Court of Tax Appeals
0o RSPUBLEG GF GHB PHLid ie iRas COURT OF TAX APPRALS M6LOK CILY 7 ANTONIO TUASUN, et al. vs. \" CASK NO, 1398 JOSE B. LINCAD Commi ssioner of-L hvcreres This case involves a Geliciency income tar Feverme, assessment for the year 1957 acsinst the petitioner in the sum of #315995e36. Petitioner inherited in 7948 from ite acther, Dota Angela 5. Tuason, twenty-eight snail lots, which were leased to savers tenants under contraete of lease, and one big lot of 47,000 square meters. Atty. J, Antonia Araneta, who vav petitioner's; attorney-la-frct, svbacgrentiy solic the small icts to the tenants arid ennsed the big lot to be aubéivided in order to fecilitsts the osle thereef, The profits rralised frem the sales of the lots were treeted as cupital geins and TAXed only to the extent of 50% in eccordence with the destcien of the Collector of Ifternal Sevenus on “ay 17, 1957. Upon investigation, however, the Bureau of 26, 1963, assessed of §31,095636, as defi- ‘est for the year 1957. Internal Revenve, on J against petitioner the ciency income TAX and inte ww ae on
o RSPUBLEG GF GHB PHLid ie iRas
COURT OF TAX APPRALS
M6LOK CILY
7 ANTONIO TUASUN, dite, ai vets tioner *.
versus \" CASK NO, 1398 JOSE B. LINCAD Commi ssioner of-L hvcreres This case involves a Geliciency income tar Feverme, assessment for the year 1957 acsinst the petitioner in the sum of #315995e36.
Petitioner inherited in 7948 from ite acther, Dota Angela 5. Tuason, twenty-eight (28) snail lots, which were leased to savers] tenants under contraete of lease, and one (1) big lot of 47,000 square meters. Atty. J, Antonia Araneta, who vav petitioner's ; attorney-la-frct, svbacgrentiy solic the small icts to the tenants arid ennsed the big lot to be aubéivided in order to fecilitsts the osle thereef, The profits rralised frem the sales of the lots were treeted as cupital geins and taxed only to the extent of 50% in eccordence with the destcien of the Collector of Ifternal Sevenus on “ay 17, 1957.
Upon investigation, however, the Bureau of 26, 1963, assessed of §31,095636, as defi- ‘est for the year 1957.
Internal Revenve, on J against petitioner the ciency income tax and inte ww ae on
DECISION «
CASE HO, 1398 The deficiency assessment is based on the theory that _ the lots in question were ordinary assets, and, there- fore geins realised from their sale were taxable in full.
On Pebruary 20, 1963, petitioner, through coun- sel, requested a reconsiderstion of said deficiency eesesanent on the ground that the lots in question were capital assets and therefore the gains realized from their disposition were taxable only to the extent of 50%. This request was denied by respondent on February 26, 1963. On June +, 1963, the instant peti- tion for review was filed.
The only issue to be determined is whether the properties in question were capital or ordinary assets in the hands of petitioner. If they were capital assets as contended by petitioner, the gains realized from the sales thereof are taxable only to the extent of 50%.
Geetion 3+ of the Revenue Code defines “eapital assets" thus: | ;
Bec. .
(a) ‘this
(1) Sandia} sasets.—The tern “. -¥- (ghether of on = ak tae tecde os Glee but does not Anclude, stock in trade of the or other of a kind whieh would proper ineluded in the the if on hand at
DECISICK -
CASE WO, 139% 3 perty held », iw laxpeyver imaritiy for sale to customers in my ardinary course of als trade or Pusiness, or property, used in the trade or busi- Ness, of a character wWiieh is subject to the allowance for depreciation provided in subseetion (fT) of scetien tuirtys, or Feal preperty used in the trade or busi- neas of the (uxweyer.
Section 3+ or the \everme Code defines capttal assets as including all property held by the tox- payer, but spec'ficully excludes, among «ther items, "property held by the texpayer crimerily for sele to customers in ine criirsry course of bir trede or business” an? “real preperty veed in the trade or vusinecs of the taxpayer."
/ha elready atated, the preperties In question eonsiated of twenty-eight small lots and one bir let eontaining about 47,000 square metars. “At the hime the properties were inherited by petitioner from his mother, the twenty-eigit sasll lots were held by tenants under isase. There can be ao question that these lots were oropearties used in business an¢ the gain derived frow the sale thereof is ordinary gain. GCollector v. sauticta, U. %. Bos. [~1225C © 1~17259, May 27 19593 (emi rez Ve Comes Ve tT. A. ¥ e 5%, Get. 11, 1961.) The nature of these properties as ordinary sssets was cot chernged wpon the desth of petitioner's wother and the eequisition thereof by petitioner threugh inhertteance since the latter
Al
continued to have the seid lots leased to the tenents.
\ DECISION .
CASE HO. 4398 ms With respect to the big let which was subdivided into smaller lots, its subdivision and sale had the effect of converting the same into property used in business.
with it. The price desired might not secured in that 9 itis true, but that accentua obtainable the as ~te ov or at least wi t going into the / If petitioner wanted to have his gain from the sale of said property treated as a ecapitel cein, he should heve sold the same as it was when he received it by inheritance without subdividing it or making improvements thereon. Since he chose to subdivide — and improve the same and to sell the lots to the “public, he is deenied to have engaged in the busi- ness of selling real estete. (Alexander Weil, 3 TOM 528; J, 0, Chapman, 3 TOM 604.) The mere fact thet a pareel of lend was inherited and later dis- posed of for liquidation purposes does not prevent its being converted from en investment property into business property if the number, contimmity and frequency of the sales of the subdivided lots are — Ke such as to constitute a business. | 1 eWe therefore conclude that Ehrman v. Cotie, ". « sthat the fact that property scafetuentraly ‘Ree inportent"anpey > ° ry pater Stes. te os ¢ rege Fick, 9 TC pe 756 219477) tance uw Pai gee ae It is clear that the properties in question were ordinary assets and the gains realized from the sales thereof were ordinary gains, taxable in full.
a to the ruling of May 17,. 1957 of the then Colleetor of Internal Revenue, who held that the properties of petitioner were capital assets and the profits derived therefrom were eapitel geins, it is @ settled rule in this jurisdiction thet the administrative rulings of previous Com missioners of Internal Revenue are not conclusive — and binding upen their suecessors, An incumbent 31 Commissioner of Internal Revenue may revoke, reverse or abrogate the acts or rulings of his predecessors- _in-office if he becomes convinced thet a statute warrants a different construction (lmilio Hilado vs. Coll, of Ints Reve Ge Rs Noo I-Gh08, Octs 31, 19565 Coll. vs. Manila Lodge No. 761 ef the Benevolent & _ Protective Order of Elks & CG. T. As, Gs Re Noe Le 111765 June 29, 1959). | WINREPORE, the decision appealed from is hereby affirmed. Petitioner Antonio Tuason, Jr. ie ordered to pay the sum of ®31,095.36, plus 5% surcharge and 1% monthly interest, in pursuant to Sec. 51(e), of the Revemme Code. With costs against petitioner, SO ORDERTD. a : ;
ROMAN M, UMALI