Case Digest: Roxas v. CTA (G.R. No. L-25043, April 26, 1968)


Case Digest: Roxas v. CTA (G.R. No. L-25043, April 26, 1968)


The brothers Antonio, Eduardo and Jose Roxas inherited from their grandparents the following:

(1) Agricultural lands with a total area of 19,000 hectares, situated in the municipality of Nasugbu, Batangas;
(2) A residential house and lot located at Malate, Manila; and
(3) Shares of stocks in different corporations

In order to manage their properties, they entered into a partnership with Roxas Company. The Roxas brothers lived in the residential house, however, after both Antonio and Eduardo got married, they resided somewhere else leaving only Jose in the old house. To be fair with his brothers, Jose paid to Roxas Company rentals for the house in the sum of P8,000.00 a year.

On 1958, the Commissioner of Internal Revenue demanded from Roxas Company the payment of real estate dealer’s tax for 1952 which was based on the fact that the company received house rentals from Jose Roxas.

Pursuant to Sec. 194 of the Tax Code, an owner of a real estate who derives a yearly rental income therefrom in the amount of P3,000.00 or more is considered a real estate dealer and is liable to pay the corresponding fixed tax. In the same assessment, the Commissioner assessed deficiency income taxes against the Roxas Brothers for the years 1953 and 1955.

When Roxas company subdivided its Nasugbu farm lands and sold them to the farmers on installment, the Commissioner considered the partnership as engaged in the business of real estate, hence, 100% of the profits derived from the sale should be taxed instead of only 50% which was initially reported.

Roxas Company and the Roxas brothers protested the assessment. Roxas Company also questioned the imposition of the real estate dealer’s fixed tax upon it, because although the company earned a rental income of P8,000.00 per year in 1952, said rental income came from Jose Roxas, who is one of their partners.


Whether or not Roxas Company is liable for the payment of the fixed tax on real estate dealers.


On the issue of  the real estate dealer’s fixed tax upon the rental income paid by Jose Roxas, the SC reiterated Sec.194 of the Tax Code. In considering as real estate dealers, owners of real estate receiving rentals of at least P3,000.00 a year, Sec. 194 does not provide any qualification as to the persons paying the rentals. Hence, Roxas company is subject to the fixed tax for that rental income paid by Jose Roxas.

On the issue of the real estate dealer’s fixed tax upon the sale of Nasugbu farmlands, the SC ruled that Roxas Company cannot be considered a real estate dealer for the sale in question. Hence, pursuant to Section 34 of the Tax Code the lands sold to the farmers are capital assets, and the gain derived from the sale thereof is capital gain which is taxable only to the extent of 50% not 100%.

The SC held that the sale of the Nasugbu farm lands to the farmers was not only in consonance with, but more in obedience to the request and pursuant to the policy of the Government to allocate lands to the landless.

It was the duty of the Government to pay the agreed compensation after it had persuaded Roxas Company to sell its agricultural lands, and to subsequently subdivide them among the farmers at very reasonable terms and prices.  However, the Government could not comply with its duty due to lack of funds. Still, Roxas Company shouldered the Government’s burden and sold lands directly to the farmers on installment.

It does not conform with the SC’s sense of justice in the instant case for the Government to persuade the taxpayer to lend it a helping hand and later on to penalize him for duly answering the urgent call.