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    Anderson V Posadas

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    Jerico Godoy
    1) The petitioner filed income tax returns in 1918 and 1919 deducting losses totaling P125,000. The Collector attempted to collect additional taxes. 2) The issues are whether penalties for fraudulent tax returns can be deducted from the 1921 return, and whether the P125,000 losses were properly deducted. 3) The court held that penalties are not considered taxes and cannot be deducted, and that the P125,000 losses were recovered and subject to income tax.

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    Anderson V Posadas

    Uploaded by

    Jerico Godoy
    117 views2 pages
    1) The petitioner filed income tax returns in 1918 and 1919 deducting losses totaling P125,000. The Collector attempted to collect additional taxes. 2) The issues are whether penalties for fraudulent tax returns can be deducted from the 1921 return, and whether the P125,000 losses were properly deducted. 3) The court held that penalties are not considered taxes and cannot be deducted, and that the P125,000 losses were recovered and subject to income tax.

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    Anderson v Posadas

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    1) The petitioner filed income tax returns in 1918 and 1919 deducting losses totaling P125,000. The Collector attempted to collect additional taxes. 2) The issues are whether penalties for fraudulent tax returns can be deducted from the 1921 return, and whether the P125,000 losses were properly deducted. 3) The court held that penalties are not considered taxes and cannot be deducted, and that the P125,000 losses were recovered and subject to income tax.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    117 views2 pages

    Anderson V Posadas

    Uploaded by

    Jerico Godoy
    1) The petitioner filed income tax returns in 1918 and 1919 deducting losses totaling P125,000. The Collector attempted to collect additional taxes. 2) The issues are whether penalties for fraudulent tax returns can be deducted from the 1921 return, and whether the P125,000 losses were properly deducted. 3) The court held that penalties are not considered taxes and cannot be deducted, and that the P125,000 losses were recovered and subject to income tax.

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    © All Rights Reserved
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    Download as docx, pdf, or txt
    of 2

    PICOP vs.

    CA, 250 SCRA 434


    Mla vs. CIR, GR# L-12174, April 26, 1962
    Request of Atty. Zialcita, 190 SCRA 850

    WM. H. ANDERSON (Appellee), v. JUAN POSADAS, JR., Collector of Internal Revenue, (Appellant)
    (G.R. No. 44100. September 22, 1938)

    FACTS OF THE CASE:

    The petitioner was one of the majority stockholders of the company Erlinger & Galinger Corporation together with Feldstein, a
    major stockholder also of the said corporation. This corporation engaged in a business of shipping cargoes in the Port of Manila.

    In 1918, William Anderson bought the business with an authorized capital of P600,000, divided into 1,200 shares at the par value
    of P500 each. All of said shares were subscribed by the incorporator Anderson, who paid in cash, on different dates, the total
    amount of P70,000. The unpaid balance of P530,000 was entered in an intermediary account, called underwriting account, which
    was opened in the corporation in Anderson’s name, in place of his personal account.

    There was opened in Anderson’s name a good will account, upon the debit side of which was entered the sum of P300,000. On the
    same date, the sum of P300,000 was entered upon the credit side of Anderson’s underwriting account, thereby reducing the balance
    thereof from P530,00 to P230,000. Anderson sold to Simon Feldstein 200 shares at the rate of 1 to 1, receiving in payment thereof
    the sum of P50,000 and another 300 more shares to Feldstein at the rate of 3 to 1, and received in payment thereof the sum of
    P50,000, hence, having lost P100,00 in total of the transaction.

    Now Anderson filed his income tax return and placed the deduction sum of P50,000 from the taxable income stated by him in his
    return for the year 1918, and the sum of P75,000 from his return for the year 1919, or a total amount of P125,000. Said deductions
    were approved by the Bureau of Internal Revenue.

    The problem arose when the Collector of Internal Revenue attempted to collect a tax on the P300,00 at which Anderson assessed
    the good will of the business, the latter, on December 29, 1923, agreed with the former to eliminate said good will, which in
    effect was so done by him by debiting said sum in his capital account and crediting it in the good will account. With said
    elimination, Andersons’ debt of P530,000 was restored. To Feldstein’s account was debited the sum of P125,007 which,
    together with the P100,00 paid by him for the 500 shares which he had bought of Anderson, to the latter’s loss, amounts to
    P225,007. Said sum of P125,007 was the proportional part of the P300,00 which corresponded to Feldstein, for the above-stated
    500 shares, at the rate of 7/12 for Anderson and 5/12 for Feldstein.

