well as his financial capacity to extend the loan of ~5 , 000 . 00 to petitioner . PO SIAO KIM ' S LOAN OF � 10 , 000. 00: - This loan is evidenced by a promissory note , Exhibit 1~1M , dated Jan- uary 14 , 1950. The note is signed by petitioner's wife and is guaranteed by Li Yao &Company. The creditor took the witness stand and admitted having extended said loan to petitioner . He explained the source of the amount loaned by stating that ~6 , 000 ~ 00 came from his savings; and f-4 , 000. 00 was borrowed from his two cousins , Felix and Severino Ty. The savings of ~ 6 , 000 . 00 , ac c or di ng to this wi tness , came from his . salary as Manager of Farmacia Shanghai , a department of Li Yao &Company. He declared that this loan in his favor is still unpaid , and no attempt was made by him to collect the same because he does not need the money for the present . We find the testimony of cre- ditor Po Siao Kim quite convinc ing and credible regard- ing the loan as well as his financial capacity to ex- tend the loan of ~10 , 000 . 00 to petitioner's wife . LUIS C. LEMA alias LUIS CHU TONG ' S LOAN OF �10 ,000. 00: - This loan is evidenced by a promissory note , Exhibit 000 , dated March 15, 1950. The creditor , who is an old friend of petitioner , t ook t he witness stand to confirm the existence of the l oan. He de- . ~

DECISION - C. T. A. CASE NO. 30 - 57 - clared that the loan has not been paid up to the pre- sent although repeated demands for its payment was made to the petitioner. He further explained that the money he loaned to petitioner came from his business . His income tax return, Exhibit PPP , for the year 1949 , shows a net income of ~35 , 849.25 . We have no reason to doubt the credibility of this witness as well as his financial capacity to extend a loan of ~10 , 000 . 00 to petitioner . TY SUAN ' S LOAN OF ~197 , 500 . 00: - Ty Suan , mother of petitioner , declared that she loaned money to her son , the petitioner herein, on four occasions�: ~20 , 000 . 00 on January: 13, 1946, as evidenced by the promissory note , Exhibit RRR; �87 , 500.00 on August 24 , 1950 as evidenced . by the promissory note , Exhibit SSS; ~70,000 . 00 on Aug- ust 29 , 1950 as evidenced by the promissory note , Exhi- bit TTT; and , ~20 , 000 . 00 on Oc tober 3 , 1950 as evidenced by the promissory note , Exhibit UUU , or a total of �197 ' 500. 00. Ty Suan declared that the money she loaned to her son came from her savings during the lifetime of her deceased husband Li Chay Too amounting to about ~150 , 000 . 00 and from her conjugal interest in his tex- tile business which was converted into cash amounting to about �150,000. 00. In the extrajudicial settlement of the estate of the deceased Li Chay Too , Exhibit 125, it appears that the textile business which he had left was worth ~335 , 197 . 61 and ~284,238 . 31 of this amount was allocated to Ty Suan, as surviving spouse. We have

DECISION - C. T.A. CASE NO. 30 - 58 - no doubt as to the creaibility of witness Ty Suan as well as her financial capacity to extend a loan of ~197,000.00 to her son, the petitioner herein. As we have said in the case of loans between brothers, loans between mother and son and vice versa are not uncommon. TAN PEE' S LOAN OF ~ 50.000.00:- According to Tan Pee, father of petitioner's wife, his daughter, Juanita borrowed from him the sum of ~ 50,000.00 for petitioner Li Yao. This was made on three occasions: ~10,000.00 on January 1, 1950 as evidenced by the promissory note, Exhibit YY; ~ 20,000.00 on January 16, 19~ as evidenced by the promissory note, Exhibit ZZ; and � 20,000.00 on March 15, 1950,. as evidenced by the promissory note, Ex- hibit AAA or a total of �50,000.00. According to this creditor, who does read or speak English proficiently, these promissory notes were made in English in substi- tution for the temporary vales which were made in Chinese characters. We find this explanation regarding the ex- ecution of substitute :promissory notes in English quite plausible. Tan Pee further declared that this obliga- tion of ~ 50,000. 00 has not been paid up to the present. His income tax returns, Exhibits BB~, CCC, DDD, EEE and FFF, for the years 1946 to 1950, inclusive, show a total net income of ~236,673.96. We have no ' reason to doubt the testimony: of this creditor regarding the loa~in the total amount of �50,000.00 which he extended to his daughter and his son-in-law as well as his financial capacity to extend such loan.

DECIS ION - C. T. A. CASE NO. 30 - 59 - TAN SAM YU1S LOAN OF ~ 10 , 000 . 00: - This cred i tor , who i s a brother of petitioner' s wife , testified that he loaned the amount of �10 ,000. 00 to petitioner thru the latter ' s wife on January 20 , 1950, as evidenced by the promissory note , Exhibit MM. The note was gua- ranteed by Li Yao & Co . This creditor also explained the source of the money he loaned to his brother- in- law. His income tax returns , Exhibits 00 , PP, QQ and RR for the years 1947 to 1950, inclusive , show that he had a total net income of ~20 , 232. 64 during those four years . According to this creditor , the loan has not been paid up to the present. From the evidence adduced, we find this loan to be a ligitimate liability of petitioner existing up to the present time. DY PO ALIAS TY SE ENG'S LOAN OF �25 ,000. 00: - Dy Po alias Ty Se Eng testified that he extended a loan to petitioner in the amount of �25 , 000. 00 on October 4, 1950 as evidenced by the promissory note, Exhibit AA. It ap- pears that this creditor is an uncle of petitioner. He has not pressed payment of the obligation from petitioner up to now because of their relationship. According to this creditor, even before the war he had savings in the amount of � 30,000.00 which he entrusted to Li Chay Too for safekeeping when he went to China in 1941 . His net in- come from 1947 to 1951 , inclusive , as reflected in his income t ax returns, Exhibits BB , CC, DD, EE and FF , show a total net income of ~43,454.71. We find this loan to be a ligitimate liability of petitioner.

