CTA Case No. 3393 (Decision)

r. ~,., -:n.iC. o Tli :-'O!J~T OF T.;� / MELCHOR J . JAVIER , JR . , Peti tione r , - .ver su s ... C.T . A. CASE NO. 339 3 RUBEN B. ANCHETA in is capac i ty as Commiss i oner of Internal Revenue , Respondent � X .. - - .- .- .� .- .- .- .X DE C I S I 0 N The question here is whethe�r t he proceed s of an err oneous bank remi t.tance to a taxpayer over which he exer c is ed c omplete Cl.ominion t.o the e x t.e nt. � of disposing them beyond all chance of r ecovery const i tute taxable i ncome to him. The f acts are no � d i spu ted. As allege~ by . petitioner Melchor J. Javi-e r , Jr. in his pe t ition . for revi ew and admi t .ted by re spondent Commiss i oner Qf. Inter nal Revenue fn his answer: COMES NOW the Petitioner , t hr ough i ts unders igned counsel and to t his Honorable Cour t respectfully alleges: 1. That he is a Filipino citi zen , of legal age , married and a re s i dent of� 108 (now 326 ) Jose Abad Santos Street, San J uan ; Metro Man ila ; and t hat the r e sponden t. Rube n B. Ancheta is the Commissioner of. Internal Reve nue and holds hi s office a t the Bureau of Inter nal Revenue i n Quezon City wher e he may be s e rved with s ummons and othe r . processe s of this Honorable Court . 198

DECISION ..,. - 2- CTA CASE NO . 3393 ' 2. That on or about J une 3, 1977, Victoria L. Javier, the wife of. t he pet..iti:oner, received fr om the Prude ntial Bank and Trust Company in Pasay Ci t y the amount of US$999;973.70 remitted by her sister, Mr s. Do lores Ventosa , thru some u.s. banks among which is Mellon Bank, N.A. 3. That on or about Jun~ 29, 1977 Mellon Bank, N.A. filed a compla int with the Court of First I nstance of Rizal (docketed a s Civil Case No. 26899) against t he petitioner, his wi f~ and other defendants c l aiming t hat its remittance of US$1 , 000 ,0 00 .00 wa s a clerical error and should have been US$1 ,0 00.00 only and praying that the excess amount of US$999 , ooo�.oo be re- . turned on the ground that. the defendants are trustees of an implied trust for the benefit of Mellon Ban k with the clear, � i mmediate and continuing duty to r eturn the said amount from the moment.� i t . was rece ived . 4. That on or abou t Novenbcr 5 , 1977, t he Cit y Fiscal of Pasay City filed an I nformation wi th the Circui t Criminal Court (d ocke ~.e d as CCC-~II - . 2369-P.C .) ~barging the petitione r and his wife with the crime of Estafa alleg- . ing that t hey misappropriated , misapplied and converted to their oNn personal us e a nd benef it the amoun t of US $99 91 000 . 00 which they received unde r an i mpl ied tru s t for t he benefi t of Mellon Bank and as a r esu lt. of t he mistake in the remittance by the l atter . s. That on March 15, 1978 , the petitione r f ile d h is I ncome Ta Re t.urn fo~ the taxable year 1977 showing a gross income of P53,05 3.38 and a net income of P48 , 05 3.38 a nd stating i n the footnote of the r e turn that. "Taxpayer was recipient of some money r ece i ve d fr om abroad which he presumed to be a gi f t but tu rned out to be an .error and is now sub- ject of litigation ." 200

