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EN BANC [G.R. No. L-9408. October 31, 1956.] EMILIO . !ILA"O, Petitioner, #$. %!

E COLLEC%OR O& IN%ERNAL RE'EN(E )*+ %!E CO(R% O& %A, A--EAL., Respondents. "ECI.ION BA(%I.%A ANGELO, J.: On March 31, 1952, Petitioner filed his income tax return for 1951 with the treasurer of Bacolod City wherein he claimed, among other things, the amount of P12, 3!"#5 as a deducti$le item from his gross income %ursuant to &eneral Circular 'o" ()123 issued $y the Collector of *nternal +e,enue" -his circular was issued %ursuant to certain rules laid down $y the .ecretary of /inance On the $asis of said return, an assessment notice demanding the %ayment of P9,019 was sent to Petitioner, who %aid the tax in monthly installments, the last %ayment ha,ing $een made on 1anuary 2, 1953" Meanwhile, on 2ugust 33, 1952, the .ecretary of /inance, through the Collector of *nternal +e,enue, issued &eneral Circular 'o" ()139 which not only re,o4ed and declared ,oid his general Circular 'o" () 123 $ut laid down the rule that losses of %ro%erty which occurred during the %eriod of 5orld 5ar ** from fires, storms, shi%wrec4 or other casualty, or from ro$$ery, theft, or em$e66lement are deducti$le in the year of actual loss or destruction of said %ro%erty" 2s a conse7uence, the amount of P12, 3!"#5 was disallowed as a deduction from the gross income of Petitioner for 1951 and the Collector of *nternal +e,enue demanded from him the %ayment of the sum of P3,50# as deficiency income tax for said year" 5hen the %etition for reconsideration filed $y Petitioner was denied, he filed a %etition for re,iew with the Court of -ax 2%%eals" *n due time, this court rendered decision affirming the assessment made $y Respondent Collector of *nternal +e,enue" -his is an a%%eal from said decision" *t a%%ears that Petitioner claimed in his 1951 income tax return the deduction of the sum of P12, 3!"#5 as a loss consisting in a %ortion of his war damage claim which had $een duly a%%ro,ed

$y the Phili%%ine 5ar 8amage Commission under the Phili%%ine +eha$ilitation 2ct of 190# $ut which was not %aid and ne,er has $een %aid %ursuant to a notice ser,ed u%on him $y said Commission that said %art of his claim will not $e %aid until the 9nited .tates Congress should ma4e further a%%ro%riation" :e claims that said amount of P12, 3!"#5 re%resents a ;$usiness asset< within the meaning of said 2ct which he is entitled to deduct as a loss in his return for 1951" -his claim is untena$le" -o $egin with, assuming that said amount re%resents a %ortion of the !5= of his war damage claim which was not %aid, the same would not $e deducti$le as a loss in 1951 $ecause, according to Petitioner, the last installment he recei,ed from the 5ar 8amage Commission, together with the notice that no further %ayment would $e made on his claim, was in 1953" *n the circumstance, said amount would at most $e a %ro%er deduction from his 1953 gross income" *n the second %lace, said amount cannot $e considered as a ;$usiness asset< which can $e deducted as a loss in contem%lation of law $ecause its collection is not enforcea$le as a matter of right, $ut is de%endent merely u%on the generosity and magnanimity of the 9" ." go,ernment" 'ote that, as of the end of 1905, there was a$solutely no law under which Petitioner could claim com%ensation for the destruction of his %ro%erties during the $attle for the li$eration of the Phili%%ines" 2nd under the Phili%%ine +eha$ilitation 2ct of 190#, the %ayments of claims $y the 5ar 8amage Commission merely de%ended u%on its discretion to $e exercised in the manner it may see fit, $ut the non) %ayment of which cannot gi,e rise to any enforcea$le right, for, under said 2ct, ;2ll findings of the Commission concerning the amount of loss or damage sustained, the cause of such loss or damage, the %ersons to whom com%ensation %ursuant to this title is %aya$le, and the ,alue of the %ro%erty lost or damaged, shall $e conclusi,e and shall not $e re,iewa$le $y any court<" >section 113?" *t is true that under the authority of section 33 of the 'ational *nternal +e,enue Code the .ecretary of /inance, in the exercise of his administrati,e %owers, caused the issuance of &eneral Circular 'o" ()123 as an im%lementation or inter%retati,e regulation of section 33 of the same Code, under which the amount of P12, 3!"#5 was allowed to $e deducted ;in the year the last installment was recei,ed with notice that no further %ayment would $e made until the 9nited .tates Congress ma4es further a%%ro%riation therefor<, $ut such circular was found later to $e wrong and was re,o4ed" -hus, when

