HILADO V CIR

FACTSThe Finance Secretary issued Gen. Circ. V-123 which interpreted and implemented SEC30 of NIRC which prescribes that losses sustained during WWII are allowable as tax deductions only within the corresponding taxable year. Gen. Circ. V-123 thus allowed losses to be deducted in the year the last installment was received with notice that no further payment would be made by the War Damage Commission under the Phil. Rehabilitation Act of 1946 until the US Congress makes further appropriation.

On March 1952, Emilio Hilado filed his income tax return for 1951 and claimed the amount of P12K as a deductible item from his gross income pursuant to Gen. Circ. V-123. He declared the amount as a loss consisting in a portion of his war damage claim which had been duly approved by the Phil. War Damage Commission under the Phil. Rehabilitation Act but was not paid pursuant to a notice that part of his claim will not be paid unless there are further appropriation by the US Congress.

On the basis of such return, an assessment notice demanding payment of 9K was sent to Hilado, who paid the tax in monthly installments, the last payment having been made in 1953.

Meanwhile, the Finance Sec. sought the opinion of the DOJ Sec. regarding the rule enunciated by Gen. Circ. V-123. The DOJ Sec. opined that the circular was not sound because the proper rule should be that losses incurred be declared as deductibles during the year they were sustained.

Thus, in August 1952, the Finance Sec. issued Gen. Circ. V-139 which revoked and voided Gen. Circ. V-123 and provided that losses of property which occurred during WWII from fires, storms, shipwrecks and other casualty are deductible in the year of actual loss or destruction of said property.

As a result, the 12K was disallowed as a deduction from Hilado’s gross income for 1951 and the CIR demanded payment of P3K as deficiency income for that year.

ISSUES1. W/N the repeal of Gen. Circ. V-123 through the issuance of Gen. Circ. V-139 by the Finance Secretary was valid.2. W/N Gen. Circ. V-139 be given retroactive effect.

HELD:1. YES, although only courts may pass upon the validity of the circular pursuant to the separation of powers, the Finance sec. is vested with authority to revoke, repeal or abrogate the acts or previous rulings of his predecessor because the construction of a statute by those administering it is not binding on their successors if thereafter the latter become satisfied that a different construction should be given.

2. YES, it would not obliterate any vested right acquired by petitioner under the previous circular because a vested right cannot spring from a wrong construction of the law. An administrative officer cannot change a law enacted by congress. An erroneous construction of the law does not preclude the government from collecting tax which is legally due.