DECISION - CTA CAS ~ NO . 33 93 - 3- 6. Th a t 01 or before Decembe r 15 , 19 80 , t he peti t .i oner rec eive d a let.t er from t:he acting Comm i ssione r of I n te rna l -... ~.. Revenue dated November 14 , 1 980 t ogethe r with i ncome assessment. no t ices f o r t he years 1976 and 19 77 demanding that pe ti- . tione r pay on or before Dec e mbe r 15, 1 980 the amount. o f Pl,615.9G and P9 , 287 ,2 97.Sl as deficiency assessments for the years 197 6 and 197 7 respec t ive ly . A copy of the let ter of the Acting Commiss ioner of In t ernal Revenue da ted Novembe r 14 , 198 0 is attached hereto ma rked a s Anne x "A", and copies of the asse ssment nc� t.ic e s for the years 1 976 and 1977 are atta ched her eto mar ked Annexes "A-1" a nd "A-2 " respecti vely . � � 7. Tha t on Dece mbe r 15 , 1980 , the � peti t.ioner wrote t he Bureau of In terna l Revenue that he was paying the de fi ciency . \~ income asse s s ment f or t he yea r 1 976 but denying t ha t he -had any . undeclared income f or the year 1977 and r equested t hat the assessment fo r 197 7 be made to await fi nal c ou rt decision on the C <l S ' f i led agai ns t him f or f iling an al l ~ g~d l y frau dulent return. A copy of t he peti - . titione�r 's. letter dated Decembe r 15 , 1 98 0 . is attac hed her eto, fllarked Anne x "B" and made p a rt hereof e 8. Tha t on Novembe r 11, 1 981 , t he petitione r r eceived from Acting Comm is - sione r of I n t ern al Reve nue Romu lo Villa a letter dated Oc tobe r 8 I 198 1 stating in reply to hi s December 15, 1980 l e tte r p rote st that "the a moun t . of P7 ,0 20 ,0 00. 00 representing that por tion of Me llon Bank 's. erroneous r emittance which you were able to di spose , is de fi n ite ly taxable" . A copy of s a id l ett er is attached hereto marked as An nex "C" and made an integr a l part hereof . I n specifically denying t he allegation i n pa rag raph 9 of t he peti tion for r e vi ew "That the � dec ision of the Acting Comm issioner of In terna l 201

DECISI ON - CTA CASE NO . 339 3 - .4 - .l Reve nue on t he peti tioner v s. protest on the def i - . ciency inco'me tax assessment. f or t h e year 197 7 is agains t the law considering t.h a ~-- the amoun t. of US$1 ,0 00 ,000.00 temitted allegedly by mistake to h is wife is no t subject to i ncome tax " , for being mere opinion or conclusion on the par t of peti- ti oner , and err on e o~ s, re spondent avers i n his answe r as Special and Affirmative De fE nses: SPECihL AND AF FIRMATIVE DEFENSE S 3. Section 29( a ) pf the Tax Code pr ovides: "Sec . 29. Gross Income . - � (a) General de fi n ition . -.:. .'G.r oss income � �.i nc lu des gains , pr ofi ts, and i ncome der ive d from s alar ies, wages, o r compensation for p~r sona l se rv ices of whatev r�t ki.nd and in whatever form pa id, or fr om professions, vocations, trades , businesses , comm~rce, sales , or deal ings in pr operty, whe the r re a l or pe rs o na l~ gr ow ing o u t of the ownership or use of or i nter est. in such property , also fr om i nte re sts , r ents , di v idends , secur i t ie.s, of t he t ransac tion of business carr ied or f or gain or profit, gains, pro- . fits,and i ncome de rived from any source whatever . " 4. Section 21 of the Na tional I nternal Rev enue Code provide s tha t a tax is i mpo sed upon t he taxable net i ncome r eceived during each taxable year from all sources by every i ndividual, whether a c itizen of the Philippines residing t herein or an alien r esiding in the Phil ippines . Ne t � ncome under t h e Tax Code means the gross income computed unde r Sec t i on 29 of t he Code l ess the ded uc tions allowe d by l aw ; 0 I) ~ I ) 1:;..

