Baas Jr. v. Court of Appeals [G.R. No. 102967.

February 10, 2000]

30JUL
FACTS
in February 20, 1976, petitioner Bibiano V. Baas Jr. sold to Ayala
InvestmentCorporation 128,265 square meters of land in Muntinlupa for P2,308,770.00.
AYALA issued onepromissory note covering four equal annual installments. On the
same day, petitionerdiscounted the promissory note with AYALA. AYALA then issued 9
checks to petitioner, all datedFebruary 20, 1976 with uniform amount of P205, 224.00

In his 1976 Income Tax Return, petitioner reported the P461, 754 initial payment asincome from
disposition of capital asset. In the succeeding years, until 1979, petitioner reporteda uniform
income of P230,877.00 as gain from sale of capital asset. After an examination by thetax
examiners, Rodolfo Tuazon and Procopio Talon, on April 11, 1978, they recommended
adeficiency of tax assessment for P2,473,673.00

ISSUE
Whether or not the promissory note should be declared cash transaction for purposes of taxation.

RULING
YES. A negotiable instrument is deemed a substitute for money and for value. According to Sec.
25 of NIL: value is any consideration sufficient to support a simple contract. An antecedent or
pre-existing debt constitutes value; and is deemed such whether the instrument is payable on
demand or at a future time. Although the proceed of a discounted promissory note is not
considered part of the initial payment, it is still taxable income for the year it was converted into
cash.