18. BACHRACH vs.

SEIFERT and ELIANOFF

FACTS:

The deceased E. M. Bachrach, who left no forced heir except his widow Mary McDonald Bachrach, in his last
will and testament made various legacies in cash and willed the fruits and usufruct remainder of his estate.

The will further provided that upon the death of Mary McDonald Bachrach, one-half of the all his estate "shall
be divided share and share alike by and between my legal heirs, to the exclusion of my brothers." The estate
of E. M. Bachrach, as owner of 108,000 shares of stock of the Atok-Big Wedge Mining Co., Inc., received from
the latter 54,000 shares representing 50 per cent stock dividend on the said 108,000 shares. Mary McDonald
Bachrach, as usufructuary or life tenant of the estate, petitioned the lower court to authorize the Peoples
Bank and Trust Company as administrator of the estate of E. M. Bachrach, to her the said 54,000 share of
stock dividend by endorsing and delivering to her the corresponding certificate of stock, claiming that said
dividend, although paid out in the form of stock, is fruit or income and therefore belonged to her as
usufructuary or life tenant. Sophie Siefert and Elisa Elianoff, legal heirs of the deceased, opposed said petition
on the ground that the stock dividend in question was not income but formed part of the capital and therefore
belonged not to the usufructuary but to the remainderman. And they have appealed from the order granting
the petition and overruling their objection.

Appellant’s contention (siefert&elianoff): that a stock dividend is not, but merely represents an addition to
the invested capital. The so-called Massachusetts rule prevails in various other jurisdictions in the US
regards cash dividends, however large, as income, and stock dividends, however made, as capital. It holds that
a stock dividend is not in any true sense any true sense any dividend at all since it involves no division or
severance from the corporate assets of the dividend; that it does not distribute property but simply dilutes
the shares as they existed before; and that it takes nothing from the property of the corporation, and nothing
to the interests of the shareholders.

Appellee’s contention: Pennsylvania rule prevails ALSO in various other jurisdictions in the US. This rule
declares that all earnings of the corporation made prior to the death of the testator stockholder belong to the
corpus of the estate, and that all earnings, when declared as dividends in whatever form, made during the
lifetime of the usufructuary or life tenant.

ISSUE: WON a stock dividend fruit or income, which belongs to the usufructuary, or is it capital or part of the
corpus of the estate, which pertains to the remainderman?

HELD: Stock dividend is an income which belongs to the usufructuary

SC held that the Pennsylvania rule is more in accord with our statutory laws than the Massachusetts rule.
Under section 16 of our Corporation Law, no corporation may make or declare any dividend except from the
surplus profits arising from its business. Any dividend, therefore, whether cash or stock, represents surplus
profits. ” . . . It is clear that testator intent the remaindermen should have only the corpus of the estate he left
in trust, and that all dividends should go the life tenants. It is true that profits realized are not dividends until
declared by the proper officials of the corporation, but distribution of profits, however made, in dividends,
and the form of the distribution is immaterial

In Hite vs. Hite: “Where a dividend, although declared in stock, is based upon the earnings of the company, it is
in reality, whether called by one name or another, the income of the capital invested in it. It is but a mode of
distributing the profit. If it be not income, what is it? If it is, then it is rightfully and equitably the property of
the life tenant. If it be really profit, then he should have it, whether paid in stock or money. A stock dividend
proper is the issue of new shares paid for by the transfer of a sum equal to their par value from the profits
and loss account to that representing capital stock.”
Article 471 of the Civil Code provides that the usufructuary shall be entitled to receive all the natural,
industrial, and civil fruits of the property in usufruct.

The 108,000 shares of stock are part of the property in usufruct. The 54,000 shares of stock dividend are civil
fruits of the original investment. They represent profits, and the delivery of the certificate of stock covering
said dividend is equivalent to the payment of said profits. Said shares may be sold independently of the
original shares, just as the offspring of a domestic animal may be sold independently of its mother.

