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Sison, as
taxpayer, alleged that its provision (Section 1) unduly
1. DUE PROCESS OF LAW discriminated against him by the imposition of higher
There must be a valid law rates upon his income as a professional, that it
Tax measure should not be unconscionable amounts to class legislation, and that it transgresses
and unjust as to amount to confiscation of against the equal protection and due process clauses
of the Constitution as well as the rule requiring
property.
uniformity in taxation.
Tax statute must not be arbitrary as to find
no support in the Constitution.
Issue: Whether BP 135 violates the due process and
equal protection clauses, and the rule on uniformity in
Sec. 1 Art. III 1987 - No person shall be deprived of
taxation.
life, liberty, or property without due process of law,
nor shall any person be denied the equal protection of HELD: No, there was no violation of the due process
the laws. and equal protection clause, since petitioner did not
made a case, only allegations.
Tan v. Del Rosario, supra – (SNITS);
The Congress has the power to determine
FACTS: Petitioners challenge the constitutionality of the rates of taxation; thus, the due process
RA 7496 or the simplified income taxation scheme clause may be invoked where a taxing statute
(SNIT) under Arts (26) and (28) and III (1). The SNIT is so arbitrary that it finds no support in the
contained changes in the tax schedules and different Constitution. An obvious example is where it
treatment in the professionals which petitioners assail can be shown to amount to the confiscation
as unconstitutional for being isolative of the equal of property. That would be a clear abuse of
power. It then becomes the duty of this
protection clause in the constitution. Petitioner
Court to say that such an arbitrary act
contends that the tile of House Bill No. 34314 amounted to the exercise of an authority not
progenitor of RA 7496, is a misnomer or, at least, conferred. That properly calls for the
deficient for being merely entitled, “Simplified Net application of the Holmes dictum.
Income Taxation Scheme for the Self-Employed and
Professional Engaged in the Practice of their It has also been held that where the assailed
Profession”. tax measure is beyond the jurisdiction of the
state, or is not for a public purpose, or, in
HELD: Tax law is constitutional. Uniformity of taxation, case of a retroactive statute is so harsh and
like the hindered concept of equal protection, merely unreasonable, it is subject to attack on due
process grounds.
require that all subjects or objects of taxation similarly
situated are to be treated alike both privileges and
2. EQUAL PROTECTION OF THE LAWS
liabilities. Uniformity, does not offend classification as
long as it rest on substantial distinctions, it is germane – Right to be treated under like circumstance.
to the purpose of the law. It is not limited to existing All persons subject to legislation shall be
only and must apply equally to all members of the treated alike under similar circumstances and
same class. The due process clause may correctly be conditions both in the privileges conferred
invoked only when there is a clear contravention of and liabilities imposed.
inherent or constitutional limitations in the exercise of The doctrine does not require that persons
the tax power. No such transgression is evident to us. or properties different in fact be treated in
law as though they were the same. What it
prohibits is “Class Legislation” which
Sison v. Ancheta, supra – BP 135 discriminates against some and favors others.
As long as there are rational or reasonable purposes of taxation. Where the
grounds for so doing. Congress may group differentiation conforms to the practical
persons or property to be taxed and it is dictates of justice and equity, similar to the
standards of equal protection, it is not
sufficient if all members of the same class are
discriminatory within the meaning of the
subject to the same rate and the tax is clause and is therefore uniform.
administered impartially upon them.
It suffices then that the laws operate
Requisites of a Valid Classification: equally and uniformly on all persons under
similar circumstances or that all persons
1. Must be based on Substantial
must be treated in the same manner, he
Distinctions. conditions nt being different, both in the
2. Germane to the purpose of law privileges conferred and liabilities imposed.
3. Classification must not be limited to
existing conditions only but must also It is inherent in the power to tax
apply to future conditions substantially that a state be free to select the subjects of
identical to those of the present. taxation and it has been repeatedly held that
4. It must apply equally to all members of inequalities which result from a singling out
the same class. of one particular class for taxation, or
exemption infringes no constitutional
limitation.
Application
Where the statute or ordinance in question
Villegas vs Hiu Chiong Tsai Pao Ho
applies alike to all persons, firms, or
corporations placed in similar situations, or FACTS: The Municipal Board of Manila enacted
differently to persons, firms, or corporations Ordinance 6537 requiring aliens (except those
belonging to different classes provided all those employed in the diplomatic and consular missions of
belonging to one class are treated alike, there is foreign countries, in technical assistance programs of
no infringement of the constitutional guarantee. the government and another country, and members
of religious orders or congregations) to procure the
What the Constitution requires is equal
requisite mayor’s permit so as to be employed or
treatment under the law and this may involve engage in trade in the City of Manila. The permit fee is
same or different treatment depending on the P50, and the penalty for the violation of the ordinance
circumstances. is 3 to 6 months imprisonment or a fine of P100 to
P200, or both.
