THIRD DIVISION

[G.R. No. 143672. April 24, 2003]

COMMISSIONER OF INTERNAL REVEN E, petitioner, vs. GENERAL FOO!S "#$ILS.%, INC., respondent. !ECISION
CORONA, J.&

Petitioner Commissioner of Internal Revenue (Commissioner) assails the resolution of the Court of !!eals reversin" the #e$ision of the Court of Ta& !!eals 'hi$h in turn #enie# the !rotest file# () res!on#ent *eneral +oo#s (Phils,)- In$,- re"ar#in" the assessment ma#e a"ainst the latter for #efi$ien$) ta&es,
1[1] %[%]

The re$or#s reveal that- on .une 1/- 1012- res!on#ent $or!oration- 'hi$h is en"a"e# in the manufa$ture of (evera"es su$h as 3Tan"-4 3Calumet4 an# 35ool6 i#-4 file# its in$ome ta& return for the fis$al )ear en#in" +e(ruar) %1- 1012, In sai# ta& return- res!on#ent $or!oration $laime# as #e#u$tion- amon" other (usiness e&!enses- the amount of P0-/71-%/7 for me#ia a#vertisin" for 3Tan",4 On 8a) 91- 1011- the Commissioner #isallo'e# 2:; or P/-<9:-7%9 of the #e#u$tion $laime# () res!on#ent $or!oration, Conse=uentl)- res!on#ent $or!oration 'as assesse# #efi$ien$) in$ome ta&es in the amount of P%-792- 1/1,/%, The latter file# a motion for re$onsi#eration (ut the same 'as #enie#, On Se!tem(er %0- 1010- res!on#ent $or!oration a!!eale# to the Court of Ta& !!eals (ut the a!!eal 'as #ismisse#>
?ith su$h a "ar"antuan e&!ense for the a#vertisement of a sin"ular !ro#u$t- 'hi$h even e&$lu#es 3other a#vertisin" an# !romotions4 e&!enses- 'e are not !re!are# to a$$e!t that su$h amount is reasona(le 3to stimulate the $urrent sale of mer$han#ise4 re"ar#less of Petitioner@s e&!lanation that su$h e&!ense 3#oes not $onnote unreasona(leness $onsi#erin" the "rave e$onomi$ situation taAin" !la$e after the =uino assassination $hara$teriBe# () $a!ital fi"htstron" #eterioration of the !ur$hasin" !o'er of the Phili!!ine !eso an# the sla$Ain" #eman# for $onsumer !ro#u$ts4 (Petitioner@s 8emoran#um- CT Re$or#s- !, %<9), ?e are not $onvin$e# 'ith su$h an e&!lanation, The sta""erin" e&!ense le# us to (elieve that su$h e&!en#iture 'as in$urre# 3to $reate or maintain some form of "oo# 'ill for the ta&!a)er@s tra#e or (usiness or for the in#ustr) or !rofession of 'hi$h the ta&!a)er is a mem(er,4 The term 3"oo# 'ill4 $an har#l) (e sai# to have an) !re$ise si"nifi$ationC it is "enerall) use# to #enote the (enefit arisin" from $onne$tion an# re!utation (?or#s an# Phrases- Vol, 11- !, 227 $itin" Douhart vs, Doa"an- 17 III, !!, %0/), s hel# in the $ase of ?el$h vs, Helverin"- efforts to esta(lish re!utation are aAin to a$=uisition of $a!ital assets an#- therefore- e&!enses relate# thereto are not (usiness e&!enses (ut $a!ital e&!en#itures, ( tlas 8inin" an# Develo!ment Cor!, vs, Commissioner of Internal Revenuesu!ra), +or sure su$h e&!en#iture 'as meant not onl) to "enerate !resent sales (ut more for future an# !ros!e$tive (enefits, Hen$e- 3a(normall) lar"e e&!en#itures for a#vertisin" are usuall) to (e s!rea# over the !erio# of )ears #urin" 'hi$h the (enefits of the e&!en#itures are re$eive#4 (8ertens- su!ra- $itin" Colonial I$e Cream Co,- < ET 12/), ?HFRF+ORF- in all the fore"oin"- an# fin#in" no error in the $ase a!!eale# from- 'e here() RFSODVF to DIS8ISS the instant !etition for la$A of merit an# ORDFR the Petitioner to !a) the res!on#ent Commissioner the assesse# amount of P%-792-1/1,/% re!resentin" its #efi$ien$)
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in$ome ta& lia(ilit) for the fis$al )ear en#e# +e(ruar) %1- 1012,49[9]

