Cir v tuazon inc

FACTS:

CTA set aside petitioners revenue commissioners assessment of 1.1 M as the 25% surtax on private
respondents unreasonable accumulation of surplus for the year 1975-1978.
Private respondent protested the assessment on the ground that the accumulation of surplus profits
during the years in question was solely for the purpose of expanding its business operations as a real
estate broker.
Private res. Filed a petition that pending determination of the case, an order be issued restraining the
commissioner and/or his reps from enforcing the warrants of distraint and levy. Writ of injunction was
issued by tax court.
Due to the reversal of CTA of the commissioners decision, CIR appeals to the SC.

ISSUES:

1. Whether or not private respondent is a holding company and/or investment company?

2. Whether or not Antonio accumulated surplus for years 75-78
3. Whether or not Tuason Inc. is liable for the 25% surtax on undue accumulation of surplus for 75-78

HELD: Yes to all. Antionio is liable for the 25% surtax assessed.

Sec. 25. Additional tax on corporation improperly accumulating profits or surplus.

(a) Imposition of tax. If any corporation, except banks, insurance companies, or personal holding
companies, whether domestic or foreign, is formed or availed of for the purpose of preventing the
imposition of the tax upon its shareholders or members or the shareholders or members of another
corporation, through the medium of permitting its gains and profits to accumulate instead of being
divided or distributed, there is levied and assessed against such corporation, for each taxable year, a tax
equal to twenty-five per centum of the undistributed portion of its accumulated profits or surplus which
shall be in addition to the tax imposed by section twentyfour, and shall be computed, collected and paid
in the same manner and subject to the same provisions of law, including penalties, as that tax.

(b) Prima facie evidence. The fact that any corporation is a mere holding company shall be prima
facie evidence of a purpose to avoid the tax upon its shareholders or members. Similar presumption
will lie in the case of an investment company where at any time during the taxable year more than fifty
per centum in value of its outstanding stock is owned, directly or indirectly, by one person.

In this case, Tuason Inc, a mere holding company for the corporation did not involve itself in the
development of subdivisions but merely subdivided its own lots and sold them for bigger profits. It
derived its income mostly from interest, dividends, and rentals realized from the sale of realty.

Tuason Inc is also owned by Antonio himself. While these profits were actually made, the
commissioner points out that the corp. did not use up its surplus profits. Antonio claims that he spent
the money to build an apartment in urdaneta but theres a large discrepancy bet. The market value and
the alleged investment cost.
 The importance of liability is the purpose behind the accumulation of the income and not the
consequences of the accumulation. Thus, if the failure to pay dividends were for the purpose of using
the undistributed earnings & profits for the reasonable needs of the business, that purpose would not
fall to overcome the presumption and correctness of CIR.

Commissioner of Internal Revenue vs TMX Sales & CTA

FACTS: TMX Sales Inc. filed its quarterly income tax for the 1st quarter of 1981. It declared
P571,174.31 and paying an income tax of P247,019 on May 13, 1981. However, during the
subsequent quarters, TMX suffered losses. On April 15, 1982, when TMX filed its Annual Income Tax
Return for the year ended in December 31, 1981, it declared a net loss of P6,156,525. On July 9, 1982,
TMX filed with the Appellate Division of BIR for refund in the amount of P247,010 representing
overpaid income tax. His claim was not acted upon by the Commissioner of Internal Revenue. On May
14, 1984, TMX Sales filed a petition for review before the Court of Tax Appeals against CIR, praying
that the CIR be ordered to refund to TMX the amount of P247,010. The CIR averred that TMX is
already barred for claiming the refund since more than 2 years has elapsed between the payment (May
15, 1981) and the filing of the claim in court (March 14, 1984). The Court of Tax Appeals rendered a
decision granting the petition of TMX Sales and ordered CIR to refund the amount mentioned. Hence,
this appeal of CIR.

ISSUE: Whether or not TMX Sales Inc. is entitled to a refund considering that two years gas already
elapsed since the payment of the tax

RULING: Yes. Petition of CIR is denied. Sec. 292, par. 2 of the National Internal Revenue Code stated
that in any case, no such suit or proceeding shall be begun after the expiration of two years from the
date of the payment of the tax or penalty regardless of any supervening cause that may arise after
payment. This should be interpreted in relation to the other provisions of the Tax Code. The most
reasonable and logical application of the law would be to compute the 2-year prescriptive period at the
time of the filing of the Final Adjustment Return or the Annual Income Tax Return, where it can finally
be ascertained if the tax payer has still to pay additional income tax or if he is entitled to a refund of
overpaid income tax. Since TMX filed the suit on March 14, 1984, it is within the 2-year prescriptive
period starting from April 15, 1982 when they filed their Annual Income Tax Return.

