Roxas v.

CTA, 23 SCRA 276 (1968)

G.R. No. L-25043 Apr! 26, 1968
ANT"N#" R"$AS, %&'AR&" R"$AS a() R"$AS * C#A., ( +,-r o.( r-sp-/+v- 0-,a!1 a() as 23)/a! /o-
43ar)a(s o1 5"S% R"$AS, petitioners,
vs.
C"'RT "6 TA$ A77%ALS a() C"88#SS#"N%R "6 #NT%RNAL R%9%N'%, respondents.
Leido, Andrada, Perez and Associates for petitioners.
Office of the Solicitor General for respondents.
:%NG;"N, 5.7., J.:
6a/+s<
Don Pedro Roxas and Dona Carmen Ayala, Spanish subjects, transmitted to their grandchildren by hereditary
succession several properties. To manage the abovementioned properties, said children, namely, Antonio Roxas,
!duardo Roxas and "ose Roxas, #ormed a partnership called Roxas y Compania. At the conclusion o# the $$%, the
tenants &ho have all been tilling the lands in 'asugbu #or generations expressed their desire to purchase #rom
Roxas y Cia. the parcels &hich they actually occupied. (or its part, the )overnment, in consonance &ith the
constitutional mandate to ac*uire big landed estates and apportion them among landless tenant#armers,
persuaded the Roxas brothers to part &ith their landholdings. Con#erences &ere held &ith the #armers in the early
part o# +,-. and #inally the Roxas brothers agree to sell +/,011 hectares to the )overnment #or distribution to
actual occupants #or a price o# P%,12,,1-..-2 plus P/11,111 #or survey and distribution expenses. 3t turned out
ho&ever that the )overnment did not have #unds to cover the purchase price, and so a special arrangement &as
made #or the Rehabilitation (inance Corporation to advance to Roxas y Cia. the amount o# P+,011,111.11 as loan.
Collateral #or such loan &ere the lands proposed to be sold to the #armers. 4nder the arrangement, Roxas y Cia.
allo&ed the #armers to buy the lands #or the same price but by installment, and contracted &ith the Rehabilitation
(inance Corporation to pay its loan #rom the proceeds o# the yearly amorti5ations paid by the #armers.
The C3R demanded #rom Roxas y Cia. the payment o# de#iciency income taxes resulting #rom the inclusion as
income o# Roxas y Cia. o# the unreported 016 o# the net pro#its #or +,0/ and +,00 derived #rom the sale o# the
'asugbu #armlands to the tenants, and the disallo&ance o# deductions #rom gross income o# various business
expenses and contributions claimed by Roxas y Cia. and the Roxas brothers. (or the reason that Roxas y C3a.
subdivided its 'asugbu #armlands and sold them to the #armers on installment, the Commissioner considered the
partnership as engaged in the business o# real estate, hence, +116 o# the pro#its derived there #rom &as taxed.
The Roxas brothers protested the assessment but inasmuch as said protest &as denied, they instituted an appeal in
the CTA &hich sustained the assessment. 7ence, this appeal.
#ss3-<
3. 3s the gain derived #rom the sale o# the 'asugbu #arm lands an ordinary gain, hence +116 taxable8 And is
Roxas y Cia liable #or the payment o# de#iciency income #or the sale o# 'asugbu #armlands8
33. Are the deductions #or business expenses and contributions deductible8
R3!(4<
3. '9. The proposition o# the C3R cannot be #avorably accepted in this isolated transaction &ith its peculiar
circumstances inspite o# the #act that there &ere hundreds o# vendees. Although they paid #or their respective
holdings in installment #or the period o# +1 years, it &ould nevertheless ma:e the vendor Roxas y Cia. a real estate
dealer during the +1year amorti5ation period. 3t should be borne in mind that the sale o# the 'asugbu #armlands
to the very #armers &ho tilled them #or generations &as not only in consonance &ith, but more in obedience to the
re*uest and pursuant to the policy o# our )overnment to allocate lands to the landless. 3t &as the bounden duty
o# the )overnment to pay the agreed compensation a#ter it had persuaded Roxas y Cia. to sell its haciendas, and
to subse*uently subdivide them among the #armers at very reasonable terms and prices. 7o&ever, the
)overnment could not comply &ith its duty #or lac: o# #unds. 9bligingly, Roxas y Cia. shouldered the )overnment;s
burden, &ent out o# its &ay and sold lands directly to the #armers in the same &ay and under the same terms as
&ould have been the case had the )overnment done it itsel#. (or this magnanimous act, the municipal council o#
'asugbu passed a resolution expressing the people;s gratitude.