DECISION - C.I.A. CASE NO. 30 - 60 - GO SE UN'S LOAN OF ~ 20,000.00:- This obligation is evidenced �by a promissory note, Exhibit ~~ . dated February 15, 1946. Go Se Un, who was a boyhood friend of petitioner, took the witness st~nd to confirm the existence of the loan in his favor. He also explained the source of the money which he loaned to petitioner. Ac cording to this creditor, petitioner has not yet paid him the indebtedness up to the present. He has not pressed for payment because he is not in bad need of money while on the other hand the petitioner is short of cash. The income tax returns, Exhibits XXX, XXX-! and XXX-2, of Go Se Un for the years 1949 to 1951, inclu- sive, show a total net income of ~-12,650.00. e accept this loan as a ligitimate liability of petitioner. TEODORO SANTOS 1 LOAN OF �c30,000.00:- This loan is evidenced by a promissory note, Exhibit 0000, dated January 4, 1946. According to the petitioner, he paid ~ 20,000.00 of this obligation on April 12, 1955, leav- ing a balance of ~ 10,000.00 as evidenced by the type- written receipt signed by the credito~ . Teodoro Santo~ appearing at the back of Exhibit 0000. Teodoro Santos was not presented as a witness for the petitioner to confirm the existence of the loan nor the fact of payment , Instead, a certified true copy, Exhibit EEEE, of the complaint filed by said creditor against petitioner {C.F.I. Manila Civil Case No. 27532) for the recovery of the balance of �10,000.00, was pre- sented to corroborate petitioner's testimony. The com-

DECISION - C.I.A. CASE NO. 30 61 - plaint, ~xhibit EEEE, filed by Teodoro Santos against petitioner, quotes verbatim the contents of the pro- missory note, Exhibit 0000. In paragraph III t~ereof, the plaintiff Teodoro Santos admits having received from the petitioner the sum of ~ 20,000.00 on April 12, 1955, in partial payment of the obligation of P30,000. 00 in question leaving a balance of PlO,OOO.OO which is the subject of the civil suit. With the testimony of petitioner and Exhibit EEE , we find this obligation of �10 ,000. 00 to be a ligitimate liability of petitioner. It is highly inconceivable, as respondent would want us to believe, that petitioner pur- posely concocted the aforesaid complaint against him in connivance with Teodoro Santos -- thereby destroying his credit standing in the community -- solely for the pur- pose of reducing his present tax liability. LI YEK'S LOAN OF ~30 .000. 00: - This loan is evidenced by a promissory note, Exhibit PPPP, dated February 10, 1946. Li Yek, the alleged creditor, was not presented as a witness by petitioner to confirm the existence of the loan. According to him, the said person is now dead. Respondent 's counsel did not present any evidence to dis- prove the allegation of petitioner regarding this matter. Neither was there any serious attempt on the part of BIR Examiner Quesada to find the whereabouts of this creditor. This obligation has been fully settled on January 3, 1951, according to petitioner, as evidenced by the type- written receipt, Exhibit PPPP-2, with the signature of Li Yek appearing thereon.

BECISION - C.T.A. CASE NO. 30 - 62 - In the absence of proof to the contrary, we accept as credible the testimony of petitioner regarding this liability as we!! as the genuineness and due execution of Exhibits PPPP and PPPP~2. DISALLOWED LOANS Applying the requisites heretofore stated as to the quantum of evidence we expect before giving credit to the taxpayer as regards his liabilities contracted from loans, we find the following alleged indebtedness of pe- titioner short of such requirements. It is to be admitted that the alleged loans of pe- titioner in favor o'f Ong Tiao Seng for P20,000.00; Li Chiu Ka for � 20,000.00; Li Tong Na for � 20,(X)().OO; Ko Chiu Seng for ~ 10,000.00; Carlos M. Go for ~ 10,000.00; and, Dee Hong alias Lim Siong for �25,000.00 are all evidenced by promissory notes. However, none of these alleged creditors of petitioner were presented before this Court to confirm the existence of such loans. Neither was there any satisfactory explanation offered by peti- tioner nor his counsel to show why. they failed to produce these alleged creditors as they had done with respect to the rest. The alleged loan in favor -of Arturo Mercado for � 10,000.00 is evidenced by a promissory note (p. 170, Vol. 2, BIR record). However, !ike the six others just mentioned above, he was not presented as a witness to confirm the ex~stence of the alleged loan. True indeed, petitioner tried to explain such failure with respect to this creditor by claiming that the latter was sick during the trial of this case. This notwithstanding, we still

DECISION - C. I . A. CASE NO. 30 - 63 - cannot accept. this alleged obligation of petitioner in favor of Arturo Mercado as a legitimate liability, inspite of his explanation , for failure on his part and his counsel to present a medical certificate in support of such allegation. Moreover , had petitioner's counsel requested us , we could have ordered the taking of the deposition of this supposedly sick creditor for peti- tioner ' s benefit. For the same reasons that we have disallowed the alleged liability of petitioner in favor of Arturo Mercado , we are also disallowing the alleged liability of petitioner in favor of Go Hoc in the amount of ~ 20,000.00 supposedly incurred in 1950. ONS CHIU alias ONS BENS HUY'S LOAN OF �- 30 , 000. 00: - This loan is evidenced by a promissory note, Exhibit 57 (p . 169, V~l . 2, BIR record) dated August 29, 1951 . The note is signed by petitioner's wife , Juanita Tan Ho Ti, in favor of Mr . and Mrs . Ong Chiu . Neither of these two creditors was presented before � this Court to confirm the existence of the loan , as pe- titioner did with respect to a great majority of his other creditors. The respondent presented , on the other hand, a Chinese by the name of Benjamin Ong Chiu who denied having extended the loan of ~30 , 000.00 mentioned in the promis- sory note, Exhibit 57. The petitioner tried to counter- act this damaging testimony by allegirtg that the Benjamin Ong Chiu, who testified before this Court, is not the same Ong Chiu alias Ong Beng Huy, who loaned petitioner

