CIR v. Avelino - Assessment Deemed Prima Facie Correct

Republic v. Albert, [G.R. No. L-12996. December 28, 1961.
]
Facts: This is an appeal taken by Antonio Albert from the decision of the Court of First Instance
of Manila sentencing him to pay the Republic of the Philippines the sum of P6,889.00 as
deficiency income tax for the year 1951, with 5% surcharge, and 1% monthly interest thereon
from October 16, 1953 until full payment, plus costs.
On February 28, 1952, appellant filed his income tax return for the calendar year 1951. After
examination and audit thereof by the personnel of the Bureau of Internal Revenue, a deficiency
tax for said year was found due from appellant in the amount of P6,889.00 The Bureau of
Internal Revenue issued and caused to be served on appellant the corresponding Income Tax
Assessment Notice requiring him to pay the sum aforesaid on or before October 15, 1953.
Appellant filed a letter of protest with the Bureau, but the same was overruled.
After due trial the lower court rendered the appealed decision on the ground principally that
appellant was already estopped from questioning the assessment which had become final and
executory because he did not appeal therefrom to the Court of Tax Appeals.
Issue: Whether the taxpayer is barred from questioning the tax liability?
Ruling:
In the present case, therefore, after receiving the denial of his protest against the deficiency tax
assessment made against him, appellant should have appealed therefrom within 30 days from
June 21, 1955, his failure to do so having caused said assessment to become final, executory and
demandable.
The taxpayers failure to appeal within 30 days from the income tax assessment made by the
Collector of Internal Revenue, renders said assessment final, executory and demandable, thereby
barring the taxpayer from invoking any defense that would reopen the question of his tax liability
on the merits.
People v. Manila Port Services, G.R. No. L-18208
November 27, 1964
Facts: The Manila Port Service as a subsidiary of the Manila Railroad Company, entered into a
management contract with the Bureau, of Customs wherein it was granted the exclusive right or
privilege to receive, handle, care for and deliver all merchandise, imported or exported, passing
over the Philippine government wharves and piers in the Port of Manila, and to charge and
collect the arrastre charge provided for in Section 11 of Republic Act No. 1371. Although it
engaged in said arrastre business for sometime, the Manila Port Service has not paid the
corresponding fixed and percentage taxes imposed by Sections 182 and 191 of the National
Internal Revenue Code on arrastre contractors. Neither has it filed the returns required by Section
183 of the same Code. The Commissioner of Internal Revenue on sent to it an assessment letter
demanding payment of the amount of P138,909.93 as fixed tax for 1956 and 1957 and
percentage tax on its gross receipts for the period from August 24, 1956 to February 28, 1957,
plus the additional amount of P300.00 as compromise penalty allowed in extrajudicial settlement
of violations of penal provisions of the National internal Revenue Code. The Manila Port Service
wrote the Commissioner of Internal Revenue denying its liability for the taxes in question on the
ground that its mother company, the Manila Railroad Company, is exempt therefrom pursuant to
Subsection 12 of Section 1 of Act No. 1510, and requesting withdrawal of the assessment.
Issue: Whether the assessment is final and execuotry?
Ruling: Here the assessment has already become final precisely because appellee has failed to
appeal as required by law thereby making indisputable the decision of the Commissioner of
Internal Revenue. Thus, the original assessment of the taxes in question was contained in a letter
sent to the Manila Port Service on June 10, 1957 which was refuted by said entity on July 17,
1957.
WHEREFORE, the decision appealed from is reversed. Appellee is hereby ordered to pay
appellant the sum of P138,903.93 as fixed tax for 1956 and 1957 and percentage tax on its gross
receipts from August 24, 1956 to February 28, 1957, inclusive of 25% surcharge for late
payment, with costs against appellee.
Republic v. Lopez, G.R. No. L-18007
March 30, 1963
Facts: On 6 December 1950 Benito H. Lopez filed his income tax return for 1950, for which an
assessment was issued by the Bureau of Internal Revenue on 13 November 1952 demanding
payment of P245,100.29 as deficiency income tax. Lopez, through counsel, in a communication
dated 30 November 1952, requested for reconsideration and he was given due course, and
resulted in the reduction of the assessment to P20,346.14 on 29 May 1954. Apparently satisfied,
defendant manifested in his letter of 1 July 1954 that he will settle the obligation by the end of
the month. Without complying thereto, on 9 July 1955, Lopez pleaded for another
reinvestigation, which was granted by the BIR. As a result thereof, an assessment was issued
demanding payment of P6,019.00 as additional deficiency income tax for 1950, the total
(P26,365.14) of which he did not pay, notwithstanding repeated demands. The appellee prayed
for a third reinvestigation, which, strangely enough was acceded to by the BIR provided that he
waives the statute of limitations. Ironically, however, instead of executing an unconditional
waiver, defendant imposed a deadline of 31 December 1957 within which the government should
finish the third reinvestigation. Ignoring the same, on 23 March 1960, the BIR issued an
assessment demanding the same amount of P26,365.14 as deficiency income tax for 1950.
Issue: Whether the waiver of the Statute of Limitations be binding and operative?
Ruling: NO. It is now a settled rule in our jurisdiction that (1) the five-year prescriptive period
fixed by section 332 (c) of the Internal Revenue Code within which the Government may sue to
collect an assessed tax is to be counted from the last revised assessment resulting from a
reinvestigation asked for by the taxpayer; and (2) that where a taxpayer demands a
reinvestigation, the time employed in reinvestigation should be deducted from the total period of
limitation.
An application of these rules will show that when action was brought by the Republic, the
prescriptive period of 5 years had not elapsed from the revision of 1954. If from the period that
intervened between the first revised assessment (29 May 1954) and the filing of the complaint
(13 August 1960) is deducted the time consumed in considering and deciding the taxpayer's
subsequent petition for reconsideration and reinvestigation (from 16 January 1956 to 22 April
1960), it will be seen that less than 5 years can be counted against the Government.
The failure to appeal the Collector's ruling is a waiver of the defenses against it, and estops the
taxpayer from subsequently raising those objections thereafter. Otherwise, the period of thirty
days for appeal to the Tax Court would make title sense. Equally anomalous is the fact that after
the taxpayer had promised to pay the computed tax, and after he had failed to keep his promise,
the tax authorities should still agree to a further revision of the assessment. Irregularities of this
kind inevitably provoke suspicion over the competency and honesty of the tax collecting
operations, and it is expected that the competent authorities will take immediate and drastic steps
to stop such deplorable practices.
CIR v. Avelino, G.R. No. L-14847
September 19, 1961
Facts: The Commissioner of Internal Revenue seeks a review of the decision of the Court of Tax
Appeals which reversed the decision of said officer requiring Enrique Avelino to pay the sum of
P22,123.55, as deficiency income tax for 1947, including surcharge, interest and compromise
penalties. The corresponding assessment, made on the networth method, was based upon an
investment in the sum of P60,000 made by Enrique Avelino in the National Livestock Produce
Corporation, organized in June 1947. He having filed no income tax return for such year, said
amount was considered as his unreported income therefor. Upon the other hand, Enrique Avelino
maintained that said sum of P60,000 had been lent to him by a naturalized Filipino, named
Severino Sayque, who returned to China in 1948 or 1949 and has not been heard from since then.
Issue: Whether or not such defense has been sufficiently established?
Ruling: Avelino's net worth at the beginning of 1947 was nil, for it is an undisputed fact that he
then had no money or property of any kind whatsoever. In civil cases, as the one at bar, it has
been held that the application of the net worth method does not require identification of the
sources of the alleged unreported income and that the determination of the tax deficiency by the
government is prima facie correct.
In the present case, the prima facie correctness of the assessment in question is bolstered up by
the undisputed fact that Enrique Avelino had invested P60,000 in the National Livestock Produce
Corporation in 1947. It was, therefore, incumbent upon him to establish that said sum had been
merely borrowed by him. His evidence thereon is, however, far from satisfactory.
WHEREFORE, the decision of the Court of Tax Appeals is hereby reversed, and another one
shall be entered affirming that of the Commissioner of Internal Revenue, except as to the
compromise penalties, aggregating P80,000, imposed by said officer, which should be eliminated
Olsen v. Rafferty, G.R. No. L-11138 December 15, 1915
Facts: Plaintiff, Walter E. Olsen & Co., a corporation, is a manufacturer and exporter of cigars
composed of tobacco grown in the Philippine Islands. The company applied to the Collector of
Internal Revenue for a certificate covering the origin of a certain consignment of 10,000 cigars
presented to the Collector at the time of the application. On such application plaintiff produced
the statement required by the rules of the Bureau of Internal Revenue, which it offered to verify
before the collector as required by the rules of the Bureau covering shipments of cigars,
demonstrating that the cigars were entitled to free entry into the United States under the
provisions of the Tariff Act of the United States relating to commerce with the Philippine Islands.
The Collector of Internal Revenue refused and still refuses to issue a certificate covering the
origin of the cigars on the ground, that the cigars in question did not conform to a certain
regulation relating to the exportation of the Philippine cigars to the United States issued by the
Collector of Internal Revenue on the 26th of January, 1915, therefore, were "not entitled to the
standard mark" which a certificate of origin would place on them. On the refusal of the Collector
of Internal Revenue to issue the certificate prayed for, application was made to the Insular
Collector of Customs for a certificate of origin of the material of the cigars, which request was
refused.
Issue: Whether writ of Mandamus lie to compel Insular Collector of Customs to issue a
Certificate covering the origin and certificate of origin?
Ruling: NO.
It is necessary, in the exportation of products of the Philippine Islands to the United States, to
satisfy the customs officials of that country that the proposed importations are of the character
described in that portion of the Act of Congress of October 3, 1913. By virtue of this necessity,
and pursuant to Executive Order No. 41.
The duties of the Insular Collector of Customs are laid down in section 3 of Act No. 355, known
as the Customs Administrative Act. A careful reading of that section, and indeed of the whole
Act, produces the instant conviction that the duty of making a certificate of origin with respect to
Philippine products is not imposed by that section or by any other portion of the Act. The same
may be said with respect to the statute imposing duties on the Collector of Internal Revenue.
There is nothing to be found in the Internal Revenue Act (No. 2339) which authorizes the
Collector, much less lays on him the duty, to issue certificates of origin. While, as we have said
above, it has been the custom to issue such certificates it was based on no statute either of the
United States or of the Philippine Islands and was not adopted by virtue of any duty imposed on
those officials of law. It arose from the fact that it was far easier for Philippine exporters to
present to Philippine officials the evidence necessary to procure the admission of their
exportation into the United States free of duty than to offer it to the customs officials of the
United States. When an exporter in the Philippine Islands desired to export Philippine products to
the United States it became necessary, either by the virtue of some rule established by the United
States customs authorities, or for some other reason as to which we are not definitely informed
by the complaint, to send along with the exportation proof satisfactory to the customs officials of
the United States establishing the facts required by that portion of the Congressional Tariff Act
No. 1913 quoted hereinbefore as a condition to free entry into the United States. This evidence
was supplied by the certificates of origin.
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We deem it clear, therefore, that the custom of issuing certificates of origin of Philippine
products about to be exported to the United States is based on no statute of the United States or
of the Philippine Islands. The benefit conferred by the Congressional Tariff Act of 1913 on the
Philippine exporter is the right to have his goods entered free of duty in the ports of the United
States, provided they meet the requirements of the Act. This is the right and the only right which
the exporter in the Philippine Islands has by virtue of that Act. The presentation of certificates of
origin to the customs officials of the United States demonstrating that the article sought to be
imported falls within the definition of the Tariff Act is not based on a right conferred by the Tariff
Act but is simply a method by which such proof can be made. The Philippine exporter is not
limited in his proof that his exported article falls within the provisions of the Tariff Act to the
