CTA Case No. 3865 (Decision)

RE P UBLIC OF THE PHILIPPINES COURT OF TAX APPEALS QUEZON CITY ANTONIO TUASON, INC., F (:= t i t i n n E: r�, ��-� v ,... u (�~ ~:; ~; ��-� C.T.A. CASE NO. 3865 THE COMMISSIONER OF INTERNAL REVENUE, F\ c-?s; pond E�n t .. ���- ..._ ..... ..... ~{ D E t .:. I I 0 ...... Un d (?I-� cJ "'' tE~ o f F t:? hr�t.t ,:~ ,... y :27, .1. 9U :l. , ,.... p~:; pon d e n t of F\E~Vt:? n u e petit i one~ Anto ni o T u aso n , I n c.: ( ''" ) Lk:~f :i.e :.i.C:'ncy i n co�nt:: t<::l )�~ �f or�� "\:.1�1.::-:) ye,::\n; :1.<7'7!'5 , .1976 ,::\nd l (7'7H � � .. � � � � � � � � ., � � � � � � � � � � � � � F' (b) Def :i.c:.i.E~��H::y c: ni����po i'""Dti-:-~ c:p..r.<::\r�� t e i'��J. y :i.n c::cxm;~ �L~I )< f o r� t i��lc' f :i.1��~-; t qu<.=H-tC-?1'"" o f .1S?~'i. � � � � .1.6.1. �49 :�?!'5'/, ~:;ur��tc:\)�~ c:n L.tr11'�e<':1.S(Tl i:'lhl t::! l , :l.5l_,.1. 46 . cl'B i:KC::UJnuJ <.:.d :�.iol"l o f 'c.;L.w-p l u~:; fc:w t hE"~ YE!a l��s .197 5��-�:1.9"7{3 � � �� �� F' ~:~t.i.t i.u n ~:~ r� d i. c:l n ot o l::i] ~:~c: t. to t h e �f i r� ~.; t. a nd <:>E:>c onc:l i. t e rn ~; a n d, pai d th e a mou nt s

--- DE:C IS I 01\l CTA CASE NO . 3865_ ~ cl em and E�:d � peti t.i.o nl~r� pn::J tr2s ted the item on the ground that the accumulation of sur plus profits during thR yea rs in question was so l e ly for the purpos e of expanding 1ts business operations as The r�eq u f..~st reinvestigation was granted on �condi tion that a of ~,r ,~.i.VE�? t�- tl �tl2 ~.;t;,:~tut<=~ of limit,::~t.i.on s h ot,t ld bl? filed by pl? t i t.ionE~r- . In p~?ti tioner�� aclvis<=!d ,,. es ponclt.:! n t th<" t:. therl;? w,:,\s no need o�f a ~<Jai ver of t l� '~'~ sta tu tr-:' of 1 imi t<'J.. tion bec<:~u se the r� ig ht of the Government to assess said tax does not prescribe. It apr ~~ rs that no inve s tigation was cond u cted nor- ""'' d t.~c i ~:; :ion r-E,. nc:l f?. r�� ed on p�-?t i t ion e r� ' s p r�o te~; t. l"lr:~a n t i mc0, r. e~:; f.Jnn ciE~n t:. i s~:; ur-::>c:l Wi�J r� r-a n t.s of d i ~; t I~ a in t and l evy to enforce collection of the total a mount Ol'.. ig ina l. l y r.:~~:;sessecl inc 1 ucl ing the a mounts a 1 ready p<~ .i. d. Henc 2 , t h e present petition for review with a request that pending d ete rmination of the case on an bee? i ss u e d to restrain ,r. E's ponden t and/or hi s r-epr e~;en ta t i ve s from the wat--rants o�f distraint and levy. Si nce the right asserted by respondent in behalf of the c ollect ion of the taxes involved here in by the