DECISION - C.I. A. CASE NO. 30 64 - the amount of � 30 , 000. 00 mentioned in Exhibit 57 . In support of this allegation , petitioner presented a cer- tificat ion , Exhibit EEEEE , of the Bureau of Immigration , showing there are no less than nine (9) Chinese bearing the same name of Ong Chiu registered in the aforesaid Bureau . The real creditor of petitioner , according to him , is one Ong Chiu alias Ong Beng Huy , the person who sued him on September 15 , 1955, in the Court of First Instance of Manila (Civil Case No. 27488), Exhibit FFFF, for the recovery of another alleged unpaid debt of ~ 30 , 000.00 (not in question in this appeal) incurred by the petitioner in favor of said person sometime in December 20, 1953. We note that with respect to this alleged 6reditor, as well as the other creditors who were not presented before us to confirm the existence of the questioned loans and wher~ n~ valid expl anation was given for such failure , the - petitioner' s counsel have this blanket explanation to offer: "A couple of these have requested Li Yao to � ~ dispense with their testimony, giving some reason or another why they do not like to testify. Li Yao consulted his lawyers on what to do with them -- whether they should be subpoenaed and compelled to confirm their loans to Li Yao or not - - but said lawyers advised Li Yao that it might not be advisable to compel said creditors to come to court . It would only antagonize them and they might sue Li Yao for the payment of their loans, which would mean additional headaches and more trouble for the petitioner. " (p . 148 of Pe- titioner's Memorandum) ~ Obviously, the alleged fear of antagonizing these creditors who did not appear before us, was unwarranted with respect to Ong Chiu alias Ong Beng Huy , because \

DECISION - C. I . A. CASE NO . ~ - 65 - from petitioner ' s own evidence , Exhibit FFFF , the "headache" was already there when this creditor iiled a civil suit against petitioner on September 15 , 1955 for the collection of another indebtedness of �30 ,000. 00 , at a time when the trial of the instant case was still going on before us. We note from our records , that the trial of the instant case ended November 21 , 1955. With the break of hostilities between the two , while the present appeal was still being heard before us , pe- titioner9s counsel should then have requested us by compulsory process to compel the alleged creditor to appear and confirm the existence of the loan and inci- dentally to destroy the damaging testimony of respon- dent's witness, Benjamin Ong Chiu. Upon petitioner's request, we could have even gone further, in the in- terest of justice , by holding Ong Chiu alias Ong Beng Huy , the supposed creditor of petitioner , liable for contempt had he failed to appear before us to testify after being summoned to do so. Petitioner's counsel failed to take any of these steps for the protection of their client's interest. The non - production of this alleged creditor has lead us to the conclusion that he is either a fictitious person, or , if he is not, the willful suppression of his testimony raises the presump- tion that it would have been adverse to petitioner had said creditor been presented (section 69 (e) Rule 69, Rules of Court). The blanket explanation quoted above by petitioner's counsel with respect to the other creditors who were

DECISION - C.I.A. CASE NO. 30 - 66 - r not placed on the witness stand and where no valid explanation was given for such failure, is just as puerile as with respect to the case of Ong Chiu alias Ong Beng Huy, whose alleged loan we are now discussing. Why should a person turn hostile and feel resentful simply because he is asked by his debtor to confirm before a court of justice a legitimate loan which he . extended to him? On the contrary, if the loan were really true, the creditor should be more than willing to confirm the existence of the same for his personal protection. His reluctance to testify in this case to confirm the loan, might be used against him as lack of sincerity in the event that he decides to sue peti- tioner before another court for the collection of the amount of the indebtedness. Thus, we are more inclined to believe that with respect to those creditors who were not placed on the witness stand to corroborate petitioner's testimony and for whom no valid explanation was offered for such failure, they are either fictitious creditors, or, if they really exist, they were not willing to stick out their necks too far for petitioner by committing pur- poseful perjury. GEORGE FERNANDEZ LEE'S LOAN OF 32, 500.00:- We find it unnecessary to decide one way or the other the alleged loan of petitioner from George Fernandez Lee inasmuch as petitioner himself admits that the inclusion of this loan in his original list of liabilities was an inadvertent mistake on his part. In fact, the name of this alleged creditor does not appear in the amended list, Exhibit Qq~, submitted by him. j

DECISION - C.I.A. CASE NO. 30 - 67 - LEC1ALITY OF THE NET WORTH-EXPENDITURE (INVENTORY)' AffiTHOD OF INVESTIGATION IN THIS JURISDICTION AND THE PROPRIETY OF ITS USE IN THE PRESENT CASE After the liberation, the government has become aware of numerous tax evasions which were not notice- able in cleverly prepared books of account or income tax returns of many taxpayers. Tax evasion became evi- dent only from extraordinary increase or �bulge" in the wealth of taxpayers which were grossly disproportionate as compared to the corresponding income shown in their tax returns. To ferret out these tax evaders and to discover tax evasion behind the maze of skillful con- cealment, the government has of late resorted to the extensive use of the Met worth- Expenditure (Inventory) Method of investigation to detemmine tax deficiencies. The validity and propriety of this method is now raised squarely before this Court. In the case of Eugenio Perez vs. J. Antonio Araneta, Acting Collector of Internal Revenue (B.T.A. Case No . 189 decided on February 13, 1956) as well as the recent one of Aurelio P. Reyes vs. The Collector of Internal Revenue {C.I.A. Case No. 42, decided on July 26, 1956), this Court sanctioned the use of such method by the Collector of Internal Revenue under authority of sections 15 and 38 of �the National Internal Revenue Code, when the circum- stances of the case warrant the use of such method. A s a matter of fact, one of the distinguished lawyers of petitioner in the present case, concedes this preroga- tive to the Collector of Internal Revenue {p. 41, Vol. 1 Formilleza , Commentaries on the National Internal Revenue Code).

