Tuason v. Lingad

CASTRO, J.:

In this petition for review of the decision of the Court of Tax Appeals in CTA Case 1398, the petitioner Antonio Tuason, Jr. (hereinafter referred to as the petitioner) assails the Tax Court's conclusion that the gains he realized from the sale of residential lots (inherited from his mother) were ordinary gains and not gains from the sale of capital assets under section 34(1) of the National Internal Revenue Code. The essential facts are not in dispute. In 1948 the petitioner inherited from his mother several tracts of land, among which were two contiguous parcels situated on Pureza and Sta.

Mesa streets in Manila, with an area of 318 and 67,684 square meters, respectively. When the petitioner's mother was yet alive she had these two parcels subdivided into twenty-nine lots. Twenty-eight were allocated to their then occupants who had lease contracts with the petitioner's predecessor at various times from 1900 to 1903, which contracts expired on December 31, 1953.

The 29th lot (hereinafter referred to as Lot 29), with an area of 48,000 square meters, more or less, was not leased to any person. It needed filling because of its very low elevation, and was planted to kangkong and other crops. After the petitioner took possession of the mentioned parcels in 1950, he instructed his attorney-in-fact, J. Antonio Araneta, to sell them.

There was no difficulty encountered in selling the 28 small lots as their respective occupants bought them on a 10-year installment basis. Lot 29 could not however be sold immediately due to its low elevation. Sometime in 1952 the petitioner's attorney-in-fact had Lot 29 filled, then subdivided into small lots and paved with macadam roads.

The small lots were then sold over the years on a uniform 10-year annual amortization basis. J. Antonio Araneta, the petitioner's attorney-in-fact, did not employ any broker nor did he put up advertisements in the matter of the sale thereof. In 1953 and 1954 the petitioner reported his income from the sale of the small lots (P102,050.79 and P103,468.56, respectively) as long-term capital gains.

On May 17, 1957 the Collector of Internal Revenue upheld the petitioner's treatment of his gains from the said sale of small lots, against a contrary ruling of a revenue examiner. In his 1957 tax return the petitioner as before treated his income from the sale of the small lots (P119,072.18) as capital gains and included only ½ thereof as taxable income. In this return, the petitioner deducted the real estate dealer's tax he paid for 1957.

It was explained, however, that the payment of the dealer's tax was on account of rentals received from the mentioned 28 lots and other properties of the petitioner. On the basis of the 1957 opinion of the Collector of Internal Revenue, the revenue examiner approved the petitioner's treatment of his income from the sale of the lots in question. In a memorandum dated July 16, 1962 to the Commissioner of Internal Revenue, the chief of the BIR Assessment Department advanced the same opinion, which was concurred in by the Commissioner of Internal Revenue.

On January 9, 1963, however, the Commissioner reversed himself and considered the petitioner's profits from the sales of the mentioned lots as ordinary gains.ℒαwρhi৷ On January 28, 1963 the petitioner received a letter from the Bureau of Internal Revenue advising him to pay deficiency income tax for 1957, as follows: Net income per orig. investigation ............... P211,095.36 Add: 56% of realized profit on sale of lots which was deducted in the income tax return and allowed in the original report of examination .................

59,539.09