Sison v. Ancheta, supra.
ISSUE: Whether the ordinance imposes a regulatory
There is a need for proof of such persuasive fee or a tax.
character as would lead to a conclusion that
there was a violation of the due process and HELD: The ordinance’s purpose is clearly to raise
equal protection clauses. Absent such money under the guise of regulation by exacting P50
showing, the presumption of validity must from aliens who have been cleared for employment.
prevail.
The amount is unreasonable and excessive
because it fails to consider difference in
Equality and uniformity in taxation means situation among aliens required to pay it, i.e.
that all taxable articles or kinds of property being casual, permanent, part-time, rank-
of the same class shall be taxed at the same and-file or executive.
rate.
The Ordinance was declared invalid as it is
The taxing power has the authority to make arbitrary, oppressive and unreasonable,
reasonable and natural classifications for being applied only to aliens who are thus
deprived of their rights to life, liberty and
property and therefore violates the due Alhambra. CA affirming such decision, hence, this
process and equal protection clauses of the appeal.
Constitution.
Further, the ordinance does not lay down ISSUE: whether private respondent's reliance on a
any criterion or standard to guide the Mayor void BIR ruling conferred upon the latter a vested right
in the exercise of his discretion, thus to apply the same in the computation of its ad
conferring upon the mayor arbitrary and valorem tax and claim for tax refund
unrestricted powers.
HELD: The government is not stopped from
Tan v. Del Rosario, supra. collecting taxes legally due because of mistake/errors
of its agents, this admits of exceptions in the interest
The said law is not arbitrary; it is germane to of justice and fair play, as where injustice will result to
the purpose of the law and; applies to all the taxpayer. As regards, petitioner’s argument the
things of equal conditions and of same class. private respondent should have made consultations
with it before private respondent used the
computation mandated by BIR ruling 473-88 suffice it
It is neither violative of equal protection
to state that the BIR ruling was clear and categorical,
clause due to the existence of substantial
there leaving no room for interpretation. The failure
difference between one who practice his
of private respondent to consult petitioner does not
profession alone and one who is engaged to
imply bad faith on the part of the former.
proprietorship.
Further, the SC said that RA 7496 is just an Tiu v. Court of Appeals, 301 SCRA 278 (1999) – The
amendatory provision of the code of Subic Special Economic Zone case.
taxpayers where it classifies taxpayers in to
four main groups: Individuals, Corporations, The Constitutional right to equal protection
Estate under Judicial Settlement and of the law is not violated by an executive
Irrevocable Trust. The court would have
order, issued pursuant to law, granting tax
appreciated the contention of the petitioner
and duty incentives only to business within
if RA 7496 was an independent law. But since
it is attached to a law that has already the “secured area” of the Subic Special
classified taxpayers, there is no violation of Economic Zone and denying them to those
equal protection clause. who live within the Zone but outside such
“fenced in” territory.
CIR VS. CA AND ALHAMBRA 267 SCRA 557 (1997)
The Constitution does not require absolute
FACTS : Alhambra industries, Inc. (Alhambra) is a
equality among residents. It is enough that
domestic corporation engaged in the manufacture
and sale of cigar and cigarette products. On May 7, all persons under like circumstances or
1991 private respondent received a letter dated April conditions are given the same privileges and
26, 1991 from the Commissioner of Internal Revenue required to follow the same obligations. In
assessing its deficiency Ad Valorem Tax (AVT) in the short, a classification based on valid and
total amount of P488,396.62, inclusive of increments, reasonable standards does not violate the
on the removals of cigarette products from their place equal protection clause.
of production during the period Nov. 2, 1990 to
January 22, 1991.Alhambra filed protest against
amount assessed by the CIR, however, it was denied We find real and substantial distinctions
by the latter at the same time increasing the amount between the circumstances obtaining inside
assessed to P520,835.29. Alhambra filed a petition for and those outside the Subic Naval Base,
review with the CTA, despite payment under protest thereby justifying a valid and reasonable
the amount of P520,835.29. On December 1, 1993, classification.
