Delgado borrowed money from Leviste. As payment, he made a promissory note in favor of Leviste. To secure the note, Delgado executed a chattel mortgage over a jeep owned by him and a car owned by the Cerna (under a special power of Attorney).
Delgado defaulted. Leviste filed a collection suit against Delgado and Cerna as solidarily debtors. Cerna filed a motion against him. The motion was denied and the CA held that Delgado and Leviste are solidarily debtors.
ISSUES:
1. Is Cerna solidarily bound with the principal debtor?
2. What is the extent of the mortgagor's liability?
3. Is Cerna a co-mortgagor?
4. If Cerna as co-mortgagor, would he be liable in an action for recovery of money?
HELD:
1. NO. There is no legal provision nor jurisprudence in our jurisdiction which makes a third person who secures the fulfillment of another's obligation by mortgaging his own property to be solidarily bound with the principal obligor. A chattel mortgagor may be an "accessory contract" to a contract of loan, but that fact alone does not make a third party mortgagor solidarily bound with the principal debtor in fulfilling the principal obligation of paying the loan. Moreover, it is a basic precept that there is solidarily liability only when the obligation expressly so states or when the law or nature of the obligation requires solidarity.
2. A third party mortgagor becomes liable only to the extent of the property mortgaged. It is only upon default of the principal debtor that the creditor may have recourse on the mortgagor by foreclosing the mortgage properties in lieu of an action for the recovery of the amount of the loan. And the liability of the third party mortgagor extends only to the property mortgaged. Should there be any deficiency, the creditor has recourse on the principal debtor.
3. NO. The special power of attorney authorizing Delgagdo to mortgage Cerna's property as security for Delgado's obligation does not itself make Cerna a co-mortgagor, especially so since only Delgagdo signed the chattel mortgage as mortgagor. The special power of attorney did not make Cerna as mortgagor, all it did was to authorize Delgado to mortgage certain properties belonging to Cerna. And this is in compliance with the requirement in Article 2085 of the New Civil Code, It is essential in mortgage xxx (3) That the person constituting the pledge or mortgage have the free disposal of their property, and IN ABSENCE THEREOF, THAT THEY BE LEGALLY AUTHORIZED FOR THE PURPOSE. Thus, it is clear that only Delgado was the sole mortgagor regardless of the fact that he used properties belonging to a third person to secure the debt.
4. And even if Cerna was a co-mortgagor, Cerna could not be held liable because the complaint was for recovery of a sum of money and not for the foreclosure, thereby abandoning the chattel mortgage as basis for relief, he clearly manifests his lack of desire and interest to go after the mortgaged property as security for the promissory note.
Sunday, July 31, 2016
Thursday, July 28, 2016
CIR vs. Smart Communication
Smart Communication (Smart for brevity), is a domestic corporation and duly registered with the Board of Investment.
Respondent Smart entered into three agreements for Programming and Consultancy Services with PRISM Transactive, a non-resident corporation duly organized and existing under the law of Malaysia. Under the agreement, PRISM was to provide programming and consultancy service for the installation of SDM and CM, for the implementation of SIM.
PRISM billed respondent of US$547822.45 and respondent withheld the 25% royalty tax of US$136,955.61.
Respondent filed a claim of refund with the BIR of the amount PhP7,008,840. Respondent claim that it is entitled to a refund because the payment made to PRISM are not royalties but business profits pursuant to the definition of royalties under the RP-Malaysia Tax Treaty.
ISSUE: WON the payment made to PRISM constitite "business profits" or royalties?
HELD:
SDM Agreement read, "The SDM shall be installed by PRISM, inlcuding the SDM libraries, the Intellectual Property Right (IPR) of which shall be retained by PRISM.
SIM agreement provides, " The client shall own the IPR for the specification and the source code for the SIM application.
