Gutierrez v CTA

1. Maria Morales, married to Gutierrez, was the owner of an agricultural land. The
U.S. Gov(pursuant to Military Bases Agreement) wanted to expropriate the land of
Morales to expand the Clark Field Air Base.

2. The Republic deposited Php 152k to be able to take immediate possession. The
spouses wanted consequential damages but instead settled with a compromise
agreement. Parties agreed to keep the value of Php 2,500 per hectare, except to some
particular lot which would be at Php 3,000 per hectare.

3. In an assessment notice, CIR demanded payment of Php 8k for deficiency of

income tax for the year 1950.

4. Spouses contend that the expropriation was not taxable because it is not "income
derived from sale, dealing or disposition of property" as defined in Sec. 29 of the Tax
Code. The spouses further contend that they did not realize any profit in the said
transaction. CIR did not agree.

5. The spouses appealed to the CTA. The Solicitor General, filed an answer that the
profit realized by petitioners from the sale of the land in was subject to income tax,
that the full compensation received by petitioners should be included in the income
received in 1950, same having been paid in 1950 by the Government. CTA favored
SolGen but disregarded the penalty charged.

ISSUES:

1. Whether for income tax purposes, expropriation should be deemed as income from
sale and any profit derived therefrom is subject to income taxes capital gain?

2. Whether there was profit or gain to be taxed?

HELD: Yes to both. CTA decision affirmed. It is subject to income tax. The property was
acquired by the Government through condemnation proceedings and appellants' stand
is that same cannot be considered as sale as said acquisition was by force, there being
practically no meeting of the minds between the parties. U.S jurisprudence has held that
the transfer of property through condemnation proceedings is a sale or exchange
within the meaning of section 117 (a) of the 1936 Revenue Act and profit from the
transaction constitutes capital gain" "The taking of property by condemnation and the,
payment of just compensation therefore is a "sale" or "exchange" within the meaning
of section 117 (a) of the Revenue Act of 1936, and profits from that transaction is capital
gain.

SEC. 29. GROSS INCOME. — (a) General definition. — "Gross income" includes gains,
profits, and income derived from salaries, wages, or compensation for personal service
of whatever kind and in whatever form paid, or from professions, vocations, trades,
businesses, commerce, sales or dealings in property, whether real or personal, growing
out of ownership or use of or interest in such property; also from interests, rents,
dividends, securities, or the transactions of any business carried on for gain or profit, or
gains, profits, and income derived from any source whatsoever.

SEC. 37. INCOME FROM SOURCES WITHIN THE PHILIPPINES.

(a) Gross income from sources within the Philippines. — The following items of gross
income shall be treated as gross income from sources within the Philippines:
xxxxxxxxx
(5) SALE OF REAL PROPERTY. — Gains, profits, and income from the sale of real
property located in the Philippines;
xxxxxxxxx
It appears then that the acquisition by the Government of private properties through
the exercise of the power of eminent domain, said properties being JUSTLY
compensated, is embraced within the meaning of the term "sale" "disposition of
property", and the proceeds from said transaction clearly fall within the definition of
gross income laid down by Section 29 of the Tax Code of the Philippines.

2: As to appellant taxpayers' proposition that the profit, derived by them from the
expropriation of their property is merely nominal and not subject to income tax, We
find Section 35 of the Tax Code illuminating. Said section reads as follows:

SEC. 35. DETERMINATION OF GAIN OR LOSS FROM THE SALE OR OTHER

DISPOSITION OF PROPERTY. —The gain derived or loss sustained from the sale or
other disposition of property, real or personal, or mixed, shall be determined in
accordance with the following schedule:
(a) xxx xxx xxx
(b) In the case of property acquired on or after March first, nineteen hundred and
thirteen, the cost thereof if such property was acquired by purchase or the fair market
price or value as of the date of the acquisition if the same was acquired by gratuitous
title.
xxxxxxxxx

The records show that the property in question was adjudicated to Maria Morales by
order of the Court of First Instance of Pampanga on March 23, 1929, and in accordance
with the aforequoted section of the National Internal Revenue Code, only the fair
market price or value of the property as of the date of acquisition thereof should be
considered in determining the gain or loss sustained by the property owner when the
property was disposed, without taking into account the purchasing power of the
currency used in the transaction. The records placed the value of the said property at
the time of its acquisition by appellant Maria Morales P28,291.73 and it is a fact that
same was compensated with P94,305.75 when it was expropriated. The resulting
difference is surely a capital gain and should be correspondingly taxed.

was released to petitioners husband, the balance thereof was withheld allegedly for
taxation purposes. Respondent also failed to give the other benefits listed above.

