CTA Case No. 4117 (Decision)

YJ. REPUBLIC OF THE I~IILIPPI N ES COURT Olt' '1'1\X APPEALS QUEZON ClTY P I S O B AN K, F'f? t .i. t.i.one1r�, C.T . A. CASE NO. 4117 THE COMMI SSIONER OF INTERNAL REVENUE, )( - - - - Re spnnc' E!n t .. - -- - X D .K C I s This is i3n i::ippE:>.:~. l r� r.:!s;po nd e n t Cornrn.i ss!s.ic,ne ��� n �f In t r?l'� na 1 P~e> v enue' c;::. dE! C .i f:;.iu rl d P ny inq petitioner 's prote st against th e asse ssme nt of ta:-: �f or� .1. 97 4 E:l<:'i .:1: l E�ncl .irlf,J .invc?!:; Lol'.... Peti tion e 1�� i s dumt.-!~~ t.ic: cor� por� a t.i. on i:\nd incorporated in 1974 as an .i.nvestrn~nt h o u se. It L::; pro vided with a pr.i.vileqe tax t - E~ce�ipt as; ( .1. ) contractor ( 2) dealer i n sec uriti es and ( 3 ) as qua si-banking in s titution authorized hy the Ce ntral B.:~nk. During the p 8 riod from M8y up to December 1974 it was asc ertained and verified upon investigation th i::lt p!'�~ t .it. .i. on r:> ,r� p 1 c:\ c:Pd ti�lf..:' r:�q u.i.ty i t�. c.:~ stockho lders in money mark~t 243

DECI S ION - CTA CASE NO . 41 1 7 - 2- earned intere s t amounting to P2,866~129.95~ for which respondent assessed petition e r on Febru a ry amount of P257, 183.29 as fi xed and pe r cen tage t axe s for .l97 lJ.. t. h l'" l..l .:1 1 12 t t c;:> r� cl,;�,\ tr?d t'1a 1r �c:: f��, l ::~:, In i::l. fin ,:;~. l d c:c is :i.un di''lt.E!d r"iuqu<st l l , l9B 6, t h e~ pr-otr.:~<.:- t.. actually engaged in the bu s ines s as a .1. F' rlcl ir�,q i n vestor- subje:-:~ct to �fi :.:<=.>d dnd f:l <;? t"' C:f:?r..,t. ,::\ tlP t: a>~E~s of the Tax Cod e ). Tht: n Sf? c tion l94(U) ( rHJvl EiE�cl:.io n 1 ~T7 (U) ) o f the Tax Code d ef in es a lenrlinq inves tor as follows: 11 L r..;>rH�f .i.n ~:J .i n vE! :=;tol'" '' j.nc : lucler::; <'Ill per. so ns v1t1n mi::\k f.�? ;,~ p l' � ,:~r:: t.:i. c:P of l <=?ncl.inq money �fen � t hemSE'] VPS 0 r� 0-1::.h�-? I'" r,; c<.t inte l"es t.. 11 s h ort - ter m mon ey market placement s for wh ic h it 244

DECISION CTA CASE NO. 4 117 - 3- earned gross i n come f or th e 2nd~ q u arter- s~ of P 60 1. , 17 6 . :::;;9 , a nd P1~336~054.06, re s pecti v ely. Pet i tioner i n f act ad mitted that o n several occasi on i t placed in money tr�ansaction s f.�~qui ty its stockhold&~t-� s .::~s shn~~n in i t s l�7' ttt=..' l'" pr- ote~:;t d <:~ted March 1:.: . , .1.980. However~ i t denied that i t is e ngag ed in t h r:~ bu s ine s s as a lending investor in 1974 as i t ''rnf.�? t� �e l y invest F? cl i t3 'funds �for- a s hor- t per-iod o �f time in t h e mo ney m.:H�ket in or-der to rna:.:imi ZE! t hf:? r-e:�tL.t r-rl of i.b; idle funds. n o ' bus.inE? !=;s' of l t::> ndinq rno n E' Y with intr:.:>r�t=0st. ~<~hr::>n the money ma r-kE:?t pl a cF.? rn e nt s ~<~t?.rf: made. There wa ~; no h abitua l ity and cont inuity or a practice of l endin g mone y ,:~t interest." ( p. 5, Peti t.ioner' :; l"'e mo .. ) We t.)eliE'V[�? that p etitio ner- h<:~d ht=.- e:m h o":\b.it uall y a nd continuou s l y l ending money for l n te r es t in 1974 a n d he n cP , cou ld be con s idered a nd ta:.:ed as a lendin g investo r- . For� rwac: tic: 21. J 1 y the enti r-e per-iod of 1974, i t did h .:dJ.i'l:L.u:\l l y f2 nqagE~ it ~;e:? lf i.n t he busines s as a l e nding i nves tor c on s idering the numbeJ'" o �f ma r �k E?t placeme:�nts i t m<:\de i n 1c174 of ~'llhit:: h W o":\S " �for- the e n ti.n: pt=~t-iod beginnin g thr,? 245

