CTA Case No. 3865

REFUBLIC OF THE FPHILIFPINES

COURT OF TAX AFPEALS

QUEZON CITY

ANTONIO TUASON, INC., Patitioner, C.T.A. CASE NO. 3865

THE COMMISSIONER OF INTERNAL

REVENUE , Respondents li4/§ { DE fxr Ss rt QO FH Winder dake of February 27, 1881, respondent Comm. Loney of Internal Fe Vee Assessed.

petitioner Aantanio Tuasan, Ine. 4 Fina , iunceme tas fr LG7O, 1276 anc ee er ee OF APIS

(a) Thea (fy) Sy corporate tax for arf AGP eee, 161.49 We) ade SUrbax on unremasanahle accumulation of surplus for thes years T97R-1LG78 waneen L,401,146.99 Petitioner did mot Obj act to the first and second items and, therefore, paid the amounts --- DE:C IS I 01\l CTA CASE NO . 3865_ ~ cl em and E·:d • peti t.i.o nl~r· pn::J tr2s ted the item o n the ground that the accumulation of sur plus profits during thR yea rs in question was so l e ly for the purpos e of expanding 1ts business operations as The r·eq u f..~st reinvestigation was granted on ·condi tion that a ~,r ,~.i.VE·? t·- of tl·tl2 ~.;t;,:~tut<=~ of limit,::~t.i.on s hot,t ld bl? filed by pl?ti t.ionE~r- .

In p~?ti tioner·· aclvis<=!d ,, .. es ponclt.:!n t th<" t:.

therl;? w,:,\s no need o·f a ~<Jai ver of t l· '~'~ sta tu tr-:' of 1 imi t<'J.. tion bec<:~u se the r· ig ht of the Government to assess said tax does not prescribe. It apr ~~ rs that no inves tigation was cond ucted nor- ""' d t.~c i ~:; :ion r-E,. nc:l f?. r··ed on p£-? tit ion e r· ' s p r·o te~; t.

l"lr:~a n ti mc0, r .. e~:; f.Jnn ciE~n t:.

i s~:; ur-::>c:l Wi·J r· r-an t.s of d i ~; t I~ a in t and l evy to enforce collection of the total a mount Ol' .. ig ina l. l y r.:~~:;sessecl inc 1 ucl ing the a mounts a 1 ready p<~ .i . d.

Henc 2 , t he present petition for review with a request that pending dete rmination of the case on an bee?

i ssu e d to restrain ,r .. E's ponden t and/or hi s r-epr e~;en ta ti ves from the wat--rants o·f distraint and levy.

Si nce the right asserted by respondent in behalf of the c ollection of the taxes involved here in by the

DECTIS TON

CTA CASE NO, 2869 “- aummary methods of digstraint and levy was not.

clear, and it was shown that portions of the tax liabilities involved in the assessment had already been paid, a writ of injumetion was issued by this Court dated November 26, 1984 ordering respondent to refrain fram enforcing said warrants of digtraint and levy without requiring petitioner to file a band.

Section 25(a) af the applicable National Internal Revenue Code imposes an additional tax upon A corporation formed or availed of for the purpose oof preventing the imposition af the tax Woearm othe ahareholders or the shareholders of any gather cearporation through the mecdium of permikting L6£3 qaing and profits to accumulate inatead oaf being cdavided or distributed, Under Section 25 (b) thereaf, the fact that the corporation is a mere holding campany ar oan investment campany where at any time during the taxable year more than fifty on NO*Z) per centum in value of its outstanding stock is Owned, directly or indirectly, by one person shall be prima Yacite evidence of a purpose to avoid the tax upon its sharehalders or members. And Section 2OCe) provides that the fact that earnings x y eC’ it or * oe

DEC I HIDN

····· CTA CASE NO. 3865 or profits of a corporation are permitted to , accumulate be yond the ress onable needs of the

<:'\VOid

t.he on s ha reholders unless the corporation s hall prove to the c ontrary by a clear preponderan ce of the evidence. F'Pt..it.i u .

ll:~ r is a domc~stic cor·por··;at.ion or·gani;;:ed a nd existing under the laws of the Philippines with principa l office at 401 (formerly 504)

A

8t.

