CTA Case No. 19541 (Decision)

llliJ>UUl JC OF Till. PlllLIPPINE� COUlU' 01 1 AX APPEALS MANILA ' , ALLIS J. and ESTER K. G laintiffa- Interv nora, - versus - l1A CIVIL E � 19541 OLI.ECT INTE � X � � � � � ~ � ~ � � ~ � .. � X DEC I This r lates to ( 1) two co1npla1nts, amended nd intervention, for the r-e-.f.u..n. d of the total amount of 56,911.78 representing all� dover a ent of donors ' and donees ' gift taxes plus nt r t th reon, and (2) a counterclata, inter oaed by defen ant Col� lector of Internal evenue, o t e total um of 7, as eficlency donors ' and don e 1 gift taxes. The donora� d donees� gift taxes ere in� volved refer to t o (2) sets of Dee & of ale and Declarations of Trusts ated ~�pte ber 25, 1 r. eceaber 28 , 19~1 (he~lnafter re erred to as 19 Deeds and 1951 Deeds, re spectively) , . y virtue of which plaintlffs� lntervenors Allison J . Gibbs and ater K. Gi a deeded, transferred. sold and assigned in trust in favor of their children 5 and 224,000 shares of stock r spect1vely. 101 I

1 DE I � an1l a Civil Case o. 1~541 - 2- On the as! of -a partiaI l s t �ipul tion of fac' ts ( hereinafter cit d s Stifac~s) and the additional evidence adduced y the p rt1es , the following fact hav been establ ished in this case. On epte er 2 , 1950 the spouse Allison J. Gibbs an star � (here fter referr d to as �trustoos ) executed ten ( 10) identical docum nts ntitled �Deed of ~ale artd Decl ration of Trust" ( xhio1ta � � nd "1" to � � 9� and "10", pp. 1-1 ' rec . ) , y v.l.r ue which thev deeded , transferred,sold nd a s ned n trust to c of their fiv chll r n, n� ad Jotm on elley ibbs, Allison e France s , C ndanc s, Doug! s Fletch r 1 s nd egin~l ' e 1 5 ( hereinafter cited as oene ciary or n � a th C4lse ay ) 53, ah rea o L p nt lid t d inln ompany, then th a 0 34, 9 .00, for the stipu te con i ation o 26,227.7. fh consid rat on un er he w p y bl y the co on trustee , nley � b s , on or before D cer,ber 23 , 19r. , th una to be - t !ned y th 1 tter by sell ing, mort aging, hypo- thecating, or pledging pert or all of he corpus of th trust. Each trust !s irr v cable and created 'an en- do nt fund for th support , alnten nc , c re, health , high~r education and trav 1 of th ' n fi- ciary" na d nd tha launching of his c re r after he becomes of ge . The terms of the trusts appear 1 02 '

D-~~ION � an1la ~1v11 Case No. 19~41 - 3- to be unifor an th princ ipal character iatica are h rewlth su ar1zea. The trustee "shall 1nve t and re- invest the corpy and ccu ulate , invest and re- invest th inco e of the trust, until th neflciary re ch s the a e of t 1rty�five (35)... However, �prior to the nefic ary reaching t e age of 21 , the tru tee , ln his sole d1 cr tlon, ay dv nee , contribute towards , r pay out of the incom or ~h accu!llul ted nc . of th expen lncurr d by th neficiary" for the purpo os hor of already recited. It 1s also provided th t a t r the on f lc iary shall hav each d the ag of 21 nd until the age of 35, "the t�ustee .ust d s- tr1 te to t e for er all of the annual 1nco e of th tru t ith r on 1ly, qu rterly or 1- nnual in tallmenta , or "di tr ute p rt or 11 of the tr t corpu or ccu .ulat d inco e" in 1nst 1 nts or lump u ; that ,h n the beneficiary r ach s the age o 34, th ru t shall t rminate and the trust e &h 11 turn ov r to th ne clary th entire trust corpus or there �inder thereof and ny accu ul te 1nco �; t hat if the ben f~ciery dies efore h reaches th g of 3~ , 1 vin le it ate issue , th en fits of th trust shal ~crue to the isaue; and, n the bsence of such is u , the corpus of the truat n any accu- ulated !nco e shall e turned over to rustors� 1 1- t ate childr an /or the latter's l it ate i ues; that if th n f1c1ary dies afore the � 0 � there ing neither i su h r of, nor ur 1vin chil� 103