PRISM has intellectual property right over the SDMprogram, but not over the CM and SIM application programs as the proprietary rights of these programs belong to respondent. In other words, out of the payments made to PRISM, only the payment for the SDM program is a royalty subject to a 25% withholding tax.
A refund of the erroneously withheld royalty taxes for the payments pertaining to the CM and SIM application agreement is therefore in order.
Respondent Smart entered into three agreements for Programming and Consultancy Services with PRISM Transactive, a non-resident corporation duly organized and existing under the law of Malaysia. Under the agreement, PRISM was to provide programming and consultancy service for the installation of SDM and CM, for the implementation of SIM.
PRISM billed respondent of US$547822.45 and respondent withheld the 25% royalty tax of US$136,955.61.
Respondent filed a claim of refund with the BIR of the amount PhP7,008,840. Respondent claim that it is entitled to a refund because the payment made to PRISM are not royalties but business profits pursuant to the definition of royalties under the RP-Malaysia Tax Treaty.
ISSUE: WON the payment made to PRISM constitite "business profits" or royalties?
HELD:
SDM Agreement read, "The SDM shall be installed by PRISM, inlcuding the SDM libraries, the Intellectual Property Right (IPR) of which shall be retained by PRISM.
SIM agreement provides, " The client shall own the IPR for the specification and the source code for the SIM application.
PRISM has intellectual property right over the SDMprogram, but not over the CM and SIM application programs as the proprietary rights of these programs belong to respondent. In other words, out of the payments made to PRISM, only the payment for the SDM program is a royalty subject to a 25% withholding tax.
A refund of the erroneously withheld royalty taxes for the payments pertaining to the CM and SIM application agreement is therefore in order.
Tuesday, July 26, 2016
CIR vs. Isabela Cultural Corporation
Isabela Cultural Corp.(ICC for brevity) , a domestic corporation received from BIR assessment notice no. FAS-1-86-90000680 (680 for brevity) for deficiency income tax in the amount of PhP 333,196.86 and assessment notice no. FAS-1-86-90-000681 (681 for brevity) for deficiency expanded withholding tax in the amount of PhP 4,897.79, inclusive of surcharge and interest both for the taxable year 1986. The deficiency income tax of PhP 333,196 arose from BIR disallowance of ICC claimed expenses deductions for professional and security services billed to and paid by ICC in 1986.
The deficiency expanded withholding tax of PhP4,897.79 was allegedly due to the failure of ICC to withhold 1% expanded withholding tax on its claimed PhP244,890 deduction for security services.
Court of Tax Appeal and Court of Appeal affirmed that the professional services were rendered to ICC in 1984 and 1985, the cost of the service was not yet determinable at that time, hence, it could be considered as deductible expenses only in 1986 when ICC received the billing statement for said service. It further ruled that ICC did not state its interest income from the promissory notes of Realty Investment and that ICC properly withheld the remitted taxes on the payment for security services for the taxable year 1986.
Petitioner contend that since ICC is using the accrual method of accounting, the expenses for the professional services that accrued in 1984 and 9185 should have been declared as deductions from income during the said years and the failure of ICC to do so bars it from claiming said expenses as deduction for the taxable year 1986.
ISSUE (1): WON CA is correct in sustaining the deduction of the expenses for professionals and security services form ICC gross income?
HELD: NO
Revenue Audit Memorandum Order No.1-2000 provides that under the accrual method of accounting, expenses not being claimed as deductions by a tax payer in the current year when they are incurred cannot be claimed as deductions from the income for the succeeding year.
ISSUE (2): WON CA correctly held that ICC did not understate its interest income from the promissory notes of Realty Investment, Inc; that ICC withheld the required 1% withholding tax from the deduction for security services.
HELD:
Sustaining the finding of the CTA and CA that no such understatement exist and that only simple interest computation and not a compounded one should have been applied by the BIR. There is no indeed no stipulation between the latter and ICC on the application of compound interest.
Under Article 1959 of the Civil Code, unless there is a stipulation to the contrary, interest due should not further earn interest.
