CTA Case No. 84 (Decision)

,I J E YULO, Petitioner, - versus � c.r�� c, se o. 84 J. T ~10 .ETA, es \CA.~~ Collectol' of Intemal Respond nt. ~\ ~ X � .., ... .. - � - - - � - X D�CISI O N The r spondent assess d gain the p tition- er the sum of 2,13 ,913. ar. defici ax for the years 194 , 1948, 19 , 1951 and 1952. lt is not cl ar fr d cision of rea ond nt the defici ncy asae nt for ach y r was arrived at . owe er, fr an ex mination of the ntire ecords it ap e ra that th deficiency as- s nt was bro ht about by ( t all ed f 11- ure of etitioner to r ort as pert of his ross inco n 1948 th s of 2 , 452, M6. � hich r - e n s, according to re&pondent , th f ir rk t val e of 2 , 4~2 . ~6 shares of toe c t Fin ncing Co oration of the hil1pn1n s received divi nd by petitioner fro t e Talis y-Sil y illing Co - p ny, Inc. ; (b) t 1 osition of th fr ud p n lty ( urch rge) for f i!ure of p tition r to in- clude in his 1nco tax r turn or 194 th all dividend inco e of 2,452 , 6. 00; nd (c} th di - ll nc y r ond nt cf v rious dcd ction 22

lSI - C. T . A. CASE NO. 84 ross inc - 2- claimed by petitioner in his r tum� for 1946, 1948, 1950, 19~1 and 1952. �, Having f�iled to secure � r conaideration of the decision of respondent, petitioner pealed to th1s Court. At the �� e time , petitioner sou ht to enjoin respondent fr coll ctin th defic1 ncy sess nt pending final determination of th case. y a resolution of this Court dat d F bruary 26, 195~, res o dent was enjoined fr enforcing col- lection of the assess ent by the s nia- trative rem iet upon th filing n rev l by this Co rt of sur ty bond for the unt of 2,1 .oo. A sur ty bond for aaid ount � duly fil d on ebru ry 2 , 195~ b p titioner, principal , and the Philippin hoenix Surety In- sur nee. Inc., as suroty , h1ch a a roved by this Court on th � date. Th re are thr princip 1 que tion involv d in t 1 ca e , to 1ts (I) ther or not p tition- er r ce1v~ a taxa divid nd in 194 n th s . co: leg lity of t 1 1- ti f the fra pen lty in connection wit peti- t! ner'a 1948 inc e t x r turn; nd (3 the 1 1- ity of various deductions f l'Oas inco el 1 by pet!tioner. 1th r ect to th f1 t q estion, it a e ra th t in 194 petiti ner w stoc bold r of the ~aliaey ilay lling Co., Inc., hereinafter ref rr d to ong the a5.eta ofT 11 y- Silay in 1948 ere 6, ,000 ah r s f t ck of the I 229

DE I ION - C.T.A. C SE NO. 64 Financing Corpor tion of th Philippines , herein� after referred to s �Financing� , with an aequi� sition coat of 1. CO per share. It also owned 21,988. 5 sha~ea of the Central zucarera del Danao. So eti e in Febru ry, 1948, the oard of Di- rectors of Taliaay il y , pur uant to a prior res- olution of its stockholders, authorized the distri- bution of its Finencing and D n abares. Th per- tinent portion of the said resolution states� �ta Junta acordo distribuir entre loa ecionistaa d esta Co ania en pro- porcion al num ro d acciones que cada uno posee, tal como ap rece en los 11~ bros de 1 Compania e! dia 1~ de! es de Enero de 1948, las 6 ,000,000 de ac- etones de la Financing Corporation of the hil1ppin s y las 21 , 988~ aecionea de la Central Azucarera del Danao y qu pert n cen en propiodad a esta Compania, debiendo hacerse dicha distribucion tal pronto co o se posible. (Exh. P of petitioner end Exb. 21 of respondentt page 351 , CTA records. ) s r gistered owner of 178, 269 snar of Talisay- Silay, petitioner received in reb, 1948 2,<4~2,54 Fin ncing shares which ere duly recorded in the boo s of th latter. The distribution of the 0 nao hares did not material!~� as they had been previous- ly pledged by Talis y 11 y end the resolution men- tioned above was accordingly repealed in regard to th Danao shares. en petitioner filed h~s 1948 !nco e tax re- turn on February 29, 19~2. he reported a ross in- eo e of 142,164. ~2 and deductions a ounting to Pl65 ,966. 34, resulting in los of 23 , 1. 8?. / The value of the 2 , 4!>2. ~46 Financing shares was not :J.30

c.r.. - 4- ncluded aa part f his inc . in th t ye�r� n the r turn w � fi~st exa in and a dited, the fol- 1 in deductions wer di1all ed~ 1. t:.nt rtai ent exp naea ---- 2. Cl d 1 ----~-~~~~-~--~- 3. ard'� �� aries ---------- Total --- ultin in h uction of etitioner'a loss in th t ye r f 1. 2 to 12, ~. 82, but non - th leas exe ineo tex. e 8$ eaked to p yi as c in extrajudieial settle ent of his n l ab111ty or f ilure to file hit r tuzn within the er p ea ribed y 1� - re-a it 0 petiti fter r .: a lnati n t dis- er'� 1 inco t x r t c vex-y oft r c 1 t by � i i n :r of 2,4~2. It in cing s ar "� respondent assessed ag inst pe i- tion r a deficiency inco x and for 1948 ounting t 1.911. 2. � c uted f 11 as - et losa per ir t 12, 4. 2 tio n i-d-~n-d~a-~e~c~e--v~-d-~r~-~-~ ddt t v Taliaay- Sil y . lling o. , Inc. in the f ~ of Pi - n nein Co oration of th ~hili pines ar �-�---- ..._.2:..a,;;~..&.Ji:,;;;x.::.= tic r einve tl �- ,440 , 1.11 duct� ersonal a i- ~ .:::;~ ;.;.~ .o&;;~ .~~5J~ '.&~I~ !t&o!~ l!!~ t in tionel ex tion ---- sub ct to t x ---- Tax auuerethher reon -------------� t Total t�x uxchar � �---�- .-a.WM~~.-� sh in t � for in c en, ret dent niaed tb lu of n nei ah r \ l. per � :re. l' 231 ------~--~---