DECIS ION - - 5- CTA CASE NO . 3393 ' 5 . The u.s. $1,000,000 . 00 r eceived by pe t itioner from the Me llon Bank clear - ly fa1~s under gross income as defined ... """'� i n Section 29( a ) a nd t her efore , s ubjec t to income t ax as �pr ovided f o r under Secti on 21 o f the Nat i onal Intern a l Icvcn uc Code ; 6. A taxpayer , who re c e ived earnings , under a clai m of right and wit out r estr icti o as to its disposition, ha s re c eive d i ncome which he is required to r eturn, even though it may s t ill be claimed tha t. he is no t . en- . titled t.o reta in the money and e ve n t hough he may still be adjudged li able to re st.ore its equivalen t. u.s. vs. Ellia R. Lewis, 34 0 u.s. 590-5.92 );. 7. The r espondent'~ def iciency i ncome t ax assessment i ssued agairist pet ' tioner in the amoun t of ~ 9,287,297.51 for t he c alendar year 1977 was issued in accordance with l aw and existing r evenue r egulations; � and 8. All presumptions are i n favor of t he correctness of t he assessment . (Inter- . provincial Autobus co., I nc . vs . Collector of I n te rna l Revenue, G.R. No. L-~74 1, Ja n . 31 , 1 956 , 52 0 � G� (11) .P . 791 ) �. � As shown in Annex "A"-of the peti tion f o r r ev i ew , the deficiency income t ax f o r t he year 1977 , which is c ontested by petitioner, i s comput,ed as f ollows : .!211 Net income per r eturn P o � � � � � .. � 48,053.38 Add: Undec lared income � � � � � � � � 7 ,020,000.00 Ne t income pe r i nvestigation � � � � � P7 , 068,053.38 Less: Person a l & additiona l exemptions � 5, 000. 0~ Net taxable i ncome � � � � � . � � � � P7,063.L053 . 38 Income tax d ue thereon � � � � � � � � P4 , 899 , 377 . 00 Less: Amoun t already assessed � � � � � 1 0 ,7 62.0 0 B a 1 a n c e . . . . . . . . . . . . . P4 , 888 , 615 800 Add : 50% s urcha rge � � o � � � � � � 2 ,444 , 308 . 00 1 4% i n t . f r � 3-15- 78 t o 7-31- 80 � � 1 , 6�27 , 57 3 � 95 20% i n t . fr. 7~~ - a:o to - 3.0_.8.0. � 326,800.56 TOTAL AMOUNT DUE & COLLECT IBLE � � � � - ~~~~~ z~&~z ~~~ 203

DECIS ION CTA CASE 08 393 ' .6 - The rec or ds of t he ca s e r eveal t h at os t , i f no t all , of t he US$999 , 00 0 . 00 mi staken l r emi t.te to Mr. & Mr s . Melcho r J . J avier , Jr . by the Mellon Bank , N. Ae have already be en i rretrievably spent by t hem as f ol l ows : ( P e 78 , BIR re cord s 1 pp . 3 8- ~9 , CTA r ecor ds .. ) 1 . Pu rchase of 160 acre l o t i n Cal i fo r n ia City - ~ ~ ~ ~ ~ ~ ~ ~ ~ ~3 , 25 0 , 000 . 00 2. Bank deposits - .- .- .- .- .- .- .- .- .- .- . 55 0 , 000 . 00 3. Mone y marke t placements appr ox .) .-. 1 , 30 0,0 00 . 00 4 . Legal f ees 6.00 , 000. 00 5 . Hospital i zation a nd l ast i llness 150 , 000 . 00 � o f fathe r ..e .- .- .- . �- .- - - .- .- .- .. . . 315 , 000. 00 6 . Dole outs t o r e latives and f ri ends- 7. Household expenses 60 , 000.00 8 . Gambli ng l osse s 280 , 000 . 00 9 . others (US$12o , oo�o . oo ) 900,0 00.00 P7 , 405 000 . 00 vvvvvvvvvvvvv Petit.i oner ' s pos i tion i s tha t th'e a moun t r ec eived by him fr om t he Me l lon Bank 11 . A. " is no t u i .ncome � .a s t he term i s de fi ned i n Section 29 o f t h e Na tional Interna l Revenue Code bec ause t he s a id amount is ne ithe r c ompen sation f o r se r vi c es r ende ~ ed no r ga i ns ot prof i ts realized fr om business or dealings in pr o- pe rty 1 a nd t hat under the r ule of eju sdem ge eri~ , t he phrase ' a.nd i ncome deri ved from a ny sour ce what.- . soever � .f ound in the de fi n i t i on of �g ross i ncome ' �. 201