DEC IS I Of\1 .... CTA CASE NO . 3865 s ummary method s of di st raint and 1 f:?VY was not , c: l. r:?,:H� , a nd : t ~'la s shown that portions o"f the ta:�: liabilities involved in the assessment had already been paid, a writ of injun c tion was issued by this Cou r� t dated l\lovembE,? r�� :;~ 6, 1984 order� ing r�esponden t to enforcing sai d of di st raint and levy without requiring petitioner to f .i 1 E' <'.:\ bond . Sr.:~c: tion the applicable f\lati.onal. Internal Re ve nue Code imposes an additional. tax upon a c:orpc:n-at.io n form e d or� availe d of f o r� th!:'? purpose of preventing the imposition of the tax t.t pcJn i t �,.:, sh "' ,,..e h o 1 dE~ r��~:; or� t h r;~ s h c.1 r�r::.� ho 1 d !=.> r��s of any ot her c orpora tion through t h e medium of permitting it~:; !]a.in~:; c.,. nd p!,.� o'fit. ~:; to <:~c:cu mul atr;,� .i. n stf�~ ad o�f - �e:. Under Section 25(b) being divided or distributed, thc::~r � E~o"f, t h!'~ f ac t that th e~ t:O I'�� por�at ion .is a mere holding co mp a ny or� an .inve!:; tment c ompany ~"-lhf:?r� e at e. n y t:i.me du1,.. i ng t he ta:.:ab 1 f:? year- mot��e than f i f t y (50%) per centum i n value of .its outstanding stock 1s owned, c:l.i!~ec: tly or� indir-ectly, by cme pf:?r-son s hall b e prima f a c i e evidence of a pur-pose to avoid thE! ta:�: upon its shar�e hcJlder-s or� member-s. And S!:�:�ction 25(c:) pr�ovi de s that: th~:: fact that ~larnings

DEC I HIDN � ��� CTA CASE NO. 3865 or profits of a corporation are permitted to , accumulate be yond the ress onable needs of the <:'\VOid t.he on s ha reholders unless the corporation s hall prove to the c ontrary by a clear preponderan ce of the evidence. F'Pt..it.i u . ll:~ r is a domc~stic cor� por��;at.ion or�gani;;:ed a nd existing under the laws of the Philippines with principa l office at 401 (formerly 504) A 8t. T Bui 1 d ii"HJ ~ E:~; c:o l ta ~ 1'1ani.la. I t i s en~Jaged in bu s in ~~ s ~;; a ~:, r� E~ al estate de<3lc;?r" and it~; income i s I'" E' ''" J. pr� op e r�� t y. During the years under review ( 1975�-�.1.97!:3), .it paid th e annual estate de a l e r 's fi xe d tax. (f.::.:-: h. l ~ p. 180 ~ B I R I'"E;>cor�ds; See al s o pp . 54, 78, 98 and 12 6, BIR records.) For ca lendar , years 1975, 1976 and 1978, pc? t i tion e r� f i 1 E~c:t i t s annual income <:1nd afte1�� invr-.?st.iga tions income? ' t;a:�: of P37, 49.1. 83; deficiency corporate quarterly in c ome tax for the first quarter of 1975 of P161.49; and 25% surtax for alleged unreasonable accumulation of surplus of P1,151,148.96. As

Df:~C:: I~:; I 01\l CTA CASE NO . 3865 -- 5 �-�� �~;; t..::~ t e d e<':\rl.il~ r- , petitioner-� pi::\i.d thE? P37,49l.B:3 and P161.49 but protested the P1,151,146.98. With t he issuance by r�esponden t of the of dist:r� aint and l evy� to en for�ce co l l 12c: tion of the-? C:\sse ss m~m t , pet.i t.icmer.. An ton.io Tuason ~ Inc., bn.:Jught th.i !:5 app<=~al .: em the question of wheth e r or not petitioner .is liable for the 25% sur� ta:�~ on undue ac:c umul at jJJn Df sur�pJ.us for thf.? years 19 75, 1976, 1977 and 1978 .in the sum of F'l ~ 1. 5:1., .1.4D . <7'6 . Since the provision s of Secti on 25 of the National Int ernal Revenue Code which were .in effect d l..ll'" .i. n IJ t h E~ ea r�~; unc:I E~ r�� I''E'V.i.f.;?W W�? r.. E~ bodily l i f ted fi''Cl fll Sc�c:tion .1.0 :0? o�f th e:~ u .~;. Int f.0 r�nal RE�ve r�lue Code of .ir1c lt.td.ini.J r�E;?g u J at i. o n s in c:: 01..111 ec: t ion t.l�lc-? t��1-2 w :i. t h, i t wou 1 c:l b E:' pr.. opet�� to r�e fer-� tcJ ,:;, ppl ic .::~bl r:�' c:.:Jsr~s dE~c:idE~d by thc,: AmE'I'"ic:an � FE�?deral Courts for guidance and e nlightenment . Winr-~ M E-~ r� c:h<::tnt�. s, In c. vs.;. Commiss.ionet- of Internal Revenue~ L-26 145, Feb. 2 0, .1.984, 1 27 SCRA 483.) A pr� E�rE~quisi te to th12 .imposition of the ta>: has b ee~ that the corporation be formed or availed of �for thE�~ P \,l.Cf.?.9_?..�. of avoiding t.hr~ .income-? ta:-: (or surtax) on i t s ~ h~r eholders, or on the share holders 6/ �-' ,~{)

