El Oriente Fabrica de Tabacos v Posadas

G.R. No. 34774

September 21, 1931
DOCTRINE:
FACTS:
1. El Oriente Fabrica de Tobacos is a corporation dl! or"ani#ed and e$istin"
nder t%e la&s o' t%e (%ilippines. )an (osadas is t%e *ollector o' +nternal
Re,ene
2. On -arc% 192., it insred itsel' &it% t%e -an'actrers /i'e +nsrance o'
Toronto 'or t%e sm o' 0.1,111 to protect a"ainst t%e loss it mi"%t s''er b!
reason o' t%e deat% o' its mana"er, 2. 3el%a"en, &%o %ad %ad more t%an
t%irt!4'i,e 53.6 !ears o' e$perience in t%e man'actre o' ci"ars in t%e
(%ilippine +slands, and &%ose deat% &old be a serios loss to t%e plainti''.
3. T%e! desi"nated itsel' as t%e sole bene'iciar! o' said polic! on t%e li'e o' its
said mana"er.
4. T%e! c%ar"ed it as e$penses o' its bsiness all t%e said premims and
dedcted t%e same 'rom its "ross incomes as reported in its annal income
ta$ retrns, &%ic% dedctions &ere allo&ed b! t%e de'endant pon a s%o&in"
made b! t%e plainti'' t%at sc% premims &ere le"itimate e$penses o' its
5plainti''7s6 bsiness
.. T%e insred %ad no interest or participation in t%e proceeds o' said li'e
insrance polic!.
8. 9pon t%e deat% o' 2. 3el%a"en in 1929, t%e plainti'' recei,ed all t%e
proceeds o' t%e said li'e insrance polic!, to"et%er &it% t%e interests and t%e
di,idends accrin" t%ereon, a""re"atin" (114,9.7.::.
7. T%e *ollector o' +nternal Re,ene t%en assessed and le,ied t%e sm o'
(3,14:.74 as income ta$ on t%e proceeds o' t%e insrance polic! mentioned
in t%e precedin" para"rap%, &%ic% ta$ t%e plainti'' paid nder instant protest
on )l! 2, 1931
ISSUE: ;%et%er t%e proceeds o' insrance ta<en b! a corporation on t%e li'e
o' an important o''icial to indemni'! it a"ainst loss in case o' %is deat%, are
ta$able as income nder t%e (%ilippine +ncome Ta$ /a&.
HELD: NO, it is not taable!
T%e +ncome Ta$ /a& 'or t%e (%ilippines is 2ct No. 2:33, as amended. +t is
di,ided into 'or c%apters= *%apter + On +ndi,idals, *%apter ++ On
*orporations, *%apter +++ General 2dministrati,e (ro,isions, and *%apter +3
General (ro,isions. +n c%apter + On +ndi,idals, is to be 'ond section 4
&%ic% pro,ides t%at,
>T%e 'ollo&in" incomes s%all be e$empt 'rom t%e pro,isions o' t%is
la&= 5a6 T%e proceeds o' li'e insrance policies paid to bene'iciaries
pon t%e deat% o' t%e insred ... .> Section 11, as amended, in
*%apter ++ On *orporations, pro,ides t%at, T%ere s%all be le,ied,
assessed, collected, and paid annall! pon t%e total net income
recei,ed in t%e precedin" calendar !ear 'rom all sorces b! e,er!
corporation ... a ta$ o' t%ree per centm pon sc% income ... .>
Section 11 in t%e same c%apter, pro,ides t%e e$emptions nder t%e la&, bt
neit%er %ere nor in an! ot%er section is re'erence made to t%e pro,isions o'
section 4 in *%apter +.
9nder t%e ,ie& &e ta<e o' t%e case, it is s''icient 'or or prposes to direct
attention to t%e anomalos and ,a"e condition o' t%e la&. +t is certain t%at
t%e proceeds o' li'e insrance policies are e$empt. +t is not so certain t%at t%e
proceeds o' li'e insrance policies paid to corporate bene'iciaries pon t%e
deat% o' t%e insred are li<e&ise e$empt. ?t at least, it ma! be said t%at t%e
la& is inde'inite in p%raseolo"! and does not permit s ne@i,ocall! to %old
t%at t%e proceeds o' li'e insrance policies recei,ed b! corporations
constitte income &%ic% is ta$able.
