GR L 45544; (April, 1939) (Digest)
G.R. No. L-45544. April 25, 1939.
THE COLLECTOR OF INTERNAL REVENUE, petitioner-appellant, vs. THE ADMINISTRATRIX OF THE ESTATE OF LORENZO ECHARRI, oppositor-appellee.
FACTS
In the intestate proceedings of Lorenzo Echarri, the Collector of Internal Revenue filed a claim for deficiency income tax for the year 1927 in the amount of P14,475.13. The administratrix opposed the claim, challenging its validity. The Court of First Instance initially ordered payment under protest per section 1579 of the Revised Administrative Code, but later reconsidered and set the claim for trial on the merits. After trial, the court reduced the tax liability to P1,467.57. The Collector appealed, arguing the court lacked jurisdiction to hear the contest without prior payment under protest and that the transaction subject to tax was a sale generating taxable gain, not a mere exchange.
ISSUE
1. Whether the probate court had jurisdiction to receive evidence and decide on the merits of the government’s tax claim without the taxpayer first paying the tax under protest.
2. Whether the transaction involving Echarri’s transfer of “Hacienda Urbasa” to Central Azucarera del Danao in payment for subscribed shares was a taxable sale or a non-taxable exchange, and whether gain was realized.
RULING
1. Yes, the probate court had jurisdiction. Following Collector of Customs vs. Haygood, where a deficiency is discovered within three years from the filing of the return, the claim may be filed in the estate proceedings via a motion accompanied by a sworn statement of taxes due. The court can summarily order payment if funds are available, considering statutory preferences. The probate court has the authority not only to order payment but also to deny the claim after hearing. The procedure under section 1579 (payment under protest followed by a separate suit) is not the exclusive remedy in such cases.
2. The transaction was correctly treated as an exchange where no taxable gain was realized. For income tax purposes, it is immaterial whether the transaction is labeled a sale or an exchange; the key is whether any gain or profit was derived. The trial court’s finding of fact—that Echarri realized no gain from the transaction—is conclusive absent a showing of abuse or misapplication of law. The court found the value of the hacienda transferred equaled the par value of the shares received, resulting in no net gain subject to tax.
The appealed order was affirmed, and the appeal was dismissed.
AI Generated by Armztrong.