3n #ine, Roxas y Cia. cannot be considered a real estate dealer #or the sale in *uestion. 7ence, pursuant to section
/- o# the Tax Code, the land sold to the #armers are capital assets, and the gain derived #rom the sale thereo# is
capital gain, taxable only to the extent o# 016.
33. DISALLOWED DEDUCTIONS
Roxas y Cia. deducted #rom its gross income the amount o# P-1.11 #or tic:ets to a ban*uet given in honor o# Sergio
9smena and P%..11 #or Sa( 843-! beer given as gi#ts to various persons. The deduction &ere claimed as
representation expenses. Representation expenses are deductible #rom gross income as expenditures incurred in
carrying on a trade or business under Section /1<a= o# the Tax Code provided the taxpayer proves that they are
reasonable in amount, ordinary and necessary, and incurred in connection &ith his business. 3n the case at bar, the
evidence does not sho& such lin: bet&een the expenses and the business o# Roxas y Cia. The #indings o# the Court
o# Tax Appeals must there#ore be sustained <disallo&ed deduction=.
The petitioners also claim deductions #or contributions to the Pasay City Police, Pasay City (iremen, and >aguio
City Police Christmas #unds, ?anila Police Trust (und, Philippines 7erald@s #und #or ?anila@s neediest #amilies and
9ur Aady o# (atima chapel at (ar !astern 4niversity.
The contributions to the C,rs+=as 13()s o1 +,- 7asa> C+> 7o!/-, 7asa> C+> 6r-=-( a() :a43o C+> 7o!/- ar-
(o+ )-)3/+0!- #or the reason that the Christmas #unds &ere not spent #or public purposes but as Christmas gi#ts to
the #amilies o# the members o# said entities. 4nder Section /,<h=, a contribution to a government entity is
deductible &hen used exclusively #or public purposes. (or this reason, the disallo&ance must be sustained. 9n the
other hand, the contribution to the ?anila Police trust #und is an allo&able deduction #or said trust #und belongs to
the ?anila Police, a government entity, intended to be used exclusively #or its public #unctions.
The contributions to the 7,!pp(-s ?-ra!)@s 13() 1or 8a(!a@s (--)-s+ 1a=!-s .-r- )sa!!o.-) on the ground
that the Philippines 7erald is not a corporation or an association contemplated in Section /1 <h= o# the Tax Code. 3t
should be noted ho&ever that the contributions &ere not made to the Philippines 7erald but to a group o# civic
spirited citi5ens organi5ed by the Philippines 7erald solely #or charitable purposes. There is no *uestion that the
members o# this group o# citi5ens do not receive pro#its, #or all the #unds they raised &ere #or ?anila@s neediest
#amilies. Such a group o# citi5ens may be classi#ied as an association organi5ed exclusively #or charitable purposes
mentioned in Section /1<h= o# the Tax Code.
Rightly, the Commissioner o# 3nternal Revenue )sa!!o.-) +,- /o(+r03+o( +o "3r La)> o1 6a+=a /,ap-! a+ +,-
6ar %as+-r( '(v-rs+> on the ground that the said university gives dividends to its stoc:holders <it should be non
pro#it institution. Aocated &ithin the premises o# the university, the chapel in *uestion has not been sho&n to
belong to the Catholic Church or any religious organi5ation. 9n the other hand, the lo&er court #ound that it
belongs to the (ar !astern 4niversity, contributions to &hich are not deductible under Section /1<h= o# the Tax
Code #or the reason that the net income o# said university injures to the bene#it o# its stoc:holders. The
disallo&ance should be sustained.
&o/+r(-s<
3. Sale o# property by lando&ners to tenants under government policy to allocate lands to the landless
subject not subject to real estate dealer;s tax.
33. The po&er o# taxation is sometimes called also the po&er to destroy. There#ore it should be exercised
&ith caution to minimi5e injury to the proprietary rights o# a taxpayer. 3t must be exercised #airly, e*ually and
uni#ormly, lest the tax collector :ill the Bhen that lays the golden eggC.