presentation of a certificate of origin. So far as appears in this case, he may present to the
customs officials of the United States any other evidence which will establish the same fact; and,
if such evidence is satisfactory to those officials, the importation will be entered free of duty
although the importation is not accompanied by a certificate of origin. The Tariff Act sets out no
particular method by which the fact that the article is a Philippine product must be established;
and the exporter, under that Act, obtains no legal right to prove the fact of Philippine origin by
any particular method or means. He simply gets the right to prove it. This being so, it must
follow that he has no legal right to present a certificate of origin to the customs officials of the
United States, nor has he a legal right to require the issuance of a certificate of origin from any
official of the Philippine Islands. Not having been granted by the Act, no such right exists under
the Act, and if no such right exists certainly it can not be enforced in any sort of action.
Immediately on the passage of the Tariff Act of 1909 the Governor-General of the Philippine
Islands issued Executive Order No. 41, dated May 7, 1909. It dealt with that provision of the
Tariff Act of 1909 which was repeated in the Tariff Act of 1913 which we have already quoted. It
provides: "Upon the passage of a Congressional enactment authorizing the free entry into the
United States of goods the product and growth of the Philippine, all customs and internalrevenue officials will consider themselves charged with the duty of preventing the fraudulent
export for free entry into the United States of goods which are not the product and growth of the
Philippines. In case the Insular Collector of Customs, the Collector of Internal Revenue, or their
duly authorized representative are satisfied that goods sought to be exported to the United States
for free entry therein are really and truly the product and growth of the Philippines, they shall
issue proper certificate to the exporter of such goods to that effect, and shall advise him that a
duly authenticated copy of such certificates must accompany the goods to the United states and
be presented to the proper customs officials at the port of entry in the United States.
The Insular Auditor is hereby directed to transmit promptly at the close of each month, through
this office, to the Secretary of Treasury of the United States an abstract of such exports.
In pursuance of this order, Customs Administrative Circular No. 715, directed "to all collectors
of customs and others concerned," was issued on the 1st of August, 1914. Paragraphs 1, 2 and 3
thereof are as follows:
The following regulations prescribing the manner of complying with the provisions of section IV
(c) of the United States Tariff Act of October 3, 1913, for the shipment for free entry in the
United States of Philippine products, upon which no drawback of customs duties has been
allowed, and which are for direct shipment, under a through bill of lading, from the Philippine
Islands to the United States, are hereby published for the information and guidance of all
concerned.
The term "Philippine products," wherever used in these regulations, shall be held to mean "article
the growth or product of or manufactured in the Philippine Islands from materials the growth or
product of the Philippine Islands or of the United States, or of both, or which do not contain
foreign materials, to the value of more than 20 per centum of their total value," in the sense of
this phrase as used in the aforecited section and Act.
In accordance with the provisions of Executive Order No. 41, dated May 7, 1909, collectors of
customs and all other customs officials will consider themselves charged with the duty of
preventing fraudulent export for free entry into the United States.
Upon the filing of export entries covering Philippine products, as defined in paragraph I, for
direct shipment, under through bills of lading, to the United States for free entry therein, the
collector of Customs at the port of loading shall furnish the exporter, upon application thereof, a
duly executed certificate of origin setting forth that the articles to be exported are in truth and in
fact the growth, product, or manufacture of the Philippine Islands, such certificates of origin to
be on one of the following forms: . . .
The other paragraphs of this circular touching the exportation of Philippine products are:
PAR. IV. Exporters shall file with the collector of customs, prior to the execution of the
certificates of origin, a true copy of the original bill of lading as evidence that the merchandise to
be exported is for shipment to the United States on through bill of lading, said copy to be
attached to the duplicate copy of the certificate of origin and forwarded therewith as provided for
in paragraph X.
PAR. V. The certificate of origin provided for in paragraph III shall be required for each
consignment of merchandise exported to the United States, as evidenced by each original bill of
lading issued by the exporter, and shall have attached thereto a customs fee stamp in the sum of
two pesos (P2) Philippine currency: Provided, That certificates of origin shall be issued free of
charge in all cases in which the consignment of merchandise does not exceed in value fifty pesos
(P50) Philippine currency."
PAR. VII. Certificates of origin covering cigars, cigarettes, manufactured tobacco, or leaf
tobacco, shall not be executed by collectors of customs until there has been presented to them a
sworn statement of the exporter covering such shipment of tobacco, accompanied by a certificate
from the Collector of Internal Revenue, covering the origin of such tobacco and, in the case of
manufactured tobacco, the grading of the same; nor shall certificates of origin be issued for
consignments of manufactured tobacco unless such certificates, when presented by the exporter
for approval, shall show by indorsement of the Collector of Internal Revenue that United States
internal-revenue stamps have been attached to each and every package of said consignment as
required by law and regulations.
PAR. X. The certificates of origin provided for in paragraph III, for tobacco, shall be executed
and signed in triplicate, and for general merchandise, shall be executed and signed in duplicate,
the original to be delivered to the exporter and by him forwarded to the consignee in the United
States, and the duplicate to be immediately forwarded to the Insular Collector of Customs at
Manila; the triplicate tobacco certificate being for file in the Bureau of the Internal Revenue.
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PAR. XII. Certificates of origin will not be issued for opium or preparations thereof, liquors,
playing cards, or other articles (with the exception of manufactured tobacco) subject to United
States internal-revenue tax; goods which are not Philippine products, as defined in paragraph I;
and articles upon which drawback of customs duties has been claimed or allowed.
The Customs Administrative Act authorize the Insular Collector of Customs to make proper rules
and regulations for carrying into effect the statute creating and governing his department, while
the Internal Revenue Law authorizes the Collector of Internal Revenue and imposes it as a duty
to publish all regulations necessary to carry the Act into effect and to secure a harmonious and
efficient administration of his branch of the service. The regulations of both the Insular Collector
of Customs and the Collector of Internal Revenue become effective when approved by the heads
of the Departments to which they belong and after they have been duly published.
Having seen that there is no statute, either of the United States or of the Philippine Islands, which
places the duty on either the Insular Collector of Customs of the Collector of Internal Revenue of
issuing certificates of origin of products of the Philippine Islands exported to the United States,
the question remains whether Executive Order No. 41 and the regulations of the Insular Collector
of Customs and the Collector of Internal Revenue referred to, issued thereunder, may be
considered as laws within the meaning of the section of the Code of Civil Procedure authorizing
the issuance of writs of mandamus.
In the Philippine Islands legal rights are conferred by statute. Unless a party can establish a right
by virtue of some statute or law in force in the Philippine Islands, he has nothing on which he
can base an action in any court. Until a legal right has been violated, no cause of action exists.
Executive Order No. 41 confers no legal rights on anyone. It requires the adoption by the Insular
Collector of Customs and the Collector of Internal Revenue of such rules and regulations as will
insure that the Government of the United States will not be defrauded by a Philippine exporter
who, by manufactured evidence or otherwise, may attempt to introduce into the United States
free of duty articles which are not the product of the Philippine Islands and which do not fall
within the provisions of the Tariff Act of 1913; and to that end it lays on the officials named the
duty of ascertaining whether articles exported from the Philippine Islands to the United States are
such that they may be lawfully imported into the United States free of duty under the Tariff Act.
It is true that, while protecting the United States against fraud, the executive order referred to
greatly conveniences Philippine exporters by offering to them the opportunity to make the proof
which will be required by the customs officials of the United States. It permits them, as we have
already seen, in effect, to make proof in the Philippine Islands which they would otherwise be
required to make in the United States. It presents to them an opportunity, a very valuable
opportunity, which they would not have had if the order had not been promulgated. But while it
does this, it does not confer a legal right, a right on which an action in a court of law may be
predicated, or one which may be enforced against the officials charged with the formulation of
the required evidence by any process known to the law.
The matter before us may be looked at from another point of view. Executive Order No. 41 is
nothing more or less than a command from a superior to an inferior. It creates no relation except
between the official who issues it and the official who receives it. Such orders, whether executive
or departmental, have for their object simply the efficient and economical administration of the
affairs of the department to which or in which they are issued in accordance with the law
governing the subject-matter. They are administrative in their nature and do not pass beyond the
limits of the department to which they are directed or in which they are published, and, therefore,
create no rights in third persons. They are based on, and are the product of, a relationship in
which power is their source and obedience their object. Disobedience to or deviation from such
an order can be punished only by the power which issued it; and, if that power fails to administer
the corrective, then the disobedience goes unpunished. In that relationship no third person or
official may intervene, not even the courts. Such orders may be very temporary, they being
subject to instant revocation or modification by the power which published them. Their very
nature, as determined by the relationship which produced them, demonstrates clearly the
impossibility of any other person enforcing them except the one who created them. An attempt
on the part of the courts to enforce such orders would result not only in confusion but,
substantially, in departmental anarchy also. The enforcement of such an order, and the
punishment which follows disobedience thereof, being at the will of the superior who issued it,
instant conflict between him and the courts would be the necessary result of an effort on the part
of the courts to enforce it. If courts can enforce, they can punish for disobedience; and what that
punishment shall be and what form it will take, whether fine or imprisonment, or both, rests
exclusively with them. The intervention of the courts would thus produce this situation: The
official who issued the order and upon whom alone and exclusively rests the responsibility for
the due, orderly and efficient administration of his department is not permitted to determine
whether the order has been fulfilled or violated, or, if there is disobedience or violation, how or
when it shall be punished. Indeed, he might be deprived of a number of his subordinates by
reason of jail sentences imposed by the courts for refusal to comply with their orders, and for
reasons which the official who issued the order might not think sufficient to justify any
punishment at all. The most serious results would almost necessarily follow if the courts should
undertake to compel the execution of the orders or the rules and regulations of any department of
the government except, perhaps, that in which the courts are supreme. Moreover, if the courts
should enter that field of activity, there would be great difficulty in finding a stopping place. If
they may enforce the orders of the Governor-General directed to the Bureau of Customs ad
Internal Revenue, why not proceed and enforce all other executive orders, rules and regulations
in all branches of the Government? Certainly the courts should confine themselves to the
enforcement of legal and equitable rights, leaving the administrative affairs of the government to
administrative officials.
Taking as admitted all of the material allegations of the complaint, as we have taken them under
the demurrer, the plaintiff is not entitled to the relief prayed for. Its remedy lies with the superior
power which issued the order which is sought to be enforced.
The demurrer is sustained and the plaintiff given 5 days in which to amend its complaint. In case
an amendment is not made within that time, the complaint will be dismissed on the merits. So
ordered.
December 24, 1914

