Republic of the Philippines
G.R. No. L-15013             August 31, 1961
COMMISSIONER OF INTERNAL REVENUE, petitioner,
ASTURIAS SUGAR CENTRAL, INC., respondent.
Office of the Solicitor General for petitioner.
Pelaez and Jalandoni and Felipe Ysusael for respondents.
The Collector of Internal Revenue (now Commissioner of Internal Revenue) seeks a review of the decision of the Court of Tax Appeals in C.T.A. Case No. 307, as amended, sentencing said officer to refund to the Asturias Sugar Central, Inc., the sums of P563 and P24,839.00 at the legal rate from the date of payment of said sums.
The facts, according to counsel for the Government are set forth in the aforementioned decision, from which we quote:
Petitioner herein, Asturias Sugar Central, Inc., is a corporation duly organized and existing under the laws of the Philippines with office at Dumalag, Capiz (Par. 1, Stipulation of Facts). Since it organization, petitioner has been engaged in the manufacture of sugar from sugar cane in its mill located in San Juan, Municipality of Dumalag, Capiz (Par. 3, Stip. of Facts). On or about April 18, 1942, the Asturias Sugar Central, Inc. was burned by the retreating USAFFE under its scorch earth policy and/or to resist enemy attack (Par. 4, Stip. of Facts). The Central was totally destroyed and was reconstructed only on or about 1947 (Par. 4, Stip. of Facts). The petitioner on February 26, 1948, filed with the Philippine War Damage Commission a claim for damages sustained on its properties during the war in the amount of P2,135,685.51 (Par. 5 & 6, Stip. of Facts). The War Damage Commission approved payment in favor of petitioner in the amount of P1,064.812.92 (Par. 7, Stip. of Facts), and extended the first payment on account of the approved claim in the amount of P426,525.16 under Treasury Warrant No. 1362433 dated February 29, 1950 (should be February 28, 1950) and the amount was deposited by the petitioner on May 7, 1950 at the Philippine National Bank, Iloilo Branch (Par. 8, Stip. of Facts). On November 3, 1950, petitioner received the second payment of P319,413.90 covered by Treasury Warrant No. 1463076 (Annex 'C') which amount was deposited on the same date by the petitioner with the Philippine National Bank, Iloilo Branch (Par. 9, Stip. of Facts). Together with the second check was a note informing petitioner that the amount would be the last payment because there was no more funds available (Par. 9. Stip. of Facts).
The petitioner filed its Income Tax Returns on the fiscal year basis ending October 31, of each year (Exhs. O, P. Q). In its income tax return for 1950, it claimed a deduction of P354,606.30 as war losses (Par. 10, Stip. of Facts). Upon proper verification respondent disallowed all deductions for war losses and consequently, notices of deficiency income tax assessments were issued against the Petitioner in the amounts of P563.00 and P24,839.00 corresponding to the years 1950 and 1951. (Par. 12, Stip. of Facts). Petitioner paid the abovementioned amounts in the total sum of P26,402.00 under Official Receipt No. 719730 dated August 1, 1956 (Par. 13, Stip. of Facts). On October 25, 1956, petitioner requested the refund of the said amount [(Annex "I") Par. 14, Stip. of Facts] which requested was denied by respondent in a letter dated November 23, 1956, Annex 'H' Par. 14, Stip. of Facts). (Pp. 1-3, Memorandum or Respondent).
The main issue is, likewise, stated in said decision in the following language:
The only issue presented for our consideration is whether the war losses in question were properly deductible in 1942, when the losses were actually sustained, or in 1950 and 1951, when petitioner was advised by the Philippine War Damage Commission that no further payment would be made, unless the Congress of the United States should provide additional funds.
