1. TAXATION; INCOME TAX; DEDUCTION OF LOSSES; DEALER IN SECURITIES; PERSONS ENGAGED IN TRADE OR BUSINESS OF BUYING AND SELLING SECURITIES WITHIN MEANING OF PHRASE "INCURRED IN TRADE OR BUSINESS" USED IN SECTION 30 (d) (1) (A) OF COMMONWEALTH ACT NO. 466. — Taking into consideration the nature of mining securities, which may be bought or sold either as a business or for speculation purposes only, the National Assembly of the Philippines has deemed it necessary to define or determine beforehand in section 84 (t) of Commonwealth Act No. 466 who may be considered as persons engaged in the trade or business of buying and selling securities within the meaning of the phrase "incurred in trade or business" used in section 30 (d) (1) (A) of the same Act, in order to avoid any question or doubt as to deductibility of all losses incurred by a merchant in securities from his net income from whatever source. The definition of dealer or merchant in securities given in said section 84 (t) includes persons, natural or judicial, who are engaged in the purchase and sale of securities whether for their own account or for others, provided they have a place of business and are regularly engaged therein.

2. ID.; ID.; ID.; ID.; ID.; CAPITAL ASSETS. — Appellant contends that as from Exhibit A it appears that the mining securities were inventoried in order to arrive at his profits and losses, they cannot be considered as capital assets, because, according to section 34, the term capital assists does not include property which would properly be included in the inventory. But it is to be observed that the law refers not to property merely included, but to that which would be properly included in the inventory. Section 148 of the Income Tax Regulations No. 2 of February 10, 1940 (39 Off. Gaz., 325), provides that "the securities (to be) inventoried as herein provided may include only those held for purposes of resale and not for investment," and that "the taxpayers who buy and sell or hold securities for investment or speculation. . . . are not dealers in securities within the meaning of this rule." And the General Counsel of the Federal Bureau of Internal Revenue, after quoting article 105 of United States Regulations 74 from which said section 148 of our Income Tax Regulations was taken, said that a person not a dealer in securities is precluded from the use of inventories in computing his net income." (C. B. X-2, p. 128, G. C. M., 9656.)

3. ID.; ID.; STATUTORY CONSTRUCTION; STATUTE SUSCEPTIBLE OF SEVERAL INTERPRETATIONS; HISTORY OF STATUTE. — Where a statute has been enacted which is susceptible of several interpretations there is no better means for ascertaining the will and intention of the legislature than that which is afforded by the history of the statute.

4. ID.; ID.; PERSONAL AND ADDITIONAL EXEMPTIONS DEDUCTED FROM GROSS INCOME. — The mere fact the phrase "in the nature of a deduction" found in section 7 of the old law was omitted in section 23 of the new or National Internal Revenue Code did not and could not effect any change in the law. It is evident that said phrase was added or inserted in said section 7 only out of extreme caution, because, even without it, the exemption would have to be deducted from the gross income in order to determine the net income subject to tax. Had the provision in the old law been drafted in exactly the same term as that of said section 23, the same construction should have been adopted. Because "Exemption is an immunity or privilege; it is freedom from a charge or burden to which others are subjected." (Florar v. Sherifan, 137 Ind., 28; 36 N. E., 365, 369.) If the amounts of personal and additional exemptions fixed in section 23 are exempt from taxation, they should not be included as part of the net income, which is taxable. There is nothing in said section 23 to justify the contention that the tax on personal exemptions (which are exempt from taxation) should first be fixed, and deducted from the tax on the net income.

5. ID.; ID.; STATUTORY CONSTRUCTION; CHANGE IN PHRASEOLOGY DOES NOT NECESSARILY ALTER CONSTRUCTION OF OLD LAW. — In the revision of statutes, neither an alteration in phraseology nor the omission or addition of words in the latter statute, shall be held, necessarily, to alter the construction of the former Act. And the court is only warranted in holding the construction of a statute, when revised, to be changed, where the intent of the legislature to make such change is clear, or the language used in the new act plainly requires such change of construction. It should be remembered that condensation is a necessity in the work of compilation or codification. Very frequently words which do not materially affect the sense will be omitted from the statutes as incorporated in the code, or that same general idea will be expressed in briefer phrases. No design of altering the law itself could rightly be predicated upon such modifications of the language.

This an appeal from the decision of the court of First Instance of manila which dismisses the complaint of the plaintiff and appellant containing two causes of action; one to recover the sum of P9,008.14 paid as income tax for the year 1939 by plaintiff to defendant under protest, by reason of defendant having disallowed a deduction of P67,307.80 alleged by plaintiff to be losses in his trade or business; and the other to reclaim, in the event the first cause of action is dismissed, the sum of P475 collected by defendant from plaintiff illegally according to the latter, because the former has erroneously the tax on personal and additional exemptions.