DECISION C. I.A. CASE NO. 30 - 68 - The Commissioner of Internal Revenue of the United States , under . section 41 of the Federal Internal Re- venue Code of 1939 , from which sections 15 and 38 of our National Internal Revenue Code are patterned , is given the same authority. The United States Supreme Court has invariabl e sustained the use of said method of in- f vestigation in both civil and criminal case. The bone of contention in the present case seems to be not the right or authority of respondent to use the method employed by him , but rather the propriety of its use. In Holland vs . U. S. (348 U. s . 121- 1954) the Sup- reme Court of the United States laid down five requi- sites or conditions for the proper use of the Net Worth- Expenditure ( I nventory) Method of investigation which are as follows: (1) That the taxpayer does not keep books , or his books so inadequate that they do not re- flect his true income ; (2) That there must be an opening net worth established with reasonable certainty to serve as a starting po int ~ from which to calculate future increases in the taxpayer' s assets; (3) That the government must track down all relevant leads furnished by the taxpayer reasonably susceptible of being checked; ~. (4) That the government must show a pro -(~ bable source of income from which it could equate increase in net worth with unreported taxable income; and (5) That proper adjustments must be made for personal and other non- deductible expen- ditures as well as for non- taxable receipts and for depreciation. Petitioner ' s coansel maintain that requisites Nos. 1 , 3 and 4 have not been met by re spbndent in the

DECISION - C.I.A. CASE NO. 30 ~ - 69 - case at bar. - ~le shall take up the first and fotJrth requisites jointly, they being closely interrelated. With respect to the first, petitioner has openly admitted that during the taxable years now in question, he has not kept books of accounts and other records except a secret note book containing the list of his creditors and the names and addresses of his girl friends which he requested this Court not to produce for "security" reasons. Petitioner tried to justify his failure to keep and maintain such book by alleging that his income is derived solely from salaries, dividends and bonuses received in his capacity as President and Manager of the three companies he organized. It is claimed that since he was not_in business of his own, there was , therefore, no obligation on his part to keep books of accounts, under section 5 of the Bookkeeping Regula- tions dated March 17, 1947. Consequently, the respon- dent committed an error in applying the Net Worth-Ex- penditure (Inventory) Method against him for not keeping books of accounts. We cannot sustain petitionervs theory on this point. From his own admission, it appears that petitioner indulged in all forms of gambling at one time or another. During 'the years 1950 to 1951, he admitted having bought and maintained a stable of nine (9) race ) horses. These admissions do not dispel the reasonable probability that from his gambling activities he de- rived income in the form of cash prizes on his horses from the two racing clubs . besides winning bets on them.

DECI SI ON - C. T. A. CASE NO. 30 70 - T We cannot believe that these nine (9) race horses which petitioner admittedly bought from A. P. Reyes and the � late Johnny tsmael in 1950 for �11 , 500. 00 were acquired by him solely as a hobby to satisfy his fondness for animals . It is of common knowledge that it takes a lot of money to buy and maintain race horses and usually, when one buys them, it is for business purposes. From - these admissions , we can fairly conclude that petitioner had quite extensive gambling activities not only in horse racing, but also in other forms of wagering , from which it is very probabl e that he derived considerable income. Nevertheless , he has not kept any record of his t rans- actidns involving his race horses during the period of almost two years that he owned them. Neither did he keep a record of his income or losses from his other gambling activities. Neither has the petitioner included the income or losses from such activities in his annual income tax returns for the years now in question . On the question as to whether or not under the cir- cumstances, petitioner should have kept adequate books of accounts and records, we have in r~ply, section 334 of the National Internal Revenue Code which reads: ttsec. 334. Corporations companies , part- nerships, or persons reguireJ to keep books of accounts.- All corporations, companies, part- nerships, or persons required by law to pay internal revenue taxes shall keep a journal and a ledger, or their equivalents: Provided , however, That those whose gross quarterl y sales , earnings, receipts, or output do not- exceed five thousand pesos shall keep and use a simplified set of Bookkeeping records duly authorized by the Secretary �of Finance wherein all transactions and results of operations are shown and from which all taxes due the Govern- ment may readily and accurately be ascertained and determined anytime of the year � � � � � � " ,.

DECISION - C.I.A. CASE NO. 30 - 71 - above provision clearly states that persons required by law to pay internal revenue taxes, (this includes income taxes under section 18 (a), National Internal Revenue Code), must keep a journal and a ledger, or their equivalents or in certain cases sim- plified bookkeeping records. The reason for such re- ' � quirement is stated in the law itself, viz, in order uthat all taxes due the government may readily and ac- . I ~ curatelj(be ascertained and determined anytime of the year.� One of the obligations of the petitioner as a taxpayer is to declare his true income in his income tax returns. Inherent to this duty is the further re- quirement �tmt he maintain adequate records of some kind to show the amount of income received by him each year and the nature and the basis of any deductions I claimed. 11 (Halle v. Commissioner , 7 TC 245 (1946) aff'd 175 F 2d 500 (1949) cert. den . 338 u.s . 949) , so that the income tax or any other tax due the govern- ment � may; be readily and accurately ascertained and determined anytime of the year not only by the taxpayer, but also by the different tax collection agencies of the government. Unless this requirement ' is complied with, taxpayers may , and probably with impunity, simply r esort to the underdeclaration of their taxable income rendering it almost impossible for revenue officials to determine accurately the amount of taxes properly due to the government � .- ' ' Petitioner contends that a taxpayer like himself, whose income is derived solely from salaries, bonuses and dividends is not required under section 334 of the .,

.� DECISION - C. I . A. CASE NO. 30 - 72 - National Internal Revenue Code to keep books of accounts. � We find this contention untenable , considering pati- tioner's situation , where it clearly appears that he had in fact derived income during the years 1945 to 1951, inclusive , from sources other than salaries alone. In section 7 , Revenue Regulations No. V- 1 , Department of Finance , which is quoted with approval on page 968 , Vol . II of Formilleza ' s Con~entaries of the National In - ternal Revenue Code , the exception from keeping books and records seems to apply only in those c ase where the only source of income of the taxpayer is his salary. Dividends earned from a corporation or partnership do not fall under the category of a salary. Thus , in view of the admitted failure of petitioner to comply with the requirement regarding the keeping of adequate books of accounts and records and it appearing that he is not cove red by the exemption , the respondent did not , therefore , err in as s essing him the proper tax on the best evidence obtainable. In fact, after employ- ing the inventory method against petitioner , it appears from our computation shown in the latter part of this decision that the net income determined is very far greater or substantially larger than ~ tbe declared in- come in petitioner ' s annual income tax returns for 1945 to 1951, inclusive, as to indicate by persuasive evi- dence that there had been unreported income or an un- detstatement of income (Mikelberg v. Commissioner LI951J 23 TC 342; Estate of George Curry v. Commissioner Ll95g 2 ( 23 TG 305} . In Emmich vs. United States 298 Fed . 5