CTA ordered petitioner to refund said amount to
Classification based on: found. It does not, however, require absolute
Does not violate
1. Valid & identity or equality under all circumstances,
equal protection
clause but subject to reasonable classification.
2. Reasonable Standards
The tax is uniform when it operates with Equity and uniformity in taxation means that
the same force and effect in every place all the taxable articles or kinds of properties
where the subject of it is found. of the same class be taxed at the same rate.
"Uniformity" means all property The taxing power has the authority to make
belonging to the same class shall be reasonable and natural classifications for
taxed alike. It does not signify an purposes of taxation. To satisfy this
intrinsic, but simply a geographic, requirement, it is enough that the statute or
uniformity (Churchill & Tait vs. ordinance applies equally to all persons,
Conception, 34 Phil. 969). Uniformity firms, and corporations placed in a similar
does not require the same treatment; it situation.
simply requires reasonable basis for
classification. It is inherent in the power to tax that the
state be free to select the subjects of
The concept of equality in taxation taxation & it has been repeatedly held that
requires that the apportionment of the the inequalities which result from a singling
tax burden be more or less just in the out of 1 particular class for taxation or
light of the taxpayer’s ability to shoulder exception infringe no constitutional
the tax burden and if warranted, on the limitation.
basis of the benefits received from the
government. Its cornerstone is the Manila Race Horse v. Dela Fuente – No arbitrary
taxpayer’s ability to pay. classification
Poll tax is a tax of fixed amount imposed on The dividends received by a corporation from another
residents within a specific territory regardless corporation however shall, for the purpose of the
of citizenship, business or profession. additional tax, be considered as part of the gross
Example is community tax. receipts or earnings of said corporation.
Community tax – Cities or municipalities may Section 159. Exemptions. - The following are exempt
levy a community tax in accordance with the from the community tax:
provisions of this article. 156 RA 7160.
(1) Diplomatic and consular representatives; and
Section 157. Individuals Liable to Community Tax. -
(18) or over who has been regularly employed on a (2) Transient visitors when their stay in the Philippines
wage or salary basis for at least thirty (30) consecutive does not exceed three (3) months.
working days, or who is engaged in business or
occupation, or who owns real property with an Section 160. Place of Payment. - The community tax
aggregate assessed value of One thousand pesos shall be paid in the place of residence of the
individual, or in the place where the principal office of A later statute may revoke exemption from
the juridical entity is located. taxation provided for in a franchise because
the Constitution provides that a franchise is
164 (c) The proceeds of the community tax actually
subject to amendment, alteration or repeal.
and directly collected by the city or municipal
treasurer shall accrue entirely to the general fund of
the city or municipality concerned. However, Note: A latter statue may revoke exemption from
proceeds of the community tax collected through the taxation provided for in a franchise because the
barangay treasurers shall be apportioned as follows: Constitution provides that a franchise is subject to
amendment, alteration or repeal. [Sec. 11 Art. XII]
(1) (50%) shall accrue to the general fund of
the city or municipality concerned; and OPOSA vs. FACTORAN
(2) (50%) shall accrue to the barangay where Police power prevails over the non-
the tax is collected. impairment clause
No law shall be made respecting an establishment of 1. No money shall be paid out of the Treasury
religion, or prohibiting the free exercise thereof. The except in pursuance of an appropriation
free exercise and enjoyment of religious profession made by law.
and worship, without discrimination or preference,
shall forever be allowed. No religious test shall be 2. No public money or property shall be
required for the exercise of civil or political rights. appropriated, applied, paid, or employed
[Section 5, Article III, Constitution] directly or indirectly, for the use, benefit, or
support of any church, denomination,
American Bible Society v. City of Manila sectarian institution or system of religion, or
of any priest, preacher, minister or other
religious teacher, or dignitary as such except
when such priest, preacher, minister or sale” due to the alleged failure of the College to pay
dignitary is assigned to the armed forces, or real estate taxes and penalties thereon. The school
to any penal institution, or government filed suit to annul said notices, claiming that it is tax-
orphanage or leprosarium. exempt.