T%e +ncome Ta$ /a& o' 1918 e$tended to t%e (%ilippine /e"islatre, &%en it
came to enact 2ct No. 2:33, to cop! t%e 2merican statte. Sbse@entl!, t%e
*on"ress o' t%e 9nited States enacted its +ncome Ta$ /a& o' 1919, in &%ic%
certain dobt'l sbAects &ere clari'ied. T"#s, as to t"e $oint be%ore #s, it
&as 'ade clear, &"en not onl( in t"e $art o% t"e la& concernin)
individ#als &ere ee'$tions $rovided %or bene%iciaries, b#t also in t"e
$art concernin) cor$orations, s$eci%ic re%erence &as 'ade to t"e
ee'$tions in %avor o% individ#als, t"ereb( 'a*in) t"e sa'e a$$licable
to cor$orations!
It &ill be recalled t"at El Oriente, Fabrica de Tabacos, Inc!, too* o#t t"e
ins#rance on t"e li%e o% its 'ana)er, &"o "ad "ad 'ore t"an t"irt(+%ive
(ears, e$erience in t"e 'an#%act#re o% ci)ars in t"e P"ili$$ines, to
$rotect itsel% a)ainst t"e loss it 'i)"t s#%%er b( reason o% t"e deat" o%
its 'ana)er! ;e do not belie,e t%at t%is 'act si"ni'ies t%at &%en t%e plainti''
recei,ed (114,9.7.:: 'rom t%e insrance on t%e li'e o' its mana"er, it t%ereb!
reali#ed a net pro'it in t%is amont. +t is tre t%at t%e +ncome Ta$ /a&, in
e$emptin" indi,idal bene'iciaries, spea<s o' t%e proceeds o' li'e insrance
policies as income, bt t%is is a ,er! sli"%t indication o' le"islati,e intention.
In realit(, &"at t"e $lainti%% received &as in t"e nat#re o% an inde'nit(
%or t"e loss &"ic" it act#all( s#%%ered beca#se o% t"e deat" o% its
'ana)er!
To @ote )stice Ta't=
BC+t is eno"% to sstain or constrction o' t%e act to sa! t%at
proceeds o' a li'e insrance polic! paid on t%e deat% o' t%e insred
are not sall! classed as income.
. . ! Li%e ins#rance in s#c" a case is li*e t"at o% %ire and 'arine
ins#rance, - a contract o% inde'nit(! Central Nat! .an* vs!
H#'e, /01 U!S!, /23! T"e bene%it to be )ained b( deat" "as no
$eriodicit(! It is a s#bstit#tion o% 'one( val#e %or so'et"in)
$er'anentl( lost, eit"er in a "o#se, a s"i$, or a li%e. 2ssmin",
&it%ot decidin", t%at *on"ress cold call t%e proceeds o' sc%
indemnit! income, and ,alidl! ta$ it as sc%, &e t%in< t%at, in ,ie& o'
t%e poplar conception o' t%e li'e insrance as resltin" in a sin"le
addition o' a total sm to t%e resorces o' t%e bene'iciar!, and not in
a periodical retrn, sc% a prpose on its part s%old be e$press, as
it certainl! is not %ere.
*onsiderin", t%ere'ore, t%e prport o' t%e stiplated 'acts, considerin" t%e
ncertaint! o' (%ilippine la&, and considerin" t%e lac< o' e$press le"islati,e
intention to ta$ t%e proceeds o' li'e insrance policies paid to corporate
bene'iciaries, particlarl! &%en in t%e e$emption in 'a,or o' indi,idal
bene'iciaries in t%e c%apter on t%is sbAect, t%e clase is inserted >e$empt
'rom t%e pro,isions o' t%is la&,> &e deem it reasonable to %old t%e proceeds
o' t%e li'e insrance polic! in @estion as representin" an indemnit! and not
ta$able income.