cta_decision CTA Case No. 141141 1956-12-29

CTA Case No. 141 (Decision)

1 llliFUBLIC OF TTm PHILIPPINES COURT OF lAX APPEALS MANILA IvlAJ.L'\ Be C.-�.3 Li.O , C. T.t .. C vr.! 1~0 . 141 Petitioner , - versus - THE "' LLE8TOR OF I~ TEPJ.~. L , espondent . x- - - - - - - - - - ~ - - x u .:: C I v I C i'< This is an appeal frrnn a decision of the res- pendent Collector of Internal Revenue assessing against g and demanding from , the petitioner 11aria B. Castro , the amount of:._":!�- , 593 , 9!:(J . 78 as war profits tax , in- elusive of surchar9e and interests , pursuant to the provisions of i. epublic .. .ct 1 ~0. 55 otherwise lcnown as ' the ".Jar frofits Tax Law11 � Petitioner i,,aria ri. Castro , who is authorized to manage her own property , is a duly lic ensed mer- chant. Pursuant to the provisions of Jection 4 (bJ and (c) of Republic, ct l~o. 55 , she filed with the Jureo.u of Internal .d.evenue on Fe.'Jruary 28 , 1947 , her war profits tax returns which showed a net worth on Fe.oruary 26 , 1945 in the amount of i 431 , 884.CO anc~ a net worth on Decemoer 8 , 1941 in the sur1 of i-409 , 581 .. 57., .t.lthouS:,h there is indicated an in- crease in net worth in the amount of &22, 302. 4 , she is totally exempted from payin� any war profits tax therefor as the deduction of six per centu.�1 ( 6,o) per r

.n. - DEc rs r m~ . C. T CnSE l\0 . 141 - 2- annu.1 of the ne t worth on Dec ember 8 1 1941 therefrom would show only a t a xable increase in net worth in the aoount of :5 , 574 .. 61 whic h is not taxable under the said law. Cn "~oven ber 22 , 1947 t however , Criminal Case iJo .. 49 76 was filed a9ainst her in the ....:ourt of Firs t Instanc e of Ltanila for violation of .3ec t ion 4 , in c onnec tion with 0e c tion 8 , of the .Jar Profits Ta x Law , for allegedly defrauding the aepublic of the Fhilip- pines in the t ot al a~ount of ~l , C48 , 687 ., 77 o The cri - minal ac tion was filed at the instanc e of respondent and s i multaneous with the filing of said action , the petitioner received for the first tbDe the notice of assessr, ent dated lJ0vea1ber 19 , 1947 by re;istered .aail from the Collect or of Int ernal l evenue o The said l et - ter of demand was based on t he eport of dupervising e xaminer Felipe L~uino ef ~he 3ureau of Internal ~evenue J \Nho ::(ecommended that the petitioner be assessed and mad e to pay t he sum of Pl ,048 , 68 7. 76 a s war prof its tax and surc har ge , compu t ed as f ollows: Increase i n net worth ooo� �a� ~ 885 , 69 4. 63 Cumu l at ive t a x on i ~0 ,,000 "o ~ 352 ,000 .. 00 90;~ ta x on i:-385 , 694 , 63 ...... .. . 347 2 125 .17 Tota l t ax oo � � �� oo � oooooo&oo ~ 699 , 125 . 17 Add :C;v surc har<;e ... ...... ., "., ... 349 2562 .. 59 Total amount due and � Petitioner throush c ounsel fi l ed a mot ion to quash the criminal action asainst her and durin; the pendency of t he sa:,1e , she amended on 0ec e.nber :d) , 1947 , her ori- ginal war profit s t ax returns makin; i t to appear that

I) DEC I S IO:: J J _ G. f., � ~!ov~ 1,C . 141 - 3- her true net worth on february 26 , 1945 was ~315 ,- 438 o 32 while her net worth on Dec e1nber 8 , 1941 was left unchan<.:Jed at ;;LJC9 , 581 ., 57 . n cc ording to the amended return , there was therefore a dec rease in net worth in the a~ount of ~94 , 143 . 25 instead of an increase of ~,22 , 302 . 43 as originally rep orted" Cn February 9 , 1948 , the ;action of petitioner to quash the infor;nation was denied by the Court of First Instance of Lanila o , t the scheduled heatinc;; of the c ase on the merits on March 7 , 1949 , the City fis cal of 1"anila manifested in open court that after a re- investis;ation of the case "the a aunt of the tax due and for which the accused siands charse for evad- ing pay,nent is only aoout f-700 ,OCO oCO , instead of ~l , 048 , 687 o 76 as stated in the information . 11 However , at the c ontinuation of the hearing of the case on Feb- ruary 22 , 19::.0 , ;;)upervising t:xarniner Felipe .1.quino of the Jureau of Internal ~evenue who testified for the prosecution , declared in answer to questions propounded by the City Fiscal "that as a result of a detailed re- investi~ation c ondu~ted by his offic e 1 it was found out that no war profits tax was due from the acc used in c on- nec tion with the present c ase o11 ,Jhereupon , City Fisc al /m<;eles Jnoved for the dismissal of the c ase . Finding the petition for dismissal to be w~ ll - taken , the Court of first Ins~cn c e of i..anila , in an Order dated February 22, 19:0 1 dismissed Criminal Case l;O o 4976 asainst pe- titionero 3~i

< ' '. 0ECI~IOu - �.:: . T.A � .::ds2 1~0 . 141 - 4- After the dismissal of the criminal case , another re-port was submitted by the same 3upervis.ins examiner Felipe quino to his superiors wherein he changed his previous stand taken before the Court of First Instance of banila , on the basis df which report another letter of demand for ~2 , 008 , 293 o 63 as war profits tax was issued against petitioner on January 24 , 19~o Jarely one month thereafter , another report was asain suoillitted by the same .:iupervising i::xaminer Felipe Hquino to his superiors , on the basis of which another letter of de- mand for war profits tax was issued by respondent against petitioner for the sum of ~2 , 229 , 976o94 or an increase of ;.221 , 683e3l over that assessment of January 24 , l9:xJe The case was again referred to the City ~.iscal ' s Office for another prosec ution based on the earlier demand but the same was again dropped. following insistent requests of petitioner for re - investi~ation of her case , the then vecretary of Finance Pio Pedrosa created a committee on ;-,.pril 11 , 1950 to review or re- examine the assessment for war profits tax issued against the petitioner . This c om- mittee , otherwise known as the Pedrosa Coramittee , was . chairmanne:i ,Jy htty � .;rteH1io l�� Lobrin of the Jureau of Internal He venue , with j,,e s srs o f,ielec io � � Domin~o and Roman h; . Urnali of the same off i c e , Vivenc io L. de Pe - ralta of the General ruditing Office and Jose P . Ale - jandro of the Office of the bolicitor General , as mem- bers.. hfter a thorough investisat ion of the case , the Pedrosa Committee on September 12 , 1950 , submitted its

DI;\,; I.:> I0r. - (; . T�'"�� Ch3E 1�~0 . 141 - 5 ... report , rec ommending the c ollec tion of the a;aount of i-"3 , 593 , 950 078 as war profits tax due from petitioner inc lusive of surc harge and interests , broken down as follows: � Taxable increase in net vvorth o � o o �� o �� o �� o o � o o �� {.:.1 , 762 , 203 . 95 ',,ar profits ta x due thereon ooooo� o�ooooo ooooo ~-1 ' 526 , 093 . 75 50,~ surc harge �� oo o�� oo. 763 ,046 ., 88 Total war profits tax and surc harge �� i-2 , 289 ' 140 . 63 343 , 371 ~ 09 l5i0 surc harge � � �� o. o�� l,o ulonthly interest thereon from ,,pril 1947 to Sept- emoer 2/J , 1950 ( 44o) � o. o. 961 t 439 o06 Total amount c ollectiole on 0eptember 30 , 1950 .. o o i- 3 ' 59 3 , 950 � 78 The findings and re commendations of the Pedrosa Commit- tee were forwarded to the F�resident of the Philippines for approval and on veptember 22 , 1950 , the �resident e.pprov~d the same in toto . J-\Cc ordingly , on .September 23 , l95C , the respondent � demanded from the petitioner i,iaria B, Castro the payment of the total amount of ;.-3 , 593 , 950 . 78 as war profits tax , ' ' co~puted in detail as follows: Ilet worth on February 26 , 1945 as per amended war profits tax returns ooooooooo ooo�� r 315 , 438 . 32 'dd: (a) Undeclared c ash on Feoruary 26 , 1945: t1S per this re - port �� ~ i-1 ' 871 . 542o 13 j.mount declared � o 64 ,097 . 52 1, 807 , 444 . 61 (o) Overdeclared ac- 106 ,000 . 00 c ount s payable: 30 ,000 . 00 As per amended return �� ~ 1->mount per this report � � �� Net worth on February 26 , 1945 oo ooooo o ooooooo eo ooooo o ooo oo ooo ~ 2.19 8 ,8 8 2.93

De I3 IOI\l - C. T.A. C: .SE NO . 141 - 6- Less: ~et 1orth on Decem- oar 8 , 1941: Net worth as per amended return oooooooo��o�� ft?:LJ09 , 581 . 57 Le~s: "ccounts payaole �� o o 43 , 547 . 22 {- 366 , 034 . 35 Increase in net worth as per this report .. . ....... oo��o��o�� ~1 , 832 , 848 . 58 Less: ~~ per annum on ~366 , 034o35 from Decenber 8 , 1941 to Feb- ruary 26 , 1945 oo ooo o oooo��oooo ooooo 70 ' 644 . 63 Taxable increase in net worth �o��o��o - 1 f 762 , X>3 o95 Jar profits tax due thereon: On�.. :O , OCO . OO {~6 , 000 exempt) X;~ :r.- 22 , 000 . OG On :::0 ,000 . 00 EIJ;u 30 ,000 .00 On 20C ,000 . 00 70;u ltJO ,ace .oo 0n a;c ,oco .oo 80;~ lEC , COO . OO n 500 ,000.00 90,o 450 ,000o00 On 762 . 203 . 95 95;o 724 ,093 . 75 ~!l ' 762 , 203 . 95 ~1 , 526 , 093 . 75 ::x:J;o sure harg e �� o � o � o . . . . . o � o �� o �� o �� 763 ,046. 88 Total war profits tax and X�;.o surcharge (carried forward) ��o��o�� i 2 1 289 1 14C o 63 15;o surcharge �� o �� o o. o . o �� o �� o. " . 343 , 371 .09 l;o 111onthly interest from April 1 , 1947 to .::iepte.aber 2/J , 19:0 ( 44->) �� ". " �� o 961 ,439 . 06 Total amount collectiole on .September 2/J , 1950 �� oo� �� ~3 , 593 , 9~ . 78 In order to enforce collection of this last mentioned . assessment of [-3 , 593 , 9~ . 78 , the respondent caused to oe advertised on Cctober 18 , 19:::0 , the sale at public auction on l~ovember 22 and 27 , 1950 , of various real properties of pet1tioner to satisfy the war profits tax assessed against her . The petitioner , in order to stop the scheduled sale at public auction , filed on Cctober 18 , 19:::0 , before the Court of First Instance� of J,.anila a petition for pr eli- oinary injunction (Civil Case No . 12356) asainst the Col - II I lector of Internal ~evenue , praying , among others , that an order be issued enjoining said official from procee d ~tif5J) with the collection by summary methods of the war pro - fits tax denanded . tver the objection of respo,ndent that the �ourt of First Instance had no jurisdiction

c DECI3I0h - C. T. s�~ . C. ...:) i ,(, . 141 - 7- to entertain the complaint nor to issue a writ of injunction , the said C6urt entered an Crder dated l~ovei!1ber 3 , 1950 declaring that it had authority to pro c ee.d with the case but denied the petition for preliminary injunc tion . Inasmuc h as no prelLninary \~ injunction was issued by the Court , respondent pro - ' c eeded with tl1e distraint and levy and sale of public II au ct ion of the properties of petitioner . These pro - perties , which are situated in the Cities of 1.:anila , Pasay , and Tagaytay and in the J>~unic ipalities of Ca - looc an and J.,akati , H.izal , and ,.one ada , 'farlac , and d.es c rioed �uOre particularly in ; xhiDits C , C- 1 , C- 2 , C - 3 , C- 4 and C- 5 of the petition for injunction filed vvi th this Court , were offered for sale on i"overa0er 22 ->---- -�-- and 27 , 19::0 as sc heduled , to answer for the war pro - fits tax liaoility of pet-ition-er to the ~lepublic of �the Philippines in the assessed su1n of 3.-'3 , 593 , 9Xo 78 , inclusive of surchar9es and interests from -pril 1 , 1947 to .3eptetl1ber 3C , 1950 . For lack of oidders on the scheduled dates of sale , the following properties (exc ept those in Ta - gaytay) with their correspondin~ assessed value , were forfeited to the GovernJent under Section 328 of the :,ational Internal _1.evenue Code: �\SSessed value i--233 , 4(:C .cc 3alintawak 521 , 390 .00 F'asay

D2CISI0l1J - C. T. A. C1sS2 hO . 141 - 8- L,akati 4 , 830oCO Tar lac Ta'Jaytay l2 , 520 . CO 62, 930 .00 In ~othe.r__s..a] e at~tion on .\pril 23 , 1954 1 the pr::?e:r_!_'i. of _p_etij:j,oner _ --~- in~ Caloocan , Rizal , \\ situated with an assessed value of ~4 , 990 . 00 , wa9 also offered 1 \ fo~ s�are- to ansvJer for her war profit tax liability . There being no bidder-s in this sale as in the previous sale , this last mentioned real property of petitioner was also forfeited to the Govern.nent . The petitioner has not exercised her right of legal redemption with respect to all these real properties with - - a total assessed value of ~�858 , 440 .CC which were sold at---�by--t-he public au c respo-ndent and forfeited :~n -favor tion - - - - ----~� -- ---�- -~- of the ~overn~ent for lack of bidderso Parenthetically , it ~ay be stated that the hearing of Civil Case ~o . 12356 oefore the Court of First Instance of kanila for freliminary Injunction was not continued to its final deterrnination by said Court as the .::>upreme Court in a de cision promulgated on Cctober 31 , 1951 de - clared the lower court without Jurisdiction to proceed with the trial . (Saturnine David Vo The Honorable di- meon Ramos and iHaria a. Castro , G. ::t. r,;o . L- 430C) . In the course of the summary methods employed iJy the respondent to enforce the collection of the war pro- fits tax liability of petitioner , the respondent also Gistrained and advertised for sale .the properties of the "�� J i..arvel 3uilding Corporation in whic h the petitioC.> ner had -- ,.._--

DcCiv IU1~ :.. c. T.... c..02 l~(;. lL 1 -9- a substantial interest. To counteract the illove , the said corporation through counsel filed on 1~ovember 31 , 195C, Civil Case iJo . 12555 in the Court of First In- stance of l>~anila wherein it sought to enjoin the res- pendent Collector of Internal Revenue from selling at public auction its various properties described in the complaint. \lhile the corporation was able to secure the injunction from the lower court, the sa,ne was dis - solved by the 0uprelile Court in its de cision in G� . � /I Lo . L- ::081 , I~1arvel Building Corporation v . :.:>atu rnino I David , promulga te d on February 24 , 1954 . Petitioner i"aria B. Castro was declared therein as the sole and exclusive owner of all the shares of stock of the r..arvel Juilding Corporation and all the other partners are her durnrnie s . In the meantime , petitioner filed on December 10 , ""-- - 1951 , Civil Case i;o . 15316 with the Court of First In- stance of-Lanila agains� t the respondent Collector of Internal .i.evenue for the recovery of the properties ad- vertised for sale on r:ovember 22 and 27 , 19~C whic h for lack of .uidders were forfeited to the Govern111ent . How- ever , before the c ase could be tried on the merits be- fore said court, the Court of Tax Appeals was created DY ~ epublic ;\ct lJo . 1125 and pursuant to vection 22 thereof , the record of the case was remanded for final disposition to this Courto This last mentioned case is now pendins hearing before this Courta .. At this juncture , it should be stated that again on Ge cember 22 , 1951 an additional war profits tax was

\' D2CI.)IC~ - C. T.1~�� CASE 1~0 . 141 - lC - a sessed against the petitioner in the sum of i 20 , 425o00 based allegedly on certain amounts receivable which pe - titioner received fro;:1 the ~>�asdalena 2state , Inc . Con- sequently , the total war profits tax liability of peti- tioner , exclusive of surcharge and interest , as found oy the ~edrosa Committee was increased to ~1 , 546 , 518 . 76 , itemized as follows: Tax due as per edrosa C~n- mittee oo �� oo ooo o ooo �� o ~1 , 526 , 093 . 75 , dditional war profits tax on account of undeclared a~ounts receivable fr~n the Ltac;dalena Estate , Inc �� o Total war profits tax ex- 20 , 425 . CO clusive of surcharge and interest �� oo o e o ooo o o o o �� ~1 , 546 , 518 . 75 To satisfy fully the a.:1ount of the war profits tax ( assessed ac;ainst petitionlr , the respor:dent on SepteJlber [ {r I 29 , 1954 , caused to be adivertised for sale at public / II auction for 1,ovemoe:r 2, 1954 , other real properties of petitioner situated in �..anilao These properties are aescrioed in detail in Appendix J of th~ petition for review filec vvith this .....:ou:rt . .-.ccording to the 11Amended t.otice of Sale 11 (. ppendix ,5 1 I etition for Review) , the properties were seized, distrained and levied upon fro~ petitioner 11 in satisfaction of internal revenue taxes and penalti~s amountinc; to ~4 , 639 , 556.26 , computed as of /'\pril 30 , 195411 due from her in favor of the Republic of the Philippine~. ior lack of bidders at the time of the scheduled sale on .:oved;.)er 2 , 1954 , the properties in question were forfeited to the Coverrunent under dec - tion 328 of the ,~ational Internal ::levenue Code for the total a~ount of ~3 , 547 , 892 . 41 which was allegedly the

DECI:i ICi'l - C. T.A . ~._.,t\3E ~~0. 141 - 11 - balanc e of petitioner's tax liability as of that date o 3efore the expiration of the qne - year period pro- vided for in .:.lection 328 of the 1Jational Internal .l.e- venue Code within which petitioner may redeem the real properties forfeited in favor of the Government in the sale at pu.olic auction held on lJovew:Oer 2 , 1954 , the petitioner filed wittl this Court on .jeptember X , 1955 , a petition for the annulu1ent of said sale and forfeiture on the ground that ner properties were advertised for sale on a tax claiQ of the ~overnment far in exc~ss of the alleged war profits tax , surcharges and penalties fixed by respondento .~spondent filed his oppoiition to the petition and after due hearing where evidence was adduced in support of the petition as well as opposi- tion thereto , this Court , in a resolution dated Cctober 31 , 1955 , declared the auction sale of �.;ovemver 2 , 1954 as well as the resulting forfeiture , null and void and of no legal force and effect because of the admitted discrepancy in the affiount of tax stated in the notice I [f (J of. sale for vvhich the properties 'Here auctioned and the i actual amount of tax assessee: and de11anded . The said resolution De ins v.Ji thout prejudice to such action and proceedings as respondent ;nay take in accordance with law , respondent demandeC: fro.:1 petitioner the amount of [3 , 594 , 801 . 51 not later than .:ovemjer 10 , 1955 or he would again proceed with the resale of her properties on Dece.nber 12 , 1955 . To stop the sale , pe - titioner filed a petition for injunction with this Court - - _...,_,

o;::c I.3 IOii - C. T. A. C,-,uE 1:C . 141 - 12 - on uove,1mer 22 , 1';}55 requesting that respondent De en- joined frorn proceeding with the resale of her properties scheduled on 0ecember 12, 1955; that the said properties 0e released to her; and that she be declared not liaDle for the war profits tax assessed and cl.e.nanded of her . After due hearing of this petition and the opposition thereto , th~.s Court , in a resolution dated December lC , 1955 , denied the injunction and held in abeyance the deter.nination of the other questions until after the case shall have ~Jeen heard on the rnerit s . The propertie's vJere therefore advertised for sale on December 12, 1955 to ansvJoer for a vJar profits tax liability of petitioner to the .i.epu.olic of the Fhilippines for the alleged amount of ~3 , 594 , 801.51 computed as of that date . For lack of Did- ders , the sa~e were forfeited to the ~overrunent. These properties and the arnounts for which they were forfeited are as follows: 1.-Juinaldo Building � o � � o . .. . . . o. ~2 , 026 , 517 . 10 ��lise u.Co .. iJuildin~ �� o �� 670 , 291 . 47 Zo~el ,,_ansion .. . . . o. o o o �� o . o �� 408 , 5Cl . 24 3helloorno Hotel �� 489 , 491 . 70 T"otal o �� o � � �� o. o eo o o o o � �� ft-3 , 594 , 801.51 �� dd: Prior forfeitures �� 858 , 44C . CO :._1 , 453.241 . 51 Thi s is the oackground of this case before it was actually tried on the merits by this Court. Before pro- ceeding any further , it should also oe stated that after Civil Case l~o . 15316 of the Court of First Instance of L,anila entitled "Laria D. Castro v . :3aturnino JJavid" , was reu1anded to this ~Court and while the sar11e was pending hear- ing before it , the petitioner requested for an indefinite

.0..iCI .... I<..., - ~ a �r. "lt � ~~.vE J.� � 141 - 13 - t pos~,pone~en-t orr ~1 n1 e n, ear1� ns on ~1,ne srouna, ~� n1 a respon - dent sranted her request for re - investi_ation ~eforc the Conferenc e ...itaff of tLe Jureau of :nternal :1evenuc to \Jhi c h t:1is Court a':::!reeci. ,oelievins tnat ti1e taxpayer shoulc ~e ;iven the opportunity to exhaust all possiole adrninistrati ve rc.nedies oe~ ore c o.1in~:;J to this Court o � Eovvever , while the c ase was bein9 heard .Jefore the Con- .feren c e ~teff of the JUreau of r~ternal . evenue , the ~resident of the ?hili~pines instru c teG respondent , throwjh the ..:>ec retary of .~.::-:_nance , t o desis t fro,a takin; further a c tion on t!1e .12 tter and let tl:e Courts dec:�i de the c ase on its ~erits . Followin~ the dire c tive of the l resident , the respondent on ...ay 5 , 1955 instructec..: his ...;onferenc e ...>taff not to proc eed w5.th the !1ea:::in"' and final d e t e~mination of the c ase ~ut instead just r~ite - rateo his previOUS assessment c.:_ainst , anc de.aanc.: :fro,;~ , the petitioner in tl"E total a.1ount of C' 1 , 546 , ol8 . 75 exc lusive of penalty , sur c har;::.e arrl 5.nterest . ?indin; all possible admini~t:::ative avenues closed t o her , th e pet i tioner i nt er posed t he pres ent appeal . After pr esentinJ part of her evidenc e before this Court in support of her petition f~r review , the peti- tioner with the c onfoDnity of respondent a;reed on the following fa cts: "1. That the basis of the assessu1ent , levy , ~sale and forfeiture of the p~ope:::ti:s of the petitio1er is the report of the l2 ec.:ro~a C:o1.li1ittee and the additional a,..ount of ;.~a:. � 425 . C(. orisinall y 0.e�nanded in respon - dent t s letter to petitioner dated 0ec e.:1ber 22 , 1 951 , 1:1:1ic h are c onsolidated oy the let - .< ter of tl1e respondent to the c ounsel of the

- 14 - petitioner , dateo. l';ove.n;Jer 7 ,. 1955 , a c opy of which is al ready attached to the rec ords of this c ase ( ~ee 2 ~ :1 . n - 2 of vupple.nenta1 Petition ior Injunction and other . e.nedies , dated 1:ove��1ber 22 , 1955; ..J-.:;e also letter of a "rueIsporencdoenrat,s, da t e d~, ~r:,'v..-..".e c ei.~ber 22 , lSJSl , v'o1 . I p . .J. 1 11 2 . ':Ch at tlw fol1ovri.ns r ce .1s appearin; 5.n t'1e ~ edrosa Co..1.,1ittee J.eport are ac~..1itted 0y tn~ pa!t ies as c orrect . Cash on hand , Jec. ~ , 434 , 322. 33 1946 ( vee ~ c hedu1e 1 ~ �� i 9 , 909 o89 CasJ1 in !Janl<: - China Corpor a t i on , uec. 31 , 1946 �� .l.cid: L�iS1Jurse.nent durin-; years 1946 and 1~45: Purc 'i1ases � & o � o u o o � � � o � n � � � 2 ' 2C. 2 , ) )1 . :X: 8eposits on purchases �� 55 1 3(_r(� � t)6 Jusiness dxpenses ( see c 1Cl , 317 . 34 . rL') L, , 4(C . ��o��o�o o��o � o V C .l1 e C~ , C.,;7G .. 9C 12 ,0CC . CC Jond 0e~osit � �� e �� Inve s t r.1ent in . .� J . 6, 335. 82 Castro , Inc. ��e�� F efuncl to c u sto..1e r s �� : ny.Hent of .dxp,mses of 1-. o J . Castro 11 In c . . . . . Purc hases � 0 � � � � 9 � 0 0 � � � � � � � ~::3 , 238 . 37 uUSilleSS ~Xpenses ~ee ~ , 2P l. 39 ~ l C ,OOC . CO � r") ..., 53 , 729 . 47 v Cll o v } �� 16 , iJ0. 52 ;0rc hase of Cadillac c ar �� Inve st..1ent in Cine J...i.oe r ty . Invest..1ent in Cine vi c tory . 0e~u c t: ~e c eipts d~rin; the years 1946 and 1945: ae c eiveQ from ~itt on �� 7 , 3)1. 95 Invest ment of purchases �� 1 , 396. 26 � e c eiv ed f r ~n Cine Li0er t y . ur<lVJin; �\CC ount vv/ Cine 30 ' 5(;(! � cc Victory � �� ~ �� 4 , 2Ll.C . C4 Ae c eiVCQ frow Cine vi c tor y . 2, 888 . 97 ] .ental s fro:n U . 0 � .nr.ay �� 13 , 3C 7 .. co :�ent In C011e o<><>oooooou<>o<>�Q 5 , 2((. .oc Cus�t. omers ' Depo s its �� o �� ., .le c Gived fro111 , .� 0 .. 12 ,CCC . CC ..:;<'lst:ro , :T: nc ��

�' - '13 - ..mount received fro.n 24 , 0CO . CO Tomas de Vesa � �� r 3 , 4C6 .'c 6 .Ora.vvin';; account w/vine 2 1 536. 91 5 ,000.GC Victory �� o o o o & oo oo o oo � J... l�Vl� a1enas �� :-tent inc o.ne e � � � � � � � � 0 �� 0 ... "~. That the petitioner auestions the follmyin; ite.�1s appearin"" in t"hc :i:-cdrosa .:{e - port as shown in her co.HpC'lrc: tive , .nalysis of .leceipts and rei..murse�.lents , markea as J.p - pendix ;, and li1ade a part of this stipulation~ ,Jithorawals �� " .... :;;- 0::. , 996 . 12 Juoscriptions paid to the ...arvel .Juilding Corporation �� l , 025 , 0CO . OO .r 1946 2 ,014 , 9C5.63 :Sales 0. 0 Q � � �� 0. 0 �� 11 4 . Tl1at in relation to the contested items~ appearing in par . 3 and ,�.ppendix �' , petit�ioner sub.nits that she has presented evidence , .ooti1 oral and docLuentary , to ti1e effect that (aJ ~here were pay~ents of loans and advances in 1945 to Vicente ....:o Chien an0. Cu YeK C 1ing in the an1.ounts of ::..-120 , 000 . 00 and ::.-4 , :(.0 . 00 , respectively; that (b) there were unaeclared sales in the a,nount of ~-cC5 , lG2. 68 and unde cl ared receipts in the a1.1ount of ~132 , 545 .73 in 1946; that CJ in 1945 there were undeclared sales on the 1:adec o clothes in the aH1ount of ~>151 , CC'0.00 and on local ~o o~s in the aJount of ~188 , 344 . 32; and that (0.) there were loans and advances from various persons in the amount of i-334 , ::DC.C{.~ in 1945 , but respondent contests the merits of such evidence . "5. That the parties aJree that the ac - ce ptauce oy the petitioner of srnne of the items of th~ Pedrosa ~eport as set forth in the first paragraph hereof does not consti- tute an admission that she is 1iai:)le for any .~ar Profits Tax or that she l1as on hand as of feoruary 26 , 1945 , any amount suoject to .Jar 1:-rofits Tax., 11

DECISION- C, T. A. CASE NO . 141 -16 - APPENDIX ttA11 COMPARATIVE ANALYSIS OF RECEIPTS AND DISBURSEMENTS Per Pedrosa Adjustments Per Evidence Report On Record Cash on Hand, Dec. 31, p 434, 822.33 p 434, 822. 33 1946 (Schedule I) 9, 809. 89 9, 809. 89 Cash in Bank- China 2, 202, 961. 50 (60, 996. 12) (A) 2, 202, 961. 50 Banking Corporation 55, 300. 66 55,300. 66 101, 817. 84 101, 817. 84 Dec. 31, 1946 4, 400. 00 . 4, 400.0" 60, 996.12 Di�bursements 85, 078. 90 85 , C178. 90 f'or 1946 1, 025, 000. 00 (525 , 000. 00) (B) 500, ooo. oo Purchases 12, ooo. oo 12, ooo. oo Deposits on purchases Business expenses 6, ,222.82 6,.~ 2J~ 1 82 Bond deposit Uithdravrals flo) . 998' 523,_02. fl') , 412, 526. 9!t Investnent in 11. B. ' Castro, Inc. Subscriptions paid to Marvel Bldg. Corp. Refund to cust01ners Payment for expenses of' ~4B . Castro, Inc. Disbursements for 1%5 Purchases ~ 553, 238. 37 p: 553, 238. 37 30, 281. 39 30, 281.39 Business expenses 1o, ooo. oo 1o, ooo. oo 53, 729. 47 53, 729. 47 Purchase of' Cad&llac Car 16, 936. 52 16 , 936.~2 Inve stment in Cine Liberty Inve stment in Cine Victory P~ents of ang P12o, ooo.oo (C) 12o, ooo. oo 4, 500.00 (D) Advances iu 5001 00 Vicente L. Co Chien p: 66ll:1 18~ 1 25 flo :Z88 , 685 . :Z~ Cu Yek Ching !!4& 662 , 708. ~ 1=4, 201, 212. 69 TOTAL DISBURSE- lVENTS Receipts f'or P21 014, 905 o63 6051 182. 68 (E) �21 620, 088. 31 7, 391. 95 7, 391. 95 ~ 1, 396.26 1, 396. 26 30, 500. 00 30, 500. 00 Sales Received fro~ Litton Adjustment of purchase Received from Cine Liberty

DECISION - C. T.A. CASE NOe 141 - 17- Drawing Accounts with 4, 240.04 f< 4, 240. 04 Cine Victory 2, 883. 97 2, 883. 97 Received from Cine 13, 307. 00 13, 307. 00 5, 200. 00 Victory 5, 200. 00 12, ooo. oo 12, ooo.oo Rentals from u. s. Arr1ry 6, 335.82 6, 335. 82 Rent Income Customer ' s deposits 132, 545. 73 (F) 132, 545. 73 Received from M. B. Castro, Inc. Receipts not taken up (Schedule) Undeclared Sales P2, 098, 160. 67 f<2, 835, 889.08 Rece~ts for f" 658, 063. 04 151, 600. 00 (G) . j 12lt.2 24, 000. 00 188, 844. 32 (H) ~ 998, 507.36 3, 406. 06 Salos 2, 536. 91 24, 000. 00 5, 000. 00 Amount received from 3, 406.06 Tomas de Vera 2, 536. 91 Drawing account with 5, 000. 00 Cine Victory 334. 500. 00 Dividends Rent income Loans and Advances fron various Persons (Schedule) p 693, 006. 01 Pl, 367, 950. 33 TOTAL RECEIPTS fl=2, 791, 166.68 F:4, 203, 839. 41 NOTE: (A) Withdrawals of Mrs. Maria B. Castro from her own busL~ess ~ 60, 996. 12 .. (B) Disbursements for 1947 on the Marvel Building Corporation 525 , 000. 00 (C) Loan paid to Mr. Vicente L. Co Chien �120, 000.00 (D) Loan paid to Mr. Cu Yek Ching 4, 500. 00 (E) Undeclared Sales for 1946 (See Exhibit ) 605 , 182. 68 (F) Receipts not taken up but considered as such in Sche- dule I (Pedrosa Report) 132, 545.73 (G) Undeclared Sa1es on NDC clothes (See Exhibit ) 151, 600.00 ,�r/ ''I

( I .. I .. DECISION - CaT.A. CASE NO. 141 - 18- (H) Undeclared sales on local goods (See Exhibit ) �' 188,844� .32 (I) loans and advances from various persons (See Exhibit ) 3J4,500,00 TOTAL P2,12.3,168.85 . e shall first dispose of the fundamental question re':Jardins the constitutionality of Republic ..ct �. o . 55 , otherwise known as the � ar ~refits lax Law: In her pe - titian for�review filed with this Court , the petitioner avers that there could not have been a valid assessment against her for war profits tax under :i.epu0lic �.c t i~o o 55 ne c ause the said law is void and unconstitutional; .Jhile the petitioner has apparently abandoned this claim , havins failed not only to support this contention but to include and dis cuss it as one of the issues in her ex- tensive and well- prepared u1e:noranda , we deem it nec essary for the sake of clarification to resolve this fundamen- tal question oefore delving into the factual issues. fter this c ase was submitted to us for de c ision , the Juprer11e Court in GaR. i,Jo o L- 9141 entitled "Testate ~state of 01Lnpio Fernandez , de c eased , .epubli~ of the Philippines , Claimant~ ~ ppellee v . � Angelina Oasan Vda . de iernandez , Priscilla C. rernandez , and 2stela Fernandez , Oppositors -�- ppellants , 11 proiaulsated .::ieptern- ber 25 , 1956 , has sus t ained and u~held the c onstitu - tionality of � epu0lic J-.ct :.o . 55 , a question whic h was squarely presented before it o The Supreme Court ruled that the law in question is D.Q.i harsh and oppressive but on the c ontrary wide and just o The philosophy behind