G.R. No. L-9878
THE UNITED STATES, plaintiff-appellee,
vs.
FRANK TUPASI MOLINA, defendant-appellant.
Julio Borbon Villamor for appellant. Office of the Solicitor-General Corpus for appellee.
JOHNSON, J.:
On the 6th day of February, 1914, the prosecuting attorney of the Province of Ilocos Sur filed a
complaint against the defendant charging him with the crime of perjury, alleged to have been
committed as follows:
The said Frank Tupasi Molina, the above-named defendant, did on September 10, 1912, in the
municipality of Tayum of the Province of Ilocos Sur, P. I., for the purpose of gaining admission,
as in fact he did, owing to the deceit he practiced, as will be hereinafter related, to the
examinations for the municipal police service in the Province of Ilocos Sur, which were held in
the municipality of Vigan, said province, on or about January 18, 1913, willfully, unlawfully, and
criminally take a false oath by affirming and asserting in an oath that he knew to be false, in an
examination application which he himself filled out and signed, that prior to the said date, to wit,
September 10, 1912, he had never been indicted, tried, or sentenced for the violation of any law,
ordinance, or regulation in any court, when he knew at the time he took that oath and signed his
examination application, as he knows at the present time, that he had been twice indicted for
disturbing the public peace, and for injurias graves, and sentenced to pay a fine and undergo
imprisonment therefor, by the justice of the peace court of Tayum and the Court of First Instance
of Ilocos Sur.
The defendant made the false declaration previously mentioned after he had sworn before Lucas
Magno, notary public, authorized by law to administer oaths, that he would state the truth; and
said false declaration made under the oath taken by the defendant, as above stated, concerned a
fact of such importance that without it he would not have been admitted to said examinations
prescribed for the municipal police service. In violation of the law. (Sec. 3, Act No. 1697 .)
After hearing the evidence adduced during the trial of the cause, the Honorable Francisco
Santamaria, judge, found the defendant guilty of the crime charged, and sentenced him to be
imprisoned for a period of two months and to pay a fine of P100, in case of insolvency to suffer
subsidiary imprisonment in accordance with the provisions of the law, and to pay the costs. The
defendant was further sentenced to be disqualified from holding any public office or from giving
testimony in any court in the Philippine Islands until such time as the sentence against him is
reversed. From that sentence the defendant appealed to this court and made the following
assignments of error:
1. The trial court erred in holding section 3 of Act No. 1697 to be applicable in this case.
2. The trial court manifestly erred in sentencing the appellant for violation of section 3 of Act
No. 1697, when the prosecution did not present any evidence demonstrating that he had willfully
and corruptly sworn or taken an oath.
3. The trial court erred in not sustaining the defense set up by the appellant Tupasi with reference
to the construction he placed upon the fifth question of Exhibit A of the prosecution.
4. The trial court erred also in holding that the words "which he does not believe to be true," used
in Act No. 1697, are equivalent to the term "knowingly," used in section 31 of Act No. 1761.
5. The trial court erred in not acquitting the defendant.
It appears from the record that on the 10th day of September, 1912, the defendant signed a
petition to be permitted to take the examination for the position of municipal policeman. Said
petition was signed by the defendant and sworn to by him before a notary public. Said petition
contained a number of questions which the applicant was required to answer. Among other
questions we find that No. 5 was as follows:
Have you ever been indicted, tried, or sentenced in any court for violation of any law, ordinance,
or regulations, or have you ever been tried or sentenced for violation of regulations of the Army,
Navy, of the Constabulary, in any court martial of the Army or of the Constabulary, or in any
other court?
To said question the defendant answered: "No, sir; I cannot remember any."
During the trial of the cause the prosecuting attorney presented Exhibits B, C, and D.
Exhibit B shows that one Francisco Tupasi and others, on the 8th day of February, 1911, had
been arrested by an order of the justice of the peace of the municipality of Tayum, Province of
Ilocos Sur, and charged with disturbing the public peace, were found guilty, and sentenced, on
the 20th day of February, 1911, to be imprisoned for a period of fifteen days, and each to pay a
fine of 25 pesetas, and to pay the costs.
Exhibit C shows that Francisco Tupasi, on the 18th day of May, 1911, had been arrested and
taken before the justice of the peace of the municipality of Tayum, Province of Ilocos Sur,
charged with the crime of "injurias graves," and was sentenced on the 22d day of May, 1911, to
be imprisoned for a period of fifteen days and to pay a fine of 75 pesetas and the costs.
Exhibit D is the certificate of the clerk of the Court of First Instance of the Province of Ilocos Sur
and shows that the Honorable Dionisio Chanco, on the 26th day of April, 1911, in an appealed
case for disturbing the public peace, sentenced the said Francisco Tupasi and others to pay a fine
of 60 pesetas, in case of insolvency to suffer subsidiary imprisonment, and to pay the costs.
Exhibit A was the sworn petition presented by the defendant for permission to take the
examination. Said petition was signed by Frank Tupasi y Molina. It was shown during the trial of
the cause, by the admission of the defendant himself, that he was the same person accused and
sentenced in Exhibits B, C, and D. It was argued that the defendant signed said application in the
name of "Frank Tupasi y Molina" when he had theretofore been known as "Francisco Tupasi,"
for the purpose of avoiding identity. The defendant said that "Francisco" was the same as "Frank"
and that he had adopted the name of "Frank" instead of "Francisco." The answers to the
questions in said application were made in English.
With reference to the first assignment of error, that the lower court committed an error in
applying section 3 of Act No. 1697 to the facts in the present case, it may be said that said article
provides that:
Any person who, having taken an oath before a competent tribunal, officer, or person, in any case
in which a law of the Philippine Islands authorizes an oath to be administered, that he will testify,
declare, depose, or certify truly, or that any written testimony, declaration, deposition or
certificate by him subscribed is true, willfully and contrary to such oath states or subscribes any
material matter which he does not believe to be true, is guilty or perjury, and shall be punished,
etc.
Act No. 2169 of the Philippine Legislature, which is an Act to provide for the reorganization,
government, and inspection of municipal police of the municipalities or provinces and
subprovinces organized under Act No. 83 , provides for the reorganization of the municipal
police of the municipalities or provinces and subprovinces organized under Act No. 83.
Said Act further provides that, subject to the approval of the Secretary of Commerce and Police,
the Director of Constabulary shall prepare general regulations for the good government,
discipline, and inspection of the municipal police, "compliance wherewith shall be obligatory for
all members of the organization."
Said Act further provides for an examining board for the municipal police. It further provides
that, subject to the approval of the Secretary of Commerce and Police, the Director of
Constabulary shall prepare an examination manual, prescribing, at the same time, suitable rules
for the conduct of the examination.
Said Act (No. 2169) also provides for the time and place for holding said examinations.
Section 9 of said Act provides that: "To be eligible for examination, a candidate shall have the
following requirements: . . . (6) Have no criminal record."
In accordance with the requirements of said law, the Director of Constabulary prepared an
examination manual, prescribing at the same time rules for conducting examinations, which
examination manual was approved by the Secretary of Commerce and Police, and thereby was
given the force of law. Said manual prescribed a form in blank, known as "Municipal Form No.
11," which form each applicant was required to fill, in order to be permitted to take said
examination. Said application required the applicant to swear to the facts stated therein. We have,
therefore, a law which authorizes the administration of an oath in the present case.
Of course, the regulations adopted under legislative authority by a particular department must be
in harmony with the provisions of the law, and for the sole purpose of carrying into effect its
general provisions. By such regulations, of course, the law itself can not be extended. So long,
however, as the regulations relate solely to carrying into effect the provisions of the law, they are
valid. A violation of a regulation prescribed by an executive officer of the Government in
conformity with and based upon a statute authorizing such regulation, constitutes an offense and
renders the offender liable to punishment in accordance with the provisions of law. (United
States vs. Bailey, 9 Pet., 238, 252, 254, 256; Caha vs. United States, 152 U. S., 211, 218; United
States vs. Eaton, 144 U. S., 677.)