- DECISION CTA CASE NO. 4 1 1 7 - 4- second quarter t h rough th e fourth quarter of 19 7 4~ I<?, U66, .1.'27. c:;::.i .in interF.:!st income." (p. 4, Respondent's Memo . ) Incl e f.? d ~ th e l E? ndir1q ac t: .ivi. t..i. ..,"''� of p c:� t i t .ionc:�?l'" t h .:m oc::c: "''~-~ .i.o na l . 11 ( p" r;:c?. s ponden t ' s Memo.) T h P c: '" s P ~; o �!' Mo 1 o v s � Y a t c o , 7 .1. F' h i 1 � 4 6 U ~ which h e ld thu s - "Wh E~ r- f.'.' .i. �l-. �::~ppe<:II'"S t.l'v:.1t C!!::'.... ........~:;_j,::.:. q~; _<:::_c3.~~-tf:?L'!.~::; i::l per�!:::,on <"'C:C? pt f? d mor.. t:gaqP!:; t .o guara n te e Jc) i:'~n s t .o b E~ m<:l ciP t .o d.i.f �fF.~ r�G~r . t pt~ r� sons <::1'1::. ,;~n i.nt:. t:;~n::?s t oi' .1. ::-.'% <':\nc:l g:;uc: h pF.~r~:., cm dOE')!::, not pr-ove t t:.h;:~ sue h t. r. "'' n s '"' c t .i. on~;; wP r-<?. m,;~dE~ ,;, cr.: i cI E-~ n t a l 1 y n r.. bec ause of c e rt Bin pe c uli ar c: .i. Y" C: ums t .::Oi n c f~!'; ,, i t:. c,:;.h o u 1 d l:::. r::� p r r:� c.:; u. m ~-::~ d t l'li.'l t.: h c .i n r. f." ,,:\1 .i. t y rn ,:;u :l E~ '" pI" .:u.:: l:.:.i.c. r�: rTf 1 E�' n c1 i. n q mon PY a L i.r�, t .f.:'~ I'" <~�~~ t , t.l�"ll..\ ~,; hc�c orn :i. n q a l e-;)n eli nq i r1 V ��?!oi t .or.. und E~ r. t he 1 .aw. (Und e r scori ng s uppli ed) is applic:.:~ble, and Siao Tiao Hong v s. C IR, e t a l . , CTA C,::~ c,;; f.~' 1\lo � .1./'~'i:'."�~ l'1<':� r-c h .1. '::, .1. (170~ :.1r.; :i.n point:: ''Fr.. om thr:~ abovf~ t.r� an~;act. :i. ons~ i t i s apparen t that petitioner c:cnti.nuously and habi tua J. l y <� ?n!;.}C:\(]f~d .i.n t h rc� hu c.::..i.nPss of J. end .ing m o nf.~Y with .i.n tel'- es~t to s r?YE'ra 1 entities a nd p ersons . The se lendin g t:r.. .::~n !5 .3C:: t ions ~'�J C�) r-f.-? not. .isol a t�:>< :1 c:: cl. SE?~;; bu.t thf:~y r �epi''G:! <:>t�m t a sr-:? 1- ies n �f 1 oo:\ns s howing hab .it1..1al.ity. " H .:~bi..t u r.~lity" in thE~ practice of commerce presupposes the r c7?pet.i. tion C.'\11d co n t.i.nua t.i.on n�f c: ornrnE? rr�c: i '"' 1 246

DECISION CTA CASE NO. 4117 ac: t s , in ~; L\ C: h rn ''" r1n r0 ,,.. th ."t�. t h (�::�y ''" t"' f:> r�e 1 atE�d to c ;;1c: h u t h r:~r� b y I'" C i:l ~::.,C\ 1"1 D �f thE' WHEREFORE, the deci s ion of t he Commissioner of Internal Revenue asses sing against petitioner the sum of P258,183.29 as defic i ency fixed and percentage ta x, plus in ter�est:, as a lending investor is hereby affirmed . With cost s a~Jainst petitioner� . SO ORDE T~t::D � Qu ezon Cit y , Metr o Ma nila , Ju n e 6, 1989. / JUDGE WE CONCUR: ~ ~~v AMANTE: ILI,EF PRES I DI G .JUDGF: 24 7

- DECISION - CTA CASE NO. 4117 - 6- C E: Ft. �r I F' I C A ".1." I <> N I thi~:- cl ec :.\.<::; :i.nn rea c h e d afte r due co n s u l t a t io n amo nq t h e m8 mb e r s of the Cntw t of T �"'- :-; (-"' p p e,::ll <::; .i.n <: lc:: c or-d,3. nc:: e ~>J .i t. h Se c: t.i. o n .1. ::~;, (~ r- t�. :.i c l E-~ VII I o"f t:. h r;~ Co n !:; t: i. t.u t .i.r) n . . </ 1_.-.;.,:t.(t, 'rt -,..--~..-.t~.~ L.1-- ....__/_[__'(:{ - // / AM AN'fK ILLim PREBIJ> 'NG JUDGE Court of Tax Appea ls