0ECI.3I0h - C. T. � Gt St !~0 . 141 - 19 - the enactment of _ epublic /.ct i~o . 55 , was explaine~ oy the Jupre~e Court thus: "fhe last ~acific war and the Japanese occup?tion of the Islands have wrousht di- ver~ent effects upon the different sectors of the population . The quiet and the timid , who were afraid to go out of their homes or who refused to have any dealings with the enemy , stopped from exercising their callings or professions , losins their incrnnes; and they supported thanselves with properties they already owned , selling these from time to til. e to raise funds with \Jhich to purchase their daily needs . These were reduced to penury and want. Jut the cold and the daring , as well as those who were callous to the cri- ticism of oeins collaborator~ , engaged in tradin9 in all forms or sorts of commodities , from foodstuffs to war materials , earning.fa- bulous incomes and acquiring properties with their earnin~s . Those who were able to re - tain their properties founti themselves pos- sessed of increased wealth because inflation set in , tne currency dropped in value and properties soared in prices . It would have 0een unrealistic for the legislature to have i0nored all these facts and circu,nstances . /',fter the \Ja:c it could not , vJith justice to all concerned , apportion tne expenses of gov- ernment equally on all people irrespective of ti1e vicissitudes of war , equally on those who had their properties deciraated as on those who had oec~ne fabulously rich after the war . Those who were fortunate to increase their wealth during the troublous period of the war were made to contribute a portion of their newly- acquired vvealth for the maintenance of the sovernment anti defray its expenses . Those \Jho in turn vvere reduced to penury or whose incrnnes suffered reductions coula not oe com- pelled to share in the expenses to the same extent as those who ~rew rich . This in ef - fect is what the legislature did when it en- acted the .iar Profits Tax Law. T;1e law H1ay not oe considered harsh and oppressive oe- cause the force of its Lnpact fell on those vvho has a.nassed weal ti1 or increased their wealth during the war ; but did not touch the less fortunates . The policy followed is the same as that which underlies the Income Tax Law , inposin~ the burden upon those who have and relieving those VJho have not . ~.o one can ciare challen::;e the law as harsh and op - .. pressive. .~e declare it to be just and sound and overrule the oojection thereto on the ;round of unc onstitutionalJ.t y . 11 (Testate 2 state of Cl i1i1pio i ernande z , et al vs . ~nge lina 0asan Vda . de Fernandez , et al ., supra . ) {tJ

02-.;I-.> IOU - C. T. ,.. . G 13E 1~C . 141 - - 2C , nother important prim<:J.ry issue that should oe resolved oefore going into the merits of this appeal is the question of estoppel and res judicata raised by petitionero It is obvious that if this issue were to oe decided in favor of petitioner an~ against the respondent , this case must nee e ssar...J.yQr.d then and there without need of having to pass upon the merits of the case. t\S heretofore stated , at the instance of res- pendent , Criminal Case ~Oe 4976 was filed in the Court of First Instance of ~anila on hovemjer 22 , 1947 , against the petitioner for violation of the .Jar Fro- fits Tax Lawo During the hearing of said criminal case on February 22 , 19:0 , ~levenue 2xarniner Felipe Aqtiino , while testifying on oehalf of the prose cution under examination oy the City Fiscal , de clc.red "that as a result of a detailed reinvestigation condu~ted ~y his office , it was found out that no war profits tax was due from the accused in connection with the present case . 11 Consequently , the City Fisc al then and there mov~d for the dis~issal of the case and the Court of First Instance on fe.oruary 20 , 195C 1 entered the following order~ 11 <Jhen the hearing of this case was re - sumed~ this. .aorning , Felipe Aquino , an em- ployee of tne Bureau of Internal ~ evenue took the witness stand to continue testify- ing on behalf of the prosecution. In answer to the questions propounded to hLn by City Fiscal i~ngeles , he said that as a result of a detailed reinvesti~ation conducted ~y his office , it was tiound out that no war profits tax was due from the ac cused in connection

DECI...;IC~~ - C� T. ,�� Gnu ~ i'.C � 141 �" - 21 - with the present case . .Jhereupon , City fiscal .z.nseles IilOved for t he dismissal of this case . 11.' I-I:I-lliFC.1E , finding the petition for dis:nissal to oe v;ell taKen , the Court~hereoy disuisses this c ase , with costs tie oficio . " Fetitioner now contends that the findin0s and conclus ion of the Court of .first Instance of ...anila in the crL~inal case filed ayainst ner w~ich was dis - .aissed at the instance of the City fiscal because of the test~Jony of ~evenue 2xailliner Felipe Aquino, con - stitute or operate as a ~ar to another prosecution , assessment or collection of war profits tax against her under the rule of douole jeopardy and the doctrine of estoppel oy judgment and res judicata. Petitioner relies principally upon the c~se of ~an Diego v . Car- dona , 4C CfL Gaz . 0upp . 116; 1 h.oran , . ules of Court , Rev .. 2d ., p . 3C�6 t .wherein the .vupre,ne Court has hel d that there is res judicata when there is a final jud~ - �nent or order , the Court rendering the same has juris- aiction of the suoj ect ,natter anc, of the parties , t he judgment or order is on the ;nerits and between the tvJo cases there is identity of parties , identity of suoject- ,. atter and identity ~f causes of action . ..:1ead in the li~ht of the ruling in the c ases of ~eople v . ~alico , G. Fl. . IJoo - 1567 , October 13 1 1947 , and .People Vo ,..arapao , G� � � � �~o L- 26CC. , �..arch 3C , l95rt , vJherein the .Supre..1e Court held "that disr.lissal is in reality an ac quit tal ~ when , after the prosecution has presented all evid.ence , .. the defendant moves for disi!1iss 1 and the Court dismisses

... � .. .J..:..:: I ...i 101; - C. Lr .� c.~0i dv . 141 - 22 - the case on the ground that the evidence fails to show ~eyond reasonable douot that the defendant is guilty , " petitioner vi~orously contends that for the respondeni to claLn now that she should pay war pr9fits tax in the instant case would be contrary to the doctrine of conclusiveness and finality of judg:r1entso i~nd citing the case of Coffey v. U. J ., 116 Uo~o 436; 29 L. ed . 648 , petitioner maintains that the difference in par- ties in the previous crLninal case an~ the case now oefore us cannot. anc~ should not alter t>l:e situation as the person who requested her criminal prosecution was the respondent ~ollector of I~ternal , evenue of which no criminal prosecution could be instituted with- out his consent. Gn this score , we find no merit in petitioner ' s co1 tention. It should De noted that the present appeal of petitioner asainst respondent ' s decision ~artakes purely of a civil action - an appeal fro..1 the decision of ti1e Collector of Internal J.evenue contained in his letter of j.,ay 4 , 1955 assassins a::,ainst and collecting from _petitioner alleged war profits tax in accordance vvith the provisio11s of ~ectj_on 7 of :~lepu.olic ~ . c-t i '~o . 1125 . fhis case arose solely upon the q0estion whether under the fac ts of the case petitioner is lesally liaole for the war profits tax assessed a,;ainst her pursuant to ti'le provisions of the .Jar l?rofits rax La\No fhe rule estaolished in the Coffey case, supra , can have no ap - .. plication in a civil case not involvin~ any question of criwi~al intent or of forfeiture for prohioited acts , J

... . .. u2CI.JICi~ - LO . t .... 141 .... , . . �~ Vo � "'~ � Vrp.J...., - 23 - but turn in'.:! \i;holl y upon an issue as to the ownership of property (John H. ~tone V o United Jtates , 42 Lo 3d. 127; 167 U. J . 177) . fhe Coffey c ase can have no ap- plication in a purely civil case wherein a taxpayer challen.;es the lesality of an assess:Jent which the Collect or of Internal ~evenue seeks to enforc eD Instanc e of ;.,anila , t11e Govern..1ent sousht to punish a criminal offense; nall1el y , the willful , unlawful t f elo- nious and intentional act to evade pa~aent of war pro- fits tax ana petitioner ' s failure ana/ or willful ne ... kt to render a true and acc urate re ttu rn with the Jureau of / :'::Tternal J.evenue of the value of her property as of Uec e:-nber 8 ~ 1941 and ieoruary 26 , 1945 0 vThe issue in the instant case turns wholly upon a question as to the liability of petitioner under a statutory ooligation imposed upon citizens and residents to pay ta,'es law- fully due the Go vernment - the le~ality of t he assess - nent under review which respondent seeks to enforceo The dislllissal of the criminal c ase was due to the fa ct t hat the prosec ution failed to show , beyond a reasonable doubt , t he existenc e of soille fa ct s essential to esta - blish t~e offense c harged , while the evidenc e in the hands of respondent ~isht ~e suffic ient to esta~lish the lesalit y of the assessnent which would in turn en- title the vovern:.1ent to collect the \'Jar profits taxo i,ot only is a jreater de~ree of proof (0eyond a rea - sonable doubt) ne cessary to sustain c onvict ion in the

..J..:�...;I..,; IC. - c. T. M . Ct .;)E 1.0 . 141 .� - 24 - criminal action than that which is required in the instant civil action (preponderance of evidenc e) but an essential fact had also to be proved in the crimi- nal case, which is not nece~sary to be proved in the present sVit. In order to convict petitioner for will- fully , unlawfully and feloniously , and with intent to �-t( evade the payment of the war profits tax , Iailed and neglected to file and render a true and accurate return ! ~ thereon with the Bureau of Internal Revenue , by falsely and fraudulently filing an erroneous return , it was necessary to prove a criminal intent on her part , or , at least , that she knew she was defrauding the Republic of the Philippines of the revenues to which she is sub- ject to pay under the .J ar Frofits Tax Lawo except that petitioner was not guilty of the public offense with which she was c harged , it cannot oe said therefore that her liability to the war profits tax in question has been conclusively established in the criminal case. (dee ~tone v. United States , supra . ) The instant c ase is very 11lU Ch different froia tne case of Coffey v. United States , supra . That was a lioel suit on behalf of the government , in the circuit court of the United 0tates for the district of Kentucky , against certain personal property as being forfeited to the United States on account of the violation of cer- tain statuteso Before the instituti6n of the proceed- ing s for forfeiture of the personal property , a crimi - nal information was filed a�ainst him in the same court,

D2CISIC1~ - c. T� " � cr.o:JB NO . 141 - 25 - the counts of whic h information c ontained the same charges , in substance and effect , and embraced the same matters , things and frauds p that were set out and cliar;3ed in the li.oel a0ainst the personal property therein des cribed c Upon trial of the criminal in- fonnation the accused was found not guilty , and by the judgment of the c ourt was ac quitted of the charges of fraud and attempts at fraud therein alleged , which were the same frauds as were alleged in the c ivil c ase for libel . Thus the dupreme Court of the United 3tates stated that when an ac quittal in a c riminal prosecution in .oehalf of the Government is pleaded or offered in evidenc e , by the same defendant , in an ac tion against him cy an individual , the rule does not apply; and often for the additional reason that a certain intent must be proved to support the indictment , which need not be proved to support the c ivil action. But upon the recora of the case , the parties and the matter in issue are the same o The c ase at bar is not a suit to re c over a pen- alty , to impose a punishment , or to declare a forfeiture . The only relief sought here is a judgment that the as - sessment made by respondent Collec tor of Internal Re - venue in his letter of May 4 , 1955 be reviewed , set aside and revoked and all actions already taken to en- forc e the orisinal asse sanent , be declared as abso- � lutely null and void . The proc eeding by libel again s t ~offey , al t housh c ivil in form , was penal in its nature , .. bec ause it sought t o have an adjudic at ion of the for-

DECI3ICll - C. T.K. CASE UO . 141 - 26 .... f~iture of his property for acts prohibited . It was, as the Federal Supreme Court has seen (Stone v. United States, supra), a case in which a punishment , denounced by statute , _' was sought to be inflicted as a conse quence of the existence of facts that were in issue and had been finally determined against the United States in a criminal proceeding . l'"o one could seriously contend that technically t""/ the dismissal of the charge of making false and frau - dulent returns , even if the same was instituted at the .instance of the Collector of Internal Revenue , was a judgment absolving petitioner from the payment of war profits tax. It is hard to say that the Government is a privy to such an order or. dismissal , or that it would be bound by it if a suit were brought for the collection of the tax in question . The criminal pro - . ceeding was penal in nature and the only judgment that was proper in case of conviction t hereof would have been only the imposition of fine and/or ir'nprieonment under the provisions of Section 8 of Republic Act Nc o 55 . It should be borne in mind that the tax and the obligation to pay the same are all created by statute; so are its collection and payment governed by statuteo \ihile .:3ection 8 of Republic Act Ho . 55 provides for the imposition of the penalty for violation of any pro- vision of the said ct and the evasion of the tax there- in imposed , by imprisonment or fine , or both , it fails to provide for the collection of said tax in criminal proceedings . Section 9 , Republic 1 ct Nm. 55 , in rela- '

DBCISI01~ - C. T. � Cr.SE I<O . 141 - 27 - tion to the provisions of the National Internal ae- venue Code, provides only for civil remedies for the collection of the war profits tax , and under ~e ction 316 thereof , the civil remedy is either by distraint of goods , chattels , etc . or by judicial acttono Such being the case , conviction for failure to file a true and accurate return or neglect to pay such tax would not therefore include payment of indemnity to the ..3tate in the amount of the tax not paid o (See People v. hrnault , Go Ro 1'-lo . L- 4388 j Novemoer 20 , 1952, VoL 48 , Off . Gaz ., No . lll' Po 4807)c Furthermore , the evidence which would support and establish a criminal conviction of the offense charged would not be the same evidence sufficient to sustain the legality of the war profits tax assessment. As the suoject matter in the present case and the criminal action is different and the same evidence would not support and establish both the pre- sent and the former causes of action , we cannot agree with petitioner that the dismissal of the criminal case operates as res judicata upon her liability for war pro- fits tax and also estoppel by judgmento It is not necessary here to regard the argu.nent of petitioner that the order of dismissal of Criminal Case No . 4926 amounted to an acquittal which operate~ as double jeopardy, but assu,ning arguendo that it does,/ still it cannot be said that the extinction of her cri- minal liability carried with it the extinction of her civil liability to pay her taxes. (Section 1- d Rule

DEC IS IOl~ - C. T. � � C.\~E i\0. 141 - 28 - 107 , Rules of Court) . The exemption from criminal responsibility which carries_with it the exemption from civil responsibility flows from the precept that persons criminally responsible for an offense or mis - demeanor are also civilly responsible therefor. The obligation , or duty , to pay a tax does not howe ver arise from acts or omissions punished by lawo/Taxes are obligations imposed by statute . It follows that the obligation imposed upon citizens to pay their taxes are not governed oy the penal laws but by the revenue lawso The extinction of the pen al action did not there - fore carry with it the extinction of petitioner's lia- oility for the war profits tax in question because her obliejation to pay tax,es does not proceed from a decla- ration that the fa ct from which it arises exists , but is dependent wholly upon the provisions of the statutes themselves . 11 The principle and the phil osop hy underlying the civil lianility of one vio- lating a punishable act under the Penal Code are wholly different from one incur- ring criminal liability under the Internal Revenue Code . Under the Penal Code the offender incurs civil liability oecause of his criminal act . In other words , the civil obligation flows from and is created by the criminal liability. Under the In- come Tax Law (the war profits tax is a tax on income under the Fernandez c ase , supra) , however , it is the reverse. A person con- victed incurs criminal obligation oecause of failure to 'fulfill his civil obligation . 1he civil . oblisation to pay tax precedes -che criminal liability~ 11 t People v. Ar - nault , supra). _ It is true that the circumstances surrounding this c ase patently demonstrate the excesses of srnne