ISI .. - ~- C. T � � CASE NO. 84 retiti ne~ asaails the le ality of tb ������- t of 1,911.562. for the ye z 194 not only b cause of t � incluaion of the fat~ market value of P1nenc1ng shares �� p rt of hia inc � in that year but lao cause of the diaallowance of hie claim for deduction of entertain ent � ensea, club duea and guard'a eal %1��� previously ntioned , in the total a unt of 11,747. 00. The propriety of the said deductions will ~ c naidered later~ � are concerned for the r sent solely with the tax- �bility of p tltione~ wit re ect to the Fin ncing sh r a received by hi � / lt is the vi of petitioner that it ia ot pr er to e nsider the valu f the 1 ncin � r s part of is inc in 194 because (a) 1 id h rea ere n t r ceiv d by him aa dividend but as 1 an; (b) ralisay. Silay as not in a osition t declare dividend in 194 s it had no earned s lus; {c) assu.ing t t the 1 tribution y Talis y- Silay of the Financing thares s dividend distxlbution, is tax liability ia 1 ited to the fair r � t val- u of th� Financing shar�� ~ rre onding to one-h lf of 1 , 2 Tali��Y- ilay shares. or ~ . 144 &harea, actually owned by i , t e rest b4ain owned by is broth~r-in-la , J. ad Aranetat nd (d) t � f lr rket value of Fin ncing 1hare1 in 1948 at tbe ti of the distribution � . ~ and net 1. 00 �� ap- prelsed by resnondent. t � ot er hand, r spon ent cla th t the diatr1 ution by T lisay- llay of it 232

lSI { - C. T. A. CA I � 84 - 6- in nc1ng a area ��� a dividend dietribu~icn and not a 1 n; th t Taliaay 1~ay had adeq te earned ur- pl at the ti of the d1atr1b tion; th t petiti ner w a the sole and xclu ive ner ol the J78,269 Tal1- ay-Silay shares nd the divid n eorr spondin to a id s ares w s axable to hi alone; nd that � fair ~rk t val � of the .1nancing a ea a c r- r ctly a raia d at 1. 00 �~ sh ~�� ect1on_29 -. f th a ional Intemal ev nue Code defines roaa in a inclv ing � ina, pr fits, nd ineo � der1 � � � � fr inter ats, r nts, � curitie , or t e tr naact1ons f ny buainea c rried o for g in or pr fit, o~ a1ns, profit , nd inc e derived f y s u.ree t.ver.� a div d , ccordin to S eticn~ e ns IDY d~t$ribut1on de by a corporati to its ar boldera out of ita t�rn!nas RE ntP(lti ecru d 1nce reh firet, nineteen undr d en thirte , nd ayabl to ita ah r holders, ether in ney or in other property.� divid nd y aid in t fo of tock of anoth r eorpor ti ich case t � ividend constitutes 1nc to t r cipi ta to the unt of the full � of uc at ek hen r ee1ved by in ividu 1 ocknol rs. (Sec. 1. v. e9s. o. 2, 39 .G. 325. } at ia the nat r of the distrl u ion de by the Talis y- ila of ita r of stock of Fi- naneing Corporation? � it 1v1Clend, 1 r urn of e ital , or a loan? To etltioner, 1t as lo n; to respondent, it � divid d distri t i � 3 /'.).,; .9)

- � Clearly , der the 1 , if the dis~~ibution waa de out of the � rnings or profits of T lisay 1lay ac- e ule ed !nee reh �1, 1913, it 1� � dividend , and erefore t xable ~o t e r cipientsJ otherwise, it ~ ould � � ere retuxn of ~apitel o~ � loan. dep nd~ ing n the eire tanc��� Let us in utre ether or not at the ti e of the d1st~1bution in 194 Talisay- 11 hod arnin t or profits ace 1 te since r eh 1, 1913. The rplua ect1 n of the ze 3l, 1947 l- ance Sheet of T�lia y- 11 y ( h. ) sb � the f 1- ingt U%plU8 rirsinog fro----h-y-~-i-c---l --p--- --- 3 , 2,3 3.01 pr 11 1 f th fixed asset - ~ , 347. 977.42 Tot 1 -------~~~-~~~-~~-~----~w.~~--~ oth parties d t that t � lu � ex o a� of th ace ulat ed earnin � O% rof1ta of T liaay- !lay as of r c :u, 1Q47. However, a id oun't s r \.AC to �� of r 31, 1947 by th t o earn l �� o dent's lysis of Earned ~ %J)lUI Ace t. Jhe e er 31 , 1947 tate ent of ceo ly one available jus~ f re ebruary , te F n ne1ng aharea ere di strib ted, 10 t t the 1- � rin in s id atat nt waa t e rned � lus at the t of t e distz1buti � there 1n n ch x ea or adjust nts effecte betwe the t dat��� ith re rd to t e � of e rs that the sa eonaiated f t it �� v1%J

- .84 - 8- prai 1 surplus--------- 2 ,926.~ . 91 ~r de age co nsation Torteaclei-v-a~b-l~e---~---~-~-~---~---------~� la!f24t4M�~ 4,34,977�� 2 Th rais.el su.rpl\Js of 2,926,~ � 91 was aurplua arising fro th pp:raiaal of salv ged fixed assets. In accord nee ith nerally ace t d ccounting principles, such an a rec1at1 is recorded y taking up the excess of the eppr is~ v lue er the bo val e of the assets. lthou the books of Talisay 1lay erron u ly s ed the ppr !tal a an adju t ent f totel 1 ted d reGia- t1on, still it e nno nte r ed, s u ed on � by r o d t, as n adju the rates of depreeiati se by ~ 11� y- ilay ere xees ive. Th refo �� t e ncre �� in val of the � lv d a ets e nn t be cla as a r~uct.ton of reci ti n, but n ~tu 1 inere �� in sound valu s p r rais l.~The surplus ri ing fr such p isal of reciated a sets is not c sid- er d part of the �earning o~ profits� out of hieh a dividend di tribution coul be � It is ell ttled t t in th ebsenc of a distributi - r alit a reci ti , ev n if reflected on t e boo s �J by reappraisal, is no dad to earnin s and profi � ( ntx 1 , Divid ds in and � The Thunderbolts and t e iew Leo , 10 Tex �� 41 ( v�� 1954) , citing La lle Iren rka v. u. �� 2~ � � 377; v. derscn, 11 F. Supp. 913. ) T e sec d it relatin to r d � c n- I'

D ISICft � C.T. � .. SE � 84 s tion r ceiv ble in th s of 1,421, . ~1 1� al- l d to b the difference bet e the total value f assets of T liaey-~ilay da a ed O% lo t du~ing tb l�st r nd tb� contin ent reserve set up fo~ waa- 1 ��� � Since the r � el w re edjud1... c ted only in 1949, it cannot be taken into acco t �� p rt of the s lu of Talis y il y cr 31, 1947 or at t � ti � of the d1str1 u 1 t Pin ncing share in Fe ru ry , 194 It is cl r, t refor , th t �� of Dac er 31, 1947, the e %nin s or r ita of lalisay- !lay vailable for d1strib tl aa divid was 2,395, titioner coot n � ev r, that Tali ay- 11 y d etu lly n 1 pr ita t th� ~ e ue �1 a ip out y t � declin in val of bout of the financin � d by the con- tin nt tax 11 bility in the s of It is all th t the i n ncing aharea, t t tt of d declin d ln v l to Talis y- lla hie cqui the res t 1. r a re. ccordin~ly, i t a ece ry t et a r serv of ~ . a inst SlUpl ip out e earn surplus of 2,395. 1 J t1- fie ti for sta lis in � c % serve � d reciated p rty ia to distrib t � on dis� tribution, the d cited :rty ill it th pr b ble losa ao that re ia n u ose in aetting u t r ��rv�� Th rule in such cas a la that the lo r x ented by the diff r ce 236