""rieve#- res!on#ent $or!oration file# a !etition for revie' at the Court of !!eals 'hi$h ren#ere# a #e$ision reversin" an# settin" asi#e the #e$ision of the Court of Ta& !!eals>
Sin$e it has not (een suffi$ientl) esta(lishe# that the item it $laime# as a #e#u$tion is e&$essive- the same shoul# (e allo'e#, ?HFRF+ORF- the !etition of !etitioner *eneral +oo#s (Phili!!ines)- In$, is here() *R NTFD, $$or#in"l)- the De$ision- #ate# 1 +e(ruar) 100/ of res!on#ent Court of Ta& !!eals is RFVFRSFD an# SFT SIDF an# the letter- #ate# 91 8a) 1011 of res!on#ent Commissioner of Internal Revenue is C NCFDDFD, SO ORDFRFD,/[/]

Thus- the instant !etition- 'herein the Commissioner !resents for the Court@s $onsi#eration a lone issue> 'hether or not the su(Ge$t me#ia a#vertisin" e&!ense for 3Tan"4 in$urre# () res!on#ent $or!oration 'as an or#inar) an# ne$essar) e&!ense full) #e#u$ti(le un#er the National Internal Revenue Co#e (NIRC), It is a "overnin" !rin$i!le in ta&ation that ta& e&em!tions must (e $onstrue# in strictissimi juris a"ainst the ta&!a)er an# li(erall) in favor of the ta&in" authorit)C an# he 'ho $laims an e&em!tion must (e a(le to Gustif) his $laim () the $learest "rant of or"ani$ or statute la', n e&em!tion from the $ommon (ur#en $annot (e !ermitte# to e&ist u!on va"ue im!li$ations,
2[2] 7[7]

De#u$tions for in$ome ta& !ur!oses !artaAe of the nature of ta& e&em!tionsC hen$e- if ta& e&em!tions are stri$tl) $onstrue#- then #e#u$tions must also (e stri$tl) $onstrue#, ?e then !ro$ee# to resolve the sin"ular issue in the $ase at (ar, ?as the me#ia a#vertisin" e&!ense for 3Tan"4 !ai# or in$urre# () res!on#ent $or!oration for the fis$al )ear en#in" +e(ruar) %1- 1012 3ne$essar) an# or#inar)-4 hen$e- full) #e#u$ti(le un#er the NIRCH Or 'as it a $a!ital e&!en#iture- !ai# in or#er to $reate 3"oo#'ill an# re!utation4 for res!on#ent $or!oration an#Ior its !ro#u$ts- 'hi$h shoul# have (een amortiBe# over a reasona(le !erio#H Se$tion 9/ ( ) (1)- formerl) Se$tion %0 (a) (1) ( )- of the NIRC !rovi#es>
( ) F&!enses,6 (1) Or#inar) an# ne$essar) tra#e- (usiness or !rofessional e&!enses,6 (a) In general,6 There shall (e allo'e# as #e#u$tion from "ross in$ome all or#inar) an# ne$essar) e&!enses !ai# or in$urre# #urin" the ta&a(le )ear in $arr)in" on- or 'hi$h are #ire$tl) attri(uta(le to- the #evelo!mentmana"ement- o!eration an#Ior $on#u$t of the tra#e- (usiness or e&er$ise of a !rofession,

Sim!l) !ut- to (e #e#u$ti(le from "ross in$ome- the su(Ge$t a#vertisin" e&!ense must $om!l) 'ith the follo'in" re=uisites> (a) the e&!ense must (e or#inar) an# ne$essar)C (() it must have (een !ai# or in$urre# #urin" the ta&a(le )earC ($) it must have (een !ai# or in$urre# in $arr)in" on the tra#e or (usiness of the ta&!a)erC an# (#) it must (e su!!orte# () re$ei!ts- re$or#s or other !ertinent !a!ers,
<[<]

