BIR Ruling No. 040-61

January 30, 1961 BIR RULING NO. 040-61 There is returned to you herewith the entire docket bearing on the internal revenue tax case of the Hagehorn Family involving the amounts of P401.10 and P745.92 as donor's and donee's gift taxes, respectively. LexLib The records of this case show that Mr. Fred C. Hagehorn, Jr. and Mrs. Maria M. Hagehorn, husband and wife, were original subscribers of a total of four hundred (400) shares of stocks of the Gaberman and Hagehorn, Inc. at two hundred (200) shares each with a par value of P100.00 per share. Out of these two hundred (200) shares of stocks originally issued and registered in the name of Mrs. Maria M. Hagehorn, 199 shares were transferred by her on September 27, 1958 to her husband and one (1) share to her son, Fred C. Hagehorn III. Accordingly, the aforementioned transfer was provisionally assessed by the Bureau of Internal Revenue for donors and donee's gift taxes. Mr. and Mrs. Hagehorn, Jr. nevertheless refused to pay the gift taxes assessed against them for the simple reason that the transfer in question does not constitute a donation, invoking in this connection, the legal inhibition under the New Civil Code against donations or transfers between spouses during the existence of marriage. It was further contended that the shares of stocks transferred from the wife to the husband belong to the conjugal partnership, bought and paid with conjugal funds and that if there was any such transfer, the same was merely purposes of administration. This case has been submitted to this Office for our resolution of the following question: Whether or not the transfer of the one hundred and ninety nine (199) shares of stocks under the name of Mrs. Maria M. Hagehorn to that of her husband, Mr. Fred C. Hagehorn, Jr. constitutes in effect a donation or gift taxable under Sections 108-122 of the Tax Code? The circumstances surrounding the transfer in question should be looked into in resolving the issue of taxability or non-taxability or such transfer. Examiner Rinaldo P. Lopez of that Division opines that the transfer of the shares of stock from the name of Mrs. Maria M. Hagehorn to that of her husband constitutes a taxable gift or donation under the National Internal Revenue Code, invoking in this connection, a certain BIR ruling dated November 4, 1948. A study, however, of the said ruling shows that Mr. Gil Legaspi donated to his wife, Catalina Devilles a parcel of land belonging to him and, for this purpose, deeds of donation were executed, duly notarized and registered with the Register of Deeds of the province of Quezon. Obviously, the facts cited in the aforementioned ruling differ entirely with that of the present case, it appearing that the shares of stocks transferred from the name of Mrs. Hagehorn to that of her husband were only part of their conjugal partnership property, while the transfer between Mr. and Mrs. Legaspi involved a capital of the husband. It is to be noted that in denying the existence of a taxable donation, Mr. and Mrs. Hagehorn reason out that the shares of stocks in question belong to their conjugal partnership property. In fact, they will always maintain their ground with this contention, making it consequently hard for anybody to disprove such an allegation. It is a well-settled principle of law that in the absence of affirmative evidence to show that the acquisition was made with the money belonging exclusively to one of the spouses properties acquired during coverture shall be presumed conjugal, even if the title thereto has been taken in the name of one of them only. (Guingguing vs. Abuton, 48 Phil. 144, 148; Commonwealth vs. Sandiko, 40, O.G. No. 4, p. 722; Marigsa vs. Hacabontoc, 17 Phil. 107; Remore de Pratts vs. Menzi & Co. and Sheriff of Rizal, 53 Phil. 51). However, considering this difference in circumstances between the two cases, this Office, therefore, believes that the provision of Section 110(a) of the Tax Code on spouses as donees or beneficiaries, can only be applied to the transfer between Mr. and Mrs. Gil Legaspi but not in the case of Mr. and Mrs. Hagehorn. Be that as it may, withdrawing our assessment in this case will not at all prejudice the Government for one thing is definite: in due time transfer tax will come in. That being the case, this Office is of the opinion that the provision of the Tax Code on the imposition of gift taxes shall not apply and so the assessment made against Mr. and Mrs. Hagehorn, Jr. in the amounts of P401.10 and P745.92 as donor's and donee's gift taxes should be cancelled and this case closed. cdpr