DECI~::liCJN .. . CTA CASE NO. 3865 ..... 6 �- � of any ot h0r co rporat i on G~ permitting the ea rnings a nd pr �u f it<::; tl1 c to i::\C:CLlfTlLl l atE:~ jn s tead of dividing them a mong or distributing them to If fc:1ilur�c-? to pay di viciE' ncl ":; ' '::, c:luP to ~:;o m E~ oth E~ 1��� c:a u ~::;E~ , such i:\f:", thE"! u~:;e of the! unc:li <::..tr� ii:Jut:E~d C'<":lr��nincJ~:; <':lnd pr�n f i t s for�� t: he"'! r��!::?C:I ~sc:l n ;:\ l:l 1 �0 n t~'C!d ~:, of t hf.�) bu ~, i nt? <:';s , ~; uc:: h pu 1,.. pose clur:)S not �f' i:\ l l ~'-li th:i.n in t. E" 1.-. d i C: t ion of ~:; t: E:\ tu tE'. (Mertens, Law of Federal Income Taxation, " �,,:.,!I tvlan .i. 1 i::l Inc. V c::�:>. Comm i s~:s ion E~ 1��� o �f Int.!::? r �n a 1 F\E!ven UE~ , ~.~.l:-lJJ..r:.~~.� ) I r1 ''" s=; mu c: h a~=; pu r� po sE? in vn 1 VE'S a s t r.1 t<:.' of mind 01.-. i t r�\ tf:? rl , i t .1. 0.5 E:\ 1 Wi0. ys; n E?C f)~:;~;a lr�y to 100 k at thE~ <:; u r�� r �u un c:l i nq c: :L 1��� c:: Llm'"; t c:~ n c e<::; a n c:l t. hE~ a t t .E�n cl a nt f ac: t s; purp ose of t h o failure to make di s tribution was to p ermit the s hare holders to avoid the income tax or tht2 . USf2 of the - .. pu1� � � pos;~::~, c:?al���nirJg!'5 a.nd pr�� o f i t s for� the::~ r� c:~asoni::~ble nef:.? ds of th t? bu ~,i nf.=?~;~;. In this rr:gard, although the tr:-? :-:; timony of the te:n: pa yc-? r, offi cers and stock hold ers is entit led to some weight, generally the' .i <:;~;up .is t .o be I,..E!~5D l V!'?d in the 1 i C;J h t of the

DI::C I �3 I Ul\l CTA CASE NO. 3865 """ 7 -- s-; un--� ound.i.rH:J c ir� c:um s tance s , including the interests of tho s e in control <':"lnd their actual conduct. (l'"ler�b'-?n s , L...aw of FE?der� al Income Ta:-:aticm, Vol. 7, Chapter� 3 9 , p. 45. ) ThE'! applicable pt- inc:iples of law ar�� ~:? c l f-~ ar� and in the end tht? dc~cision in this c ase mu s t re s t upon its own peculiar facts and c: .i. r�� c urn s t;,;~.n c: r::?!:..;. Secti o n 2 5(.b) of the Ta x Code at the time the s urta x invo lved herein was a sse ssed provided that a c:: o1'"� po1'"�ation - which 1"a ~:; a rner� c~ hold i i1g or�� investment :. company W<::l!':; c:onsicler���e d pr.ima fa(: .ic..> evicl�~ncE~ of a pLH�� pos e to ,:\void the t.a:-: upon i t. s sh~:~n~ ho 1 der-s or mE?mb e r��s . Thi s pt"" &?sumption, a~; e:-: pr�ess 1 y provided by t h &? l a 1-.J , .i ~:, CJ n 1 y p r .i ma f" a c .i e � Thu s , 1"hilr::? a nd c~::~ s t s upon p E!t.l.t.ionel'". th rc.� I:Jut�" c:l�':'n of o �f �f&?r.i.ng E:' v i d <'-? n c::E! .i n opposition th E? r ec ogni zes that once s u c h evidenc e .i s presented the p ,,.. f?s urnp t .i. on of and the que s tion thE-m i s-; l"hether under� all the evidence �. petitioner has sus tained the burden placed upon it I:Jy the applicable law. Obviously, our- decision should t.her-e for��e tur�n upon 1-.Jhether the finding ,of Cumrn .i. ::;:::; i. one,,.. that

