Case Summary (G.R. No. L-9408)
Procedural History
- Petitioner paid the original assessment in installments.
- On reconsideration, the Collector denied the deduction.
- The Court of Tax Appeals affirmed the disallowance.
- Petitioner appealed to the Supreme Court.
Issue
Whether petitioner may deduct as a 1951 loss the portion of his war-damage award not yet paid by the Philippine War Damage Commission.
Deduction Year and Character of Loss
• Under General Circular No. V-139 (August 30, 1952), war-damage losses are deductible in the year of actual destruction.
• Petitioner’s last Commission installment and notice of further non-payment occurred in 1950.
• Even if treated as a “business asset,” the unpaid claim lacked an enforceable right and thus did not constitute a deductible asset loss in 1951.
Enforceability of War-Damage Claims
• Payments under the Rehabilitation Act rest on Commission discretion and U.S. Congressional appropriation, not enforceable by Philippine courts (Section 113).
• No right to compel payment existed at end of 1945; the Act was only passed in 1946.
Administrative Regulations and Authority
• Section 338, NIRC, empowered the Secretary of Finance to issue interpretative rules.
• Circular No. V-123 allowed deduction “in the year last installment was received with notice that no further payment would be made,” but was later deemed erroneous.
• Secretary of Justice advised that, since Compensation Act postdated losses, deductions must occur in the year of loss.
• Circular No. V-139 revoked V-123, aligning with section 30(d) of the NIRC.
Continuity of Tax Law During Occupation
• Internal revenue laws remained in force throughout wartime occupation and were applied by occupying authorities.
• A change of sovereignty does not suspend or terminate existing laws unless repealed by competent legislature.
Separation of Powers and Retroactivity
• The Secretary of Finance may revise prior administrative i
Case Syllabus (G.R. No. L-9408)
Facts of the Case
- On March 31, 1952, Emilio Y. Hilado filed his 1951 income tax return with the Treasurer of Bacolod City.
- He claimed a deduction of ₱12,837.65 from gross income under General Circular No. V-123, issued by the Collector of Internal Revenue pursuant to rules from the Secretary of Finance.
- An assessment notice for ₱9,419 as income tax was issued; petitioner paid in monthly installments, completing payment on January 2, 1953.
- The uncollected portion of his war damage claim had been approved by the Philippine War Damage Commission under the Philippine Rehabilitation Act of 1946, but payment was withheld pending further appropriation by the U.S. Congress.
Procedural History
- August 30, 1952: Secretary of Finance issued General Circular No. V-139, revoking Circular No. V-123 and stipulating that losses of property during WWII are deductible only in the year of actual loss or destruction.
- The Collector disallowed petitioner’s deduction of ₱12,837.65 for 1951 and assessed a deficiency tax of ₱3,546.
- Petitioner’s request for reconsideration was denied by the Collector.
- Petitioner filed a petition for review with the Court of Tax Appeals (CTA), which affirmed the Collector’s assessment.
- Petitioner appealed to the Supreme Court from the CTA decision.
Petitioner’s Main Contentions
- The ₱12,837.65 represents a “business asset” — the unpaid portion of his approved war damage claim — deductible as a loss in 1951.
- Under section 30 of the National Internal Revenue Code and prior Circular No. V-123, the amount was deductible in the year the last installment was received with notice of no further payment.
- During the wartime occupation, no “taxable year” existed because Philippine revenue laws were unenforceable; thus, determination of the deduction year should be flexible.
- General Circular No. V-139, revoking V-123, infringed on his vested right under the earlier circular and exceeded the Secretary of Finance