DECISICN - C. T. f . C .SE l'D . 141 - 29 - revenue officers of employing arbitrary and oppres- sive methods in the assessment and collection of taxeso The vdluminous record of the case reveals that the actuations of some officials of the .Dureau of Inter- nal Revenue upon which devolved the duty of assessin9 and collecting the alleged 'Nar profits tax in question have been neither fair nor above board . As adminis - trators of the tax law , the public officers concerned have wantonly disre~arded the basic right of every taxpayer to be protected from unjust and vexatious assessment or levy. It certainly is the bounden duty of tax collectors to collecl and insist upon the as- sessment and collection of every centavo of tax to which the Government is entitled under the law, but side by side with the taxing power of the Jtate is the restraint on the part of the Government not to em- pl oy aroitrary and oppressive methods in the assessment and collection of taxes o It appears clearly here that the war profits tax case of petitioner was originally investigated by 3uper- visin~ Examine~ Felipe ~quino with the assistance of Examiners Santiago -..<uinitio , Pastor Blanco and Agent Federico Lepomu ceno. Cn the basis of their first re - port dated l~ovember 18 , 1947 , respondent immediately demanded from the taxpayer the payment of the amount of 11 ,048 , 68 7.77 as war profits tax and at the same time initiated the filing of a criminal case in court against her for alleged violation of the ~/ar Profits Tax Law .

r DeC IS IC1i'J - c . T�� Gf. s;:. r:o . 141 - 30 - On Dec ember 3 , 1948 , Supervising Examiner Felipe Aquino submitted a second report wherein he recommended the collection of war profits tax of ~835 , 048 . 12 instead of the original arnount of i~l ,048 , 687 v 77 o ,.Jhile respon - dent did not reduce the origin~l assessment , this same Supervising Examiner� Felipe ,;quino again submitted � a recomputation of the tax liability showing the sum of ~619 , 338.00 as the a1nount of war profits tax due from petitioner o Respondent did not chans;e the original amount de - manded , out at the c ontinuation of the hearins of the criminal action on February 22 , 195C , Supervising Ex- aminer felipe �� quino continuins to testify as witness for the prosecution and in answer to questions propounded to him by the City Fiscal , stated that "as a result of a detailed reinvestigation conducted by his office , it was found out that no war profits tax was due from the accused." Because of this sudden and unexpected change of stand known only to Supervising Examiner Felipe Aquino , the City Fiscal found himself with no other alternative but to ask for the dismissal of the case to which the Court of First Instance readily asreed . However , this same .Supervising Ex"miner subsequently submitted another report based on the same transactions of petitioner whic h became the basis of another demand for ~2 , 008 , 293.63 as war profits tax on January 24 , 195G . 1~�.nd to further bring into cold relief his weather- cock mentality , this same Examiner _~elipe J quino later on sub1i1itted another report on the oasis of which another assessment was asain

0ECISICU - C. T0 J~ . CASt: 1\0., 141 - 31 - released by respondent a~ainst petitioner increasing the sum to ~2 , 229 , 976 . 94. The Collector of Internal Revenue , however , is a public officer and in that capacity is more of an agent and trustee of the Government rather than guar- dian of a few of his incompetent or irresponsible subordinate employees& It is not shown here that the dismissal of the criminal case was upon the merits of the controversy whether or not petitioner is liable for war profits tax and although Felipe .~quino m~ht have acted in his official' capacity as revenue examiner p it should be conceded that , in assessing the alleged tax in question, the respondent as a responsible public official acted on the basis of the entire findings gathered by his office ~han on the data gathered by one subordinate employeeo This brings us , therefore , to the basic question involved in this appeal as to whether or not petitioner is liable for the alleged war profits tax in question. The resolution of the ques - tion in turn depends upon whether the cash attributed to petitioner on February 26 , 1945 , in the amount of i-1 , 871 , 542 . 13, was e arned by her ' fro~n July 1945 to December 31 , 1946 or attributable to amounts received by her during the period from December 8 , 1941 to Feb- ruary 26 , 1945 . In determining the cash of petitioner as of Feb- ruary 26 , 1945 7 respondent adopted a procedure which consists of adding the cash on hand at the end of a certain period and the disbursements for that said

- ~2 - period , and s~btractin� from the total thereof the re - ceipts during the period . Ihe balance represents the cash on hand at the oe':JinninSi of the period. :.i1:ile petitioner described this Idethoc\ as a process of in - ference based on another inference then converted i~to an assess�tent , which is not exactly correct , vJe believe tnat under the premises she cannot complain because res- pendent hac. the right to do so in such a situation -:-look elsewhere for information in resard to petitioner ' s tax liability. Petitioner , like every other taxpayer , is requirea oy law to file tax returns and to report tnere- on , fully and honestly , every iteul of gross .inco.11e re- ceived oy her. Inherent in that requirement is the fur- ~ ther requir~11ent that she mus t keep and maintain at all tLne cooks of accounts and records reflecting her true incrnne received oy her each year and the nature and the oasis � for any dedu ctions claimed . The Collector of Internal Re- venue need not accept as complete , correct and eccurate , t.1e returns filed oy a taxpayer etn it oe li!ade under oath if he believes it not to oe so . Ihe ~ollector of Internal Bevenue has authority to cl1e ck the returns against tn~ records of the taxpayer and , if no records have oeen kept or if the records c:re incoraplete , inaccurate or otherwise unsatisfactory as in this case , he may seek infonnation elsewhere to discover and collect the full tax liability imposed .Jy law . (vee J2s�ta.e of Ho;Jert Lyon r;asue , 45 :JT!, lU4; ._ff ' a 132 red . (2d) 775; LOU:Ls Halle , 7 T. C. 245) . Consequently , if cash on hand at the oe~innin(~ of the

LJ.~..:: IJ IL: - G. ��J�� ....;,,.....,,e ,,('. 141 - 33 - pcriocl plus receipT.s durin~ the period 111.inus disourse- r,1en�c s during tLe period equals c 2 sh on hanG. at the e.1c. of the perioJ , ti"e converse nust necesse.rily 0e true . fi1e :Lte.-1s considered 1)y respondent in co,,lputi_n~ tl1e a,.10unt of i-1 , 871 , 542 . L; as cash on hand as of '-~ e:) - ruary 26 , 1945 , those iter.s aduittea in the scipulati n o:f: fact.s as correct , those ad,aitted in t.1e hearins anc: those that are cisputed are as follows: Cesh on han~ , ~ec . ~1 , 434 , 822. 3 ~ ' 194G (see Schedule 1) �� ~ ) , 8C) . 8') 1 Cash in 3ank - Ch~na Jankin; Corporation , 1..1 ec . ~1 , 194G � � � � � � � � � � � � . �da � ..Jis.ourse.Jlents durin<j . the years 1946 and 1~45 : �� Purcnases � �� ~2 , 202 , 161.50 ' Deposits on Purchases �� 5:, ' 2(;(1 � 66 ' Business 2xpenses (see ~ c hedule 2) � �� 1Cl , 817 . 84 ' Bone ..Jeposit �� 4 , 4CC . CG ' hithdrawals �� CC , 996 . 12 ' ' ' Investment in � B. Castro , Inc �� 85 ,078. 90 ' ...:>uoscription paid to �..arvel Juildin~ Corpo~ation �� 1 , G23 , CC0 . CO ' ' ' I efund to Cu sto,aers � � �� 12 ,CCC . CC ' Pa~,ent for ~xpenses of ..,. -> . Castro , Inc � �� 6 , 335 . 82 ' fur c i1ases � �� :::: 5~3 , 2;j8 . 37 ' business 2xpenses (see 2C ' 281 . 39 ' v Chedule ~) �� lC , CCXJ . C ' 53 , 729 . 47 ' Iurchase of Cadillac Lar �� Inve Stiuent. in .._,ine LiDerty �� 1G , 036 . 52 ' Invest,,,ent in Cine �Jic tory�� fvT!.L �� ~4 ' 662 , 708 . 81 Uecluct. ~e c eipts curin~ the years 1946 and 1945: ...;ales �� ~ 2 , ()14 1905 . 63 T I J.ec eived fro1n Litton �� 7 , 391.95 ' t~djustr.1ent oi i-urc hases �� 1 , 396. 26 ' t/ }. 7

DSCISIOl�� - C. T., �� CJ.S;:: r,iO . 141 - 34 - Received frofu Cine Liberty �� - 20 , 5C0.00 ' Drawin~ account with Cine 4, 2LJ0 . (;4? Victory �� o� �� 2,883. 97 ' 3eceived fro~ ~ine Victory�� 13 , X7.CC ' Rentals fro1i U�..:> o .-\rmy � �� 5 , a...u . CC ' aent Income �� 12 , CC(., . 00 ' CustOl11ers ' .Jeposits �� 1i.ec eived from J\, ., J3 . 6 , 335.82' Castro , Inc �� .::>ales �� o �� o - 658 , 063 . (.,4 ~? j.mount received frOL1 fomas de Vera �� 24 ,COO . CC ' Drawing account with Cine Victory �� 3 , 406. C6 ' Dividends � � ��o�� 2 ~ 536 . 91 9 Hent Incorne �� o �� o. o 5 ,CCO . C0 ' ..f(; I",,.L c o �� o � (J � o � o o � o o o o o � o �� o ;. 2 p791 , 166 . 68 TO'f;,L C.-.::>H 01~ I-u.i'.JD , I," B.~.:< , � = w Fi:JL=tu �� 26 , 1945 �� 0. 0 0 . 0. ~ 1 , 871 , 542.13 Le gend: Admitted per stipulation of facts . .~dmitted during the trial., t .Jisputed items . tt ' l' f J.s correctly observed by respondent in his memo - randum , durin~ the trial of this case , petitioner ad- mitted as correct the items of sales for 1946 and 1945 in the amounts of ;-.2 , 014 , 905 . 63 and. i 658 ,063.04 � res - pectively. In the cornputation of the tax due , these amounts will therefore oe considered in detennining the increase or decrease in the net worth of petitioner as of Feoruary 2C , 1945. ,Je shall now discuss the different disputed items ad seriatir.t. 194 6 (1) ,/ithdrawal s - !t"C0 , 996 . 12: - The portion of the Pedrosa Committee ' s report explaining vvhy the :~..w , 996 . 12 was treated as a disb~rsement is quoted hereunder~

LYd..;JS IC.. - .:; . T. J"\ . C~o.3~ l\0 . 141 11 lJithdrawals - ~EA) , 996 . 12 - In the ori~inal investi~ation , the withdrawals a.nountins to ..-282 , 68l.C0 were taken as ind i pendent disburse~entso To this amount should be added another withdrawal of i~73C . CC (p . 6 , L:xhioit "1.3 11 ) which was not posted to the ledger , aod ;.:Q . l2 , represent - ing an error in posting the amount of ~271 . 12 as ~27l . OC only . The total with - drawals , therefore , amounted to i283 ,4ll . l2 . As previously stated , however , ~139 , 415 . 00 of this amount was paid to 1V1r . E. P. Custodio for ~..exican textile whic h the Comoittee in- cluded in the purchases inst:ad of treating �the sa@e as a withdrawal . Another deduction fro.n this '_itell is the su:a of :...-83 ,0CO .CO , re - pre'sented 0y .,;..)c Check ":o . 1334C ~ , :.usu st 23 , 1946 , for ~ 33 ,COC . 00 (Exhibit 11 FF - 311 ) anc: ~3C ~heel,: 1'~o . 133425 , ..:>epte.n.oe:r 5 , 194() , for i 50 ,CCO .. GC ( _;xi1ibit "i~: - 4s:) . These checks we=e payanle to c?sh and possibly depo~ted with her local indenters for pur- chases of ruerchandise, :t appearins that she illade heavy purchases durins these t wo Llonths , anc\ that she had to draw fro.n her unrecorded cash or capital suff5_cient su..1s to cover her deposits in the bank , as shown in .._)cheaule 1 , the -.:::o,Ji:~ittee conceded the possi0ility of her havins used the above su..1 of !t-23 , COG . CC :for her purchases. .::>ub- tracting these two a~ounts of il39 , 415 . CC and :t83 , C{ uOC-' frou1 ~ 280 , 411.12 sives a oalanc e of :;. f�. , 996 . 12 as the net amount properly char~eaole to withdrawal account anc: which , the Gor.1raittee believed , was spent by the taxpayer for personal purposes. 11 ~etitioner does not dispute th~ above explanation of the Pedrosa Co.m1ittee , neither does she deny that the amount of ~>f�- , 99 6. 12 was a withdrawal. However , peti- tioner .rlaintains that since she nerself receive0. that ainount , the sa.1e should not be treated a disoJrsemen t , or if ever , it should be included am~n~ her receipts because she was the recipient . Petitioner insists that respondent havin0 made an overall summary of her receipts end casburse.nents 1 treatinc; her and her different busj_- ness undertakin~s as one taxable person for purposes of

'. lLi-l ' ~" "'-'� .. v.- nl... � r /' - 00 - the tax in que stion, a disburseiaent in one business will 1 ot follovv t ho.t the sa1.1e is also the disourse - ,nent of petitionero , d: first olush , the transaction u1i9ht involve only a transfer of fun~ from t~e ousiness to the pro - prietor a It is imr: aterial however whether 1 iaria J3 . Castro .hersel ,received and Kept the auount of i fJ:.. , 996 . 2 , or whether she nas spent it . If she did not spend it , the su..1 of i-t.-c~ , 996 . 12 should ha.ve ;)een accounted for as patt of the endin0 casn oalance on whic h ooth respondent and petitioner have stipulated. It should be reme.aoered that the parties have asreed that c ash on hand c:;nci in ti1e banK as of .Je ce1noer 31 , 1946 aEwunted to i-434 , 822. 33 and i-9 , 8C9 . 89 , respec - ti vel y , and if tl e su .1 of i-E.C , 996 . 12 were still in the hands of petitioner as of that .date , t 1e sa1ne should have been added thereto and not taken up as a disburse- 1nent . .3e t!1at as it 1.1ay , the effe c - \vould have �oeen the sau1e . Invariaol y , if the sa111e was spent oy peti- - tioner , in line with her t;1eor~r that a dis.ourse!J1ent is ........... considered as a pay.i en .aade to a third person , then it was a disoursement . It is not far fet c hed that such amount coul d have ceen spent for petitioner vs livin~ end personal expenses as nothing to this effect has ceen shown in ti1e records of the case anu even petitio er ' s counsel, ntty. risco .:.van9elista , in his meuorandu,J su0ulitted to the .1--edrosa Contmittee admitted that of the suiil of i 283 , 411 . 12 only i-C0 , 996. 2 coul d not properly t/ J

DECISION - C. T.f-'>. CJ-\~E l\0 . 141 - 37 - be accounted for . If petitioner adnits that the aillount of 1'(.-D , 996 . 12 \NBS actually withdrawn from the cas h ac - count , the fact remains that it was a dedu ction fr~n cash on hand. following the accountins procedure adopted by the Pedrosa Committee and agreed to by petitioner that "Cash at the end of the period plus disbursements for tf1at period less receipts durin10 the period equals cas h on hc:md at the beginning of the periodtt the sun;. of ~-E0 , :196 . 12 should therefore oe added to the-cash at the end of the period in the determination of the cash at the beginning of the periodo ( 2) Subscriptions paid to l<.arvel Building Corpora- tion in 1946 - i-l , 025 , CIC!Co00; - Relyin9 mainly on the entry made in the books of the L.arvel Building Corpora- tion that the amount of ;.:l ,C25 ,C0C . CO was actually sub - scribed and paid in c ash in 1946, respondent contends that this amount was diaoursed by petitioner in 1946 as payment for subscription to the c~pital stocl< of the said corporation. Petitioner maintains however that no disbursement was made on a ccount of payment on suoscrip- tion to the c apital stock of the i�.arvel Buildins Corpora - tion in 1946 , and that what actually happened was that she made a down payment of ~~0 ,COOoCC on the purchase price of the �,lise Building on September 4 , 1946 and ano - ther down payment of ~525 , CCO . C6 on account of the pur- chas e price of the ,\suinaldo J3uilding on January 17 , 1947 , which buildings later on became the capital of the l\,arvel Building Corporation vyhich was organized on karch 18 , 1947. .. l/l l

lJcCI0 IC.~ - C. T. , � C.\S2 ll0 . 141 ~n - -:)o - ..cc ordins to the petitioner , ti1e fa c t that she O\.ined all the shares of the 1 .arvel .Ju:Llding ~orporation does not nec ess2..ri.JJ.Jean thet she dis0ursed the value thereof in 1946 De c ause the said c orporation was or9anized only in 1947 and the suosc ription paiti c onsisted of the two .ouildin~ s .nentioned aoove . In suppcu-t that the au1ount of i-525 1000 . GC of t he :.o-l , 025 ,0C0.0Cl was disbursed in 1947 , petitioner presented as evidenc e the deed of sale of the .L.�uinaldo Buildiil':J dated. January 17 , 1947 whic h suostantially states tnat rec eipt of the a.nount involved is acKnowled;ed . The J�.rticles of Inc orporation of the r..arvel Juild- in~ Corporation is dated February 12 , 1947 , and , as ap - pea r in<.:J therein and as found .oy the .:3upreu1e Court in G. :1.o i�Jo . L- 5911 , the capital sto c k of said c orporation is~ 2 , CGU , CGU . CC of vJllicn i-l , C25 , GCc . cc~ was (at the ti"1e of inc orporation) subscrined and paid for oy the peti- tioner. The ~lise 3uildinJ �-:1as purchased on vepte..1ber 7 , 1946 , the purchase bein'::l u1ade i n the na.�ae of dolores Trinidad , and the Asuinaldo duilding , on January 17 , 1947 , in the naQe of Je~undo 2s~uerra , ..:>r . ~oth ouildin;s were purchased for: l , SCC ,OCC. . GO , out as the corporation ' (,.aria 3 . ::astro) had only :rl , C25 , CCO . CC , the balanc e of the purc hase pric e vJas oDtained as loans frou1 t he In- sular Life ~ssuran c e Co ., Ltd ., and the Philippine Jua - ranty ~O e, In c. (~xhi0it V) . It vvill thus De seen ti1at at the ti.~1e ti1e ..;erti- fi c ate of ~-\erJistr2.tion vJas issued on "larc h 18 , 1947 ,

