TOMAS CALASANZ, ET AL., petitioners, vs. THE COMMISSIONER OF INTERNAL REEN!E "#$ t%e CO!RT OF TA& A''EALS, respondents. FACTS( Petitioner Ursula Calasanz inherited from her father Mariano de Torres an agricultural land located in Cainta, Rizal, containing a total area of 1,67,!!! s"uare meters. #mprovements $ere introduced to ma%e the lots salea&le. 'oon after, the lots $ere sold to the pu&lic at a profit. #n their (oint income ta) return for the *ear 1+,7 petitioners disclosed a profit of P-1,!6!.!6 realized from the sale of the su÷d lots, and reported fift* per centum thereof or P1,,,-!.!- as ta)a&le capital gains. .n 'eptem&er /+, 1+6/, petitioners received from respondent Commissioner of #nternal Revenue0 a. 1emand 2o. +!343!-//+-3,7 in the amount of P16!.!! representing real estate dealer5s fi)ed ta) of P1,!.!! and P1!.!! compromise penalt* for late pa*ment6 and &. 7ssessment 2o. +!3,3-,6++ in the amount of P-,,61./8 as deficienc* income ta) on ordinar* gain of P-,!1.!! plus interest of P ,8-./8. The Revenue 9)aminer ad(udged petitioners engaged in &usiness as real estate dealers thus the* $ere re"uired to pa* the real estate dealer5s ta) and assessed a deficienc* income ta) on profits derived from the sale of the lots &ased on the rates for ordinar* income. .n .cto&er 17, 1+6/, petitioners filed $ith the Court of Ta) 7ppeals a petition for revie$ contesting the assessments. .n :une 7, 1+66, the Ta) Court upheld the respondent Commissioner e)cept for that portion of the assessment regarding the compromise penalt*. The* elevated the case to the 'upreme Court. ISS!E( ;hether or not the gains realized from the sale of the lots are ta)a&le in full as ordinar* income or capital gains ta)a&le at capital gain rates. HEL)( The decision of the Court of Ta) 7ppeals $as affirmed. Upon an e)amination of the facts on record, the Court $as convinced that the activities of petitioners are indistinguisha&le from those invaria&l* emplo*ed &* one engaged in the &usiness of selling real estate. Petitioners $ere deemed to &e in the real estate &usiness for having &een involved in a series of real estate transactions pursued for profit, that the ultimate purpose is to li"uidate is of no moment for the important in"uir* is $hat the ta)pa*er did $ith the propert*. 'ince the lots are ordinar* assets, the profits realized therefrom are ordinar* gains, hence are ta)a&le in full. The term 5capital assets5 means propert* held &* the ta)pa*er <$hether or not connected $ith his trade or &usiness=, &ut does not include, stoc% in trade of the ta)pa*er or other propert* of a %ind $hich $ould properl* &e included, in the inventor* of the ta)pa*er if on hand at the close of the ta)a&le *ear, or propert* held &* the ta)pa*er primaril* for sale to customers in the ordinar* course of his trade or &usiness, or propert* used in the trade or &usiness of a character $hich is su&(ect to the allo$ance for depreciation6 or real propert* used in the trade or &usiness of the ta)pa*er. The Court failed to see the reasons &ehind a person5s entering into a &usiness3$hether it is to ma%e mone* or $hether it is to li"uidate3should &e determinative of the "uestion of $hether or not the gains resulting from the sales are ordinar* gains or capital gains. The sole "uestion is3 $ere the ta)pa*ers in the &usiness of su&dividing real estate> #f the* $ere, then it seems indisputa&le that the propert* sold falls $ithin the e)ception in the definition of capital assets3 it constituted 5propert* held &* the ta)pa*er primaril* for sale to customers in the ordinar* course of his trade or &usiness. C*t"+, F"r,c" Z-".bo Se/te.ber 22, 2012