ANTONIOROXAS,EDUARDOROXASandROXASY
CIA.,intheirownrespectivebehalfandasjudicialco
guardians of JOSE ROXAS, petitioners,vs.COURT
OF TAX APPEALS and COMMISSIONER OF
INTERNALREVENUE,respondents.
Tax;Real estate dealers tax;Sale of property by
landowner to tenants under government policy to allocate
landstothelandlessnotsubjecttorealestatedealerstax.
Theactofsubdividingafarmlandandsellingthemtothe
farmersoccupants on installment in response to the
Governmentspolicytoallocatelandstothelandlessisnot
subjecttorealestatedealerstax.Thebusinessactivityof
the landowner in selling the land involves an isolated
transactionwithitspeculiarcircumstances andnot tobe
considered as an act of a dealer even though there were
hundredsofvendees.
Taxation;Power of taxation to be exercised with
caution.The power of taxation is sometimes called also
thepowertodestroy.Thereforeitshouldbeexercisedwith
caution to minimize injury to the proprietary rights of a
taxpayer. It must be exercised fairly, equally and
uniformly,lestthetaxcollectorkillthehenthatlaysthe
goldenegg.
Income tax;Deductions;Representation
expenses;Deductibleonlyifincurredincarryingatradeor
business.Representation expenses are deductible from
gross income as expenditures incurred in carrying on a
business or trade provided that they are reasonable in
amount, ordinary and necessary, and incurred in
connectionwiththetaxpayersbusiness.
Same;Same;Contributiontoagovernmententitymust
beusedexclusivelyforpublicpurpose.Contributionstoa
governmententityisdeductiblewhenusedexclusivelyfor
publicpurpose.
Same;Same;Contributiontoaprivateentitythatgives
dividends to stockholders is not deductible.Contribution
tothechapelataprivateuniversitygroundownedbyan
educational institution that gives dividends to its
stockholdersisnotdeductiblefromthegrossincomeofthe
taxpayer for the reason that the net income of said
universityinurestothebenefitofitsstockholders.
Tax;Realestatedealerstax;Realestatedealerdefined.
ArealestatedealerunderSection194oftheTaxCode
includesownersofrealestatereceivingrentalsofatleast
P3,00000 a year without any qualification as to the
personspayingtherental.
APPEALfromadecisionoftheCourtofTaxAppeals.
ThefactsarestatedintheopinionoftheCourt.
Leido,Andrada,Perez & Associatesfor
petitioners.
SolicitorGeneralforrespondents.
BENGZON,J.P.,J.:
Don Pedro Roxas and Doa Carmen Ayala, Spanish
subjects, transmitted to their grandchildren by
hereditarysuccessionthefollowingproperties:
 1. (1)Agriculturallandswithatotalareaof19,000
hectares, situated in the municipality of
Nasugbu,Batangasprovince;
2. (2)AresidentialhouseandlotlocatedatWright
St.,Malate,Manila;and
3. (3)Sharesofstocksindifferentcorporations.
To manage the abovementioned properties, said
children,namely,AntonioRoxas,EduardoRoxasand
Jose Roxas, formed a partnership called Roxas y
Compaia
AGRICULTURALLANDS
At the conclusion of the Second World War, the
tenantswhohaveallbeentillingthelandsinNasugbu
for generations expressed their desire to purchase
from Roxas y Cia. the parcels which they actually
occupied.Foritspart,theGovernment,inconsonance
withtheconstitutionalmandatetoacquirebiglanded
estates and apportion them among landless tenants
farmers, persuaded the Roxas brothers to part with
their landholdings. Conferences were held with the
farmersintheearlypartof1948andfinallytheRoxas
brothers agreed to sell 13,500 hectares to the
Governmentfordistributiontoactualoccupantsfora
priceofP2,079,048.47plusP300,000.00forsurveyand
subdivisionexpenses.
ItturnedouthoweverthattheGovernmentdidnot
have funds to cover the purchase price, and so a
specialarrangementwasmadefortheRehabilitation
Finance Corporation to advance to Roxas y Cia. the
amount ofP1,500,000.00 as loan.Collateralforsuch
loanwerethelandsproposedtobesoldtothefarmers.
Under the arrangement, Roxas y Cia. allowed the
farmers to buy the lands for the same price but by
installment, and contracted with the Rehabilitation
FinanceCorporationtopayitsloanfromtheproceeds
oftheyearlyamortizationspaidbythefarmers.
In1953 and1955 Roxas yCia. derived from said
installment payments a net gain of P42,480.83 and
P29,500.71.Fiftypercentofsaidnetgainwasreported
forincometaxpurposesasgainonthesaleofcapital
assetheldformorethanoneyearpursuanttoSection
34oftheTaxCode.
