You are on page 1of 3

Sison v. AnchetaGR No.

L-59431; 25 July 1984F A C T S:

Batas Pambansa 135 was enacted. Sison, astaxpayer, alleged that its provision (S
ection 1) unduly discriminated against him by the imposition of higher ratesupon
his income as a professional, that it amounts to classlegislation, and that it
transgresses against the equalprotection and due process clauses of the Constitu
tion as wellas the rule requiring uniformity in taxation.

I S S U E:
Whether or not BP 135 violates the due processand equal protection clauses, and
the rule on uniformity intaxation.
H E L D:
There is a need for proof of such persuasivecharacter as would lead to a conclus
ion that there was a violation of the due process and equal protection clauses.
Absent such showing, the presumption of validity must prevail.Equality and unifo
rmity in taxation means that all taxablearticles or kinds of property of the sam
e class shall be taxed atthe same rate. The taxing power has the authority to ma
kereasonable and natural classifications for purposes of taxation. Where the dif
ferentiation conforms to the practical dictates of justice and equity, similar
to the standards of equal protection,it is not discriminatory within the meaning
of the clause and istherefore uniform. Taxpayers may be classified into differe
ntcategories, such as recipients of compensation income asagainst professionals.
Recipients of compensation income arenot entitled to make deductions for income
tax purposes asthere is no practically overhead expense, while professionalsand
businessmen have no uniform costs or expenses necessary to produce their income
. There is ample justification to adoptthe gross system of income taxation to co
mpensation income, while continuing the system of net income taxation as regards
professional and business income.
Chamber of Real Estate and Builders Associations, Inc. (CREBA) is anassociation o
f real estate developers and builders in the Philippines. It filed a petitionfor
certiorari and mandamus questioning the constitutionality of Section 27 (E) of
Republic Act (RA) 8424 and the revenue regulations (RRs) issued by the Bureau of
Internal Revenue (BIR) to implement said provision and those involving creditab
lewithholding taxes. It impleaded former Executive Secretary Alberto Romulo, the
nacting Secretary of Finance Juanita D. Amatong and then Commissioner of Interna
lRevenue Guillermo Parayno, Jr. as respondents. CREBA assails the validity of th
eimposition of minimum corporate income tax (MCIT) on corporations and creditabl
ewithholding tax (CWT) on sales of real properties classified as ordinary assets
.CREBA argues that the MCIT violates the due process clause because it levies in
cometax even if there is no realized gain. CREBA also seeks to nullify Sections
2.57.2(J)(as amended by RR 6-2001) and 2.58.2 of RR 2-98, and Section 4(a)(ii) a
nd (c)(ii)of RR 7-2003, all of which prescribe the rules and procedures for the
collection of CWT on the sale of real properties categorized as ordinary assets.
Petitionercontends that these revenue regulations are contrary to law for two r
,they ignore the different treatment by RA 8424 of ordinary assets and capital a
, respondent Secretary of Finance has no authority to collect CWT, muchless, to
base the CWT on the gross selling price or fair market value of the realproperti
es classified as ordinary assets.
Whether or not the imposition of the MCIT on domestic corporations is unconstitu
:Whether or not the imposition of CWT on income from sales of realproperties cla
ssified as ordinary assets under RRs 2-98, 6-2001 and 7-2003, isunconstitutional
No.Under the MCIT scheme, a corporation, beginning on its fourth year of operati
on, is assessed an MCIT of 2% of its gross income when such MCIT is greaterthan
the normal corporate income tax imposed under Section 27(A). If the regularincom
e tax is higher than the MCIT, the corporation does not pay the MCIT. Anyexcess
of the MCIT over the normal tax shall be carried forward and credited againstthe
normal income tax for the three immediately succeeding taxable years.The SC rul
ed that MCIT is not violative of due process and thus is notunconstitutional. MC
IT was devised as a relatively simple and effective revenue-raising instrument c
ompared to the normal income tax which is more difficult tocontrol and enforce.
It is a means to ensure that everyone will make some minimumcontribution to the
support of the public sector.The contention of CREBA that pegging the tax base o
f the MCIT to acorporations gross income is tantamount to a confiscation of capit
al because grossincome, unlike net income, is not "realized gain" is untenable.
MCIT is not a tax oncapital. The MCIT is imposed on gross income which is arrive
d at by deducting thecapital spent by a corporation in the sale of its goods,
i.e., the cost of goods andother direct expenses from gross sales. Clearly, the
capital is not being taxed.Furthermore, the MCIT is not an additional tax imposi
tion. It is imposed in lieu of the normal net income tax, and only if the normal
income tax is suspiciouslylow. The MCIT merely approximates the amount of net i
ncome tax due from acorporation, pegging the rate at a very much reduced 2% and
uses as the base thecorporations gross income. Besides, there is no legal objecti