DEClSIOH � Manila Civil Case o. 19~1 dren of trustor or survittng issue of the latter, the remaining corpus of the trust end any accu lated 1n� come s ali turned over 1th1n 60 days of the ne- fic 1ary' death to Ester K. 1 b (txuator herein) a d the trust a all be ter~1nated; nd if Ester K. Gibbs ahould not oe alive at such tim , the r a1n1n corp s ancl etcc ulated 1nco;oe s all t rned over to the ar of ruateea o Leland t n ford Univ rGity for ita oenefit. Und r the inatrum nta referr d to abov , the trustors were denominate as � �noors� . laintiff Finl y J. ibbs, a roa1dent of San Franclsc � Cali� forni , � � � and younger brother of trusto= Allison J . G ba, was, by the said documents, appoL~te' trustee, and thru the tter as his attorney-in-fact, accepted the trust for nd n behalf of the beneficia 1es. n October 19, 19~. plaintiff thru his counsel and Attorney- in- fact , Allison J. Gi s, requested panto Consolidated Mining Cop ny (Le ento Cotpany, for short) tu c�ncel ~11 th� 5 , VOO Lep nto shares , sub- ject of the ten documents her in 1nvolv d, and r .. 1aaue t e to plaintiff as trustee thereof ( xh1b1t -K�) . On October 21 1 19~. plaintiff through counsel filed with the Central Bank an applicet1on for license to aell, assign, encui:Jl!)er, tr�ru~t-.x ..,~ Jel1vtr the 530, 000 shares to plalntiff� tr stee, which applica- tion was finally approved by aid ank on December 21 19~ ( xhibita �J� and ftJ-2�). On D cember 7, 19 , new Lepanto Co pany cert1flcates of stoc re accord�

1 J C l! .... Manila C1v1l Case � 19541 < - t. - 1ngly forwarded to the pla1nt1ff through h s Attorney. in- fact All1aon J. Gib �� an Ue , on Octobe1r 2~, 1950, plaintiff wrote efendant Collecto~ of Internal venue. notifying the latter of the ere t1on of the ten (10) trusts and re� questing a ruling on hether or n t th transfer of share� effect�d 1n pursuance t reo� was aubject to donor ' � and o �� ' � taxes. The copies of t e dee � in question ( xhlb!ts �t� end �ae�. pp. l01� 102, I rec . ) were likewlte submitted. t � theory that t � benef1ciar1�s of the trusts ln est on were on��� (par. 13, t1fects), defendant un Oeee er 14, 1950, istued the following g1ft tax ������ ents DO ice�� 900� AS I ! ! /l. ount of ax � Allison J. 1 I - � A � l 111.. 774� Eater K� . 1 � A-1284�50 7 . 04 Attllf!IIDt � .��. onor� Allison � Gib a John so Allison .. - -12�38 - anciaoe ouglat It eglnal �. - �12���.84- .. o �L-1 � , PP� 112� 122, � "rec.) ach if tax assess" nt -was ba � on the alleged gift repre��nted y t � difference tween t e arket valu of t Lepanto shares of at ck transferred ln each of t � 1d de� s whl~h � . 00 and the a ount o 105

) I 0 C ION � ~an1la C1v11 Case o. 19~41 26, 227.70, which wa& the consideration atated therein (par. 13, Stifacts ). On Dec mber 22, 1950, pl i ntif! wrote d fendant, requesting reissue of the assessment notices to th trustee in lieu of the bcn~~lci~ries on th ground that legal t!tle to t L panto &harr.s llad en ve t d 1n t he trustee. Pl lntiff further pointed to a sup- posed error 1n the c lcul tion of the donor' s ft taxes which should be 842.84 for e c donor, inste d of the a essed 774.04 (E~hlbit �~� . pp. 129� 130, lR rec. ). In cc rdanc with this request, d fen- dant , on ec m 22 nd 23, 1950 , 1ssu d revis d donor'� gift tax ss ss nt notices n th n s of trustors for th mo nt f 42.84 for ch donor (Exhibits � 6" , p. 135 , lR ec. and "3~- , � 133, rec. ) , ~ or~ total of 1 , 685. 68. likewise , ended onee 1s 9lft tax ss s ents ere issued 1n t � trustee's n corresponding to each donee, ach in the sum of 8 , 928. 5 (Exhibits a37� , p. 137 , rec . an �ae t p. 140, IR c . ) or a tot 1 of �17 , r-6. 90. Llke~ th ori 1nal ass ssments , the ended done ' gift tax assess nts ~ re bas~d on the theory th 't each trust involv s the gift of Lep nto sh s , 1n ofar aa the fair market val e of the sa e exc e ed t e onetary cons1d�ret1on stipul ted in the convey nc (par. 16, tifact ). The gift taxes de and d in the amende asses nt were paid on ay 15, 1951 (ze ExhJb its �p� , " ' � � and � , pp. lS4, 136, 139 nd 142, I -ec. ) � 106 /;Jj

t. ~l - an11a CIVIL Case o. 19541 - 7- l 'o' ver , in a letter, dated April 4 , 19~1 , plaintiff requested defendant to reconsider the afcr ementioned ended don�� ' � gift tax assessments with the v ew of rev sing the same on the theory that the en ldren of t trustora are the nefi� ciaries in fact and not the trust created. (Exhi� bita �~S" , pp. 147-153, 1R rec.) . Hence , plaintiff rtGUested in t o letteri, dated June 9, 1951, "that after deductin~ the donee ' s gift taxes from th� d � posit of 6, 92S.4o on th bas s at he sai chil� dren ar th don t�beneficiarie� , the txces re� Plaintiff pp aled the atter to the ecretary of Finance , who in turn r ferrtd the matter to defen- dant for c tnt a d reco endation (Exhibit �62-A� , p. 237, IR rec. ) . Defendant reconsidered his stand saying that he was �inclined to consider the benefl� of ciaritl (children) the trust rather than the trust itself as the donees� (!xh1bit �62� �, pp. 238�2431 1 rec.). of existing administrative proce- dures at the ttme , the matter was referred to the de� funct oard of Tax Appeals (Exhibits �u-3� an "62~�. 107 �"'

