Commissioner of Internal Revenue v. Abello

[CA-G.R. SP No. 27134. April 20, 1994.] (C.T.A. Case No. 4296) COMMISSIONER OF INTERNAL REVENUE , petitioner , vs . MANUEL G. ABELLO, JOSE C. CONCEPCION, TEODORO D. REGALA, AVELINO V. CRUZ and COURT OF TAX APPEALS , respondents . D E C I S I O N YNARES-SANTIAGO , J p : This petition seeks the review of the decision dated October 7, 1991, of the Court of Tax Appeals, in C.T.A. Case No. 4296, entitled "Manuel G. Abello, Jose C. Concepcion, Teodoro D. Regala and Avelino V. Cruz vs. Commissioner of Internal Revenue", the dispositive portion of which reads: "WHEREFORE, judgment is rendered in favor of petitioners. Respondent is hereby ordered to withdraw his letters dated April 21, 1988 and August 4, 1988 assessing donor's taxes and to desist from collecting donor's taxes from petitioners." The factual antecedents of the case are as follows: Private respondents are partners in the law firm of Angara, Abello, Concepcion, Regala and Cruz. In 1987 elections, private respondents contributed the sum of P882,661.31 each to the campaign chest of senatorial candidate Edgardo J. Angara. For their contributions, private respondents were assessed by the Bureau of Internal Revenue donor's tax of P263,032.66 each, in letters dated April 21, 1988. Private respondents wrote the Commissioner of the Bureau of Internal Revenue on August 2, 1988, alleging that they were not liable for donor's tax for a political or electoral contribution is not a gift within the contemplation of the National Internal Revenue Code. Petitioner denied private respondent's plea for exemption from donor's tax. On September 12, 1988, private respondents filed a Petition for Review with the Court of Tax Appeals (CTA) alleging, among others, that their political contributions are not gifts within the contemplation of the National Internal Revenue Code. On October 7, 1991, the Court of Tax Appeals rendered its decision in favor of private respondents, ordering petitioner to desist from collecting donor's taxes from private respondents. Hence, this petition. The main issue to be resolved in this petition is: whether the private respondents' political contributions to Sen. Angara are gifts, hence, subject to donor's or gift tax within the contemplation of the National Internal Revenue Code (NIRC). Petitioner contends that the contributions of private respondents to Sen. Edgardo Angara are gifts because they are voluntary transfers of property in the form of money from private respondents to Sen. Edgardo J. Angara without considerations therefor. On the other hand, private respondents maintain that the political contributions they gave to Sen. Edgardo Angara are not donations because there is consideration or objective which is the desire of the giver to influence the result of the elections by ensuring the election of a particular candidate who, in the perception of the giver, would influence the shaping of government policies which will promote the general welfare and economic well-being of the citizens, including the giver himself. Hence, a person who gives a political contribution receives adequate or full consideration in exchange for his contribution. Private respondents further argued that even assuming that a political contribution is considered as a gift or donation, the same is not subject to donor's tax for the reason that the burden imposed upon the donee is considered an adequate consideration from the standpoint of the donor, and hence, the act of liberality, as a cause thereof, is absent. The petition is impressed with merit. The National Internal Revenue Code, as amended, provides: "Sec. 91. Imposition of Tax . (a) There shall be levied, assessed, collected, and paid upon the transfer by any person, resident, or non-resident, of the property by gift, a tax, computed as provided in Section 92. (b) The tax shall apply whether the transfer is in trust or otherwise, whether the gift is direct or indirect, and whether the property is real or personal, tangible or intangible." Pursuant to the above-quoted provisions of law, the transfer of property by gift, whether the transfer is in trust or otherwise, whether the gift is direct or indirect, and whether the property is real or personal, tangible or intangible, is subject to donor's or gift tax. A gift is generally defined as a voluntary transfer of property by one to another without any consideration or compensation therefor (28 C.J. 620; Santos vs. Robledo, 28 Phil. 250). In the instant case, the contributions are voluntary transfers of property in the form of money from private respondents to Sen. Angara, without considerations therefor. Hence, they squarely fall under the definition of donation or gift. As correctly pointed out by the Solicitor General: "The fact that the contributions were given to be used as campaign funds of Sen. Angara does not affect the character of the fund transfers as donation or gift. There was thereby no retention of control over the disposition of the contributions. There was simply an indication of the purpose for which they were to be used. For as long as the contributions were used for the purpose for which they were intended, Sen. Angara had complete and absolute power to dispose of the contributions. He was fully entitled to the economic benefits of the contributions." Section 91 of the Tax Code is very clear. A donor's or gift tax is imposed on the transfer of property by gift. The Bureau of Internal Revenue issued Ruling No. 344 on July 20, 1988, which reads: " Political Contributions . For internal revenue purposes, political contributions in the Philippines are considered taxable gift rather than taxable income. This is so, because a political contribution is indubitably not intended by the giver or contributor as a return of value or made because of any intent to repay another what is his due, but bestowed only because of personal affection or regard, or from general motives of philanthropy or charity. His purpose is to give and to bolster the morals, the winning chance of the candidate and/or his party, and not to employ or buy. On the other hand, the recipient-donee does not regard himself as exchanging his services or his product for the money contributed. But more importantly, he receives financial advantages gratuitously. When the U.S. gift tax law was adopted in the Philippines (before May 7, 1974), the taxability of political contributions was, admittedly, an unsettled issue; hence, it cannot be presumed that the Philippine Congress then had intended to consider or treat political contributions as non-taxable gifts when it adopted the said gift tax law. Moreover, well-settled is the rule that the Philippines need necessarily adopt the present rule or construction in the United States on the matter. Generally, statutes of different states relating to the same class of persons or things or having the same purposes are not considered to be in pari material because it cannot be justifiably presumed that the legislature had them in mind when enacting the provision being construed. (5206, Sutherland, Statutory Construction, p. 546.) Accordingly, in the absence of an express exempting provision of law, political contributions in the Philippines are subject to the donor's gift tax. (cited in National Internal Revenue Code Annotated by Hector B. de Leon, 1991 ed., p. 290). In the light of the above BIR Ruling, it is clear that the political contributions of the private respondents to Sen. Edgardo Angara are taxable gifts. The vagueness of the law as to what comprise the gift subject to tax was made concrete by the above-quoted BIR ruling. Hence, there is no doubt that political contributions are taxable gifts. WHEREFORE, in view of all the foregoing the petition is GIVEN DUE COURSE. The decision of the Court of Tax Appeals is hereby REVERSED and SET ASIDE. Private respondents are hereby ordered to pay the amount of P263,032.66 each as donor's or gift tax. No pronouncement as to costs. SO ORDERED. Herrera and Vidallon-Magtolis, JJ ., concur.