Reinvestigation of the Assessment Case of Sen. Fernando Lopez

November 26, 1958 BIR RULING NO. 692-58 Mr. Alejandro A. Esclamado Attorney-at-Law P.O. Box 1609 Manila S i r : Reference is made to your letter dated January 24, 1957, requesting that the case (Assessment No. GA-3910-49) of your client, Senator Fernando Lopez, be reinvestigated. As reason therefor, you stated that the amount of P50,000.00 "awarded" to him by the Lopez Sugar Central Mill Co., Inc., in pursuance of a resolution passed by its board of directors on June 27, 1949, should be considered by this Office as an income and not as a donation to the recipient. In support of your stand, you submitted with the letter under reply a certificate dated January 21, 1957 of Mr. Carlos Lopez, evidently a member of the aforesaid board of directors, certifying to the fact that he was the sponsor of the resolution in question and that the motive of the board of directors in approving the resolution was to remunerate Senator Lopez for the valuable services he had rendered to the Lopez Sugar Central Mill Co., Inc. LLphil Your client's case was duly reinvestigated but the result of the reinvestigation affirmed the previous findings of this office. A cursory reading of the excerpt from the minutes of the special meeting held by the board of directors of the aforenamed sugar central on June 27, 1949 revealed that the amount in question was given to Senator Lopez as contribution to his election expenses incurred in 1949. The intention to donate is, therefore, obvious. The certificate issued on January 21, 1957 by Mr. Carlos Lopez is self-serving and for purposes of evidence, it cannot prevail over the resolution of the board of directors. But, even admitting, for the sake of argument, that as claimed in the certificate just mentioned, the motive of the board of directors in passing the resolution "awarding" the amount of P50,000.00 to Senator Lopez was to remunerate him for services he had rendered to the sugar central, that fact did not make said amount less a donation. For Article 726 of our Civil Code (Art. 619. old Civil Code) classifies donations into (1) simple, (2) remuneratory, and (3) onerous or conditional, and donations given to remunerate services previously rendered by the donee are, according to Manresa, the remuneratory proper (Di Siock Jian vs. Sy Lioc Suy, 43 Phil., 562; see also: Carlos vs. Ramil. 20 Phil., 133; Manalo vs. de Mesa, 29 Phil., 495). Moreover, it has been held that the payment of P50,000.00 by a corporation to its president, as directed by the board of directors pursuant to the stockholders' authorization, in recognition of his able direction of the company's affairs during the past ten (10) years is a gift, not subject to the income tax. (Blair, etc. vs. Rosseter, 7 A.m. Fed. Tax Reports. p. 3313. citing Jonee vs. Com. of Internal Revenue, where it was held that "a part of the proceeds of a sale of stock distributed to the administrative staff of corporations, without obligation on the past of the stockholders, or any consideration other than recognition of past faithful services, constituted a gift, and not taxable income".) In view of all the foregoing, it will be highly appreciated if you can now urge your client to pay the gift tax, plus surcharge, interests and penalty, assessed against him, in the total sum of P11,049.00. LLjur Very truly yours, (SGD.) MELECIO R. DOMINGO Acting Commissioner of Internal Revenue