-- DE - an11a Clvll Case o. 19~1 - 8- p. 24~ , B rec. J par. 23, t1facta) . On April 17, 19~2 , th said oard epprov d d fendant ' a decision that the oene iciari s of the trust (children of th trustora) rather than the trust itself are the donees ( xh!blts �v- 11� and �66� , p. 342, IR rec . ). eanwhile; in reply to n inquiry relative to th paym nt of the consideration stipulat d 1n the 19~ deeds, trustor , in a letter dated arch 24, 19~2, explained that there wa deferment th reof and that th same was due to th delay 1n the is- suance by ~he Central Bank o! the license approvln the transfer of the Lepanto shar SJtrustor�s leaving the Philippines on account of th orsening international condition; and, sucsequant pressure of his work. enc , trustee requested that the payment thereof be deferred unt11 after th approval by th Central �Bank �of the transfers effected under the 195! deed � Accordingly, 1t as then the alleged pl n of the trustee to liquidate the specified consid ration under the 1950 and 1951 deeds as oon as possible after approval by the Central Bank of th transfers effected by the latter de da by hypothecating the shares in� volved with a local bank for the necessary sum (Exh1� bits �u-7" and �68�, pp. 307� 309� IR rec.). ' rhe ~ case was r ferred to the Conferenc Staff for investigation and reco endat1on (Exhibit �5��, pp. 38 381, rec . ). eanwhile, on May 12, 1953, plaintiff f1led .the original co plaint in this case 1_0 /If

'. lJI::..~ .�i:> .L\,,ft ,. n J. ..&. a Civil Caae No. 19541 -9- befoee the Court of first Inatanee of Man!la , which, by virtue of Republic Act No. 11~ , remanded the tame to this Court for f1nal disposition. In the interim the Conference Staff of the ure au of Internal �the sum of Pl7,106.50 be credited against hatev deficiency donor�s and donee ' s taxea may be du from the taxpayer� (ano) 0 that h total fair arket valu@ of all the shares of stock of Lepanto Consoli� ated ir.ing Co pany covered under th ten (10) D eda of Sale Declarations of rust con5idered a 1ft by the spou&$s to their children x x x." (Gxhiblt u54� E� , pp. 419- , !I rec.) In view thtr of, defend nt, on June 16. 1954, issued two amended donor�a ift tax aseoa ments in th n met of tru stors ( 1ntervano.rai �Hieh in th &um of 9 , 071. 00. After credit~1 t e alleged overpaym nt on the donee's ~p.ft tax in th ount of 3 , 977.29. t~ re 1 left � balance of 5, 093.71 un ccount of donor' s gift t xes 10, B rec . ; U~u-.:.1J0.!$ ,_ nd "81��. � 500, �m rec.; par. 26, St1facts). quest of tz1e tru&tors for the defe ont of paymont thereof wa& aniad, these assess �nt& were paid under protest (Exhibits �uu'!J 11 ~nd "UUU-5.. ) and a claim for the refund t reo{ as filed with defendant within t ~ statutory par1od (Exhibits nrrr-s� and ~rTr-4n , pp. ~19 nd 5~5 , Q rec.). ~ean hile , on June lo , 195 , ~rustors nnd trustee (plaintiff), th latter ctlng through hJ.s a'tto:rn y-in- fact, All ison J. Gibbs {one of the trustors), exocuted 109 /If

- l U.t:.\,; ,a:, .&. � an11a Civil Caae o. 19541 ... 10 - ten (1 ) co promise agree~ent corresponding to e ach of the 1950 D eds . By virtue of oach of t hese com� pro 1se agr e nts , the trustee obligated him elf to liquidate th consideration of 26, 227.7 stipulated 1n e ach of he eds o epte ber 25 , 195 , y p2ying the tru stora 5, 227. 7 on or f re June , 19 3 and t he balance of 21 , on or before fixe d tas whi ch ranged fr , Ap 11 4, 1 5 to rch 11, l 71 (on or before th t nty-first lrthday ~f h c ild in- vol ved) or the dat o t rmin ti n of th trust , whi chever date first cc rs (.... x 1:.Jlti " .l. I to uuL- 9" . pp. 47 96, r c . ; s al~o pp. 112-113, r rec . ) . The s of as in fact p id on June 29 , 1953 (E xhibits " " nd 0") . App rently , in p rsuance of . these co pro is ents, trustee ex cut d and de- egr e liv red ten undat d and unuitnes ed pru 1ssory notes to trustor& for 21 , 000. 00 each, the su p yabl 1thout 1nt rest on th d t s pr vid d fo in 1d ee nt. In ep 11d ntly o th 19- <le ru ~or& executed on December 2B , 19~1 ten (1 ldon' cal docu~ents en- tltl d d of ale Decl ration of rus ~ ( xhib1ts "H" and �11" to an-9" and "2�.1' � pp. 252- , B.LH. rec . ) , by virtue of \h ch thy resp ct~vely de , transferred, old and asGi~ned ln trust to ec.;ch of th ir f ve c hildren, heret ofore named , 22, 4 shares of Lepanto Consolidated Min ing Company stock for th stipul ed consid ration of 17, 430.00, then with a ijr et value of 19, 264.20, payable by the tru tee ithin on hunclred t nty (120) 110

