Facts:

• The case involves a dispute over the exemption of bad debts from taxation and the determination of income tax on the increase in value of a property acquired before 1913.
• The case was decided on September 30, 1930, by the En Banc of the Supreme Court of the Philippines, with Justice Johns as the ponente.
• The Government of the Philippine Islands sought to recover income tax from the defendants, Asuncion Michel et al., for the year 1927.
• The amount claimed was P59,258.75, with interest and surcharges.
• The defendants argued that a portion of the amount paid to them by the Manila Railroad Company for their property, acquired through condemnation proceedings, should be exempt from income tax.
• They also claimed that the increase in the value of the property should not be subject to income tax.
• The lower court ruled in favor of the defendants, allowing the deduction of bad debts from the income of the estate for the year 1927, but also finding them liable for unpaid income tax.

Issue:

• (Unlock)

Ruling:

• The court affirmed the lower court's decision that the bad debts of the estate are exempt from taxation.
• The court ruled that the value of the property acquired through condemnation proceedings is binding for taxation purposes....(Unlock)

Ratio:

• The court held that the bad debts of the estate are exempt from taxation because they were charged off by the administratrix of the estate with the consent and approval of the court.
• There was no claim or pretense that any portion of the debts could be collected or that they were an asset of the estate.
• Therefore, the bad debts are exempt from taxation under the law.
• The court ruled that the value of the property acquired through condemnation proceedings is binding for taxation pur...continue reading