CTA Case No. 301

DECISION

This is an appeal from the decision of respon= dent Collector of Internal Hevenue assessing against and demanding from petitioners donor's and donee's gift taxes in the aggregate amount of #1,1359.26, ine cluding surcharges, compromise penalties, and ine terests thereon from May 15, 1951 to November 15, 1954, From the facts established by the parties it appears that on December 26, 1950, petitioners Antonio E. Querol and Numeriana levora, spouses, respectively, sold under separate instruments a lot anc house owned by them to their children, the other petitioners herein, Tha latter include Jesus i, werol anc Eufromina q de Nisce whe are legitimate children, and Placida Z. de Osias who is the adopted child of said spouses. The lot was sold to the three children at a consideration of #4,000.00 (Exh. A, p. 26, CYA rec.) while the house was sold to only the two (2) legitimate children, Jesus and Eufrosina, at a consideration of #8,000,00 (xn, 3, es we ———————eEw~ee

Oe

CC I SSS —OE—E

DECISION «

C.T.A. CASE NO, 301 Pe 27, CTA rec.)

The property 'n question 4s located at the corner of Kayon and Marta Clara Streets, Sta, iiesa Heights, Quezon City. The lot was previously ace quired from the J. M, Tuason & Co,, Inc., on sarch 6, 1943 for a consideretion of 3,725.48 (Exh, 5, pe 64, CTA vrec.). The house 1s residential of two- stories and made of strong materials. It was cone structed early 'n 1945, at a cost of 8,000.00, The house and lot were assessed in 1947 for real estate taxation, respectively at 214,060.00 and #3, 780,00 (Exhs, F and E, pp. 32633, CTA rec.). During the year 1948, the assessed value of the lot was ine creased to #9,060.00 (Exh, 6, p. 64, CTA rec.), At the tine of the sales {n questfom the assessed velue of the house and lot were respectively, 714,060.00 and #9,000.0u (see also Exh. 8 p. 66, CIA rec.), Acting upon the report and recommendation of Examiner Elpidto FP, Aivera (see p. 16, BIR rec.), rese pondent on October 16, 1954, issued individual assess ment notices and demanded from each of petitioners (Exhs. 1% to 20, inclusive, pp. 21-24, BIR rec.) donor's and donee"s gift taxes as follows:

For Donor*s Gift Tax Antonio E, GQuerol cscscoccvcccccessesess P113,50 Numeriana Tavora cecesccsccsscccesesses 447,50 ge bd Ta Jesus T. qerol and Eufrosina Qe Ge NISCe covcccccsecsccccecessees F407.40 Placida Z. de O94185 wsescccsecccccssesess 170,86

S4 19

• 1 - 3- n tober 27, 19~4 , pet t1oners f led a lotter dated tober 2 , 1 54 (Exh. c. p. 28, CT rec.; Exh.

21. p. , 1R rtc.)

e t ng for a r cons dorat on of respondent' ••• ents on t gro nd t the s le tn quest•o •• val~d, an •w•th suff c1en end ully ade ate cons•derat on."

espondent, on J ly 5, 19~ denied th s r qu st nd m nta ned th ettt on r ar su ject to ft taxes nd r s ctton 111 of the Tex Co e on t ground th t ans ct na • estton er ot ade fo~ tull an adtqJ t cons der t on ( xh. 23, p.

rec.}. Hence , th'a appeal !n t tut y t • t oners.

he sal re •nvol d are ad tte ly v l~d. nee. t sole st on ere us ~a et r or ot t • propert•es ~n st~cn re tr n ferre for 1 han an a equate n full cons d ratton. fore proceed"ng to t scusa on of the

G&U

presented by the part i s • shall f~rst d pose of p - tit• ners• Ex- art to Corr ct Tr nscr pt of te ograp c f~ d o ce b r 5• l 57.

The capt o t ot on ve of •ta ur a • owever, after a cons{ erat(on o y oth part •• at the hear n o th otion, f!n t • s e not re y d nv the sa • roc ed•n to he prtnc p 1 est • ote ereun er oct on lll of t

T

applfe$ to t case t r.

nee nt for an t r¢oue on h r ts, 1 - - e t• ners, tn iJne wlth t .e!x content on th t the propert •s re tran$fer ed fo% full and nd quat• cons rat on, pr s nt d d nc te.d11 to tb t the true ark than h arket values aa&i to r;y r ..,en n • o ~ rrobo.r t t test ony of cner Anton o ·• erol, • onsu lo ir in as pr s n ed to eon 1r that r offer d to r for sale.

test!• ~y and h u e th fl.O t otal • 12.

or for s.e an lot. Th!s v G the ount olci to the ch l~en of r t tran ct ·on Ln est ons.

ner 11ton·o .-.

f ed th t • · 1r no • o of tho to hom th ,rop rt es re o£fe.re<l for s 1 , w ot th t she ·a the only tness pr•s•nt d o ueh an ff alleg dly ll a e.

