Gonzales v CTA (Taxation)

Gonzales v CTA G.R. No. L-14532 May 26, 1965

FACTS:

Both petitioners Jose and Juana Gonzales are co-heirs and co-owners, (one-sixth each) of a tract of land of 871, [982.] square meters which they, along with four other co-heirs, inherited from their mother. So on November 15, 1956, Jose Leon Gonzales and Juana F. Gonzales submitted to the Court of Tax Appeals a joint petition seeking a refund, this time of the amount of P86,166.00 for each of the two petitioners.

ISSUES:
(1) Whether or not petitioners' claim for refund of the total of P86,166.00 may be properly entertained; and

(2) Whether or not the sum of P89,309.61 which each of the petitioners received as interest on the value of the land expropriated is taxable as ordinary income, and not as capital gain.

RULING:

1. No. the requirement of prior timely claim for refund of the sum of P86,166.00 had not been met in this case. The demand for refund must precede the suit, and this requirement is mandatory; so much so that non-compliance therewith bars the action

2. It is ordinary income."the acquisition by the Government of private properties through the exercise of the power of eminent domain, said properties being justly compensated, is embraced within the meaning of the term 'sale' or 'disposition of property'" and the definition of gross income laid down by Section 29 of the Tax Code of the Philippines. We also adhered to the view that the transfer of property through condemnation proceedings is a sale or exchange and that profit from the transaction constitutes capital gain.

In fact, the authorities support the conclusion that for income tax purposes, interest does not form part of the price paid by the Government in condemnation proceedings; and may not be treated as part of the capital gain.