G.R. No. L-5949. November 19, 1955
TANG HO, WILLIAM LEE, HENRI LEE, SOFIA LEE TEEHANKEE, THOMAS LEE, ANTHONY LEE, JULIA LEE KAW, CHARLES LEE, VALERIANA LEE YU, VICTOR LEE, SILVINO LEE, MARY LEE, JOHN LEE, AND PET…
REYES, J.B.L., J.:
Appeals holding petitioners Li Seng Giap, et al. liable for gift taxes in
accordance with the assessments made by the respondent Collector of Internal
Revenue.
Petitioners Li Seng Giap (who died during the pendency of this appeal) and
his wife Tang Ho and their thirteen children appear to be the stockholders of
two close family corporations named Li Seng Giap & Sons, Inc. and Li Seng
Giap & Co. On or about May, 1951, examiners of the Bureau of Internal
Revenue, then detailed to the Alias Committee of the Congress of the
Philippines, made an examination of the books of the two corporations
aforementioned and found that each of Li Seng Giap’s 13 children had a total
investment therein of approximately P63,195.00, in shares issued to them by
their father Li Seng Giap (who was the manager and controlling stockholder of
the two corporations) in the years 1940, 1942, 1948, 1949, and 1950 in the
following amounts:
The Collector of Internal Revenue regarded these transfers as undeclared
gifts made in the respective years, and assessed against Li Seng Giap and h
ischildren donor’s and donee’s taxes in the total amount of P76,985.31,
including penalties, surcharges, interests, and compromise fee due to the
delayed payment of the taxes. The petitioners paid the sum of P53,434.50,
representing the amount of the basic taxes, and put up a surety bond to
guarantee payment of the balance demanded. And on June 25, 1951, they requested
the Collector of Internal Revenue for a revision of their tax assessments, and
submitted donor’s and donee’s gift tax returns showing that each child received
by way of gift inter vivos, every year from 1939 to 1950 (except in
1947 and 1948) P4,000 in cash; that each of the eight children who married
during the period aforesaid, were given an additional P20,000 as dowry or gift
propter nuptias; that the unmarried children received roughly
equivalent amounts in 1949, also by way of gifts inter vivos, so that
the total donations made to each and every child, as of 1950, stood at P63,190.
Appellants admit that these gifts were not reported; but contend that as the
cash donated came from the conjugal funds, they constituted individual donations
by each of the spouses Li Seng Giap and Tang Ho, of one-half of the amount
received by the donees in each instance, up to a total of P31,505 to each of the
thirteen children from each parent. They further alleged that the children’s
stockholdings in the two family corporations were purchased by them with savings
from the aforesaid cash donations received from their parents.
Claiming the benefit of gift tax exemptions (under sections 110 and 112 of
the Internal Revenue Code) at the rate of P2,000 a year for each donation, plus
P10,000 for each gift propter nuptias made by either parent, the
appellants’ aggregate tax liability, according to their returns, would only be
P4,599.94 for the year 1949, and P228.28 for the year 1950, or a total of
P4,838.22, computed aa follows:
Li Seng Giap…….. Tan Ho ………….. Total ………. William Lee …….. Henry Lee ………… Sofia Lee ………. Thomas Lee …….. Anthony Lee …….. Julia Lee ………. Charles Lee ……… Valeriana Lee …… Victor Lee ……….. Silvino Lee ……… Mary Lee………….. John Lee …………. Peter Lee …………
The Collector refused to revise his original assessments; and the petitioners
appealed to the then Board of Tax Appeals (created by Executive Order 401-A, in
1951) insisting that the entries in the books of the corporation do not prove
donations; that the true amount and date of the donation were those appearing in
their tax returns; and that the donees merely bought stocks in the corporation
out of savings made from the money received from their parents. The Board of Tax
Appeals upheld the decision of the respondent Collector of Internal Revenue;
hence, this petition for review.
The questions in this appeal may be summarized as follows:
(1) Whether or not the dates and amounts of the donations taxable against
petitioners were as found by the Collector of Internal Revenue from the books of
the corporations Li Seng Giap & Sons, Inc. and Li Seng Giap & Co., or as
set forth in petitioners’ gift tax returns;
(2) Whether or not the donations made by petitioner Li Seng Giap to his
children from the conjugal property should be taxed against the husband alone,
or against husband and wife; and
(3) Whether or not petitioners should be allowed the tax deductions claimed
by them.
On the first question, which is of fact, the appellants take the preliminary
stand that because the Collector failed to specifically deny the allegations of
their petition in the Tax Board, he must be deemed to have admitted the annual
and propter nuptias donations alleged by them, and that he is estopped
from denying their existence. As the proceedings before the Tax Board were
administrative in character, not governed by the Rules of Court (see Sec. 10,
Executive Order 401-A), and as the Collector actually submitted his own version
of the transactions, we do not consider that the Collector’s failure to make
specific denials should be given the same binding effect as in strict court
pleadings.