dou$ts arose as to the soundness or ,alidity of such circular, the .ecretary of /inance sought the ad,ice of the .ecretary of 1ustice who, accordingly, ga,e his o%inion the %ertinent %ortion of which reads as follows@ ;Aet it might $e argued that war losses were not included as deductions for the year when they were sustained $ecause the tax%ayers had %ros%ects that losses would $e com%ensated for $y the 9nited .tates &o,ernmentB that since only uncom%ensated losses are deducti$le, they had to wait until after the determination $y the Phili%%ine 5ar 8amage Commission as to the com%ensa$ility in %art or in whole of their war losses so that they could exclude from the deductions those com%ensated for $y the said CommissionB that, of necessity, such determination could $e com%lete only much later than in the year when the loss was sustained" -his contention falls to the ground when it is considered that the Phili%%ine +eha$ilitation 2ct which authori6ed the %ayment $y the 9nited .tates &o,ernment of war losses suffered $y %ro%erty owners in the Phili%%ines was %assed only on 2ugust 33, 190#, long after the losses were sustained" *t cannot $e said therefore, that the %ro%erty owners had any conclusi,e assurance during the years said losses were sustained, that the com%ensation was to $e %aid therefor" 5hate,er assurance they could ha,e had, could ha,e $een $ased only on some information less relia$le and less conclusi,e than the %assage of the 2ct itself" :ence, as diligent %ro%erty owners, they should ado%t the safest alternati,e $y considering such losses deducti$le during the year when they were sustained"< *n line with this o%inion, the .ecretary of /inance, through the Collector of *nternal +e,enue, issued &eneral Circular 'o" ()139 which not only re,o4ed and declared ,oid his %re,ious Circular 'o" ( C 123 $ut laid down the rule that losses of %ro%erty which occurred during the %eriod of 5orld 5ar ** from fires, storms, shi%wrec4 or other casualty, or from ro$$ery, theft, or em$e66lement are deducti$le for income tax %ur%oses in the year of actual destruction of said %ro%erty" 5e can hardly argue against this o%inion" .ince we ha,e already stated that the amount claimed does not re%resent a ;$usiness asset< that may $e deducted as a loss in 1951, it is clear that the loss of the corres%onding asset or %ro%erty could only $e deducted in the year it was actually sustained" -his is in line with section 33 >d? of the 'ational *nternal +e,enue Code which %rescri$es that losses sustained are allowa$le as deduction only within the corres%onding taxa$le year"