RESIDENTIALHOUSE
DuringtheirbachelordaystheRoxasbrotherslivedin
the residential house at Wright St., Malate, Manila,
which they inherited from their grandparents. After
Antonio and Eduardo got married, they resided
somewhereelseleavingonlyJoseintheoldhouse.In
fairness to his brothers, Jose paid to Roxas y Cia.
rentalsforthehouseinthesumofP8,000.00ayear.
ASSESSMENTS
On June 17, 1958, the Commissioner of Internal
RevenuedemandedfromRoxasyCiathepaymentof
real estate dealers tax for 1952 in the amount of
P150.00 plus P10.00 compromise penalty for late
payment,andP150.00taxfordealersofsecuritiesfor
1952 plus P10.00 compromise penalty for late
payment.Theassessmentforrealestatedealerstax
wasbasedonthefactthatRoxasyCia.receivedhouse Commissionerconsideredthepartnershipasengaged
rentalsfromJoseRoxasintheamountofP8,000.00. in the business of real estate, hence, 100% of the
PursuanttoSec.194oftheTaxCode,anownerofa profitsderivedtherefromwastaxed.
real estate who derives a yearly rental income The following deductions were disallowed:
therefrom in the amount of P3,000.00 or more is ROXAS Y CIA.:
consideredarealestatedealerandisliabletopaythe 1953
correspondingfixedtax. Tickets for Banquet in P 40.00
TheCommissionerofInternalRevenuejustifiedhis honor of S. Osmea
demand for the fixed tax on dealers of securities Gifts of San Miguel beer 28.00
againstRoxasyCia.,onthefactthatsaidpartnership Contributions to
madeprofitsfromthepurchaseandsaleofsecurities. Philippine Air Force Chapel 100.00
In the same assessment, the Commissioner assessed deficiency Manila Police Trust Fund 150.00
income taxes against the Roxas brothers for the years 1953 and Philippines Heralds fund 100.00
1955, as follows: for Manilas neediest
1953 1955 families
Antonio P7,010.00P5,813.00 1955
Roxas Contribution to 50.00
Eduardo 7,281.00 5,828.00 Our Lady of
Roxas Fatima
Jose 6,323.00 5,588.00 Chapel, FEU
Roxas ANTONIO ROXAS:
The deficiency income taxes resulted from the 1953
inclusionasincomeofRoxasyCia.oftheunreported Contributions to
50%ofthenetprofitsfor1953and1955derivedfrom
thesaleoftheNasugbufarmlandstothetenants,and Pasay City 25.00
the disallowance of deductions from gross income of Firemen Christmas
various business expenses and contributions claimed Fund
byRoxasyCia.andtheRoxasbrothers.Forthereason Pasay City 50.00
thatRoxasyCia.subdivideditsNasugbufarmlands Police Dept. Xmas
and sold them to the farmers on installment, the fund
1955 Philippines
Contributions to Heralds fund
for Manilas
Baguio City 25.00 neediest
Police Christmas fund families
Pasay City 25.00 The Roxas brothers protested the assessment but
Firemen Christmas inasmuchassaidprotestwasdenied,theyinstituted
fund anappealintheCourtofTaxAppealsonJanuary9,
Pasay City 50.00 1961.TheTaxCourtheardtheappealandrendered
Police Christmas fund judgmentonJuly31,1965sustainingtheassessment
EDUARDO ROXAS: exceptthedemandforthepaymentofthefixedtaxon
1953 dealer of securities and the disallowance of the
Contributions to deductions for contributions to the Philippine Air
Hijas de 450.00 ForceChapelandHijasdeJesusRetirodeManresa.
Jesus Retiro de TheTaxCourtsjudgmentreads:
Manresa WHEREFORE, the decision appealed from is hereby
Philippines 100.00 affirmed with respect to petitioners Antonio Roxas,
Heralds fund for EduardoRoxas,andJoseRoxaswhoareherebyorderedto
Manilas paytherespondentCommissionerofInternalRevenuethe
neediest families amounts of P12.808.00, P12,887.00 and P11,857.00,
1955 respectively,asdeficiencyincometaxesfortheyears
Contribution to 120.00 1953 and 1955, plus 5% surcharge and 1% monthly
Philippines interestasprovidedforinSec.51(a)oftheRevenue
Heralds fund Code; and modified with respect to the partnership
for Manilas Roxas y Cia. in the sense that it should pay
neediest onlyP150.00, as real estate dealers tax. With costs
families againstpetitioners.
JOSE ROXAS: Not satisfied, Roxas y Cia. and the Roxas brothers
1955 appealedtothisCourt.TheCommissionerofInternal
Contribution to 120.00 Revenuedidnotappeal.
 Theissues:
1. (1)Is the gain derived from the sale of the
Nasugbu farm lands an ordinary gain, hence
100%taxable?
