TOPIC: Dividends

Alfonso T. Yuchengco, petitioner vs. Commissioner of Internal Revenue, respondent

NATURE: Appeal seeking redetermination of a deficiency income tax which CIR assessed against
Yuchengco for the year 1974.

FACTS: The deficiency of Yuchengco arose from disallowance by the CIR of certain deductions he
claimed from his income tax return and the addition of incomes he allegedly earned in the same year.

ISSUES:
1.) whether the advances taken by Yuchengco from Pan Malayan Management Investment Corporation
and ET Yuchengco, Inc. are disguised dividends;
2.) whether dividend income from Rizal Commercial Banking Corporation are taxable income;

HELD:
1.) The advances made by Yuchengco from PMMIC in the amount of P 1,890,000.00 were not bona fide
loans but were in reality, informal dividends, taxable as income to Yuchengco.

Yuchengco and his family owned 99.99% of the total outstanding shares of PMMIC. In the year 1974, he
received the total of P 1,890,000.00 at regular intervals during the year. Yuchengco’s contention that such
amount are loans, since he “paid” them off by assigning his shares in a certain Mico Equities, to PMMIC
is unavailing. The mere effect of such assignment is the offsetting of the “loans” but such is not enough
evidence that the amount was a bona fide loan. Moreover, there is no evidence that Yuchengco gave a
note or any containing fixed terms for repayment, or that he paid interest, or that he gave any security for
such “loans”. The burden of proving that such amount was a loan is upon Yuchengco, and he failed to
prove such.

However, as to the advances from ET Yuchengco, petitioner was able to prove through the accounts
payable ledger of ET Yuchengco Inc that the amount of P126,000 which he advanced are indeed loans
and that he has the intent to repay.

2.) The court found that Yuchengco was only a nominal holder of some of the shares, that although the
shares were in his name, he was merely holding such shares in trust for the corporations and that all
dividends were paid to these corporations which declared and paid the taxes due thereon. Certifications
were issued as evidence of Yuchengco’s nominal holdings. However the certifications only accounted for
part of the shares in Yuchengco’s name (only 16, 102 shares out of 38,106) which he held in trust for
various corporations. The court held that the dividend income pertaining to the remaining shares should
be taxable income to him for the year.