3. All money collected on any tax levied for a Issue: Whether the College is exempt from taxes
special purpose shall be treated as a special
fund and paid out for such purpose only. If HELD:
the purpose for which a special fund was While the Court allows a more liberal and
created has been fulfilled or abandoned, the non-restrictive interpretation of the phrase
balance, if any, shall be transferred to the “exclusively used for educational purposes,”
general funds of the government. reasonable emphasis has always been made
that exemption extends to facilities which are
Use of tax levied for a special purpose: incidental to and reasonably necessary for
Osmena v. Orbos, supra - It seems clear that while the accomplishment of the main purposes.
the funds collected may be referred to as taxes, they While the second floor’s use, as residence of
are exacted in the exercise of the police power of the the director, is incidental to education; the
State. Moreover, that the OPSF as a special fund is lease of the first floor cannot by any stretch
plain from the special treatment given it by E.O. 137. of imagination be considered incidental to
It is segregated from the general fund; and while it is the purposes of education.
placed in what the law refers to as a "trust liability
account," the fund nonetheless remains subject to the The test of exemption from taxation is the
scrutiny and review of the COA. The Court is satisfied use of the property for purposes mentioned
that these measures comply with the constitutional in the Constitution.
description of a "special fund." “Use” overrides “ownership”.
If a property is incidentally used for the
8. Prohibition against taxation of real property aforementioned purposes, it is clear from
actually, directly and exclusively used for decided cases that tax exemption still subsist.
religious, charitable and educational purposes
4. Revenue bills shall originate exclusively from When the tax is imposed on the receipts or
the House of Representatives the income of the press it is a valid exercise
of the sovereign prerogative.
Section 24, Article VI, Constitution - All appropriation,
revenue or tariff bills, bills authorizing an increase of Tolentino v. Sec. of Finance, supra
the public debt, bills of local application, and private
Petitioners claim that the R.A. violates their
bills shall originate exclusively in the House of
press freedom and religious liberty, having
Representatives, but the Senate may propose or
removed them from the exemption to pay
concur with amendments.
VAT. Suffice it to say that since the law
granted the press a privilege, the law could
Tolentino v. Secretary of Finance
take back the privilege anytime without
The Constitution simply means that the offense to the Constitution. By granting
initiative for the filing of bills must come exemptions, the State does not forever
from the House of Representatives, on the waive the exercise of its sovereign
theory that, elected as they are from the prerogative.
districts, the members of the House can be
expected to be more sensitive to the local
needs and problems. 6. Grant of franchise
It is not the law – but the revenue bill – Tax exemptions included in the grant of a franchise
which is required by the Constitution to may be revoked by another law as it is specifically
originate exclusively in the House of provided in the Constitution that the grant of any
Representatives, because a bill originating in franchise is always subject to amendment, alteration,
the House may undergo such extensive or repeal by the Congress when the common good so
changes in the Senate that the result may be
requires.
a rewriting of the whole, and a distinct bill
may be produced.
Petitioners claim that the R.A. violates their
The Constitution does not also prohibit the press freedom and religious liberty, having
filing in the Senate of a substitute bill in removed them from the exemption to pay
anticipation of its receipt of the bill from the VAT. Suffice it to say that since the law
House, as long as action by the Senate is granted the press a privilege, the law could
take back the privilege anytime without
offense to the Constitution. By granting Lex rei sitae - This is a principle followed in
exemptions, the State does not forever fixing the situs of taxation of a property. This
waive the exercise of its sovereign means that the property is taxable in the
State where it has its actual situs, specifically
prerogative. [Tolentino v. Sec. of Finance]
in the place where it is located, even though
the owner resides in another jurisdiction.
C. SITUS OF TAXATION & DOUBLE TAXATION With respect to property taxes, real property
is subject to taxation in the State where it is
Meaning of Situs – The source of the tax, or located and taxable only there. Lex rei sitae
the place of taxation. Literally, situs of has also been adopted for tangible personal
property under Article 16 of the Civil Code. A
taxation means place of taxation. It is the
different rule applies to intangible personal
State or political unit which has jurisdiction property, specifically, mobilia sequuntur
to impose a particular tax. personam.
The determination of the situs of taxation
depends on various factors including the: C. Situs of tangible personal property
1. Nature of the tax;
2. Subject matter thereof (i.e. person, It is taxable in the State where it has actual
property, act or activity; situs although the owner resides in another
jurisdiction.
3. Possible protection and benefit that
may accrue both to the government
and the taxpayer; As stated above, lex rei sitae has also been
adopted for tangible personal property
4. Residence or citizenship of the
taxpayer; and under Article 16 of the Civil Code.