The following are the pertinent facts stipulated and submitted by the parties to the lower court:jgc:chanrobles.com.ph

"2. That since the year 1933 up to the present time, time plaintiff has been continuously engaged in the embroidery business located at 385 Cristobal, City of Manila and carried on under his name;

"3. That in 1935 the plaintiff began engaging in buying and selling mining stocks and securities for his own exclusive account and not for the account of orders . . .;

"4. That Exhibit A attached to the complaint and made a part hereof represents plaintiff’s purchases and sales of each of stock and security as well as the profits and losses resulting on each class during the year 1939;

"5. That the plaintiff has not been a dealer in securities as defined in section 84 (t) of Commonwealth Act No. 466; that he has no established place of business for the purchase and sale of mining stocks and securities; and that he was never a member of any stock exchange;

"6. That the plaintiff filed an income tax return for the calendar year 1939 showing that the made a net profit amounting to P52,449.29 on embroidery business and P17,850 on dividends from various corporations; and that from the purchase and sale of mining stocks and securities he made a profit of P10,741.30 and incurred in the amount of P78,049.10 thereby sustaining a net loss of P67,307.80, which income tax return is hereto attached and marked Exhibit B;

"7. That in said income tax return for 1939, the plaintiff declared the results of his stock transactions under Schedule B (Income from Business); but the defendant ruled that they should be declared in the income tax return, Exhibit B, under Schedule D (Gains and Losses from Sales or Exchanges of Capital Assets, real or personal);

"8. That in said representing the net loss sustained by him in mining disallowed said item of deduction on the ground that said losses were sustained by the plaintiff from the sale of mining stocks and securities which are capital assets, and that the loss arising from the sale of the same should be allowed only to the extent of the gains from such sales, which gains were already taken into consideration in the computation of the alleged net loss of P67,307.80;

"9. That the defendant assessed plaintiff’s income tax return for the year 1939 at P13,771.06 as shown in the following computation appearing in the audit sheet of the defendant hereto attached and marked Exhibit C;

"Net income as per return of plaintiff for 1939 P70,299.29

"Add: Net Loss on sale of mining stocks and securities

disallowed in audit 67,307.80

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"Total net income as per office audit P137,607.09

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"Amount of tax on net income as per office audit P13,821.06

"Less: Tax on exemptions:jgc:chanrobles.com.ph

"Personal exemption P2,500.00

"Additional exemption 1,000.00

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"Total P3,500.00

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"Tax on exemptions 50.00

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"Net amount of tax due P13,771.06

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"10. That the defendant computed the graduated rate of income tax the entire net income as per office audit, without first deducting therefrom the amount of personal and additional exemptions to which the plaintiff is entitled allowing said plaintiff a deduction from the assessed tax the amount of P50 corresponding to the exemption of P3,500;

"11. That the plaintiff, objecting and excepting to all rulings of the defendant above mentioned and in assessing plaintiff with P13,771.06, claimed from the defendant the refund of P9,008.14 or in the alternative case P475, which of plaintiff was overruled by the defendant;"

The questions raised by appellant in his four (4) assignments of error may be reduced into the following: (1) Whether the losses sustained by the plaintiff from the buying and selling of mining securities during the year 1939 are losses incurred in trade and business, deductible under section 30 (d) (1) (A) of Commonwealth Act No. 466 from his gains his embroidery business and other income; or whether they are capital losses from sales of capital assets which shall be allowed only to the extent of the gains from such sales under section 34 of the same Commonwealth Act No. 466. And (2) whether under the present law, the personal and additional exemptions granted by section 23 of the same Act, should be considered as a credit or be deducted from the net income, or whether it is tax on such exemptions that should be deducted from the tax on the total net income.

1. As to the first question, it is agreed in the above-quoted stipulation of facts that the plaintiff was not a dealer in securities or share of Stock as defined in section 84 (t) of Commonwealth Act No. 466. The question for determination is whether appellant, though not a dealer in mining securities, may be considered as engaged in the business of buying and selling them under section 30 (d), (1) (A) of said Act No. 466.

It is evident that, taking into consideration the nature of mining securities, which may be bought or sold either as a business or for speculation purposes only, the national Assembly of the Philippines has deemed it necessary to define or determine beforehand in section 84 (t) of Commonwealth Act No. 466 who may be considered as persons engaged in the trade or business of buying and selling securities within the meaning of the phrase "incurred in trade or business’ used in section 30 (d) (1) (A) of the same Act, in order to avoid any question or doubt as to deductibility of all losses incurred by a merchant in securities from his net income from whatever. The definition of dealer or merchant in securities given in said section 84 (t) includes persons, natural or juridical, who are engaged in the purchase and sale of securities whether for their own account or for others, provided they have a place of business and are regularly engaged therein. There was formerly some doubt or question as to whether a person engaged in buying and selling securities for his own account might be considered as engaged that the trade or business, and several cases involving such question had been submitted to the United States Federal Courts for ruling, and to the Income Tax Units of the United States Bureau of Internal Revenue for opinion. But with the inclusive definition of the term "dealer" or merchant of securities given in section 84 (t) of Act No. 466, such doubt can no longer arise.

Said section 84 (t) reads as follows:jgc:chanrobles.com.ph

"(t) The terms ’dealer securities’ means a merchant of stocks or securities, whether an individual, partnership, or corporation, with an established place of business, regularly engaged in the purchase of securities and their resale of customer; that is, one who as a merchant buys securities and sells them to customers with a view to the gains and profits that may be derived therefrom."cralaw virtua1aw library

Appellant assumes, however, that the above-quoted definition does not cover or include all persons engaged in the trade or business of buying and selling securities within the meaning of said section 30 (d) (1) (A). He contends that, although he is not a dealer in mining securities, he may be considered as having been engaged in the trade or business of buying and selling securities. And in support of his contention appellant quotes Opinion No. 1818 of the Income Tax Unit of the United States Bureau o