In the very nature of things in many cases it becomes impracticable for the legislative department
of the Government to provide general regulations for the various and varying details for the
management of a particular department of the Government. It therefore becomes convenient for
the legislative department of the Government, by law, in a most general way, to provide for the
conduct, control, and management of the work of the particular department of the Government;
to authorize certain persons, in charge of the management, control, and direction of the particular
department, to adopt certain rules and regulations providing for the detail of the management and
control of such department. Such regulations have uniformly been held to have the force of law,
whenever they are found to be in consonance and in harmony with the general purposes and
objects of the law. Many illustrations might be given. For instance, the Civil Service Board is
given authority to examine applicants for various positions within the Government service. The
law generally provides the conditions in a most general way, authorizing the chief of such
Bureau to provide rules and regulations for the management of the conduct of examinations, etc.
The law provides that the Collector of Customs shall examine persons who become applicant to
act as captains of ships for the coastwise trade, providing at the same time that the Collector of
Customs shall establish rules and regulations for such examinations. Such regulations, once
established and found to be in conformity with the general purposes of the law, are just as
binding upon all of the parties, as if the regulations had been written in the original law itself.
(United States vs. Grimaud, 220 U. S., 506; Williamson vs. United States, 207 U. S., 425; United
States vs. United Verde Copper Co., 196 U. S., 207.)
By reference to Exhibit A, the application made and sworn to by the defendant, we find that the
oath was taken before a notary public, a person qualified to administer an oath, in accordance
with the provisions of law.
The defendant, in support of his first assignment of error, argues that the purpose of Act No.
1697 was not intended to cover cases like the present. He argues that said Act was an Act only
authorizing the appointment of commissioners, to make official investigations, fixing their
powers, for the payment of witness fees, and for the punishment of perjury in official
investigations. The same question was presented to this court in the case of United States vs.
Concepcion (13 Phil. Rep., 424). In that case the court decided against the contention of the
defendant in the present case. It is true that the title of said Act (No. 1697) does not seem to
indicate that said law contained a provision punishing the crime of perjury generally. Reading the
title alone, it would seem to be a law punishing the crime of perjury in particular cases. The law
(Act No. 1697) is a general law. It is not a private or local law. In the United States the
constitutions in the different States generally provide that the title of a law shall indicate the
general purpose of the law. There seems to be no provision in the Philippine Islands that the title
of a general law shall contain a statement of the subject matter of the law. Section 5 of the Act of
Congress of July 1, 1902, provides:
That no private or local bill which may be enacted into law shall embrace more than one subject,
and that subject shall be expressed in the title of the bill.
We held in the case of United States vs. Concepcion, supra, that said Act of Congress did not
apply to general laws, and that said section 3 was a provision punishing the crime of perjury
generally. (U. S. vs. De Chaves, 14 Phil. Rep., 565; U. S. vs. Estra?a, 16 Phil. Rep., 520; U. S.
vs. Fonseca, 20 Phil. Rep., 191.)
In the case of United States vs. Dumlao (R. G., No. 8721, not reported) this court held the
defendant guilty of the crime of perjury, under facts exactly analogous to those in this case, under
the provisions of section 3 of Act No. 1697. We find no reason, either in law or in the argument
of the appellant in the present case, to modify or reverse our conclusions in that case (No. 8721).
With reference to the second assignment of error, the appellant alleged that the lower court
committed an error in finding that he had committed the crime of perjury voluntarily and
corruptly. There is nothing in the record which shows that he did not present to the proper
authorities Exhibit A voluntarily. It is difficult to understand, in view of the fact that the
defendant had theretofore been convicted of two different offenses and in one of them by two
courts, how he could, within a few months thereafter, make a sworn statement that he "did not
have a criminal record," unless he answered said question No. 5 in the manner indicated in said
application for the express purpose of deceiving the authority to which said application was
presented.
With reference to the third assignment of error, it may be said that the language of question No. 5
seems to be perfectly clear. The defendant admitted that he could read and understand Spanish. It
is to be noted that at the very beginning of said application there are three paragraphs devoted to
instructions to the applicant, which he should have read and no doubt did. Said instructions were
sufficient to indicate to the defendant that if there were any questions which he did not fully
understand, he should have acquired a full understanding of the same before answering them. If
there was any fault in understanding said question No. 5, it was wholly due to his own
negligence.
With reference to the fourth assignment of error, the appellant contends that the lower court
committed an error in holding that the phrase "which he does not believe to be true," found in
section 3 of Act No. 1697, is equivalent to the word "knowingly," used in other laws. The lower
court cited the case of U. S. vs. Tin Masa (17 Phil. Rep., 463) in support of his conclusion. Said
section 3, in effect, provides that any person who takes an oath before a competent tribunal,
officer or person, in any case in which a law of the Philippine Islands authorizes an oath, that he
will testify, etc., or that any written testimony, declaration, etc., by him subscribed is true, and
thereafter willfully and contrary to such oath states or subscribes any material matter, "which he
does not believe to be true," is guilty of perjury. Under said section, three things are necessary, in
order to constitute the crime of perjury:
1. The person must have taken an oath, in a case where the law authorizes an oath, before a
competent person, or a person authorized to administer an oath;
2. That the person who has taken the oath will testify, declare, dispose, or certify truly, or that
any written testimony, declaration, deposition or certificate by him subscribed is true;
3. That he willfully and contrary to such oath states or subscribes any material matter, "which he
does not believe to be true."
It is difficult to understand how a person can state, under oath, that a fact is true or subscribe a
document, asserting that the same is true, which he does not believe to be true. If, under his oath,
he declares that said facts are true, we must conclude that he believed that they were true. If, as a
matter of fact, they were not true, and he had full knowledge of the fact that they were not true,
then his declaration that they were true would certainly be a sworn statement that a certain fact
was true which he did not believe to be true and, therefore, he must have made a false statement
knowingly. Without attempting to show or assert that the phrase "which he does not believe to be
true" is equivalent to the word "knowingly," as the lower court held, we are of the opinion that
whoever makes a statement or subscribes a document, under the circumstances mentioned in said
section 3, which is false and which he, at the time he makes the same does not believe to be true,
is guilty of the crime of perjury. In other words, under the circumstances mentioned in said
section, if one swears positively that a fact is true, which he does not believe to be true, and it
turns out that it is false, he is guilty of the crime of perjury. No one should swear positively that a
fact is true or subscribe a document asserting that the facts stated therein are true, unless he at
least believes that they are true at the time he takes such oath or subscribes such document. It can
scarcely be believed that the defendant in the present case believed that the answer to said
question No. 5 was true. He must have signed or answered said question not only believing that
it was not true, but, as a matter of fact, signed the same knowing that the answer was false.
With reference to the fifth assignment of error, we are of the opinion that the evidence adduced
during the trial of the cause clearly shows that the defendant is guilty of the crime charged and
therefore the sentence of the lower court should be and is hereby affirmed with costs.
Arellano, C.J., Torres, Carson and Araullo, JJ., concur.
Separate Opinions
MORELAND, J., dissenting:
I dissent. The case of United States vs. George (228 U. S., 14), is decisive of this, holding that an
indictment for perjury can not be based on an affidavit not authorized or required by any law of
the United States. There is no law of the Philippine Islands which authorizes or requires the
affidavit which is the basis of the charge of perjury in this case. (U. S. vs. Panlilio, 28 Phil. Rep.,
608.)
[G.R. No. 44100. September 22, 1938.]

