Case Digest (G.R. No. 125508)
Case Digest (G.R. No. 125508)
Facts:
China Banking Corporation v. Court of Appeals, G.R. No. 125508, July 19, 2000, Supreme Court En Banc, Vitug, J., writing for the Court. The petition sought review of the Court of Appeals' affirmance of the Court of Tax Appeals' disallowance of a claimed deduction for "securities becoming worthless."In 1980, petitioner China Banking Corporation (CBC) acquired a 53% equity interest in First CBC Capital (Asia), Ltd., a Hong Kong subsidiary, by purchasing 106,000 shares (par value P100) for a total of P16,227,851.80. A regular Bangko Sentral examination in 1986 disclosed that the subsidiary had become insolvent. With Bangko Sentral's approval, CBC wrote off the investment as worthless on its 1987 Income Tax Return and characterized the loss as a bad debt or ordinary loss deductible from gross income.
The Commissioner of Internal Revenue disallowed the deduction and assessed CBC for income tax deficiency amounting to P8,533,328.04 (including surcharge, interest and compromise penalty), reasoning that (a) the shares were not proven to be worthless and (b) even if worthless they would constitute a capital loss rather than a bad debt/ordinary loss because no indebtedness existed between CBC and its subsidiary.
CBC appealed to the Court of Tax Appeals (CTA), which sustained the Commissioner's assessment and ordered payment of the deficiency plus 20% interest per annum. The Court of Appeals (CA) affirmed the CTA's decision. CBC then filed a Petition for Review on Certiorari before the Supreme Court under Rule 45 challenging the CA ruling. The Supreme Court denied the petition and affirmed the CA decision.
Issues:
- Did the Court of Appeals and the Court of Tax Appeals err in finding that the shares had not been shown to be worthless?
- If the shares were worthless, could CBC treat the write-off as a bad debt or ordinary loss deductible from gross income?
- If the shares were worthless, was the resulting loss deductible against CBC's gross income in 1987, or is it a capital loss deductible only to the extent of capital gains?
Ruling:
- (Subscriber-Only)
Ratio:
- (Subscriber-Only)
Doctrine:
- (Subscriber-Only)