Facts:
In 1977, Victoria Javier received a $1 Million remittance in her bank account from her sister abroad, Dolores Ventosa. Melchor Javier, Jr., the husband of Victoria immediately withdrew the said amount and then appropriated it for himself. Later, the Mellon Bank, a foreign bank in the U.S.A. filed a complaint against the Javiers for estafa. Apparently, Ventosa only sent $1,000.00 to her sister Victoria but due to a clerical error in Mellon Bank, what was sent was the $1 Million.
Meanwhile, Javier filed his income tax return. In his return, heplace a footnote which states:
Taxpayer was recipient of some money received from abroad which he presumed to be a gift but turned out to be an error and is now subject of litigation.
The Commissioner of Internal Revenue (CIR) then assessed Javier a tax liability amounting to P4.8 Million. The CIR also imposed a 50% penalty against Javier as the CIR deemed Javier’s return as a fraudulent return.
Issue:
Whether or not Javier is liable to pay the 50% penalty
Ruling:
No. It is true that a fraudulent return shall cause the imposition of a 50% penalty upon a taxpayer filing such fraudulent return. However, in this case, although Javier may be guilty of estafa due to misappropriating money that does not belong to him, as far as his tax return is concerned, there can be no fraud. There is no fraud in the filing of the return. Javier’s notation on his income tax return can be considered as a mere mistake of fact or law but not fraud. Such notation was practically an invitation for investigation and that Javier had literally “laid his cards on the table.” The government was never defrauded because by such notation, Javier opened himself for investigation.
It must be noted that the fraud contemplated by law is actual and not constructive. It must be intentional fraud, consisting of deception willfully and deliberately done or resorted to in order to induce another to give up some legal right.
In 1977, Victoria Javier received a $1 Million remittance in her bank account from her sister abroad, Dolores Ventosa. Melchor Javier, Jr., the husband of Victoria immediately withdrew the said amount and then appropriated it for himself. Later, the Mellon Bank, a foreign bank in the U.S.A. filed a complaint against the Javiers for estafa. Apparently, Ventosa only sent $1,000.00 to her sister Victoria but due to a clerical error in Mellon Bank, what was sent was the $1 Million.
Meanwhile, Javier filed his income tax return. In his return, heplace a footnote which states:
Taxpayer was recipient of some money received from abroad which he presumed to be a gift but turned out to be an error and is now subject of litigation.
The Commissioner of Internal Revenue (CIR) then assessed Javier a tax liability amounting to P4.8 Million. The CIR also imposed a 50% penalty against Javier as the CIR deemed Javier’s return as a fraudulent return.
Issue:
Whether or not Javier is liable to pay the 50% penalty
Ruling:
No. It is true that a fraudulent return shall cause the imposition of a 50% penalty upon a taxpayer filing such fraudulent return. However, in this case, although Javier may be guilty of estafa due to misappropriating money that does not belong to him, as far as his tax return is concerned, there can be no fraud. There is no fraud in the filing of the return. Javier’s notation on his income tax return can be considered as a mere mistake of fact or law but not fraud. Such notation was practically an invitation for investigation and that Javier had literally “laid his cards on the table.” The government was never defrauded because by such notation, Javier opened himself for investigation.
It must be noted that the fraud contemplated by law is actual and not constructive. It must be intentional fraud, consisting of deception willfully and deliberately done or resorted to in order to induce another to give up some legal right.
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