WM. H. ANDERSON, Plaintiff-Appellee, v. JUAN POSADAS, JR., Collector of Internal
Revenue, Defendant-Appellant.
Solicitor-General Hilado, for Appellant.
Ohnick & Opisso, for Appellee.
SYLLABUS
1. INCOME TAX; FINES PAID AS PENALTY BY THE TAXPAYER. Fines paid as penalty
by a taxpayer cannot be deducted from the amount subject to the payment of income tax.
2. ID.; RESTORATION OF LOSSES RECOVERED TO THE PROFITS. The amount
deducted from the income by reason of temporary partial loss from the capital should, upon the
recovery of said loss, be restored to the profits and pay the corresponding tax.
3. ID.; GOOD WILL AS PROFIT. The good will created by an incorporator in the course of
the business of a corporation and appraised to pay the unpaid price of shares subscribed to by
said incorporator, is a profit and is subject to the payment of income tax.
DECISION
VILLA-REAL, J.:
This is an appeal taken by Juan Posadas, Jr., as Collector of Internal Revenue, from the judgment
rendered by the Court of First Instance of Manila, the dispositive part of which is as follows:
jgc:chanrobles.com.ph
"For the foregoing considerations, judgment is rendered:

x
chanrob1es virtual 1aw library
"4. Approving the deduction of the sum of P42,542.63 representing 100 per cent surcharge on
income tax, disapproved in 1921;
"5. Holding that the amount of P155,000 presenting the alleged proceeds of the supposed sale of
the Goodwill Account, is not subject to income tax, and

