Tuason v.
Lingad (1974) sales cannot be considered as sales of capital assets but of real
Petitioner/s: Antonio Tuason, Jr.
Respondent: Jose B. Lingad, as Commissioner of Internal Revenue
Petition: Petition for review of the decision of CTA
Ponencia: Castro, J.
Doctrine:
- "Capital assets" includes all the properties of a taxpayer whether or not
connected with his trade or business, except: (1) stock in trade or other
property included in the taxpayer's inventory; (2) property primarily for sale to
customers in the ordinary course of his trade or business; (3) property used
in the trade or business of the taxpayer and subject to depreciation
allowance; and (4) real property used in trade or business.
- If the taxpayer sells or exchanges any of the properties above-enumerated,
any gain or loss relative thereto is an ordinary gain or an ordinary loss; the
gain or loss from the sale or exchange of all other properties of the taxpayer
is a capital gain or a capital loss.
FACTS:
1. Tuason inherited from his mother several tracts of land, among which
were two contiguous parcels of land. During the lifetime of his mother,
these lands were subdivided into 29 lots, 28 of which were allocated to
their then occupants who had lease contracts with Tuason’s mother. The
29th lot was not leased to anyone because it needed filling due to its low
elevation and was planted kangkong and other crops.
2. After Tuason took possession, he instructed his attorney-in-fact, Araneta,
to sell them. There was no problem in selling the 28 lots because such
were bought by the respective occupants on a 10-year installment basis.
3. Araneta, then had the 29th lot filled then subdivided such into small lots
and paved with macadam roads. They were then sold on a uniform 10-
year annual amortization basis. No broker was employed nor were
advertisements put up.
4. In 1953 and 1954, Tuason reported his income on such sales as capital
gains based from a ruling from the Collector Of Internal Revenue. In his
1957 tax return, Tuason treated the income as capital gains and included
only ½ as taxable income (depreciated). Such was again affirmed by the
Collector’s opinion and the CIR’s opinion.
5. In 1963, CIR reversed his opinion and considered the profits as ordinary
gains. Tuason received a letter from the BIR and paid deficiency taxes.
He filed an MR but was denied. He went up to the CTA but the CTA
rendered a decision against him.
6. Arguments
a. CIR: Tuason was engaged in the business of leasing the lots
which he inherited as well as other real properties hence the
property used in trade or business of the TP
b. Tuason: (1) He is not the one who leased the lots; (2) Lots were
residential, not commercial; (3) The leases were to last until
1953 in which he was powerless to eject lessees before such
period.
ISSUES:
WON the sales may be treated as sales of capital assets.
PROVISION:
(1) Capital assets. — The term "capital assets" means property held by the
taxpayer (whether or not connected with his trade or business), but does not
include stock in trade of the taxpayer or other property of a kind which would
properly be included in the inventory of the taxpayer if on hand at the close of
the taxable year, or property held by the taxpayer primarily for sale to
customers in the ordinary course of his trade or business, or property, used
in the trade or business, of a character which is subject to the allowance for
depreciation provided in subsection (f) of section thirty; or real property used
in the trade or business of the taxpayer.
RULING + RATIO:
1. No
 "Capital assets" includes all the properties of a taxpayer whether
or not connected with his trade or business, except: (1) stock in
trade or other property included in the taxpayer's inventory; (2)
property primarily for sale to customers in the ordinary course of
his trade or business; (3) property used in the trade or business
of the taxpayer and subject to depreciation allowance; and (4)
real property used in trade or business.
 If the taxpayer sells or exchanges any of the properties above-
enumerated, any gain or loss relative thereto is an ordinary gain
or an ordinary loss; the gain or loss from the sale or exchange of
all other properties of the taxpayer is a capital gain or a capital
loss.
 The field of application of the term it "capital assets" is
necessarily narrow, while its exclusions must be interpreted
broadly. Consequently, it is the taxpayer's burden to bring
himself clearly and squarely within the terms of a tax-exempting
statutory provision, otherwise, all fair doubts will be resolved
against him.
 When the petitioner obtained by inheritance the parcels in
question, transferred to him was not merely the duty to respect
the terms of any contract thereon, but as well the correlative
right to receive and enjoy the fruits of the business and
property which the decedent had established and maintained.
The record disclosed that he owned other real properties which
 he put up for rent, for which he even had to pay the real estate
dealer’s tax. In fact, as far back as 1957 the petitioner was
receiving rental payments from the mentioned 28 small lots,
even if the leases executed by his deceased mother thereon
expired in 1953.
 Other circumstances proving Tuason was engaged in real estate
business:
 The parcels of land had a large are, big enough to be
transformed into a subdivision and such was located in
the heart of Metro Manila.
 Subdivided into small lots and sold on installment
basis (Manner of selling is one of the earmarks of real
estate business)
 Valuable improvements to make lots saleable
 Employment of Araneta in developing, managing,
selling and administering the property showed owner-
realty broker relationship.
 Sales were frequent and continuous where Tuason
received periodical income
 Annual sales volume were considerable
 Tuason, by his own tax returns, was not one who can
be indubitably adjudged as a stranger to the real
estate business.

DISPOSITION:
CTA judgement was affirmed, petitioner was ordered to pay deficiency taxes.