BIBIANO V. BAÑAS, JR., petitioner, vs. COURT OF APPEALS, AQUILINO T. LARIN, RODOLFO TUAZON AND PROCOPIO TALON, respondents. Esm

For review is the Decision of the Court of Appeals in CA-G.R. CV No. 17251 promulgated on November 29, 1991. It affirmed in toto the judgment of the Regional Trial Court (RTC), Branch 39, Manila, in Civil Case No. 82-12107. Said judgment disposed as follows:

The facts, which we find supported by the records, have been summarized by the Court of Appeals as follows: Esmsc

On February 20, 1976, petitioner, Bibiano V. Bañas Jr. sold to Ayala Investment Corporation (AYALA), 128,265 square meters of land located at Bayanan, Muntinlupa, for two million, three hundred eight thousand, seven hundred seventy (P2,308,770.00) pesos. The Deed of Sale provided that upon the signing of the contract AYALA shall pay four hundred sixty-one thousand, seven hundred fifty-four (P461,754.00) pesos. The balance of one million, eight hundred forty-seven thousand and sixteen (P1,847,016.00) pesos was to be paid in four equal consecutive annual installments, with twelve (12%) percent interest per annum on the outstanding balance. AYALA issued one promissory note covering four equal annual installments. Each periodic payment of P461,754.00 pesos shall be payable starting on February 20, 1977, and every year thereafter, or until February 20, 1980.

The same day, petitioner discounted the promissory note with AYALA, for its face value of P1,847,016.00, evidenced by a Deed of Assignment signed by the petitioner and AYALA. AYALA issued nine (9) checks to petitioner, all dated February 20, 1976, drawn against Bank of the Philippine Islands with the uniform amount of two hundred five thousand, two hundred twenty-four (P205,224.00) pesos.

In his 1976 Income Tax Return, petitioner reported the P461,754 initial payment as income from disposition of capital asset.2 [Id. at 28.]

In the succeeding years, until 1979, petitioner reported a uniform income of two hundred thirty thousand, eight hundred seventy-seven (P230,877.00) pesos4 [50% of the agreed yearly installment based on the Deed of Sale. Computation is 50% of P461,754.] as gain from sale of capital asset. In his 1980 income tax amnesty return, petitioner also reported the same amount of P230,877.00 as the realized gain on disposition of capital asset for the year. Esmmis

On April 11, 1978, then Revenue Director Mauro Calaguio authorized tax examiners, Rodolfo Tuazon and Procopio Talon to examine the books and records of petitioner for the year 1976. They discovered that petitioner had no outstanding receivable from the 1976 land sale to AYALA and concluded that the sale was cash and the entire profit should have been taxable in 1976 since the income was wholly derived in 1976.

Tuazon and Talon filed their audit report and declared a discrepancy of two million, ninety-five thousand, nine hundred fifteen (P2,095,915.00) pesos in petitioner’s 1976 net income. They recommended deficiency tax assessment for two million, four hundred seventy-three thousand, six hundred seventy-three (P2,473,673.00) pesos.

Meantime, Aquilino Larin succeeded Calaguio as Regional Director of Manila Region IV-A. After reviewing the examiners’ report, Larin directed the revision of the audit report, with instruction to consider the land as capital asset. The tax due was only fifty (50%) percent of the total gain from sale of the property held by the taxpayer beyond twelve months pursuant to Section 345 [Capital gains and losses -- x x x (b) Percentage taken into account. -- In the case of a taxpayer, other than a corporation, only the following percentages of the gain or loss recognized upon the sale or exchange of a capital asset shall be taken into account in computing net capital gain, net capital loss, and net income: x x x (2) Fifty per centum if the capital asset has been held for more than twelve months. (emphasis ours)] of the 1977 National Internal Revenue Code (NIRC). The deficiency tax assessment was reduced to nine hundred thirty six thousand, five hundred ninety-eight pesos and fifty centavos (P936,598.50), inclusive of surcharges and penalties for the year 1976.

On June 27, 1980, respondent Larin sent a letter to petitioner informing him of the income tax deficiency that must be settled immediately.

On September 26, 1980, petitioner acknowledged receipt of the letter but insisted that the sale of his land to AYALA was on installment.

On June 8, 1981, the matter was endorsed to the Acting Chief of the Legal Branch of the National Office of the BIR. The Chief of the Tax Fraud Unit recommended the prosecution of a criminal case for conspiring to file false and fraudulent returns, in violation of Section 51 of the Tax Code against petitioner and his accountants, Andres P. Alejandre and Conrado Bañas.