• lso note tb off r 11 r as pe t oner •• • erol not pee fy or an- tion !th de n t•n ss the pr ce t wht~h he • w llin to s•ll.

These facts do not how w 11 ngn s on t1 part of pe it!o e spouses to 6el1 th propert•es at 86 f?

1 - 5 - ket.

A&

• f.tn! • or tpec!f!c , ye in cout• be a ason le bas s for the d ter tnatton of the arket val • o tn properties, reeso able fforts should have een • erted by et t one • o find a r • w 11 ~1ve th hfgbast pr c for &Uch pro• ill 9 ve ay Co.

Aga!n, ... ing t here was a ef ntt o •r to ~•!1 y petitioner A .~.

e·ol to ·- !th a epee e pr ce, eve that the properties or price f at least 23, 120.

, co as the total •• es that • the t , thf.a

There

t.tld be no basta to 5Usta1n the t c.ne.r , • • erol 1 · sell or of er to t e opertl sse sed lue.

1n ad tl o th t it ony f p tltionar A.

f p t tione s) te t f e ttt.t the hou • in quest , a in doprec nted ~tate at the time of h &ale.

lt s thus c!a d hat the saessed value · 14,0 .oo as tb n ~aaaive .

• the atteapt to ~ov• the1r potnt, et!t oners ~esented a copy of a letter date · are 1• 194 ddrested to

I

the City Asses or of

uezon \.#tty purport ng to conte t the quest oned ssess~nt (axh.

• p. 34, •ec •) • ver, there i no ev!d.ance t t th l•tter a& a led .. · 87 ft

DEC TS ION «

C.T.A. CASE NO, 301 oe or thet it was received by the latter, The howse {n question ‘s admtttedly of "strona materfals” (see Exh, 5, p. 27, CTA rec.). We do not believe that the bufldine after four years old could have deprectated in value to such an extent that [ts true value at the time of sale was very much lower than the assessed value thereof as then contended by petitioners, We should also teke note of the fect, which fs of common knowledge, thet assessed values of properties in the Philtppines generally are lower than their merket values, (See Marta 8, Castro v, Collector, CTA No. 141, Resolution of December 29, 1956, 53 0.G, No. 10, May Sl, 1957, pp. 3163, 3211.) Tt may be added that {n 1946 the safd propertfes were e&ployed as seq curity for a loan ebtatned by petitfoners from the Peoples 3ank and Trust Cempany in the amount of ?10,000,00, In keeptng with the generally known banking practfees, the propertfes must have had a value very much more than the loan obtafned and for which the properties serve as security.

Except those discussed previously, petitioners pree sented no other evidence to sustain thefr contention as to the market value of the let tn question. Neftther is thefr evidence as to the market value of lots similarly sftuated such as those adjacent to petitioners’ property, Respondent, on the other hand presented Examiner E. P, Afivera, who conducted the fnvestigation of this case. Examiner Rivera test‘fted on the manner and method used by him fn order to érrive at the iafr market value STS ee ae ee eee ee DECISION e C.T.A. CASE WO, S01

-T7-

of each of the propertics. He explained thet the assessed values of the properties were increased by 100% on the basis of His own opinion and experience. However, he arrived at the awarket valuation in spite of the fact that he had not seen the properties. Netther did he take the alternative of asking the Mantla Office of the Ssureau of Internal Hevenue to conduct an ocular inspection of said properties, Ia fact, he failed to make inquirtes from the City Ase sessor of “wezon City as to the prevailing warket prices of similar properties in the vicinity where the pro- perties in question were located, Thus, it would appear that Exawiner Rivera did not observe any schedule or standard in arriving at the true market value oi the properties.

