TUASON V. LINGAD (TAX)

Issue: Whether or not the properties in question which the petitioner had inherited and subsequently sold in small lots to other persons should be regarded as capital assets.

As thus defined by law, CAPITAL ASSETS include all properties of a taxpayer whether or not connected with his trade or business, except:

1. stock in trade or other property included in the taxpayer's inventory;
2. property primarily for sale to customers in the ordinary course of his trade or business;
3. property used in the trade or business of the taxpayer and subject to depreciation allowance; and
4. real property used in trade or business.

If the taxpayer sells or exchanges any of the properties above, any gain or loss relative thereto is an ordinary gain or an ordinary loss; the loss or gain from the sale or exchange of all other properties of the taxpayer is a capital gain or a capital loss.

Under Section 34(b)(2) of the Tax Code, if a gain is realized by a taxpayer (other than a corporation) from the sale or exchange of capital assets held for more than 12 months, only 50% of the net capital gain shall be taken into account in computing the net income.

The Tax Code's provisions on so-called long-term capital gains constitutes a statute of partial exemption. In view of the familiar and settled rule that tax exemptions are construed in strictissimi juris against the taxpayer and liberally in favor of the taxing authority, it is the taxpayer's burden to bring himself clearly and squarely within the terms of a tax-exempting statutory provision, otherwise, all fair doubts will be resolved against him.

In the case at bar, after a thoroughgoing study of all the circumstances, this Court is of the view and so holds that petitioner's thesis is bereft of merit. Under the circumstances, petitioner's sales of the several lots forming part of his rental business cannot be characterized as other than sales of non-capital assets. the sales concluded on installment basis of the subdivided lots do not deserve a different characterization for tax purposes.

This Court finds no error in the holding that the income of the petitioner from the sales of the lots in question should be considered as ordinary income.