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PHILIPPINE SUPREME COURT DECISIONS

EN BANC

[G.R. No. L-5949. November 19, 1955. ]

TANG HO, WILLIAM LEE, HENRI LEE, SOFIA LEE TEEHANKEE, THOMAS LEE, ANTHONY LEE, JULIA LEE KAW, CHARLES LEE, VALERIANA LEE YU, VICTOR LEE, SILVINO LEE, MARY LEE, JOHN LEE, and PETER LEE, for themselves and as heirs of LI SENG GIAP, deceased, Petitioners, v. THE BOARD OF TAX APPEALS and THE COLLECTOR OF INTERNAL REVENUE, Respondent.

Ozaeta, Roxas, Lichauco & Picazo, for Petitioners.

Solicitor General Juan R. Liwag and Solicitor Jose P. Alejandro for Respondent.


SYLLABUS


1. BOARD OF TAX APPEALS; PROCEEDINGS THEREIN ARE ADMINISTRATIVE IN CHARACTERS. — The proceedings before the Board of Tax Appeals are administrative in character and are not governed by the Rules of Court (see Sec. 10, E.O. 401-A).

2. ID.; ID.; FINDINGS SUPPORTED BY EVIDENCE CANNOT BE REVISED BY THE SUPREME COURT. — The findings of the defunct Board of Tax Appeals supported by adequate evidence, cannot be revised by the Supreme Court (Comm. of Internal Revenue v. Court Holding Co., 89 L. Ed. 981; Comm. Internal Revenue v. Scittish American Investment Co., 89 L. 113; Comm. of Internal Revenue v. Tower, 90 L. Ed. 670; Helvering v. Tax Penn. Oil Co., 81 L. Ed. 765).

3. DONATIONS; DONATION OF CONJUGAL PROPERTY BY THE HUSBAND; RULE UNDER CIVIL CODE OF 1889. — Under the Civil Code of 1889, a donation by the husband, alone does not become in law a donation by both spouses merely because it involves property of the conjugal partnership.

4. ID.; ID.; ID.; DONATION TAXABLE AGAINST HUSBAND EXCLUSIVELY. — A donation of property belonging to the conjugal partnership, made during its existence by the husband alone in favor of the common children, is taxable to him exclusively as sole donor.


D E C I S I O N


REYES, J.B.L., J.:


This is a petition for the review of the decision of the defunct Board of Tax Appeals holding petitioners Li Seng Giap, Et. Al. liable for gift taxes in accordance with the assessments made by the respondent Collector of Internal Revenue.

Petitioners Li Seng Giap (who died during the pendency of this appeal) and his wife Tang Ho and their thirteen children appear to be the stockholders of two close family corporations named Li Seng Giap & Sons, Inc. and Li Seng Giap & Co. On or about May, 1951, examiners of the Bureau of Internal Revenue, then detailed to the Allas Committee of the Congress of the Philippines, made an examination of the books of the two corporations aforementioned and found that each of Li Seng Giap’s 13 children had a total investment therein of approximately P63,195.00, in shares issued to them by their father Li Seng Giap (who was the manager and controlling stockholder of the two corporations) in the years 1940, 1942, 1948, 1949, and 1950 in the following amounts:chanrob1es virtual 1aw library