On June 17, 1981, Larin filed a criminal complaint for tax evasion against the petitioner. Esmso

On July 1, 1981, news items appeared in the now defunct Evening Express with the headline: "BIR Charges Realtor" and another in the defunct Evening Post with a news item: "BIR raps Realtor, 2 accountants." Another news item also appeared in the July 2, 1981, issue of the Bulletin Today entitled: "3-face P1-M tax evasion raps." All news items mentioned petitioner’s false income tax return concerning the sale of land to AYALA.

On July 2, 1981, petitioner filed an Amnesty Tax Return under P. D. 1740 and paid the amount of forty-one thousand, seven hundred twenty-nine pesos and eighty-one centavos (P41,729.81). On November 2, 1981, petitioner again filed an Amnesty Tax Return under P.D. 1840 and paid an additional amount of one thousand, five hundred twenty-five pesos and sixty-two centavos (P1,525.62). In both, petitioner did not recognize that his sale of land to AYALA was on cash basis.

Reacting to the complaint for tax evasion and the news reports, petitioner filed with the RTC of Manila an action6 [Civil Case No. 82-12107. The case was originally raffled to the Court of First Instance of Manila, Branch 12, then transferred to the Regional Trial Court of Manila, Branch 39.] for damages against respondents Larin, Tuazon and Talon for extortion and malicious publication of the BIR’s tax audit report. He claimed that the filing of criminal complaints against him for violation of tax laws were improper because he had already availed of two tax amnesty decrees, Presidential Decree Nos. 1740 and 1840.

The trial court decided in favor of the respondents and awarded Larin damages, as already stated. Petitioner seasonably appealed to the Court of Appeals. In its decision of November 29, 1991, the respondent court affirmed the trial court’s decision, thus: Msesm

Hence this petition, wherein petitioner raises before us the following queries:

In essence, petitioner asks the Court to resolve seriatim the following issues:

The first issue, on whether the Court of Appeals erred in finding that there was no extortion, involves a determination of fact. The Court of Appeals observed,

As repeatedly held, findings of fact by the Court of Appeals especially if they affirm factual findings of the trial court will not be disturbed by this Court, unless these findings are not supported by evidence.9 [Guerrerro vs. Court of Appeals, 285 SCRA 670, 678 (1998); Sta. Maria vs. Court of Appeals, 285 SCRA 351, 357-358 (1998), citing Medina vs. Asistio, 191 SCRA 218, 223-224 (1990)] Similarly, neither should we disturb a finding of the trial court and appellate court that an allegation is not supported by evidence on record. Thus, we agree with the conclusion of respondent court that herein private respondents, on the basis of evidence, could not be held liable for extortion.

On the second issue of whether P.D. Nos. 1740 and 1840 which granted tax amnesties also granted immunity from criminal prosecution against tax offenses, the pertinent sections of these laws state:

x x x

x x x

It will be recalled that petitioner entered into a deed of sale purportedly on installment. On the same day, he discounted the promissory note covering the future installments. The discounting seems questionable because ordinarily, when a bill is discounted, the lender (e.g. banks, financial institution) charges or deducts a certain percentage from the principal value as its compensation. Here, the discounting was done by the buyer. On July 2, 1981, two weeks after the filing of the tax evasion complaint against him by respondent Larin on June 17, 1981, petitioner availed of the tax amnesty under P.D. No. 1740. His amended tax return for the years 1974 - 1979 was filed with the BIR office of Valenzuela, Bulacan, instead of Manila where the petitioner’s principal office was located. He again availed of the tax amnesty under P.D. No. 1840. His disclosure, however, did not include the income from his sale of land to AYALA on cash basis. Instead he insisted that such sale was on installment. He did not amend his income tax return. He did not pay the tax which was considerably increased by the income derived from the discounting. He did not meet the twin requirements of P.D. 1740 and 1840, declaration of his untaxed income and full payment of tax due thereon. Clearly, the petitioner is not entitled to the benefits of P.D. Nos. 1740 and 1840. The mere filing of tax amnesty return under P.D. 1740 and 1840 does not ipso facto shield him from immunity against prosecution. Tax amnesty is a general pardon to taxpayers who want to start a clean tax slate. It also gives the government a chance to collect uncollected tax from tax evaders without having to go through the tedious process of a tax case. To avail of a tax amnesty granted by the government, and to be immune from suit on its delinquencies, the tax payer must have voluntarily disclosed his previously untaxed income and must have paid the corresponding tax on such previously untaxed income.10 [Republic v. Intermediate Appellate Court, 196 SCRA 335, 339 (1991); People vs. Judge Castañeda, 165 SCRA 327, 338-339 (1988); Nepomuceno vs. Hon. Montecillo, 118 SCRA 254, 259 (1982)]