0.::CI.S IGi~ - .- C. T.n . Cn...:>i.:. hC . 141 - 39 - .Jy the vecurities <.)( .Cxcnanse Com�.lission to the 1\,arvel Building Corporation , the two prop~rties in question were already purchased oy petitioner Jecause , senerally, the typical or~anization of a corporation Jegins with the inve st~ent of c ash. Prior to the incorporation or resistration of a corporation , the persons or pro~oters ~~tively interested in organizing the entiiy have al - ready a<;reed ar.�on<J t!1e 1selves re.:ardins �che purposes of the corporation , its corporate na.1e and existence; loc a- tion of its principal place of Jusiness; amount and c haracter of eac:1 cl ass of stocKs; au1ount of c apital with which the business will be started; amount of ori- .;inal su0scription; and other uatter necessary for corp- orate orsanization and existence. This could not have been unknown to petitioner who was about to orgmize a ;-L. ,CCO , CCO . OO corporation v,r~en as early as the midd l e of the year 1946 , she and ~mado J�� Yat c o t Santiago Ian , Jose I . Lopez , Benita Lamagna , C. b. Gonzales , ~aria Cristobal , ~egundo 2s~uerra 3r., maxLno Cristobal , Antonio ~ristobal and 3amon dansalang agreed to con- stitute the.i1sel ves into a corporation for the priuary purpose of ensa~ins in the real estate business and at the:: same time called. the corporat.:.on 11 ~.1anila Juildins., Corporation" . Ti1U s , in the 0ook s of the 1��nrvel Ju ild - ins Corporation there was recorded tLo receipt of cash in the a1.1ount of i~l , C2::, ,CCO.(.O as su:oscriptions paid to the corporation tnen in the process of organization in 1946; the Treasurer of said corporation admitted 0e- .. .. l/ 1}

,' l',j - ~ . f . ... . - 4C - fore the Pedrosa 0o,TlL~i_ttee that the shares v1ere fully paid in 1946 and. the 5_nc orporation papers were forwarded the~e was delay in its re~istration Decause the na8e of the corporation coinc:td.eC: with the J:Q\a.ne of another duly resistered corporation; petitioner ~..aria ::3 � ...;astro d�eclared oefore the Court of 1.::ir st Instance of 1 .anila in the i1earins of the case of ...arvel Juildins 'Corporation Vo J.Javid that these shares of stocks \Jere fully paid as of 1946; and the papers sub1.1ittea Dy t:w accountant of pet2.tioner to the Pec;rosa Co .lfll:i:ctee s:-10w that there v1as recordea the receipt of cash in 1946 in the a.10unt of l l , C 2:) , LCC... C.C fro~~1 the stoctcholders of the ...arvel Juild- ins.; Co~cporation . �;:1ese circu.. stances , coupled witi1 the findinc;;; oi the .Supre..1e Court that ,.. aria o . Castro is the sole and exclusive owner of the shares of stoc~ of the t��arvel ..;Uildi 19 l-orporation , 6.efinitely show to an im- partial .nincl that t:1e amount of .. 1 , G25 , ccc~ . cc is a dis - buriSement for 1946. fhe weakness of petitioner ' s position lies in the/ fact that si1e disres;aro.s her own D001~s of accounts anc: records w'1enever it su:Lts :1er purpose or purposes and vwuld want us to ta. e thedl on their � �.(ace value for so.ae other enas. Because she had made enoroous profits in ner ~usiness and therefore had a hlotive to c onceal such profits to evade the pa~Jent of taxes 3xhibit V) , peti- tioner declared in the c ase of 1.�arvel Juildin-" .:orporation v . D~vid , ~ upra , that pay~ents of the suoscription by her lf I

r DEC I0 IOI, - C. f.r o C� .3E L � 141 - . 41 - c~ur.mdes tooK place between July and ue c emoer , 1946 . J.fter the vuprerne Court had ruled that she was the sole and exclusive owner of the shares of the said corporation , petitioner now alleges that the ent~y illade in t~ JOOKS of t.1e 1.1arvel Bu ildins Corporation ~ �, n ~ tne au1ount of Tile rea - son is very o.vvious . Fro.n these admissions and facts , we c an fairly conc lude that petitioner ha s been indulg - in9 in all fonns of fanrication and factual contortions to enhanc e 11er own .selfisn interests . ~tion 334 of the i,ational Internal Revenue Code expressly provides that persons required by law to pay internal revenue tax , which includes petitioner , must keep a journal and a ledser , or tneir equivalents or in certain cases simpli- fied oookeeping recordso The reason for such require - n1ent is stated in the law itself , viz , in order that all taxes due tne ~overnment may readily and � ac curately be ascertained and determined anytiue of the year ., \ hen from petitioner ' s own books it is patent that she snould pay taxes , and when she finds herself with no means of explanation1 the petitioner usually resorts to the al ioi that the incriminating ent ries in her books are fictitious and snould not be controllin<;; . On the at her nand , vJhen the entries suit her purpose or purposes they are , as she would want all and sundry to oelieve , aboveillard. 3 o Unre~orded ieceipts in 1~46 of ~132 , 545 . 73: - r;1ese undeclared re c eipts c onsist of several i t e1ns whic h are itemized hereunder as follows:

.LJECiviCJ1, - C. T.A .. Co.3~ LC . 141 - 42 - .. ature 1 mount 1 . January 29 , 1946 Capital posted to ~ C:O ,ooo .co 2. February 28 , 1946 cash 5, "larch 29 , 1946 6. April 21 , 1946 Chedks exchanged lO ,COO . CO 7 o 1 pri1 29 , 1946 to cash 8. July 31 , 1946 9 . July 31 . 1946 ~apital posted to C;(, ,coo . oo 10 . August 31 , 1946 cash 11.. v epte;1.Jer X , 1946 12. October 31 , 1946 Cash chan'-Jed of 5 , 568 .00 F. de Jesus d.eturned checks 4 , 45' � 67 frorn customers Checks exchanged 2, 963.67 to cash Checks deposited 5, 274.C( with bank ChecKs exchanged to cash t1eturned checks of ::00 .00 customers .leturned checi<:s of 785.,CO cu storaers � eturned checks by 8C0 . 0C :Oank Exc ess deposit of Yankee Total �� ~ 132,545.73 An exa.nination of the aifferent ite.ns listed a.oove will readily show that all of th~n only involve a c hange in the form of the money already in the possession of pe - titioner. Items 1 and 3 represent the cash already in her possession posted to the business and which do not involve rec eip t fro~ outside sources . Items 2 , 4 , 6 and 8 repre - sent c hecks exchanged for cash involving u1erely a c hange ..

L>E0 IS IC.h, - C. T. i o Cf.JE lkJ& 141 - 43 - in .: the form of money already in her possession a Itor11S 51 7 , ,9 , 10 and 11 pertain also merely to a chans e in / the foDn of money already in the hands of petitioner , c necks exchan~ed to c ash , which do not involve receipt from outside sources.. 1\nd !te~n 12 represents the excess deposit of petitioner with one of her creditors which exc ess was refunded under date of Cctober 31 , l946 o Con- siderin~ that tne war pr~its tax oeing demanded of pe - titioner was a ~ s essed against her collectively in con- junc tion with all her ousiness enterprises , we cannot therefore treat tnese receipts in the sense tha~ they involve those which are received or those which c ame into her possession and her business interests fron with- out and collec tively . ,\s we have already stated else- where , petitioner and all i1er ousiness ventures vJere con- sidered oy respondent as one taxaole person for purposes of this tax so that it follows that transactions involv- ing merely c hanges in the fonn of the money already in i the possession of petitioner cannot and should not oe con- sidered as receipts . 4o Undeclared dales in 1946 in the amount of ~- W5 , 132 o 68:. - In the consideration of this item , one feature of the pro c eedin~s which we should not overlook is the legal presumption that the ordinary course of ousi- ness has oeen followedo (Joe. G9- q, . ule 123 , ~lules of Court) This is espe c ially true when the pe:z-son w:w tries to show that his private transac tions have oeen neither fair nor regular is the very person who himself conduc ts .. IJ J

D~GI..)ICJ: - G. T. J, . G 1�.3Li 1�-l' . 141 - 44 - (lis Dusinesse TilUs it nas ;Jeen held t:12t entries in books of accounts do not of the.t1Selves create estoppel , but 1,1ay ,Je re;;Jardeci as ad.n:i.ssions a9ainst the interest of the person under whose directions. they are .t!ade and such e.ci1.1ission .nay be overco;.le by the' weis.,ht of oti1er competent eviCence , unless the adverse perty has 0een ,nisled to his prejudice uy tne entries or ad,.lissions . (;..Joitiz Ve .Silva , 45 Phila 580; . :Jhen , therefo_e ,. pe - V titioner ,,1al es the .olatant adrnission that hor records were inadec;uately and improperly kept and ti1at the en- tries tt.erein do not reflect her true ousiness transac - tions , she is destroy in'] tiLis le ~al presu,.lption- and it is incu ..0ent upon he:b to show 0y clear, co nvinc in\; anc~ satisfactory evidence that the under- declared sales in 1)46 in the a.nount of i-CC5 , 132. 68 really exists in -;ood faith and was t11e result of �air anc\ re'.:iular transactions. And i 1 view of the req1 ire;1,ent of v ec tion 334 of t e 1.0.- tional Internal Jevenue Code that a taxpayer r.1ust Keep a set of oooks in order that all his or her taxes due tne -..;overnment 111:i.ght readily ar1d accurately oo as c ertained , petitioner in assailintj her own records as inad~quate , inco..1plete and inaccurate , mu tt c:~l so show thc.t this wz:s . done in sood faitn and not intentionally to f&restall detection of her atte1npt to defraud the uovern1nent of� le�itimate taxeso This is the more so when petitioner ~L. ��">/'; has already shown her temerity to resort to all sorts ' of fc.bricat:Lon to evade her tax liabilities through the use of dummies and her damagin~ admission of !1aving vio - IL J(

.� lJECJ.-JIOL - C. "".r\. C:r~.3.2 r:O . 141 - 45 - lat~d .t he price ceiling law o Jhe first and obviously t he ::1os t important pie c e of evidence p=esented by petitioner to prove her cl aim of t he existence of this underdeclared and undeclared sales is t he test~nonies of he r employees and t~uste d prote Lee s , Gon za lo Frincipe , Gaorie l ~u nio and Rau l Yoing co . /.s expected , each of the.n offered a pro :Zor.na stateulent to the effe ct that there \Je re underdeclarec~ and undeclared sales of petitioner in 1946 accQJplisned tnroush the L1ed5.u..l of )razenl y violatinJ tne price ceil - ins law and shn~nelessl y aDa tinJ bla c l<: 111arketing . From a recapitulation of their testiwonie s , petitioner tried to :Juil C: a su ruary of a lle 9ed unde cl a r ec:. sales DY what s ne c alled 1percent2':;Je :.1etnod o11 Je c ause t .1ese w5.tne sses are aQl Jl0 t t e d- l y una. or t,ne pervaa�~ l�ns 1e nrr- 1 uence o~("" pe ~I l� -J..~�lo ne r , v1e c annot :_,ive :nu c h credit to thei:. testituony . 3xcept per haps tl1e fact that they and petitioner had nade a QOCkery of the law, it co uld be s le aned from t heir testi - ..1on:_-2 s t hat the existen ce of ti1ese unde cl arecl sales is 1.ierel y ba se d on their senere l a ss ertion of fa lsified sales invoices which are u1ere estiraates and frou whicn tax li a.oilities c annot JJO 0e ter .lided with reasonaole c er- tainty. 1.1ere seneralization re S;arclin�J the existenc o of falsified invoices , v:it hou t positive i.1dicat5.ons of trut~1 - fulness , we .oelieve , is not sufficient to overthrow t he JJo ok entries specially now when it is !.lade to appear t11at it is done to suit_the personal co nvenience of petitio ne r& .. L/ Jf-

�. - 46 - .� .Jibl respect to the testirllony of petitio.-wr 1 s : .ccou ntant , Gre~orio Ce.Yteno 1 we find it equally if -. not .aore ,)iased and unDelieva0le tnat1 that of the other three \v'itnesses . ..ccountar t ~enteno appe2.rs to 0e so entirely under the influence of l:>e tit:Loner to ti1e ex- tent that ne even vJent <J.s ~ar as cdsre�:;arding Lis s�vvorn duty as a Certified 1-'uvlic nc c ountant. Ele adll1itted in open c ourt that as 1.cc ountant of petitioner l.e dio not maKe an accurate record of tne fina11 c ial c ondition of her .vusiness . If petitioner were really sincere ~;Jit;1 respect to t.1e existenc e of t;1ese undeclared sales , she and ;:er .~cc ountant snould have taken steps to correct the underde cl arations or ~~liscteclarations in her ,Jooks since these occurred as early as 194G. If she vd.th the advic e of her .cc ountant \Je:r:-e not really bent in evadiii:J pay1.1ent of i.er le�Jitimate tax liaJJility to the uovern- 1,1ent ny co nc ea1L1ent , why did not the petitioner or her , ~ccountant taKe steps to correct , or even a:nend , her in - c ome tax returns for tne year 1946 so that her true income \Jould oe reflectec' as is naturally to :Je ex~ected of an honest taxpayer? �.1i1en a taxpayer ac~:nittedly do ctors nis oooKs of acc ounts and records , he should be prepared to face consequenc eso In support of the existn.~ e of ti1e se unde cl ared and/ or 1:1isdecl ared � sales , petitioner furt ner offered as proof tne fa ct that an artlount of : 74C ,448 . 27 was deposited JJy her with the i<ational City Jank of Lew Yorl( durins the year 1946 wi1ic ll , however , does not appear in her 0ooks of a c- l/ t/ f)

�. J-.:..i0I~ I i J - d . I . a ~ G~2 iD . 141 .� countse The evidence adouced by petitioner in ti1is resard is purely test.i.Iaonial ~md ec;sy of favrication. It cannot overcor1e the evidence prese.~.1ted ~Y respoil - t uent cons:tstins of c,ocuj,Jentary, ev.id.enc2 . 1.1us , we find �chat the existence of these undeclared a.nd/or luis de clared sales in l '146 5.n tne au1ount of ~-a 5 , 182. 68 i1as not oeen duly estavl 'Lsi1eo 0y tne petitioner to t;1e� satisfaction of the Gourt . 1945 lo Loans and. 'dva.1ces fro; .. various persons - :.-33tf , X-C .CC. - etitioner , in order to .increase i1er receipts for l~-J4::J and t,,us 6ecrease nor cash as of Fe,J- ruary 26 , 1945, claL1s t.1at so~1etL1e �in July and. ~�~uJUSc of that year , she .aade suostant.ial purc nases of textiles frofll the ,.,ational uevelopment Go. pBny f.inaf'!ced out of loans ootained fro.a the followin<;;J persons: (a) Vicente L. ~o Chien ~-l2C., ,cc..c, .cc (o) Lao kan9 ...>uy 195 ,0(.( .0U 4, ::Cc. (1 (d) .'elix .�ny for nn0 1 !~ �;lins.J _-..~ , Total �� :.- 334 ' !:DO �00 .Jhile it is true that as a seneral rule , when - a person ad;-Jits eit,ler orally or in writinSJ tLat ne owes :r10ney to 2.. ot:�wr , his sole manifestation or ad,aiss5_on to this effect '.JOuld suffice vJithout neec. of furtner corroooration , it oeing an admission aya.inst pecuniary interest section 7 ' ;.ule 12~ , .tules of ~ourtj , tile same f/ VI L