on to a broader tax base
Commissioner of Internal Revenue vs. Algue Inc.
GR No. L-28896 | Feb. 17, 1988
Algue Inc. is a domestic corp engaged in engineering, construction and o
ther allied activities
On Jan. 14, 1965, the corp received a letter from the CIR regarding its
delinquency income taxes from 1958-1959, amtg to P83,183.85
A letter of protest or reconsideration was filed by Algue Inc on Jan 18
On March 12, a warrant of distraint and levy was presented to Algue Inc.
thru its counsel, Atty. Guevara, who refused to receive it on the ground of the
pending protest
Since the protest was not found on the records, a file copy from the cor
p was produced and given to BIR Agent Reyes, who deferred service of the warrant
On April 7, Atty. Guevara was informed that the BIR was not taking any a
ction on the protest and it was only then that he accepted the warrant of distra
int and levy earlier sought to be served
On April 23, Algue filed a petition for review of the decision of the CI
R with the Court of Tax Appeals
CIR contentions:
- the claimed deduction of P75,000.00 was properly disallowed because i
t was not an ordinary reasonable or necessary business expense
- payments are fictitious because most of the payees are members of the
same family in control of Algue and that there is not enough substantiation of
such payments
CTA: 75K had been legitimately paid by Algue Inc. for actual services re
ndered in the form of promotional fees. These were collected by the Payees for t
heir work in the creation of the Vegetable Oil Investment Corporation of the Phi
lippines and its subsequent purchase of the properties of the Philippine Sugar E
state Development Company.
Issue: W/N the Collector of Internal Revenue correctly disallowed the P75,000.00
deduction claimed by Algue as legitimate business expenses in its income tax re
Taxes are the lifeblood of the government and so should be collected wit
hout unnecessary hindrance, made in accordance with law.
RA 1125: the appeal may be made within thirty days after receipt of the
decision or ruling challenged
During the intervening period, the warrant was premature and could there
fore not be served.
Originally, CIR claimed that the 75K promotional fees to be personal hol
ding company income, but later on conformed to the decision of CTA
There is no dispute that the payees duly reported their respective share
s of the fees in their income tax returns and paid the corresponding taxes there
on. CTA also found, after examining the evidence, that no distribution of divide
nds was involved
CIR suggests a tax dodge, an attempt to evade a legitimate assessment by
involving an imaginary deduction
Algue Inc. was a family corporation where strict business procedures wer
e not applied and immediate issuance of receipts was not required. at the end of
the year, when the books were to be closed, each payee made an accounting of al
l of the fees received by him or her, to make up the total of P75,000.00. This a
rrangement was understandable in view of the close relationship among the person
s in the family corporation
The amount of the promotional fees was not excessive. The total commissi
on paid by the Philippine Sugar Estate Development Co. to Algue Inc. was P125K.
After deducting the said fees, Algue still had a balance of P50,000.00 as clear
profit from the transaction. The amount of P75,000.00 was 60% of the total commi
ssion. This was a reasonable proportion, considering that it was the payees who
did practically everything, from the formation of the Vegetable Oil Investment C
orporation to the actual purchase by it of the Sugar Estate properties.
Sec. 30 of the Tax Code: allowed deductions in the net income Expenses -
All the ordinary and necessary expenses paid or incurred during the taxable yea
r in carrying on any trade or business, including a reasonable allowance for sal
aries or other compensation for personal services actually rendered xxx
the burden is on the taxpayer to prove the validity of the claimed deduc
In this case, Algue Inc. has proved that the payment of the fees was nec
essary and reasonable in the light of the efforts exerted by the payees in induc
ing investors and prominent businessmen to venture in an experimental enterprise
and involve themselves in a new business requiring millions of pesos.
Taxes are what we pay for civilization society. Without taxes, the gover
nment would be paralyzed for lack of the motive power to activate and operate it
. Hence, despite the natural reluctance to surrender part of one's hard earned i
ncome to the taxing authorities, every person who is able to must contribute his
share in the running of the government. The government for its part, is expecte
d to respond in the form of tangible and intangible benefits intended to improve
the lives of the people and enhance their moral and material values
Taxation must be exercised reasonably and in accordance with the prescri
bed procedure. If it is not, then the taxpayer has a right to complain and the c
ourts will then come to his succor
Algue Inc.s appeal from the decision of the CIR was filed on time with the CTA in
accordance with Rep. Act No. 1125. And we also find that the claimed deduction
by Algue Inc. was permitted under the Internal Revenue Code and should therefore
not have been disallowed by the CIR