D '-i l - Manila Civil Case o. 19~41 - 11 - days after t � transfer of said stock ls effected 1n the ooks of Lep nto C pany. The consideration threof was to be obtained by selling, ortg g1ng , hypothecating , or pledging part or all of the corpus of tn trust. x� cept for the subject tter an consi er tion thereof and the date of payment of t latter, the 19~1 eeds are a faithful reprodu~t1on of the 1950 dee heretofore escrlbed. . laint1ff w s alao appointed nd c nstituted trustee under the latter deeds. Pursuant thereto, applicati o or l cenae to sell, ass1 n, encu r, tra efer or eliver d/or export th 224, Lepanto sh ea fr tru&tors to trustees was filed with the entral ank. � ruary 29, 1952, the Central ank approved an en d appli� cation (Exhibit �y�), authorizing th tran fer of t e shares covered y the 1951 d eds subject to the fol- lowing cond1tion � (1) that the stock certificates will not export� a roaa out a1nta1ned n th hll1pp1ne�J (2) that p enta to ad ir t stock certific ates shall ade fr p so lawfully due to the said trustee o r dollar re 1ttances fro abroadJ (J) that any ounts realiz from th future disposition of these cer~1f1cates shall alntained in ~ lock ccount with y of our (Central ant) authoriz d agents, (~) t at the trustee shall waive r 1ttance of any future divided on sal cert - f1t at��J and (5) that th stock certificates tran - 1.11 Ill

D'ECISia. � Manila Civil Caae No. 19~1 - 12 - ferred under license x/L-530 covering application x-431 (on transfer of September 25, 19~) shall not be exported (Exhibits �v- 3� and �v-4"). Subsequently, however , on June ~ l5, 19~3 , truators and trustee (plaintiff), the latter cting thru his attorney- in- fact, Allison J. G1bba (one of the truatora), executed ten (10) co pro 1ae agree ents co~responding to each of the 1951 d eda. y each of these agreements , the trustee resold, retransferred and reassigned unto trustor� 22, 400 Lepanto shares , subject of the 1951 deeds, for a price of Pl9 , 264.00. It was agreed thereunder that the st pulated considera- tion of !7, 4 .oo in each of the 1951 de de was to be credited against th 19,264.00 pric agreed in the compromise, leev~ng a bal nee of 1 , 834.00 which wa to b paid to th trustee upon t e trustors ' repoasea- sion of the Lepanto Company certificate of stock ev1- dancing satd 22,400 shares (Exhibits �~ � to � �9", pp. 445-474 , IA r c.). ean hile, on Januer y 25, 1952, plaintiff re� quested fro def ndant a ruling as to whether the transfers c overed by the 1951 deeds were subject to the gift tax under action 111 of the Tax Code. arch 24 , 1952, Donor Gift Tax eturns (Exhibits �u-7 nd "68� , pp. 307� 309 , IR rec., see Exhibits �z� and~ "39" ~ and" � ~nd �40� , pp. 334�337� BIR rec.) and Donee Oift Tax eturni (Exhlbits �u-1� and "68�, pp. 307�309, lR rec.; see .xh1b1ts " a� ~ nd "41" to "KK" 112

c � anll� 1v11 Cau � 19541 � 13 - � l�I , � � rec . ) ..~� f !led. as1s of thtae retur a, fen ant 1 sued the fol� tax s t of Tg n J. .� 6 � ��.. S� 7 7, , 1 nt 1-4, 1 � ( xhlbits � yy�, p. ~. d � . c., .. � Ex ita "22 � o �x �1t p � 7 � � 7, � 1, !) � n 1� 1 � o ox-' iit �� ���� nt r �� ref.r t 0 �p �v 4 , 19~2. t � 0l n 7 �� pp. 7 nd � � lt nd d c na 1 dated on ' nt c; � ch ~ t 1 sued a a nat t e 113 lit/