Respondent, however, presented cecumentary evie dence which purperis to ‘cover a sale of a lot located fm the neighborhood of petitfoner’s properties at a price of #10.00 per square meter {n 1953 (Exh. 4, p. 62, CTA rec.). Nevertheless, besides the fact that this sale took plece more than three years after the sale involved {n this case, there ‘s no showing thet these properties are stuilar in circumstances, The two sales had occurred at a4 long interval thet we are not im @ position to adopt a reasonable comparison. Of Gourse, in fairness to respondent, it may be stated that the sale of pet!tfoners* properties tnvolve a corner lot which generally commands a higher price than a non-

Vd

ee EE

DECIS IGN «

C.T.A. CASE NO, 30] corner let which {s the same as that covered by the 1953 sale. .

Apparently, also te justify his stand, respon- dent presented evidence which tend te establish the ex{stence of busfness and commercial estabi{shaents near petftioners' properties. Except for the public market operated since 1946, situated at the corner of Laong-Laan and Mayon streets and about 260 meters from the properties {n questfon, there 4s no evidence that these establishments were esteblished on or before the date of sale tn 1950, We cannot therefore, consider that these commerc{al establishments dfrectly brought about @ general increase {n the fatr market values of the properties {n the netghborhood of petitioners’ properties.

On the procedure adopted by respondent, we cannot but make the followfng observations. The revenue ex- aminer who investigated thts case fafled to conduct an ecular {nspect{on of the propert{es nor make tnquirtes as to the prevatling market price of properties s{tuated in the nefghborhood at a certain time. Netther did he request that the fnspectton be conducted by some other officer of the Bureau of Internal Revenue where the former could not perform the same, And on top of that, the examiner proceeded to adopt a value which he deno- minated as fair market value fixing the same arbttrar{ly without a reasonable basis such that the same was more or less &@ guess work, : 90 &?

DEClSI

• C. T.A. CPSE • 1 -9- tnee taxpay ~· taken •• a whole contr bute to

I

t coffers of the gover nt , each ont regardless of t extent th r contr·' but on should b t1:eated justly and fairly.

o our tnd. the anner or et hod used n th s cas n err v n _at the rket valuea of tb propart es here involved ts unfa r and prejudicial to t • ·taxp yers.

or to allo an exa ner to ke up s own per onal jud nt w thout constder ng t all th cf u tances surroundtn the prop rty and f x the values thereof on th 1 alono •s utterly unfa r and unjust. The duty to assess the value of pr er y !a undoubt dly en act requ r~ng a cons darable egree of d scr t'on •cb st b f trly •x•rc sed.

( •• antl a 1 y Co. v. V las •z. 32 Phfl. 14.) The deter n t on of values of real pro rtfes ts neceasar ly and adm ttedly ~ quest on of faet. To arri v at eerta n valuat on •• to ep nd upon v r1ous ctors such a t•me, pl ce, c d tfon and people ft T xat on. Vol. II. p.

1217. ctt!ng arch A.

• e o t .Lat d• 26• 28) ~ n the narket \8lue _of a p •c• of property ts att Cned y the cons deratton of 11 thole fact h ch ate uch prop rty valuable ( enila !way Co. v.

has ·f, fl•d to cons der.

j In this ease, ffn that ne•the~ of th partie has sho n y c petent an equ te ev dance th fall' •~ket val • alleged by eac f t e • ecause of such " 9 1 • 1 - 10 - ef cfancy n the ev dence, • re of t e op!nfon that t ass gned arkot values are n t th true and fa r arket values of the proportf s n • t on.

• nee.

the eter nat on of th mar et valu of th proper- tfea st aceord ngly be mad n pursuanc of sectfo 113 f prov des s follo

Un

fo.regofn rul and n vte of th a - sene of ev one to t contr ry, th ss d valu of the l t nd ou • t th of th sal n 19 h ch ts and 1 .ooo.

• r p ct vcly.

t cons der d thefr fa r rket valu • y pply ng sect.fon lll of the at onal Intern 1 av nu Cod c t arl er nd 1 proc ss of subtract on, 11 arrfve t the exc s cf the ar et v lues of th pro- pert •• n quest on ov r and bov th l!fn pr e t whteh t ey had en tr sf rred y p t t•on r spo to thetr ch 1 f gures ore deta•led as follo sa ar et v lue •••••••• ell n pr ce •••• ••• 0 !ferer c •••••• •••• !:.2,l 1 o e 5 • d 'e note a substant al dfsparfty value of the propert •• n est on a t arket 11 n •• 92 ee EE lll

DECTSION «

C.T,A, CASE NO, 301 elle prices thereof, These differences provide strong proof that donative {ntent was present tn the transfers of the property (Peul, supra, p. 1112) es contemplated by section lil of the Tax Code, It would therefore follow that the excess of the market values of the proe- perttes ftnvolved here over thefr selling prices must be a gfft.