.. DECISION - C.Y.A. CASE NO. 30 - 73 - (6th Cir. 1924) it was held "that indirect evidence may be used to establish the undisclased income of a gambler who cannot produce books or records of accounts." "The term 'Net Worth Method 1 has acquired a connotation embracing all circumstantial methods of proving income." In the United States , �the Net Worth Method has generally been used when the taxpayer 1 s records were either inadequate or not available." (The Net Worth Doctrine by John H. Mitchell, appearing on pages 1345, 1347, 1349, Vol. 14 Institute on Federal Taxation , 1956 edition.) "Evidence that a man is engaged in the gambling business , coupled with the absence of records, has been held sufficient proof of a likely source. 11 (Campodonico vs. United States , 222 F-2d-310) . Petitioner argues that the records of the corpora- tions and partnership from which he derived his income (salaries, dividends and bonuses) are sufficient and therefore it . was unnecessary for him to keep separate books of accounts and records. We find this argument without merit , for it has been held that the net worth method may be used not only to demonstrate a substantial �ariation from the reported income, but also to suggest the untrustworthiness of those records, standing .by themselves, from which the taxpayer's net income had been determined and at the same time reconstruct and serve as proof of the unreported income, so as to fix the correct net income of the taxpayer (Bryan v. Com- missioner, LI95~ 209 F 2d 922; Morris Lipsitz v. Com- missioner Ll95~ 21 TC 917 aff'd 220 F 2d 871; Hurley

DECISION - C. T.A. CASE NO. 30 - 74 - v. Commissioner ZI95~ ,22 TC 1256; Thomas v. Commis- sioner LI95~ 223 F 2d 83; Fred Ziegler v. Commissioner LI95gf 11 CCH Tax Ct Mem . 572 , affVd LI95~ 207 F 2d 784). Even if we were to concede what petitioner admits by his own computation, Annex B, Memorandum for Peti- tioner" to be his �true" income1one would readily see that the figures appearing therein are far in excess of his originally declared income thereby indicating a . gross misdeclaration or underdeclaration in his original income tax returns . Another argument of petitioner against the use of the Net Worth- Expenditure Method of investigation against him is that his income tax returns has not been shown to be inaccurate by the respondent and even if found to be inaccurate, the Collector should nevertheless compute the petitioner's income on his accounting method of actual cash receipts and disbursements . We find this view just as unmeritorious . As heretofore stated, pe- titioner's income tax returns are inaccurate and do not clearly reflect his true income, thus justifying a re- computation of the same by respondent . In making such re- computation of petitioner's income, section 38 of our National Internal Revenue Code does not limit the respondent Collector of Internal Revenue to the regular or ordinary methods of accounting employed by the tax- payer (Morris Lipsitz v. Commissioner, supra; Eugene Vasallo v. Commissioner Ll9527 23 TC 656). As a matter of fact, the Collector is not even required by law to exhaust adjusting whatever books or records the tax- payer has in determining his net income. (H. A. aurley v. Commissioner Ll95Y 22 TC 1256). On the other hand, I

DECISION - C.T.A. CASE NO. 30 - 75 - section 38, which is ~ copy of section 41 of the Fe- deral Tax Code of 1939, express! y authorizes the Col- lector of Internal Revenue to determine the net income of the taxpayer upon any reasonable basis or method as will clearly reflect such income and therefore the Collector may also look elsewhere for evidence of the taxpayer's correct income (Eugene Vasallo v. Commis- sioner, supra; Bryan v. Commissioner , supra; Halle v. Commissioner, supra). While it is argued here that the "increase in net worth method" is not an accounting method , nevertheless it is proof or evidence of income of the taxpayer (Estate of Bartlett v. Commissioner Ll9547 22 TC 1228). From the fact that after reason- ably allowing what appears to be valid assets and lia- bilities of petitioner , this Court has found that there has been a considerable increase in his wealth, we be- lieve _and so hold that the method employed by the res- pondent in the determination of his real tax liability justified. ! In support of our finding as to the friu'rth requi- site ~� which we have held was sufficiently met by res- pondent, we have this to add. It appears that since 1945 up to 1951, the petitioner was at one time or another in full control of the financial activities of the se firms of which he was either Manager or President or both. He had practically the sole authority to .. determine the expenditures of the three firms as well � as to authorize and approve all their transactions. This unprecedented and practically unlimited authority of petitioner was such that he could have used the same

DECISION - C.I.A . CASE NO. 30 - 76 to his personal advantage by the simple expedient of channelling funds to himself one way or _another to suit _his personal convenience . This circumstance , coupled with the fact that petitioner gambled; that he maintained a stable of nine (9) race horses in 1950 and 1951 from which he undoubtedly won cash prizes as well as winnings from bettings now and then; and the fact that he also earned income from salaries, bonuses and dividends , provide a sufficient basis as to the probable sources of income to warrant the use of the Net Worth ~ethod employed by respondent . It is also contended by petitioner that the government has failed to comply with the third requi- site for the proper application of the method employed , by its failure to follow all relevant leads furnished by petitioner. While it is true that the government has the duty to track down all relevant leads furnished by the tax- payer in order to forestall serious injustice to him , we have eliminated such a contingency by giving the petitioner herein all the benefit of doubt where doubt exist. We have discussed all the possible leads in connection with the factual issues of this case grant- ing allowances for liabilities and disregarding alleged assets when the evidence for the government is weak and unconvtncing. We have taken this course of action mind- ful of the fact that our duty is not to sustain the findings of the respondent at all cost but to see that justice is done.

