COMMISSIONER OF INTERNAL REVENUE v.

COURT OF APPEALS
G.R. No. 108576 20 January 1999

DOCTRINE:
The trust fund doctrine provides that the capital stock, property, and other assets of the
corporation are regarded as equity in trust for the payment of the corporate creditors.

FACTS:
1. As of 1966, ANSCOR had a capital stock of PHP 30,000,000.
2. When stock dividends were released, the Estate of Andres Soriano had 138, 864
shares. Carmen Soriano had 138, 867 shares.
3. Through Board Resolutions, ANSCOR redeemed 108,000 common shares from
the Estate. The capital was also increased to PHP 75,000,000.
4. ANSCOR redeemed the shares to reduce its foreign exchange remittances in
case cash dividends were denied.
5. When ANSCOR’s books were examined, Revenue officers assessed that
ANSCOR had a deficiency for withholding-tax-at-source.

ISSUE:
Do stock dividends come from corporate profits?

DECISION:
Yes, stock dividends are from corporate profits.

Without evidence to say otherwise, the Tax Code presumes that every distribution of
corporate property—wholly or partially—is from corporate profits.

The capital cannot be distributed in the form of redemption of stock dividends without
violating the trust fund doctrine.

Here, at the time of the last redemption, the Estate’s original common shares were only
25,247.5.

This means that from the 108,000 shares redeemed, the balance of 82,752.5 must have
come from stock dividends from corporate profits.