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SUBA (Detailed) - Gutierrez v. CIR
SUBA (Detailed) - Gutierrez v. CIR
HELD:
1. The weight of authorities hold that gain derived from condemnation proceedings
are considered as capital gains and not ordinary income for purposes of taxation.
Nowhere in Sec. 35 of the Income Tax Law speaks of the purchasing power of
the peso as a factor in determining the computation of gains or losses. The
actual cost of the property should be the basis.
2. The pertinent rules regarding the period when income is to be reported is found
in Secs. 38 and 39 of the NIRC. From the foregoing provisions the income is
determined generally according to the methods of accounting generally followed
by the taxpayer. In the implementation of Sec. 38, it is provided in Sec. 168 of
Revenue Regulations No. 2 which states that the taxpayer may not change from
one accounting period to another without previous permission of the CIR.
According to the records of the BIR, the income tax returns of the petitioners
have been filed on the basis of actual receipts and disbursements, otherwise
referred to as the “cash basis” system of accounting. Hence, in view of the
aforecited rules, the petitioner may not be allowed to change from the “cash
basis” method to another. Under petitioner’s method of reporting income, the
gain from the expropriation in this case, would therefore be subject to income tax
in 1950, the year it was actually realized or received by them. Of course, the
Court observes that a portion of the price was received in 1949. Assuming
arguendo that this may be considered in determining the existence of a gain, the
Court finds that there was no gain in fact in that year, as the amount of 34,580
php was not even sufficient to cover the cost or basis of the property which was
found to be 45,011.75 php. Moreover, the better view would be to consider the
income taxable in the year when the Court entered its final decree on the
expropriation proceedings.
Lastly, the petitioners acted in good faith and without intent to defraud the
government in believing that they were tax exempt, so they should not be held
liable for the 50% surcharge.