The fntention of sectfon 111 of the Tax Code ts to envelop all transactfons where the guid pro quo is unbelanced, and therefore includes all sales and exchanges which matertaltzes as “bad bargains", The transaction may ordinarily pass as a sale or exchange, but {f there 1s a comparative disparity in considerae tion, the difference is deemed a gift (Paul, Tbid., Pe lll, see also Formtlleza, Comnentaries on the Ine ternal Revenue Code, Vol. II, p, 636).| That a gift was intended comes tnto bold relief considering the fact that, as fn the instant case, the transaction or sale 1s between parents and children with price paid that is far below the market value of the properties involved (Harry F. Hobertson, 5 BTA 748, cited in Mertens, Law of Fed. Income Taxation, Vol. 1, pp. 250-251 and Paul, supee,p.1112). There being & gift, we are of the opfnion and so hold thet the parttes thereto must be lfable for the corresponding donor's and donee's gift taxes, ‘f any. : Incidentally, tt may be mentioned that pet !tfoners raised no issue as to the ‘mposition of the 50% penalty for failure to file a return, As petitioners have itn Lee a ee ee a

DEC TS ION «

CeTeA. CASE NO, D1 “12- fact failed to file a return covertng the transfers in question which are subject to tha g!ft taxes and petitioners having fetled to contest the 'mpostt{ion of the surcharge, we belfeve and so hold that the Sce surcherge may be fmposed fn this case.

[With respect to the compromise penalties betbig demanded for alleged vfoletfon of the Tax Code, sufftce it to state that where the compromise was not accepted by one of the parties, or that no agreement wes reached on the payment of compromise penalty, we could not acquire jurisdictfon thereof to compel petftfoners to pay the same, (Soledad k, Brifias v. Collector, C.T.A. Case No. 16, Sept. 14, 1955; Untversity of sto, Tomas ¥. Collector, C.T.A, Case No, 10, Sept. 10, 1956.) 7 In sum, we are of the opinion and we se hold that the excess of the market values of the properties in question over the sellfag ortces of the propert ‘as constitute taxable gffts and that the respecttve lta- bilitfes of petitioners for donor's and donee's gtft taxes is as follows:

Donors Gift Tex

Lot: Antonio E, Guerol Amount of tamwable gfft .es.e. #5,060,.CO gifts in oxeces of g ie ane Oe fatiure to file returns os. 230 Total donor's gift tax GQU@ ccscecccecococecssecess BF ’ 0.90 —————— 59 DECISION e« CeTeAe CASE NO, Sl -~ 13 <= House: huner tana Levers Amount of taxasle ‘3 a eenens * 6,0G0.w le gift tax due on t gifts fn excess of £5,000, 00 weeeceoneaeoeoeeovevee 10, 60 a ovathsage Ser ailure to e UrNS os 5.30 Total conor's gtit tax due eevenvegcesvese oes een ¥ 15.90

a SSS

Shaie’ of gach ofthe three Deduct: ®5,000 exemption ee. 5. Taxable othe. PTeTTTTITTrTiTy Aone e gtft (see above scheauie) eee f G_pUGL Share of each of the two deducts A lhe *Sroso100 Tawable gittsS wscccscsesccsesse ABDAES

WHEREFORE, the dectston of respondent should be, as it 1@ hereby, modiffed, Petitioners Antonio E. Querol and Wumeriana iavora are hereby ordered to pay te respondent on the day following the finaitty of this decision the amounts of ©C,90 and #15,9, rese pectively, with the corresponding surcharge and ine terest should petitioners default. . Petitioners Jesus [, qwerol, tutresina Q de Nisce and Placica de Osias are heresy ceclared not liable for donee's gift tax and the assesements egafnst them accordingly cancelled, of

DECTS ION -

CoT.A. CASE NO, 301 - 14 - with costs agefnst petftfoners Antento E, Qierol and Numertana Tavore, ¥C ONDERED, mantle, February 2€, i958, Pres tding “Judge

FP

PI

I

1-'ltlLlPI-'lN~ COl.Jhl

APPEALS

li1AN1L&

NTC·NIO

• . ' \JER L, NUMERIANA

TAV

, J ESUS T. QUER L, EUFl ).5INA •

E Nl ""U and

I.ACI.D z. DE ;;)! s.

Petitioners, - v r us -

C LLECt

f I TE

L EVEN

Re pondent.

I dissent.