    Furthermore, by these circumstances, the CIR sent notices of delinquent payments to the petitioner for fraudulently filing the said
    returns in the year 1921 income tax return for which complied by the petitioner.

    Here’s the petitioner now, sought for claims of repayment for which the trial court ruled that the amount of P155,000, found by the
    appellant as proceeds from the sale of good will, is not subject to income tax.

    ISSUES:

    Whether the sum paid by the appellee Anderson as penalty for fraud committed in his income tax returns 1918 and 1919, may be
    deducted from the income tax return made by him for 1921

    Whether the court a quo erred in holding that the amount of P125,000, found by the appellant as losses recovered, is not subject to
    the payment of income tax

    HELD:

    A) No, because those fines are not considered as tax

    Section 15 of said Act provides, among other things, that "In case a false or fraudulent return or list is willfully made, the Collector
    of Internal Revenue shall add to the tax one hundred per centum of its amount. the amount so added to any tax shall be collected at
    the same time and in the same manner and as part of the tax unless the tax has been paid before the discovery of the neglect,
    falsity, or fraud, in which case the amount so added shall be collected in the same manner as the tax." Pursuant to the authority
    conferred by the Revised Administrative Code and by Act No. 2833, as amended by Act No. 2926, the Department of Finance,
    under whose jurisdiction the Bureau of Internal Revenue falls, promulgated, on August 17, 1921, Regulations No. 20, entitled
    "Income Tax Regulations," section 33 of which, in interpreting the word "taxes," provides, among other things, as follows: "The
    word ’taxes’ means taxes proper and no deductions should be allowed for amounts representing interest or penalties incident to
    delinquency."
    The word ’taxes’ means taxes proper and no deductions should be allowed for amounts representing interest or penalties incident
    to delinquency.

    B) No, it is subject to the payment of income tax

    Good will is the reputation or good name of an establishment. If the good will, that is, the good reputation of the business is
    acquired in the course of its management and operation, it does not form part of the capital with which it was established. It is an
    intangible moral profit, susceptible of valuation in money, acquired by the business by reason of the confidence reposed in it by
    the public, due to the efficiency and honesty shown by the manager and personnel thereof in conducting the same and on account
    of the courtesy accorded its customers, which moral profit, once it is evaluated and used, becomes a part of the assets.

    The good will of P155,000 created by Anderson has been beneficial not only to him but also to Feldstein in the proportion of 7/12
    for Feldstein, which is the proportion of the participation of each in the shares of the corporation Erlanger & Galinger, Inc., that is,
    P90,412 for Anderson and p64,588 for Feldstein, inasmuch as Anderson’s personal debt for the balance of the unpaid shares was
    diminished by said sum of P90,412 and Feldstein’s capital account increased by P64,588.

    The benefit received by Anderson does not consist merely in the sum of P90, 412. He also realized a gain of P70,838 from the sale
    of 500 shares to Feldstein. Said benefits, added together, make a total of P161,250, that is, P6,250 more than the sum of P155,00
    on which the defendant and appellant Collector of Internal Revenue is attempting to collect tax from him.

    WHEREFORE, the appealed judgment is reversed in so far as it (1) approves the deduction of the amount of P42,542.63, which
    represents 100 per cent surcharge on income tax; (2) holds that the amount of P125,000, deducted from the income as loss which
    was recovered later, is not subject to income tax, and (3) holds that the amount of P155,000, representing the proceeds of the sale
    of good will, is not subject to income tax, and the defendant is absolved from the complaint, with the costs to the plaintiff. So
    ordered.

    RATIONALE:

    Fines imposed for violation of law cannot be considered taxes paid to the Government, which should be deducted from income
    subject to the payment of income tax. The tax under consideration is levied on income, while the fine is paid as penalty for
    violation of the Internal Revenue Law. The fine, therefore, cannot be considered a tax, inasmuch as it is not levied on income. In
    providing that the fine should be added to the tax and collected at the same time and as a part thereof, the law had for its purpose
    merely to facilitate the collection of the fine or surcharge.

    Good will may be defined to be the advantage or benefit which is acquired by an establishment, beyond the mere value of the
    capital stock, funds, or property employed therein in consequence of the general public patronage and encouragement which it
    received from constant or habitual customers on account of its local position or common celebrity or reputation for skill, affluence,
    punctuality, or from other accidental circumstances or necessities, or even from ancient partialities or prejudices

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