Going now to the merits of the issue. The appealed findings of the Board of
Tax Appeals and of the Collector of Internal Revenue (that the stock transfers
from Li Seng Giap to his children were donations) appear supported by the
following circumstances:
(1) That the transferor Li Seng Giap (now deceased) had in fact conveyed
shares of stock to his 13 children on the dates and in the amounts shown in the
table on page 2 of this decision.
(2) That none of the transferees appeared to possess adequate independent
means to buy the shares, so much so that they claim now to have purchased the
shares with the cash donations made to them from time to time.
(3) That the total of the alleged cash donations to each child is practically
identical to the value of the shares supposedly purchased by each donee.
(4) That there is no evidence other than the belated sworn gift tax returns
of the spouses Li Seng Giap and Ang Tang Ho, and their children, appellants
herein, to support their contention that the shares were acquired by purchase.
No contracts of sale or other documents were presented, nor any witnesses
introduced; not even the claimants themselves have testified.
(5) The claim that the shares were acquired by the children by purchase was
first advanced only after the assessment of gift taxes and penalties due thereon
(in the sum of P76,995.31) had been made, and after the appellants had paid
P53,434.50 on account, and had filed a bond to guarantee the balance.
(6) That for a parent to donate cash to enable the donee to buy from him
shares of equivalent value is, for all intents and purposes, a donation of such
shares to the purchaser donee.
We cannot say, under the circumstances, that there is no sufficient evidence
on record to support the findings of the Tax Board that the stock transfers
above indicated were made by way of donation, as would entitle us to disregard
or reverse the Board’s findings.
The filing of the gift tax returns only after assessment and part payment of
the taxes demanded by the Collector, and the lack of corroboration of the
alleged donations in cash, amply justify the Tax Board’s distrust of the
veracity of the appellants’ belated tax returns. The Internal Revenue Code (C.
A. 466 as amended) requires donors and donees to file gift tax returns “on or
before the first of March followingfthe close of the calendar year” when the
gifts were made (Sec. 115, par. [c]; and besides the return a written
notice to the Collector of each donation of P10,000 or more, must be given
within thirty days after the donation, Sec. 114). These yearly returns and
notices are evidently designed to enable the Collector to verify promptly their
truth and correctness, while the gifts are still recent and proof of the
circumstances surrounding the making thereof is still fresh and accessible. On
their own admission, appellants failed to file for ten successive years, the
corresponding returns for the alleged yearly gifts of P4,000 to each child, and
likewise failed to give the notices for the P20,000 marriage gifts to each
married child. Hence, they are now scarcely in a position to complain if their
contentions are not accepted as truthful without satisfactory corroboration. Any
other view would leave the collection of taxes at the mercy of explanations
concocted ex post facto by evading taxpayers, drafted to suit any facts
disclosed upon investigation, and safe from contradiction because the passing
years have erased all trace of the truth.
The second and third issues in this appeal revolve around appellants’ thesis
that inasmuch as the property donated was community property (gananciales), and
such property is jointly owned by their parents, the total amount of the gifts
made in each year should be divided between the father and the mother, as
separate donors, and should be taxed separately to each one of them.
In assessing the worth of this contention, it must be ever borne in mind that
appellants have not only failed to prove that the donations were actually made
by both spouses, Li Seng Giap and Tang Ho, but that precisely the contrary
appears from their own evidence. In the original claim for tax refund, filed
with the Collector of Internal Revenue, under date of June 25, 1951 (copied in
pages 6 and 7 of the appellants’ petition for review addressed to the Board of
Tax Appeals), the father, Li Seng Giap, describes himself as “the undersigned
donor” (par. 1) and speaks of “cash donations made by the undersigned” (par. 3),
without in any way mentioning his wife as a co-participant in the donation. The
issue is thus reduced to the following: Is a donation of community property by
the father alone equivalent in law to a donation of one-half of its value by the
father and one-half by the mother ? Appellants submit that all such donations of
community property are to be regarded, for tax purposes, as donations by both
spouses, for which two separate exemptions may be claimed in each instance, one
for each spouse.
This pretension should be viewed in the light of the provisions of the
Spanish Civil Code of 1889, which was the governing law in the years herein
involved, 1939 to 1950. The determinative rule is that of Arts. 1409 and 1415,
reading as follows:
“Art. 1409. The conjugal partnership shall also be chargeable with anything
which may have been given or promised by the husband to the children born of the
marriage solely in order to obtain employment for them or give them a
profession, or by both spouses by common consent, should they not have
stipulated that such expenditures should be borne in whole or in part by the
separate property of one of them.”“Art. 1415, p. 1.—The husband may dispose of the property of the conjugal
partnership for the purposes mentioned in Art. 1409.”