I can not agree to the opinion that the lot and hou o n ~u t on s1 uat d a the corn r of yon and ~aria lara treets, Sta. ~ sa Heights, u•zon. ity, had a fai~ arket value, for tax purposes, in 195 , equivalent to t as esse value.

S ction 111 of he evenue ~o • rovi s that here p o rty i s tran ferre for leas than an edequ t n full con id rati n 1n money or mon- ey's worth, the amount by which the value of the property exceeds the valu of the conaider•tion shall, for the purpose of the gift taxes, be e aed a gif , an hall be incl e in co uting the a ount of th 9 fts urlng the calendar year. ec- tion 113 provi that f a gi t 1s a e ln p o- perty, th fair .arke v u t e eof at • tim of t h gift al l be c nsidered the amount of t1e gift.

In cas of real roperty. the aas•s d v lue t hereof in th ye .r of t ~• 9 ft s shown in th tax roll• shall be eunsidered as the fair market ,.

9 7 it

DI

TIHG

PIN!\; -

• CASE

• 3 1 value, goleta tht ~ - 2 - a it showo.

In this case, the spouses ntonio • ~uerol and umer1ana Tavora a 1 t ei~ children in Dec- e er, 195 the said house and lot for le s than th 1r asses ed value.

espondent, believing that the f air market value of said prop•rty was twice the assessed value, eon,idered the difference be- tween the fair market value as determined y hia and the assess d value as a ft to t h children (purchasers of the property), and assess d the cor- respondi ng donor's and donee's gift taxes. n the other hand, petitioners ini1 t th th selling price of the property as shown in the deeds of sale re r nts the actual fair market value. oth par- 1 s, therefore, agree th~ t the aasetsed value is not the fair market value.

For convenience, the following is a state nt of the assessed value of the property and the values assigned to it by the parties'

Hou

Lot

rot a • y coll eagues refused to believe petitioners and l a ree with thea.

hey also refused to accept the determination of the fair market value ade by respondent ho considered the assessed value a& only ~ of the fair market value.

The reason given is DinS fl OPlNI~ .

• C.T.A. CA&E

• 3V~

t et - •x x x • The revenue examiner who !nv stigattd this case failed to conouct an ocular 1nsp e ion of he properties nor uke inquiries as to the prevailing mar- ket ric of roperties s1tuat d 1n the neighborhood at a certain ttae. either dtd h~ request that he inspection b con- ducted by so•• other officer of the ur eau of Internal evenue where he former could not perform the same.

on top of tha , the exa .iner roe d d to dopt s val e Which he deno inated as fair .arket value fixing the sa e arbitra ily without a re•sonable basis such that the sa e as ot o% less 9 ess wort.• l agr th t • inv~stigation d •• to t fair arket value of t e p o erty as haphazard, as is usually the ce e.

ut I a sur that if pro er '- investigation h d en ade, it o ld ave produced surpr sin9 results in avor of tho position tak n y the Govern nt.

ut is ia ne t r here nor there.

The question is he ncr the fatr rket value of the t 1ned by pondent.

~ colleagues prop rty 1 a say that the fa1 rt t value s fiKed by eapond- nt arbltr rlly 1i t hcut rea onabl~ is.

l n this I a unable tc concur.

! qu te fro a decision ren- dere b •x x x • review of the ca aa decided by the Supreme Court on the det mination of fair rket val e of lands sat isfi ' us that, co aratively, the assessed value of real est t in the Fnilippine• is around one- half of its actual value.• (~stro v. Col- lector of Internal evenu , C.T. • o. 141, Dee. 29, 19~, citing cases d eided by the uprea Court.)

The fa r rket valu as determined y respond- ent ls exactly 1n acccrdanc with the op ion of thia Court in the ease cited abovP, ieh is t ce the as• •• ed value.

How can 1t b s id, therefore, that 99

DISCDJTlh

Pl NI CN ....

C. T • • CASE NO. 3 1 .. 4 - the fair mark. t v lue was fix by re o nt arbitr r- ily ithout r• son ble be&it? p rson who follows an _opin1on o a cour ean not b sai t hav com- mltted an ~rbltra~y ct .

1 b w en th assertio of petitioners and tb deteratin•t l on • y X' s 0 - ent, hieh ia su~port d by th• findings an ' pinions of the Supre•• Court an reeently e hoed by this Court, there i s very littl choice. I vo • to affirm the deci~ ion appeal d f r om. 100 u ... i\"""l.

ssoclate Judge