The !arties are in a"reement that the su(Ge$t a#vertisin" e&!ense 'as !ai# or in$urre# 'ithin the $orres!on#in" ta&a(le )ear an# 'as in$urre# in $arr)in" on a tra#e or (usiness, Hen$e- it 'as ne$essar), Ho'ever- their vie's $onfli$t as to 'hether or not it 'as or#inar), To (e #e#u$ti(le- an a#vertisin" e&!ense shoul# not onl) (e ne$essar) (ut also or#inar), These t'o re=uirements must (e met,
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The Commissioner maintains that the su(Ge$t a#vertisin" e&!ense 'as not or#inar) on the "roun# that it faile# the t'o $on#itions set () J,S, Guris!ru#en$e> first- 3reasona(leness4 of the amount in$urre# an# se$on#- the amount in$urre# must not (e a $a!ital outla) to $reate 3"oo#'ill4 for the !ro#u$t an#Ior !rivate res!on#ent@s (usiness, Other'ise- the e&!ense must (e $onsi#ere# a $a!ital e&!en#iture to (e s!rea# out over a reasona(le time, ?e a"ree, There is )et to (e a $lear6$ut $riteria or fi&e# test for #eterminin" the reasona(leness of an a#vertisin" e&!ense, There (ein" no har# an# fast rule on the matter- the ri"ht to a #e#u$tion #e!en#s on a num(er of fa$tors su$h as (ut not limite# to> the t)!e an# siBe of (usiness in 'hi$h the ta&!a)er is en"a"e#C the volume an# amount of its net earnin"sC the nature of the e&!en#iture itselfC the intention of the ta&!a)er an# the "eneral e$onomi$ $on#itions, It is the inter!la) of theseamon" other fa$tors an# !ro!erl) 'ei"he#- that 'ill )iel# a !ro!er evaluation, In the $ase at (ar- the P0-/71-%/7 $laime# as me#ia a#vertisin" e&!ense for 3Tan"4 alone 'as almost one6half of its total $laim for 3marAetin" e&!enses,4 si#e from that- res!on#ent6$or!oration also $laime# P%-7<1-9%1 as 3other a#vertisin" an# !romotions e&!ense4 an# another P1-2/1-71/for $onsumer !romotion, +urthermore- the su(Ge$t P0-/71-%/7 me#ia a#vertisin" e&!ense for 3Tan"4 'as almost #ou(le the amount of res!on#ent $or!oration@s P/-7/:-797 "eneral an# a#ministrative e&!enses, ?e fin# the su(Ge$t e&!ense for the a#vertisement of a sin"le !ro#u$t to (e inor#inatel) lar"e, Therefore- even if it is ne$essar)- it $annot (e $onsi#ere# an or#inar) e&!ense #e#u$ti(le un#er then Se$tion %0 (a) (1) ( ) of the NIRC, #vertisin" is "enerall) of t'o Ain#s> (1) a#vertisin" to stimulate the current sale of mer$han#ise or use of servi$es an# (%) a#vertisin" #esi"ne# to stimulate the future sale of mer$han#ise or use of servi$es, The se$on# t)!e involves e&!en#itures in$urre#- in 'hole or in !art- to $reate or maintain some form of "oo#'ill for the ta&!a)er@s tra#e or (usiness or for the in#ustr) or !rofession of 'hi$h the ta&!a)er is a mem(er, If the e&!en#itures are for the a#vertisin" of the first Ain#- then- e&$e!t as to the =uestion of the reasona(leness of amount- there is no #ou(t su$h e&!en#itures are #e#u$ti(le as (usiness e&!enses, If- ho'ever- the e&!en#itures are for a#vertisin" of the se$on# Ain#- then normall) the) shoul# (e s!rea# out over a reasona(le !erio# of time, ?e a"ree 'ith the Court of Ta& !!eals that the su(Ge$t a#vertisin" e&!ense 'as of the se$on# Ain#, Not onl) 'as the amount sta""erin"C the res!on#ent $or!oration itself also a#mitte#in its letter !rotest to the Commissioner of Internal Revenue@s assessment- that the su(Ge$t me#ia e&!ense 'as in$urre# in or#er to !rote$t res!on#ent $or!oration@s (ran# fran$hise- a $riti$al !oint #urin" the !erio# un#er revie',
1[1]

The !rote$tion of (ran# fran$hise is analo"ous to the maintenan$e of "oo#'ill or title to one@s !ro!ert), This is a $a!ital e&!en#iture 'hi$h shoul# (e s!rea# out over a reasona(le !erio# of time,
0[0]