DECISION - C. T. A. CASE NO. 30 - 77 - Let us now proceed t~ the fifth requisite -- the adjustments for non- deductible expenses and for non- taxable items necessarily a part of the proper appli- cation of the Net Worth Method of investigation . With respect to the adjustment for personal ex- penses of petitioner , we believe that the detennina- tion made by respondent for the years 1945 to 1947 was without basis. The respondent based his finding as to petitioner's living expenses for said years on the fact that he made considerable bank withdrawals during the period. In the course of the investigation , .the petitioner failed to present the cancelled checks and check stubs corresponding to these withdrawals . The respondent thus concluded. that these withdrawals con- stituted personal and living expenses for the corres- ponding years . The petitioner has explained to the satisfaction of the Court the fallacy of this finding admitting at the same time that while this case was still pending before the Bureau of Internal Revenue, his counsel , Attorney Modesto Formilleza,offered to compromise the case by conceding the amount of a mini- mum of ~15,000 . 00 and a maximum of ~ 20 , 000.00 as per- sonal and living expenses of petitioner for the years 1948 to 1951, inclusive. Petitioner has explained his enormous bank withdrawals by stating that they arose from cash exchanges and accommodations made for other persons . The withdrawals also included funds held in trust by him for others including the funds which he collected for charity which he deposited c'- temporarily in his bank account. In the absence of

DECISION - � C.T.A. CASE NO. 30 - 78 - proof to the contrary , we accept as satisfactory and I plausible the explanation given by petitioner. It should be noted that the offer of compromise made by petitioner ' s counsel was limited only for the years 194�8 to 1951 , inclusive . Therefore , petitioner ' s personal and living expenses should be fixed in the amount of �:20,000. 00 a year from the years 1948 to 1951 , inclusive. In view of the absence of evidence as to his living expenses for the years 1945 to 1947 , inclusive , petitioner should be credited with the amount for which he in turn is entitled by way of personal exemptions. A credit or adjustment of ~ 72 , 392.91 should be allowed against petitioner' s increase in net worth for �1949 which both parties admit to be attributable to inheritance received by him and thus beyond the reach of income taxes under section 29 - b of the National Internal Revenue Code . However , for all of the years involved in which an income tax has been paid , the pe- titioner should be subject to an adjustment for the non- deductible item of income taxes under section 30- c of the National Internal Revenue Code, paid for the years as indicated hereunder as follows: Income Tax Year Paid and Year Paid Non - D e d u c t i b l e � 918 . 31 1946 1,393. 42 1947 1948 10,394.55 1949 700.34 1950 538.07 1951 3,837. 00

DECISION C. T. A. CASE NO. 30 79 - FRAW AND 50% PENALTY A factor which has considerably increased the pe- titioner's liability in the decision appealed from , is the imposition by the respondent of the 50% surcharge as fraud penalty for the taxable years in question. The possible sourc es of fraud in income tax cases seem limitless and the ingenuity of the taxpayer plus � the complexity of our tax laws add up to a very vast field for tax evasion. Congress has advisedly refaained in the National Internal Revenue Code from giving a specific definition and a detailed description of the - different ways by which fraud could be committed in tax cases . Presumably, the omiss i on was purposely done to �' c..I.ci!re the doors to calculated evasion of the terms used and quibblingsabout their precise import. It can be said, however , that the issue of fraud is a tactual .quss - ::tion the determination of which depends on the careful consideration of the facts and circumstances surround- ing the conduct of the taxpayer incident to the pre- paration of his return. And when is a return to be considered fraudulent? On this point , the pertinent provisions of sections 72 and 332 of the National In- ternal Revenue Code }I':ead:. as follows: "Sec . 72. - Surcharges for failure to render returns and for rendering false and fraudulent returns. - The Collector of In- ternal Revenue shall assess all income taxes. In case of willful neglect to file the return or list within the time pres- cribed by law , or in case a false or frau- dulent return is willfully made , the Col- lector of Internal Revenue shall add to the tax or to the deficiency of the tax, in case any payment has been made on the basis of said returns before the discovery of the

DECISION - C. I.A. CASE NO. 30 - 80 - falsity or fraud , ~ a surc harge of fifty per centum of the amount of such tax or defi- ciency tax . x x x" X X X "Sec . 332. Exceptions as to period of � limitation of assessment and col l ection of taxes. - (a) In the case of a false or frau - dulent return with." intent to evade tax or of a failure to file a return , the tax aay be assessed , or a proceeding in court for t he collection of such tax may be begun without assessment , at any time within ten years after the discovery of the falsity , fraud , or omission . x x x" From the foregoing provisions of law , it is appa- rent that fraud coul d be attributed to the taxpayer only when he has filed a false return with intent to evade the payment of ta xes . In other words , fraud is a question of willfulness or intent . On the question of fraud , whether it relates to ta xation or not , the principle is well - settled that fraud can never be presumed; it must be alleged and proved , at least satisfactorily if not conclusively by one who alleges its existence . (De Roda v. Lakk , 48 Phi l . 104; De Santos v. Bank of the Phil . Islands , 66 Phil. 38; La Cia . Gen . de Tabacos v . Obed , 13 Phil . 391 ; Menzi &Co . v. Bastida , 63 Phil . 16; Arroyo v. Granada & Centero , 16 Phil. 484) . The respondent in the case at bar , having alleged fraud , it is incumbent upon him to prove the existence of the same . Unlike in criminal prosecutions , however, the degree of proof required on the issue of fraud need not rise to "proof beyond reasonable doubt . " It is enough that the same be "cl ear and convinc in~" , (Griffiths v. Comm., 50 F (2d) 782 cited by Mertens, Law of Federal Income Taxa-