"6. Holding that the amount of P125,000 representing an allegedly recovered loss, is not subject
to income tax.
"It is ordered that a new assessment of said plaintiffs income tax returns, with reference to these
six (6) items, be made as above-indicated, and upon the termination of said reassessment, the
defendant is ordered to return to the plaintiff any amount in excess of what should be paid under
said new assessment, without interest or costs. It is so ordered."
cralaw virtua1aw library
In support of his appeal, the appellant assigns the following alleged errors as committed by the
court a quo in its judgment in question, to wit:
"1. The lower court erred in approving a deduction made in the appellees income tax return for
1921, in the amount of P42,542.63, paid as 100 per cent surcharge on the income tax due for
1918 and 1919.
"2. The lower court erred in holding that the amount of P125,000, found by the appellant as
losses recovered, is not subject to income tax.
"3. The lower court erred in holding that the amount of P155,000, found by the appellant as
proceeds from the sale of good will, is not subject to income tax.
"4. The lower court erred in ordering the appellant to make a new income tax assessment against
the appellee and to return to him whatever amount he had paid in excess of the amount that he
should pay under the new assessment.
"5. The lower court erred in denying the appellants motion for new trial on the ground that the
decision was contrary to law and that the evidence was insufficient to justify the same."
The first question to be decided, which is raised in the first assignment of alleged error, is
whether or not the sum of P42,542.63, paid by the appellee Wm. H. Anderson as penalty for
fraud committed in his income tax returns corresponding to the years 1918 and 1919, may be
deducted from the income tax return made by him for the year 1921.
Section 5 of Act No. 2833 of the Philippine Legislature, commonly known as the Income Tax
Law, enumerates the items that may be deducted in computing the net income of a citizen or
resident of the Philippines, but the amount paid as penalty for fraud is not mentioned among
them. Section 15 of said Act provides, among other things, that "In case a false or fraudulent
return or list is willfully made, the Collector of Internal Revenue shall add to the tax one hundred
per centum of its amount. the amount so added to any tax shall be collected at the same time and
in the same manner and as part of the tax unless the tax has been paid before the discovery of the
neglect, falsity, or fraud, in which case the amount so added shall be collected in the same
manner as the tax." Pursuant to the authority conferred by the Revised Administrative Code and
by Act No. 2833, as amended by Act No. 2926, the Department of Finance, under whose
jurisdiction the Bureau of Internal Revenue falls, promulgated, on August 17, 1921, Regulations
No. 20, entitled "Income Tax Regulations," section 33 of which, in interpreting the word "taxes,"
provides, among other things, as follows: "The word taxes means taxes proper and no
deductions should be allowed for amounts representing interest or penalties incident to
delinquency."
Black, in his book, "Income Tax Digest," section 355, page 166, states as follows:
"FINES AND PENALTIES. Fines paid because of a violation of law are not deductible even
if the violation is in connection with a trade or business. Items of this type are deemed not to
arise from the ordinary and necessary conduct of business."
It appears, therefore, that in the opinion of the writer Black and of the Department of Finance,
fines imposed for violation of law cannot be considered taxes paid to the Government, which
should be deducted from income subject to the payment of income tax. The tax under
consideration is levied on income, while the fine is paid as penalty for violation of the Internal
Revenue Law. The fine, therefore, cannot be considered a tax, inasmuch as it is not levied on
income. In providing that the fine should be added to the tax and collected at the same time and
as a part thereof, the law had for its purpose merely to facilitate the collection of the fine or
surcharge.
Furthermore, in the case of Molina v. Rafferty (38 Phils., 167), this court has laid down the
doctrine, cited with approval in the case of People v. Hernandez (59 Phil., 272), that "Long
continued administrative interpretation of a tax law, while not conclusive, should be followed
unless clearly erroneous." (See also 59 corpus Juris, 1025, sec. 609.)
Regulations No. 20, issued by the Department of Finance, were promulgated on August 17,
1921, and published in volume XX, No. 18, page 323, of the Official Gazette, on February 11,
1922, that is more than 16 years ago. The Bureau of Internal Revenue has constantly been
enforcing them and no question as to their validity has ever been raised by anybody. Neither
have they been amended by the Legislature which had enacted the law whose provisions relative
to deductions for tax purposes are interpreted by said regulations No. 20. Such silence, under the
rule on interpretation of laws, signifies acquiescence in such construction (59 Corpus Juris, 1037,
sec. 613). While it is true that the above-cited doctrine of this court establishes the exception that
the interpretation be not clearly erroneous, yet it does not appear, for the foregoing reasons, that
the interpretation given by the Department of Finance to the case under consideration is
erroneous.
This court, therefore, finds the first assignment of alleged error to be well founded.
With respect to the second assignment of alleged error, it is contended that the court a quo erred
in holding that the amount of P125,000, found by the appellant as losses recovered, is not subject
to the payment of income tax.
William H. Anderson had purchased the business of Erlanger & Galinger. In 1915, he
incorporated said partnership under the firm name of Erlanger & Galinger, Inc., with an
authorized capital of P600,000, divided into 1,200 shares at the par value of P500 each. All of
said shares were subscribed by the incorporator Anderson, who paid in cash, on different dates,
the total amount of P70,000. The unpaid balance of P530,000 was entered in an intermediary
account, called underwriting account, which was opened in the corporation in Andersons name,
in place of his personal account.
On January 1, 1918, there was opened in Andersons name a good will account, upon the debit
side of which was entered the sum of P300,000. On the same date, the sum of P300,000 was
entered upon the credit side of Andersons underwriting account, thereby reducing the balance
thereof from P530,00 to P230,000.
On said date, January 1, 1918, Anderson sold to Simon Feldstein 200 shares at the rate of 1 to 1,
receiving in payment thereof the sum of P50,000 with a loss of P50,000.
On January 2d of the same year, Anderson sold 300 more shares to Feldstein at the rate of 3 to 1,
and received in payment thereof the sum of P50,000, having lost P100,00 in the transaction.
In view of said losses, Anderson deducted the sum of P50,000 from the taxable income stated by
him in his return for the year 1918, and the sum of P75,000 from his return for the year 1919, or
a total amount of P125,000. Said deductions were approved by the Bureau of Internal Revenue.
As the Collector of Internal Revenue attempted to collect a tax on the P300,00 at which
Anderson assessed the good will of the business, the latter, on December 29, 1923, agreed with
the former to eliminate said good will, which in effect was so done by him by debiting said sum
in his capital account and crediting it in the good will account. With said elimination, Andersons
debt of P530,000 was restored. To Feldsteins account was debited the sum of P125,007 which,
together with the P100,00 paid by him for the 500 shares which he had bought of Anderson, to
the latters loss, amounts to P225,007. Said sum of P125,007 was the proportional part of the
P300,00 which corresponded to Feldstein, for the above-stated 500 shares, at the rate of 7/12 for
Anderson and 5/12 for Feldstein.
On January 2, 1924, the sum of P134,169 was debited in Andersons personal account and that of
P95,831 in Feldsteins capital account, in the same proportion of 7/12 for the former and 5/12 for
the latter, that is, the amount of P230,000, thereby eliminating the underwriting account in said
amount.
It appears, therefore, that with the P100,00 paid by Feldstein on account of the 500 shares sought
by him of Anderson, plus the sum of P125,007 debited to Feldsteins account, which is
equivalent to 5/12 of the good will of P300,00, which corresponds to Feldstein for his
participation in the share of the corporation, and the above-stated sum of P95,831, the total
amount debited in Simon Feldsteins account is P320,838. This amount exceeds the sum of
P250,000, which represents the value, at the rate of P500 each, of the 500 shares sold to
Feldstein by Anderson. Therefore, as the total value of the 500 shares, at the par value of P500
each, has been debited in Feldsteins account, the loss of P125,000 suffered by Anderson at the
beginning, by reason of the sale of said 500 shares, has been recovered, and it is but just that the
sum of P125,000, deducted from the profits by reasons of losses suffered temporarily on the
capital, be restored thereto.
It is not attempted to consider the sum of P125,000 as profit obtained from the sale of the 500
shares to Feldstein by Anderson, but as the restoration of a temporary loss in the same amount,
which was deducted from the income corresponding to the years 1918 and 1919.
The second assignment of alleged error is likewise well founded.
The ruling of the lower court that the amount of P155,000, found by the appellant as proceeds
from the sale of good will, is not subject to income tax, is assigned as third alleged error.
According to Reynolds, a witness for the plaintiff, the good will account of P155,000 was
created "because the conditions of the business deserved the establishment of this item." The
phrase "good will" is defined in 28 Corpus Juris, 729, section 1, as follows:
"Good will may be defined to be the advantage or benefit which is acquired by an establishment,
beyond the mere value of the capital stock, funds, or property employed therein in consequence
of the general public patronage and encouragement which it received from constant or habitual
customers on account of its local position or common celebrity or reputation for skill, affluence,
punctuality, or from other accidental circumstances or necessities, or even from ancient
partialities or prejudices. . . ."
According to the above-quoted definition, good will is the reputation or good name of an
establishment. If the good will, that is, the good reputation of the business is acquired in the
course of its management and operation, it does not form part of the capital with which it was
established. It is an intangible moral profit, susceptible of valuation in money, acquired by the
business by reason of the confidence reposed in it by the public, due to the efficiency and
honesty shown by the manager and personnel thereof in conducting the same and on account of
the courtesy accorded its customers, which moral profit, once it is evaluated and used, becomes a
part of the assets. The good will of P155,000 created by Anderson has been beneficial not only to
him but also to Feldstein in the proportion of 7/12 for Feldstein, which is the proportion of the
participation of each in the shares of the corporation Erlanger & Galinger, Inc., that is, P90,412
for Anderson and p64,588 for Feldstein, inasmuch as Andersons personal debt for the balance of
the unpaid shares was diminished by said sum of P90,412 and Feldsteins capital account
increased by P64,588.
The benefit received by Anderson does not consist merely in the sum of P90, 412. He also
realized a gain of P70,838 from the sale of 500 shares to Feldstein. Said benefits, added together,
make a total of P161,250, that is, P6,250 more than the sum of P155,00 on which the defendant
and appellant Collector of Internal Revenue is attempting to collect tax from him.
In view of the foregoing considerations, this court is of the opinion and so holds: (1) That the
fines paid as penalty by a taxpayer cannot be deducted from the amount subject to the payment
of income tax; (2) that the amount deducted from the income by reason of temporary partial loss
from the capital should, upon the recovery of said loss, be restored to the profits and pay the
corresponding tax, and (3) that the good will created by an incorporator in the course of the
business of a corporation and appraised to pay the unpaid price of shares subscribed to by said
incorporator, is a profit and is subject to the payment of income tax.