T

Bui 1 d ii"HJ ~ E:~; c:o l ta ~ 1'1ani.la.

It

is en~Jaged in bu s in ~~ s ~;;

a ~:, r· E~ al estate de<3lc;?r" and it~; income is I'"E'''" J.

pr·ope r·· t y.

During

the years under review ( 1975·-·.1.97!:3), .it paid the annual estate dea l e r 's fi xed tax.

(f.::.:-: h. l ~

p. 180 ~ B I R I'"E;>cor·ds;

See al s o pp . 54, 78, 98 and 126, BIR records.) For ca lendar , years 1975, 1976 and 1978, pc? ti tion e r· f i 1 E~c:t its annual income <:1nd afte1·· invr-.?st.iga tions income? ' t;a:·:

of P37, 49.1. 83;

deficiency corporate quarterly in c ome tax for the first quarter of 1975 of P161.49; and 25% surtax for alleged unreasonable accumulation of surplus of P1,151,148.96.

As

I

STON _ 4

CASE NO. Zags wey

TA

stated earlier, petitioner paid the F37,491.05 PLl6G1.49 but protested the Fi,151,146.98, issuance arid Wath the by respanrderrt af the warrants ar distraint and levy to enforce collection of the assessment, petitioner

Antonio

Tuasan, ne... brought this appeal ‘on the question of whether or net petitioner is liable for the 25% surptax oor undue accumulathon of surplus year ss 19745, 1977 and 1978 PL. SL, 146.96, 1975, for the in othe sum ’ af Since the provisions of Section 25

National Internal

2S af the Code which were under review

Reverie

during the Bats from Se mn ec tian effect

LOS of the

cry Los a were bodily

Lifted

4.5, UTnternal Revenue thie reguiatians

Code

We deed ing issued in cannecktian therewith, at he praper to refer to applicable by the American woule

CARES

r decided Cour tess for

Faderal

guidance and enlightenment. (Manila Wine Merchants, Ine. va. Commissioner of Internal Revenue, leRO&l4a, Feb. DI, 1984, SCRA 463.)

A prerecquwisite to the has bean that the

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imposition of the tax corporation be of far the formed of Purpoese avoiding ar availed stir kas the income tax (or x) on its shareholders, or an the shareholders

Ver

4 ( " 4

DEC TS TOM

CTA CASE NO, of any otbror arakian Oy permitting the earnings aryel prari! nf thes he amcumitate repent imetead of davadding Lhem among ar tributing them Lo the sharehoalde Cf tive failure to pay clivaidences os cue ha same other catse, such as the af othe umedastreitushe Googarnings anc prafits for

Spe

5 SSL hy POCUP paca ss €& nok Fahd within hie inkberdiction of the statuhe, (Mertens, Law of Federal Incame Taxation, Vol, %, Chapher 29, po. 443. © :) jel, Rev, Nev. 24a Manila Wine Merchants, Tne. VS.

Coammissianer af Internal Kevenue, supra Viveaesamisichy cass pur pase Loavolyve a state of mind or antent, dt as always me spary to daak at the CULE OMADLCT ELT CLES LATIC € and the at dank facts an individual ermine th tther obhe to purpose of the faddure to make ciskheibukion wee permit the shareholders to avoid the income tax nl

Seat

a for gone oobher purpage, such as the use of the earnings and profits for the reasonable needs of busine » In this regard, although the imary of the taxpayer, officers and stockholders is8 entitled to some weight, generally the desue a8 to be resolved in the light of the

