TRADES CORP. and PACHECO v. IAC and HYDRO PIPES PHILIPPINES
JANUARY 26, 1988 ; G.R. No. 69259 TOPIC: DOUBLE TAXATION AND TAX EXEMPTION
Facts:
Petitioner Delfin Pacheco and his sister Pelagia Pacheco were the owners of real estate covered by a TCT. They leased it to Construction Components International Inc. provided that should the lessors/co-owners decide to sell it, they shall first offer it to the lessee. The lessee assigned their rights under the contract in favor of Private Respondent Hydro Pipes Philippines with the consent of the lessors. These were all annotated at the back of the title. Later on, a deed of exchange was executed between lessors and Delpher Trades Corporation with regard to the lessors’ land in exchange for for 2,500 shares of stock of Delpher. Hydro Pipes filed an amended complaint for reconveyance in the lot in its favor under conditions similar to those whereby Delpher acquired the property from the lessors.
CFI Decision: Ruled in favor of Hydro Pipes. IAC Decision: Affirmed on appeal.
Eduardo Neria, a CPA and son-in-law of the late Pelagia Pacheco, testified that Delpher Trades is a family corporation organized by the children of spouses Pelagia Pacheco and Benjamin Hernandez and spouses Delfin Pacheco and Pilar Angeles in order to perpetuate their control over the property through the corporation and to avoid taxes. Private respondent, on the other hand, argues that Delpher is a corporate entity separate and distinct from the Pachecos and that there was an actual transfer of ownership from Pacheco to Delpher by virtue of deed of exchange and the exchange for the latter’s shares of stock.
Issue/s: Whether or not a tax exemption was validy made by the Pachecos
Held/Doctrine: YES, a tax exemption was validly made by the Pachecos.
From the statements of Eduardo Neria, there are tax exemption benefits to the spouses Hernandez and Pacheco in connection with their execution of the deed of exchange.
Neria points out Section 35, paragraph C, sub-paragraph 2 of the NIRC which states “No gain or loss shall also be recognized if a person exchanges his property for stock in a corporation of which as a result of such exchange said person alone or together with others not exceeding four persons gains control of said corporation.” Also, in the point of view of the corporation holding the property, Neria states “since a corporation does not die it can continue to hold on to the property indefinitely for a period of at least 50 years. On the other hand, if the property is held by the spouse the property will be tied up in succession proceedings and the consequential payments of estate and inheritance taxes when an owner dies.“ In other words, the property is not subjected to taxes on succession as the corporation does not die. This is a benefit in relation to inheritance taxes.
The records do not point to anything wrong or objectionable about this "estate planning" scheme resorted to by the Pachecos. "The legal right of a taxpayer to decrease the amount of what otherwise could be his taxes or altogether avoid them, by means which the law permits, cannot be doubted."