DEC I ~3 I Cll'~ CTA CASF NO . 3865 p E' t .i t�� :i.u1�1to:!,,.. ,,,,r:: c '..l1i1U 1 <::\ t~ r-=: c.l e;:,, r��n .in CJ ~:; ,,,, n d p r� u �f i t s b E-? yond t h <:~ r �F~,., <.:;c.JI 1,.., [,J. c~ r1 cc;�~ c:l :::; o �f :i. t �;:; bus :i. n c~;':5 i. ~-; ~5 l.l p po r- t E~ d �c:;l .l ~:�; t~ a i n c�c:f t h c� h u ,.. c:l r:~ n ~" h .i. c: 11 t .h c:~ '"' p p 1 .i. c: <::1 b 1 F~ l "" '.Ai t h (�~ n T. hr:~ r::: :i. r c:� '..lm ~:; t .d llC: c-=:::; r��c, J i c~cl u 1:'011 by r�� E~s;po1 �1 dent ~"' ~.; .i. f l d i L d t~ .i. II r.J PE't.i t.i.UilC�?r� i. t s-, ~:::�i::~ r� n.i11g ~; tn ,;,\c.:: c urnulatE? hc'.~yond t�. h c-? r �E'<'' ~;o nah1 r:? nt9E�d ~; r�c:��' C:: u,.. c! ::; .. ) :rr, Alli:�.u11i u TU <�'I so n , c � d u r� .i 1�1cJ the=' yc:�ca r�::; in question is ~ngaged in business as rea l r-::�~::; t .::.11:. c:�:� cl ea. l c-~ ,.� � l���lo VvE�~ VC'~ ,,.. , .i. t ':; b l .l ':;i n P :; 3 opr~r�<~t..i.. nn ~=; '."i:\�:, flltJI'.. (�) u �f <-:1. hulr.:l.i.r1g u l- :i. n vr:-'c; t~mc�1 �1 �1:. c: om f:'<'lt;�l y ~� cl r:~ r�� i. v .i. r1q :i. n c u;ne moc.; t 1 y fr �\-,rn .i.Jll::c� t �� r:� ~:=; t.~, c:l:i. v .i.ci P nr:l ::=; ,..,,nd r �c-?nt,::\1 re0lized fro m sa l e of t�ea l ty. It is l :i. k c~\i~ i ~::;c' f CJ\ .,, ., d by r� c�<::; pon c:l c':'n t�. ' ',:;:, r��c' VE n u e r:~::.:�i rn .i. rl( ' r�� Lh .::\t. ,�::~ lt.houqh pc:~ tit.innc~J��� so ld �:::; uhd ..i.v . .i.un 1n t-.~:.; , i t did not in "'' ~; tr� ic:t <:;o;.:~ n <::;n ~ illvolvr::>d on c l (�:,~ vE~lo prnPnt n�f ~:; \ .l b c:! .i.. V .i ; .i. 0 I I <:;; b U t ifl C:~ r�� E~ l y ~:; U b d i. \1 .i.. d C:! c:l t. h E? J C) t. :i. t. U I;~ I ., f ., cJ i-~ r I cJ :-:; 0 J. cJ t h (7;1. ::.; i-:1(1l E~ �f 0 ,,.. Ui (] CJ f�? 1'.. pi'� of.i.l: ~:; (F:-:h:i.IJ :i. t '':l .���-c '', f~E�?~; pundenl-. ; pagc:J 179, Bin rec ords). J n "" 1 E't tE-~t"� s~ ubrn.i. t t .ed tn thE~ BUI' �eau by pE! t .i. t i. on c~t-� ' s Cor�� por� ate SE�c r-r2 t 21r �y d "=' t.E!d ,JunE-' .1. 7, l9f.30 (page 36�, BIR n :?c: ut��ds), (~ntnn.i.u Tui: \s;o n, Inc: . , .i~:; virtually owned and cont 1r�o l l e d by i t s F'r-E�~:;.ident:, Antonio Tu<,:~~; on, ~~~ho, uut of thE> 2~5, 306 s:; har�es of stock, owned 25,302 s hares thereof, or 99.99/. cYf the tot.al shat'.. es outstanding. I�

DE:.C I!:~ 1 Cll\ l CT~ C~SE Nn . 386J .... r:; ..... Se c tion 25 (b) of �~he Tax Code of 1977 ;:~ s am c llc:IE�c:l, pr � ov.i.dr:>~; th,:~t the:-~ mf~r-e r:0 ~�~ .i. c,; t: F~n c P of ,:\ hold .i. n q o I"' in V�:?~; t:mr,?n t c:nmp ,:~ ny .i~; E:\ prima far.:.ie E0v.i.cle n cr:~ o �f i t s purpose tu avn.i.~ imposition of proqressive .i.nc::nme t: ,::\ ;�~ upon it~:; sh,::\l'"!'?hoJ.d(2r-c,; on tl�lE~ un d .i ~::; t. r� :i. bt.l tPd �:; u r- p l u <:.:; ~�J her-E' at ,7:\n yt :i. me d t.ll'" i 1�1~J t h r,? t. '"" ~�~a h 112 y �:~at�- mo I'" E' t h ''' n 'f i f t y pr:0t- c:r',..ltum in v,:~J. u e of i t s outst,:~nd.i.ng ~::;t:oc:k <�; m'-lned d.i.n:~ctly c:w .i.ndir"E?ct.J.y by o n ~2 per :;on. In th(2 .i. n st<Hlt. c::a~:;e, Antonio Tuason , presi.dent of herein petitioner o~'-ln c:~c:l c;> c;. 99% o �f .i. t. s ::; ~�k~ t " e ~; of s toe k c.;. {lc: c ur-d .i.ngly, i t can br:? c:onc:lu~:;.i.vr?ly pr-E:? ~; l.l mc d t. h ,�;~ t p f:~ t i t. .ion e r- i c.:; l .i c.:~ b 1 F~ f o1r � 2 5 f., c.;;r...t r- ti''� ;.~ o r1 :i. ts undue accumu l at: .ion of surplus for t h e years 1975, 1976, 1977 and 1978 b e cause t h e same was intended to ,::\YO i d i". h!;? i. mpo~:; .it :i. Ofl 0 f thE' p t'"CJ(;) t'"C.?S S i. V e .i.rlc::Orn(;:~ ta~: in t. h~-:? hand ~:; of i t.s c,:; h .=:~ t'" f.0 h o ld~, r- ~"'. In thE�' r-e"'' olut.ion of Lhc:? f:) u p n c?mC:' :i.n (?.J . F:;:. No . L_-�-2 91.1F3 5 C:?n t..i t J. (-? d '' Comrn :i. <;:;,,, :i. Dl"l (-:.~ t... u f I r1 tr01'" n ,:A 1 F\l'~ VE'I"l u c~ \' ~; " (.) y i::\ 1. .::\ ~::; r:> c: Ltr �.i t i. c:-?!':, Co r. p � , e t. al "~ pr� CJrnUliJ , ~t. r�~cf nn f\lo v ernbr?t�- ~?.1~ :.l9El0~ 1.0.1. f:3Cf\fl ~?:::: .l ... ~?!.!. ~.?, it�. ~'-li�?o. , :; h(;?1 d t hi:'\ t:. : ''Th E' unc:IE:'I'" ly.i.ng pur- po~:;e of l.:ll!" ,:,c:ld.i'l"..ion i1 l ta~-: .i.n qu c'st.i.on on d C 01'" po 1�"' a.t .i. Ol' l ' r::; i. ill p I'" D P PI'" l y <:J. c c um! .l 1 a t c? c:l p 1�-� o 'f .i.. t s o i'" ~:; u I'" p J. u ~; .is a s set fort h in thE' text of Sectio n ?5 ~ of t h e Tdx Code i t s e l f to avoid the situation where a corporation unduly retai ns its sur plus earninq s i n stead of declaring and paying dividends to :i.. t. ~; ,,; h,:;\ r-c;? ho J. d ('? r.. s c1 r- mf?~rn be rs who ~'iDt.ll d t.l�lc:?n h ,::\YI:' to pa.y the in com!?. tax due on s uch dividends rec:e.i.vec:l by them. The record amply show that respondent corporation is a mere holding c:..2