The place where the real property is located Mobilia sequuntor personam
gives protection to the real property, hence,
the owner must support the government of This Latin maxim literally means that the
that place.
property follows the person. Thus, the
place where the owner is found is the This case involves the collection of inheritance
situs of taxation under the rule that taxes on shares of stock issued by the Benguet
movables follow the person. This is Consolidated Mining Corporation and owned by
generally where the owner resides. Lillian Eye. Said shares were already subjected to
inheritance taxes in California and are now being
In taxation, this principle is applied to taxed by Philippine authorities.
intangible personal property the situs of
which is fixed by the domicile of the Originally, the settled law in the United States is
owner. The reason is that this type of that intangibles have only one situs for the
property rarely admits of actual location. purpose of inheritance tax – the domicile of the
decedent at the time of death. But this rule has,
However, there are two exceptions to of late, been relaxed. The maxim mobilia
the rule. One is when it is inconsistent sequuntur personam, upon which the rules rests,
with the express provisions of a statute. has been decried as a mere fiction of law having
Two, when the interests of justice its origin in considerations of general convenience
demand that it should not be applied, and public policy and cannot be applied to limit
i.e. where the property has in fact a situs or control the right of the State to tax property
elsewhere. within its jurisdiction. It must yield to established
fact of legal ownership, actual presence and
Theories re: Situs of Income tax control elsewhere, and cannot be applied if to do
so would result in inescapable and patent
1. Domicilliary theory injustice.
The location where the income earner The relaxation of the original rule rests on either
resides is the situs of taxation. This is where of two fundamental considerations:
he is given protection, hence, he must
support it. 1. Upon the recognition of the inherent
power of each government to tax persons,
2. Nationality theory properties and rights within its jurisdiction and
enjoying the protection of its laws; or
E. Income – Income tax may properly be exacted Citing the case of CIR v BOAC, the court
from persons who are residents or citizens in the reiterated that the source of an income is the
taxing jurisdiction and even from those who are property, activity or service that produced
neither residents nor citizens provided the the income.
income is derived from sources within the taxing For the source of income to be considered as
coming from the Philippines, it is sufficient
state.
that the income is derived from activity
within the Philippines.
F. Business, occupation and transaction – The The absence of flight operations to and from
general rule is that the power to levy an excise the Philippines is not determinative of the
tax depend upon the place where the business is source of income or the situs of income
done, or the occupation is engaged in, or the taxation.
transaction took place. The test of taxability is the source, and the
source of the income is that activity which
produced the income. In this case, as JAL
G. Gratuitous transfer of Property – The constitutes PAL as its agent, thesales of JAL
transmission of property from a donor to a done tickets made by PAL is taxable
or from a decedent to his heirs may be subject to
taxation in the state where the transferor is or Wells Fargo Bank v. Collector
was a citizen or resident, or where the property is It is the identity or association of intangibles
located. with the person of their owner at his
domicile which gives jurisdiction to tax.
But when the taxpayer extends his activities
with respect to his intangibles, so as to avail
himself of the protection and benefit of the
Commissioner vs. British Overseas Airways Corp. laws of another state, in such a way as to
bring his person or property within the reach
The source of an income is the property, of the tax gatherer there, the reason for a
activity or service that produced the income. single place of taxation no longer obtains.
For the source of income to be considered In this case, the actual situs of the shares of
as coming from the Philippines, it is stock is in the Philippines, the corporation
sufficient that the income is derived from being domiciled therein. The owner residing
activity within the Philippines. Herein, the in California has extended her activities with
sale of tickets in the Philippines is the respect to her intangibles so as to avail
activity that produced the income. The herself of the protection and benefit of the
tickets exchanged hands here and payments Philippine laws
for fares were also made here in Philippine
currency.
The situs of the source of payments is the
Philippines. The flow of wealth proceeded 3. MULTIPLICITY OF SITUS
from, and occurred within, Philippine
territory, enjoying the protection accorded Multiplicity of situs, or the taxation of the
by the Philippine Government. In same income or intangible subject in several
consideration of such protection, the flow of taxing jurisdictions, arises from various
wealth should share the burden of factors:
supporting the government.
1. The variance in the concept of domicile for tax of the Tax Code, which provides as
purposes; follows:. . ."And Provided, however, That no
tax shall be collected under this Title in
respect of intangible personal property (a) if
2. Multiple distinct relationships that may arise the decedent at the time of his death was a
with respect to intangible personal property; or resident of a foreign country which at the
time of his death did not impose a transfer
3. The use to which the property may have been tax or death tax of any character in respect of
devoted all of which may receive the protection of the intangible personal property of citizens of the
laws of jurisdictions other than the domicile of the Philippines not residing in that country, or (b)
if the laws of the foreign country of which
owner thereto.
the decedent was resident at the tune of his
death allow a similar exemption from
The remedy to avoid or reduce the transfer taxes or death taxes of every
consequent burden in case of multiplicity of character in respect of intangible personal
situs is either to: property owned by citizen, of the Philippine
not residing in that foreign country.
