People v. Litton

[CA-G.R. No. 01428. August 1, 1986.] THE PEOPLE OF THE PHILIPPINES , plaintiff-appellee , vs . LEONOR LITTON , accused-appellant . E. Voltaire Garcia for accused and appellant. Solicitor General Estelito P. Mendoza, Assistant Solicitor General Zoilo A. Andin and Solicitor Prudencio V. L. Ruiz for plaintiff and appellee. SYLLABUS 1. TAXES AND TAXATION; INCOME TAX; FAILURE TO FILE INCOME TAX RETURNS FOR INCOME DERIVED FROM SALE OF REAL PROPERTY; THERE IS NO OBLIGATION TO FILE RETURNS IF THERE IS NO GROSS INCOME. In this case, what prosecution should have established is the acquisition cost of the property by the appellant or the fair market value thereof at the date of acquisition if it was acquired by gratuitous title. Such acquisition cost must be deducted from the selling price of the property, the balance of which is the gross income which shall be taxable in accordance with Sec. 34(b) of the Tax Code after appropriate deductions. However, if it appears that the acquisition cost exceeds the selling price them there is a loss and consequently there is no gross income. The seller has thereby, no obligation to file an income tax return. APPEAL from a judgment of the Regional Trial Court of Pasig, Branch CLXII. Asaali S. Isnani, J . The facts are stated in the opinion of the Court. D E C I S I O N GANCAYCO , J p : In an information that was filed in the Court of First Instance of Rizal, Leonor S. Litton was charged of the crime of Violation of Section 45(a) of the National Internal Revenue Code penalized under Section 73 of the same Code allegedly committed in this manner: "That in 1977, in the Municipality of Makati, Metro Manila where the accused was then (and still is ) a resident and within the jurisdiction of this Honorable Court the above-named accused despite realizing a gross income of P895,000.00 from the sale of five parcels of land covered by Transfer Certificate of Title Nos. (296418) S-35856, 30631, 296412, 42788 and 93961 and with intent to evade payment of income tax on the basis of said sales, willfully, deliberately, unlawfully and feloniously refused or neglected to file her income tax return for said year knowing fully well that this was required of her by law, thereby violating Section 45(a) of the National Internal Revenue Code as penalized under the 1st paragraph of Section 73 of the mentioned Code, to the damage and prejudice of the government. The above offense was discovered by complainant on July 28, 1980. Contrary to law." Upon arraignment accused entered a plea of not guilty and thereafter trial on the merits proceeded. Upon the conclusion thereof a decision was rendered on May 8, 1984 by the Regional Trial Court of the National Capital Judicial Region convicting the accused of the offense charged imposing on her a fine of P2,000.00 with subsidiary imprisonment in case of insolvency and to pay the costs. Not satisfied therewith the accused now interposed this appeal alleging that the trial court committed the following assigned errors; "I The trial court erred in making a finding and in holding that accused-appellant realized a total gross income of eight hundred ninety five thousand pesos (P895,000.00) in 1977. II The trial court erred in admitting as evidence for the prosecution the alpha list of taxpayers (Exh. "L") and on the basis thereof in making a finding and holding that accused-appellant did not file her income tax returns for 1977. III The trial court erred in making a finding and holding that the prima facie evidence of non-filing of income tax returns for 1977 has not been offset by the testimonies of Atty. Rogelio M. Paz, and Rolando Paz both of whom testified for the accused-appellant and by the admission of prosecution witness Piedad Liedo of filing by accused-appellant of her income tax returns for the year 1977. The trial court erred in convicting the accused-appellant of the crime charged and in imposing upon her the penalty of fine thereof." The evidence on the basis of which the trial court convicted the appellant is narrated in the appealed decision as follows: From the evidence adduced by the parties, it has been established that the accused, as Leonor S. Litton and as Leonor Sochayseng, sold six parcels of land in 1977, as shown in Exhibits "C", "D", "E", "F" and "G". Leonor S. Litton, who executed Exhibits "C" and "E", is the same person as Leonor Sochayseng, who executed Exhibits "D", "F" and "G", as revealed by her residence certificates No. A-759296, and No. B-1275779, issued at Manila, on January 25, 1977 and March 31, 1976, respectively, as well as by her Tax Account Number 1324-199-3, indicated in the acknowledgment thereof. For the sale of the aforementioned parcels of land, the accused realized a total gross income of Eight Hundred Ninety-five Thousand (P895,000.00) Pesos. The prosecution maintains that the accused was required by law to file her income tax return for 1977 but she did not do so. The accused contends otherwise. The evidence of the prosecution, consisting mainly of the alpha list of taxpayers (Exhibit "L") and the certification dated July 11, 1980 (Exhibit "H") issued by Carmelita Panganiban, as well as her testimony thereon, show that the accused is a "non-filer" or income tax return for the year 1977. The information or data contained in the alpha list was supplied by the computer. This data, in turn, was fed to computer by personnel of the Bureau of Internal Revenue assigned in the data processing center from documents received by them from