DE:C I ~3 J Clf\1 CT(.~ C()~3E: 1\1 ! 10 ( . I lillp,�J.I""l'-( CJ-f .i. l.~:; ~:>hi::'.I'.. E' h U 1 C.1E'I'�~:; t.ili..TH tqh :l. t s mnthr:' t.. c: omp,:\ny!, a r �r 'CI :l. <;:; t .C' 1'.. (�::~ cl c o ����� r) ,�':\ ,.... Ln c-~ l'.. ~::. f� l.i. p t : hr:~ n -:;;;n t l..l r' by t .h C.:' .i r1 d .i. V .i. dU i�:\ J. <:::. i l d I .. C1 h 0 1 d E~ 1'.. <::; f:l F~ 1 0 r l CJ :\.n C] 1.-. D t.fl ('~ ~; �1 mr~ �f <::\ill i. 1. y '"1 n cl -!-. ,.,,, -!:�. t ll F' p 1�� i. rn .~~ f d~ ie Pv idence and pre s umpti on ~:�;t?l�. t.lp hy t .h <:> Ta:-: Co d E'~ t �1. I 1r ~ I'� E' -f CJ 1'.. f::! ~ <':l. p p 1 .i .F~ cl l'~ i. 1� 1Cl U t h i:\ V i. r1 <J h r'c-'n ad F!Cf J...t,:;~ tE> 1 y r.. c-:-, btl t. t .ed by t:. h e ,,.. ,.... ,,:;pn i!ci F~ r1 t c:ur.. p or� ,::~ t .io 1�1.. '' v~ h .i. c h t:. h~�:' '"'. 1-:.<'.\ t.J..l �[�, r.~, p 1 <:1 c: F:~ ::;, u por1 .i t:. to OVE' 1...�c: om'~ th e r.' p l'.. ("!:jl .l fll t .i.Ul ..l tl1dl. .it of fur� p 1���n f�1.i.IJ i l .c cl put �pu <=:;c-:~ " f3uc: h p r.. e <::; u rn f. ' l. .i url ;,;~ r �o�:':i ('~ l::l y v .i.r� �i�.t.tc:~ CJ-f t.i �l (. ? f i11r:l .i.nq Clf r.. r�~:::; p u l �lclcnl:. t : h <�:lt ''tt1 c rnel'.. e C:�~ :< :i.. '::; t. E' 1..1c:: e n "f i':\ 11 CJ 1 d :i.. n <J u I'� j_ 11v e ~3 +:. rn <OJ r-1 t co rn p o. n y i. s a (a,::: .i "' c~v.i. c:l L' n c:: E�~ of tu ,:;\ V CJ .i d .i.. n1p o ~�; .i t�. LCJ 11 uf p r �oq r�� r �:~<::;~::; :i . Vf::' .i.ncorn<?.�' upur1 i. t ::; i:\ n ,_.. t :i. mE' c! 1.1. r.. :i n q t�.h E' t. ,:;~:: i:\ b l c y Pa r- rn c>r�e t 11 <'~. n f i. f t-.y p rc~ 1,_ c:r:-:�ntu rn :.i. 11 v,o\J.uc-_' uf :i.. t<::; out~::;t:.andinu. ~::; toc:k i~"'� o\.'JIIE--:!d rli r~ctly or incJ.i.rmctly by one person. In t he .in�::.t.::~ n t c::,',\""'<�:�:', A n to n io T u a~;o n , p rE-~.si. cl c.,?nt o -f h e r��e.i n p~tit:..i.u n er owned 99.99% of .its s h ares o -f stoc k s . V in~::;tant: c,::~s<?, In t:.hE"J II'JF? think t h at: peti. tio n e r (.) n t .on .io Tu;,~<::;un, In c: . , h a s <.-:ld<'"~qut:\ tE' 1 y s u stc.1i n e d th e hun::ll;? n plac::r�? cl upnn .i.t by t:hr.:~ l aw t h ;,:~t. i t was f.lP..L

DEC I ~3 TflN CTA CASE NO . 3865 �-� l l -�- t h e pl.l!'"PO~:;E' o �f p !~ev e nt in g impo si tion of tl �lE�? ~:; ur� t;,,;.: upnn its s i�.oc khCJJ.der�s. Petitione~ has suffiLiently ~ebutted the p~e s umption by clea~ p~eponde~ance of evidence that i t <:; <:; u r� p 1 u ~,,, p!'"O f .i. ts d u ,... :i.n q t. he~ y r;-a r�s in quE?S ti on ~��J l2 I'' E! i n V f~ <;:; t .E' d by i t for � <~ legitimate bu s iness pu~po se as ~ ~mal e s t a te deale~. As a mrly su ppo~ted by the r �eco~ d and the evidence p~ ese nted, so metime in 1975, the Board of D i l"'f:?C: tor-<:; o �f pet.i.tione~ decided to e:�: pand i t s business oper�ation as its income f~om sa le s of lots was q~arlually r eceding so that .' i t s real estate bu c,; i.. n r.J�::; "; wot..tl cl no u l on E? ,... p r-ov i c:IE�~ C' nouq h mrc~an s to <::; t..t �:::; t �.,�,,1:i. r1 :i. 'l". ~::; n pF�' t... <'~ t .i or �, f C'l ,.. t i�lE' ~; uc:: c:: C�?E�'c:l :i. nq yr:::.'a r-~:;. I t t.u con�::; tr-u e: t. 1 ovJ --� c o<::; t. hou <::; .i.rl~J ;.:,,,; �b y c:~vi d c-~nc:: �'�.!C:I th e~ minute::.; of t.h!:~ m c>c:.~ting pe r tinent p .~ ~ tion of which ~eac:ls as follows: A di.<::;ctJ <::;s.io n e n s5l..lE'd '"'~'; to ""1t1at i l"l Vf�)S;, 'i.: illG?n t C: OU 1 cJ bE~ fTli::\d t-:0 ~>J .i. t h S a j_ d sur-p 1 LE;. Su!Jgf:�?S tions ~-ven~ made to engage~ in the c:o nst~u ction of low-cost housing and t o construct apartments for lease. After taki ng note of the pros and cons of the,~ ~:;u rJCJE'~:;t:ion, it: ~-va s resolved, upon motion of Mr. Araneta~ duly seconded.