Donees 1940 1942 1948 1949 1950

William Lee 7,500 12,500 6,750 27,940 7,500

Henry Lee 7,500 12,500 6,750 27,940 7,500

Sofia Lee 7,500 12,500 16,500 26,690

Thomas Lee 7,500 12,500 7,500 28,190 7,500

Anthony Lee 18,000 7,500 28,190 7,500

Julia Lee 2,000 15,000 25,690 2,500

Charles Lee 20,000 7,500 28,190 7,500

Valeriana Lee 60,690 2,500

Victor Lee 63,190

Silvino Lee 63,190

Mary Lee 63,190

John Lee 63,190

Peter Lee 63,190

The Collector of Internal Revenue regarded these transfers as undeclared gifts made in the respective years, and assessed against Li Seng Giap and his children donor’s and donee’s taxes in the total amount of P76,995.31, including penalties, surcharges, interests, and compromise fee due to the delayed payment of the taxes. The petitioners paid the sum of P53,434.50, representing the amount of the basic taxes, and put up a surety bond to guarantee payment of the balance demanded. And on June 25, 1951, they requested the Collector of Internal Revenue for a revision of their tax assessments, and submitted donor’s and donee’s gift tax returns showing that each child received by way of gift inter vivos, every year from 1939 to 1950 (except in 1947 and 1948) P4,000 in cash; that each of the eight children who married during the period aforesaid, were given an additional P20,000 as dowry or gift propter nuptias; that the unmarried children received roughly equivalent amounts in 1949, also by way of gifts inter vivos, so that the total donations made to each and every child, as of 1950, stood at P63,190. Appellants admit that these gifts were not reported; but contend that as the cash donated came from the conjugal funds, they constituted individual donations by each of the spouses Li Seng Giap and Tang Ho, of one-half of the amount received by the donees in each instance, up to a total of P31,505 to each of the thirteen children from each parent. They further alleged that the children’s stockholdings in the two family corporations were purchased by them with savings from the aforesaid cash donations received from their parents.

Claiming the benefit of gift tax exemptions (under sections 110 and 112 of the Internal Revenue Code) at the rate of P2,000 a year for each donation, plus P10,000 for each gift propter nuptias made by either parent, the appellants’ aggregate tax liability, according to their returns, would only be P4,599.94 for the year 1949, and P228.28 for the year 1950, or a total of P4,838.22, computed as follows:chanrob1es virtual 1aw library

DONORS 1939-44 1945-46 1949 1950 TOTAL

Li Seng Giap Exempt Exempt P1,110.72 P74.14 P1,184.86

Tan Ho Exempt Exempt 1,110.72 74.14 1,184.86

_______ _____ _______

Total None None P2,221.44 P148.28 P2,369.72

William Lee Exempt Exempt P253.80 P30.00 P283.80

Henry Lee Exempt Exempt Exempt 15.00 15.00

Sofia Lee Exempt Exempt P51.90 None 51.90

Thomas Lee Exempt Exempt Exempt 15.00 15.00

Anthony Lee Exempt Exempt Exempt 15.00 15.00

Julia Lee Exempt Exempt 26.90 Exempt 26.90

Charles Lee Exempt Exempt Exempt 15.00 15.00

Valeriana Lee Exempt Exempt 26.90 Exempt 26.90

Victor Lee Exempt Exempt 403.80 None 403.80

Silvino Lee Exempt Exempt 403.80 None 403.80

Mary Lee Exempt Exempt 403.80 None 403.80

John Lee Exempt Exempt 403.80 None 403.30

Peter Lee Exempt Exempt 403.80 None 403.80

______ _____ ______

Total None None P2,378.50 P90.00 P2,468.50

Grand total liability of Donors

and Donees P4,599.94 P238.28 P4,838.22

The Collector refused to revise his original assessments; and the petitioners appealed to the then Board of Tax Appeals (created by Executive Order 401-A, in 1951) insisting that the entries in the books of the corporation do not prove donations; that the true amount and date of the donation were those appearing in their tax returns; and that the donees merely bought stocks in the corporation out of savings made from the money received from their parents. The Board of Tax Appeals upheld the decision of the respondent Collector of Internal Revenue; hence, this petition for review.

The questions in this appeal may be summarized as follows:chanrob1es virtual 1aw library

(1) Whether or not the dates and amounts of the donations taxable against petitioners were as found by the Collector of Internal Revenue from the books of the corporations Li Seng Giap & Sons, Inc. and Li Seng Giap & Co., or as set forth in petitioners’ gift tax returns;

(2) Whether or not the donations made by petitioner Li Seng Giap to his children from the conjugal property should be taxed against the husband alone, or against husband and wife; and

(3) Whether or not petitioners should be allowed the tax deductions claimed by them.

On the first question, which is of fact, the appellants take the preliminary stand that because the Collector failed to specifically deny the allegations of their petition in the Tax Board, he must be deemed to have admitted the annual and propter propter nuptias donations alleged by them, and that he is estopped from denying their existence. As the proceedings before the Tax Board were administrative in character, not governed by the Rules of Court (see Sec. 10, Executive Order 401-A), and as the Collector actually submitted his own version of the transactions, we do not consider that the Collector’s failure to make specific denials should be given the same binding effect as in strict court pleadings.

Going now to the merits of the issue. The appealed findings of the Board of Tax Appeals and of the Collector of Internal Revenue (that the stock transfers from Li Seng Giap to his children were donations) appear supported by the following circumstances:chanrob1es virtual 1aw library

(1) That the transferor Li Seng Giap (now deceased) had in fact conveyed shares of stock to his 13 children on the dates and in the amounts shown in the table on page 2 of this decision.