DEC I S I O CTA CASE O. 3.93 - .7 refe rs t:o cornpe:ns a t.~ion fo r se:r:\l i ces r ender:e a nd g,ain s or piofi t:s from business o � eal ings in proper ty, a nd cannot::. be interpre te:d to me�a n or i nclude � r.e c eipts 1 from any sourc.e what.soever". (p . 1 04 1 CTA r e:c o r ds .) " To be conside r ed i .nc:ome � a � receipt 8 _must have been either ( a ) _actively sough t. by the r.ec:ipie:n 1 sue. as. wa ges., salar:ies a nd c ornpe:n s.a tion f or. se r vices or f or. the ex:e rcise of one's prof e:s.sion , v oca ti on , tra de , bu s i ness , cornme rc.e , sa l e s o r dealings in prope:x t .y, or ( b ) produced o r d e:r i ved from the recipient ' s , ownership � or. use o f prope~r ty , such as. tents , i nte rests and di'Jidends. . The amoun t i n que�st i on was neither act ively s ousht. by the petitioner., t.o r: the p roduct or fr u its- of h i s pr ope r ty ._ It is a ur_e c:eipt ' _but not an � i _ncorne ' . " {J1. l OS. , CTA rec.) Pet i tioner: concedes 1111 tha t unlawfu l gain s , garnb- li ng win ni ngs , etc . a r e subje.ct. to income t a" although such r e�ce i pts a r:e no t specifically mentioned i n t he def in ition of gross i ncome 119 � ( I? 1 06. , CTA r ecor ds. ) And rightly so . As a rnatte:r of fact , i n the Un i ted Sta te s fr:om which Sec:t.io n 29 ( a ) _of t he Tax. Code was copied a lmost verba tim f rom sim i la r: provis i ons of the Un i ted Sta te s I nte rna eve n e Code ( fo rmer - . ly Se�c t ion 22@ ), and of the r egu la tions iss.ued � in 20 5

DECISION - - .8 - CTA CASE NO . 339 3 �. connect ion t he rewith , it has been he ld tha t unlaw- . � ful gains a:s t hose f rom r ansom money pai d to a ... ...... k i dnape r (Humphreys vse Commissioner , 42 B.T.A. � 857 , affir med, 7 Cir. , 25 F . 2d 340) ~fr aud u le nt misappl i ed mone ys of a client. by an at torne y (Uni ted States vs . Wampler, D. C.. , 5 F., Supp . 79 6) 1. graft (Chadick vs . Uni ted State s , 5 Cir , 77 F. 2d 961 , ce rtior ar i denied , 296 u.s. 609, 80 L. Ed. 432 ) ~ l otterie s (Droge v s . Commissioner , 35 B. T. A. 829 ; Hunti ngton v s . Commissioner, 35 S.T.A . 835 ; Voye r vs . Comm issione r, 4 B T.A . 11 9 2)~ illegal prize fighting pictur es (Rickard vs.� Commi ssione r, 15 B. 'l'.,A . 316) ;_ unlawf ul i ns urance polic ies Pat t erson vs . Ande r s on , D.C .. 1 20 F . Supp. 799 ) �. race- t;rack bookmaking M'K.enna vs . Commissione r , 1 B. T A. 326); . ca rd playing (Weine r v s . Comm is s i oner, 10 B T.A � 905) ;_ illicit t ra f fi c i n liquor (U nited States vs . . . Sullivan , 27 4 u. s. 259# 71 L. Ed . 103 7) c ons ti tute t axable income . In an a ttemp t to sta y c lea r of such de c isions , however, peti tioner would take r efuge i n the l ack of any effort on his par t, allegedly , to s ee k the gain i nvolved herein . Petitioner misses the point. The c on t~olling s tatu te i s Sec tion 29( a ) _of t he Nationa l I nternal evenue Code befor e its ame ndmen t . 20ti

DECISION - . 39 CTA CASE NO " .. .9 - by Batas Pambansa Bl g . 135e It de fines ~ gro s s i ncome" , which t e r m is employed i n Section 28 .....'""'� (also before its amendmen t by Batas Pambans a Blg . 135 .as part of the definiti on of "net i n- come" subject to income tax under Sect.ion 21 in t he case of i ndividuals and Section 24 in the c ase of corpor at ions. The def i nition combines a descriptive list of broad scope enumerating variou s activities givi ng ris e to items of income \'lith the catchal l phras e "gains, pr ofits and i ncome derived from any source whateve r 111 � The defini t i on is in sweep i ng terms .� Thus , � i nsofa r as per tinent hereto , "Gross i ncome i ncludes gains, profits , and i ncome derived from x X x d eul t ~gs in p ro- . perty x X growing out of the ownership or use of cr in te rest in such prope r ty1 also from X X x gai ns , profi ts , and i ncome dez:ived from any source whate ver "' . T e broad sweep of this language i ndica tes t he purpose of Cong res s to us e the full mea s ure of i ts t ax i ng power within thos e definable categories . (He lvering vs. Cl ifford, 3 09 u. s . 331 , 334; 60 S o Ct. 554 , 5 5 6 7 84 L . Ed ~ 788 .) . According l y t h Governmen t may tax , no t only owne r sh ip , but any righ t or p r iv ilege t ha t i s a 20 '?