It also bears noting that a tax amnesty, much like a tax exemption, is never favored nor presumed in law and if granted by statute, the terms of the amnesty like that of a tax exemption must be construed strictly against the taxpayer and liberally in favor of the taxing authority.11 [People vs. Castañeda, Jr., 165 SCRA 327, 341 (1988), citing E. Rodriguez, Inc. vs. The Collector of Internal Revenue, 28 SCRA 1119 (1969); Commissioner of Internal Revenue vs. A.D. Guerrero, 21 SCRA 180 (1967)] Hence, on this matter, it is our view that petitioner’s claim of immunity from prosecution under the shield of availing tax amnesty is untenable.

On the third issue, petitioner asserts that his sale of the land to AYALA was not on cash basis but on installment as clearly specified in the Deed of Sale which states: Slx

Petitioner resorts to Section 43 of the NIRC and Sec. 175 of Revenue Regulation No. 2 to support his claim.

Section 43 of the 1977 NIRC states,

Revenue Regulation No. 2, Section 175 provides, Scslx

Petitioner asserts that Sec. 43 allows him to return as income in the taxable years involved, the respective installments as provided by the deed of sale between him and AYALA. Consequently, he religiously reported his yearly income from sale of capital asset, subject to tax, as follows: Slxsc

Petitioner says that his tax declarations are acceptable modes of payment under Section 175 of the Revenue Regulations (RR) No. 2. The term "initial payment", he argues, does not include amounts received by the vendor which are part of the complete purchase price, still due and payable in subsequent years. Thus, the proceeds of the promissory notes, not yet due which he discounted to AYALA should not be included as income realized in 1976. Petitioner states that the original agreement in the Deed of Sale should not be affected by the subsequent discounting of the bill.

On the other hand, respondents assert that taxation is a matter of substance and not of form. Returns are scrutinized to determine if transactions are what they are and not declared to evade taxes. Considering the progressive nature of our income taxation, when income is spread over several installment payments through the years, the taxable income goes down and the tax due correspondingly decreases. When payment is in lump sum the tax for the year proportionately increases. Ultimately, a declaration that a sale is on installment diminishes government taxes for the year of initial installment as against a declaration of cash sale where taxes to the government is larger.

As a general rule, the whole profit accruing from a sale of property is taxable as income in the year the sale is made. But, if not all of the sale price is received during such year, and a statute provides that income shall be taxable in the year in which it is "received," the profit from an installment sale is to be apportioned between or among the years in which such installments are paid and received.13 [Corpus Juris Secundum, Volume 85, Taxation, Section 1097, par. h, (Installment Sale)]

Section 43 and Sec. 175 says that among the entities who may use the above-mentioned installment method is a seller of real property who disposes his property on installment, provided that the initial payment does not exceed 25% of the selling price. They also state what may be regarded as installment payment and what constitutes initial payment. Initial payment means the payment received in cash or property excluding evidences of indebtedness due and payable in subsequent years, like promissory notes or mortgages, given of the purchaser during the taxable year of sale. Initial payment does not include amounts received by the vendor in the year of sale from the disposition to a third person of notes given by the vendee as part of the purchase price which are due and payable in subsequent years.14 [Ibid.] Such disposition or discounting of receivable is material only as to the computation of the initial payment. If the initial payment is within 25% of total contract price, exclusive of the proceeds of discounted notes, the sale qualifies as an installment sale, otherwise it is a deferred sale.15 [Revenue Regulation No. 2 -- Section 177. Deferred-payment sale of real property not on installment plan. -- In transactions included in class (2) in section 175 of these regulations, the obligations of the purchaser received by the vendor are to be considered as the equivalent of cash.] Slxmis

Although the proceed of a discounted promissory note is not considered part of the initial payment, it is still taxable income for the year it was converted into cash. The subsequent payments or liquidation of certificates of indebtedness is reported using the installment method in computing the proportionate income16 [Expressed in formula:

Gross Profit* ......x......Installment payments = Proportionate Income (To be reported for the year)
Contract Price.............actually received

*Gross profit is Contract price less Cost.] to be returned, during the respective year it was realized. Non-dealer sales of real or personal property may be reported as income under the installment method provided that the obligation is still outstanding at the close of that year. If the seller disposes the entire installment obligation by discounting the bill or the promissory note, he necessarily must report the balance of the income from the discounting not only income from the initial installment payment.