1. Provide exemptions or allowance of
deduction or tax credit for foreign 4. Double Taxation
taxes; or
In its strict sense, referred to as direct
2. Enter into tax treaties with other States. duplicate taxation, double taxation means:
Example: Deliberate failure to report a SEC. 254. Attempt to Evade or Defeat Tax. - Any
taxable income or property; deliberate person who willfully attempts in any manner to evade
reduction of income that has been received. or defeat any tax imposed under this Code or the
payment thereof shall, in addition to other penalties
Elements of tax evasion: provided by law, upon conviction thereof, be punished
by a fine not less than Thirty thousand (P30,000) but
1. The end to be achieved. not more than One hunderd thousand pesos
(P100,000) and suffer imprisonment of not less than
Example: the payment of less two (2) years but not more than four (4) years:
than that known by the Provided, That the conviction or acquittal obtained
under this Section shall not be a bar to the filing of a for its claim of alight of first refusal under the
civil suit for the collection of taxes. lease contract.
Tax avoidance is the exploitation by the Facts: Yutivo Sons Hardware Co. bought a number of
taxpayer of legally permissible alternative tax cars and trucks from General Motors Overseas
rates or methods of assessing taxable Corporation. As importer, GM paid sales tax
property or income in order to avoid or prescribed by sections 184, 185and 186 of the Tax
reduce tax liability. It is politely called “tax Code on the basis of its selling price to Yutivo. Said
tax being collected only once on original sales, Yutivo
minimization” and is not punishable by law.
paid no further sales tax on its sales to the public.
Southern Motors, Inc. was organized to engage in the
Delphers Traders Corp. v. IAC[157 SCRA 349], business of selling cars, trucks and spare parts. After
the incorporation of SM and until the withdrawal of
SC upheld the estate planning scheme GM from the Philippines in the middle of 1947, the
resorted to by the Pacheco family in cars and trucks purchased by Yutivo from GM were
sold by Yutivo to SM which, in turn, sold them to the
converting their property to shares of stock
public in the Visayas and Mindanao.
in a corporation which they themselves
owned and controlled. By virtue of the deed Issue: Whether or not Southern Motors, Inc. was
of exchange, the Pachecho co-owners saved organized as a tax evasion device.
on inheritance taxes. The Supreme Court said
the records do not point to anything wrong Held: NO.
and objectionable about this estate planning SM was organized in June, 1946 when it
could not have caused Yutivo any tax savings.
scheme resorted to. The legal right of the
From that date up to June 30, 1947, or a
taxpayer to decreased the amount of what period of more than one year, GM was the
otherwise could be his taxes or altogether importer of the cars and trucks sold to
avoid them by means which the law permits Yutivo, which, in turn resold them to SM.
cannot be doubted. During that period, it is not disputed that GM
as importer, was the one solely liable for
What they really did was to invest their sales taxes. Neither Yutivo or SM was subject
to the sales taxes on their sales of cars and
properties and change the nature of
trucks.
their ownership from unincorporated to The sales tax liability of Yutivo did notarize
incorporated form by organizing Delpher until July 1, 1947 when it became the
Trades Corporation to take control of importer and simply continued its practice of
their properties and at the same time save selling to SM. The decision, therefore, of the
on inheritance taxes. The "Deed of Exchange" Tax Court that SM was organized purposely
of property between the Pachecos and as a tax evasion device runs counter to the
fact that there was no tax to evade
Delpher Trades Corporation cannot be
Intention to minimize taxes used in the
considered a contract of sale. context of fraud, must be proved by clear
and convincing evidence amounting to more
There was no transfer of actual ownership than mere preponderance and cannot be
interests by the Pachecos to a third party. justified by mere speculation. Fraud is never
The Pacheco family merely changed their presumed.
ownership from one form to another. The
ownership remained in the same hands. 4. Exemption from Taxation
Hence, the private respondent has no basis
It is the grant of immunity to particular
persons or corporations or to persons or
corporations of a particular class from a tax
which persons and corporations generally
within the same state or taxing district are
obliged to pay.
5. Transformation
6. Avoidance