DE IOi - anila Civil Case o. 19541 - 14 - 6, 20 . 6 � vredit d t et'eto it Ute s of i-: 183.4 5 whic h as paid on ay 14 , 19~2 , t hereby l eevin in I e ach c ase a d ficiency cionte ' s 1ft tax of 6 , v20.1~ ' (Exhibits" PF� and �76", :1d "77" , P!"� 00~ and ~-.I~V6 , I re c � ) � Th s d9f1c1ency o ~essments wer accordin 1y paid and subsc ently t h A f nd therefor as requested on July ~1 , 19~4 by plaintiffs . � (Exhi its TTT- f I "Trr- r.u ... rr - 6' , "TTI- r - 2" and "TTT- 7" , pp. 519 , 21 , 523 , ~25 , ~~ , ind 529 , rec. ). The i st n c s , as pre lously �t tea , ~- manded to th:ts :ourt f or f ln l dispos'tti n pur uani: to epu 11 c o.ll2S. n th is of 11 _h& re - oin t 1 Guest ons her- in r is d oil doi to th foll win : 1. h o not t e trans r o Lo- panto sh r s effected by the Deeds of Sal an D cl r t!ons of Trust , dated eptcmbar 25, 19 0 an 0 cemb r 2 , 1951, re ubject to ft t x, and if th affirm t v ; 1ft tax should on tar con- con� of th there o ution o th s t~o &U S pon the ap lie ti n of ections 108 n 111 o th - tional Internal ri.ev nu od , ~hich red as follo ' pas t of tax.- (a) Ther vied, assei&ed, col� lectcd, nd p ~d upon th transfer by any individual , r esident or non� re& � dent , o property y gift , a tax , co - puted as provided in sect ion 109. 114 /1.3

DE.CIS IOO � Manila Civil Case No. 19~1 - 15 - (b) The tax ahall apply whethtr th transfer !s in trust or otherwise. whether the gift is direct or indirect, an hether th property 1s real or personal, tangible or intangible. as than �pr.;:;;oo:;.pea;:,;r:.;.:t::-y~1~e~t-r..,a,.n,;r;s.,..eo:;.r""'r-e~&.�o�r-...~e.s...a� �t h ahne r e an adequate an full consideration in money or �oney' � worth, then the ount by h1ch the value of the property ex� eeeded the value of the consideration I ahall , for the purpose of t e tax ~ poaed this Chapter , be deemed a gift, and sha l be inclu ed in co puting the amount of gifts ade during the calendar Y ar. � elat1ve to the firat issue, plaint ff (truatee) nd plaintiff�J.ntervenors (trustor&) maintain that the transfer of th Lepanto shares cov red by the 19~ and 1 ~1 e s 11 a aale or rans er of stocks or a valuable consideration consisting of a prom!.. to pay a certain aum of oney. a such, it 1a argued th t t same should not be subject to ~1ft tax. How� ever, it ay tat d y way f baervation that � plainti f appa.t�eu ly a its tho 1 t tax lia 111ty upon t ffe:ren � t en t mar t va ue of the epanto stock an 5t1 ulate p rchase pr ce 1n the total s of 3,411. 2. �� par. 1 , emorandum for Pla nt f l&t page ~ orand for Intervenors). Up n t e ot r hand, fendant conton s that said tr ns er are onat on for th reason that the con� siderations �st t in th deeds are simulated with intent to defeat tho ft tax laws. Both parties soem to gree that th reoolut1on of thi$ issue turns upon the proper f ctual circwnstance$ an apprecia� 115

OEClSION - Manila Civil Case No. 19541 - 16 - tion thereof. The determination of whether or not the convey� ance 1n each case of the Lepanto shares in question was propelled and tmpelled by a donative intent per- force leads to the ascertain nt of at tranapired in the minds of the trustors. For obvious reasons, we shall detar ine their subjective element by the objective manifestation f both truators and trustee. � ahall ccordingly consider all cirCumstance� affecting the two sets of Deeds (19~ and 19~1) se- parately and in the order of th 1r execution. 1th reepect to the 1950 deed~ , it is to be noted that by each eed, each trustor conveyed 1n truat to aeh of the ch1ldren� btnef1c1ary 53, 000 Lepanto shares for a stipulated consideration of 26, 277.70. y th $(! d d& , truatora transferred and conveyed a total of 5 1 000 Lepanto shares for an agtregate price of 262, 277. 00. The current arket value of the shares, 1. � value at the time of the transaction, was S49 , SOO. OO. In addi� t1on to the substantial disparity t en the arket value and the alleged price ther for, 1t should be noted that th deeds contained no provision as to pay� ent of the consideration involved except a con ition to the effect t h t the trustee waa authorized to sell , ortgage, hypothecate or pledge part or ell of the corpus of the tr~st to pay th trustors . Although the deeds 1n que tion provided th t the payment of the consideration should be ade on or before Decem� ber 231 19501 no attempt was made to effect such pay- 116 II/

