CIR vs CA, CTA and A.

SORIANO CORP
 FACTS: Don Andres Soriano (Americ

(ASC) had a total shareholdings of 185,154 shares. Broken down, the shares compris
of original issue when the corporation was founded and 134,659 shares as stock divid
when Soriano died, half of the shares he held went to his wife as her conjugal share (
half (92,577 shares, which is further broken down to 25,247.5 original issue shares a
shares) went to the estate. For sometime after his death, his estate still continued to

receive stock dividends from ASC until it grew to at least 108,000 shares.
 In 1968,
resolution for the redemption of shares from Soriano’s estate purportedly for the plan
Eventually, 108,000 shares were redeemed from the Soriano Estate. In 1973, a tax au
the Commissioner of Internal Revenue (CIR) issued an assessment against ASC for d
source. The CIR explained that when the redemption was made, the estate profited (b
the estate to redeem), and so ASC would have withheld tax payments from the Soria

yet it remitted no such withheld tax to the government.
 ASC averred that it is not d
the estate because it redeemed the said shares for purposes of “Filipinization” of ASC
remittance abroad.
 ISSUE: Whether or not ASC’s arguments are tenable.
 HELD:
redemption is not material. The
proceeds from a redemption is taxable and ASC is duty bound to withhold the tax at
definitely profited from
the redemption and such profit is taxable, and again, ASC had the duty to withhold th
108,000 shares redeemed from the estate. 25,247.5 of that was original issue from
the capital of ASC. The rest (82,752.5) of the shares are deemed to have been from s
stock dividends is taxable. It is also to be noted that in the absence of evidence to the
presumes that every distribution of corporate property, in whole or in part, is made o
stock dividends.
It cannot be argued that all the 108,000 shares were distributed from the capital of A
redeeming them as
such. The capital cannot be distributed in the form of redemption of stock dividends
doctrine — wherein the capital stock, property and other assets of the corporation are
the payment of the corporate creditors. Once capital, it is always capital. That doctrin
of corporate creditors.
The three elements in the imposition of income tax are: (1) there must be gain or and
108
is realized or received, actually or constructively, and (3) it is not exempted by law
business purpose as to why or
how the income was earned by the taxpayer is not a requirement. Income tax is asses
property, activity or service that produces the income because the Tax Code stands a
109
the matter of where income comes from.
As stated above, the test of taxability under the exempting clause of Section 83(b) is,
through the
PERCY TAXIN| GROSS INCOME 1

redemption of stock dividends. The redemption converts into money the stock divide
110
profit or gain and consequently, the stockholder’s separate property. Profits derive
from the capital invested cannot escape income tax. As realized income, the proceeds
dividends can be reached by income taxation regardless of the existence of any busin
Otherwise, to rule that the said proceeds are exempt from income tax when the redem
business reasons would defeat the very purpose of imposing tax on income. Such arg
income earners not to pay tax so long as the person from
whom the income was derived has legitimate business reasons. In other words, the pa
exempting clause of Section 83(b) would be made to depend not on the income of th
purposes of a third party (the corporation herein) from whom the income was earned
impractical considering that the Bureau of Internal Revenue (BIR) would be pestered
the legitimacy of business reasons that every income earner may interposed. It is not
cannot therefore be allowed.