Sanchez v. Collector of Internal Revenue
REITERATIONFacts
The Antecedents: Appellant Veronica Sanchez owned a two-story, four-door "accessoria" building constructed in 1947 in Pasay City. She resided in one apartment and rented out the others, deriving an income of P7,540 in 1949 from these rentals. She also operated a small dry goods store with an annual income of P1,300. Procedural History: The Collector of Internal Revenue demanded payment of P163.51 as income tax for 1950 and P637 as real estate dealer's tax for 1946-1950, plus P50 compromise. Appellant paid under protest and filed an action for refund, claiming she was not a real estate dealer. The Court of First Instance ruled she was a real estate dealer and the taxes were legal. Appellant appealed. The Petition: Appellant sought a refund of the taxes paid, asserting she was not a real estate dealer as defined by law.
Issue(s)
Whether appellant Veronica Sanchez is a "real estate dealer" as defined under Section 194(s) of the National Internal Revenue Code, as amended by Republic Act No. 42. Whether the imposition of the real estate dealer's tax on rentals constitutes double taxation, given that property taxes and income taxes were already paid.
Ruling
The Supreme Court affirmed the decision of the lower court, finding Veronica Sanchez to be a real estate dealer. However, it ordered a refund of P37.50 for the real estate dealer's tax paid for the year 1946, as the building was constructed in 1947 and the tax was demanded for the period 1946-1950. The Court held that the imposition of the real estate dealer's tax does not constitute double taxation.
Ratio Decidendi
On whether appellant is a "real estate dealer": The Court held that appellant falls within the definition of a "real estate dealer" under Section 194(s) of the National Internal Revenue Code, as amended by Republic Act No. 42. The definition includes all persons engaged in leasing real estate. The nature of the building, a four-door "accessoria," was intended from its construction for lease as a source of income. Appellant continuously rented out the apartments to other persons, managing the property herself. The income derived from rentals (P7,540) significantly exceeded the income from her dry goods store (P1,300), indicating that the leasing of her property was her principal means of livelihood. The Court distinguished this case from Argellies vs. Meer, where the property owner resided abroad and had the property managed by a real estate company, unlike appellant who managed her own property and lived on the premises. On the issue of double taxation: The Court rejected the argument that the real estate dealer's tax constitutes double taxation. It reiterated the well-settled rule that a license tax may be levied upon a business or occupation even if the property used therein is subject to property tax. The state can collect an ad valorem tax on property and simultaneously impose a license tax on the pursuit of the calling associated with that property. This is not considered double taxation. The Court cited People vs. Mendaros, et al. in support of this principle, emphasizing that the license tax is imposed on the business activity itself, not on the property owned.
Main Doctrine
A person who constructs a building, such as an 'accessoria,' for the purpose of leasing it for rent or profit, and who continuously leases it to third persons, managing the property herself, and deriving substantial income therefrom, is considered a real estate dealer under Section 194(s) of the National Internal Revenue Code, as amended by Republic Act No. 42.