2. (2)Arethedeductionsforbusinessexpensesand
contributionsdeductible?
3. (3)IsRoxasyCia.liableforthepaymentofthe
fixedtaxonrealestatedealers?
TheCommissionerofInternalRevenuecontendsthat
RoxasyCia.couldbeconsideredarealestatedealer
because it engaged in the business of selling real
estate.Thebusinessactivityalludedtowastheactof
subdividingtheNasugbufarmlandsandsellingthem
tothefarmersoccupantsoninstallment.Tobolsterhis
stand on the point, he cites one of the purposes of
RoxasyCia.ascontainedinitsarticlesofpartnership,
quotedbelow:
4.(a)Laexplotaciondefincasurbanespertenecientesala
misma o que pueden pertenecer a ella en el futuro,
alquilandoles por los plazos y demas condiciones, estime
convenientes y vendiendo aquellas que a juicio de sus
gerentesnodebenconservarse;
The abovequoted purpose notwithstanding, the
propositionoftheCommissionerofInternalRevenue
cannot be favorably accepted by Us in this isolated
transactionwithitspeculiarcircumstancesinspiteof
the fact that there were hundreds of vendees. Altho
theypaidfortheirrespectiveholdingsininstallment
for a period of ten years, it would nevertheless not
make the vendor Roxas y Cia. a real estate dealer
duringthetenyearamortizationperiod.
It should be borne in mind that the sale of the
Nasugbu farm lands to the very farmers who tilled
themforgenerationswasnotonlyinconsonancewith,
butmoreinobediencetotherequestandpursuantto
thepolicyofourGovernmenttoallocatelandstothe
landless.ItwastheboundendutyoftheGovernment
topaytheagreedcompensationafterithadpersuaded
RoxasyCia.tosellitshaciendas,andtosubsequently
subdividethemamongthefarmersatveryreasonable
termsandprices.However,theGovernmentcouldnot
comply with its duty for lack of funds. Obligingly,
Roxas y Cia. shouldered the Governments burden,
went out of its way and sold lands directly to the
farmersinthesamewayandunderthesametermsas
wouldhavebeenthecasehadtheGovernmentdoneit
itself. For this magnanimous act, the municipal
councilofNasugbupassedaresolutionexpressingthe
peoplesgratitude.
Thepoweroftaxationissometimes,,calledalsothe
powertodestroy.Thereforeitshouldbeexercisedwith
cautiontominimizeinjurytotheproprietaryrightsof
a taxpayer. It must be exercised fairly, equally and
uniformly,lestthetaxcollectorkillthehenthatlays
thegoldenegg.And,inordertomaintainthegeneral
publicstrustandconfidenceintheGovernmentthis
power must be used justly and not treacherously. It
does not conform with Our sense of justice in the
instant case for the Government to persuade the
taxpayer to lend it a helping hand and later on to
penalizehimfordulyansweringtheurgentcall.
In fine, Roxas y Cia. cannot be considered a real
estatedealerforthesaleinquestion.Hence,pursuant
to Section 34 of the Tax Code the lands sold to the
farmersarecapitalassets,andthegainderivedfrom
the sale thereof is capital gain, taxable only to the
extentof50%.
DISALLOWEDDEDUCTIONS
Roxas y Cia. deducted from its gross income the
amount of P40.00 for tickets to a banquet given in
honor of Sergio Osmea and P28.00 for San Miguel
beergivenasgiftstovariouspersons.Thedeductions
were claimed as representation expenses.
Representation expenses are deductible from gross
incomeasexpendituresincurredincarryingonatrade
or business under Section 30 (a) of the Tax Code
providedthetaxpayerprovesthattheyarereasonable
in amount, ordinary and necessary, and incurred in
connectionwithhisbusiness.Inthecaseatbar,the
evidence does not show such link between the
expensesandthebusinessofRoxasyCia.Thefindings
of the Court of Tax Appeals must therefore be
sustained.
The petitioners also claim deductions for
contributions to the Pasay City Police, Pasay City
Firemen, and Baguio City Police Christmas funds,
Manila Police Trust Fund, Philippines Heralds fund
forManilasneediestfamiliesandOurLadyofFatima
chapelatFarEasternUniversity.
The contributions to the Christmas funds of the
Pasay City Police, Pasay City Firemen and Baguio
CityPolicearenotdeductibleforthereasonthatthe
Christmas funds were not spent for public purposes
butasChristmasgiftstothefamiliesofthemembers
ofsaidentities.UnderSection39(h),acontributionto
a government entity is deductible when used
exclusively for public purposes. For this reason, the
disallowance must be sustained. On the other hand,
thecontributiontotheManilaPolicetrustfundisan
allowabledeductionforsaidtrustfundbelongstothe
Manila Police, a government entity, intended to be
usedexclusivelyforitspublicfunctions.