In effect, these Articles clearly refute the appellants’ theory that because
the property donated is community property, the donations should be viewed as
made by both spouses. First, because fhe law clearly differentiates the
donations of such property “by the husband” from the “donations by both spouses
by common consent” (“por el marido … o por ambos conyuges de coimin acuerdo,”
in the Spanish text).
Next, the wording of Arts. 1409 and 1415 indicates that the lawful donations
by the husband to the common children are valid and are chargeable to the
community property, irrespective of whether the wife agrees or objects thereto.
Obviously, should the wife object to the donation, she can not be regarded as a
donor at all.
Even more: Suppose that the husband should make a donation of some community
property to a concubine or paramour. Undeniably, the wife cannot be regarded as
joining in any such donation. Yet under the old Civil Code, the donation would
stand, with the only limitation that the wife should not be prejudiced in the
division of the profits after the conjugal partnership affairs are liquidated.
So that if the value of the donation should be found to fit within the limits of
the husband’s ultimate share in the conjugal partnership profits, the donation
by the husband would remain unassailable, over and against the nonparticipation
of the wife therein. This Court has so ruled in Baello vs. Villanueva
(54 Phil. 213, 214) :
“According to article 1413 of the Civil Code, any transfer or agreement upon
conjugal property made by the husband in contravention of its provisions, shall
not prejudice his wife or her heirs. As the conjugal property belongs equally to
husband and wife, the donation of this property made by the husband prejudices
tbe wife in so far as it includes a part or the whole of the wife’s half, and is
to that extent invalid. Hence article 1419, in providing for the liquidation of
the conjugal partnership, directs that all illegal donations made by the husband
be charged against his estates and deducted from his capital. But it is only
then, when the conjugal partnership is in the process of liquidation, that it
can be discovered whether or not an illegal donation made by the husband
prejudices the wife. And inasmuch as these gifts are only to be held invalid in
so far as they prejudice the wife, their nullity cannot be decided until after
the liquidation of the conjugal partnership and it is found that they encroach
upon the wife’s portion.’
Appellants herein are therefore in error when they contend that it is enough
that the property donated should belong to the conjugal partnership in order
that the donation be considered and taxed as a donation of both husband and
wife, even if the husband should appear as the sole donor. There is no blinking
the fact that, under the old Civil Code, to be a donation by both
spouses, taxable to both, the wife must expressly join the husband in
making the gift; her participation therein cannot be implied.
It is true, as appellants stress, that in Gibbs vs. Government of
the Philippines, 59 Phil., 293, this Court ruled that “the wife, upon
acquisition of any conjugal property, becomes immediately vested with an
interest and title equal to that of the husband”; but this Court was careful to
immediately add, “subject to the power of management and disposition
which the law vests on the husband.” As has been shown, this power of
disposition may, within the legal limits, override the objections of the wife
and render the donation of the husband fully effective without need of the
wife’s joining therein. (Civil Code of 1889, Arts 1409, 1415.)
It becomes unnecessary to discuss the nature of a conjugal partnership, there
being specific rules on donations of property belonging to it. The consequence
of the husband’s legal power to donate community property is that, where made by
the husband alone, the donation is taxable as his own exclusive act. Hence, only
one exemption or deduction can be claimed for every such gift, and not two, as
claimed by appellants herein. In thus holding, the Board of Tax Appeals
committed no error.
Premises considered, we are of the opinion and so declare:
(a) That the finding of the defunct Board of Tax Appeals to the
effect that shares transferred from Li Seng Giap to his children were conveyed
to them by way of donation inter vivos is supported by adequate
evidence, and therefore cannot be reviewed by this Court (Comm. of Internal
Revenue vs. Court Holding Co., L. Ed. 981; Comm. of Internal Revenue vs.
Scottish American Investment Co., 89 L. Ed. 113; Comm. of Internal Revenue vs.
Tower, 90 L. Ed. 670; Helvering vs. Tax Penn. Oil Co., 81 L. Ed. 755).
(b) That under the old Civil Code, a donation by the husband alone
does not become, in law a donation by both spouses merely because it involves
property of the conjugal partnership;
(c) That such a donation of property belonging to the conjugal
partnership, made during its existence, by the husband alone in favor of the
common children, is taxable to him exclusively as sole donor.
Wherefore, the decision appealed from is affirmed with costs to the
appellants. So ordered.
Paras, C. J., Bengzon, Padilla, Montemayor, Reyes, A., Bautista Angelo,
Jugo, Labrador, and Concepcion, JJ., concur.