- lSI C.T�� E to. 84 - 10 ... the cost and the fat% rket valu of the dep~ecia ted asset given ay is not d~uetible in c uting e rninga or profits available for dividends~ (�trat av1n a nk of dMl v. umet. 53 F (2d) 919 .. ci ed in ubbard , cent DevelopMnts in Dividends in 1nd of preeiated end reeiated Prcperty, 12 YU Insti- tute on Feder 1 Taxation , 311.) s to the contingent tax liability of it pe xs that so et1 e in 1 t e ureau of Inter- nal evenue assessed a a!nat th T lisay !lay th said ount as inco tax on reasonable ace ule- tion of profits. Th � id assess nt w � still pend- in redeter !nation y the ureau in 194 at the ti o the distributi n of the 1n ne1ng sh re � It 1a alle ed that there w a als ed for stablia ing %e erv for � ch contingent tax liability, and th ini 1 of ll known practicing account nts n ve e n cited in s ort of this vi � find, h - ever, t t n such reserve h d ct lly b en st b- liahed 1n the books of T liaay- ilay. It s set in 1949 only as a bal nee h et focrt.no e by the a ditors, � Tul1 and Aasociat � o book entry as de for t 1 pending ������ t, ~he s avin b finally dropp s ti in 1953. agree 1th the opinion of the accounting fir. , t rt, Cun n n ny, t at �x x � 1 the assess nts h d not be n ade fin 1, owever. and s ood reasons ay have exi t d for b l i ev- inq the ����� ts eculd be succ ��- f lly contested � � ould not h ve con- sider d it essential to rovide � re- 237

.. � IS! - C.T.A. CASE O. 81 - 11 - aerve, s long as the asses ~ta were ~le rly sh on the lance sheet � contin ent 11abllities. (Exh. PPJ PP� 44~ . oran fer etitioner, July 27 , 19~. ) the qu stion, ther fore � wh ther or ot Talisay !lay h d earnin s or profits av 11 ble for distributiCJn as dividend in Febru ry � 194 , � are of the Opinion th t it had the a Wtt of 2,m. available for dividend dist~ibution. It 11, how- ev�z, �lleged that there was actually n dividend dis- tribution; that t e resoluti o th r of Di- rectors of Talisay ilay deliberately used t e te �distribute� and omitted the use of th� te~ �divi- dend� b caus its president, J . d aneta, al- re dy entertained rav dou hetb r T llsay-�11 y c ld decl re a divide c ntid r1n that e cor- poration h d no surplus, or th t, it it had, the su lus wa not dequ te to cov r the dletribution of the 6,000,000 Pinanein � r s; that a �b lance s eet a dit� h t be ord r tisa in s t - ber or tob r of 194 t dete in� the le ality of k n a dividend diatr1but1on; that fte:r su _ audit by th acco tin fi of Tulio Associat a, it waa e tablish that Tallsay.Silay could not le ally distribut e � dividend the 6,000,0 1- nancing &h rest nd that on rec nd tion of the auditors, adju t-.nta were de in the booka of Taliaay ilay �� t ke it ap~..r th t the di tribut1 w s a lo n t th st ckholders. de:r t se facta , it ia u ed th t the distribution 2 38

DE lSIC:. - C. T. A. C\.~E 0 - 12- t e Pin cing share� w � not dividend di&t~1b- ut1on b a lo n. In � ort of t a vi..� tne �"� pert opinions of f1ve aecount1 g fi 1 wore off�red in .-v1dene� to prove the 1 r riety of diat.rlbuting the 6 , Pinancin sh r as d1v1d � The fact r ins th t the ,OOQ,OOO Pinancinq snares were actually distribut pro rat� to the atockh lder. of T�lisay ilay in febru ry, 1 be� for tbe op1ni s of � ert �� � � ught. If. as �11 ed, the president of Talisay ~11 y alr dy oubt d the validity f ki div den distr1 � uti even before th rea lution authoriEing the distribution was p as d, the books of t a co or tion uld hav be ordered ud1t efo and not te~ t distribution. Th ub equent att~ t to tr ns- fozm th d st~1but1on into a 1 an to he atockholdet 1� n t worthy of consideration. t attent1 baa particul rly dr to the r solution of the of rector& of ialisay- 11 y at r 29, 19 � ieh re daa ereupon . upon tion uly ec:onded . it w r solved that a id Resolution to. 8 a roved by o~ of Di ctora a its tin eld n Fe - ~:uary 20, 194 , be as th s 1s r� ad revoked 1n s f x as the 21 , 9 . 5s.al:�esownedbyth C nyin t � Central earera del D n o are c - cerned. (Exh. � ) It ill b not � l t1o o. 8 w a ded and revoked nly with respect t t e n o �hares. so that it 1� obvious th�t the d1str1buti Fin ncin shares was ratified nd ccnfi � 239

- 13- 0 cours t G. uvc n ... t the l'ust doulJ .. as to the :JO'l ndt"Je tJ t:>f the orini<ms of th~ accou:'lting ex- perts pr se.nted ~>: .~-t; tion r ' th 9"' ~t to ..e 1 propriety of 1 y l1 �clu.rin ~ tiiv.: e 1 41str1 hutic~ cf ho 6 , ey aro \tl'l .incus !.n their o _nion tuot, o.s tl c e &.$ Th.i is ..;ound a.ccountin pri tt 1plc n<l :ts 1 :: oro nco :w1th the Corpor tion T,a s. � nfortuo tc1 t A tion 1 concern d ~ 0 � r ...n ....action hon u .n rr ct d and CC>m9l t d, it9 xu i l...ty 16 tormn "'Y . t has 11 one . nd t .a run in~ th tr s&et1 .n . Any t t} 1f'y tl'tr. ffec ts of' t:l trans ct n on llo..,t.-d ~'"� .a �. ~.hey r not inter d the >:J \.;uuld u v 1lln ~ .. 'that ""h tolib1ta ;h d str.5 bb- t1on by a cor o t or -� imp l r ...t c JJ:i t j r t "' , t!on specif1 d in th 1 . ~ ' itt J OY r, G lon s the di trlbt:ti o tin... ~:tn t . c a a t l .my proce ding t or t iou Law, for t x ut,po uc d1 tri u- tion uat o con :1 ppl1e bl t ut � Uncl 1 La~, in , profits, n i nc e ~~~~~~~~ squree w ~tever are t~xab e ( oec . 29, v nu Co e), 240 - ...

