COLLECTOR of Internal Revenue vs.

Pedro BAUTISTA and WON the assessment was made within the prescriptive
David Tan
10 Phil 1326 | 1959 | Concepcion, J.
SUMMARY: The separate income tax returns of Sps. Bautista
were investigated by the BIR, which later assessed a tax
deficiency from an under-declaration of the wife’s proceeds
in a sale of her property. The Sps. contested the assessment,
among their arguments was that the property was not a mere
ordinary asset, but a Capital Asset (only 50% of the gain was
taxable)
DOCTRINE: A property held for rent, and which was never
occupied by the owners as their residence is not a Capital
Asset
FACTS:
 Sps. Bautista filed separate income tax returns for
1947:
o Husband reported an income of P2,300 and
paid an income tax of P9, after claiming
personal exemptions of P2,500 as head of
family and P500 for a minor child
o Wife reported an income of P9,999.90 from
the sale of her share in a lot and building at
Tabora street, Manila, paying an income tax
of P490. She also claimed personal
exemptions of P2,500 for being a married
person or head of family and P500 for the
same minor child
 The returns were consolidated and investigated by
the BIR. A P15,564.54 deficiency was assessed,
mainly from an underdeclaration of the proceeds of
the wife’s sale of her share in the Tabora property
and its overvaluation
 Sps. Bautista contested the assessment on the
grounds: (1) the actual amount received by them
from the sale was P49,999, not P66,606.66 (2) they
failed to claim deduction for losses due to a fire
which destroyed their house (3) the Tabora property
was a capital asset and only 50% of the gain was
taxable (4) the right to assess the deficiency income
tax had prescribed
 On appeal, the CTA ordered the spouses to pay a
P10,376.38 deficiency income tax plus 50%
surcharge, and surcharge of 5% and 1% monthly
interest on the deficiency tax
 The Bautistas now argue that the lower court erred
(1) in overruling their defense of prescription (2) in
not allowing deductions on account of the loss
suffered by them (3) in holding that the Tabora
property was an ordinary asset. The Government
also appealed, but only as to the 5% surcharge and
1% monthly interest on the deficiency tax
period – YES
 The income tax returns of the Bautistas for 1947 are
deemed filed as of March 1, 1948
 Tax Code Sec. 331 provides that the deficiency
assessment must be made within 5 years after the
return was filed, and the assessment is deemed
made when the notice to this effect is released,
mailed or sent by the Collector to the taxpayer, for
the purpose of giving effect to said assessment
 Said section does not require that the notice be
received by the taxpayer within the said 5 years
 In this case, the Collector assessed the deficiency tax
on Jan. 21, 1953 and notice was sent prior to March
1, 1953 (date of prescription), since it was received
in the Office of the City Treasurer of QC, on Feb. 13,
1953
WON the deductions from the fire losses should be allowed -
NO
 Whether the findings are correct or not depends on
the degree of credence attached to the testimonial
evidence introduced by the taxpayers, which the
lower court was in a better position to decide
WON the property was a capital asset - NO
 The lower court found that said property was
primarily held by them for rent, and that they never
occupied the same as their residence.
WON the government’s tax claim is valid - NO
 The claim of the Government has already been
rejected in CIR vs. UST (1958). The surcharge of 5%
and the interest of 1% a month referred to in Sec. 51
(e) of the Tax Code, are imposed upon the "tax
unpaid" only
RULING: Decision affirmed

ISSUE/S & RATIO: