E. Rodriguez v. Revenue

BARREDO, J.:

This is a petition for review of the decision of the Court of Tax Appeals in its CTA Case No. 849, affirming the decision of the respondent Collector (now Commissioner) of Internal Revenue holding petitioner E. Rodriguez, Inc. liable for deficiency income tax in the sum of P63,880.00 for the year 1950. The records of the case show that on July 17, 1948, Congress enacted Republic Act No. 333, 1 pursuant to which the Republic of the Philippines sued the petitioner, among four other defendants, in Civil Case No. Q-54 of the Court of First Instance of Quezon City, for the expropriation of about 1,360,000 square meters of land owned by it and situated within the area delimited for the new capital city site. After due trial, the said court rendered a decision in the case, dated February 21, 1950, with the following dispositive portion: WHEREFORE, judgment is hereby rendered, declaring plaintiff entitled to retain and appropriate the property involved in this proceeding, as site for the development and establishment of the new capital city of the Philippines in accordance with our condemnation order dated September 19, 1949; and ordering plaintiff to pay defendants, as just compensation for the lands to be taken from them, the following amounts, to wit: to defendant Eulogio Rodriguez, Sr., the sum of THIRTY-NINE THOUSAND SEVEN HUNDRED SEVENTY-SIX PESOS (P39,776.00); to defendant E. Rodriguez, Inc., the sum of ONE MILLION FOUR HUNDRED EIGHTEEN THOUSAND SIX HUNDRED FOUR (P1,418,604.00) PESOS; to defendant Luzon Investment & Development Co., the sum of FIVE THOUSAND TWO HUNDRED EIGHTY (P5,280.00) PESOS; and to defendants Enrique Manaloto and Canuto G. Manuel, the sum of SIXTEEN THOUSAND SEVEN HUNDRED TWENTY (P16,720.00) PESOS, with interest at the rate of 6% per annum on the said amounts from September 19, 1949, the date the plaintiff entered upon the possession of the lands in question until payment, plus the costs.

Following the issuance of the above-mentioned decision, however, a series of negotiations were had between petitioner and the Government, represented by the Capital City Planning Commission, after which, the said parties entered into a compromise agreement under date of May 11, 1950, providing, inter alia , as follows: (1) That the parties will accept the decision laid down in said case by the Court of First Instance of Rizal (Quezon City Branch) with the following stipulations: a. That the defendants mentioned above hereby waive all interest due on the adjudged value of the expropriated properties; b. That the defendants above-named hereby donate 207,006 square meters out of Lots Nos. 41-C-3 and 39, object of expropriation in Civil Case No. Q-54; c.

That defendant Eulogio Rodriguez, Inc. obligates itself to donate as it hereby donates the land object of expropriation in Civil Case No. Q-90, in favor of the Republic of the Philippines, containing an area of 15,200 square meters, which is a portion of Lot No. 41-C-3 as indicated in the plan attached to the complaint therein; said defendant Eulogio Rodriguez, Inc. binding itself to execute the necessary deed of donation thereof; d. That defendants named above agree to the payment of the price awarded by the Court subject to the foregoing stipulations in the total sum of ONE MILLION TWO HUNDRED FIFTY THOUSAND SIX HUNDRED THIRTY-ONE PESOS and EIGHTY CENTAVOS (P1,250,631.80) payable in the following manner: 1) SIX HUNDRED TWENTY-FIVE THOUSAND THREE HUNDRED FIFTEEN PESOS AND NINETY CENTAVOS (P625,315.90) in government bonds in favor of Eulogio Rodriguez, Sr. and E.

Rodriguez, Inc., payable within five (5) years at not less than three percent (3%) per annum; 2) THREE HUNDRED THOUSAND PESOS (P300,000.00) to be given to the Philippine National Bank in payment of the mortgage indebtedness of defendants E. Rodriguez, Sr. and E. Rodriguez, Inc.; and 3) the balance of THREE HUNDRED TWENTY-FIVE THOUSAND TWO HUNDRED FIFTEEN PESOS AND NINETY CENTAVOS (P325,215.90) in cash to be paid to all defendants abovenamed, through Eulogio Rodriguez, Sr., within a reasonable time. (2) That after approval of this compromise by the Court, the parties herein agree not to interpose an approval from the judgment of the Court of First Instance of Rizal (Quezon City Branch) which shall be considered final and executory under the Rules of Court; (3) And, finally, that the said parties will submit this compromise agreement to the Court for its approval and/or its consideration in the decision rendered in this case.

This compromise agreement was duly approved by the Court of First Instance of Rizal (Quezon City Branch) on May 12, 1950, and pursuant to the terms thereof, the Government paid to petitioner the sum of P1,238,204.00, of which P625,315.90 were in Government Bonds. On March 1, 1951, petitioner filed its income tax return for the year 1950, showing on the face thereof a loss of P17,982.06. In said return, petitioner did not include the sum of P625,315.90 received by it from the government in the form of bonds in payment of its expropriated properties, in the belief that the said amount was free or exempt from taxation.

When this return was later examined by an agent of the Bureau of Internal Revenue, the Collector of said bureau assessed against petitioner a deficiency income tax of P63,880.00, computed as follows: Net income per return (loss) .................................. P17,982.06 Amount received for property ..... P1,238,204.00 Less: Cost of Land ...................

827,279.82