,~ DECISI ON - CTA CASE NO e 3393 - 10 - . c onstituent of ownership Li ab il 'ty roa y r est ' upon t he e nj oymen t by the taxpaye r of privilege s .,'"'� and benEfits so s ubstantial and i mportant as to make it r easonable a nd jus t to dea l with him a s if he were the owner , and to t ax him on that bas is. (Burne t vs . We lls , 289 u.s. 670 , 678 ~ 53 s . ct. 761 , 76 4 ~ 77 L. Ed . 143 9 .) . Although t axes are public duties attached t o the owner ship of proper ty , t he state should be able to exact their per fo r mance without being compe l led to t ake si des in pr ivate controve r s ies . Po s se ssion is � gene ral prima f acie evidenc e pf owne r ship , and is perhaps i ndeed the sour ce of the concept itself, t houg h the time is l ong pas t when it ~n s synonymous with it . It wou ld be in tole r a bl e that the tax mus t be assessed against b<;>th t h-e putative tortfeasor and the claiman t; collection of t he revenue c a not be delayed, no r s hould the Treasury b~ c ompe lled to decide when a possessor �s. clai ms are without. l ega l warran t (N at ional City Bank of New York vs . Helver i ng , 2 Cir., 98 F. 2d 93 , 96.) Now , to t he c ase a t ba r. He r e , petitioner ' s a ssert i on of c omplete domin i on over Me llon Bank 0 � er r oneous remit t ance of f unds to hi s wife , his J� exercise f ow er ship over t hem t o the ext ent of � di s posing of almos t e very c en t a vo of t he fun ds , a nd 203

DECISIO CTA CASE NO . 393 - ll - his consequent t rans f er of posse ssion , use and title t o tHe r ecipi ~n ts a s to ma ke the m t he owne~.s..... the r e of , we re f or a ll i ntents and pur pos e s e xe r - . cise and en joyme n t o f rig hts and privileges tha t a re c onst ituen ts of owner sh ip . He d emonstr a t ed positive l y and unequivocally his right to dis pose of the Mellon Bank'~ fu nd s , and he d id even spend th em , almos t to t he l ast cen tavo , beycnd a ll chance of t heir recove r y . This was clear l y a us e of t he Mel l on B ank 0 ~ f unds by pe tition~r f or his own enj oyment and bene fi t j us t a s a mply a nd fully a s � though he had title to t hem . Such enjoymen t and exercise by pe titioner of "privilege s and benefits so substanti a l a nd importa n t as t o w - ~c it r eason- able and just to deal with him as if e were t he . owner, and t o t ax him on t-hat basis" (Burne t �vs & Wel l s , .e_up r a ) '� c an have no different t ax c onse- quences when the f unds a r e e a r ned i n p lawful manne r t han whe n t hey are de rived f r om il lega l source s . An unl awfu l ga in , as well as a l a wfu l one , constitutes t axable i ncome when i ts r ecipi e nt ha s such control over i t hat, as a practical matt er, he derives readil y realizable economic va lue from it (Burnet vs . We lls , 289 US 67 0 , 678 1 77 L. Ed . 143 9 ~ 44 ; Co rl i s v s . Bowe s , 281 US 376 , 378r 74 L. Ed . 16 , 91 7.) That occ urs whe n c a sh , as 20 ~