Res!on#ent $or!oration@s venture to !rote$t its (ran# fran$hise 'as tantamount to efforts to esta(lish a re!utation, This 'as aAin to the a$=uisition of $a!ital assets an# therefore e&!enses relate# thereto 'ere not to (e $onsi#ere# as (usiness e&!enses (ut as $a!ital e&!en#itures,
1:[1:]

True- it is the ta&!a)er@s !rero"ative to #etermine the amount of a#vertisin" e&!enses it 'ill in$ur an# 'here to a!!l) them, Sai# !rero"ative- ho'ever- is su(Ge$t to $ertain $onsi#erations, The first relates to the e&tent to 'hi$h the e&!en#itures are a$tuall) $a!ital outla)sC this ne$essitates an in=uir) into the nature or !ur!ose of su$h e&!en#itures, The se$on#- 'hi$h
11[11] 1%[1%] 1 0 1: 11 1%

must (e a!!lie# in harmon) 'ith the first- relates to 'hether the e&!en#itures are or#inar) an# ne$essar), Con$omitantl)- for an e&!ense to (e $onsi#ere# or#inar)- it must (e reasona(le in amount, The Court of Ta& !!eals rule# that res!on#ent $or!oration faile# to meet the t'o fore"oin" limitations, ?e fin# sai# rulin" to (e 'ell foun#e#, Res!on#ent $or!oration in$urre# the su(Ge$t a#vertisin" e&!ense in or#er to !rote$t its (ran# fran$hise, ?e $onsi#er this as a $a!ital outla) sin$e it $reate# "oo#'ill for its (usiness an#Ior !ro#u$t, The P0-/71-%/7 me#ia a#vertisin" e&!ense for the !romotion of a sin"le !ro#u$t- almost one6half of !etitioner $or!oration@s entire $laim for marAetin" e&!enses for that )ear un#er revie'- in$lusive of other a#vertisin" an# !romotion e&!enses of P%-7<1-9%1 an# P1-2/1-71/ for $onsumer !romotion- is #ou(tlessl) unreasona(le, It has (een a lon" stan#in" !oli$) an# !ra$ti$e of the Court to res!e$t the $on$lusions of =uasi6Gu#i$ial a"en$ies su$h as the Court of Ta& !!eals- a hi"hl) s!e$ialiBe# (o#) s!e$ifi$all) $reate# for the !ur!ose of revie'in" ta& $ases, The CT - () the nature of its fun$tions- is #e#i$ate# e&$lusivel) to the stu#) an# $onsi#eration of ta& !ro(lems, It has ne$essaril) #evelo!e# an e&!ertise on the su(Ge$t, ?e e&ten# #ue $onsi#eration to its o!inion unless there is an a(use or im!rovi#ent e&er$ise of authorit), Sin$e there is none in the $ase at (ar- the Court a#heres to the fin#in"s of the CT ,
19[19]

$$or#in"l)- 'e fin# that the Court of !!eals $ommitte# reversi(le error 'hen it #e$lare# the su(Ge$t me#ia a#vertisin" e&!ense to (e #e#u$ti(le as an or#inar) an# ne$essar) e&!ense on the "roun# that 3it has not (een esta(lishe# that the item (ein" $laime# as #e#u$tion is e&$essive,4 It is not in$um(ent u!on the ta&in" authorit) to !rove that the amount of items (ein" $laime# is unreasona(le, The (ur#en of !roof to esta(lish the vali#it) of $laime# #e#u$tions is on the ta&!a)er, In the !resent $ase- that (ur#en 'as not #is$har"e# satisfa$toril),
1/[1/]

'$EREFORE- !remises $onsi#ere#- the instant !etition is *R NTFD, The assaile# #e$ision of the Court of !!eals is here() RFVFRSFD an# SFT SIDF, Pursuant to Se$tions %/1 an# %/0 of the Ta& Co#e- res!on#ent *eneral +oo#s (Phils,)- In$, is here() or#ere# to !a) its #efi$ien$) in$ome ta& in the amount of P%-792-1/1,/%- !lus %2; sur$har"e for late !a)ment an# %:; annual interest $om!ute# from u"ust %2- 1010- the #ate of the #enial of its !rotest- until the same is full) !ai#, SO OR!ERE!. Puno, (Chairman), Panganiban, Sandoval-Gutierrez, an# Carpio- orales, !!", $on$ur"

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