ISl - anil a Civil ase o. 19541 - 17 - ent then. In fact , pur portedly pursuant t o t he co � promise agreement of June 1~, 1953, the trust ee ap- pears t o have paid on June 29 , 1953, nly the sum of ~, 277. 70, on each tru&t or a total of 52, 277. on the enti r property leaving the balance of 21 , . 00 on e ch tauat or a total unpai balance of � To answer for t he pa ent of this ~lance , t trustee purporte ly executed and deliver to th trustor� ten (10) undated and un ltnesse promissory notes , each of which ia redeemabl e on or efor the tw nty- f 1r�t birthday of th child concern d, or the date of the ter !nation of the tru..st , whichever date firit occurs. lo ver, it appe rs striking to us that b � &ides being und ted th pro issory notes r no pl ce of execution. fro th evidence furth r adduced, � note that th trustee is th youn er brother of trustor , Allison J. Gibbs. In addition , the trustor hims lf is in turn th attorney- in-fact of the trust inley J . Gibbs nd cted s such in ehalf of the 1 tt r in the execution of the 19~ nd 1951 deeds and th co promise agr ement a of Jun 15, 19~3. hile ord - narily this con nguineous relationship alon hould not xcite suspicion, y t when all thes facts ar taken together we cannot help but subscribe to the proposition that the transfer of Lopanto shares of eptember 2~ , 19~ could not a sales tr ns ction at arm' s length, f or t h parties thereto h v een practically one and t he s e individual cting n 11 7 I/o

DE I - nnila Civil Case No . 19541 -1 dual c apacities on matters which ere usually and autually inc mpotible ~ith each other. It should b noted that by the terms of the 19 d eds, the trustee is to pay th stipulated consideration by selling, ortgaging, hypothecatin , or pledgin~ part or all of t e corpus f the trust . Although the transfer of the 530, 000 Lepanto shares was approved by th ~entral nk as early s Decem� ber 2, 19 � n the corresponding shares , duly transferred in t � n � of the trustee on December 7, 19~, yet th re is no show1n that th trust ade any atte. pt to sell , ortgage , hypoth cate or pl dge part or all of the corpus 1n order to liqu1- date the sti lated con !deration � either did the trustors press for such sale, hypothecation or pledge. All these serv to indicate that the sal s transactions were not ser1ou 1n their entirety not to ay f1ct1� t1ous. �inallv, w note that the purpose behind t e various trusts, as afor stat d, as to est blish en- do ent funds for the support, maintenanc , ear , h alth, higher education and travel of the benefi- ciaries and the la nchin of their careers after they b e of cge. I this be so, then it would seem highly incomprehensible why extremely burdensom on t ry considerations were imposed 1n the trust&. This see � to us to be rather inconsistent. e aasum that the truatora were ee serious bout t h pur� pos of the truata. ith t is in in , ~ c nnot 118

DECISION - Manila Civil Case No. 19~1 - 19 - conceive how the purpose of the tru t may readily and ltbe�ally be achieved if the trust were to be burdened by such onerous monetary consJderation� . lthout the consideration, the purpose or purposes of the trusts could have been more readily obtained. Consequently, we foal constrained to tr at the one� tary considerations of the trusts as an intended superfluity, if not a &u tlety , to becloud the dona� tive intent of trustors. It may however be stated that in many inst nces as betwe n r latives, nay between parents and children, property y sold at a rgain price , tlaus ne a- tivin9 the po ib1l1ty of liberality or gift. ever- thele , all t e foregoing circumstances hen taken t ether, especially th influence of family affec- tion and rela�1on, lend light to the conclusion that the transaction wer in fact gifts. 'e dd to this th rule that th deter !nation y th o!l ctor of Internal avenue th t a gift has been made , is pre� sumptively correct, and thus the taxpayer is burd ned with the duty of di proving uch gift (see John D. Arch old vs. Co 1ss1oner, 42 TA 453). The co pro ise agree nts of June 15, 19~3 , amply supply the explan tion regarding the nature of the transfer of Lep8l to sh! res. stated bove, by these agree ents, plaintiff trustee o ligated aelf to liquJdate th total consid ration of 262, 277. sti- pulated in t � 195 deeds by paying t austora ~2, 277. 00 on or before June , 195 nd t e balance of 210, .oo 1.19 /of

DECISION � Manila Civil Cese o. 19541 - 20 - var i ously on or befor e th twenty- first birthday anni- ver ary of the child 1nvolvGd. The sum of 52, 2n.oo was p id on June 29 , 19~3 . The btlance of 210, 000. 00 was qual l y diffused i n ten pro issory notes which are separ ately redeemabl on or o fore the twenty- first birthday of the child concerned. In view of our oo- servati ons relative to the circu stances attending the execution of these not s and ot her antecedents of t he case , ar compelled to conc lud that~s c onsider a- t ion of 210, 000. 00 is a simulated one. ut , as the mark�t value of the ~30 , Lap nto shares was 34? , 8 . 00 and only the ount of 52,27a.oo was paid therefor , it follows th t said hares Qre transferred for less than t heir adequate and full c ns!d ration. l'he amount by which the mer~et val ue of the shares exceeded the c nsi� deration actually paid is , therefore , a g ft ( cti n lll, .J at!onal ternal avenue t,.;ooe) e hold the s o servation with r spect to the t ransfer of 224 , 000 Le anto shares effected in the 1951 deeds . e note th t th stipulated con !deration of said t ransfer has not been li uid ted. The s cor.d s t of com- pro 1ae egree cnts , h ch, y their terms , resold nd re � transfer~ed the a � s'1 res to plc.d.nt1ffs- J.nteL�v nors for a total u of 192, � serve to coordinat our ind- 1ngs t hat the transactl.ons o Se!)te er 2 , 1 . 0 and Dec- e er 28 , 1951, to the xtent that the r et v lue ex� ceeded t he pr ce ac,ually paid, cons J.tuted aift& oy th trustors to th 1r c h ldren and are taxable under sections 108 and 111 of the Tax Code. To our ind, the compro ise 120