PetitionerDs contention that during the last war and as a conse7uence of enemy occu%ation in the Phili%%ines ;there was no taxa$le year< within the meaning of our internal re,enue laws $ecause during that %eriod they were unenforcea$le, is without merit" *t is well 4nown that our internal re,enue laws are not %olitical in nature and as such were continued in force during the %eriod of enemy occu%ation and in effect were actually enforced $y the occu%ation go,ernment" 2s a matter of fact, income tax returns were filed during that %eriod and income tax %ayment were effected and considered ,alid and legal" .uch tax laws are deemed to $e the laws of the occu%ied territory and not of the occu%ying enemy" ;/urthermore, it is a legal maxim, that exce%ting that of a %olitical nature, EFaw once esta$lished continues until changed $y some com%etent legislati,e %ower" *t is not changed merely $y change of so,ereignty"D >1ose%h :" Beale, Cases on Conflict of Faws, ***, .ummary section 9, citing Commonwealth ,s" Cha%man, 13 Met", # "? 2s the same author says, in his -reatise on the Conflict of Faws >Cam$ridge, 191#, section 131?@ E-here can $e no $rea4 or interregnun in law" /rom the time the law comes into existence with the first)felt cor%orateness of a %rimiti,e %eo%le it must last until the final disa%%earance of human society" Once created, it %ersists until a change ta4es %lace, and when changed it continues in such changed condition until the next change and so fore,er" Con7uest or coloni6ation is im%otent to $ring law to an endB ins%ite of change of constitution, the law continues unchanged until the new so,ereign $y legislati,e act creates a change"D; >Co Gim Chan ,s" (aldes -an Geh and 8i6on, !5 Phil", 113, 102)103"? *t is li4ewise contended that the %ower to %ass u%on the ,alidity of &eneral Circular 'o" ()123 is ,ested exclusi,ely in our courts in ,iew of the %rinci%le of se%aration of %owers and, therefore, the .ecretary of /inance acted without ,alid authority in re,o4ing it and a%%ro,ing in lieu thereof &eneral Circular 'o" ()139" *t cannot $e denied, howe,er, that the .ecretary of /inance is ,ested with authority to re,o4e, re%eal or a$rogate the acts or %re,ious rulings of his %redecessor in office $ecause the construction of a statute $y those administering it is not $inding on their successors if thereafter the latter $ecome satisfied that a different construction should $e gi,en" H2ssociation of Clerical Im%loyees ,s" Brotherhood of +ailways J .teamshi% Cler4s, 5 /" >2d? 152, 139 2"F"+", 305"K

;5hen the Commissioner determined in 193! that the Petitioner was not exem%t and ne,er had $een, it was his duty to determine, assess and collect the tax due for all years not $arred $y the statutes of limitation" -he conclusion reached and announced $y his %redecessor in 1920 was not $inding u%on him" *t did not exem%t the Petitioner from tax, -his same %oint was decided in this way in .tanford 9ni,ersity Boo4store, 29 B" -" 2", 12 3B chan ro$les,irtualawli$raryaffd", 3 /ed" >2d? !13"< >.outhern Maryland 2gricultural /air 2ssociation ,s" Commissioner of *nternal +e,enue, 03 B" -" 2", 509, 550?" 5ith regard to the contention that &eneral Circular 'o" ()139 cannot $e gi,en retroacti,e effect $ecause that would affect and o$literate the ,ested right ac7uired $y Petitioner under the %re,ious circular, suffice it to say that &eneral Circular 'o" ()123, ha,ing $een issued on a wrong construction of the law, cannot gi,e rise to a ,ested right that can $e in,o4ed $y a tax%ayer" -he reason is o$,ious@ a ,ested right cannot s%ring from a wrong inter%retation" -his is too clear to re7uire ela$oration" ;*t seems too clear for serious argument that an administrati,e officer cannot change a law enacted $y Congress" 2 regulation that is merely an inter%retation of the statute when once determined to ha,e $een erroneous $ecomes nullity" 2n erroneous construction of the law $y the -reasury 8e%artment or the collector of internal re,enue does not %reclude or esto% the go,ernment from collecting a tax which is legally due"< >Ben .toc4er, et al", 12 B" -" 2", 1351"? ;2rt" 2250" C 'o ,ested or ac7uired right can arise from acts or omissions which are against the law or which infringe u%on the rights of others"< >2rticle 2250, 'ew Ci,il Code"? 5herefore, the decision a%%ealed from is affirmed 5ithout %ronouncement as to costs"

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