7/17/2019 Tuason vs. Lingad Digest

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ANTONIO TUASON, JR., vs. JOSE B. LINGAD, as Commissioner of Internal Revenue,

a!ts" Petitioner Antonio Tuason, assails the Tax Court's conclusion that the gains he realized from the sale of residential lots (inherited from his mother) were ordinary gains and not gains from the sale of capital assets under section 3(!) of the "ational #nternal $e%enue Code&

Petitioner inherited from his mother se%eral tracts of land, among which were two contiguous parcels situated on

Pureza and ta& esa streets in anila& Petitioner's mother was yet ali%e she had these two parcels sudi%idedinto twenty*nine lots& After the petitioner too+ possession of the mentioned parcels in !-., he instructed hisattorney*in*fact, /& Antonio Araneta, to sell them&

Petitioner reported his income from the sale of the small lots as long*term capital gains& 0n ay !-1 theCollector of #nternal $e%enue upheld the petitioner's treatment of his gains from the said sale of small lots, againsta contrary ruling of a re%enue examiner&

#n his !-1 tax return the petitioner as efore treated his income from the sale of the small lots as capital gains andincluded only 2 thereof as taxale income& #n this return, the petitioner deducted the real estate dealer's tax hepaid for !-1& #t was explained, howe%er, that the payment of the dealer's tax was on account of rentals recei%edfrom the mentioned 4 lots and other properties of the petitioner&

0n !53, howe%er, the Commissioner re%ersed himself and considered the petitioner's profits from the sales of thementioned lots as ordinary gains& Petitioner was ordered to pay to pay deficiency income tax for !-1 aplus -6urcharge and !6 monthly interest&

Issue" 7hether the properties which petitioner had inherited and suse8uently sold in small lots to other personsshould e regarded as capital assets&

#el$" "o& #t is 0rdinary #ncome&

The term 9capital assets9 includes all the properties of a taxpayer whether or not connected with his trade or usiness, e%!e&t" (!) stoc+ in trade or other property included in the taxpayer's in%entory: () property primarily for sale to customers in the ordinary course of his trade or usiness: (3) property used in the trade or usiness of thetaxpayer and su;ect to depreciation allowance: and () real property used in trade or usiness&  

If the taxpayer sells or exchanges any of the properties above-enumerated,  an' (ain or loss relative t)ereto isan or$inar' (ain or an or$inar' loss: the gain or loss from the sale or exchange of all other properties of thetaxpayer is a capital gain or a capital loss& 

<nder section 3() () of the Tax Code, if a gain is realized y a taxpayer (other than a corporation) from the saleor exchange of capital assets held for more than twel%e months, only -.6 of the net capital gain shall e ta+en intoaccount in computing the net income&

T)e follo*in( !ir!umstan!es in !om+ination s)o* uneuivo!all' t)at t)e &etitioner *as, at t)e timematerial to t)is !ase, en(a(e$ in t)e real estate +usiness"

(!) the parcels of land in%ol%ed ha%e in totality a sustantially large area, nearly se%en (1) hectares, ig enough toe transformed into a sudi%ision, and in the case at ar, the said properties are located in the heart of etropolitananila:

() they were sudi%ided into small lots and then sold on installment asis (this manner of selling residential lots isone of the asic earmar+s of a real estate usiness):

(3) comparati%ely %aluale impro%ements were introduced in the sudi%ided lots for the unmista+ale purpose of not simply li8uidating the estate ut of ma+ing the lots more saleale to the general pulic:

() the employment of /& Antonio Araneta, the petitioner's attorney*in*fact, for the purpose of de%eloping, managing,

administering and selling the lots in 8uestion indicates the existence of owner*realty ro+er relationship:

 (-) the sales were made with fre8uency and continuity, and from these the petitioner conse8uently recei%edsustantial income periodically:

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(5) the annual sales %olume of the petitioner from the said lots was considerale, e&g&, P!.,.-.&1 in !-3:P!.3,54&-5 in !-: and P!!,.1&!4 in !-1: and

 (1) the petitioner, y his own tax returns, was not a person who can e induitaly ad;udged as a stranger to thereal estate usiness&

<nder the circumstances, undenialy the income of petitioner from the sales of the lots in 8uestion should econsidered as ordinary income& Taxpayer's sales of the se%eral lots forming part of his rental usiness cannot e

characterized as other than sales of non*capital assets&

Petitioner is not liale to pay a -6 surcharge plus !6 monthly interest +e!ause &etitioner relie$ in (oo$ fait)u&on o&inions ren$ere$ +' no less t)an t)e )i()est offi!ials of t)e Bureau of Internal Revenue, in!lu$in(t)e Commissioner )imself.