DECTIS TON

CTA CASE NE, surraunding circumstances, including the interests of those ino control and their actual canduct. (Mertens, Law af Federal Income Vaxatioan, Vol. 7, Chapter 39, pa 45.) The applicable principles of law are clear and in the end the decision in this ase must rest upon its own peculiar facts and Carcums tances ey RY Sectian 25Cb) of the Tax Code at the time the eurtax involved herein was assessed provided that a corporation which WAS A mere holding ar investment campany wag cansidered prima facre evidence af a purpose ka avoid the tax upon its shareholders or MEMLEers . This presumption, as expressly provided py the law, is only prima Yacre, Thus, while spandeant’s determination is presumptively correct are Upon pehitianer the burden of offering ev ichence an oOppasition there ta, the Court recagnizes that once such evidence is presented the presumnpt ian af carrectness disappears and the questian then ais whether under all the evidence petitioner has sustained the burden placed upon Lt - by the applicable law, Obviously, our decision should therefore turn upan whether the finding of ’ Loner of Internal Reventie that tne Comma Per

Lhd

Spehildener ometwwubabed earnings and prafits beyond by bhie omeichenem, and Af ac. wheeddoirss Live otoeeben gibobe fy fhe app:

places upon Qc ho oyercome tho ef fir tLherecat.

dsc up by respondent as permite capping he accumulate beyarnd the reasonable needs e {the .

mrigaacpech im tau trove timon dh cumpagy, deriva ilmeome mesh Lodi ee Fora lay parader bh reverie Pedy ar Ehab although opmatitdamer sole 4, yok on Lovie! ony De oir at BTM records).

submi tte to the Bure by patibidoner’s Corporate Secretary 3 Junge 427, 1980 (page 34, BIR records), Antonia Tuason, Ine., i8 virtually owned and controlled by ats Fresident, Antonia Tuasoan, who, outb of the 25,306 shares of So .eSA at the total shares outstanding.

Code af 1977 that the lng cae inve ae evidence of tian af progr : MCh) af eekhes EAS armanicted . pore a cf én hod LS a prima Fe purpose ha aveaid impe 3 aneceame | wpa kbs areholders oan ude te dbuted surplus whe ato oanytime curing the taxable year mo than fifhy pero ocemkum oan walue af o1! outstanding 3 awoed directly oar andireetly by

1. In the inatant case Antonia president oof herein petitioner hoo Accardingly, ito can he conclusively meres cm ihe LUT Lue aca tuntilakian caf plus for bhe yee L975, LPFG, LSP 7 and Lveser aan ame owas intended to rye my nec af the pragr vet xy an the hands of ts shareho tee Tha the r aighian of Cranage d. ce 3. Mu. Ile:

"Comm dese p of 1 Ayer daa Seed ties COM Ben prnomehegeak i mds oh fa 2b was feld thats mehooom Me “Thee under dying purpe hes addabhional bax aim cu B corpora kian ’ aeumerd at Phen oon Improper ly ac} oprafits or stueplus Fork, ain the at Sian 20° af the Tax Caocle avodie the situation where carporation unduly etains its ALLIT pL Lass earnings instead cf declaring and paying dividends to ites shareholders or members who would then have to pay the income Lal chutes an such cdavidands sived by them. The recor amply show that respondent corporakion ig oaiomere holding oo LDP APY cre ade ahrace hia lcleycs ibe omoabher company, aN Sheree src pare Bryer fips hha ad he bencging tea thes nips hay thar drivehiwaiels sooo hea pes some Tanmily and fhe bootie oo pyrcima “idence arc presuimpel Lor bie Teas Cade with hawds el fy thie reteeck The rt fering there fore de. whe thar rrpiomrie Tus some. the brurecden the os bactaades upan ot to overcame the POP CEGL OT EL Oa that at Vie aval doen of fige thie probit teicher pir pasar.

perature Lio ar ouer fy - * tdae Faadding of rernpoandenh that "the mere a boldadnag oro doseshmenkh company is a Prormes Pace ooeyaehenice oof ibe opurpagse to avaid Amps a han ad fab CHP eS Lee anes Lax UO ike sabvypiasbie d cles on tbe urreba cedbubed surplus where at chairadiigp the hanable y fe romore than filthy per fp owadune cf eo i amarante owned bly by one pers or AiAndirec alan In the cage, Antonia Tuagsan, president of herein petitioner awied 99.99% of its shares of stocks.

