8/3/2019 9_Commissioner vs. Palanca
1/1
COMMISSIONER V. PALANCA
18 SCRA 496
REGALA, October 29, 1966
NATUREPetition for Review by certiorari of CTA Decision
FACTS-July 1950, Don Carlos Palanca, Sr., donated to his
son Carlos Jr., shares of stock in La Tondea, Inc.amounting to
12,500 shares. Carlos Jr. failed to file areturn on the donation
within the statutory period soCarlos Jr. was assessed P97,691.23
(gift tax),P24,442.81 (25% surcharge), P47,868.70 (interest),which
he paid on June 22, 1955.-March 1,1956, Carlos Jr. filed with BIR
his ITR for1955 claiming a deduction for interest ofP9,706.45and
reporting a taxable income of P65,982.12. Hewas assessed P21,052.01
as income tax.-November 1956, Carlos Jr. filed an amended returnfor
1955, claiming an additional deduction ofP47,868.70 (allegedly the
interest paid on thedonees gift tax based on Sec.30(b)(1) of the
TaxCode) so taxable income is P18,113.42 (not
P65,982.12) and tax due thereon in sum ofP3,167.00. He claimed
for a refund ofP17,885.01(P21,052.01 - P3,167.00) BIR denied-Carlos
Jr. reiterated claim for refund, BIR denied-BIR considered the
donation by Carlos Sr. as atransfer in contemplation of death so
Carlos Jr. wasassessed P191,591.62 as estate and inheritancetaxes.
Carlos paid P17,002.74 on June 22, 1955 asgift tax (includes
interest and surcharge) which wasapplied to his estate and
inheritance tax liability.Petitioner paid P60,581.80 as interest
fordelinquency.-August 1958, Carlos Jr. filed again an amended
ITRfor 1955 claiming the following:As interest deductions:
P9,706.45 (as in the originalITR) + P60,581.80 (interest on the
estate andinheritance taxes); Net Taxable income: P5,400.32;Income
tax due: P428.00; claimed a refund ofP20,624.01 (P21,052.01 P428) .
Even before BIRruled on his claim, Carlos Jr. filed petition for
reviewbefore CTA-CTA: BIR refund Carlos P20,624.01
ISSUES1. WON there is a difference between indebtednessand taxes
to determine the deductible interest(WON Palanca could claim
interest deductions basedon tax liability)2. WON claim for refund
of Palanca already expired
HELD
1. NO. Distinction became inconsequential. Intereston taxes
should be considered as interests ofindebtednessRatio. While the
distinction between taxes anddebts was recognized in this
jurisdiction, thevariance in their legal conception does not extend
tothe interests paid on them, at least insofar asSec.30(b)(1) of
the NIRC1 is concerned (whichauthorizes deduction from gross income
of interestpaid within the taxable year on indebtedness).Reasoning.
CIR argues that Carlos Jr. cannot deductthe interest due to its tax
liabilities from his grossincome since it is not interest ON
INDEBTEDNESS butinterest on TAX (liabilities).-however, in CIR v.
PRIETO (wherein deductions ofinterest on donors tax was allowed) it
was held thatthe term indebtedness was defined as theunconditional
and legally enforceable obligation forthe payment of money. It
Thus, it is apparent that atax may be considered an
indebtedness.
2. NO
Ratio. Where the claim for refund was filed with theCTA even
before it had been denied by the BIR, thenthe 30-day prescription
period under Sec.11, RA1124(25) did not even commence to run. Where
thetax account was paid by installment, then thecomputation of the
two-year prescriptive periodunder Sec. 306 of the Tax Code should
be from thedate of the last installmentReasoning. CIR argued that
under Sec.11(mayappeal to CTA within 30-days from receipt of
decisionor ruling), claim for refund already prescribedbecause
outside 30-day period. Under Sec.306 of TaxCode (No suit/proceeding
shall be begun for recoveryof tax erroneously or illegally
collected after theexpiration of 2years from the date of payment of
thetax penalty) CIR claims that under Palancas withheldtax and
under Receipt dated May 11, 1956, amountspaid by Carlos Jr. may no
longer be refunded as it
was filed in court only on August 13, 1958 (beyond2yr period)-on
30-day period: did not even commence whencase was filed because
there was no final decisionfrom BIR yet when Carlos Jr. filed case
with CTA-on 2yr period: Palanca paid on installment. His
lastpayment was on August 14, 1956. Therefore, since
1 "Sec. 30. Deductions from gross income. In computing net
income
there shall be allowed as deductions
xxx xxx xxx
'Interest:
'(1) In general. The amount of interest paid within the taxable
year on
indebtedness, except on indebtedness incurred or continued to
purchase
or carry obligations the interest upon which is exempt from
taxation as
income under this Title.
the period of counting should be from time of lastinstallment,
he still filed claim on time on August 13,1958!
Disposition. WHEREFORE, the decision appealedfrom is affirmed in
full, without pronouncements oncosts.