Section 30(d) (2) of the Revenue Code allows the deduction from the gross income of a corporation of "all losses actually sustained and charged off within the taxable year and not compensated for by insurance or otherwise.' If property is not insured against loss, 'the amount of the loss must be reduced by the amount of any insurance or other compensation received, and by the salvaged value, if any, of the property'; and the amount not so compensated for by insurance is deductible in the year the claim for indemnity is finally determined, since it is required that losses, to be deductible, must be evidenced by closed and completed transactions.' (Secs. 94, 96, Rev. Regs. No. 2, 39 0.G. 325, Feb. 11, 1941).
On the ground that the losses sustained by it on account of the destruction of its properties on April 18, 1942 were covered by the war risk insurance provided in a law passed by the United States Congress, petitioner claimed as deduction in its income tax returns for 1950 and 1951, when its claim for indemnity was finally determined, the portion of its losses in the sums of P354,606.30 and P319,143.86 not compensated for by said insurance. In support of its claim that its losses were covered by insurance, petitioner relies mainly on Public Law 506 — 77th Congress of the United States. Respondent, on the other hand, claims that the losses sustained by petitioner were not covered by insurance; hence, such losses must be claimed as deduction in the year they were actually sustained, not in the years the claim for indemnity was finally determined.
Section 5g of said Public Law 506 — 77th Congress of the U.S. — otherwise known as the War Damage Corporation Act — reads:
(a) The Reconstruction Finance Corporation is hereby directed to continue to supply funds to the War Damage Corporation, a corporation created pursuant to Section 5d of this Act; . . . The Reconstruction Finance Corporation is authorized to and shall empower the War Damage Corporation to use its funds to provide, through insurance, reinsurance, or otherwise, reasonable protection against loss of or damage to property, real and personal, which may result from enemy attack (including any action taken by the military, naval or air forces of the United States in resisting enemy attack), with such general exceptions as the War Damage Corporation, with the approval of the Secretary of Commerce, may deem advisable. Such protection shall be made available through the War Damage Corporation on and after a date to be determined and published Dy the Secretary of Commerce which shall not be later than July 1, 1942, upon the payment of such premium or other charge, and subject to such terms and conditions, as the War Damage Corporation, with the approval of the Secretary of Commerce, may establish, but, in view of the national interest involved, the War Damage Corporation shall from time to time establish uniform rates for each type of property with respect of which such protection is made available, and, in order to establish a basis for such rates, such Corporation shall estimate the average risk, of loss on all property of such type in the United States. Such protection shall be applicable only (1) to such property situated in the United States (including the several States and the District of Columbia), the Philippine Islands, the Canal Zone, Territories and possessions of the United States, and in such other places as may be determined by the President to be under the dominion and control of the United States, . . . Provided, That such protection shall not the applicable after the date determined by the Secretary of Commerce under this subsection to property in transit upon which the United States Maritime Commission is authorized to provide marine war-risk insurance. The War Damage Commission with the approval of the Secretary of Commerce may suspend restrict, or otherwise limit such protection in any area to the extent that it may determine to be necessary or advisable in consideration of the loss of control over such area by the United States making it impossible or impracticable to provide such protection in such area.
(b) Subject to the authorizations and limitations prescribed in subsection (a), any loss or damage to any such property sustained subsequent to December 6, 1941, and prior to he date determined by the Secretary of Commerce under subsection (a), may be compensated by the War Damage Corporation without requiring a contract of insurance or the payment of premium, or other charge, and such loss or damage may be adjusted as if a policy covering such property was in fact in force at the time of such loss or damage. (U.S. Statutes at Large, Vol. 56, Part I, pp. 175-176).
Considering that the Asturias Sugar Central was destroyed on April 18, 1942, or subsequent to December 6, 1941, but not later than July 1, 1942, it is clear that the loss of the central was compensable by the War Damage Corporation under the provisions of said section 5g, particularly under subdivision (b) thereof. Our decision in Cu Unjieng & Sons, Inc. vs. Collector of Internal Revenue, G.R. No. L-6296, promulgated September 29, 1956, is invoked by the Government in support of its theory that the U.S. Government and the War Damage Corporation were morally, not legally, committed to make payment on accounts of war damage in the Philippines under the aforementioned Act of Congress. The facts in said case are, however, materially different from those obtaining in the one at bar.
