FACTS
Roxas y Compania was a partnership composed of the Roxas brothers, who inherited vast tracts of farmland from their grandparents. After World War II, the farmland tenants wanted to buy the farmland for themselves, but they were strapped for cash, and did not have enough to money to cover the purchase price of the said property.
The Government, with the constitutional mandate to distribute land among landless tenants-farmers but itself strapped for cash, facilitated a special arrangement between the partnership and the Rehabilitation Finance Corporation (RFC) where the latter covered the purchase price, the farmers bought the lands for the same price but by installment, and, to pay off its loan, the RFC was to collect yearly amortizations paid by the farmers.
Subsequently, however, the Commissioner of Internal Revenue assessed deficiency income taxes against the Roxas brothers for 1953 and 1955, claiming that the Partnership was in the real estate business and that it did not include in the computation of its income 50 percent of the net profits derived from the sale of the farmland to the tenants.
RULING
The Supreme Court ruled in favor of the Roxas brothers.
Roxas y Compania was not in the real estate business because it was not engaged in the business of buying, selling, exchanging, leasing or renting property on his own account as principal and holding himself out as a full or part-time dealer in real estate or as an owner of rental property or properties rented or offered to rent for an aggregate amount of three thousand pesos or more a year.
The sale of the farmlands 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 the Government to allocate lands to the landless. 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 to the sense of justice for the Government to persuade the taxpayer to lend it a helping hand and later on penalize him for duly answering the urgent call.