DECISION - CTA CASE NO . 3393 - .1 2 - here , is del i vered by i ts owne r t o t he taxpayer in a man ner which allows the reci pien freedom ....""(. to dispose of it a t will p' even though it may have been obtained by fr au d o r mistake and is fr eedom t o use it may be assailable by someone with a bette r t it.le to i t . (Rut ki n vs . Un i ted States , 343 US 131 , 37: 96 L . Ed . 835 , S39 o) . Such ga ins are t axable i n t he year during which they are reali zedo This statutory policy is i nvoked in t he i nterest of order l y adminisbati on . (Rutkin vs. Unite d S tates , supr.ao ) . Col l ection of the r eve- � nue c annot be delayed, nor sbou ld t he Government be � compelled to decide when a possessor ' � claims are wi thou t l ega l warran t . (National Ci~ y Bank vs . LeA He lver ing 2g7 98 F 2d 93 , 96 .) . The r e is no adequate r eason why apsa ilable unlawfu l gains shou ld be tr eated differently in this r espect fr om assai l~ ab le lawf ul gains ~ Certainly t here i~ no r eason for t reating t hem mor e leniently . Unite d States vs . Sul l ivan, 274 US 259, 263 f 71 L. Ed . 1 037, 1039 . ) As� to peti t i one r 0 � allegation (pa r. 5 , petition for r eview) .tha t i n the f ootnote of h is 1977 i ncome tax r eturn he stated tha t he ~ wa s r ecipient of some mone y r eceive rom a r oad which he pre sumed to be 21 0

DECISION - � CTA CASE O. 3393 � - .13 - a gift bu tu~ned out t o be a n error and is now su bject of lit igation w, and his submiss i on � t ha t any a ssessment covering th is matte r should awai t ...""'� final cour t decis i on " � (p � . a, � CTA r ecords )'� there is noth ing in the National I n t e r na l Revenue Code wh ich expr essly r equ ires, as a c ondition of t he e x i st- ence of a t axable gain , that there also be an absence of a de fin ite , unconditional obliga t ion t o r epay or r e tur n t ha t which wou ld otherwise c onEtitute a gai n. In t he case of National City Ban k of Ne w Yo rk vs . Helve ring , supra , 98 F. 2d 9S , t he taxpaye r was t axed on bond s whic h he had unlawfully withheld from t he corporati on of which .he wa s an officer . These bond s wer e the property of t he c orpor a tion i n the s ense that it c ou ld have reclaimed the m. r ~~ Cour t s aid - "Bu t there are several c ases in whic h persons have . be en t axed upon property which could be r ecovered f rom t hem . For example, t he l ender upon usu rious i nter est - if on an accr ual bas is - must i nclude hi s appa rent p rofi t in his retu rn , though pos si bly he may be all owed to deduc t it as a loss if t he borrowe r rec laims it. (Barker vs. Magr uder, 68 App . o.c . 211 , 95 F. 2d 22 . ) * Agai n , when a r ai lr oad c ollects too *The fac t t hat. i nte r es t is usurious unde r the l aw , and may be r e cove red bac k by t he borrowe , does no t preve n it f rom being incom , he n rec eived , t o a t axpaye r on t he c ash bas is . Likew i se , the t.ax- abi lity of an accrual of usurious i nteres t i s not affected because of i ts illegal ity.. If in a sub- . sequent year the amount becomes uncollectible , or a l oss is sustained in r e spect t hereof , a deducti on � on accou n t thereo f i s t hen allowable . (Umali , R. M., Re viewe r in Taxation, 1 98 0 ed ., pp . 87-~8 , ci t ing 1955 PH Fed . Taxes , Pa r . 8010. ) 211

'� I�� -,~ ~ .:.:.-.... DECISION - . CTA CASE NOe 33 93 .1 \ \ .'. . l arge f are s the exces s i s i ncome , t houg h the passenge rs !'have a t heoretical r ight. of res ti tu- .. ""� tion e (Ch icago , R. I. & P ~R . Co . vs . Commissioner , 7 Cir . 47 F. 2d . 990 We note t hat in t he .def iciency i ncome tax assessment unde r cons ideration , r e spondent. furthe r reques t ed petitioner to pay 50' surcha rge as pro- . vided for in Section 72 of th~ Tax coe a , in add i t i on to t,he de f icienc y i ncome tax of P4 , 888 , 615.. 00 and inte rest due t hereon. Since petiti oner filed his income tax r eturn fo r taxable year 197 7, the � SO% � surcharge was i mposed, i n all .p robability , by r es- pondent because he considered t he r eturn fi l ed f alse or fr a udu~ent . This additi ona l requ ~ cmen t, to ou r mind , i s much les s c alled f or bec aus e pe titi oner , � . as stated ear lie r, r eflec t e-d in h is 197 7 r eturn a footnote t ha t "Taxpaye r was r ecipient of s ome money r ece i ved from ab,oad wh ich he pre sume~ to be gi ft but t urned out ~ be an error and i s now subject of litigation" From t h is , ~~ can ha r dly be said t hat ther e was actua l a nd i ntent ional f raud , consisting of dec eption willfully and de liberate ly done or r e- sorted t o by etiti one r in or de r to induce t he ove r nme n to give up some lega l r igh t , or the 21 2