Wherefore, the appealed judgment is reversed in so far as it (1) approves the deduction of the
amount of P42,542.63, which represents 100 per cent surcharge on income tax; (2) holds that the
amount of P125,000, deducted from the income as loss which was recovered later, is not subject
to income tax, and (3) holds that the amount of P155,000, representing the proceeds of the sale of
good will, is not subject to income tax, and the defendant is absolved from the complaint, with
the costs to the plaintiff. So ordered.
G.R. No. L-9193
May 29, 1957
EUGENIO PEREZ, petitioner,

vs.
COURT OF TAX APPEALS, and J. ANTONIO ARANETA, Acting Collector of Internal
Revenue, respondents.
Florentino Amansec for petitioner.
Office of the Solicitor General Ambrosio Padilla and Solicitor Jose P. Alejandro for respondents.
FELIX, J.:
This is a petition for certiorari filed by Eugenio Perez to review a resolution of the Court of Tax
Appeals dated April 15, 1955, denying petitioner's motion that he be allowed to present
additional evidence after counsel for the Collector of Internal Revenue shall have rested his case.
The facts of the case may be briefly stated as follows:
Petitioner Eugenio Perez filed his income tax returns for the years 1946, 1947, 1948, 1949 and
1950 within the time prescribed by laws based on his declared net income. On September 3,
1952, after an investigation conducted by an examiner of the Bureau of Internal Revenue, the
respondent Collector demanded of said taxpayer the payment of P369,708.27, inclusive of
surcharge and compromise, as deficiency income tax for the years 1946 to 1950. The taxpayer
then requested that he be given full opportunity to present his side before the Conference Staff of
the Bureau of Internal Revenue, which was granted, and as a result of which his income tax
deficiency, was reduced to P197,179.85, exclusive of surcharge and interests. Then the Collector
of Internal Revenue required said petitioner to pay the same not later than February 28, 1954.
On March 18, 1954 after the taxpayer's motion to reconsider said decision was denied by the
Collector of Internal Revenue, Eugenio Perez filed a petition for review of said assessment with
the defunct Board of Tax Appeals, which was docketed as Case No. BTA 189, but pursuant to
Section 21 of Republic Act No. 1125, the Court of Tax Appeals took cognizance of the case. In
that instance, the parties entered into an agreed stipulation of facts, with reservation to present
further or additional evidence, which was duly approved by the Court of Tax Appeals on August
23, 1954, and in accordance therewith, petitioner presented expert witnesses and documentary
evidence in support of his petition. Inasmuch as petitioner was at that time confined at the Johns
Hopkins Hospital in Baltimore, Maryland, U.S.A., where he was under going treatment, and as
counsel for said petitioner wanted to get his deposition to be submitted as part of the oral
evidence, the Court issued letters Rogatory on December 13, 1954, after the Collector of Internal
Revenue had submitted written cross interrogatories. But before said written interrogatories
could be served upon petitioner, he left the hospital for the Philippines. Counsel for petitioner
then orally manifested in open court that petitioner would be presented as a witness. Respondent
was then proceeding with the presentation of his evidence, and during the hearing of January 19,
1955, due to the inability of respondent's witness to appear and in virtue of the fact that petitioner
had already returned to the Philippines, counsel for respondent manifested that they would
continue with the presentation of his evidence after petitioner would have testified on his behalf,
to which manifestation, counsel for petitioner offered no objection.
At the hearing of March 22, 1955, after the case had been postponed several times at the request
of petitioner, the latter's counsel moved that he be allowed to present his additional evidence
after respondent rests his case. The lower Court denied this verbal motion in a resolution dated
April 15,1955, on the ground that to allow the prayer of counsel for petitioner would be most
irregular and would create confusion in the proceedings; that it would not prejudice the interest
of petitioner if he would be allowed to testify in his behalf as agreed upon by the parties, to be
recalled later as rebuttal witness after respondent were through with the presentation of his
evidence in chief; that there exists the presumption of regularity in favor of respondent's
deficiency tax assessment against petitioner and the burden of proving the same to be illegal lies
in the latter; and that although the Court of Tax Appeals is not required to follow strictly the
technical rules of procedure, such discretion would not be exercised by the Court if it would
unnecessarily prolong the case instead of expediting its early adjudication. A motion for the
reconsideration of said ruling filed by petitioner on April 28, 1955, having been denied,
petitioner filed the present action and in this instance alleged that the Court of Tax Appeals erred:
1. In holding that the petitioner is a party plaintiff and ordering him to open and close the
case at the trial for the review of the deficiency income tax assessments of the respondent
Collector of Internal Revenue against the petitioner despite the fact that said assessments
were made after the lapse of the three (3) years prescriptive period fixed by Section 51
(d) of the National Internal Revenue Code;
2. In not ordering the respondent Collector of Internal Revenue as party plaintiff to open
and close the case at the trial despite the fact that the latter, merely to justify his
deficiency income tax assessments which have already prescribed, alleged that the
petitioner committed fraud in filing his income tax return which the law presumes prima
facie correct; and
3. In allowing the respondent Collector of Internal Revenue to discontinue, without
resting his case, with the presentation of his evidence in chief, which he had already
begun and almost completed, and in ordering the petitioner to testify in his behalf and
present his evidence in chief, if he so desires, and close his case first before said
respondent Collector of Internal Revenue would resume the presentation of his evidence
in chief and rest his case.
Within the period for the filing of respondents' brief, the Solicitor General filed a motion to
dismiss this action on the ground that the main issue, that is whether or not petitioner should be
allowed to present additional evidence in chief after the respondent shall have rested his case, has
become moot, because the parties have already closed their evidence and submitted the case for
decision of the trial Court on October 19, 1955, by virtue of an agreed stipulation of fact which
was admitted by the Court on November 10, 1955. Said motion to dismiss was opposed by
petitioner for the reason, among others, that:
The appeal interposed by petitioner does not cover only the issue of whether or not said
petitioner should be "allowed to present additional evidence in chief after the respondent
shall have rested his case" but includes the fundamental issue of who should open and
close the case at the trial before the respondent Court of Tax Appeals covering deficiency
income tax assessment of the respondent Collector of Internal Revenue made after the
lapse of 3 years prescriptive period fixed by section 51-d of the National Internal
Revenue Code; and which assessment could no longer be collected through the summary
methods of distraint and levy; that this question raised in this appeal has not as yet been
decided by this Honorable Supreme Court;
and by resolution of December 12, 1955, this Court ruled that the question raised by respondent
will be acted upon when the case is decided on the merits.
The prayer of the petition for certiorari filed in this instance, reads as follows:
PREMISES considered, it is respectfully prayed that this Honorable Supreme Court, in
the interest of justice and to afford fair and equal opportunity to both parties to prove
their case in appropriate and judicious proceedings, annul the resolution of respondent
Court of Tax Appeals denying petitioner's motion and issue an order directing the
respondent Collector of Internal Revenue shall continue with the presentation of his
evidence in chief, which he has already begun, before petitioner testify in his behalf and
rest his case.
This being the only and leit motiv of the remedy sought for in this case, and even assuming that
since October 19, 1955, when the parties herein submitted their case for decision of the lower
court, this tribunal has not taken any action on the matter, for We have not been informed that
any decision has been rendered thereon, it seems clear to Us that any other point that might have
been raised in the course of the proceedings must be subordinate to the question of whether or
not the lower court erred in denying the motion We have now under consideration. In this
respect, there is no dispute that petitioner as well as the respondent Collector of Internal Revenue
had already presented part of their respective evidence and the controversy is only circumscribed
as to who of the parties should be the last to present evidence, the petitioner claiming that
respondent Collector of Internal Revenue is in truth and in fact the "petitioner", because he has
the burden of proving his case against the petitioner herein and hence he(the Collector) should
close his evidence ahead of the taxpayer, whereas said respondent claims otherwise. As there is
no showing of any specific rules governing the presentation of evidence in the Court of Tax
Appeals, the general rules of procedure concerning the order of trial outlined in the Rules of
Court shall govern. Petitioner in this case assails the deficiency assessment made by the
Collector of Internal Revenue; consequently, it is incumbent upon him to prove that said
assessment is erroneous. The fact that the of Tax Appeals decided not to alter the ordinary order
of trial does not militate against its ruling, for although it could have done so, its power to
deviate from technical rules of evidence is discretionary and hence not subject to review by this
Court. Aside from this fact, respondent Collector of Internal Revenue was able to show that the
parties had already come to an understanding as to the evidence that was to be presented to the
Court a quo and had agreed to and filed an amended stipulation of facts which was admitted by
the trial court to which the case was submitted for decision. In such state of affairs the question