�. iJ .:-.;:;;;I d - v. T. " � G �..5ii i,C. 141 .� - 48 .. rule c annot and should not apply to tax c ases when the obvious purpose of the taxpayer in oaking such admission is to minimize his tax liability . (aic~nond v . Anchuelo , 4 Phil . 596; Lim Ch.ingco v . Terariray , 5 L1il . 120; r.;eople v . Tolentino t 69 F hil . 715) . In �other words , an ~ admission by the taxpayer that he secured loans and ad- vances from various persons is a douole bladed weapon . It misht in a way be an admission against the ta.payer ' s pecuniary interest or , looKi~s at it the other way around as we are wont to look at it in the present instance , a stateuent intended to free herself from payins the enor- oous asses~nent being demanded of her by the Gover~nent. Li~e the defense of alibi in cr~ninal cases , which is so easily r.1anufa c tured and usually so unreliable (i eople v. Timoan9 , 74 Ph.:i.lo 294) 1 in tax cases ~ it is just as easy to concoct a litany of fictitious loans to reduce one's tax liaDility , espe c ially so if this ~e the last resort left to an unscrupulous taxpayer to save himse l f frrnn financial ruin . (~ee ~illiaffi Li Yao v. Gollector of In- ' ternal :1evenue , C. I.A . Gase Nco 21:..-, July 31 , 1956) . 2vidence of such loans consisting of promissory notes or 11 vales 11 purportedly signed oy the taxpayer , or of c hec ks-or voG c hers evidenc in9 payment will not sufficeo In order that suc h loans could oe properly admitted as such 1 it is necessary that the existence thereof must be proven by clear and convincins evidence independent of promissory notes , 11 vales 11 che cKs or other si;nilar docu- mentso (~ee /urelio P . :eyes v . Col le ctor of Internal Revenue , C. T�.~ . l,o . 42 , Jul y 26 , 1956 . ) ILe alleiJed

.Lit:�.:.: I.3 IC, . - - 49 - ~ . f . ... . C ~-vi .� creditor ~ust be produ c ed in Court to confinn the �1caxpayer t s av,.u1�J.SSJ�.on c:mct' �Ico sl�Ve u.. overn 1en�c! counsel.., an opportun.ity to eros s - exa,;dne him , unless he --i.s dea( , outside of the Pn.ilippines or una0le to testify for one reason or another. If tl1e texpayer .is in ...;ourc s:,m�J.in~ the correspondins; entry or entries of his alle~ed liabilities . I i ior one reason or anotner the cllec__ject creditor is not 2va.:i.laole c s a vri_tnes s , his financ5.al ca.p2.city to GxtenC: �ch.e loan shoulc.: at least oe estaJlishc;C: . (...>ee ,!ill.iat" Li Yc.o Vo ...;ollector factors , let us 110\IJ proceec to exa.tl5.ne tne 2llesecl loans vJhic h ti1e petitioner clair,1s to !iave incurred in favor of several persons . ( c:) �'J; cente L � ....:o Chi en - :.-12( ,CC0 . <..C. - f.lthou�)l Vicente L . Co C'lien test.:i.fied ueiore th5.s -.::curt re::Jc_,_d. - to corro.Jorc:.te !1.:i.s testi.~wny. .� c2reful stuc~y of his declaration viould reao.ily shmJ t:ia�c it is replete witn inconsistencies <md i~<1proDa!Jilities . l:e would :1ave us loanec.i to relatives and �.t::riencs exce)t in srllE~ll amoUnts <Anc.i yet he clc-dtlS tnat so:~1eti,.w in July , 1')45 , after

'� �. l ;o. 141 "-~'� ... "� . r. �-.��~ l. o ._' �� V i'\.V.L- .. - co - ~avin~ pr2ctically lo st cont~c�~ of the octitionor � � �'�he" o-r.up,+ion cHJl'"'."Ln~ v.:.� ]~,_P,.. lo"c'..necl~- ro l"'e�c ,.. ; +hou�'- .,~,., .�~.�.1ur"l",..,J. ~...; c."'~- , .L � ~\i ..... \,.. ac1o the enor::-no'JS C\i.'otmt of i 12C ,CCC.CC :. -i_thout in- terest an~ without as much as Cenan~in~ a security for t 1e lo an . ::e never consulted his lmvyc:- abou�c the lo an but instead relied entire l y on the report of hi3 ass~stant that the petitioner was solvento ~c co rdins to this a ll ese~ cre~ito~ of pet~tioner , i~ uas she who insistec1 in ;iv:i.nc_ a pro:niss ory not e 2nd 3 or 4 nieces of jewelry as security for the loan the p.:-5.ce of r�11ic11 he did. not even take the tr oub l e o..;: fin~i~s out for hi7se l f ~efore de li verir~ the ~ 12C ,CCC .GC �co petitioner~ 1>. is all ese=' crec.>I.to': of pet i.t ioner c' ec l ared that he '1eedec1 r1oney to start his butingss after the liberation ord yet ~ v~en peti- t ~. o ner cal l ee: h:L�,: up J.:>:r te l ephone so.�:et5."1e in ..July 1945 re~ar~in~ the lo2n of such an enormous a~ount as . ;.12C ,CCO . CC , . he rerdily ;a�.-e 5.t in cash tvJO or .,.:,; etays l ater . '.i';,e peti_cior:cr c.~id not �::2.ke the vd:~ness stand to explain the circuqs t<mces sur.:co�nc' in_. th i.s lo on ~..uch l ess we::e docu ,,ent2r~' cvic..~cnces such as c.. copy of the pro~issory note or rece i pt of n?y~ent introduced to corroborate Vicente L. ~o C~ien's testLnony. "( .r ... J. this ?!lese~ loan vere rea ll y ~a~e by hin , very consi- ~erab l e as it ~as , the transJction sbould have been at of petitioner wou l d have been ab le to st2te specific9l l y the reas on why he sranted the lo an and the (etai l s re- ~ardin: the abi lity of pet~tione~ to :rep2y it.

.. .J...~ Iv IOl: - � -.;. T.A. Gl\JJ 1:0. 141 .. 5! - Jased on the evidence presented, we find that this O..llesed .loan does not satisfy the requirements � we have set to accept it as lesittnate and senuine. (}J) Lo. o Kan~ !..luy - ;1195 ,000.00, - Petitioner's courtsel ~laim (the petitioner did not take the witnes~ stand to explain this al l e\jed loan) thGt in July of 1945 , Lao Kang ~uy advanced to petitioner the amount of .�-195 ,000.00 for the purchase of LlJC textiles . If . this al leged loan was really made by Lao Kang Suy , enor~ous � as it appears to be , he would have been able to tell specificall y and definitely when , why and how it was made~ from the evidence presented , it does not appear that Lao Kang Suy is a close confidant , much l ess a relative , of petitioner for hi~ to advance such a considerable.amount to her without inte~est , without security and without being reduced to a formal writing. In fact when Lao Kang Suy was pl aced on the witness stand before this Court , he testified that he never advanced petitioner in July of 1945 the a::nount of r 195 , 000 , 00; that he signed Exhibit "W11 , which is an affidavit in support of the alleged ioa~ , merely be- c ause he is a friend of petitioner but when his former attorney , the late Justice Ivtariano Al bert , tol d him that it appears from the document that he is l ending money to Maria B. Castro , he tore his copies of the a� - fidavit; that he acted .l ike an agent of petitioner be- c aus~ he merel y got textil es from her and distributed them among several merchants giving the payments to pe -

.c.J~-.;rv IL1. - C. T� � ~ . C.�...:; � .-.0 . 141 - 52 - titione:::-; and that 11e 111ade a list of tl1e people to \Jhom (le sold the t e xtile and. aeliverecl that list to ~ petitioner . fina the testi1llOny of th i_s allegec.' crec~.itor of pe�titioner to .ue replete \Jit:l incons.is - tenc:Les and contrac' ic tions . To u.n i.tlpartial uind , the theory of responde11t �chat the nature oft he trans- a c tion involvi.1'J t:1e � 2...1ouryc nov1 in question ,)etheeil Lno ....an'.;.; ...iuy c.md petitioner in July , 1945 re ... ardj_n-J t11ese textil es was t11at of n~en c y anC: not ,Jy �:Jay of c:,n advance or loan seems more plaus5..ule . , tteapt v~as 111ad e .uy petitioiler' s counsel to show tlnt ,Jecause Lao ~(ans ::..:uy .nac!.e a l2,rt.:,e profit out of tiw sales of tne :.-..~-.; textile ti1a t he o0tainec\ fro ..1 petitioner and t.;e c orresponc:in~ assesSi1ent \Jas lllade oy ti1e Juret:lu of Internal ~l.evenue against Lao ;"'an.;; ..:~uy on t!1e basis proof to sho\J -Enat he in fa c t advan c ed :-lY5 ,CCC.. . 00 to petiti.oner. :rowever , fro.:1 the evidence prcserrceci , there is not tl1e least ins inu at i on ti1a t t:1e amount of ~-19~ , ccc . co was loc.ned for the purc .1ase of LUC textiles in 3uly of 1)45, /.s a uwtter of fact , an exn,;1ination of :: X11i!Jit 11 UV1 Wi l l readily SJ10\'J that the a..1ount involved therein is i-l95 ,9E:O JIO . fi1e :;en- eral assertion of alle-Jed. pay:nents , witiwut spec ifyin�J tl1e exac t day or days and a;,1ounts of pay.1cnts , are , a cc ord:n~ to our experienc e, positive indications of untrut!1fulness , for vJhen a witness testifies �co a ta c t ti1nt a c tuclly occ urs , the c1 c t is conc retely stc.tcd and

D.2C I.S IOl', ... c . T. .. � C.� .SE 1,0. 141 .. - - r ,, ....;..;) no ~enoralization is r,1a0e . {vee j.,c.rvel JJui lding Corporation Vo David , supra). And as testified to by petitioner ' s salesu1an , 3onzalo lrinci;)e , .oefore the Conference Jtaff of the Jureau of :nternal ~evenue , the i 195 , COU.(:C; which was supposedly delivered in cash was not even counted one uy one , nor was any receipt issued evidencin~ delivery of the a111ount in ques tion. :Je cannot accept this alle0ed loan as senuine and legi- timate. (c) ~~u Ye1c Chin'--i - r4 , ~0.w. - .. ith respect to this loan , ~e find it as incredible and fictitious as the oti1er two. ~Jhile only ~-4 , ~ . CL \Ja s utilized al - lcgedly for tl1e purc nase of textiles in J"uly 1945 , the affidavit , Exi1ibit 11 1J,~" , of the alle<;eci lender executed a.oout two years lat~r ~till s ta t ed that petitioner bor- rowea the su.a of i.-5 , 0CU.00 and not :t4 , ~:00 . w with which to purc hase textiles for herself . There is noth"ins to corroborate tnis evidence except the test~nony of an employee of ;,;aria J . Castro , Gonzalo I rincipe, who ~nerel y O.ecl ared that he c ame to Know of this allee;ed loan De- cause petitioner told hiu1 so. d) felix .-~nc; for 1"..nc1 Chine; - [:-15 , 000 . 00o - Fro1.1 the very start , the evidence presented to prove this al- le;ed loan cannot raeet , even partially, the requiretnent we have set to a cce pt it as a 0enuine and le~it~Jate lia - bility of petitioner. fl1ere i$ nothin'.J to prove the ex- istence of this alleS)ed loan except the sole uncorrooo- rated and unconvincing testiu10ny of AnJ fuan JL1 , an em-

. �. .� - 84 - ployee of tne alle~ed lenGer. 2. Fuy,:1ent of Lo<:ms and ..dvc:nc es to: (a) Vi ce nte L . Co Chie.1 - .lX , ccc . CG 4 , !:.X:.U .GC In the lit_.,ht of t11e 2.,JOVe , v1e c annot tLerefore say tnat there vvas a puy>Je.:t of loans anc~ c.c.vc:nces to to the!H . and 4 e Undeclared ~ales of ~ocal ~oods - ~180 , 844.~2. - .;e snall c.lisc uss these t�.Jo ite~.~s jointly ...>ecuuse petitioner's counsel trio~ to esta,Jlis'1 tneir existence princi,)all y upon t,1e test L10ny of petitio11er ' s sales .tan , ~.Jonzalo :-rinci,)e. vonzalo :::.-incipe aeclarecl tilat �. e was petitioner 's s<:lles!lan -J:row tne sec oncl hc:lf of July l':J4~ , the ti �lG wl-~en pcti t5.oner started :1er textile Jusiness after liJJeration , to ti1e end of 1 JLrt:. ~�1hen 11e ua s pro- .itOted to \Jere11?use.nan; tnat aurins t1ds )Cr:Lod tney sold only textiles purcnased fro,t1 ti1e Lutional uevelop .1ent pet5.tiot122:' \Jas i:IDle to 0uy so; ~ctiL~e in tl.e lo.ter ;)<-rt of lJL~5, fro.i t:1e ..u..; , 011ly a.Jout IJC :)ales of textiles \'J~Li_c., were dis 1)oseu c�:: upon del 5.very to ver'/ fev; cus - to..wrs; tne.t 1Jetitioncr tt1ade pwrcnases of textiles �ro1.J 2 . o>\Jaci ._, .:;o . durit '.J t:.e later part of l)LJ-5 with a totc:l value of :::-1[ C, 844 . 0~ v1ni c ;1 were Gel1. verec: on t,.ree oc - C o"" S.l�.OnS;

-. .� u:..~_: I.:3 :COt. - C. T.l'. . C."..:)~ �.0 . 1L.-l - JS - cHe.tcly upon receipt thereof . Le:Lt 1er LciO i~an,_, Juy nor any co� tpetent ;')erson froul ,_: � .�w2d '"' -.;o . \Jo s plac c<=< on t:.e wi�cness ste~�w to corro-Jorvte the testi,nony o:f w5.tness ~� onzalo r r2..nc::.�)e � �� C:. t:Lona1 _,;cve1o!).llent Co, lp<:my in 1';)4~ , �t., s shorm on t '1c soles in t;1e a :1ount of ~-1:..,1 , (Cl�. cC uecc:;use !lost o� t.w.:1 were resolC: ;>.t :. 5.(.J( ~ er yore.: when t.1e sa .10 v,e:re in- voic ec~ on1 y c:.t ;;: 2 . :X rer yare. . LikevJise , \Jitll rc �_. ;:;~cds '-..:o ., she t:~lso ac.: 1its unc'eclc:-rea sc:-.les a. 1ou.1tins to ;.. H:lu , [ 44. ~.~ ,)ecau se the sales invoic e�s vu.ich were issueC: to t~.e only c usto..1er inuicate\.., L12t ti1e sc:les v;erc ,,wac ~ 108 , S44 . 0L. to t!1 i.s a..:ount, v:l1i.c;1 was tl:e v<:~lue o{ r1cr of i -5:_,3 , 277 . 60 as purc.1ases for 19'-~.J. T'.is ar.1ount is n.ore or less equal to the su..t of i- S53 , 233o 37 , whi c h was ncr purc hases during the year 1945 as shown in her duly verified in c ome tax returns for that ye<~r. r:cr sales tiurins the year after deducting the stock on hand at

r .� JJ2C :::JICi'< - C . T. i >. C.i �.3;..: 1;0. 141 - :~-Jb' - the end. of the yea r , as shown 0y the sc:me in c o:ne tax re t u r n s , was ~67 1 , 367 . 41 , thereby reportin~ a ~ross inc o..1e of ;~ll8 , 129 . C7 froi�n business for 1945 . T:w Pedrosa Co~nittee found from the l ed~er of petitioner that her tota l sa l es for 194S ua s f:. 550 , 233 . 37 o T:~esc c i rc u.astan c es the r ef ore ~ o.npletel y ;Jelie pet5.t :Loner ' s c l le�.;;ations . r-:enc e , we need not repe.st \!:1c:t vve hr~ve &l rcady stated 20ove resardins the cl aLJ of petitioner of _.:1 l les;ecl un6.e c larev. s<: l es in 1')46 . l.cverti1eless , it is si<Jnific ant to note how slw c ou l d h2ve :.1ade ;1er al - l ese'-1 enor.nous profits ~Jhen s:1e haG. very l.it.Iitcd trans - a c tions in 1945 anc~ she pra c ti c 2l ly sold 0y w;1oles2le to onl y a feu custoilers . ~ . Loan Iayable to Lao Kan0 Juy - :..7G ,ccc.cc . - It appears th2t respondent C:id not il.llm; this loan of .cc ~-76 , CCC :)orro\ied fro ... Lao ~.. c::.n:_ ...;uy vccause t.w lc:' tter den5.ed that petiti.oner ov1ed hi.Jl th:i.s a.aount . uurin~ t 1e testi:11ony of Lao ~~an<.:, ...)uy ,Jeiore ti1is Court , l1e ac:J.littecl lw\Jevcr ti<at ;le exte11dec: a loan of :~76 , CCC . CC� to peti- tioner in the forr:l of Japanese wc.r notes so::�eti; 1c in l 9LJS or 1744 v,:i_t'1 tl1e ')rO..iiSe that slw would p2:y 1dr.1 .~- l�l1 rrJ,lJ_�-l l�pp:�._ne ,,Joney . / l.,,.l."..S v1as noL. C , 1 J' .en.:-ecJ :)y res- ll<:'. poncJ.on�c anc\ .2xhi..Jit nyyu , wn::_ c h ~-s Cin affidavit si~nec~ c orroborates t i1is evidenc e . For tjis reason , the a~ount of :..-7 6 , GCO . CC. should tLcref ore .oe taken into a cc ount in dete~ninins the in c rease or de c rease in the net worth of pe t itioner as of FeDrua r y 26 , 1~45c

