Tan Guan vs.

Court of Tax Appeals GR L-23676, 27 April 1967 En Banc, Bengzon JP (J): 8 concur Facts: In 1947, Tan Guan and Sia Lin, Chinamen, organized and registered the Philippine Surplus Company, a general partnership. A general partnership is exempt from income tax although it is required to file an income tax return. Profits, whether distributed or not, are considered income of the partners. Acting upon a confidential report, however, that the company posted fictitious expesnes in its books to avoid taxes, the BIR investigated in 1954 the books of the partnership and discovered that the expenses were not covered by receipts, that the names of payees were erased, and that the payees did not report the sums in question in their income tax. The BIR disallowed expense deductions for the year 1948 amounting to P206,380 for being fictitious. Said sum was treated as income of the individual partners, and thus, the BIR assessed P50,956.57 as deficiency income tax against Tan Guan. Tan Guan appealed. Issue: Whether the deduction claimed by the company as business income should be allowed, and thus absolve Tan Guan of the assessed tax liability. Held: The Commissioners finding on the facts constituting fraud, proven, and found established by the Court of Tax Appeals, was not rebutted by the taxpayer. Tan Guan did not present any evidence to disprove the findings that the expenses are fictitious; considering that the investigation on Tan Guans liability was made prior to the expiration of the 5-year period to preserve and keep receipts as set fgorth in Section 337 of the Tax Code. As the determination of the Commissioner is presumed correct, it behooves the taxpayers to rebut such presumption. For failure to overcome the burden, Tan Guan or the company cannot claim the expenses as deduction from gross income.