JOSE AVELINO, PETITIONER, VS. THE COLLECTOR OF INTERNAL REVENUE, RESPONDENT

In the brief of the petitioner various assignments of
errors are made, each error raising specific questions of
law and of fact. The errors will now be considered one
by one, each independently of the others.

I

It is contended under this assignment
of error that there is no reasonable certainty of the amount taken as
an opening net worth, there being no sufficient basis for establishing
such opening net worth. Included in the opening net worth as of January
1, 1946, both according to the petitioner as well as to the
Commissioner of Internal Revenue, are P700.00 and P5,500.00,
representing cash in bank, PNB savings account and PNB current account,
respectively. But petitioner claims that the cash on hand in the
opening net worth should be, on December 31, 1945 (or January 1, 1946),
not P100.00 as estimated by respondent but P47,300.00, for the reason
that in an income tax return submitted by the wife of the petitioner,
Mrs. Enriqueta Avelino, she made it appear that she netted a profit of
P55,000.00 from her business of importation of shoes, operation of a
bar, and of a restaurant, shortly after liberation. The income tax
return submitted by her for the year 1946 was submitted in the year
1949 and was presented at the hearing as Exhibit “A”. Petitioner
asserts that his wife made a gain of P55,000.00 during the year 1946,
but the supposed copy of the income tax return that she has submitted
as evidence does not show how that amount had been earned. If she did
actually earn that amount Exhibit “A” would have contained the details
indicating the transactions in which the big sum was earned. Why none
of that amount or the greater part thereof appears to have been
deposited in a bank has not been explained. Apparently the court below
considered the return as a self-serving statement, and we agree that on
the basis of that income tax return, without any other explanation how
the gains were used or invested or deposited, there is no reason to
disturb the action of the court below in giving no credence to the said
alleged existence of the cash net worth existing at the beginning of
the year 1946. We therefore declare that the alleged error has not been
committed.

II

The respondent denies that this error has been committed. In Annex I, the yellow working sheet prepared
by Examiner Lasquety, it is shown that the sum of
P6,508.00 was deducted in the year 1948 as the taxable
capital gain. This deduction was sustained by the Court
below. The alleged error, therefore, is disproved by
Annex I.

III

This supposed error was not committed as evidenced
by an examination of Annex I, which shows that P9,816.78
was allowed as deduction for 1948 under the heading “Reserve for Depreciation, Building”.

IV

This error again is disproved by Annex I, the yellow
working sheet prepared by Bureau of Internal Revenue
Examiner Lasquety. This working sheet was adopted by
the Court of Tax Appeals and it shows that P35,000.00
alleged to have been omitted was actually taken into
account in the computation of the 1947 accounts of the
petitioner, as improvements on four buildings.

V

Neither do we find any merit in this assignment of
error. According to the evidence, the articles of incorporation of the Talisay Lumber Company, which is under
oath, petitioner and his wife invested the sums of P28,000.00
and P1,000.00 in the company. If these sums were not
furnished by the petitioner but by the organizer of the
company, still the total amount of P29,000.00 should be
considered as a gift, or an income received by the petitioner and his wife from the said organizer of the Talisay
Lumber Company, which income is liable to tax.

VI

Under this assignment of error, petitioner argues that
the appearance of the said amount as having been contributed to the partnership by petitioner is no proof that
that amount was petitioner’s actual investment in the company. The same reasons obtaining in the case of the
investment of P29,000.00 of the spouses in the Talisay
Lumber Company obtain in the case of the petitioners
investment in the partnership of Avelino, Bagtas, Alzate
and Company.

VII

In support of this assignment of error, petitioner contends that he
owed the sum of P10,000.00 to Rosario Gray de Hays, which amount
represents one-half of the price of P20,000.00 which was the
consideration for the sale of certain property described in Exhibit
“C”. But the original of the document shows that the amount of the
consideration was P22,000.00 and the vendor was Severina de Casal, and
nothing is said in the original of the document that any part of the
amount under consideration has not been paid.

It is also alleged in support of this error that the petitioner is indebted to Angela M. Vda. de Butte in 1948 in
the sum of P30,000.00. Mrs. Butte testified that petitioner
owed her the amount of P30,000-00; that the debt was in
the form of a cheek and that in 1949 Mr. Avelino, the
petitioner, paid P15,000.00, and that he paid the balance
in 1951, no interest on the loan having been demanded
and paid. Evidence of this character has, as a rule, been declared insufficient for purposes of the income tax law.
(Eugenio Perez vs. Court of Tax Appeals, et al., G.R. No.
L-10507, May 30, 1958; Aurelio P. Reyes vs. Collector
of Internal Revenue, G.R. Nos. L-11534 & L-11558, Nov.
25, 1958.) We declare that in consonance with the rule
which appears to be reasonable, the alleged loan cannot be
declared as actually existing.

VIII

Under this alleged error it is contended that there was
no evidence of fraud committed by the petitioner. We find
that the acts of the petitioner in declaring an income of
only P5,258.99 in the year 1946 when he had an actual
income of P106,223.06; his act in submitting an income
tax return for 1947 only for the amount of P12,219.96
when he actually had a net taxable income of P43,504.34;
and lastly his act in reporting an income for the year 1948 which is only ten percent of the actual taxable
income of P38,885.81—all these circumstances justify the
finding of the court below that there has been fraud
subject to be penalized by law.

IX

In this assignment of error it is contended that the
liability of the petitioner for income tax for the years
1946, 1947 and 1948 has already prescribed. The contention is without merit as it has been found out that the
petitioner has been guilty of fraud. The period within
which he may be subjected to liability in case of fraud
begins from the moment the fraud is discovered and not
when the income tax return was presented. (Sec. 332,
Internal Revenue Law)

X

This supposed error is the result of the previous errors
and need not be considered.

Finding
no error in the conclusion of fact and of law made by the respondent
court, we hereby affirm the assessments made by it as above indicated,
with costs against petitioner.

Bengzon, C. J., Concepcion, Reyes, J. B. L., Barrera,
Paredes, Regala, and Makalintal, JJ., concur.