Whereas the Asturias Sugar Central was burned by the USAFFE subsequent to December 6, 1941, but prior to July 1, 1942, in furtherance of our resistance to enemy attack, the losses of the Cu Unjieng were sustained when the enemy was retreating under the impact of the attack by the American forces of liberation, early in 1945. At that time, said losses of the Cu Unjiengs were not compensable, either under the aforementioned Act of Congress of the U.S. — their property having been destroyed after July 1, 1942 — or under the Philippine Rehabilitation Act (Philippine Law 370 — 79th Congress of the U.S.) for the latter was approved on April 30, 1946. Hence said losses were deductible in the year in which they were "actually sustained" (Sections 60 and 94 of our Tax Code).
Upon the other hand, when the Asturias Sugar Central was destroyed on April 18, 1942, the War Damage Corporation Act was already in force, and subdivision (b) of section 59 thereof provided that said loss was compensable by the War Damage Corporation "without requiring payment of premium or a contract of insurance or the other charge." The Asturias Sugar Central, Inc., had, therefore, not only the right, but, also, the duty, before it claimed the corresponding deduction for the lose of its central, to wait until it could determine, with reasonable certainty, how much compensation, if any, it would get pursuant to said section 5g. Only then could it be fairly said that it had complied with the requirement of section 96 of our Tax Code, to the effect that:
Loses must usually be evidenced by closed and completed transactions. Proper adjustment must be made in each case . . . Moreover, the amount of loss must be reduced by the amount of any insurance or other compensation received, and by the salvage value, if any, of the property . . . (Emphasis supplied).
It is urged that "insurance" is a contract, which did not exist under the aforementioned section 5g of the War Damage Corporation Act. Although "insurance" is generally a contract, nothing in its nature bars an insurance by operation of law. Indeed, said section 5g — particularly subdivision (b) thereof, providing for compensation "by the War Damage Corporation without requiring a contract of insurance or the payment of premiums or other charge . . . as if a policy . . . was in fact in force at the time of" the "loss or damage" in question — leaves no room for doubt about the intent of Congress of the United States to establish, between the War Damage Corporation and the owner of the property lost or damaged, a relation identical to that existing between the insurer and the insured under a contract of insurance. At any rate, the judirical relation thus created is such as to clearly fall within the purview of the term "insurance or otherwise" used in sections 30 and 94 of our Tax Code.
It is next urged that the obligation to compensate under subdivision (b) of section 5g of the War Damages Corporation Act is purely moral, not legal, because it is merely provides that the loss or damage therein referred to "may be compensated . . . and may be adjusted" as pointed out above. The verb "may" is used therein to indicate a grant of authority which otherwise the War Damage Corporation would not have. It does not connote discretion to compensate or not to compensate the loss or damage in question, for the War Damage Corporation is placed by law in the position of one who has issued a policy covering the property lost or damaged, and is, accordingly, bound to compensate in accordance with the terms and conditions of such policy.
The Solicitor-General maintains that the Government should not be required to pay interest on the amount refundable to the Asturias Sugar Central, Inc., there being no authority statutory provision expressly or clearly directing or authorizing such payment, but the propriety of awarding interest on the sum recoverable by the taxpayer has already been upheld in our resolution denying the motion for reconsideration filed by the Government in Carcar Electric and Ice Plant Co., Inc. vs. Collector of Internal Revenue, 53 O.G. 1068, 1071 1073-1075.
WHEREFORE, the decision appealed from is hereby affirmed without costs. It is so ordered.
Bengzon, C.J., Padilla, Labrador, Reyes, J.B.L., Barrera, Paredes, Dizon, De Leon and Natividad, JJ., concur.
Bautista Angelo, J., is on leave.
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