DEC � Manila Civil Case No. 19!>41 - 21 - agreements a in 1953, n t purport c r sale by the truste to t he truator1 of th s hare stock were futile att pts to bu st r rustor ' c nt 1tion that the e arli er dee J .r oun ed upon valid and sufficient cons iderat or . should e not d t at these were ad~ at t he t e defend l& lready made the tax as sc sments ~n uestio�. y a te pt g to retell or r convey the hares , t aa pparently the hope of he t.rusto.rs t \at 'the l9~v � d 19... 1 trans - actions woula c io re as tru s ies. The c ontent ion th t tu an 1 ....1 de ere ted future interests , cond, t. ref ore , �- t rans r of ,. panto ahare y 5 0 not b tax 1 s gift is entirely ithout it. y t of t e various trusts, tru or h va c ... pl � y, v c bly end imm diat ly r 1 u d ec c do .1n ion cv r t he Lepanto shares in favor of tt truuot 11d ult.:.- mately in r� v r of ~h ic t'l. such, the gift tax shou at. ch for � a a 1 even � therefore, rev c bl d vo tm n f all l.e donor�� right in th prop y , r t r n th re - vocable vestin~ f i ht � ln � fic1ari s � � (Helvering v. 0 nett 129 2 2, 8 , quo in t T~x ~ . 55 Har- rren, orr l tlon of "ft n s vard La ev!e l , 15) . � h ss .ce f gilt by truat 1& he a n. nt of control ovor the pro- perty 1n tru t. (OJ i h v. n . 8S$y, 31 .s . 116, 181, 87 LEd 690 , 693.) 1 21 -�

DliCJS l � Jllanila Civil Case o. 19~1 - 22 - T � arg nt t hat there can be no transfer by way of onation or trust b cause neither ,arents nor benef1cia.r1es-children accept d the transfer is equally untenabl. �hlle 1t !a true Article 1�1 of the Civil Code ~�quires the acceptance of don t!ons d 1n favor of !nora and incapac1t ted persons t ou h their parents or legal r pre ntatives , for the vall� dity of the s , liev that said legal r uire- ent is not necessary in those cases of donations as the ones herein involved hare the donors ar the na- tural parents of the don es. e that as it ay, tax laws concern it �lf ore on the r ther than t for � In th c se t ar, th donors ar th na� tural p rents of h donees. It ould up rfl us an fat ous to requir trustors to accept in half o nef1c1ar1es (their children) t onat1ona that they (t � former) th alvee e . Th ob e vat1on t at to require th for er to ceept the onat on uld a super lu1ty an fa u1ty is ore ly ru� f e were to ar in 1 that ne of t trust ra :lt Allison J . a, and 1a also he att r ey� in� ct of plaintiff�tr stee, who accept d e v r trusts he and his wife eat blis a. ons qu als elieve t t the acceptance of th trusts y th truetee , 1nley J. G oa, acting through his aai �ttorney� in� act , uf 1e1ent for purposes o th 1mpoe1t1on of the gift tax on the vari us onat1ons 1n question. 122 Jos

DEC ICN � Manila Civil Case o. 19541 � 23- e now co e to the second issue. 1th respect to the tranafer of Lepanto ahare& effected 1n the 19~ eeds, � have heretofore made a finding that the 1 of !>2, 277.00 was actually pal for said transfer. To the extent of this ount, the eatate5 of plaint1ffs- 1nterv$nors�donors ere repl n1shed� However , 1 appearing that the ~30, 000 Lepanto shares had then current arket value f 349,8 .oo, it fol� lows that sa shares ere tranaferred for less than an adequate and fu.l consideration. y provision of law, the di ference bet~een the then current mar et value of the Lepanto shares 1n the ount of f 349, and the sum of 52, 277. actually pa!rl, or the d1f� ference o 297 , 52 .oo should be ubject to gift tax (S action 11 , it .re d to th tr nsfex of 22 , 000 Lepanto share� ma e the 19~1 ee ' hav her tofore found that th. con !deration t r of, ount1n to 174, � s not yet een ld. 1 er was o epleni&~ent to pl 1nt1ffs�intervenor' estate as far as their tr nsftr is cone rned. Th t nsfer was, therefor�, o etion. nd , it als~ ap earinQ that theae shar s h d arket valu of 192,642. at the t � of th 1r tranafer, 1t t er�fore follows that this ount of 192, 642. 11 subject to 1ft tax under ection l of our Tax Code . VIE F iEGOING , the decision appeale fro is mo 1f1ed, an , th defQndant Collector ef In- .. 123 /Of