(2) That none of the transferees appeared to possess adequate independent means to buy the shares, so much so that they claim now to have purchased the shares with the cash donations made to them from time to time.

(3) That the total of the alleged cash donations to each child is practically identical to the value of the shares supposedly purchased by each donee.

(4) That there is no evidence other than the belated sworn gift tax returns of the spouses Li Seng Giap and Ang Tang Ho, and their children, appellants herein, to support their contention that the shares were acquired by purchase. No contracts of sale or other documents were presented, nor any witnesses introduced; not even the claimants themselves have testified.

(5) The claim that the shares were acquired by the children by purchase was first advanced only after the assessment of gift taxes and penalties due thereon (in the sum of P76,995.31) had been made, and after the appellants had paid P53,434.50 on account, and had filed a bond to guarantee the balance.

(6) That for a parent to donate cash to enable the donee to buy from him shares of equivalent value is, for all intents and purposes, a donation of such shares to the purchaser donee.

We cannot say, under the circumstances, that there is no sufficient evidence on record to support the findings of the Tax Board that the stock transfers above indicated were made by way of donation, as would entitle us to disregard or reverse the Board’s findings.

The filing of the gift tax returns only after assessment and part payment of the taxes demanded by the Collector, and the lack of corroboration of the alleged donations in cash, amply justify the Tax Board’s distrust of the veracity of the appellants’ belated tax returns. The Internal Revenue Code (C. A. 466 as amended) requires donors and donees to file gift tax returns "on or before the first of March following the close of the calendar year" when the gifts were made (Sec. 115, par. [c]; and besides the return a written notice to the Collector of each donation of P10,000 or more, must be given within thirty days after the donation, Sec. 114). These yearly returns and notices are evidently designed to enable the Collector to verify promptly their truth and correctness, while the gifts are still recent and proof of the circumstances surrounding the making thereof is still fresh and accessible. On their own admission, appellants failed to file for ten successive years, the corresponding returns for the alleged yearly gifts of P4,000 to each child, and likewise failed to give the notices for the P20,000 marriage gifts to each married child. Hence, they are now scarcely in a position to complain if their contentions are not accepted as truthful without satisfactory corroboration. Any other view would leave the collection of taxes at the mercy of explanations concocted ex post facto by evading taxpayers, drafted to suit any facts disclosed upon investigation, and safe from contradiction because the passing years have erased all trace of the truth.

The second and third issues in this appeal revolve around appellants’ thesis that inasmuch as the property donated was community property (gananciales), and such property is jointly owned by their parents, the total amount of the gifts made in each year should be divided between the father and the mother, as separate donors, and should be taxed separately to each one of them.

In assessing the worth of this contention, it must be ever borne in mind that appellants have not only failed to prove that the donations were actually made by both spouses, Li Seng Giap and Tang Ho, but that precisely the contrary appears from their own evidence. In the original claim for tax refund, filed with the Collector of Internal Revenue, under date of June 25, 1951 (copied in pages 6 and 7 of the appellants’ petition for review addressed to the Board of Tax Appeals), the father, Li Seng Giap, describes himself as "the undersigned donor" (par. 1) and speaks of "cash donations made by the undersigned" (par. 3), without in any way mentioning his wife as a co-participant in the donation. The issue is thus reduced to the following: Is a donation of community property by the father alone equivalent in law to a donation of one-half of its value by the father and one-half by the mother? Appellants submit that all such donations of community property are to be regarded, for tax purposes, as donations by both spouses, for which two separate exemptions may be claimed in each instance, one for each spouse.

This pretension should be viewed in the light of the provisions of the Spanish Civil Code of 1889, which was the governing law in the years herein involved, 1939 to 1950. The determinative rule is that of Arts. 1409 and 1415, reading as follows:jgc:chanrobles.com.ph

"ART. 1409. The conjugal partnership shall also be chargeable with anything which may have been given or promised by the husband to the children born of the marriage solely in order to obtain employment for them or give them a profession, or by both spouses by common consent, should they not have stipulated that such expenditures should be borne in whole or in part by the separate property of one of them."cralaw virtua1aw library

"ART. 1415, p. 1. — The husband may dispose of the property of the conjugal partnership for the purposes mentioned in Art. 1409."cralaw virtua1aw library

In effect, these Articles clearly refute the appellants’ theory that because the property donated is community property, the donations should be viewed as made by both spouses. First, because the law clearly differentiates the donations of such property "by the husband" from the "donations by both spouses by common consent" ("por el marido . . . o por ambos conyuges de com
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