all the regions in the country." Under the provisions of Sec. 45 (a) of the Tax Code then any individual whose gross income is equal to or exceeds P1,800.00 must file an income tax return. Under Sec. 29(a) also of the Tax Code gross income is defined as follows: "SEC. 29(a). "Gross income" includes gains , profit, and income derived from salaries, wages, or compensation for personal service of whatever kind and in whatever form paid, or from professions, vocations, trades, business, commerce, sales, or dealings, in property whether real or personal, growing out of the ownership or use of or interest in such property; also from interests, rents, dividends, securities, or the transaction of any business carried on for gain or profit, or gains, profits, and income derived from any source whatever," (Emphasis supplied) From the foregoing it is clear that in case of sale or dealings in real property, the gross income is the gain derived in such sale. Under the information filed against the appellant it is charged that she realized the gross income of P895,000.00 from the sale of five (5) parcels of land in the year 1977. The evidence of the prosecution show that said total gross income is based on the total selling price of said five (5) parcels of land of the appellant. As above-stated the gross income in the sale of real property according to Sec. 29(a) is the gain derived from the said sale not the selling price thereof. Section 35 (a) and (b) of the Tax Code provides the formula by which the gain or loss in the sale of real property may be determined, to wit: "SEC. 35. Determination of gain or loss from the sale or other disposition of property . The gain derived or loss sustained from the sale or other disposition of property, real, personal, or mixed, shall be determined in accordance with the following schedule: (a) In the case of property acquired before march first, nineteen hundred and thirteen, the fair market price or value of such property as of March first, nineteen hundred and thirteen. (b) In the case of property acquired on or after March first, nineteen hundred and thirteen, the cost thereof if such property was acquired by purchase or the fair market price or value as of the date of acquisition if the same was acquired by gratuitous title." Thus in this case what the prosecution should have established is the acquisition cost of the property by the appellant or the fair market value thereof at the date of acquisition if it was acquired by gratuitous title. Such acquisition cost must be deducted from the selling price of the property, the balance of which is the gross income which shall be taxable in accordance with Sec. 34(b) of the Tax Code after appropriate deductions. However, if it appears that the acquisition cost exceeds the selling price then there is a loss and consequently there is no gross income. The seller has thereby no obligation to file an income tax return. The burden of proof therefore is on the prosecution to establish that because of the sale the appellant derived a gross income equal or in excess of P1,800.00 and failed to file an income tax return covering the same on the basis of which she may be held liable under Section 45(a) in relation to Section 73 of the Tax Code. This, the prosecution failed to establish. What the records reveal is that the tax examiner, Mr. Fallarme computed the total sale price of the property as reflected in the documents of sale and determined the actual market price of the same at the dates of the sale which appears to be higher than the selling price. Such alleged under-declaration in the total amount of P371,000.00 in the selling price of the properties was reported by the examiner to be the gain or profit. The manner of computation of gain or profit. The manner of computation of gain or profit undertaken by the examiner is not in accordance with law as above outlined and is arbitrary. The prosecution having filed to discharge its burden to prove that the appellant had a duty under the law to file an income tax return for the sale of her properties the case of the prosecution must necessarily fall. Nevertheless, buttressed against the negative evidence of the prosecution that the alpha list of the taxpayers for 1977 does not show the appellant filed an income tax return for 1977 (Exhibit "L"), since such list reflects only those who actually paid the taxes, consequently those who filed an income tax return but did not pay any tax being exempt or having lost in the business, would necessarily be not reflected in the said alpha list of taxpayers (Exh. "L"). Moreover, although such evidence of the prosecution may be prima facie evidence of such non-filing of income tax returns as held by the trial court interpreting Sec. 37, Rule 130 of the Rules of Court, nevertheless said evidence was overturned by the evidence of the appellant showing that in fact the lawyer of appellant Atty. Rogelio M. Paz filed appellant's income tax return for 1977 reporting the rental income but the duplicate copy of taxpayer in his possession and the tax receipt was burned when his office was razed by fire. Rolando Paz, an employer of said lawyer corroborated this having personally filed the appellant's income tax return in Makati, Rizal and paid the amount of P20.00. WHEREFORE, the decision appealed from is REVERSED AND SET ASIDE and another decision is hereby rendered ACQUITTING the appellant with costs de oficio . SO ORDERED. Lombos-De la Fuente and Reyes , M.T . , concur. Judgment reversed .