DECI 1 l - anila \ C1v1l Case o. 19541 � 24 � � ternal evenue 1$ hereby ordered to refund to th plaintiff the au of ~ . 381 . 88, aa eo puted in Anne~ �A� hereof. with interest at th le al rate fro ilate of pay nt. ithout special pronounc n~ as to costs. so <lU>tiRED. Manila, Pb1lipp1n s, Febru ry 28 , 1958. c I 103

ANNEX �A� DONO&S GIFT TAX � !250 Donors - Allison J. 61bbs � ter K. i os arket valuo of 530, 000 shares � � ������ �� �� �� ���~ 349 , 800. 00 5&1 eLt egsisf: tC~ onasdide ration actually paid ���� ���� � � � .~572: 277!0~0 by Allison &Esther Gibbs ���� � � or for each donor ������� l 8, 7 � Computation for donor All bbs Donor ' s gift tax due on 149,761.50 ��������� 6, 743, 30 less a~ounts paid: 5, 520, 84 onor� s tax per ?riox years co~putation ������ ~ �������� ���� � 842,84 1, 222. 46 Overparnent on don~es gift 235.32 t~x per computation b~low) � � � 4 , 673, 1,457. 7� Defic!enct Lft tax ���� �� �� �� ��� �� ���������� 1/Z. o, inter st on Pl , 222,4 6 i r.om 5 , 3, 7_1 5,23 5/ 1~/~l to 7/31/54 ���������������� ������� � Total gift tax and int r st ����������������� Amount paid 7/31/54 ������������������������� efund du � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � -Co putntlon � Gibbs (same as a v ) � � �� � � � � �� � � � �� D Donee � Jo son, ll!son , C�ndace , Dougl s &ft@cin 1 G!b s l/5 of 148, 761. 50 � 29, 752. Donees g!ft tax due on 29 , 252. � � � aeo� . ! rot 1 glft tax du9 ro the ove donee& ���� Less amount paid �������������������������� Overpa~ent credited to donors ~ift tax payaQle (see co put tion above) ������ ����� -y efun due on onors� taxea 1950 � 7, 2tl . 6 Deficiency donors taxes 19~1 ( 1, 311. 86) Deficiency donee& taxe� 19~1 ( -�_--.,5...,78.,..,;...;;;1;.;;;2) �otal refund due �� ���� � ���� � 125 lo:(

- 2- IPT TAX - m.l Don'ors - Allison J , Gibbs Esther K, Gibbs Market Value of 224 , 000 shares �� � ���� � � � � � � � �� Pl9 2 . ~2, 00 or for each donor � �� �� ��� � 96. 32l. QQ Net gifts ������� ��� et gifts ��������� � Total ��� �� ��� �� �� ������� ���� Gift tax due on 2~~ . 002. ~ ��� � �� Lesaa Gift tax f or 1950 Donor ' s gift tax due ������ �� ����������� � � �� � . 12 Lesaa a.ount paid - Donor �� t x per prior years computation � � � Defici ency gift tax � ����� ����� � ������ �� � ��� � 1/~ o, int re t on 8 , 339. 70 fro 5{ 1~/~2 to 7/31/54 ����� � �� ����� ��������� � Total gift tax and nter est �������� �� ���� � � � Leas aaount pa1 7/ 1/~ ��� � � ��� �� � � � ���� ��� et ef c ency 1ft t x due ��� � ������ � � � ���� c D fie ! ncy gift t x e as above) Total def i c l ncy gift tax due fro a ove donor -~ Donees � Johnson, Allison , Candace , Dougl s egln ld � 1/!> of 96, 321, 00 � 19, 264, 20 Co et gifts 1n 19 � � ��� � ����� et gift in 19ol � � � � � � � � � � � Total ������ ����������� ������� onees gift tax due on above ,, , , , 2, . 9 L ��� gif t t ax f or 1950 � � ���� � �� � 850, Q9 Donee ' s gi f t t ax du e ch don e fro~ � ! ���� ! � Total gi f t tax ue fro t h a ove done s ���� Less amount pa �� ����� ����� ������ � ���� � ���� Defici ency gift tax � � �� ��� ������� � � � � �� � � � �� l/:1% JDO, interest on . ~71, 5 fro 5/15/ ~2 to 7/ 1/54 �� � � �� � �������� �� ����� � � Total gift t ax nd inter at ��� �� ����������� � ount paid 7/ 1/54 � � �� �� ��������� � ������ � �� et defici ency gif t t ax du �� � ����� ����� � � �� Tot al deficiency donee gift taxe for 1951 �� � 289. 6 126 lo!