s �o. - 14- exe t those that an exrre sly ex ted by law. Tbil .eana t t even inc derived f 111 1 sources re x bl � It is , ther~for�� no d fenae to the taxability of th atockh lders of Tali&ay- S!lay that the distr ibution d by it of th� Fi� naneinCJ shazes w � 1n viol t ion of the Cozp :ration tma.'J Silay f ita Fina cing sh r s r aul the ~�- cetp by the Jt cknoldere of a tax ble dividtn , aeccrdin to p tit1oner his liabil ty is lim1ted to t tax on the v lue ef 1,033. 799. 05 1non~1n shares correepo din to 75,144 ar s of Telisay- ilay which he ae ually ed. Of the i7 .269 aha~ s of 1�liaay- ilay re ister d in the n of p titione � it is al- le d that 1 3 1 1~ shares er� owned by J . ~ do n �� The evidence lor pet1t ion�r tend t b h t J. do ran t owned 27.9 l Talisay- il y $ area. Later, he ac: uired an urcl s f;r Ces 1: t de , Inc. no leas them no re tha �r lis y ilay shar��� 150, 28 Talis y e11ay sh rea ere actu lly urcb d nder n gree ent ��n be Aren ta and p titioner hereby the latter uld hel p the fo~er secure the neces�ary f s with whic to urc �� id sh r �� It � th under- at ndi between the t that th puzch&ae of a ld h r � to e de as � �joint venture� betw e T p ove that there as j int ~ ntur 1tn re ect to th 1~ . 28 hares, evid nee a 24 1

cE. TC.IS�I .� r o. c~.""� p es nted to the eff�et th t r net p id the inter- f o th~ Ho on Sh n h i nkin Corp ration. ~~1le c pre ted by ti ione i n reg rd to the joint '"�r�hi of th 1 ~.2 Tali say- ~11 y hares i u!t s � y t on a c r ful con- ider ti n of 11 th� vidence ~� a re lth r ond- nt that he shar 1 ueati w r l olly d by etiti r. f ey e e I i ed to nd r ilt r in ia namtt y r 1 d d by him not only ith th Hon k n nd h nghai nkin? Co or tio b t al� ith the Phili ine ticn 1 ank: and t e Pi- nanc!n sh r d t liaay~Silay correspQnd- in to th entir har were ts u d in th na of p titio r. Th t th y ~ :re all ly regia- t r in th e one of p titio r sol ly t f clli- t te th q:r tin of th lo fro th ng eng and Sb n 1 nkin 0 tio d not oun vincin � Th re 1 n th r eire t.nc that rui~atea ainst b xi t ee f 4 �j int v ntur . * fa oint v nt'r s o d, h n co or ti n aa s- t bli hod. for inc - tax o e � j ct to tax rt fr~ th individu 1 in the joint v�nt �~ ction ti n� s ncl di cr o anized, join - tock co nies, joint account& (suent~! ~ p~�ti,ipo ,~on). esaoeiations or inaur nee e an es . bu do � not include duly register d n- e:r 1 'e rtn Nh1ps (somP�ftJaa s;QJeUj.vaa). der 2 42

-1 - this statu ory efi itio , t a n p r has1ng � � nta e n i er t ve stab- 11 h a p rtn sh1 .1 ( tc li n v. C llec:tor of Intern 1 v �� o�� 137 � ) ~ nt:: u- for h p rc of r l s .. tate for r t tl ~ by fo n ra p tb eanin of ~ c. 84 (b) i � j et o t e corporate !nco t x d r c (v 1 ta v. Coll ct :r l ven � G. � Mo. L-9996 , do a not appear t t . joint venture of p it~ � nd 1 rot r-i - fil ny inc tax return nor p i 1. c ta ~ � Th n, X cord , res in- fin t t tltion r d c � in 947, 1 � 19 9 1 ollowing interest p y t y 1 on cc lo ns 1ous b 1 (pp. 14 � 1 9, - cords � vi � d ction in hia inco t x returns for l 7 � 1 a, 1949 n 19 are p zoxi tely those which he id a come l eepGtake innings are n ex t ro in- t a~. 243

DECISIQJ ... C. T . � CASE t � - 17 - line of bout 2 , 000.000 at 6 r nn to the Hongkon nd ~ .n h 1 nkin Corpozation and la er t o the 11 N tional D nk. It f llo a that t dly p id, if t ey Ill, by j. I o Ar net as i \8... th nt r a on t lo n of t 11 d joint v t ur ' :r: cl � d ucti n fr n t by n t ut "i p n,i r tu $ of ra r cla an d. c 1 n fer. int r st d r1 g th 1949 to 19 � (Ext�� ~ to 52 � ) n\1 c!x t nc i obv.t ly not in k . in with h th ry f o nt � � of a ck of T l i y- il nb i- tio r � � ?ill cn t lu ...... r ctn s f by tition r - ~0 - ticn r cl pon nt' deficiency asae r 1 th f i r t v 1 1 di r, on � of ln1 d f�ir r � of 1. 00 , ted of th Phili in an 11cat1o of t r for t line th k n nd nln r ti k. re crt ~ t t

c0.rl�S�IOOc s� e � d t1 ion r, onl iulio � a ed h opini h~ the fa r r 1f h r shar � 1 r ent h 7~. , "in ncin � ld � r 1 GV coun't r of t * nil 0 E.x h n -~ h � ( 'Ch � r� tr in t! of � \ r s of T li Y- il y nd in nein � nd con id ration of he factors ti in rqu . ort, nriqu � c iat - d h vi th t th f r rr. tv �� ycip, G :rr , Vel yo 0; Co., ' � 624~ un n n Co., bout . 6St nd l in � Th rl. t lu foun by th roxi t ly 't bo k al f th r� in n l rts lf. er d n v!d nc by itic..~ r e c "not elo e our e) r tn Oft of expertt� � rquez 1 self, has be n 1 11 d o by on en , dmi t d th 245

- ... o. - 19 - the boo ~�1 e of Pin nc1nq ahar a 31, 1947 � ab t � 3. Tt t he fair r .t val � f � sharaa at 1. was p~ b- ably du r to is desire t acil tate t r nt of t, e hug lo�n f e plic nt th to reflect th correct nd rtial val tion o said ahar �� It ia of e on kn ledge t � n neial instit � tiona o n reat ir eli ta e ually. T e 111 !ne ti nal nk is n exc tion. ceo - ingly, investigator in r ~ to the r t val~ of n as& for p ses f d te 1n1ng 1t6 s ffici ncy as aetu%1ty for a lo "� alth u ad 1 bla in evid ce, is n t con- elusive in/ det o its v 1 or tax pU%pO as.( r � th x for , of the opin on, c n- iderin th for oing eire t nc s d 1n th b ence of tu 1 1 lea f s ld sh r n t fre rkat, th t th boo v ! of I � roxi taly tt f ir rk tv l t1 reo on th date of the distrib tion n Febru ry. l 4 , ic � lace at � 2.;) Sine faiz r t v l of � cb in e- in share on th date of distr1but1 as .62, the tot 1 f ir r et v lua f th hr � � fo nd ad ea i n o~ profit v :11- able for dlv nd dis i 1 � � h ve her e a ero th v 1 of t r erty dist.l'lbuted i in exe ss of th di t%1butin corpor tion� arning or profita. The rule in such c s ' 1� 246