. DECISION - C.I . A. CASE NO. 30 - 81 - tion , Vol. 10, p. 29) that is , it must be stronger than the �mere preponderance of evidence'' which would be suf- ficient to sustain a judgment on the issue of correct- .. ness of the deficiency itself apart from the fraud pen- alty (Frank A. Maddas, 40 BTA 572 , aff'd F (2d) 548 {CCA 3rd, 1940) . Since proof of fraud must center on "willfulness" as its crucial core, and "willfulness" being - enmeshed as it most be with "intent" and "stat~ of mind" , it ~s hardly susceptible of proof by direct evidence~ Cir- cumstantial evidence is therefore admissible on the issue of fraud (u.s . v. Commerford , 64 F (2d) 28, 30 cited by Balter , Fraud Under the Federal Tax Law , p. 394). With these basic considerations in mind, we come to the issue of fraud in the case at bar . In th~ light of the evidence introduced by both the parties , we are sa- tisfied that unreported income have� been proved by the government. We believe further that the records and cir- cumstances herein overwhelmingly indicate that peti- tioner's failure to report such large amounts of income as shown by his income tax returns for the taxable years in question was due to fraud with intent to evade his legitimate obligation to the government. In our detailed analysis of the assets and liabi- lities of petitioner, we pointed out certain items like for example the alleged loan given by Chavez to peti- we tion~r in the amount of ~100,000 . 00 which held to be fictitious , and the alleged investments of Vicente Duazo and Delfin Fla.lay in FERIN which we held to be peti-

DECISION - C. T. A. CASE NO. 30 - 82 - r tioner ' s own using those two as his dummies . These circumstances ~ plus some others, have brought forth in bold rel ief petitioneras intent to pay a lesser tax than that actually due from him . Moreover , from pe- titioner ' s own computation , (Annex B, Memorandum for Petitioner) it is admitted that there has been an ac tual and substantial underdeclaration of his income for some of the years in question and that the under- statement has occurred in more than one year . In said computation , petitioner admits a deficienc.y income tax liability for the years now in review in the total amount of ~49 , 398 . 04 exclusive of surcharges . � Obviously , this admitted tax deficiency of petitioner running to five figures cannot be imputed to an honest mistake , a slight oversight or a negligible error in mathematical computa- tion . The willful omission of income , a del i berate and intentional failure to report substantial items of re- ceipt, has been considered to be substantial evidence of fraud . (p . 26 , Vol . 10 , Merten's Law of Federal In- come Taxation) From the foregoing , we hold that peti- tioner was guilty of fraud in his income tax declarations for the years 1948 to 1951 , inclusive , and therefore the decision of the r espondent appealed from with respect to the impbsition of the fraud penalty of 50%, is sustained. PRESCRIPTION Lastly , it is averred that the power of respondent to assess against , and collect ,from , the petitioner defi- ciency income taxes for the years 1945 to 1948 , inclusive , has prescribed under section 331 of the National Internal Revenue Code which limits the right of collection by

DECISION - C. I . A. CASE NO. 30 - 83 - r judicial action to five (5) years after the return was filed . It is almost trite to repeat what the Supreme Court has held in several cases , that under section 51 (d) of the National Internal Revenue Code, the right of the government to coll ect income taxes through sum- mary administrative methods is limited to three (3) years after the return is due or has been filed . (Collector of Internal Revenue vs . Villegas 56 Phil . 554; Collector of Internal Revenue vs . Haygood 65 Phil . 520; Philippine Su�ar Estate Development Co . vs . Posadas 68 Phil . 216 and Juan de la Vina vs . El Gobierno de Filipinas , G. R. No . 42669, Janu ar y 29 , 1938. ) Under section 331 of the National Internal Revenue , Code, the period of limitation within which the Collec - tor of Internal Revenue may assess and c ollect by judi- cial action is fiv~ (5) years aft er the return was filed. However , in those cases where a false or fraudulent return was filed with intent to evade taxes, as we have found in the present case of petitioner , the period of limitation is ten (10) years after the discovery of the falsity or fraud as prescribed in section 332 (a) of the National Internal Revenue Code . 1V ith respect to the issue of prescription, therefore , the petitioner is governed by the last mentioned section of the National Internal Revenue Code and not section 331 thereof . FOR ALL THE FOREGOING CONSIDERATIONS , the decision appealed from is modified, and the petitioner is hereby ordered to pay to the respondent Collector of Internal Revenue, the sum of ~424,536.7~ as deficiency income tax

DECISION - C.I . A. CASE NO. 30 - 84 - and surcharge for the y' ears 1948, 1949, 1950 and 1951, more particularly itemized as follows: Assets admitted by 1945 parties ���������������������������� i1' 41 , 538. 50 .' Add assets established at trial: Funds hel d in trust by father , Li Chay Too ��������������������.�������� 143, 910 . 89 Net ~orth as of December 31, 1945 ���������������� �������� ��� �-185 , 449.39 Less Net Worth as of January 1, 1945: Assets admitted by Parties ������������ � 500. QO Add assets proven at trial Funds held in trust by father, Li Chay ~ Too. ............. 159 , 910. 89 160,410. 89 Increase in net worth � in 1945 ���������������������������� !! 25,038.50 Add non- deductible expenditures: Personal living and family expenses. Net income �������������������������� P Less personal exemptions ������������ Am~unt subject to tax o�� ��������� � � � Tax due thereon ��������.�����.��� �� � - (=-==-=-=== Less tax already paid ������������ ��� No deficiency tax due ��.�.����.�� ��. Assets admitted by both parties ����� � 148 , 326. 77 Add assets established at trial: Cash funds from loans ............. 90 .032. 43 Total assets ������������������������ � 238, ! 59.20 Liabilities established at trial ���� 100.000.00 Net worth as of December 31, 1946 ��� �138,359.20 ~ Less net worth as of Jan. 1, 1946 ��� 185,449.39 Decrease in net worth in 1946 ������� (� 47 , 090 .1~ ) Add non- deductible expenditures: Personal living & family expenses� � 3,500.00 Income tax paid in previous year �� 918 . 31 Net loss ............................ (F- 42 ,671.88) No deficiency tax due . 1947 ___Assets admitted by parties .���������� � 184,453.45 Add assets established at trial: Cash funds from loans ����� o� ��� ��� 78,036.52 Total Assets ���������������� _�������-. 262,489 . 97 Liabilities established at trial ��� o 100,000.00 Net worth as of December 31,1947 ���� . 162,489.97 Less net worth as of Jan. 1 , 1947 ��� 138, 359 . 20 ,/ II