!JEJ~ J :~ TrJI\ I C'T n c ry:;r:: l\ if"l .. :'': n(, ~! l? .... h('�' r i )i:d. 1: he� F' r��c�.'~::; :i.d C'll t-. �':\rl d t l"lC' T t" " (c~ .,:~ ~:;u I"" P r� he:~ �::; l. f!k\dr-:� r:umrn:i.<:; <;:;:i.ul �l r'cl tn mt,,_ l::r.:~ <":\ ~::; +.t .tdy o"f t. hc~ ci(�F�'Ifl n1 � rnoc.; L pr �o�f .i. l:i:\h J c-:~ irl'--'F)~:;t. r~lt:.~n t~~' t:.o i:JF' ~�J.oi. th �l�.hr::) �:;ur�plL(c:; i�:\ ncl l":.n qt:~ t, i f thr~y i.t. ' l F)<:F''">'-' "" I����y:, t.hr:: D. (:l v :.i.CE�~ c:,"f ot . i�l r~ r���:::; .. J 11 J C_F/ "/ :1 i'ir� PE' L :i. t ..i. Clf"l (""I c nr� p ul�t.\t:i.c'n 11 i�\U t hur �:i. ;-~(:?c:i l:.o rl ;:�) t ::::� t���, n .i. ll ,.._.) +.l1 r-� l:)c��::; t �. �:; :l. tE:� ''''�v i'.\ i J. ""'� b 1 F) f ,.J r�� i':\ pi'). r�� -t.-.mc-:> t�l t -J.:. ilF.� j:'l'��c� j:J i�:\ I' .c.l. t .i Ul"l CJ �f t h r': 1�1r�'C: (.")~;; Si -':1 r� y p 1 drl ~;;; f CJ ,... ~;:;;:,\ .i. !:i i�:\ p p t�� u v i'.\ 1 u f '''�'..tc: I 1 p 1 <'.\rl ~:; a~::; t. l�lE) y in i�:\ y cl c-~c rn ,�.:\c c: C) pt.,;~ b l t'~ t.\ 11cl �:::> l..l( . I�1 i::\ m1. ,, ,_n 1::. ''' c,; m;:,, y be:� 11E'C: r::'~'" �:..-,,�.:, t���y l: o i::\ p p 1 �o p r�� 5. ,:\ te ( f3(7? f.:? rn :i. tliJ tc� ~:; cJ f ' l 1c illf~c~ l: .in C:J of 1.� h e nuc:\1' cl u "f D .i. r.. E!c:: t.u ~�- <::; , 1\iu .,. c-:�m i..Jc: r � �-':\{ "1 p t.\qF) .:.. � ' :1 I F~( : () t�� d "" ,. J11 i t was dPc:ldec:l to c:orl :-o t.r�uct. i::\ p <':\ r t rnc�r 1t. h !J '�.t �:c:; F' or 1 L.o t:. l\lo .. .12 :� Block c::ovei���F:.�c:l by T.C.T. 1\io . 44736 of thP Register of Deeds of Qupzon C.i. ty. p J. i:H1 thr:? c::o n s tnJc:tion of the "' p c\ ,... t-.lll(') f"l t ht.\ :i. l c:l.i. rl q a~:; p r �E: pi::l r�r?d by A I'"C: hi teet n.:\ mon Eguaras was s ubmitted to anc:l dpproved by the Boa rc:l. At th('? Sd illE' time, -t.hf�~ pJ.,:\n fo1� �� thf'l c: onst.J'"� u ct:io n o�f �.:. c:u