CIR v CA

Facts: Sometime in the 1930s, Don Andres Soriano, a citizen and resident of the United States,
formed the corporation A. Soriano Y Cia, predecessor of ANSCOR with a 1,000,000.00
capitalization divided into 10,000 common shares at a par value of P100/share. ANSCOR is wholly
owned and controlled by the family of Don Andres, who are all non-resident aliens. In 1937, Don
Andres subscribed to 4,963 shares of the 5,000 shares originally issued.

On September 12, 1945, ANSCORs authorized capital stock was increased to P2,500,000.00 divided
into 25,000 common shares with the same par value. Of the additional 15,000 shares, only 10,000 was
issued which were all subscribed by Don Andres, after the other stockholders waived in favor of the
former their pre-emptive rights to subscribe to the new issues. This increased his subscription to 14,963
common shares. A month later, Don Andres transferred 1,250 shares each to his two sons, Jose and
Andres Jr., as their initial investments in ANSCOR. Both sons are foreigners.

By 1947, ANSCOR declared stock dividends. Other stock dividend declarations were made between
1949 and December 20, 1963. On December 30, 1964 Don Andres died. As of that date, the records
revealed that he has a total shareholdings of 185,154 shares. 50,495 of which are original issues and the
balance of 134,659 shares as stock dividend declarations. Correspondingly, one-half of that
shareholdings or 92,577 shares were transferred to his wife, Doa Carmen Soriano, as her conjugal
share. The offer half formed part of his estate.

A day after Don Andres died, ANSCOR increased its capital stock to P20M and in 1966 further
increased it to P30M. In the same year (December 1966), stock dividends worth 46,290 and 46,287
shares were respectively received by the Don Andres estate and Doa Carmen from ANSCOR. Hence,
increasing their accumulated shareholdings to 138,867 and 138,864 common shares each.

On December 28, 1967, Doa Carmen requested a ruling from the United States Internal Revenue
Service (IRS), inquiring if an exchange of common with preferred shares may be considered as a tax
avoidance scheme. By January 2, 1968, ANSCOR reclassified its existing 300,000 common shares into
150,000 common and 150,000 preferred shares.

In a letter-reply dated February 1968, the IRS opined that the exchange is only a recapitalization
scheme and not tax avoidance. Consequently, on March 31, 1968 Doa Carmen exchanged her whole
138,864 common shares for 138,860 of the preferred shares. The estate of Don Andres in turn
exchanged 11,140 of its common shares for the remaining 11,140 preferred shares.

In 1973, after examining ANSCORs books of account and record Revenue examiners issued a report
proposing that ANSCOR be assessed for deficiency withholding tax-at-source, for the year 1968 and
the 2nd quarter of 1969 based on the transaction of exchange and redemption of stocks. BIR made the
corresponding assessments. ANSCORs subsequent protest on the assessments was denied in 1983 by
petitioner. ANSCOR filed a petition for review with the CTA, the Tax Court reversed petitioners ruling.
CA affirmed the ruling of the CTA. Hence this position.

Issue: Whether or not a person assessed for deficiency withholding tax under Sec. 53 and 54 of the Tax
Code is being held liable in its capacity as a withholding agent.

Held: An income taxpayer covers all persons who derive taxable income. ANSCOR was assessed by
petitioner for deficiency withholding tax, as such, it is being held liable in its capacity as a withholding
agent and not in its personality as taxpayer. A withholding agent, A. Soriano Corp. in this case, cannot
be deemed a taxpayer for it to avail of a tax amnesty under a Presidential decree that condones the
collection of all internal revenue taxes including the increments or penalties on account of
non-payment as well as all civil, criminal, or administrative liabilities arising from or incident to
voluntary disclosures under the NIRC of previously untaxed income and/or wealth realized here or
abroad by any taxpayer, natural or juridical. The Court explains: The withholding agent is not a
taxpayer, he is a mere tax collector. Under the withholding system, however, the agent-payer becomes
a payee by fiction of law. His liability is direct and independent from the taxpayer, because the income
tax is still imposed and due from the latter. The agent is not liable for the tax as no wealth flowed into
him, he earned no income.