CIR v. Algue, Inc. G.R. No.

L-28896, February 17, 1988 FACTS: PSEDC appointed Algue, a domestic corporation, as its agent, authorizing it to sell its land, factories and oil manufacturing process. For a sale, Algue received a commission of P126,000.00, and it was from this commission that the P75,000.00 promotional fees were paid to individuals who joined their efforts for the said sale. On January 14, 1965, the private respondent, received a letter from the petitioner assessing it in the total amount of P83,183.85 as delinquency income taxes for the years 1958 and 1959. Algue flied a letter of protest. The petitioner contends that the claimed deduction of P75,000.00 was properly disallowed because it was not an ordinary reasonable or necessary business expense. ISSUE: Whether or not the Collector of Internal Revenue correctly disallowed the P75,000.00 deduction. RULING: Pursuant to Revenue Regulations No. 2, Section 70 (1), regarding the compensation for personal services, the private respondent has proved that the payment of the fees was necessary and reasonable in the light of the efforts exerted by the payees in inducing investors and prominent businessmen to venture in an experimental enterprise and involve themselves in a new business requiring millions of pesos. For all the awesome power of the tax collector, he may still be stopped in his tracks if the taxpayer can demonstrate, as it has here, that the law has not been observed.

Osmea Vs. Orbos G.R. No. 99886, March 31, 1993 FACTS: On October 10, 1984, Pres. Marcos issued P.D. 1956 creating a Special Account in the General Fund, designated as the Oil Price Stabilization Fund (OPSF). The OPSF was designed to reimburse oil companies for cost increases in crude oil and imported petroleum products resulting from exchange rate adjustments and from increases in the world market prices of crude oil. Subsequently, the OPSF was reclassified into a "trust liability account," in virtue of E.O. 1024, and ordered released from the National Treasury to the Ministry of Energy. Pres. Aquino, amended P.D. 1956. She promulgated Executive Order No. 137 on February 27, 1987, expanding the grounds for reimbursement to oil companies for possible cost underrecovery incurred as a result of the reduction of domestic prices of petroleum products, the amount of the underrecovery being left for determination by the Ministry of Finance. The petition avers that the creation of the trust fund violates 29(3), Article VI of the Constitution, reading as follows:

ISSUE: Whether or not the TRUST ACCOUNT created pursuant to 8, paragraph 1, of P.D. No. 1956, as

amended, being contrary to Section 29 (3), Article VI of the . . Constitution is invalid.

RULING: The OPSF is a "Trust Account" which was established "for the purpose of minimizing the frequent price changes brought about by exchange rate adjustment and/or changes in world market prices of crude oil and imported petroleum products.Hence, it seems clear that while the funds collected may be referred to as taxes, they are exacted in the exercise of the police power of the State. Moreover, that the OPSF is a special fund is plain from the special treatment given it by E.O. 137. It is segregated from the general fund; and while it is placed in what the law refers to as a "trust liability account," the fund nonetheless remains subject to the scrutiny and review of the COA. The Court is satisfied that these measures comply with the constitutional description of a "special fund." Indeed, the practice is not without precedent.