DEC J ~:;I CJ~~ CTA CA S E Nn . 3 865 t::.:: . � <:5c:\id b1.1.i lc:l.i nq v~ ,:~. ~; <;:,ubmi t t c:> d to dncl tlppr � ovr~d by t.hP - t�1.i. n .i. ~::; t.r �/ of l��lu rndn f:3(~~ t t 1. e mf?n t <J. n d t". h E' 0 f f .icE' o �f thE? City Enqinee r of Quezon City. (See minutes of the meeting of t h e Board of Directors, Auqust 28, 1978 c:\nd ~ l\lo vcrn b �-~ 1 � 20 , :l.97El, F:-:hs. (1 ;::~ncl A - �1, pp. 21~5-��� 216 , B IR records. ) I n 1.97'71 , after accu mul ating ;,~ s u r� p l u ~:;, of P5,263,305.88, sufficient to s tart 1ts ex p a n sion p r��uq r� am, t .h t-:' c: un ~; t t- uc: t i. on of E~ n a pa 1.... tmE'n t: bu i. 1 cling ThE~ bu.i.l c:l.i.nq wac.;, c(Jrnpletf:?d in 1981. at a co s t of P1,525,672.74. ( See Exh. C, p. 66- A, CTt1 In C:\clc:lit�..ic n tc:> thE�~�� a p e-:\ r- t. mG?n t I:Ju.i ld.i.nq :� PE't.i.. t:i.one 1... C'~cquirc-~ d '"' c ondomi nium ap a rtment :i.r1 1. 9 80 at a co s t of P1,752, 3 32.87 wh ic h wa s intended for s a lci or lease. pp. CTA r�E~c:or- dc.;; . ) ,()'.l.n ce <;\C:CJI.Ii ~~,:i. t.i.on �Jf these properties, hc')(": n dG?I'" :i. v ill CJ s ub ~; tan t.ia l income '"'~" t~v idenc::c:�d by :i. ts; C:'\ 1'1n Ui':\ 1 .i. ll C: O fll E~ t.,'::\>: l'"f:)tl..ll'"f1C.:i. I t :i.~; t h e ;,~c:c:umulated SUI'"plu~; for.. thE? years 1 9 75- 1978 in the 21ggregate amount of P3,263,365.58 which has b e e n tr eated by respondent as having been 1 ;::~cc:utnu l a ted bE'yond th E-? r�easona b 1 G? nE?ed ~; 11 of the ' business of petitioner. Accordingly, r es ponden t

DF :C J !-;I Cll\l c; Tt1 Ct't ~3[ I\ ICl , ::�!;ur.) :'; .t 1.1� -- �:;u uc] Itt t.n .i. mpn ~;r0 u pu n pF! t .:i. t i or t f:? ,... t l�te pE~ni:\ l t y ta :-: of No p art of sa id amount wa s �::;t .lp !.:.>l )t'�� l.-. thl.�.�' c:o n c: l.t.t s .i.(Jn t. h <:~ t ~S U( : C: (0~::�"'i "f U J. l \f d rn u unt r::� 1. , :1. :':1 .1. , .1. 4 El .. 9 b (J. '::"3 t.tnr�r~<~�:;nrl <:lhl e act:t.t"rnu l c:\ t.i.on of f:5 ut~ p :t.us fot�- t.:ht? year�s 1975 to 1.978 can not be s u s tained.

- -~~---- m:: c J ~:; :r rm b e , as i t is h mr8by , reversed. l\ lo c:.ust~o. Jfj. , J7U f:3. AMANTE F F'r�F'~';:i. (:l.i.r�l ,:.rt~r:I(]C' 1.\IE .w () ~:; �:; n c: :i ,:�, -!.-. c:.~ ,J u cl q <-:~ CE RT I F I CAT I 0 N c: c-~ ,,. t :.i. �f 'l Ll�l.i. ::; d u c: :i. ~'i .:i.em r ��E~<:~ c: ll r?d ,.,, ft. r? ,.-� ci UE! consu l t,:3. t .i. on .:0:\rnon q t. hE' m<~rn bra r� f:; of t. I 1 F~ Cuur,.. t of dC: c: or��� d an c:: P ~'-1 i t h Section 13, irtic:le VIII of the Constitution. AMANTE ILLER Pr�c-=~s .i. d .i. ng LJ udge Court of Tax Appe a ls