LIMPAN INVESTMENT V.

CIR
July 26, 1966 | JBL, J. | When is income taxable
PETITIONER: Limpan Investment Corp
RESPONDENT: CIR et al
SUMMARY: Limpan is in the business of leasing real property. The BIR discovered that Limpan underdeclared its income tax
from some of its rental income. One of its contentions is that a tenant deposited his rental payment in court; that such rental
payment was only withdrawn by Limpan in the following year; and therefore, it is correct in not declaring the rental payment in the
year it was alleged to have underdeclared its income. The deposit in court of the tenant of his rental was resorted to due to the
refusal of Limpan to accept the payment. Limpan is deemed to have constructively received such rental in the year it was deposited.
Thus, it should have declared it as part of its income.
DOCTRINE: Where a tenant deposited in court his rental payment in court due to the refusal of lessor to accept the payment,
through no fault
of the tenant, the lessor is deemed to have constructively received payment. Thus, the fact that the rental was withdrawn at a later
time is not a justification for its non-declaration as income tax.

FACTS:

rental income.

Isabelo and Purificacion Lim. The president was Isabelo Lim.

Limpan acquired its real properties from Isabelo and his mother.

Limpan also alleged that the rates of depreciation of its

buildings applied by CIR are unfair and inaccurate.

Limpan filed its 1956 and 1957 ITR, reporting net incomes of
P3,287.81 and P11,098.36. It paid taxes in the sums of P657
and P2,220.

The sole witness for Limpan was its Sec-Treasurer Solis, who
admitted that it had omitted to report P12,100 as rental income
in its 1956 tax return and also P29,350.00 as rental income in
its 1957 tax return.

- With respect to the difference between this omitted income

(P12,100)
the sumthat
(P20,199)
The BIR examiners conducted an investigation of Limpan's 1956 and 1957
ITR. It and
discovered
Limpanfound
had by CIR as undeclared
in
1956,
Limpan
said
it
did
not
collect
the same because, in
underdeclared its rental incomes by P20,199 and P81,690. It had also claimed excessive depreciation of its
of the refusal
some tenants
to recognize Limpan as the
buildings in the sums of P4,260 and P16,336. The Commissioner issued view
its assessment
and of
demand
for payment
newdenied.
owner, the former owners (Isabelo and mother), and
of deficiency income tax and surcharge against Limpan. Limpans MR wad
Isabelo (as president of Limpan), had verbally agreed in 1956
to turn over to Limpan 6% of the value of all its properties
(P21,630), in exchange for whatever rentals the Lims may
Limpan filed its petition for review before the Tax Appeals
collect.
Court, denying
- having collected P20,199 as unreported rental income,
because 'the previous owners (Isabelo and mother) of the
leased building have to collect part of the total rentals in 1956
to apply to their payment of rental in the land..."
- having collected P81,690 as unreported rental income for
1957. Part of it (P31,380) was not declared because Isabelo,
who collected P13,500, did not turn the same over to Limpan
in 1957 but did so only in 1959;
- that a tenant deposited in court his rentals, over which
Limpan had no actual or constructive control; and
- that a sub-tenant paid P4,200 which ought not be declared as

As to the difference between the P29,350 and the unreported

rental income (P81,690) in 1957, Solis said Limpan did not
receive or collect the same but that Isabelo, collected part
thereof and may have reported it in his personal ITR.

With regard to the depreciation which CIR disallowed, Solis

said that some of its buildings are old and out of style; hence,
they are entitled to higher rates of depreciation.

Testifying for the CIR, a BIR examiner who personally

conducted the investigation of the ITRs said that the tenants

had been regularly paying to the collectors of either Limpan or
Isabelo, but these payments were not declared in the ITRs; and
that in applying rates of depreciation to petitioner's buildings,
he adopted Bulletin "F" of the U.S. Federal Internal Revenue
Service.

or unbiased evidence.

As to the second issue, Limpan's denial and explanation of the

non-receipt of the remaining unreported income is not
substantiated by satisfactory corroboration. Isabelo was not
presented as witness to confirm this, nor was his 1957
personal ITR submitted.

The Tax Court upheld CIR's assessment.

ISSUE/S:
W/N Limpan had an unreported rental income of P20,199 in
1956 YES

W/N Limpan had an unreported rental income of P81,690 in

1957 YES

W/N the depreciation claimed by Limpan for 1956 & 1957

was excessive -- YES
RATIO:
Since Limpan admitted that it had undeclared rental income,
contrary to its original claim, it was incumbent upon it to
establish the remainder of its pretensions by clear and
convincing evidence, that in the case is lacking.

With respect to the balance, the excuse that Isabelo and

mother retained ownership of the lands and only later
transferred ownership of the buildings to Limpan, so as to
justify the alleged verbal agreement, is not only unusual but
uncorroborated by the alleged transferors, or by any document

The deposit in court was resorted to due to Limpans refusal to

accept the same, and was not the fault of its tenants; hence,
Limpan is deemed to have constructively received such rentals
in 1957. That it was withdrawn only in 1958 is no sufficient
justification for its non-declaration in 1957.

The payment by the sub-tenant should have been reported as

rental income, since it is income just the same regardless of its
source.

On the third assigned error, this Court has already held that
"depreciation is a question of fact and is not measured by
theoretical yardstick, but should be determined by a
consideration of actual facts", and the findings of the Tax
Court in this respect should not be disturbed when not shown
to be arbitrary or in abuse of discretion.
The Tax Court applied rates of depreciation in accordance
with Bulletin "F" of the U.S. Federal Internal Revenue
Service, which this Court pronounced as having strong
persuasive effect in this jurisdiction, for having been the result
of scientific studies and observation for a long period in the
United States, after whose Income Tax Law ours is patterned