Gibbs v. Revenue

CONCEPCION, J.:

These are two (2) appeals, one by the plaintiff and the plaintiffs-intervenors and the other by the Government, from a decision of the Court of Tax Appeals, hereafter referred to as the lower court, promulgated on February 28, 1958, the dispositive part of which reads: IN VIEW OF THE FOREGOING, the decision appeal from is modified, and the defendant Collector of Internal Revenue is hereby ordered to refund to the plaintiff the sum P5,381.88, as computed in Annex "A" hereof, with interest the legal rate from date of payment, Without special pronouncement as to costs. as amended by a resolution of said lower court, dated July 25, 1958, the concluding paragraph of which is as follows: WHEREFORE, our decision of February 28, 1958 is modified in the sense that the delinquency interest of one-half (1/2) of one (1%) percent should be computed on the deficiency taxes only from July 1, 1954 to July 30, 1954, and the defendant Collector of Internal Revenue is hereby ordered refund to plaintiff the sum of P9,387.54 as computed in Annex "A"

hereof, with interest at the legal rate from date of payment. Without special pronouncement as to costs. 1äwphï1.ñët On September 25, 1950, Allison J. Gibbs and his wife Esther K. Gibbs, hereinafter referred to as trustors, executed five (5) separate documents each, entitled "Deed of Sale and Declaration of Trust", whereby the respective trustors transferred, sold and assigned, in trust, 53,000 shares of stock of the Lepanto Consolidated Mining Co., in favor of each one of their five (5) children, namely Johnson Kelley Gibbs, Allison Defrance Gibbs, Candace Gibbs, Douglas Fletcher Gibbs and Reginald Kelley Gibbs in consideration of the sum of P26,227.70, to be paid "on or before December 23, 1950, by selling, mortgaging, hypothecating or pledging part or all of the corpus of the trust."

The market value of said 53,000 shares on September 25, 1950 was P34,980.00. The terms and conditions of the ten (10) deeds trust were identical. Instituted trustee, without bond, in said ten (10) deeds, was Finley J. Gibbs, a brother of trustor Allison J. Gibbs, who, as attorney-in-fact of the former, accepted the trust, in his (Finley J. Gibbs') name, for and on behalf of the aforementioned beneficiaries.

The trust was to terminate upon the respective beneficiary reaching the age of 35. If the beneficiary died before reaching that age, leaving legitimate issue the trust would continue, but for the benefit of the latter, and the full distribution and termination of the trust with respect to such issue would be effected not later than 20 years after the death of said beneficiary. If the beneficiary died before reaching the age of 35 leaving no legitimate issue, the trustee would turn over the trust corpus or the remainder thereof and any accumulated income, share and share alike, to the other beneficiaries or children of the trustors.

On October 24, 1950, the trustors gave notice to the then Collector of Internal Revenue, hereafter referred to as defendant, of the execution of the ten (10) deeds of trust and requested a ruling on whether or not gift taxes were due thereon.

Soon, thereafter, or on December 14, 1950, defendant assessed a donee gift tax of P75.00 on each of the beneficiaries in said trust agreements, or a total of P750.40, and a donor gift tax of P774.04 on each of the trustors, or P1,548.08 for both. These assessments were based upon the difference between said market value of the shares of stock and the stipulated consideration for transfer thereof. On December 22, 1950, defendant revised his assessment of the donor gift tax by increasing it from P774.04 to P342.84 for each trustor, or a total of P1,685.68.

The next day, the donee gift taxes were, also, increased, from the aforementioned total sum of P750.40 to P17,856.90. Within the period fixed by law, or on May 15, 1951, said donor and donee gift taxes in the sums of P1,685.68 and P17,856.90, respectively, were paid. Subsequently, the refund of P17,106.50, representing the difference between the amount if the first assessment (P750.40) for donee gift taxes and that of the second assessment thereof (P17,856.90), was demanded, but the demand was, on August 23, 1951, turned down by the defendant.

The trustee appealed to the Secretary of Finance. Before the latter could pass upon the appeal, however, the Board of Tax Appeals was created by Executive Order No. 401 of the President of the Philippines. The pertinent records were then forwarded to said Board.

Alleging fear of expiration of the two-year period for the refund of said sum of P17,106.50, on May 12, 1953, the trustee instituted Civil Case No. 19541 of the Court of First Instance of Manila against the defendant for the recovery of such amount. Meanwhile, or on December 28, 1951, the trustors, by five (5) separate documents each, had created ten (10) additional and separate trusts, each involving 22,400 shares of stock of the same mining company, in favor of each of the aforementioned beneficiaries, for the stipulated consideration of P17,430, to be paid by the trustees within 120 days after the transfer of said stock has been effected in the books of the mining company. In all other respects, the terms and conditions of this second set of deeds of trusts are identical to those of the first set.

Admittedly, the market value of said 22,400 shares was then P19,264.00. These additional deeds of trust impelled the defendant to assess, on April 8, 1952, a donor gift tax of P304.42 on each trustor, or a total of P608.84 for both trustors, and a donee gift tax of P36.69, on each of the beneficiaries, or a total of P366.90. These amounts were paid on May 15, 1952, within the statutory period therefor.

Holding that gift taxes are available on the full market value of all the shares of stock thus placed in trust - instead of upon the difference between said market value and the stipulated considerations - on June 16, 1954, defendant assessed additional donor gift taxes in the sums of P5,093.71 on each trustor, or a total of P10,187.42, for the ten (10) trusts created on September 25, 1950, and P8,788.78, on each trustor, or a total of P17,577.56 for the trusts created on December 28, 1951. Additional donee gift taxes were, likewise, assessed in the sum of P12,040.30 for the ten (10) additional trusts created on December 28, 1951. The corresponding assessment notices demanded that these three (3) sums be paid on or before June 30, 1954.

Upon request of the taxpayers, they were given an extension up to July 31, 1954, on which date said sums were paid under protest. Thus, the amounts paid under protest for the two (2) sets of trusts in question aggregate P56,911.78, itemized as follows: . Donee gift taxes on the trusts created on September 25, 1950 P17,106.50 Donor gift taxes on the trusts created on September 25, 1950 10,187.42 Donee gift taxes on the trusts created on December 28, 1951 12,040.30 Donor gift taxes on the trusts created on December 28, 1951 17,577.56 T O T A L .

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