Where an installment obligation is discounted at a bank or finance company, a taxable disposition results, even if the seller guarantees its payment, continues to collect on the installment obligation, or handles repossession of merchandise in case of default.17 [1995 American Jurisprudence 2d, Income Tax, Corporate Taxation, Tax Accounting Taxable Income, Section 7207. Discounting or loan and pledge of installment obligation.] This rule prevails in the United States.18 [Collector of Internal Revenue vs. Binalbagan Estate, Inc., 13 SCRA 1, 8 (1965); citing William Ziegler, Jr., 1 BTA 186; Wallis Tractor Co., 3 BTA 981; Napoleon B. Burge, 4 BTA 732; C.A. O’Meara, 11 BTA 101; Livingston v. Commissioner of Internal Revenue, 18 BTA 1184; Florida machine & Foundry Co. vs. Fahs., 73 F. Supp. 379 (D.C. S.D.) Aff’d 168 F[2d] 957 [CCA 5th]; Dr. G.H. Tichenor Antiseptic Co. vs. United States, 77 F. Supp. 288 (D.C.)] Since our income tax laws are of American origin,9 [Ibid; citing Madrigal and Paterno vs. Rafferty and Concepcion, 38 Phil. 414 (1918), Compañia General de Tabacos vs. Collector of Internal Revenue, 279 U.S. 306, 73 L. Ed. 704.] interpretations by American courts on our parallel tax laws have persuasive effect on the interpretation of these laws.20 [Ibid.] Thus, by analogy, all the more would a taxable disposition result when the discounting of the promissory note is done by the seller himself. Clearly, the indebtedness of the buyer is discharged, while the seller acquires money for the settlement of his receivables. Logically then, the income should be reported at the time of the actual gain. For income tax purposes, income is an actual gain or an actual increase of wealth.21 [Corpus Juris Secundum Volume 85, Taxation, Section 1096, par. a.] Although the proceeds of a discounted promissory note is not considered initial payment, still it must be included as taxable income on the year it was converted to cash. When petitioner had the promissory notes covering the succeeding installment payments of the land issued by AYALA, discounted by AYALA itself, on the same day of the sale, he lost entitlement to report the sale as a sale on installment since, a taxable disposition resulted and petitioner was required by law to report in his returns the income derived from the discounting. What petitioner did is tantamount to an attempt to circumvent the rule on payment of income taxes gained from the sale of the land to AYALA for the year 1976. Missdaa

Lastly, petitioner questions the damages awarded to respondent Larin.

Any person who seeks to be awarded actual or compensatory damages due to acts of another has the burden of proving said damages as well as the amount thereof.22 [DBP vs. CA, 284 SCRA 14, 29-30 (1998); Del Mundo vs. CA, 240 SCRA 348, 356 (1995); Cf. Chua vs. Court of Appeals, 242 SCRA 341, 345 (1995)] Larin says the extortion cases filed against him hampered his immediate promotion, caused him strong anxiety and social humiliation. The trial court awarded him two hundred thousand (P200,000.00) pesos as actual damages. However, the appellate court stated that, despite pendency of this case, Larin was given a promotion at the BIR. Said respondent court:

Moreover, the records of the case contain no statement whatsoever of the amount of the actual damages sustained by the respondents. Actual damages cannot be allowed unless supported by evidence on the record.24 [People vs. Nialda, 289 SCRA 521, 535 (1998)] The court cannot rely on speculation, conjectures or guesswork as to the fact and amount of damages.25 [Del Rosario vs. Court of Appeals, 267 SCRA 158, 171 (1997)] To justify a grant of actual or compensatory damages, it is necessary to prove with a reasonable degree of certainty, the actual amount of loss.26 [Sumalpong vs. Court of Appeals, 268 SCRA 764, 774-775 (1997); citing People vs. Rosario, et al., 246 SCRA 658, 671 (1995); Del Mundo vs. Court of Appeals, et al., 240 SCRA 348, 356 (1995); Sulpicio Lines Inc., vs. Court of Appeals, 246 SCRA 376 (1995)] Since we have no basis with which to assess, with certainty, the actual or compensatory damages counter-claimed by respondent Larin, the award of such damages should be deleted.