\s Tn the ime >, we think that petitioner oe hank oc Antonio Tuasan, Inec., has adequately sustained the burden placed upon at by the daw that it was not ' Ce?

at for the purpose ct preventing the pee winp kao fry od preponderance of evidence that LS ee ee ke oe Oe As amply pported by the record and the ented, gamehime im Lo?s, the Board of husiness operation as ite income from sales af lots Ds Lie won do mo longer provide rcnaugh means toa 3g Thera Fear es der iclec hes mors brie 1 Low-cods!

hou dog Leclerc:

the minutes af the meeting A wf ay Lhe Board of Directors on November 256, 1974, the perhinent porkion of whieh reac fol lowes Fi CiSCuUssian enstiecl ELES ko what some t meus - maces with paid in othe canstruction of low-cost housing and te canestruct apartments for lease. After haking nate of the pros and cons of the suggestion, it was resolved, LUpory ata of Me. Araneta, duly seconded, eo ey ae Pres rons hoapech ote omeie a osdateby oof Phir hye OLE Bey more wet th the eseaopbiis ard booger ahora ib tyestcors Pa fle. Mp hopes Tipaseny and Plies, Litey ree, riespeckively, tf pee hor Paewiess Poe paca cbeany wre “surthror a eect 8) Lhe opersperatdearn oof bhe percessaurey plans for sare eapreseioamecnad dy sie Pre ter geemecommeneh Ria Rhee Broad thine ho appre dates oY fees ape bing oof bbe Boarel of

Nao

checacded to aoe himenr i proecses eo look Ne. 22, Blork &, covered by TL0.7T. No. 447236 af the Register of Deeds of Quezon ity. The plan for the construction af the Apartment buileing as prepared by Architect Ramon submitted ta and appraved by the Board.

me time, the plan for the cangetreuction af oy Nay, ( 4 cattbom a th ao odusilelanme ow to and approved hy the ve Hanietey of Human Gebhiament and the Office af tha

City Engine

af Quewzan City. (Seo minttes of the meeking of the Board of Directors, August RGB, 1978 and November 20, 1976, Exhs. Ao amd @Aed, pp. S1a- Tn LOPS y after aceumulathing a surplus of prageam, the coansaheructioan of an apartmant building VOTE. 74, ‘foe C, pe 66-4, On ra) recores. J Tn addakion ho the apartment Poa aang « peta kleaner AC OUGL mec a LOOM Lim Aparkimenhk in Peed at a cast of *. 87 which anbeme|decd frre Iexbos, DO and praper th ie petitioner fh been derivaig substantial ancame as evidenced by the accumulated surplus for the years which has bean treated by respondent as having been Nacecumilated beyond the reasonable needs" of the af petitioner, Accordingly, resgpandeant KIO.

so ugh bh bo jmpoee upon petibkioner the penalty hax af myo dbs: albdegecd uinresa eumibatian oof mabe oa pulp Sabapyk hea Wun) OF kha Ler 7 Code.

aos can Gleardy pd platnly be observed, Re eats: sto pilus acemmulated during bLhe years in ’

Pieeesapvess

MAUL bese which are rigid Cpe pondenrt, amply

SSE LPL ¥|

_ a oo a

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pebitioner finbornia pot oavaddert of for the pur pos of fully eengoosson cP a pure pose hy a clear preponderance suphay for alleged unreasonable ackumulation of surplus for the years

C as }

DECISTON

WHEREFORE, the decision appealed fram should be, as it is hereby, reversed. No costs, S50 ORDERED, Que san City, Metro Manila. Sctober 14, 1988.

CD sernited

AMANTE FYLLER

Presidany

Judge

WE CONCLIR :

ee CONSVANTE £. ROAQUIN

Agsaciate Juddae

Associate Judge

CERTIFICATION

I

hereby certify that this decision was reached after due consultation among the members of the Court of Tax Appeals in accordance with Section 13, irticle VIII of the Constitution,

Quetta J |

AMANTE FILLER

Presiding Judge

Court of Tax Appeals

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