� DECISION - C.T.A. CASE NO. 30 - 85 - Increase in net worth in 1947 ������ ~ 24,130.77 Add: non deductible expenditures: Personal, living and family expenses ����������������������� 3,500.00 Income tax paid in previous year �� 11393-.42 Net Income ������������������������� � 29,024.19 Less personal exemptions ����������� 3,500.00 � mount subject to tax �������������� � 25,524.19 Tax due thereon �������������������� � 3,795.32 Less tax already paid �������������� 10,055.78 No deficiency tax due �������������� ( ~ 6.260.46) Assets admitted by parties ��������� -176 '933. 76 Add assets established at trial: Cash funds from loans ������������ 50,384.93 Investments . in Tan Pee Cu Yek Chim &Co ������������������ 30 a CX)()�00 Total Assets ����������������������� ~257 ,318. 69 Less liabilities established at trial � � � � � � � � � � � � � � � � � � � � � � � � � l~,CX)(). 00 Net ,qorth as of December 31, 1948 �� �1 ,318. 69 Less net worth as of J an . 1, 1948 �� 1 62 ,1147819..29 7 Decrease in ne t w orth in 1948 ���� �� 5 8 ) Add non deductible expenditures: ( � Personal, living and family expenses �� . �������������������� 20, CX)(). 00 .,/ Income tax paid in previous year �� 11,394.55 Net Income ������������������������� � 26,223.27 Less personal exemptions ����������� 3,500.00 Amount subject to tax ��.����������� t! 22,723. 27 Tax due thereon �������������������� �- 3,179.11 Less tax already paid �������������� 700.34 Deficiency tax ��������������������� ~ 2,478.77 Add: 50% surcharge ����������������� 1,239.38 Total tax due �� . ������������������� � 3,718.15 Assets admitted by parties ��������� �435,405.83 Add assets established at trial: China Banking Corporation - Time Deposit ������������������� 60,CX)().OO Investment in Tan Pee Cu Yek Chim & Co ������������������ 30,000.00 Total Assets ����������������������� ~ 525,405. 83 Liabilities established at trial: ��� 163 J CX)(). 00 Net Worth as of December 31, 1949 �� 362,405.83 Less net worth as of Jan. 1, 1949 �� 157,318.69 Increase in net worth in 1949 ������ P:205 ,o87.14 ,Add non deductible � expenditures: Personal, living and family expenses ����������������������� 20,000.00 Income tax paid in previous year�� 700.34 Net Income �..�.......�...�.�.�.�... !C225 ' 787. 48 Less personal exemptions ����������� 3,()()().00

DECISION - C.I.A. CASE NO. 30 - 86 - T Net Income before -deduction of inheritance ����������������� ~ 222,287.48 Less inheritance ����������������� 72,392.91 Amount subject to tax ������������ � 149,894.57 Tax due thereon ������������������ ~ 47,137,82 , Less tax already paid............ 538,07 - Deficiency tax ������������������� ~ 46,599.75 Add: 5Q% surcharge............... ~====6=92=�3=81=29=999=�.=86=72 Total tax due ��.����������������� Assets admitted by parties ��� � ��� � 842,273.50 Add assets established at trial: Investments in Tan Pee Cu 30,000.00 Hek Chim & Co ���������������� Investments in FERIN through 170,000.00 others ����������������������� 11,500.00 Race Horses �������������������� Total Assets ��������������������� !11,053,773.50 Liabilities established at trial �� 445,500.00 Net worth as of Dec. 31, 19 50 ���� � 608, 273. 5o Less net worth as of January 1, 1950 ��������������� 362,405.83 Increase in net worth in 1950 � 245,867.67 Add: non deductible expenditures: Personal, living and family expenses � � � � � � � � � � � � � � � � � � � � � 20,000.00 Income tax paid in previous year ~~~~5~3~8~�~0~7 Net Income ����������������������� - ~ 266,405.74 Less personal exemptions......... 4,200.00 Amount subject to tax ������������ � 1262252,927075..7040/ Tax due thereon ������������������ � 3 1837.00 Less tax already paid............ 122,140.00 Deficiency tax ������������������� ~ 61,070.00 Add: 50% surcharge � � � � � � � � � � � �.� � � Total tax due �������������������� � 1831210.00 Assets admitted by parties ������� �-1,630 ,658.94 Add assets established at trial~ , . Investments in Tan Pee Cu Yek Chim & Co ���������������� Investments in FERIN through 30,000.00 others ...................... . 200,000.00 11,500,00 Race Horses ������������o������� To t al Assets ��������������������� � 1,872,158.94 Liabilities established at trial �� 1,040,500.00 Net worth as of Dec. 31, 1951 ���� � 831,658.94 Less net worth as of Jan. 1, 1951. 608,273.50 Incfease in net worth ������������ 3?: 223,385.44 Add: non deductible expenditures : Personal, living and family � expenses ���������� � ��.������� 20,000.00 Income t a x paid i n previous year 3,839.00 \

-- ' DECISION - C.I. A. CASE NO. 30 - 87 - r Net Inc ome .�. . ........... .. ..... . . � 247 , 222 . 44 Less personal exemptions ���� : ���� 4 1800. 00 Amount subject to tax ������������ ~ 242 . 422: 44 Tax due thereon �������� � ��������� ~ 114 , 777. 00 Less tax already paid ������������ 2 1971. 00 Deficiency tax �������� � ���������� � 111 , 806. 00 Add: 50% surcharge ����� � ����� � ��� 55 1903.00 Tot al tax due ............. . .... . . F �167 . 709 . 00 1945 Summary of Tax Due 1946 1947 none 1948 none 1949 none 1950 ~ 3 , 718 . 15 1951 69 , 899.62 183 , 210. 00 1671 709 . 00 Tot al tax due ����� �� ~ 424,536.77 With co sts against petitioner. SO ORDERED . Manila , Philippines 7 July 31 , 1956 . � WE CONCUE :.. ROMAN M. UMALI Associate Judg e