Moral damages may be recovered in cases involving acts referred to in Article 2127 [Article 21. Any person who wilfully causes loss or injury to another in a manner that is contrary to morals, good customs or public policy shall compensate the latter for the damages.] of the Civil Code.28 [Filinvest Credit Corporation vs. Court of Appeals, 248 SCRA 549, 564 (1995)] As a rule, a public official may not recover damages for charges of falsehood related to his official conduct unless he proves that the statement was made with actual malice. In Babst, et. al. vs. National Intelligence Board, et. al., 132 SCRA 316, 330 (1984), we reiterated the test for actual malice as set forth in the landmark American case of New York Times vs. Sullivan,29 [376 U.S. 254 (1964)] which we have long adopted, in defamation and libel cases, viz.: Sdaadsc

We appreciate petitioner’s claim that he filed his 1976 return in good faith and that he had honestly believed that the law allowed him to declare the sale of the land, in installment. We can further grant that the pertinent tax laws needed construction, as we have earlier done. That petitioner was offended by the headlines alluding to him as tax evader is also fully understandable. All these, however, do not justify what amounted to a baseless prosecution of respondent Larin. Petitioner presented no evidence to prove Larin extorted money from him. He even admitted that he never met nor talked to respondent Larin. When the tax investigation against the petitioner started, Larin was not yet the Regional Director of BIR Region IV-A, Manila. On respondent Larin’s instruction, petitioner’s tax assessment was considered one involving a sale of capital asset, the income from which was subjected to only fifty percent (50%) assessment, thus reducing the original tax assessment by half. These circumstances may be taken to show that Larin’s involvement in extortion was not indubitable. Yet, petitioner went on to file the extortion cases against Larin in different fora. This is where actual malice could attach on petitioner’s part. Significantly, the trial court did not err in dismissing petitioner’s complaints, a ruling affirmed by the Court of Appeals.

Keeping all these in mind, we are constrained to agree that there is sufficient basis for the award of moral and exemplary damages in favor of respondent Larin. The appellate court believed respondent Larin when he said he suffered anxiety and humiliation because of the unfounded charges against him. Petitioner’s actions against Larin were found "unwarranted and baseless," and the criminal charges filed against him in the Tanodbayan and City Fiscal’s Office were all dismissed.30 [Rollo, pp. 77-78.] Hence, there is adequate support for respondent court’s conclusion that moral damages have been proved.

Now, however, what would be a fair amount to be paid as compensation for moral damages also requires determination. Each case must be governed by its own peculiar circumstances.31 [Philippine National Bank vs. Court of Appeals, 266 SCRA 136, 140 (1997); citing Makabali vs. C.A. 157 SCRA 253 (1988)] On this score, Del Rosario vs. Court of Appeals,32 [267 SCRA 158, 173-174, citing Geraldez vs. C. A., 230 SCRA 320 (1994)] cites several cases where no actual damages were adjudicated, and where moral and exemplary damages were reduced for being "too excessive," thus: Rtcspped

It will be noted that in above cases, the parties who were awarded moral damages were not public officials. Considering that here, the award is in favor of a government official in connection with his official function, it is with caution that we affirm granting moral damages, for it might open the floodgates for government officials counter-claiming damages in suits filed against them in connection with their functions. Moreover, we must be careful lest the amounts awarded make citizens hesitate to expose corruption in the government, for fear of lawsuits from vindictive government officials. Thus, conformably with our declaration that moral damages are not intended to enrich anyone,33 [Philtranco Service Enterprises. Inc. vs. Court of Appeals, 273 SCRA 562, 574 (1997)] we hereby reduce the moral damages award in this case from two hundred thousand (P200,000.00) pesos to seventy five thousand (P75,000.00) pesos, while the exemplary damage is set at P25,000.00 only. Kortex

The law allows the award of attorney’s fees when exemplary damages are awarded, and when the party to a suit was compelled to incur expenses to protect his interest.34 [Civil Code of the Philippines, Article 2208, par. (1) and (2)] Though government officers are usually represented by the Solicitor General in cases connected with the performance of official functions, considering the nature of the charges, herein respondent Larin was compelled to hire a private lawyer for the conduct of his defense as well as the successful pursuit of his counterclaims. In our view, given the circumstances of this case, there is ample ground to award in his favor P50,000.00 as reasonable attorney’s fees.

WHEREFORE, the assailed decision of the Court of Appeals dated November 29, 1991, is hereby AFFIRMED with MODIFICATION so that the award of actual damages are deleted; and that petitioner is hereby ORDERED to pay to respondent Larin moral damages in the amount of P75,000.00, exemplary damages in the amount of P25,000.00, and attorney’s fees in the amount of P50,000.00 only.

No pronouncement as to costs.

Bellosillo, (Chairman), Mendoza, Buena, and De Leon, Jr., JJ., concur.6/13/00 9:52 AM