Case Digest (G.R. No. L-21551) Core Legal Reasoning Model
Core Legal Reasoning Model
Facts:
Fernandez Hermanos, Inc., a domestic corporation organized as an investment company with principal office in Manila, filed income tax returns for the years 1950 to 1954 and for 1957. Upon verification, the Commissioner of Internal Revenue assessed deficiencies totalling ₱166,063.00 for 1950–1954 and ₱32,982.00 for 1957, disallowing various claimed deductions: (a) losses on investments in Mati Lumber Co., Palawan Manganese Mines, Inc., Balamban Coal Mines, Hacienda Dalupiri, and Hacienda Samal; (b) excessive depreciation of buildings; (c) increases in net worth; (d) unreported gain from the 1950 sale of real property; and (e) amortization of “contractual rights” in mining claims. Fernandez Hermanos appealed to the Court of Tax Appeals (CTA) in CTA Case No. 787 (decision of June 10, 1963) and CTA Case No. 1389 (decision thereafter). Both the taxpayer and the Commissioner appealed adverse rulings to the Supreme Court, which resolved the four consolidated appeals (G.R. Nos. L-21551, Case Digest (G.R. No. L-21551) Expanded Legal Reasoning Model
Expanded Legal Reasoning Model
Facts:
- Parties and Procedural History
- Fernandez Hermanos, Inc., a domestic investment corporation, appealed two Court of Tax Appeals (CTA) decisions on income tax liabilities: CTA Case No. 787 (years 1950–1954; G.R. Nos. L-21551 & L-21557) and CTA Case No. 1389 (year 1957; G.R. Nos. L-24972 & L-24978).
- Commissioner of Internal Revenue cross-appealed adverse rulings in both sets of cases; Supreme Court consolidated the four appeals due to interrelated issues.
- Assessments and CTA Decisions
- Years 1950–1954
- Commissioner’s assessments: P13,414 (1950), P119,613 (1951), P11,698 (1952), P6,887 (1953), P14,451 (1954)—total P166,063.
- Disallowed deductions:
- CTA modified deficiency to P123,436 with breakdown by year.
- Year 1957
- Net income per return: P29,178.90; Commissioner added disallowed Dalupiri loss (P89,547.33) and contractual-rights amortization (P48,481.62), arriving at net income P167,297.65 and deficiency tax P38,918.76.
- CTA allowed Dalupiri loss, disallowed contractual-rights amortization; reduced deficiency to P9,696.00.
Issues:
- Disputed Deductions for 1950–1954
- Allowance of losses/bad debts:
- Mati Lumber Co. stock write-off
- Advances to Palawan Manganese Mines, Inc.
- Balamban Coal Mines operating losses
- Hacienda Dalupiri and Hacienda Samal losses under inventory method
- Rate of depreciation for buildings (10% claimed vs. proof for 3%)
- Treatment of net worth increases from book corrections as taxable income
- Alleged unreported gain from 1950 real property sale
- Prescription: whether government’s right to collect deficiencies had lapsed
- Disputed Deductions for 1957
- Deductibility of Hacienda Dalupiri losses using hybrid (cash/accrual) accounting
- Amortization/depletion of “contractual rights” and mining titles valued at P100,000
Ruling:
- (Subscriber-Only)
Ratio:
- (Subscriber-Only)
Doctrine:
- (Subscriber-Only)