ThecontributionstothePhilippinesHeraldsfund
forManilasneediestfamiliesweredisallowedonthe
ground that the Philippines Herald is not a
corporationoranassociationcontemplatedinSection
30(h)oftheTaxCode.Itshouldbenotedhoweverthat
the contributions were not made to the Philippines
Herald but to a group of civic spirited citizens
organized by the Philippines Herald solely for
charitable purposes. There is no question that the
membersofthisgroupofcitizensdonotreceiveprofits,
forallthefundstheyraisedwereforManilasneediest
families.Suchagroupofcitizensmaybeclassifiedas
an association organized exclusively for charitable
purposesmentionedinSection30(h)oftheTaxCode.
 Rightly, the Commissioner of Internal Revenue is too clear and explicit to admit construction. The
disallowed the contribution to Our Lady of Fatima findingsoftheCourtofTaxAppealsonthispointis
chapel at the Far Eastern University on the ground sustained.
that the said university gives dividends to its Tosummarize,nodeficiencyincometaxisduefor
stockholders. Located within the premises of the 1953 from Antonio Roxas, Eduardo Roxas and Jose
university,thechapelinquestionhasnotbeenshown Roxas. For 1955 they are liable to pay deficiency
to belong to the Catholic Church or any religious incometaxinthesumofP109.00,P91.00andP49.00,
organization.Ontheotherhand,thelowercourtfound respectively,computedasfollows:*
that it belongs to the Far Eastern University, ANTONIO ROXAS
contributions to which are not deductible under Net P315,476.59
Section30(h)oftheTaxCodeforthereasonthatthe income
netincomeofsaiduniversityinurestothebenefitof per return
its stockholders. The disallowance should be Add: 1/3 P153,249.1
sustained. share, 5
Lastly,RoxasyCia.questionstheimpositionofthe profits in
realestatedealersfixedtaxuponit,becausealthoit Roxas y
earned a rental income of P8,000.00 per annum in Cia.
1952,saidrentalincomecamefromJoseRoxas,oneof Less amount declared 146,135.46
the partners. Section 194 of the Tax Code, in Amount understated P 7,113.69
consideringasrealestatedealersownersofrealestate Contributions 115.00
receivingrentalsofatleastP3,000.00ayear,doesnot disallowed
provideanyqualificationastothepersonspayingthe P 7,228.69
rentals.Thelaw,whichstates:
Less 1/3 share of 7,042.02 186.67
xxxRealestatedealerincludesanypersonengagedin
contributions
the business of buying, selling, exchanging, leasing or
renting property on his own account as principal and
amounting to
holding himself out as a full or parttime dealer in real P21,126.06 dis
allowed from
estateorasanownerofrentalpropertyorpropertiesrented
partnership but
orofferedtorentforanaggregateamountofthreethousand
allowed to partners
pesosormoreayear;xxx(Italicssupplied)
Net income per review P315,663.26 286
Less: Exemptions 4,200.00
Net taxable income P311,463.26
Tax due 154,169.00 JOSE ROXAS
Tax paid 154,060.00 Net income per return P222,681.7
Deficiency P 109.00 6
EDUARDO ROXAS Add: 1/3 share, profits in P153,429.1
Roxas 5
Net income per return P304,166.92
y Cia.
Add: 1/3 share, profits in P153,249.1
Less amount reported 146,135.46
Roxas 5
y Cia. Amount understated 7,113.69
Less profits declared 146,052.58 Less 1/3 share of 7,042.02 71.67
contributions
Amount understated P 7,196.57
disallowed from
Less 1/3 share in 7,042.02 155.55 partnership
contributions but allowed as
amounting to deductions to
P21,126.06 dis partners
allowed from
Net income per P222,753.4
partnership but
review 3
allowed to partners
Net income per review P304,322.4 Less: Exemption 1,800 00
7 Net income P220.953
Less: Exemptions 4,800.00 subject to tax 43
Net taxable income P299,522.4 Tax due P102.763.0
7 0
Tax Due P147,250.0 Tax paid 102,714.00
0 Deficiency P 49.00
Tax paid 147,159.00 WHEREFORE,thedecisionappealedfromismodified.
Deficiency P 91.00 Roxas y Cia. is hereby ordered to pay the sum of
P150.00asrealestatedealersfixedtaxfor1952,and
Antonio Roxas, Eduardo Roxas and Jose Roxas are
orderedtopaytherespectivesumsofP109.00,P91.00
andP49.00astheirindividualdeficiencyincometax
all corresponding for the year 1955. No costs. So
ordered.
Reyes, J.B.L., Actg.
C.J.,Dizon,Makalintal,Sanchez,Castro,Angelesand
Fernando,JJ.,concur.
Zaldivar,J.,didnottakepart.
Concepcion,C.J.,isonleave.

Decisionmodified.