JOSE B. AZNAR vs. COURT OF TAX APPEALS, ET AL.
Case No.: G.R. No. L-20569
Date: August 23, 1974
Ponente: ESGUERRA, J.
Doctrine:
fraud cannot be presumed but must be proven.
Facts:
Petitioner Matias H. Aznar who died on May 18, 1958, predecessor in interest of herein
petitioner, during his lifetime as a resident of Cebu City, filed his income tax returns on the cash
and disbursement basis, The Commissioner of Internal Revenue having his doubts on the
veracity of the reported income of one obviously wealthy, and The assets and liabilities of the
taxpayer during the above-mentioned years were ascertained and it was discovered that from
1946 to 1951, his net worth had increased every year, which increases in net worth was very
much more than the income reported during said years. However findings clearly indicated that
the taxpayer did not declare correctly the income reported in his income tax returns for the
aforesaid years. Therefore respondent Commissioner, in his letter dated November 28, 1952,
notified the taxpayer (Matias H. Aznar) of the assessed tax delinquency. Which taxpayer
requested a reinvestigation, and was granted.
On February 20, 1953, respondent Commissioner of Internal Revenue, placed the properties of
Matias H. Aznar under distraint and levy to secure payment of the deficiency income tax in
question. However Aznar filed his petition for review of the case with the Court of Tax Appeals,
with a subsequent petition immediately thereafter to restrain respondent from collecting the
deficiency tax by summary method, the latter petition being granted. And after that the Court set
aside the C.T.A. resolution and required the petitioner to deposit with the Court of Tax Appeals
the amount demanded by the Commissioner of Internal Revenue for the years 1949 to 1951.
Issue:
Whether or not Petitioner filed a false or fraudulent return with intent to evade tax or failed to file
a return that would justify application of extraordinary prescription.
Ruling:
These substantial under declarations of income for six consecutive years eloquently
demonstrate the falsity or fraudulence of the income tax return with an intent to evade the
payment of tax. Hence, the imposition of the fraud penalty is proper (Perez vs. Court of Tax
Appeals, G.R. No. L-10507, May 30, 1958). As could be readily seen from the above
rationalization of the lower court, no distinction has been made between false returns (due to
mistake, carelessness or ignorance) and fraudulent returns (with intent to evade taxes). The
lower court based its conclusion on the petitioner's alleged fraudulent intent to evade taxes on
the substantial difference between the amounts of net income on the face of the returns as filed
by him in the years 1946 to 1951 and the net income as determined by the inventory method
utilized by both respondents for the same years.
This is a crystal-clear, indication that even the respondent Commissioner of Internal Revenue
with the use of the inventory method can commit a glaring mistake in the assessment of
petitioner's tax liability. When the respondent Court of Tax Appeals reviewed this case on
appeal, it concluded that petitioner's tax liability should be only P227,788.64. The lower court in
three instances (elimination of two buildings in the list of petitioner's assets beginning December
31, 1949, because they were destroyed by fire; elimination of expenses for construction in
petitioner's assets as duplication of increased value in buildings, and elimination of value of
house and lot in petitioner's assets because said property was only given as collateral)
supported petitioner's stand on the wrong inclusions in his lists of assets made by the
respondent Commissioner of Internal Revenue, resulting in the very substantial reduction of
petitioner's tax liability by the lower court. The foregoing shows that it was not only Mr. Matias H.
Aznar who committed mistakes in his report of his income but also the respondent
Commissioner of Internal Revenue who committed mistakes in his use of the inventory method
to determine the petitioner's tax liability. The mistakes committed by the Commissioner of
Internal Revenue which also involve very substantial amounts were also repeated yearly, and
yet we cannot presume therefrom the existence of any taint of official fraud.
Fallo:
WHEREFORE, the decision of the Court of Tax Appeals is modified in so far as the imposition of
the 50% fraud penalty is concerned, and affirmed in all other respects. The petitioner is ordered
to pay to the Commissioner of Internal Revenue, or his duly authorized representative, the sum
of P151,762.23, representing deficiency income taxes for the years 1946 to 1951, inclusive,
within 30 days from the date this decision becomes final. If the said amount is not paid within
said period, there shall be added to the unpaid amount the surcharge of 5%, plus interest at the
rate of 12% per annum from the date of delinquency to the date of payment, in accordance with
Section 51 of the National Internal Revenue Code.