Petitioner, represented by her husband, instituted the instant case for unpaid salaries;
unpaid separation pay; unpaid balance of retirement package plus interest; insurance
pension for

permanent disability; educational assistance for her son; medical assistance;

reimbursement of

medical and rehabilitation expenses; moral, exemplary, and actual damages, plus
attorneys fees.

On September 28, 2001, Labor Arbiter Aliman D. Mangandog rendered a Decision

dismissing
petitioners complaint. The LA stressed that respondent had been generous in giving
financial

assistance to the petitioner. In denying petitioners claim for separation pay, the Labor
Arbiter

ratiocinated that the same had already been integrated in the retirement plan
established by

respondent. Thus, petitioner could no longer collect separation pay over and above her
retirement

benefits.

The arbiter refused to rule on the legality of the deductions made by respondent from

petitioners total retirement benefits for taxation purposes, as the issue was beyond the

jurisdiction of the NLRC.

On appeal to the National Labor Relations Commission (NLRC), the tribunal set aside
the Labor

Arbiters decision, respondent was ordered to pay Complainants portion of her

separation pay.

The NLRC emphasized that petitioner was not retired from the service pursuant to law,

collective bargaining agreement (CBA) or other employment contract; rather, she was
dismissed

from employment due to a disease/disability under Article 284 of the Labor Code.

In view of her non-entitlement to retirement benefits, the amounts received by

petitioner should

then be treated as her separation pay.

Unsatisfied, petitioner elevated the matter to the Court of Appeals which affirmed the
NLRC

decision.

Hence, petitioner filed a petition for certiorari.

Issue: (1) Whether or not the claim for illegal deduction of taxes falls within the
jurisdiction of

the LA.

(2) Whether or not the taxes were illegally deducted from petitioner’s retirement
benefit.

HELD: (1) YES. petitioners claim for illegal deduction falls within the
tribunals

jurisdiction. It is noteworthy that petitioner demanded the completion of her retirement

benefits, including the amount withheld by respondent for taxation purposes. The issue
of

deduction for tax purposes is intertwined with the main issue of whether
or not
petitioners benefits have been fully given her. It is, therefore, a money claim arising
from
the employer-employee relationship, which clearly falls within the jurisdiction of the

Labor Arbiter and the NLRC.

(2) NO. for the retirement benefits to be exempt from the withholding tax, the taxpayer is

burdened to prove the concurrence of the following elements: (1) a reasonable private

benefit plan is maintained by the employer; (2) the retiring official or employee has been

in the service of the same employer for at least ten (10) years; (3) the retiring official or

employee is not less than fifty (50) years of age at the time of his retirement; and (4) the

benefit had been availed of only once.

Moreover, petitioner was qualified for disability retirement. At the time of such

retirement, petitioner was only 41 years of age; and had been in the service for more or

less eight (8) years. As such, the above provision is not applicable for failure to comply

with the age and length of service requirements. Therefore, respondent cannot be faulted

for deducting from petitioners total retirement benefits the amount of P362,386.87, for

taxation purposes.
NITAFAN VS CIR
Posted by kaye lee on 10:16 PM

G.R. No. 78780 July 23 1987 [Salaries of the members of Judiciary, Tax Exemption]

FACTS:

Nitafan and some others, duly qualified and appointed judges of the RTC, NCR, all
with stations in Manila, seek to prohibit and/or perpetually enjoin the Commissioner of
Internal Revenue and the Financial Officer of the Supreme Court, from making any
deduction of withholding taxes from their salaries. They submit that "any tax withheld
from their emoluments or compensation as judicial officers constitutes a decrease or
diminution of their salaries, contrary to the provision of Section 10, Article VIII of the
1987 Constitution mandating that during their continuance in office, their salary shall
not be decreased," even as it is anathema to the Ideal of an independent judiciary
envisioned in and by said Constitution."

ISSUE: Whether or not members of the Judiciary are exempt from income taxes.

HELD: No. The salaries of members of the Judiciary are subject to the general income
tax applied to all taxpayers. Although such intent was somehow and inadvertently not
clearly set forth in the final text of the 1987 Constitution, the deliberations of the1986
Constitutional Commission negate the contention that the intent of the framers is to
revert to the original concept of non-diminution´ of salaries of judicial officers. Justices
and judges are not only the citizens whose income has been reduced in accepting
service in government and yet subject to income tax. Such is true also of Cabinet
members and all other employees. The clear intent of the ConComm was to delete the
proposed express grant of exemption from payment of income tax, so as to give
substance to equality among the three branches of Government. Though this intent was
not clearly set forth in the final text of the Constitution, the Court since then has
authorised the deduction of the withholding tax from the salaries of said members.