of who, between the parties herein has the right to rest his case last becomes entirely moot, for a
decision on this case would serve no purpose.
WHEREFORE, the Court hereby resolves to declare that the present recourse of certiorari filed
by petitioner Eugenio Perez has become moot and to dismiss the petition, without
pronouncement as to costs. It is so ordered.
G.R. No. L-15386
April 29, 1961
INTESTATE ESTATE OF MARIA LIM VDA. DE UY. JOSE L. UY, special administratorappellee.
REPUBLIC OF THE PHILIPPINES, intervenor-appellee,
vs.
PACITA UY, JESUS UY, and JOSEFINA UY, oppositors-appellants.
Jose L. Uy for and in his own behalf as s special-administrator-appellee.
Office of the Solicitor General for intervenor-appellee.
Gil R. Carlos for oppositors-appellants.
CONCEPCION, J.:
Appeal from an order of the Court of First Instance of Manila remanding to the Court of Tax
Appeals all pleadings filed in this case, in connection with the claims of the Republic of the
Philippines for war profits, estate and inheritance taxes.
This special proceeding was begun on January 25, 1946 with a petition for the appointment of
Jose L. Uy as special administrator of the intestate estate of his mother, Maria Lim Vda. de Uy,
who died in Manila on December 5, 1945. It was alleged in the petition that the deceased was
survived by her children, Aurora, Jose, Belen, Oscar, Pacita, Jesus and Josefina, all surnamed Uy,
and that she had died intestate, leaving personal and real properties worth about P9,000, with
monthly income of P200. By an order, date January 26, 1946, Jose L. Uy was appointed special a
administrator of the estate of the deceased upon the filing of a bond for P2,000.00.
With the leave of the probate court, granted over the opposition of the special administrator, the
Republic the Philippines filed, on November 24, 1951, a complaint in intervention alleging that,
a few weeks before he death, Maria Lim Vda. de Uy had disposed of her properties by making
fictitious or simulated sales in favor of her children, in pursuance of a "Memorandum of
Agreements and Acknowledgments", purporting to be signed said children, copy of which was
attached to said complaint and made an integral part thereof, and that, ina much as said
properties form part of her estate, the same was indebted to the intervenor, as of March 17, 1951,
in the sum of P286,834.91, by way of transfer taxes an penalties, as shown in a proof of debts,
likewise, attache to said complaint. The intervenor prayed, therefore, that said sales be declared
null and void; that the afore-mentioned petitioned properties be deemed part of the gross estate
of the deceased; and that the latter be ordered to pay to the intervenor said sum of P286,834.91.
In his unverified answer to the complaint of intervention the special administrator stated that he
had no knowledge or information sufficient to form a belief as to the truth of its main allegations
and that he, accordingly, denied the same specially and specifically.
On motion of the intervenor, the court admitted, on November 27, 1953, over the objection of
Pacita, Jesus and Josefina Uy, hereinafter referred to as appellants, a amended complaint in
intervention, which included, in it claim against the estate of the deceased, the addition sum of
P49,725.33, allegedly representing war profits tax and penalties said to be due as of October 31,
1953, pursuant to another proof of debt attached to said pleading.
The special administrator filed on December 11, 1953, "manifestation" to the effect that he had
not submitt an inventory of the properties of the deceased because he had found none, after
exerting all efforts and making a thorough investigation.
In their unverified answer to the amended complaint in intervention which answer was filed
on December 17, 1953 appellants denied that the sales therein mentioned were fictitious or
simulated and alleged, inter alia that the deceased had left no properties; that the proceedings for
the settlement of her estate "should never have been commenced"; and that appellants had no
knowledge or information sufficient to form a belief as to the truth of the other allegations in the
amended complaint in intervention, which they, accordingly, denied specifically.
On November 27, 1957, appellants filed their answer to the complaint in intervention. They
denied in said answer the fictitious or simulated nature of the sales aforementioned, as well as
the alleged indebtedness to the Government, and alleged that the probate court had no
jurisdiction to pass upon the legality of said sales. At the foot of this pleading, Jose Uy denied,
under oath, the genuineness and due execution of the aforementioned "Memorandum of
Agreements and Acknowledgments". In a motion dated February 12, 1958, appellants asked
permission to withdraw said answer to the complaint in intervention, and prayed that an
"Amended Answer to the Amended Complaint in Intervention" attached to said motion be
admitted. The motion was granted on February 15, 1958. In said pleading appellants reiterated
substantially the contents of their answers of December 17, 1953, to the amended complaint in
intervention, and their objection to the jurisdiction of the probate court, as set forth in their
answer, dated November 27, 1957, to the complaint in intervention.
Subsequently, or on March 5, 1958, the court admitted a second amended complaint in
intervention, filed by the Republic of the Philippines, which amended the first amended
complaint in intervention by including in the prayer a request that judgment be rendered
declaring that the above-mentioned sales "are transfers in contemplation of death, falling under
section 88(B) of the National Internal Revenue Code."
On December 29, 1958, the intervenor filed a motion alleging that, inasmuch as its claims for
P286,834.91. as war profit estate and inheritance taxes, and P49,725.33, as war profit tax as
set forth in the complaint in intervention and the amended complaint in intervention have
been contested and the liability therefor denied, this case involves disputed assessments of
internal revenue taxes and a special tax the enforcement of which is imposed by law upon the
Commissioner of Internal Revenue pending in the Court of First Instance when Republic Act
No. 1125, creating the Court of Tax Appeals, was approved on June 16, 1954, and praying that
the pertinent records be remanded to the latter court, pursuant to section 22 of said Act. Over
appellants' objection, the motion was, after due hearing, granted by an order dated February 25,
1959. Hence, this appeal by said appellants, who allege that:
1. The lower court erred in ordering the records of this case, insofar as pertinent to the
claim of intervenor-appellee to be remanded to the Court of Tax Appeals.
2. The lower court erred in not holding that the Court of First Instance, sitting as a regular
court, has original and exclusive jurisdiction over the claim of intervenor-appellee.
In support of the first assignment of error, appellants maintain: (a) that "intervention, being
merely ancillary, cannot alter the nature of the main action"; and (b) that the "instant case is not
one of 'disputed assessment'." We find no merit in this pretense.
The main "action", to which the intervention is said to be ancillary is the proceeding (not
"action") for the settlement of the estate of the deceased Maria Lim Vda. de Uy. Despite the
order appealed from, this special proceeding will continue as such under the jurisdiction of the
probate court. The nature of such special proceeding will not be altered. However, the issue on
the nature of the sales or transfers made by Maria Lim Vda. de Uy in favor of her children, and
on the obligation to pay the taxes claimed by the government, will be taken out of this
proceeding and submitted to the Court of Tax Appeals, for determination pursuant to Republic
Act No. 1125.
It is not true that said claims do not involve a disputed assessment. The complaint in
intervention, and its amendments, as well as the proof of debts attached thereto, partake of the
nature of assessments. Appellants herein have denied the obligation to pay the amounts therein
claimed to be due as taxes. Hence, the controversy refers to disputed assessments of internal
revenue taxes and a special tax the enforcement and collection of which are entrusted by law to
the Commissioner of Internal Revenue. Pursuant to sections 7 and 22 of Republic Act No. 1125,
the Court of Tax Appeals shall have exclusive appellate jurisdiction to review on appeal the
decision of said officer thereon.
It is urged by appellants, in support of their second assignment of error, (a) that "estate and
inheritance taxes are based on the fact of transmission" of property of the deceased "and receipt"
thereof by his heir or legatee, which, appellants claim, cannot possibly take place when the
property in question is subject to a claim of ownership adverse to the deceased; and (b) that "the
question whether or not there was a transfer of property, when denied by alleged recipient, is a
question of ownership".
Precisely, for these reasons, the probate court has no jurisdiction to settle the issue between the
parties herein in this special proceeding for the settlement of the estate of the deceased. Upon the
other hand, since the determination of the question whether the deceased had really or fictitiously
transferred properties to her children, and whether or not the transfer had been made in
contemplation of death, as provided in section 88(B) of the Tax Code, are merely incidental to
the issue on the validity or legality of the disputed assessments, which is within the jurisdiction
of the Court of Tax Appeals, it follows that the latter not the court of first instance, not even as
a regular court is, likewise, competent to hear and decide said questions concerning the nature
of the transfers aforementioned.
WHEREFORE, the order appealed from is hereby affirmed, with costs against the appellants. It
is so ordered.

CIR v. Avelino - Assessment Deemed Prima Facie Correct

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Republic v. Albert, [G.R. No. L-12996. December 28, 1961.

People v. Manila Port Services, G.R. No. L-18208

November 27, 1964

Republic v. Lopez, G.R. No. L-18007

March 30, 1963

September 19, 1961

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December 24, 1914

[G.R. No. 44100. September 22, 1938.]

"For the foregoing considerations, judgment is rendered:

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the Goodwill Account, is not subject to income tax, and

incorporator, is a profit and is subject to the payment of income tax.

May 29, 1957

EUGENIO PEREZ, petitioner,

April 29, 1961

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