DECI SION - CTA CAS E 0 3393 r. . 5- l a t te r , due t o a f alse r e t ur n, was pl ace a t a d isadvan ta<_ie so as to pr even t its l awfu l age nt s .... "'"~!( . from proper a ssessmen t of . t ax liab i l i ties (Aznar vs . Cou r t of Tax Appea ls , L- ~056 9 , Aug ust 23 , 197 4 , 56 SCRA 519) '� because pet it i oner li t er a l ly "la id hi s c a r ds on t he t able " for r e sponden t t o e xami ne . Error o r mi stake of f ac t o r l aw is no t f r aud. (I n s u l ar Lu~b e r v s . Collecto r, L-~190 , Apri l 28 , 1956 .) . Be sides , Sec tion 29 is no t too plain a nd s imp l e to unders tand � . S i nc e the question invo lved in this case i s of f irs t i mpr ession i n th i s j ur i s d ic tion , u~der t h e c ir cums t a nces , t he � 5 0~ surc har ge imposed in the def i ciency a ssessmen t - s hould be del eted . With t he f orego i ng c onclu s i ons ar r ived at , t he 1977 def iciency income- tax lia b ili ty of pe ti- . t ioner i s hereby computed as f ollows : Net i nc ome per r e t urn � � � � 0 p 48 , 05 3.3 8 Add : Undeclared i ncome � � � .. . 7 , 020 , 00 0 .0.Q. Ne t i ncome pe r i nves tiga t i on � P7 , 068,053 .. 38 Le s s : Pe sona l & add i t ional exemp tions � � � � � � 5,000 .00 Ne t t axable i ncome � � � � � � P7 , 063,053 . 38 I ncome t ax due t he r eon � � � � P4 , 899,3 77 . 00 Les s: Amoun t a l r e ady a s s es sed o 10, 762 . 00 B ~ l a n e ����� � � � P4 , 888,615 e00 Add : 14~ i nte re s t fr om 3- l S- 18 t o 7 -~ 1 - ~0 � � � � � � � 1, 625 , 46 4 . 48 2 0!5 i nte r e s t fr om 8-l.- 8.0 t o l -~4 - ~0 � � � � o � � 282 ,4 53 . 32 TOTAL AMOUNT DUE & COLLECTIBLE 6 ,79 6 , 532. 80 vvvvvvvvvvvvv 21 3

'[. I I I .' DECI SI ON - CTA CASE NO ~ 3393 - 16 - Accordingly, petitioner Me l chor Je J av i er , Jr . is he r eby o~der ed to pay to responden t Commi ss i on~e.....r o f I nternal Re venue t he s um of P6 , 7 96 , 53 2.80 as de ficien c y i nc ome tax fo r 1977 , plus 1 0% su r charge and 20% per ann um i nte re s t f rom Novembe r 1 4 , 1 98 0 up t o f ull payment ther eof but no t o exceed the amount correspond i ng t o three years pur suant t o Sec t i on Sl(e ) ~f t he Na tlpna l I nter~ a l R~venu e Code as amendeq by Pre siden ti a t Decree No s 17 05 . WHER~FO ~ , t h e decision appealed fr om i s mod ~ fied a s i nqip~t~p in ~he above o pinion of the ' � . ! '� Court . With coste~ . '� ' ' SO ORDERED . Quezon City , Metro Ma n ila , J~:.: � 27, 1983 . ~ Q_ �) AMANTE F~ Presidi ng J udge WE CONCUR : -::!::~~.~ ~~ Associate Ju~UIN �