Limpan Investment Corp v. CIR, 17 SCRA 703

Limpan Investment Corp. v.
CIR
Recognition of
Income
G.R. No. Ponente Date
L-21570 JUSTICE JOSE B.L. REYES July 26, 1966
Petitioners Respondents
LIMPAN INVESTMENT CORPORATION COMMISSIONER OF INTERNAL REVENUE, ET AL.,
DOCTRINE:
Taxation; Income taxes; Effect of admission by taxpayer of undeclared income.—Petitioner,

having admitted, through its own witness, that it had not declared more than one-half of the
amount found by the internal revenue examiners as unreported rental income for the year 1956
and more than one-third of the amount ascertained by the examiners as unreported rental income
for the year 1957, contrary to its original claim to the revenue authorities, it was incumbent upon
it to establish the remainder of its pretension by clear and convincing evidence.
Same; Constructive receipt of income.—The withdrawal in 1958 of the deposits in court

pertaining to the 1957 rental income is not sufficient justification for the non-declaration of said
income in 1957, since the deposit was resorted to due to the refusal of petitioner to accept the
same, and was not the fault of its tenants; hence, petitioner is deemed to have constructively
received such rentals in 1957. The payment by the sub-tenant in 1957 should have been reported
as rental income in said year, since it is income just the same regardless of its source.
I. Facts of the case
 Lipman Investment Corporation, a domestic corporation is engaged in the business

of leasing real properties. It commenced actual business operations on July 1, 1955.
Its principal stockholders are spouses Isabelo P. Lim and Purificacion Ceñ iza de Lim,
who own and control ninety-nine per cent (99%) of its total paid-up capital. Its
president and chairman of the board is the former.t
 Its real properties consist of several lots and buildings, mostly situated in Manila
and in Pasay City, all of which were acquired from said Isabelo P. Lim and his
mother, Vicente Pantangco Vda. de Lim.
 LIC duly filed its 1956 & 1957 income tax returns, reporting therein net incomes of
P3,287.81 and P11,098.36, respectively, for which it paid the corresponding taxes
therefor in the sums of P657.00 and P2,220.00.
 In 1958 & 1959, the examiners of the Bureau of Internal Revenue conducted an
investigation of 1956 and 1957 ITRs and, in the course thereof, they discovered and
ascertained that petitioner had underdeclared its rental incomes by P20,199.00 and
P81,690.00 during these taxable years and had claimed excessive depreciation of its
buildings in the sums of P4,260.00 and P16,336.00 covering the same period.
 On the basis of these findings, the Commissioner of Internal Revenue issued its
letter-assessment and demand for payment of deficiency income tax and surcharge
against LIC worth P7,338.00 and P30,502.50.
 LIC requested that CIR to reconsider the assessment but the latter denied said
request and reiterated its original assessment and demand, plus 5% surcharge and
the 1% monthly interest from June 30, 1959 to the date of payment; hence, the
corporation filed its petition for review before the Court of Tax Appeals, questioning
the correctness and validity of the above assessment of the CIR.
 After trial, the CTA upheld the assessment of the CIR and demand for deficiency
income tax which, thus LIC appealed to the Supreme Court.
II. Issue/s
WON the BIR was correct in assessing deficiency taxes against Limpan Corp. for undeclared
rental income?
III. Ratio/Legal Basis
● Yes, the BIR was correct in assessing deficiency taxes against Limpan Corp for its
undeclared rental income.
● LIC admitted that it had undeclared more than half of the amount, therefore it was
incumbent upon the corporation to establish the remainder of its pretensions by clear and
convincing evidence which was lacking in this case.
● The withdrawal in 1958 of the deposits in court pertaining to the 1957 rental income is no
sufficient justification for the non-declaration of said income in 1957 since the deposit was
resorted due to the refusal of petitioner to accept the same, and was not the fault of its
tenants; hence, petitioner is deemed to have constructively received such rentals in 1957.
● The payment by the sub-tenant should have been reported as rental income in said year as
it in still income regardless of the source.
● With respect to the balance, which LIC denied having unreported in the disputed tax returns, the
excuse that Isabelo P. Lim and Vicenta Pantangco Vda. de Lim retained ownership of the lands
and only later transferred or disposed of the ownership of the buildings existing thereon to
petitioner corporation, so as to justify the alleged verbal agreement whereby they would turn
over to petitioner corporation six percent (6%) of the value of its properties to be applied to the
rentals of the land and in exchange for whatever rentals they may collect from the tenants who
refused to recognize the new owner or vendee of the buildings, is not only unusual but
uncorroborated by the alleged transferors, or by any document or unbiased evidence. Hence, the
first assigned error is without merit.
IV. Disposition
Wherefore, the appealed decision should be, as it is hereby, affirmed. With costs
against petitioner-appellant, Limpan Investment Corporation.
V. Notes

Limpan Investment Corp v. CIR, 17 SCRA 703

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Limpan Investment Corp. v.

Taxation; Income taxes; Effect of admission by taxpayer of undeclared income.—Petitioner,

Same; Constructive receipt of income.—The withdrawal in 1958 of the deposits in court

I. Facts of the case

 Lipman Investment Corporation, a domestic corporation is engaged in the business

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