- - . 84 ... .. t t tne 1 tri tion is a t x �1 d vid n if it do � n t xc the a of t e r~in ox profits in xc.es of th t nt a i ri ution ic r - stce � (Vol. I , duee the is f t � c rh r r , P- H Fede 1 T x (1955). of th 3 ,7 tri- te , 2, 39 to the t ck ol partial r t t l. iti er r ce v 2 , ~2 . rs ie ( 1 ipli , b � 2 pe ) v1 ,5 2. pe s 4� tc 11 y, -d n 2, .. s 1, a. 1 ti 1 r um f co t � t n t tati 1- tl r for l 4 i �� d t� by .11, ing a 1 t 1, J.n ate il y inat ) i- The n t ti of the fra iticn r for 1- 247

DECI Irn - o. 4 C.T�� CASE - 21- le edly filin � fraudulent inc 1948 is pr e:r. actio 72 of t � venue Code pr ides th t in ca � f ls or f turn is willfully made, the Collecto of In emal enu {n - miasion :r) &hall add o th t x �U%eh of the of � c t x. Th rule is ell & ttl osed et rn for 194 ith intent t f 1& r fr ul n de t x? The d 1 ion f r on his oint re d s fr th 1 io f th r nt ds, vizs fir t tition- er deli r t ly f 1led to r ort s �nc a the divi- � r eeived by 1 in 194 , r ferr1n t th tn ne- cing s e ; nd etitlon r deduct fr 1 . in 19 it not 11 ed y 1 � ( As t� t Unt ro , e cnly all tio i that etlti er delibera ly f 11 to rt � in- c . the in ncing sh res :r: c v by dend. N all tion . ha th t tl ilur � du any int ntio to 24

CISlO~ - C.T. � E ~o. 84 vad ~ ya t of the tax. ;raud penalty pro- vidod 1n "'ect_i n 72 of th evenue Code ean not � d solely th CJl." und th t peti- tlo."\ r d 11 rat ly f iled to ~� ol't th v lu f the Financing shares r ce1v~ by hi ae ivid~d. ile it may be true t ot a f1nd1n of fr d by t.b.eC u t1ve.... ly corr et, yet h t � t xpayer has ah s in thit c ae, th t th failure to r ort an inc i ue t n onost lief t t it is not t x 1 , it is inc n re dent to pr ve t. x1 tence of fraud. tly tat~ by the Supr.e Court1 ra d cannot be pres dt it t b lleg d nd pr v d� t lea t satis- factorily, if not ccnclusively by en ll es its xist nee. { Rod v. L lk. 4 hi~. 36; rroyo v. Gr n d Centeno� 18 11. 4&4. ) Th rul 1� fo-.m eel on public ollcy to guat'd ag the eculative t~ndenciea of t � n nd n ita readiness to ccept � fnct th ri s tnat pe 1 t th 1 agination.� ( il do v. ad , �� o. L-6397, u � 31, 1 5!). ) j that 1 failu%e to %e- tit oner ha� I port th� valu of th Fin neing s res r e ved by h waa due to nis 11 f t at it � s not t x bl � He has sto ly int in� t is vi fro the tim that the d flciency ass � ~ent s de. d this vi of etiti neJ" is supported by th ad lee nd opinions of five t � or ost aceountin ims of the country, na ly, Tullo & soei t tJ Enri� que Ca uiat As oci teal Syci , orrea � Velayo sociatest St tt , Cunanan C .; d Ple I. 1111 n. These accountin fi may h ve b en 249

- c. r � � � - 23 - at k 1n t eir vi s, u~ as n t been � t at h ir vi � e J.ni n d giv n t p titio er i id 0 1 to evade p t x. This Co~rt a eld t � ax ay fail t r rt - cause of n ho est lief t au~ inc n t�x b1�� t 1 1 f t � fr ia n pr er. ( ier ez v. C l l ec o of In ernal � c.T. � � , , � 31. 19 � ff 'd in � � � 1- 973 �n L-9771 . y 1. 1 ~7. ) ) d in er c s ber� � taxpayer fa 1 cl crt i t in i x retu � i it n t ie t ever. tne allegation tor the tlrst tlme that - 250

c�.rC�IS�I c �s � 84 - 24 - �x x x pet1t1 ner dovi d a way of ucin the tax cons qu nces rising fr his rec�ipt of tho s id shares by organizi M y, Inc. in 1Q50' t~ n fer. ing the said sharea to the corporation in th a ye r1 c using in 19~1 the fo - 1 de~laration s dividends of t he Fi- n ncing hares alrc dy !stri ute J e �- in the p ent of t � inco t on the fin nci g sh re r coived by hi in 1948 by y , Inc. end thts ere ting a f vor- �bl background for the excl slon of tle said Fin nc!ng � r a in his inco tax return f r 1949 which � � filed 1n 1~2.� ( ag 129, r�nd fer r s nd- ent, ug. , l9!W. ) end h s d this Co rt to di re rd th cozporate existone of y, Inc. Th o ni% tion of y, Inc., ecord:!.ng to re dent, having b eff ct d by pet t1on r to r it is evid nc of n int nti t nich justifi t im- it1 n of lty. e c nn t ace t the o dne s of th s proposi- tion. �� find es on~t haa taken an inc n 1 t nt stand en thia tt r. vf r. � pr ctice that h s gener 1- ly b n foll ureau of nt rn 1 {ov nue in ea corpor t1on or entity i consider d r ly of aneth r 1 to ply the ax p yn ts ad y th ha corpor t1on or entity to th d f1ci ncy a s s ent ainst th� taxp y r, it being derst od th t t d by th sh corpor t1 or nti y w in f et nd tn 1 deb} t t xpayer 1 self. (S � Liddell Co. , Inc. v. Coll ct r of Intern 1 av nue, BTA o. 1 � CJ� 11 , 19~5t Yutiv one H rd\'lal' Co. v. Collector of Int. R�v� , c. r �� � o. 64 , April 27, 1951.) In this cas the tax paid by I y, Inc. h not n ep- �' 251

