Claim of right doctrine or doctrine of ownership, command or control- In this

case, Javier is not liable for fraud penalty because the income he received is not
yet a taxable gain since it is still under litigation.

FACTS:
1977: Victoria Javier, wife of Javier-respondent, received $999k from Prudential
Bank remitted by her sister Dolores through Mellon Bank in US.

Around 3 weeks after, Mellon Bank filed a complaint with CFI Rizal against
Javier claiming that its remittance of $1M was a clerical error and should have
been $1k only and praying that the excess be returned on the ground that the
Javiers are just trustees of an implied trust for the benefit of Mellon Bank.

CFI charged Javier with estafa alleging that they misappropriated and converted
it to their own personal use.

A year after, Javier filed his Income Tax Return for 1977 and stating in the
footnote that the taxpayer was recipient of some money received abroad which
he presumed to be a gift but turned out to be an error and is now subject of
litigation

The Commissioner of Internal Revenue wrote a letter to Javier demanding him

to pay taxes for the deficiency, due to the remittance.

Javier replied to the Commissioner and said that he will pay the deficiency but
denied that he had any undeclared income for 1977 and requested that the
assessment of 1977 be made to await final court decision on the case filed
against him for filing an allegedly fraudulent return.

Commissioner replied that the amount of Mellon Banks erroneous remittance

which you were able to dispose is definitely taxable and the Commissioner
imposed a 50% fraud penalty on Javier.

ISSUE: Whether or not Javier is liable for the 50% penalty.

HELD: No.
The court held that there was no actual and intentional fraud through willful and
deliberate misleading of the BIR in the case. Javier even noted that the taxpayer
was recipient of some money received abroad which he presumed to be a gift but
turned out to be an error and is now subject of litigation

(the are not expressly written in the case, in fact the doctrine I just found it
elsewhere but this is relevant to the topic rather than the issue in the case)

o Claim of right doctrine- a taxable gain is conditioned upon the presence of a

claim of right to the alleged gain and the absence of a definite and unconditional
obligation to return or repay.

o In this case, the remittance was not a taxable gain, since it is still under
litigation and there is a chance that Javier might have the obligation to return it. It
will only become taxable once the case has been settled because by then
whatever amount that will be rewarded, Javier has a claim of right over it.