26. BANK OF AMERICA NT & SA, vs. COURT OF APPEALS

FACTS: Petitioner Bank of America NT & SA argues that the 15% branch profit remittance tax on the basis of
Sec 24 (b) (2) (ii) to wit: . . . (2) (ii) Tax on branch profit and remittances. —Any profit remitted abroad by a
branch to its head office shall be subject to a tax of fifteen per cent (15%) . . . ." should be assessed on the
amount actually remitted abroad, which is to say that the 15% profit remittance tax itself should not form
part of the tax base. Respondent Commissioner of Internal Revenue, contending otherwise, holds the position
that, in computing the 15% remittance tax, the tax should be inclusive of the sum deemed remitted.

Bank of America paid 15% branch profit remittance tax on profit from its regular banking unit operations on
profit from its foreign currency deposit unit operations with a total of P7,984,250.97. The tax was based on
net profits after income tax without deducting the amount corresponding to the 15% tax. Petitioner filed a
claim for refund with the BIR of that portion of the payment which corresponds to the 15% branch profit
remittance tax, on the ground that the tax should have been computed on the basis of profits actually
remitted, which is P45,244,088.85, and not on the amount before profit remittance tax, which is
P53,228,339.82. Subsequently, without awaiting respondent's decision, petitioner filed a petition for review
with CTA.

The Court of Tax Appeals upheld petitioner bank in its claim for refund. The Commissioner of Internal
Revenue filed a timely appeal to the SC which referred it to the CA following this Court's pronouncement in
DBP vs CA. CA set aside the decision of the CTA. Explaining its reversal of the tax court's decision, the
appellate court said: “The use of the word remitted may well be understood as referring to that part of the
said total branch profits which would be sent to the head office as distinguished from the total profits of the
branch (not all of which need be sent or would be ordered remitted abroad). If the legislature indeed had
wanted to mitigate the harshness of successive taxation, it would have been simpler to just lower the rates
without in effect requiring the relatively novel and complicated way of computing the tax, as envisioned by
the herein private respondent. The same result would have been achieved.

ISSUE: WON remittance tax should be assessed on the amount actually applied for by the branch with the
Central Bank of the Philippines as profit to be remitted abroad, which shall be collected and paid

HELD: NO.

SC held that there is absolutely nothing in Section 24(b) (2) (ii), supra, which indicates that the 15% tax on
branch profit remittance is on the total amount of profit to be remitted abroad which shall be collected and
paid in accordance with the tax withholding device provided in Sections 53 and 54 of the Tax Code. The
statute employs "Any profit remitted abroad by a branch to its head office shall be subject to a tax of fifteen
per cent (15%)" — without more. Nowhere is there said of "base on the total amount actually applied for by
the branch with the Central Bank of the Philippines as profit to be remitted abroad, which shall be collected and
paid as provided in Sections 53 and 54 of this Code." Where the law does not qualify that the tax is imposed
and collected at source based on profit to be remitted abroad, that qualification should not be read into the
law. It is a basic rule of statutory construction that there is no safer nor better canon of interpretation than
that when the language of the law is clear and unambiguous, it should be applied as written. And to our mind,
the term "any profit remitted abroad" can only mean such profit as is "forwarded, sent, or transmitted
abroad" as the word "remitted" is commonly and popularly accepted and understood. To say therefore that
the tax on branch profit remittance is imposed and collected at source and necessarily the tax base should be
the amount actually applied for the branch with the Central Bank as profit to be remitted abroad is to ignore
the unmistakable meaning of plain words.

In the 15% remittance tax, the law specifies its own tax base to be on the "profit remitted abroad." There is
absolutely nothing equivocal or uncertain about the language of the provision. The tax is imposed on the
amount sent abroad, and the law (then in force) calls for nothing further. The taxpayer is a single entity, and it
should be understandable if, such as in this case, it is the local branch of the corporation, using its own local
funds, which remits the tax to the Philippine Government.

The remittance tax was conceived in an attempt to equalize the income tax burden on foreign corporations
maintaining, on the one hand, local branch offices and organizing, on the other hand, subsidiary domestic
corporations where at least a majority of all the latter's shares of stock are owned by such foreign
corporations.