.... .... .... lSI .. C. T. A. CASE t � -25- plied t t d�f1e1ency ����� nt g inat petition- er. n ndie tion that re p d t rec gnizes the se- ar te corpor~te exiatence of s id co oration.~ ay also add hat the law ree iz s the right of t ay at ed c t eir ta��� as long the h used or availed of oea not o yo d the bounds of 1 w. � of t s reco ized by la ereby t xpayers r duce t eir t x s 1a the org n1zat1on o per al lding c nie � (See t��� en C � ) Therefore, th t payer has endeavored to educe is t x � i it- self, standing a1on � not n indication fra d. e ot 11 dt in 1 osing h fz d p alty is t� t p itioner de- d cte ia n1 t all ed by 1 � � ond nt s not iq>oaed tn fra d pen lty XC t with p t to ettti ner�s anco fax re- turn or 19.4 � ! t1 a cl 1 ed titio - ia inc o the d - ed ia inco t x returns fo~ 19 � l9:Jl and 1952. yet r pon ent h no 1 �� t fr ud p nalty exc t, s lre dy at t d, 1 conn cticn wl p tition r� ret f I' 19 � If p titioner did not c t fr u fi1i 11 r - a for 19 , 1951 nd 1952. erein uc:tions a lax to t o � cl ��� no r �� for c ide%1n t 194 return fra - u1 nt on that r T e osition of p nalty ahou d not de to rest on flt sy grcun a. reud not h ving .n ta lished y r ond-

lSI .,.. C.T�� CA E O. 84 , � are of � pinion t � fraud p alty 1n this case cannot validly Justained. We ... eo e to t t ird ~ st1on - tb legal- ity of the uet1on elai.. b petitioner in is ... inc � tax ret rna fo~ 1948. 19 , 1951 en 1952. For convenience, the ed"et1ona in uaation y b classified aa follo sa I. Bu iness ex ���� 1. C.neral a in trative xp naes 8,119.78 (a) tana ent f , 19 ---- {b) Share 1n tneret ad- 3 ,292. 3 m1n1strat1v e en- 2. alaries���n�d1�� e-1a9~2 --------- 14,9 .10 (� eleries of uards, (b) Sa1l94r8y o1f9~r2iv-e--r-, �------- 2,4 .oo 3. Trax�pleinn1�g9�~�1-nd--e-n--te~~x~ta-~in~~-n--t---~ (a) Traveling e enses in oin to u. � in 19'1 -- (b) l!ntertain ent ae , 4. f(lee)eC1l9�b4pdl�ie1as9 ,, 1e-59tc24. --------�------�-� 1,6 .4 (( )) otaattiognee,rtye,le1p9h5o2n-e------- tel r h, 19~2 ------ II. Taxee 1. Penalty on real � te~e tax. 9~1 -~~-~~---------~-------- III. Loaatte 1. r d lo ���� 19 -�----- ~~.737. IV. d debts 1. T�n nta' r - accounts, 1 6 ---~--~-~----~---~~~---� ~5. 253

-5S J' � 84 .. 27 ... xpen are deductibl in c utin n t in- � The e ense� hich r ded etible re - ( c. v der t.b la t n � ens y eductible , th~ee c t b sa 15fied, t witt (l} tn e ut ordinary nd ec - 1 ry�; (2) it st be p id or dur1n t � t X bl yeara n (3) it � inc rr d in c ry.. ing n any trede o �� sin {C 1 ctor of Int. Rev. v. Phill in !on ,o. , Inc:., G. � � L� � y �l l �of der 1 I � e � tax tion, c. reqv!attes in � 7. ) J"in th e ce d to co aid r the dcd ction clai d by p titioner un er the eading- enses. � The fi%st it is t of ,119. 7 � It .. eara t at etltione i cwn cf H cie Cen- 1 b ng d ciend ra n � h {o er it at in Lagun 11nd the l t t r ter d into contr et itb tb C41nlWOJCmQ :r Es t , ne.. , alao bolly ned ~ petitioner , t of the two hac! ndes. de% t eontr et, lu g 2 5 <l

- 28 - Sug r E5tat � Inc. was to rec ive �� n g nt fee 7.5~ of the ~�� rece1 ta ~f he t h et�ndaa. H ever, 1n 1 , petition r paid to Canl b ng Sugar Estate, Inc. 1~% of the gro s receipts of th Haci - d abanlaq in the a unt of 1 ,239.~. t 1 t � foll 1ng ye r n adju t nt wae de reducing percent� to the original 7.~ d th difference w a cz d t d t th c pita! ceount of p titioner. (Ex � � ) esponden th deduc 1 of ne-half of 16,239. � or ,119.78� in ccordance with t e contract of na ~ t. I o~ber words. e-h lf of 16, 239. was disallowed bee use it � excessive d t refer not -ordinary nd n ce�� � ry.� Th d1 11 ance 11 la so t o be jueti� fied er ction 44 of he venue C e idh pro- vi ��� se nd o licat1 of cti 4 of � ve re e 1 in d n ~action 179 of 1 tion� J � 2, ch otes 255

cO.ErC�!S�l<!f .. � 84 - 29 - X 25 6

� - -... Th p f ...ecti n f th v nu C de is to give th C lle to of I ~ rn 1 (n 1ss1oneJ:) d t u h r1t t p � � nt 1 of t xe � itr ry :t 9 of pr 1 � , tio a 1 � x 1111 n r - e rdd sin ��� - ~ ts. Th C ti f t ir fectt i �� n g p id of equent re 1 1 - t of . etit1oner, r f th C nl n � tnc. 0 1o sly eo xr n c Th t to- t l ount f :I nco the nl te, I c. i n its return r 1 � e1 d ho\Jld be 11 t ut fr :lt .t co e in t � r t ul1 t 257

I -E � 84 c.r. .. 31 - 16 , 239. � t state re thet dedue- tions y n fr on ta r o y .Ulllo.ILLI.�~� Th n xt ite t � general d inis- ns 1 unt of refer� t t ye rly . de by Hacien ban- la and ci d C n 0 t h c nl b g Estate , Ine. a their $ ~ in he n ral � trative � 0 t 1 tt � o the ye r i � nde .. snl ri shou l d 258

Cl$1 C. T�� CAS! NO. 84 - 32 - J� d ny nee ssity f r s Pab n- l19 nd C nl b n s ring in t ner nist.ra- t1v e ens of C nlub g u r E t�te , Inc. in d- diti n to th� an ent fees under the contract 259

c . CT .I "l � O. 84 � CASE ... 33- of n t. Th � f 3~ .292.63 c nnot, th ~�- fr 1 r d es �ord na%y no n�e s ry OX� P n �� s id hac1 nd 1 nd ar no~ d etibl fr th ' 1 c � d in i of he vas d in nd t y ~ et1o 4 b � Code . ly iaall w el 1 c- tion t rAVJant r itr ry hifti f inc and ex ens a izati n 0\ ed or con rol d by the .] t l di l l d t d u.cti of lart a 1n tb ,7 � 1948 nd 1~1 � .r cti - Yt 1 or 1 1 in h a f T r ttl ne of 1 it cl T eial as e, re- � for u s� 1 1 r1ea ion, � 11 bein i t pt � the deduct1 ru 't p ., is elrea y aff ed to petit er'a ac aa enlub ng .r Estate. c. . o � rel i- nistxative expen ea x ar d by � iti n , an ~60

