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    Tuason vs. Lingad Digest

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    Ann SC
    The petitioner inherited land from his mother that was subdivided into residential lots. He sold the lots and reported the income as capital gains. The Commissioner initially agreed but later determined the income should be considered ordinary gains. The court held the income was ordinary, as the petitioner was engaged in the real estate business based on several factors: the large area of land subdivided, improvements made to lots to make them more saleable, frequent and continuous sales of lots that generated substantial income, and the petitioner's tax returns did not indicate he was a stranger to the real estate business. However, the petitioner was not liable for surcharges or interest since he relied in good faith on prior opinions from the Bureau of Internal Revenue.

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    Tuason vs. Lingad Digest

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    Ann SC
    698 views2 pages
    The petitioner inherited land from his mother that was subdivided into residential lots. He sold the lots and reported the income as capital gains. The Commissioner initially agreed but later determined the income should be considered ordinary gains. The court held the income was ordinary, as the petitioner was engaged in the real estate business based on several factors: the large area of land subdivided, improvements made to lots to make them more saleable, frequent and continuous sales of lots that generated substantial income, and the petitioner's tax returns did not indicate he was a stranger to the real estate business. However, the petitioner was not liable for surcharges or interest since he relied in good faith on prior opinions from the Bureau of Internal Revenue.

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    The petitioner inherited land from his mother that was subdivided into residential lots. He sold the lots and reported the income as capital gains. The Commissioner initially agreed but later determined the income should be considered ordinary gains. The court held the income was ordinary, as the petitioner was engaged in the real estate business based on several factors: the large area of land subdivided, improvements made to lots to make them more saleable, frequent and continuous sales of lots that generated substantial income, and the petitioner's tax returns did not indicate he was a stranger to the real estate business. However, the petitioner was not liable for surcharges or interest since he relied in good faith on prior opinions from the Bureau of Internal Revenue.

    Copyright:

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

    Tuason vs. Lingad Digest

    Uploaded by

    Ann SC
    The petitioner inherited land from his mother that was subdivided into residential lots. He sold the lots and reported the income as capital gains. The Commissioner initially agreed but later determined the income should be considered ordinary gains. The court held the income was ordinary, as the petitioner was engaged in the real estate business based on several factors: the large area of land subdivided, improvements made to lots to make them more saleable, frequent and continuous sales of lots that generated substantial income, and the petitioner's tax returns did not indicate he was a stranger to the real estate business. However, the petitioner was not liable for surcharges or interest since he relied in good faith on prior opinions from the Bureau of Internal Revenue.

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    of 2

    ANTONIO TUASON, JR., vs. JOSE B.

    LINGAD, as Commissioner of Internal Revenue,


    Facts: Petitioner Antonio Tuason, assails the Tax Court's conclusion that the gains he realized from the sale of
    residential lots (inherited from his mother) were ordinary gains and not gains from the sale of capital assets under
    section 34(1) of the National Internal Revenue Code.
    Petitioner inherited from his mother several tracts of land, among which were two contiguous parcels situated on
    Pureza and Sta. Mesa streets in Manila. Petitioner's mother was yet alive she had these two parcels subdivided
    into twenty-nine lots. After the petitioner took possession of the mentioned parcels in 1950, he instructed his
    attorney-in-fact, J. Antonio Araneta, to sell them.
    Petitioner reported his income from the sale of the small lots as long-term capital gains. On May 1957 the
    Collector of Internal Revenue upheld the petitioner's treatment of his gains from the said sale of small lots, against
    a contrary ruling of a revenue examiner.
    In his 1957 tax return the petitioner as before treated his income from the sale of the small lots as capital gains and
    included only thereof as taxable income. In this return, the petitioner deducted the real estate dealer's tax he
    paid for 1957. It was explained, however, that the payment of the dealer's tax was on account of rentals received
    from the mentioned 28 lots and other properties of the petitioner.
    On 1963, however, the Commissioner reversed himself and considered the petitioner's profits from the sales of the
    mentioned lots as ordinary gains. Petitioner was ordered to pay to pay deficiency income tax for 1957 aplus 5%
    Surcharge and 1% monthly interest.
    Issue: Whether the properties which petitioner had inherited and subsequently sold in small lots to other persons
    should be regarded as capital assets.
    Held: No. It is Ordinary Income.
    The term "capital assets" includes all the properties of a taxpayer whether or not connected with his trade or
    business, except: (1) stock in trade or other property included in the taxpayer's inventory; (2) property primarily for
    sale to customers in the ordinary course of his trade or business; (3) property used in the trade or business of the
    taxpayer and subject to depreciation allowance; and (4) real property used in trade or business.
    If the taxpayer sells or exchanges any of the properties above-enumerated, any gain or loss relative thereto is
    an ordinary gain or an ordinary loss; the gain or loss from the sale or exchange of all other properties of the
    taxpayer is a capital gain or a capital loss.
    Under section 34(b) (2) of the Tax Code, if a gain is realized by a taxpayer (other than a corporation) from the sale
    or exchange of capital assets held for more than twelve months, only 50% of the net capital gain shall be taken into
    account in computing the net income.
    The following circumstances in combination show unequivocally that the petitioner was, at the time
    material to this case, engaged in the real estate business:
    (1) the parcels of land involved have in totality a substantially large area, nearly seven (7) hectares, big enough to
    be transformed into a subdivision, and in the case at bar, the said properties are located in the heart of Metropolitan
    Manila;
    (2) they were subdivided into small lots and then sold on installment basis (this manner of selling residential lots is
    one of the basic earmarks of a real estate business);
    (3) comparatively valuable improvements were introduced in the subdivided lots for the unmistakable purpose of
    not simply liquidating the estate but of making the lots more saleable to the general public;
    (4) the employment of J. Antonio Araneta, the petitioner's attorney-in-fact, for the purpose of developing, managing,
    administering and selling the lots in question indicates the existence of owner-realty broker relationship;
    (5) the sales were made with frequency and continuity, and from these the petitioner consequently received
    substantial income periodically;

    (6) the annual sales volume of the petitioner from the said lots was considerable, e.g., P102,050.79 in 1953;
    P103,468.56 in 1954; and P119,072.18 in 1957; and
    (7) the petitioner, by his own tax returns, was not a person who can be indubitably adjudged as a stranger to the
    real estate business.
    Under the circumstances, undeniably the income of petitioner from the sales of the lots in question should be
    considered as ordinary income. Taxpayer's sales of the several lots forming part of his rental business cannot be
    characterized as other than sales of non-capital assets.
    Petitioner is not liable to pay a 5% surcharge plus 1% monthly interest because petitioner relied in good faith
    upon opinions rendered by no less than the highest officials of the Bureau of Internal Revenue, including
    the Commissioner himself.

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