Commissioner vs. Tours Specialist
Tours specialist had derived income from its activities as a travel agency servicing the need of foreign tourists and travelers and Filipino during their stay in the country.
In order to ably supply these services to the foreign tourists, Tour specialist and its counterpart tourist agencies abroad have agreed to offer a package fee for the tourists. Although the fee to be paid by said tourist is quoted by the petitioner, the payment of the hotel accommodations food and other personal expenses, as a rule, are paid directly either by tourists themselves or by their foreign travel agencies to the local hotels.
In some cases the foreign agencies request local tour agencies such as respondent that the hotel room charges be paid through them. By this arrangement, the foreign tour agency entrust to respondent the fund for hotel room accommodation, which in turn is paid by respondent tour agency to the local hotel when billed because room charge is exempt from tax under PD 31.
Petitioner CIR assessed respondent for deficiency of 3% contractor's tax as independent contractor by including the entrusted hotel charges in its gross receipt from services for the year 1974 to 1976. Respondent formally protested the assessment made by CIR on the ground that the hotel room charges were not considered and have never been considered by it as part of its taxable gross receipt for purposes of computing and paying its contractor's tax.
ISSUE:
WON the amount received by a local tourist and travel agency included in a package fee from tourist or foreign tour agencies, intended or earmarked for hotel accommodation form part of gross recipt subject to 3% contractor's tax?
Held:
NO. Money entrusted to Tour Specialist, earmarked and paid for hotel room charges does not form part of its gross receipt subject to the 3% independent contractor's tax under NIRC.
GROSS RECEIPT do not include monies or receipt entrusted to the taxpayer which do not belong to them and do not redound to the taxpayer's benefit; it is not necessary that there must be a law or regulation which would exempt such monies or receipt within the meaning of gross receipts under the Tax Code.
If the hotel room charges entrusted to petitioner will be subject to 3% contractor's tax as what CIR would want to do in this case, that would in effect do indirectly what PD 31 would not like hotel room charges of foreign tourist to be subject to hotel room tax.
In order to ably supply these services to the foreign tourists, Tour specialist and its counterpart tourist agencies abroad have agreed to offer a package fee for the tourists. Although the fee to be paid by said tourist is quoted by the petitioner, the payment of the hotel accommodations food and other personal expenses, as a rule, are paid directly either by tourists themselves or by their foreign travel agencies to the local hotels.
In some cases the foreign agencies request local tour agencies such as respondent that the hotel room charges be paid through them. By this arrangement, the foreign tour agency entrust to respondent the fund for hotel room accommodation, which in turn is paid by respondent tour agency to the local hotel when billed because room charge is exempt from tax under PD 31.
Petitioner CIR assessed respondent for deficiency of 3% contractor's tax as independent contractor by including the entrusted hotel charges in its gross receipt from services for the year 1974 to 1976. Respondent formally protested the assessment made by CIR on the ground that the hotel room charges were not considered and have never been considered by it as part of its taxable gross receipt for purposes of computing and paying its contractor's tax.
ISSUE:
WON the amount received by a local tourist and travel agency included in a package fee from tourist or foreign tour agencies, intended or earmarked for hotel accommodation form part of gross recipt subject to 3% contractor's tax?
Held:
NO. Money entrusted to Tour Specialist, earmarked and paid for hotel room charges does not form part of its gross receipt subject to the 3% independent contractor's tax under NIRC.
GROSS RECEIPT do not include monies or receipt entrusted to the taxpayer which do not belong to them and do not redound to the taxpayer's benefit; it is not necessary that there must be a law or regulation which would exempt such monies or receipt within the meaning of gross receipts under the Tax Code.
If the hotel room charges entrusted to petitioner will be subject to 3% contractor's tax as what CIR would want to do in this case, that would in effect do indirectly what PD 31 would not like hotel room charges of foreign tourist to be subject to hotel room tax.
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