.� u~C :_::...; :(..~.. - C. L , .� C. ~v~ i :C� . .i41 - S'/ - On tne oasis of t:1e report of the I edrosa Com- mittee , we are therefore of the o~inion and so hold tnat for purposes of c.ete:!\.1~_ ninJ petitioner ' s in c 1~ ease or C:.e c rea se in net v.orth as o�f February 26 , 1946 , the follo\'Jin:; ite..ls should not .oe .:Lnc ludeo: l. Vilre c orded x�e c eipts in - ~ 10~. 1 ~L.j�5 o '/3 l ~4:) 2 . ~nGeclareC sa l es in ls;46 � l. Loans and advances fro.il var5.ous persons - L 304 , :{{J . CL� a) V5..cente L � .:o :,..;;,ien .. ~.. 12C , CGO . CC JJ) Lao .<ans ..)u y 19 5 , G({J . CC d) ~~elix 1. 119 for l5 ,CCC . C0 ..n9 Chin~ - ~ 334' ::00.00 Tot a l 2. r aylllents of lo<ms and advances - a) Vi c ente Co C:lien - i 12C , 0CC . C0 - :;.. Lj- 1 :X.:(. o (.Q 3. Undeclared sales of - ;.!151 , ac .cc 1 .JJC Clot~ws 4. Undeclared sales of - :...�lCG , 844 . 32 loc al soods ns a:::reed upon JJY ~ne parties , the .Ja sis 1lCM ever of ti1e assessment , levy , sale anct forfeiture of the pro- perties of petitioner is not only the report of �the

.� c... ~ . f � �� v~ ;..( . 141 .,.., - ~u - .. % ' L,~;J . Cc ori0.:i.nall 'I c e..la!lc.led in res o. r.-~e 1t ' s letter the L;tter o:Z respondent to t etitioner ' s co-.~ 1se c'2te'""' �. ove..mer "/ , 1SJ5S . "L1e L.L1co.. tr2 A �.ctec: ev:'_de11 C8 oi: :res- )O .d.e;~l: shor1s t ..c�:: .::.n 1.1~1 1:1i1e __ ev nue exe... iners l..:elipe J�c.u:L 10 , vilverio .r_u:�..no 211u1 �� c�1a \'Jere -..~ose ..10 -Stc.te , In c., �c1.ey ca..1c a c ~oss e11tries in tLe ~ene al lec._,cr o{ t, e s2:::.d. c orporat:~o!l fo::- lJ Ll \\',lie. st~.te c.s fol.:o\'JS: ~~ _::;e~S:l , - ... 21 , ::x.A.. Cr 1 n') 0 21 ' :.Nl.' :'..Jec. ::;1 , Jalanc.:; ,, .J\0.)0 ... ?l , ~Xw ~.: ' 5\.. ll 1~f:~.Jer .s t..;stif..:.ed to ;Jy the c: ccount<'.n:: of ti1e 1 .as a ~ - a le_. 2. .:s cate , :u1c ., t:.ese en�cries s 10\'J th<'t -::'lC c orp - l:J�4LJ :Ln tilE~ 2..1ount o'.i: ...-21 , ~ � Cn ._,epte:luer l , .:state , :nc ., tr1e a,Jove a1.1our.t ~;,as <p:?liccl to t:w a c- count of fJCti�cio 1C.:- 011 Ler :..nc.le Jt ec..less <.H1 a iw Sc f-JUr c .~ased f~o .1 saic c o. pany J..Or i LA.. ,CCC. G. Gn -;::.e ,)a sis oi t:1cse entries , res;Jonc.ent issue,_. a11 adclitional asses sr.1ent or \Jar ; :::-o:i. its tax due i ... o. pe ti tio.1er , \'Jhic i1 as of .Je e.10e:r ~1 , 19~1 , \las CO.!lputec. ;Jy hir. as I

r � D..iC I.S IO.J - C. T.n . C. .J.:; h() . 141 llt.JndeclarGC: accounts receiv- aDle fro.n 1 ,agdale na .2state , Inc. as of iebruary 26 , 1945 that v;as d5.scovered in June , � � �� o�o�� 1951 only i. 21 , ~!0 �oc_, 9~1v tax tJr:reon :: r ?.:<..,r.v , '/"I1�?c':J:.t..:J' . C.v( , I � �� " .. .. . CJ<..,v surchar-. e " � � �� lC , 212 . 5( �� t a x e s ~ o:�� Total 3,...:::0 ' 637 0 5C o �.�� o . o �� 15/o surcr1ar0e � �� 4 , 5<;;5 . 63 Interest on ~""3C> , 637. :0 2t 11~ a nonti1 frou1 4/l/ 47 -to 12./31/51 �� oe e oooo �� oeo� �� TC'L .L . u .Gu;~r JJLI~ : .u.J UOLLGCTIJLE �� ~52 , 696 . 50 Clearly therefore , t;1e su J of ~- 21 , ~0 .cc repre - sented accounts paya~le to petitioner on ieDruary 26 , 1945 by t!w ;.�as,dalena ...:state , Inc ., and as such , assets as of that date, Jince this account was not included as part of her assets as of February 26 , 1945 in her ~ar profits tax returns or amended war profits tax re- turns filed wi t!1 the oul~eau of Internal H.evenue or con - sidered ~y the ~edrosa ~o~Lnittee in determinins petitioner ' s net wort!1 as of the s3id c.ate , it follorvs that the sau1e should J)C taken into account in cleterminins her increase or decrease of net Worth. fr~n all the fore~oing findin~s , petitioner's war profits tax is thus co,nputed as follows: TaxaDle :ncrease in net worth as per c~ilinputation of ~a - elrosa Committee oo� � � �� .. � � ... il , 162 , 2C3.95 Less: nCCOLints . aya~le - 76 ,C00.CG Lao han~ duy �� o�� i-1 , 686 , 203.95 Add: Undeclared accounts re- ceivaDle fror,1 l�.asdalena estate , Inc o as of :eb. 26 , 1945 that was dis - covered in June 1951 only _ _2....;1;;';..,' :::00 . co ~- 1, 70 7 g 703 . 95

::c � 141 r .. ~�- ,ccr J r ,c:�r .r r :,.., ,oeo .r: c ,,rr')rc~�~ccc�..r.cDrr:~: ) �- ; : i .,_ � eo� � � ""'r ,rr-.c- . CC 0 �� ;.. ..< -�� .~-..: c o �o t> � 1 L!t: ,rcc ..crrc� rr ,.--. ~ ':rc ,err .r:r "! 0 �� 0 . 1,.,... /TC !' ,.... ,-,rr rr _. " ( r. , CC- �r 0 .. ~.._, 0�~ � ' (' . eo� 1 o ~ j ' - � .. :... ' ' 7-: :: � C) =- .... ,~ "f n z 21 " � 7 ~~ (\' .~~ ' " .._~~ " ��/ ~ r 'C ~~ P' - ... c $ � � � � � � � � � � 0 To t c: l � -"1 ~ ... n~o~ ~ -�-- ~r,,J v .~~:~,_"'""'~~ C: � tt�o oo �ooe � oo ... : , 0 1 1 , 47:-'. 1 � ~~~- '.L '-.-�-~�. C- l 1 r-, .,_; 1}~'C }~?, -:: _ 0. 0 :') ;.,. l , L1-7Ll ' ~-3 1 ~ . 75 0 . 0 0 0 0 0 . . :o. :2 , 432 , ~roS.93 'I "~-'; 0 0 � � 0 � � � � � � � � � 0 � :.. :._ , C'/7 , 294 . 32 c._-, .r_,.,'J ] � 0.{1_ �. ,_.., .l...,,... ./ I.._ '- ... t� 0 .�c , '"'�'-" ~~2. �. l..._ -- 0~ 0~ '-1� .'! �'-' l. (" r .. '1 �~ '- ::�::c "!rr.., .. l.,-..... - \1 ....,) � .C � ,,. ' ( .-; ., �- ,....,. ......... '-' v. - �-.. c. Y) ......._l" _ ...... err- .! v ~ ' � 0 '""' .� .~"~" 'JJ_ ,_. . ., . .( \. l -_.... ,'- �..,,.., ..,J ..,\_,- "-" �� J � .- -. �-,"" . ,_ ~ -�� -- () -."'\ ' '."..".' ... -..;o , .... .'~ .. '-' I o: ."'

u....:..;J.jiUl~ - C . '"f . .. . G~~.J~ i~l�. lL-1�1 - 61 - cantJOt hovvever say the scune tu.:i.nSJ in tl1e prese11 c case .Jec<J.use tnere is su-fficient evide11ce Oi1 recorc.: to support �che findin':J t:1at peti�cioner is subject to the war profits tax in question instead of the ordinary inco.ne tnx on transactions made after 1.-:ea- ruary 27 , 1945 . Tl1e evidence :for respondent sl~ows ' t.1at petitioner .1ade �crelllendous prope r-cy acquisitions c.urin..; the Jap<uese occupation whic!1 clearly inG.icate that those v;ho were fortunate to increase �ci1cir wealth durinS:J �cne trou.olous period of the vJar should 0e made to contri.Jutc a portion of their nevvly acqu:i.red v;ealth expenses . 'L1ose v1ho in tunt v1ere reduced to penury or wi1ose inco.lles suffcreu reductions could no�c be co.n- pelled to share in the expenses to the sall1e extent as those uho srew richo Tl.is in effect is what t:1e les;is- lature ' when it enacted the ~Jar Profits Te.x.Law. intended (vee '[estate ~state of C>limpio rernanc.\cz , deceased , Hepublic of the l:..i1ilippines vs . fernnndez , _?.l:U?ra . ) Thus , the Jupre:11e Court ruled in the l�'ernande z case , supra , that the \Nar profits tax is ;Joth a pro - ' perty tax and a tax on inc01ne . It is a property tax in relation to the properties that petitioner had in LieC C111Der , 1 ;~41; and it is an inco.J? tux in relat:'.on to the properties which she purchased durin':,., the Jap - anese occupation& Tl1e policy follo:ved � s therefore tl1e sa.11e as that wilich underlies the Inco.lle Tax Law , illlposin ... the ourden upon t;1ose who iwe and relievin:; I those wl1o ; ave not. It appearins t;B:. petitioner ac -

( I; �' D.2�....:Ivil �. - c . '{ ... . G.~..:>...:. LV . 141 - 02 - quired nuu1erous properties dur~_n�_, tile Japanese oc - cupation , w!1ic;1 cons.i.der2.oly increased her net worti�1 as of fe0ruary 26 , 1045 , from whatever view there- fore we 1nay look at the case , it can never De said t:1at (ler transactions and invest.wnts sl10ulcl only ,Je reacheu 0y ordinary inco.!le tax .)Ut not VJ<.:.r pro� its tax. I etitio.1er further contenc,s �cLat ti1e for-leiture of her properties wich a total assessed value of ~- C5(3 , 4~'0 . 00 , which \Jere aU.vertisecJ. for sale on ~.ov- e..1ber 22 and 27 , l9:.X: anc, i>pril 22. , LJj4 , and of w!lich fully satisf ied ;,er allec ed tax lia1Jilities , L1cludins surcharses , penalties and costs . Tnere can 0e no dou;yt ti1at t:.e levy and pu0lic sale a.1cl , for wa.1t of .Jidc\ers , t:1e forfeiture of property levied upon , con- stitute proceedin~s for the collection of internal re - venue to.xes . Ti1is oein:, so , ti1e forfeiture in favor of , and the vestirFJ of title to , ti1e '...:iovern.nent of property as a consequence of dis trai(lt and levy pro- ceedin; s are equivalent to collection of the tax. (Jose l antoja v . 0aturnino David , Ce.ou Civil Case 1.0 � .i.- 3 ..45 , decided :Jy this Court on January 7 , 195 6; Consuela F. V~a . de Mlasar v . fructuoso IDe , etco , et al ., Ilocos Jur Civil ....:ase i.o . ll)u , vepte;.l,Jer ::J , 1956). I~e 0istraint or levy oi property of a tax- payer .oeinr_. one of t:1e r.wdes of collection of delin- quent internal revenue taxes aut ;10rized by law , it follows that v1i�1ere the property of a taxpayer is sold

JJ,2CI..JIC:; - ~ . I'.j ,. c..v~ 1-.L- . 141 ut pu.Jlic aJction us a consequence of castrc.int anc: levy proceecin s , or a portion t:1ereo:: t.1e value of �cne property is less t~1an the tax , is �c!1e proper�c/ is forieited in favor of tne Gover,1Illen t ror want of JJidders , the ~ax , or a portion ti1ereof , us tl 1e case .~1o.y J)e , :~s dee..1ed po.i.C:. on t!:e c1ate of Jee .�l agar v. IJe , re.. edy by c~istraint of personal property anu levy of realty 1.1<1Y .Je re:)eated i.l:' nece3sary until ti1e i...1ll a.,,oudt of taxes d.ue , includi11s surci1ar ~es , penalties a1~ ex~enses , are collecteu � .Jy tt.e taxpayer , pursuarn to ..Ject7.on ~28 of -c;1e : e - ve,1...1e ...;oc..e , tne act 01 rede..lption is 110 t un act of r lent alrGody owned . � I.ve , �~erest tnereon ai1ci t11e costs of sale , .Je paid .Je�fore reJe1aption ca. ta.~e place . Tl1is is so ,Jecause taxes ..

DECISION - C. T��o... CASE i'lO. 141 - 64 - are not debts but obligations imposed by statute. Unlike unpaid ordinary debts 1 unpaid taxes are never dischar0ed, except upon complete payment thereof unless the statute of limitations has already set ino To hold otherwise would be permitting taxpa~ers to escape full payment of their tax liabilities by the simple expedient of <Hlowing the Government to forfeit only a ~egligible portion of their property. Petitioner next argues that the value of her properties originally levied and subsequently for- feited to the Government is more than enough to sa- tisfy the claim of respondent for the war profits t-ax assessed asainst and demanded from her. She avers that the further levy and sale of her properties on December 12 , 1955 was arbitrary and illegal . We have carefully studied this aspect of the case and we find that there is no legal sanction for the forfeiture in favor of , and vesting of title to, the Government of the property of a taxpayer only to the extent of its assessed valuationo It is of common knowledge that the assessed valuation of lands is usually below its true and full value and the value assigned to real estate for tax purposes, gene~aliy , is the fair mar- ket valueo (See Sec. 4 , Commmnwealth Act 470; Secso 29 , 91, 113, National Internal Revenue Code). A con- trary interpretation would ran counter to the require- ment of the law of advertisement and sale to the bidder offering the highest bid, or in the absence of bidder the declaration of the property to the. Government and

DECI.:;IOiJ - C. T. .�.. c;.:�...;;:: i,JO. 141 65 - its consequent disposal at public~auctiono The dis - train� t or levy of property of a taxpayer and its for - feiture to the Government being summary in nature , and conferring exceptional privileges upon the Col- lector of Internal Revenue , we believe that the pro- visions of statute relative to this matter should be construed strictly in favor of taxpayers whose pro- perties are affectedo dhile there is not sufficient credible evidence in the record upon which to base a finding as to the true and full value of the proper- ties of petitioner which were advertised for sale on IJovember 22 and 27 , 19~ and April 23, 1954 , and of which she ha s not exercised her right of legal redemp- tion , a review of the cases decided by the ~upreme Court on the determination �of the fair market value of lands satisfies us that , comparatively, the as- sessed value of real estate in the Philippines is around one - half of its actual val~e . {Manila Rail- road Co . v. Alano , 36 Phil . ::00; City of Manila v, Estrada , 25 Phil, 208; Tenorio Vo l~~anila Railroad Co . 22 Phil . 411; J�ietropolitan ~later District Vo Director of Lands , 57 Phil. 293.) Having in mind the assessed valuation of the properties of petitioner and the es- timate of the values thereof as set forth in her evi- dence , we are of the opinion that the properties which were advertised for sale on November 22 and 27 , 19~ and April 23, 1954 should be forfeited as follows: j- f . ~ .I

