Yao v. Revenue

LABRADOR, J.:

This is a petition filed by William Li Yao for the review of a decision of the Court of Tax Appeals in C.T.A. Case No. 30, entitled "William Li Yao, petitioner, vs. Collector of Internal Revenue, respondent." The record discloses that petitioner is a naturalized Filipino of Chinese parents, the eldest son of a prosperous local businessman by the name of Li Chay Too, who died sometime in 1948. In 1945 petitioner organized the Li Yao and Company and made himself managing partner; from 1948 to February 1955 he was president of, and owned shares in, the Li Chay Too and Sons, Inc.; and in 1950 he organized a corporation known as the Far East Realty and Investment Co. (known as FERIN for short) of which he was also stockholder and president.

Petitioner filed his income tax returns for the years 1945 to 1951, paying the following taxes: YEAR AMOUNT OF TAX 1945 P 918.31 1946 1,393.42 1947 5,923.57 1948 700.34 1949 538.07 1950 3,837.00 1951 2,971.00 In 1948 a verification of his income tax returns for the years 1945 to 1947 was made and a deficiency income tax in the amount of P5,470.98 was assessed against him, which he paid. In 1952 the Collector of Internal Revenue, believing that petitioner had not reported his true incomes for the previous years, appointed a team to examine his books, on July 30, 1952 an additional assessment of P898,794.02 was made against him for the years 1945 to 1951, inclusive. A second team of investigators was appointed on June 30, 1953 this team recommended a deficiency income tax assessment of P2,722,030.33.

This team employed what is known as the net worth or inventory method. A third team was appointed, headed by BIR Examiner Quesada. This team recommended an assessment of P1,505,768.54 against petitioner; the inventory method was also used in making this assessment.

Demand was made for the collection of said assessment on August 10, 1954, so petitioner herein presented a petition with the Court of Tax Appeal for the review of the said assessment. After hearing the Court of Tax Appeals, after revising the various items contained in the assessment of BIR Examiner Quesada, made various findings of fact on the issues presented by the parties and thereafter rendered a decision in which it found that the amount of the income tax deficiency due from petitioner P424,536.77. The resume of the assessment made in the decision of the Court of Tax Appeals is as follows: 1945 Assets admitted by parties Add assets established at trial: Funds held in trust by father, Li Chay Too Net Worth as of December 31, 1945 Less Net Worth as of January 1, 1945: P 41,538.50 143,910.89