Case Digest (G.R. No. 242414) Core Legal Reasoning Model
Core Legal Reasoning Model
Facts:
In Commissioner of Internal Revenue v. The Estate of Benigno P. Toda, Jr., G.R. No. 147188, decided on September 14, 2004, the Commissioner of Internal Revenue (petitioner) challenged the Estate of Benigno P. Toda, Jr. (respondent), represented by co-administrators Lorna Kapunan and Mario Bautista, for a deficiency income tax assessment of ₱79,099,999.22 against Cibeles Insurance Corporation (CIC) for taxable year 1989. On March 2, 1989, CIC, 99.991% owned by Toda, authorized the sale of a 16-storey commercial building in Makati for not less than ₱90 million. On August 30, 1989, CIC purportedly sold the property to Rafael A. Altonaga for ₱100 million, who on the same day sold it to Royal Match Inc. (RMI) for ₱200 million. Altonaga paid a ₱10 million capital gains tax. CIC’s 1989 return, filed April 16, 1990, declared only ₱75.7 million gain, net taxable income of ₱75.99 million, and paid ₱26.34 million in income tax. On July 12, 1990, Toda sold his CIC shares and agreed to hold Case Digest (G.R. No. 242414) Expanded Legal Reasoning Model
Expanded Legal Reasoning Model
Facts:
- Corporate Sale Scheme
- On 2 March 1989, Cibeles Insurance Corporation (CIC) authorized its president and majority stockholder Benigno P. Toda, Jr. to sell the 16-storey Cibeles Building and underlying parcels in Makati for not less than ₱90 million.
- On 30 August 1989, Toda purportedly sold the property to Rafael A. Altonaga for ₱100 million; the same day Altonaga sold it to Royal Match Inc. (RMI) for ₱200 million. Altonaga paid ₱10 million capital gains tax.
- CIC’s Tax Return and Share Sale
- On 16 April 1990, CIC filed its 1989 income tax return, declaring a gain of ₱75.728 million, net taxable income of ₱75.987 million, and paid ₱26.341 million after credits.
- On 12 July 1990, Toda sold his 99.991% CIC shares to Le Hun T. Choa for ₱12.5 million, undertaking to hold buyer and CIC free from all tax liabilities for fiscal years 1987–1989.
- Assessment and Protest
- On 29 March 1994, the BIR assessed CIC for a ₱79,099,999.22 deficiency income tax for 1989; on 27 January 1995 the Estate of Toda received a Notice of Assessment.
- The Estate protested; on 19 October 1995 the Commissioner dismissed the protest, alleging a fraudulent scheme to evade the 35% corporate tax by disguising ₱100 million gain as Altonaga’s 5% capital gains.
- Judicial Proceedings
- On 15 February 1996, the Estate petitioned the Court of Tax Appeals (CTA); on 3 January 2000 the CTA held no fraud proved (mere tax avoidance), ruled the 3-year assessment period had prescribed, and canceled the assessment.
- On 31 January 2001, the Court of Appeals affirmed the CTA decision. The Commissioner then elevated the case to the Supreme Court.
Issues:
- Whether the two-step sale scheme constitutes tax evasion or legitimate tax avoidance.
- Whether the period for assessing the 1989 deficiency income tax has prescribed.
- Whether the Estate of Toda can be held liable for CIC’s deficiency income tax.
Ruling:
- (Subscriber-Only)
Ratio:
- (Subscriber-Only)
Doctrine:
- (Subscriber-Only)