Bañas, Jr. v. CA

Facts: On February 20, 1976, petitioner sold to AYALA 128,265 square meters of land located at Bayanan, Muntinlupa for P2,308,770.00 pesos. The Deed of Sale provided that upon the signing of the contract AYALA shall pay P461,754.00. The balance of P1,847,016.00 was to be paid in four equal consecutive annual installments, with 12% percent interest per annum on the outstanding balance. AYALA issued one promissory note covering four equal annual installments. Each periodic payment of P461,754.00 shall be payable starting on February 20, 1977, and every year thereafter, or until February 20, 1980. 

The same day, petitioner discounted the promissory note with AYALA, for its face value of P1,847,016.00, evidenced by a Deed of Assignment signed by the petitioner and AYALA. AYALA issued 9 checks to petitioner, all dated February 20, 1976, drawn against BPI with the uniform amount of P205,224.00.

In his 1976 Income Tax Return, petitioner reported the P461,754 initial payment as income from disposition of capital asset. Petitioner reported a uniform income of P230,877.00 as gain from sale of capital asset. In his 1980 income tax amnesty return, petitioner also reported the same amount of P230,877.00 as the realized gain on disposition of capital asset for the year. 

Revenue Director Mauro Calaguio authorized tax examiners, Rodolfo Tuazon and Procopio Talon to examine the books and records of petitioner for the year 1976. They discovered that petitioner had no outstanding receivable from the 1976 land sale to AYALA and concluded that the sale was cash and the entire profit should have been taxable in 1976 since the income was wholly derived in 1976. Tuazon and Talon filed their audit report and declared a discrepancy of P2,095,915.00 in petitioner’s 1976 net income and recommended deficiency tax assessment for P2,473,673.00. 

Aquilino Larin succeeded Calaguio as Regional Director of Manila Region IV-A. After reviewing the examiners’ report, Larin directed the revision of the audit report, with instruction to consider the land as capital asset. The tax due was only 50% percent of the total gain from sale of the property held by the taxpayer beyond 12 months pursuant to Section 34 of the 1977 NIRC.

The deficiency tax assessment was reduced to P936,598.50, inclusive of surcharges and penalties for the year 1976. Larin sent a letter to petitioner informing him of the income tax deficiency that must be settled immediately. Petitioner acknowledged receipt of the letter but insisted that the sale of his land to AYALA was on installment. The Chief of the Tax Fraud Unit recommended the prosecution of a criminal case for conspiring to file false and fraudulent returns, in violation of Section 51 of the Tax Code against petitioner and his accountants, Andres P. Alejandre and Conrado Bañas. Larin filed a criminal complaint for tax evasion against the petitioner. 

Petitioner filed an Amnesty Tax Return under P.D. 1740 and paid P41,729.81. Petitioner again filed an Amnesty Tax Return under P.D. 1840 and paid an additional P1,525.62. In both, petitioner did not recognize that his sale of land to AYALA was on cash basis. 

Petitioner filed with the RTC of Manila an action for damages against respondents Larin, Tuazon and Talon for extortion and malicious publication of the BIR’s tax audit report. He claimed that the filing of criminal complaints against him for violation of tax laws were improper because he had already availed of two tax amnesty decrees, Presidential Decree Nos. 1740 and 1840. RTC decided in favor of respondents.

Issues:

1. Whether respondent court erred in ruling that there was no extortion attempt by BIR officials; 
2. Whether respondent court erred in holding that P.D. 1740 and 1840 granting tax amnesties did not grant immunity from tax suits; 
3. Whether respondent court erred in finding that petitioner’s income from the sale of land in 1976 should be declared as a cash transaction in his tax return for the same year (because the buyer discounted the promissory note issued to the seller on future installment payments of the sale, on the same day of the sale)

Held:

1. No, there is no extortion per RTC ruling.
2. His amended tax return for the years 1974-1979 was filed with the BIR office of Valenzuela, Bulacan, instead of Manila where the petitioner’s principal office was located. He again availed of the tax amnesty under P.D. No. 1840. His disclosure, however, did not include the income from his sale of land to AYALA on cash basis. Instead he insisted that such sale was on installment. He did not amend his income tax return. He did not pay the tax which was considerably increased by the income derived from the discounting. He did not meet the twin requirements of P.D. 1740 and 1840, declaration of his untaxed income and full payment of tax due thereon. Clearly, the petitioner is not entitled to the benefits of P.D. Nos. 1740 and 1840. The mere filing of tax amnesty return under P.D. 1740 and 1840 does not ipso facto shield him from immunity against prosecution. Tax amnesty is a general pardon to taxpayers who want to start a clean tax slate. It also gives the government a chance to collect uncollected tax from tax evaders without having to go through the tedious process of a tax case. To avail of a tax amnesty granted by the government, and to be immune from suit on its delinquencies, the taxpayer must have voluntarily disclosed his previously untaxed income and must have paid the corresponding tax on such previously untaxed income. Hence, petitioner’s claim of immunity from prosecution under the shield of availing tax amnesty is untenable. 
3. As a general rule, the whole profit accruing from a sale of property is taxable as income in the year the sale is made. But, if not all of the sale price is received during such year, and a statute provides that income shall be taxable in the year in which it is “received,” the profit from an installment sale is to be apportioned between or among the years in which such installments are paid and received. Where an installment obligation is discounted at a bank or finance company, a taxable disposition results, even if the seller guarantees its payment, continues to collect on the installment obligation, or handles repossession of merchandise in case of default. When petitioner had the promissory notes covering the succeeding installment payments of the land issued by AYALA, discounted by AYALA itself, on the same day of the sale, he lost entitlement to report the sale as a sale on installment since, a taxable disposition resulted and petitioner was required by law to report in his returns the income derived from the discounting. What petitioner did is tantamount to an attempt to circumvent the rule on payment of income taxes gained from the sale of the land to AYALA for the year 1976.