Court of Tax Appeals
0Ce Te Ae CASE NO, et al.
REPUBLIC OF THE PHILIPPIN 8
COURT OF TAX APPEALS
QUEZON CITY
Petitioners
versus Ce Te Ae CASE NO, 1275 pe a RW waeeoeeeweawe FX J
DECISGCICNS
This is an appeal from a decision cf the ree spomient dated July 21, 1962, imposing upen the petitioners the sum of #160,00 as reel estate dealer's fixed tax and compromise penalty, and the sum of #3, 561.2% as deficieney income tex, including interest, for the yeer 1957.- This case wos submitted for decision solely on the basis of the stipulation of fects submitted by the parties, whieh we quotes "1, Thet the petitioners are both of oy ey agpeere, and residents of 1 Suter tee Ama, while "3. That in May, 1959, Sevenne Puna- iner Demaso 5, "lores recommended approval of the aforesaid returns, with the sole modification of « deficiency assessment
DOCISION «
CTA CASB NO, 1275 2 f three ates Ten Fesos ar date A ad recommendation is found on eso of on page 19 of the Bil hecsrdsy and is nade an integrs] part hereof “%, That the pes eee submitted to the foregoing, ae shown by the letter, copy of which is "hereto attached and made an integral part hereof as Annex ‘A’;
“S, That on tember 29,
DSCISTOS -
OTA CASE NO, 1275 3 e shown by a copy of the first mentioned title hereto ettached and made an integral pert hereof ag Annex 'l)';
"8, That #0750500, (subsequently OCT No. 1375) are meee oe covered by Tax Declaration Sos. 6 S349 and 5350, as shown a! the petition his — and decisi = AS Ueisetie le Be No, 1336 of figal fies of ensee are ie Aha attached pees fats 1 ee an integral part hereof as Annexes Hh" and ‘h=1', "9, Thet the lets covered by TCT Noe 36334 and 95) =154509 (subsequently OCT No, 1375) were inherited by the peti- tioner Ursula -alasans from her heme as shown by the [stete and inheritance Tax Neturn, copy of which is eo attached and made an integral part here- of ag Annex 'F* ae weil ae pA ved ‘oc’, and Annexes 'Fei', *P-2' @ *P-3*, "40, ‘That the es reserve the savenet by this stipviation.”
The issues raised are
(a) Whether or not petitioners are real estate Gealers liable for real estate desler’s fixed tax; and
(b) Whether or not the profits realized by peti- tioners in the sale of the subdivided lots which petitioner, Ursule Calasans, inherited from her father, should be treated as ordinary gain and there- fore taxable in fuli.
On the first issue, the assesament of #15.00, representing real estate dealer's fixed tax against - the petitioners, is well taken, Tne feets of the ease strongly support this conclusion.
DECISION «
CTA CADR NO. 1275 4 S The “Don Mariano Subdivision,” located in Cainta, Rigel, contains a total ares of 1,678,000 sq. meters (See Annex “F-3," pe 53, CTA records) and consists Of numerous small lots (Annex "Cj".p. 42, CTA record) whieh were subsequently sold to the public. Improve- ments which are indispenssble in a subdivision, such as good roads, conerete gutters, drainaze, lighting system, etc. were introduced to wake the lots sale- able. These improvements necessitated’ the employnent of initial capital, And these numerous lots were sold not in a single isolated transaction, hence the sale could not fall within the doctrine ennncia- ted ty the Supreme Court in the sase of Imperial vs. Sellector of Internal Nevenue, %. fh. Mo. 1-794, September 39, 1955. On the contrary, the disposition involved s series of real estate transections aimed at making profit. in short, petitioner engered in the business of real estate dealer. Accordingly, peti- tioners were engaged in business as real estate deal- ere under Section 182(s) of the Tax Code. | The next isaue is whether or not the profits realised by the petitioners in the sale of the sub- divided lcts ere ordinary gains texable in full, or long term capital eaine texnble to the extent of only 50% thereof, Petitioners contend that inasmuch os the property was acquired by petitioner, “rsula Celesangz, by in- heritance from her father, the subdivision lots are 444
DECISION «
CTA CASE BO, 1275 5 cepitel assets and the profits realised from the sales thereof sre cepital gains.
| On the other hand, respondent claims that the mere fact that the property in question was gequired by inheritance and subsequently disposed, does not prevent it from being converted from an investment property to business property if, as in the present case, the mmber, continuity and the frequency of the seles of the subdivided lots were such as to constitute engaging in real estate business. Con= sequently, it is suggested that the gains reslised from the sale are ordinary anf tezable in full. Respondent's view is well taken. The subdivision of the property into mmerous smaller lots and the sale of these lots had the effect of converting the seme into property used in business (Tuazen vs. lingat, CTA Ho, 1398, January 16, 1965). It may be true, as petitioners claim, that their intention was to effect liquidation of the property, ‘Sut te achieve that purpose, they ectunlly engaged in real estate tmsiness in order te realise more profits. Accordingly, the profits realized from the sales of said lcts are With respect te the imposition of compromise penalty emounting te #20,.00, it is now well~settied in this jurisdiction that & compromise penalty cannot be collected in the absence of a valid and binding » 445
DECISION «
CTA CASK 90, 1275 compromise agreement. Henese, thet portion of the deficiency assessaent regarding the compromise penalty in the sum of °20,00 must be reversed. | IN VIEW OF ALi. THE PORSGOINO CONSIDERATIONS, the decision appealed from is hereby modified and petitioner is ordered to pay respondent Commissioner the amounts of ?3,561.24, as deficiency income tax and interest for 1957, and #150,00 as reel estate Gealer's fixed tax. If the deficiency income tax is mot peid in full within thirty (30) days from the date this decision becomes final and exeeutory, peti- tioner shall pay a surcharge of 5% of the unpeid amount and 1% monthly interest from the date this Gecision becomes final and executory until paid, seb ject to the limitation provided in Section 51le) of the Revenue Code, GO GRDBAED, Quezon City, June 7, 1966.
Presiding Judge
WE CONCURs
NISIAO R. ARKZ