Roxas vs.

CTA
G.R. No. L-25043; April 26, 1968

Facts:
Antonio, Eduardo and Jose Roxas, brothers and at the same time partners of the Roxas y Compania,
inherited from their grandparents several properties which included farmlands. The tenants expressed
their desire to purchase the farmland. The tenants, however, did not have enough funds, so the Roxases
agreed to a purchase by installment. Subsequently, the CIR demanded from the brothers the payment of
deficiency income taxes resulting from the sale, 100% of the profits derived therefrom was taxed. The
brothers protested the assessment but the same was denied.

The Commissioner of Internal Revenue contends that Roxas y Cia. could be considered a real estate
dealer because it engaged in the business of selling real estate. The business activity alluded to was the
act of subdividing the farm lands and selling them to the farmers-occupants on installment.

Issue:
Whether or not the gain derived from the sale of the farm lands an ordinary gain, hence 100% taxable.

Held: No.
It should be borne in mind that the sale of the farm lands to the very farmers who tilled them for
generations was not only in consonance with, but more in obedience to the request and pursuant to
the policy of our Government to allocate lands to the landless.

The power of taxation is sometimes called also the power to destroy. Therefore it should be exercised
with caution to minimize injury to the proprietary rights of a taxpayer. It must be exercised fairly,
equally and uniformly, lest the tax collector kill the "hen that lays the golden egg". And, in order to
maintain the general public's trust and confidence in the Government this power must be used justly
and not treacherously. It does not conform with Our sense of justice in the instant case for the
Government to persuade the taxpayer to lend it a helping hand and later on to penalize him for duly
answering the urgent call.

In fine, Roxas cannot be considered a real estate dealer and is therefore not liable for 100% of the sale.
Pursuant to Section 34 of the Tax Code, the lands sold to the farmers are capital assets and the
gain derived from the sale thereof is capital gain, taxable only to the extent of 50%.