DECISION - C.I.A. CASE NO. 141 - 66 - Pror2ert::t Date Sold Forfeited Value 1v!anila November 22, 19Xl ~ 466,920.00 Balintawak November 22 , 19t::O 1 ,042 , 780 ..00 Pasay l~ ovember 22 , 19:0 36, 640.00 Makati l ovember 22 , 19t::O 9 , 6EO .. OO Tarlac November 27 , l9t::O 25 ,040.00 Tagaytay November 27 , l9t::O 125,860.00 Caloocan April 23 , 1954 9 1 980 .00 Total � � 0 0 0 � � � 0 �-1,716,880.00 It will be noted t hnt. petitioner's .liability has been increased considerably because of the i mposition of the 50% surcharge as fraud penalty. Pursuant to 3ection 6 of .epublic Act No,. 55 , the Collector of In- ternal Revenue shall add to the tax a surcharge of fifty per centum ( t::O/~) in case of wilful ne glect to file the return within the time prescribed under the said Act , or in case a false or fraudulent return is wilfully made,. From this provision of law, it is apparent that fraud could be attributed to the taxpayer only when he has filed a false return with intent to evade the payment of taxes. .Jhether it relates to taxation 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 Phil . 104; De Santos v. Bank of the Phil. Islands~ 66 Phil. 38; La Cia . Gen. de Tabacos Vo Obed , 13 Philo 391; !<Ienzi &

f '6 DcCI.;:>IOH - C. I .A. C/\..3 1..0. 141 - 67 - Co. v . Bastida , 63 Phil. 16; rroyo v. Granada & Centeno , 16 hil. 484) . Respondent in tre case at bar having alleged fraud , it is incumbent upon him to prove the existence of the same . unlike in cri- minal prosecutions , however , the degree of proof required on the issue of fraud need not rise to uproof beyond reasonable doubt.'' It is enough that the same be "clear and convincing" (Griffiths v. Comm., ::0 F ( 2d} 782 , cited by 1v1ertens , Law of Federal In- come Taxation , Vol. 10, Po 29) that is , it must be stronger than the "mere preponderance of evidence" which would be sufficient to sustain a judgment on the issue of correctness of the deficiency itself apart from the fraud penalty (Frank A. 1~1addas , -40 3 .T.A. 572, aff ' d F (2d) 548 (CC; 3rd , 1940) �. 3ince proof of fraud must center on "wilfU.J.ness" as its crucial core , and ' 11 1irilfulness" bein9 enmeshed as it must be with "intent11 and "state of mind11 , it is hardly susceptible of proof by direct evidence. Cir- cumstantial evidence is therefore admissible on the issue of fraud (u.s . v. Co�nerford , 64 F (2d) 28 , 30 cited by Balter, Fraud Under the ederal Tax Law , Po 394; Nilliam Li Yao v. Collector of Internal Revenue , supra). I n the light of the prevailing jurisprudence cited above and the evidence introduced by both the parties , we are satisfied that petitioner had not de- clared her true net worth as of February 26 , 1945. '/II

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DECISION - � C.T . A. CA3E NO. 141 - 69 - ~e will now consider the urgent petition to declare null and void the sale and/or forfeiture of petitioner ' s properties on December 12, 1955 . When this Court was about to promulgate this decision , petitioner filed on November 28 , 1956 an urgent pe - tition for the declaration as null and void of the sale and forfeiture effected by respondent on Dec - ember 12, 1955 , through his deputy the City�Treasurer of Manila , on the ground that the amount for which her properties were advertised for sale was again far in excess of the tax allegedly due her. Because this issue was not discussed in petitioner's memoranda on the merits of the case as she should have done and was raised for the first time barely before the dead- line of the one- year period within which to redeem the real �properties sold at public auction , this Court in a resolution of December 10 ,� 1956, resolved that the question be considered in the decision of the case on the meritso For the proper resolution of this petition, the pertinent and-undisputed facts are as follows: On November 7 , 1955, respondent wrote petitioner's coun- sel a letter (~xhibit "r - 211 , Petitioner , Supplementary Petition) ,. requesting the latter to advise their client to pay the sum of 3 , 578�726o79 as deficiency war pro - fits tax , surcharge and interest , compu ted as of Nov- ember 10, 1955 , not "later than this latter date . On November 11 , 1955, respondent , in pursuance of the

.UECISIOI\I - C.I.A. C~E NO . 141 - 70 - provisions of Sections 320 and 325 of the National Internal Revenue Code , advertised the sale at public auction on Dec ember 12 , 1955 , of petitioner ' s proper- ties described in Exhibit "N- 3" , Petitioner , Supple- mentary Petition, in satisfaction of war profits tax and penalties amounting to ~3 , 594 , 801.51 computed as of December 12 , 1955 . No bid having been entered on the scheduled sale , the aforesaid properties were de- clared forfeited in favor of the Republic of the Phil- ippines . Petitioner contends that the sale and the re- sulting forfeiture of her properties on December 12, 1955 are null and void for the reason that the sum of �3 , 594 , 30le51 .is far in excess of the amount al - legedly due from hero Contrarily , respondent justi- fies the assessment as in accord with Sections 5 (b) and 6 of Republic Act Noe 55 in conjunction with Sec - tioR 72 of the Tax Codee These statutory provisions are reproduced below: Section 5 (b) , Republic Act No. 55: 11 (b) Time of payment . - The total amount of th~ tax imposed by this Act shall be paid on or before the last day of the sixth month following the approval hereof . The deficiency tax due on the amended return required to be filed under section 4(b) of this Act on ac - count of the receipt of payment for war damage or other claims shall be paid within thirty days from the receipt of the assessment of the vollector of Internal Revenue. To any sum or sums due and unpaid after the date prescribed for the payment of the same there shall be added the surcharge of fifteen per centum on the amount of the tax unpaid and interest at the rate of one per centum per month upon said tax from the time the same becomes due . "

uECISION - C. T.A. CA.SE i:~O. 141 - 71 - Section 6 , Republic Act ~Oo 55. "Sec . 6. Surchar~e for failure to ~~ render returns or ren ering false and fraudu l ent returns. - In case of wilful neglect to file the return within the time prescribed under this !ct, or in case a false or fraudulent return is wil- fully made , the Collector of Internal a- venue shall add to the tax a surcharge of fifty~ centume 11 In brief , we find -that respondent added the :0% surcharge provided for in Section 6 of Hepublic Act no. 55 1 to the alleged war profits tax and added the 1/~ int erest authorized under ;;.)action 5 (b) to the total amount thus arrived. at . Petitioner on the other hand claims that the 1% interest should be computed on and. added to the alleged basic taxo A levy upon real property and interest in or rights to real property is a civil remedy for the collection of internal revenue taxes , fees , or charges, and any increment thereto resultingo (~action 316 , lJ<:~tional Internal Revenue Code). 1111dthin twenty days after the levy the officer conducting the proceedings shall proceed to advertise the property or so much thereof as may be necessary to satisfy the claim and costs of sale x x x The advertisement shall con- tain a statement of the amount of taxes and. penalties so due and the time and place of sale, the name of the taxpayer against whom the taxes are levied, and a short description of the property to be sold x x x ." (Sec. 325 , N. I . n. c.) And uproceedings on tax sales .., are in invitum, and every essential or material step

D 'CIJ IOl�J - ~,.;. T.A. �.;AJE �D. 141 '7f"> - I-~ . . vr esc~ibed by law must be strictly followed; other- vJise , the sale may be avoided. u (51 A;no Jur., Sec. 1045 , p. 912). .Je believe that the rule of stric - tissimi juris is specially compelling in respect to the statutory requirement that the "advertisement . ' shall contain a statement of the amount of ta~es � and penalties so due 11 because under .:5ection 320 of the Tax Code any resldue over and above what is re- quired to pay the entire claim for taxes , surcharges and interests , including expenses , shall be returned to the taxpayer. So when the distrained property of the taxpayer is sold at a tax sale for an amount in excess of the total taxesy , surcharge ~ , interests and costs with which the property is le9ally impressed, the general rule is that said sale is void.. (Sec .. 85 c. J �.:;) � 126; 51 Am. Jur. , sec .. 10~).. Such sale is void , especially where the charg~ is intentionally made, except where a statute otherwise provides .. (The Law of Taxation by Cooley , 4th Ed~ , Vol. III, Sec .. 1427 , Po 2827) . ~Jurisprudence furnishes in abundance cases where the sale of property over and above the amount legally due as taxes , together with other proper charges , �was pronounced void. (Jee Baker v. Kaiser , 126 F. 317; Goodrum v. tyer s , 56 hrk ~ 93 , 19 s, 97; ;.tiller v. :lilliams , 135 Cal .. 183 , 67 Pa 738; IIarland v. Eastman , 119 �Ill., 22 , 8 I�,� 810; Green v. l�tcGrew , 35 Ind. App. 104, 72 NE 1049 , 111 Am ~t.. ep., 149; l.ic Questen v. Swope , 12 Kan., 32; Smith v.. Ryan ,

f DZCIL)ION - C. LA. CAS � i'JO. 141 - 73 - 88 Ky 636 , 11 s~ . 647; Buell v~ Irwin , 24 Nich . 145; frindie v . Campbell , 9 Liinna 212t GilQ 197; Lee v. Crawford , 10 I'll . D. 482 , 88 N1l 97; Hil l v . Lofton, 1 65 s~J 67; Olsen v. Ja<dley , 10 Utah 492, 37 P. 739; Kimball v. Ballard , 19 . ise ED2 , 83 P.m Dec . 7C 5). l ith these statutory and jurisprudential guide- posts , we shall now determine whether the sale and/or f orfeiture of petitioner 's properties on December 12, 1955 is null and void for the reason , as al leged , that said properties were advertised and sold and/or for- feited for a sum in txcess of the totality of the taxes, surcharges and interest allegedly due from petitionera T:��ds question necessarily brings us to the determina - tion of the validity of respondent's method of com- puting the 1~ interest. The law as to what item or ite~s the 1~ interest should be computed and added is so clear as to leave no room for its interpretation in relation to other statutory provisions or administrative regulationso 3ection 5 (b) of Republic Act IJo . 55 provides that 11 to any sum or sums tax imposed by this Act) due and un- paid after the date prescribed for the payment of the same there shall be added the surcharge of fifteen per centum on the amount of the tax unpaid and interest at the rate of one per centum per month upon said tax from the time the same becomes due" . (Underscorin~ supplied) The law impresses the interest only on the tax duea If (/ l.-. /

{ 0ECI;3ION - C. T. A. C.\32 I:O. 141 - 74 - as opined by respondent , the interest should be com- puted on the totality of the basic tax and the !:0,~ surcharge , we see no reason why 6on�ress could not have said so , for it is to be admitted that there exists a clear and substantive line of distinction between a tax and a surcharge or penaltyo A "~tax' is pecuniary burden , laid on individuals or property to support government , while Vpenalty' is in nature of punishment and collectible uiually by fine or suit , though termed duty or tax in act providing therefor". c: (41 .lorJs ._.Phrases 174 citing Libcris Vo i.~ee , D. Fla. , lC f. Supp. 336 , 337)o In the case at bar , it appear s from t:xhibit "iJ - 211 , ~etitioner , Jupplementary Petition , that the sum oi i 3 , 594 , 801.51 was arrived at by computing and addinc; the 1~ interest to the totality of the alleged basic tax and the !:0>; surchargeo Io the resultin� agl rcs;ate , the 15,~ surcharge was added . now , computins and adding in accordance with the low the 1;~ interest to' the al - leged basic tax and to the resultant are added the 20,; and 1~~ surcharges , there results a total of only �:=L: , 789,267.42. Consequent! y , there is a difference of ~-805 , 534 . 09 betv1een the ar.10unt of :..-3,594,801 . 51 for which petitioner's properties were sold and/or for- feited and the ~2 , 789 , 267o42 which would properly and legally be due as tax , surcharge and lnterest . This enormous discrepancy or excess appears appa1li_ng to uso It is jurisdict5_onal in nature c:u~d as such h2.s affected the enti:-:-e sale proceedin,Js . v rendered null and void vr

r---- -- / ! uhCI0IO. : - - 75 - the sale and/or forfeiture of petitioner's properties . Consequent! y , the R.epubl :Lc o� the F hilipp5.nes did not acquire any right , inchoate ox- othervJise , in the said propertieso l'he authority (see ~-.ertens , Law of Federal In- come Taxation , Vol. 10, vcc. 55o06) cited by re::>pon- dent to sustain his stand is not in point. It wust be noted that v ection 294 ;J�) of the u� ..) � Internal J.le- venue Code expressly allows the collection as part of the tax interest upon the unpaid amount the unpaid basic tax , the interest provided for in Section 292 and the ~;~ pena lty provided for in .3ection 293 (b) -- thereof ~the rate of 6,~ per annum from the date of the notice and demand until it is paid. ~uch col- lection is not authorized under our law. epuhlic Act ,,o. 55 does not sanction the drawin;;J of interest on th�e surcharse � ;I In viev1 of the above, the sale and/ or forfeiture effecte~ on the properties of petitioner by respondent , , through his deputy , the City Treasurer of ~anila ~ on December 12, 1?55 is hereby declared null and void and without any effecto therefore of the opinion and so �hold that petitioner is liable for deficiency war profits tax in the amount of ~- 1 , 3(:() , 514 . 66, inclusive of surcharges , computed as follov;s~ �

0c:.:CT:.3,I\O. I-c..~.-s. . IJC. 141 315 , 438.32 - 76 - . Let worth on .--�eb. 2:S, 1945 a$ per amende~ w~r profits tax return oooooo e ooo. (a) 'lJilderdeclared co.sh on - iebruary 26 , 1945 � .\s per :'edros2 Com- 11,.1....1.:. -l',--tee� c o~. o - r t e e o o � e � o. =:;.:--' 1 J P.._.'.71 0 "_.'42 o 1 0� J ... w _ �~u1ount decla:::-ed ..... .. :.A , 097 . 52 1 , 8C7 , 444.61 (0) ~c co unts Iayab 1 e~ �� s per nuen.cJ.ec.: return �� o �� o o �� eo. :~;- lCG,CCC.CO l CG ,COO.OC Amount per 7:?rosa Co,�Ji,li.ttee , .l.eport � � � it�30 ,OC:C1 .00 i.ccounts payal)le to Lao ::an,.; 76 ,0CC.CO v uy re c o:.; - nized by Court � � � � I at wort~ on iab o 25 , 1945 ��o��o��o ~2 ,1 22 , 302.93 Lass: �� et \Vorth on .uec. C , 1941~ ;.et worth as per a;aended return oo�� ~ .:l() ' 581 . 57 Loss; ..ccounts payable �� 43 ' ~>47 0 22 366,034.35 InCl'e2se in l1et \JO!'-t11 e�$�� o�o �� o��e�o�e ..-1, 756 , 848.50 Less 6,..., per annur:1 on :...-366,034. 3C; fro,1 .Jt;,; C. C, 1941 to .2eb . 26 , 194S �� 70 , 644.63 Taxable increase i'1 n,2�::: -,~orth �. o �� o �� ~ 1, 686 ,2J3o9 5 ~~d; 0ndecla_ed accounts receiva~le l.rO!j ...a_,dale�J.a ...:state , Inc. as of .~..:81). 26 , 194:::) that \Jas dis - covered in J~ne , 19 51 onl~ o.o�� 2l,EOO.OO Total taxable increase in net worth ~1 '707' 703.95 .Jar Profits tax due thereon: i � 22 ,0 c .co Cll :-.- X , OOO . CO -( i.-0 , 0CC .CO- 'J..J ,CCC �C�O ~:ce r1p-~ ) � .._; J::,;; lLJD ,OOO . OO ;.. :c ,ceo .cc - � � � � � � � � � � � "-" .:f.. ,u lCC , COC aCC ,cco.co - XC , OCC .00 - � � � � e � � � � � � '-' "!C)~ :�.0 CC,J � � � � � � � 0 � � � -.._J 420 ,o_rx::, .co ~{)0 , CCC �CC. - � � � � � � e � e o � '-- 90i~ 672 , 31G.7..J 70 3. 9 - 7C 7 , ~) U � � � � � � � � � � 0 95~u ft.--1,474,318 .. 75

.' 0JCI~ICJ. �4 c. T.l�� ct.Jc i:C. 141 - 77 - C:C,o surchar'Je on i-'1 , 474 , 318. 75 .. .a � � � � o i- 737 , 159o37 15;~ surcharse on i l , 474 , 31G.n:) nee .. o .. 221 , 147.2.1 1; hlonthly on ~1 , 474 , 318.75 fro~ G44 , 768 .. 73 4/1/47 to 11/22/~C eeoooooo<>., � �e o e e e Total amount collectibl e on 11/22/:{) oo oo e o eo oo o o e o e o eeo o eoee o ~ 3,0779394 .,66 Less~ Val ues of properties so l d~ 0 n l'iov. 22 , 19 f;O � � � .. � ~ 1 , 55 6 , 000 �00 l~ov . 27 ' 1 950 e Q . " " 1:0 ' 900 .00 1, 71 6, 820.00 .'.pri1 23 , 1954 n H 9 , 980.00 Tot al due as of 0ecember 12 , 1955 ... ~ 1,360,5 14 . 66 With costs a gainst petitioner . SO OPDE?.ED. Lvl.anila , - hi1ippines , December 29 , 1956. I CONCUR= C-/~ t' ~1~ ' " L.(\B_.LE_.;~~- Presiding Judge Assoc iate Judge FlOi.vli\N l1i. UlvJ\LI did not take part . f/ 71

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