OECISI .. C.t.A. CAB � -34- y t e has disallow d at th & ti t c butiont of titionex to th S ger Estate. Inc. as his s ~r in it n ral n1stx tiv inc t e dia 11 nee of pet1tloner' s eral a n1strativ ena s of Cenlubang s~ a:r . tate, I c. has be n u t 1ned no :re son xista to juatify th dis 11 . e of the guerda� � 1 ries. T deeisi n of r a on t of e r 23, 19~ does not ~ k� any r fe ne� to th di 11 ane of the s 1 ry o etition r's iver fo~ h y r 19~1 in the sum of 2 . It is clei on e- lf f titioner that his ear waa � d by hi tn ~arryin on t an~ � nt and rati n of is dif� fer nt b sines int resta. t t fact th t � 1 e r s d in the oper tion nd n 0 - nt of is busine e i t�reats , but it cannot en1 t t a id c�r ls u d by 1 n is A fa 1y for purely e.rson 1 p o s. 11 1 c her c�r ia us d th for p rsonal nd for b i� n putposes. Considerin petitioner's v st busi- n 1 interests, � elieve th t two-thi � of h1s e na � for th intenance of th car y be e si- sin s e enaes nd ded ctible. bile o -third 1 non- ed ctibl raon 1 e en e. (S Coh n v. C asi ner, 1{.552. Therefor� of t a of dis �� as a businesa � ens nd person l e enae. 261

tClSI "� C. T�� C SB � 84 - ~- The next it f bu tnea e ns d i& 11 ed by r~� ondent t rtain... - Th fir :t Cl0\:.1\ involv � th tum T � facts �~ r unijtng th!s expend!� ture are tated by co�n l for p t! loner in their orand hich ouot t .. 262

cD.ErC.AI .l c- 4� 84 ~e - 36- fo ed or undertook in the unit tatea. In performin o~ undert ing auch buainess the taxpayer incurred n � nditure of 3l.<X � which ould not have be �oided.� (Pp. l -1 A, o~and for titi er. ) Th exp � re di allo on t grou d that �the trip b ino p rs nal in nature, aid a unt can- not be 11 aG deductic 1n 19~1.� clai a th t petitioner �did not undertak the tri abro1d f r bu ine � purpo but n th invitation of fo r P eaident uirino. / � egr ith ition r th t the rip of- fic:ial in t - n un l rt3ken in c loym nt a Ch 1 an of t PHIL- CU A. ch c , t tr v lin xp ns a re deductibl on y t th nt f t inco � d - riv fr ueh pen sea fr ota r ourcea. In this c � tted ru;at1 th t p titi �� did not r c 1 � ny n of th Pl fiLCU~ nor ur ont , .o.. r h1s tr 1 n ceo ingly, t � uc- tion of aid s prop rly dis ll authoriti co nsel or petition r re not in point. In t ea s ci d, t expen of t e cl nt-e ley es llg, � a deducti n fr the 1neo da~ived fx loym t in conn ttion with w ich the e s re 1ncu rred. (~ .l.R. G ner 1 Circu lo~ ~o. 479, ~ nu ry 7, 1941, hicn 263

c.CT.!1S1 .l c s�e t � e4 - 37 ... laine th trea nt of trav ling xp nsea nd per d1 nt loy es for inc � tex rurpoao ; ) P tition ~ deduct fro his gr se tneo in 194 the s of . 00 as t exp n c; in 19 uet1 s r d~s 1 i 1 52, 6 , 571.~. These on the foll ing 9rcund J - - t as tertain nt x- pense a e re d s not Ju tify d1 - 11 nc o th r ovided t r ie �videnc t �t � unt er et lly per ons ent rtal nd th n e ity o nt rtain- 1ng su~'l per� fort p tion or nh c of t1e b ~1neas o th ta ayer. possi ble to determi e th p eeit 264

-3 � t uty of thi$ Court to ke a dete 1r.at1on, if the .r sult rely n � yan C u Te nal Co., Inc.,v. Coll ctor of In er- nal ev � c.T._ � . 1 a, June ~. 1957. it1n Cohan v. sa1cn�r, ( � FT l 552. ) In t 1� case. no ' 0 j 1- fy eductl 111ty of t e cl 1 pen���� c 1 1 for p t tion r r ly r. a n- eral at t at t of p iti n r� ain��� �~t1v1t1ea 11 ~oc 1 n ivic n o account or any dot 11 iv n 1c:h e ay ba e an esti t f �tt a ount icb y 2 65 _ ~.3.) _j,

c00.r �IS�I .. 39- all ad �� de uction. Tn disall ance of th en. tire a un is, therefore , 1n oxde:..:. (S n iar.JO Gan... cayco v. C lleetor of lntemal v nu , c.T. � Not 287 , Nov. 14 , 19~7. ) � Th f 1 . 4. 6~ i� clai � ~ titio r � � deduetto fr his inco e 1 194 . Tti a.~t l legedly z: re nte club du () tl guio lf lub a othe clu � cas f t ... t ain nt. xp � no evid CQ prove the nee: ity of incurri op ote � Sin � in st 1 - etitio e � va 1 s stance& t re !& l~rg p xaon 1 el n in cl ers. p , ubstantial d nco is a p to tb 11 ') c: f clu a d due � le ex- rt a F d ral nco t x- - � p n �� ~ (V l. 0 est!on aticn, � ~.79.) Th c have pr 11 ed. of in JeD I cla I deduc inn f th s 0 � rr � for at t �on ry in 952, n th I f l, � 0 fo � est g � eleph nd t egr p! also in 19~2. Th s of 522. .... h � n di l l on � ground t aid 0 t :is alre dy lud in (petitioner�� re of tb 1 e r tiv .c expan ��� 0 (Exh. 1, p. ' 11 of our opi i n t case of which ��re als d1 all d by r 0 nt tl ea ground . � re of th inion that p titi n r is entitled to thia d duction. 266

