UP Law F2021 058 Hilado v.

CIR
Administrative Law NIRC 338; General Circular V-123, 1956 Bautista Angelo
V-139

SUMMARY

Petitioner Hilado contested the ruling of Collector of Internal Revenue disallowing his deductible amounting
to P12,837.65. The said deductible pertains to a portion of his war damage claim that remain unpaid in 1951
when he filed his ITR. CTA sustained the Collector, and SC sustained the CTA. Among others, the SC said that
the Secretary of Finance may issue interpretative regulation, but also has the power to revoke it. The
interpretative regulation issued by a predecessor is not binding upon the successor in office if it found later
to be wrong, such as in this case. Further, an interpretive regulation for being invalid cannot give rise to a
vested right.

FACTS

 Mar 31, 1952 - Petitioner Emilio Hilado filed with the treasurer of Bacolod City his 1951 income tax
return, wherein he claimed among others a deductible worth P12,837.65 pursuant to the General
Circular No. V-123 (V-123) issued by the Collector of Internal Revenue (Collector);
 The amount pertains to unpaid loss from a portion (roughly 75% of total claim) of war damage claim
which had been duly approved by the Philippine War Damage Commission under Philippine
Rehabilitation Act of 1946 (Act);
 Note: Although it was not specifically mentioned, it can be deduced that V-123 might have been issued
by a previous Secretary of Finance (SOF) or Collector;
 It was established that he received some amount for his war damage claim, and it was only upon advise
in 1950, that until US Congress would make further appropriation, there would be no payment of the
remaining amount of P12,837.65;
 Hilado argues that the said amount represented “business assets” within the meaning of the Act for
which he is entitled to a deduction;
 August 30, 1952 - SOF through the Collector issued General Circular V-139 (V-139) which revoked and
declared void V-123;
 V-139 stated that losses of property which occurred during the period of World War II from fires,
storms, shipwreck or other casualty, or from robbery, theft, or embezzlement are deductible in the
year of actual loss or destruction of said property;
 The circular was issued was after SOF sought the opinion of SOJ regarding validity of V-123;
 The SOJ opined that while it may be argued that the tax payers may have relied on the prospects of
being compensated on their sustained losses, the period from the year loss was sustained (1943) and
the year the Act came into effectivity (1946), the taxpayer has no conclusive assuarance that the loss
would be compensated. Hence the most diligent course of action should have been to claim the said
losses as deductible during the year/s they were sustained.
 Collector now disallowed the P12,837.65 claimed by Hilado as deduction, and consequently, a P3,546
deficiency income tax was assessed. An MR was likewise denied;
 CTA upheld Collector;
 Hence this petition before the SC.

RATIO

W/N Hilado may claim as deduction the loss he sustained (P12,837.65) in his 1951 ITR
No.

The Court has several averments (alternative arguments) regarding sustaining the CTA and the Collector:

1. On receipt of notice of nonpayment:

Since he received the notice of nonpayment in 1950, he should have filed his claim as deductible in
1950;
2. War damage not a “business asset”
Said amount cannot be considered as a "business asset" which can be deducted as a loss in contemplation
of law because its collection is not enforceable as a matter of right, but is dependent merely upon the
generosity and magnanimity of the U. S. government. The payments of claims by the War Damage
Commission merely depended upon its discretion to be exercised in the manner it may see fit, but the non-
payment of which cannot give rise to any enforceable right.

3. V-123 may not be invoked for being invalid [RELEVANT]

Under Sec. 338 of then NIRC, the SOF has power to issue interpretative regulation such as the V-123.
However, he also has power to revoke it, and as it was found to be wrong later on and upon the
opinion/recommendation from the SOJ, he did revoke V-123 and issued V-139 which laid down the
rule that losses of property which occurred during the period of World War II from fires, storms,
shipwreck or other casualty, or from robbery, theft, or embezzlement are deductible for income tax
purposes in the year of actual destruction of said property.

4. Contention that during war there is no taxable year is untenable

It is well known that our internal revenue laws are not political in nature and as such were continued
in force during the period of enemy occupation and in effect were actually enforced by the
occupation government. As a matter of fact, income tax returns were led during that period and income
tax payment were effected and considered valid and legal. Such tax laws are deemed to be the laws of the
occupied territory and not of the occupying enemy.

5. SOF is with valid authority to revoke V-123 and approve V-139 [RELEVANT]
It cannot be denied, however, that the Secretary of Finance is vested with authority to revoke, repeal
or abrogate the acts or previous rulings of his predecessor in office because the construction of a
statute by those administering it is not binding on their successors if thereafter the latter become
satisfied that a different construction should be given. [It can be deduced that V-123 might have been
issued by a previous SOF/Collector, not the incumbent]

6. General Circular No. V-139 can be given retroactive effect

Suffice it to say that General Circular No. V-123, having been issued on a wrong construction of the
law, cannot give rise to a vested right that can be invoked by a taxpayer. The reason is obvious: a
vested right cannot spring from a wrong interpretation. This is too clear to require elaboration (ayaw na
nya mag-explain, tayo na daw ang mag-adjust. chz)

FALLO

Wherefore, the decision appealed from is affirmed. Without pronouncement as to costs.