ISlctf � l, � alleged� C.T� � CAS � 84 - ith ~apect to the � ly soent f z- poata �� tel phone n t le :::apl in 19~~ . t er is nothin in t � deciai n of reapond- ent of e t r23. 19~ aking r er nc: to t 1s ount. e tak� it that tb se � se; were dia 1- lowe roun as he � s a fo.r t e:ry. Th ref xoe � we ol th t pet tioner nti 1 to 5 d u 1 � T sum 2,475. ~9 cl 1 by petition� deduction 1n 1� i c e tax ret f % 1951 is inated as � l tate tax.� Counsel r p�titioner a� clud a a eduetiOft in the nc tax ret r of p titioner r he c lend r yea 1951 t r � xor or in dv rt nee nd itl out bad faith . etiti r deduct he a o t o ~5,737.3 for r 1 � in hio inc me tax return for 1 Ul'SU nt t ctio (d) of th which llowa deducti n of �1o s � ct� lly &usteined du.r- in th t xable y r a aurance o oth rwiae. � The GU.Stion 1n reg r to the uctlbilit y of war losses � alre y n finally 1 ttl by th court in It bas b� n held that a 1 1 s atain in 194 as !ted t t fez- the liber t1 o th ilippinea a not � c - o nsated or by in�~r�ne� t ithin t ean1n of ection (d) of c �� d, aust�!ned , tb ta ayer w a d inite- 267 ~33

1 D I'il .84 C.T � � - 41 - ly dvla d tha th Uhit d St te o ld not pay the a unt el 1 (Cu Unj:f.cno v. B. T. A. � <.;. R. f'o. L- 62 , s t. � 19 1 Hil o v. C 11 tot: of lnt.. � � Gl. o. L-9 e. ct. 1, 1 6. ) e �st diaputed ite i th s of 5, ~la d t d uction in 19-4 � � c:ti { ) (1) 0 th van e Co p ti a c- ti n of "d du to tho ta t:tually a c :r- tain to rthle.,s n ff 1ithin he taxable ye � ln ord r t at ucti y be v l dly cl i d, 1t is i (l) th t a v lid and subsis�� bt, nd {2) a t� et 1 y � rtl c of x bl y r. t thterti t ant o titl r tt r. 1he � accc nt 1 � in 19 5. 0 f r act lly ch er nly in 194 � t i uctibl 1n c:h ed off i1 in l ~ h agr is f in tb t y r, d ucti r r fits t x tet rn, tu in b1 inco t x r tu �� � shoul dl wh el 1 ed as 26

DECISIOO - C.T . A. CASE N � 84 - 42 ... that year. A taxp y r 1nay not defer ducti n to a l�ter y a of bad debt th orthlessne of which has en sc ~ained in a prior y ar. Th law does not p rmtt th c r ing off and the deduction of a bad debt in a ye r other then in th year it is as- ......._ c:ert i ned to be � orl les s .__J In res I , 8re of the opinion that � (1) The di tri ut1 n of Talisay-Sil y of it 6 ,000, 000 Fineocing 1h r s resulted in a dividend distribution, tax b a to the stockholders t thG extent of its earnings or profits , snd a partial dis- tribution of capita l to th extent th t th diatri� bution exceed such r�ings or pr fit; ~spondent(2) raud n t h ving been e t blish d by r - wit zap et to petition r�s 1948 inc tax r t urn , th osition of the fr~ d p n 1t y i not in order; nd (3) The i all a c by respondent of t d � ductions c1ai ~d by p titioner in his income r t r s for 1946 , 1948. 195<), 1951 and 19 2 i in ncccrd nc with iaw, exe pt wit respect to (a) g ~rds' sal- aries in the s t of lary cf p titi rt for 1952; ( ) t o r s of th driver for 1~1 in the s 1,6 . OOJ n (c) X� penses for st t!on ry, osta , tel h an t le- gr p in 19~2 �n the u of 522.3 n 1, � In line it the foregoing inion, �� find the petitioner liable for the pa nt of th s of 720,941. 92 as defiei ncy !nco � tax for t e y r 1946, 1948, 19 , 19~1 and 1952, itemized n co - �' 269

l l ISICN � �C. T�� CASE � 84 � 43 - put bel , inst ad of 2,13 , 1 . eo as dete in by respondent. et inco p r prior I udit ------- � 2� dt T nts� pre-war accounts diaallowed -~~~~-~~-~~~~~-~-~~~~- Nedt uicnet'om rs�-�n��1--e-x-e---t-io-�n------------------------- tet tx b--le~-~in~c-o~~-~--~-------~---~---~---~---~�-�~---~---~- Tax du Lesss ount previou ly p 1d �------��� O.fieiency tax due ----�--------------- d!t ----~----- ( 12, � 2 ) �1 R it ---------- 21~. 4.31 ,,737. ddl ,119.7 72,6~4. s1 udi -----�� 19 .~37. 36 -- . 00 31, ....... _... ___l _..._s...t.....t...... 2,4�7~.59 d � x- ,055. 82 fj. )4 ,19B, 52 270 u~

D ClSIO, .. o. 81t C. I . - 1.4 - Pe�rso� n�al� � � t; � � �� X ti �� le 1neom � � � � � � ��� �� � �� � �� � ount p aid piov1o~11 ey tax du � � � � � � 61, 93 . )6 116, 73 . 9 ��������� � pr viousl.y id �� d ������� . . . - . . . . - � � � � � � � � � . . . . . . . � � � � � � � � � ��� ��� � �� ~ 't 0 t l ��� In connection with th 1 itT ot tition r !or 19~1, it 1 0 noted t t 1n t � fore o1n& c yut ti tho o t t1on e y re p nd- nt been r ard. u 1 ue to h inc lu- aion 1 .et 1t on r'� 1ncom in said year or cap1- t l gAin der ived r 0 th sale or chan of 11 alls y- SilAY an rea 1 .s the capit 1 losa sust ained 1n 1& or exch n e of 1 e1n& �h r s . The 150, 28 lls y- 11 n rc ~r equir d >y p titioner at cost ot 1~ r ~r~ro, o tot 1 coat or 2, 1 , 0)2. 00. r c 1ved a part1a~ ret n ot cap1- ,. 2 71

c.CT.I ICW - o. 84 � SE - 4~ - hi r c ipt of 2, 2. Pi- n neing t f o th t t e ret p di Tali Y� Sil y h r e. S2 (1 541, 3. 11 }. T li y-'"'11 y ar s signed to ay , Inc. in 19 l fo~ 1 .oo p h r , h ri- gin 1 c.o t . er :y resu ting in c it 1 n of e. 82. ( ge , r � ) In t of t� 2 , 4 2,~46 z r- ceiv by tit ionex fr T lis y-Sil y in 19 8 , y, tnc. ah � t to titi n r of th a sh by s lting i n a c p- it 1 f . 12 ex alare, Th re- t or , th� net tax le c pi c;,f p tit on r d- 1ve the y, n � of t 1 ,2 T li in ncing h : s i ,194.08 ( of 0% 2 S , lll. 64 ). for ing d ci ion of il 1fi , n p ti 1 n r i h r - t y th a of ,94 � 92 .to: d ficien- ey inc , t x y r 19 , 1 a. 19 , 1951 19 � i in t p ition r . nil , J u\y- � l -