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Commissioner of Internal Revenue v.


[GR L-28896, 17 February 1988]

First Division, Cruz (J): 4 concur


The Philippine Sugar Estate Development Company (PSEDC) appointed Algue
Inc. as its agent, authorizing it to sell its land, factories, and oil
manufacturing process. The Vegetable Oil Investment Corporation (VOICP)
purchased PSEDC properties. For the sale, Algue received a commission of
P125,000 and it was from this commission that it paid Guevara, et. al.
organizers of the VOICP, P75,000 in promotional fees. In 1965, Algue
received an assessment from the Commissioner of Internal Revenue in the
amount of P83,183.85 as delinquency income tax for years 1958 amd 1959.
Algue filed a protest or request for reconsideration which was not acted upon
by the Bureau of Internal Revenue (BIR). The counsel for Algue had to accept
the warrant of distraint and levy. Algue, however, filed a petition for review
with the Court of Tax Appeals.

Issue: Whether the assessment from the Commissioner of Internal Revenue
was reasonable.

Held: No. Taxes are the lifeblood of the government and so should be
collected without unnecessary hindrance. Every person who is able to pay
must contribute his share in the running of the government. The
Government, for his part, is expected 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. This symbiotic relationship is the rationale of
taxation and should dispel the erroneous notion that is an arbitrary method
of exaction by those in the seat of power. Tax collection, however, should be
made in accordance with law as any arbitrariness will negate the very reason
for government itself. For all the awesome power of the tax collector, he may
still be stopped in his tracks if the taxpayer can demonstrate that the law has
not been observed. Herein, the claimed deduction (pursuant to Section 30
[a] [1] of the Tax Code and Section 70 [1] of Revenue Regulation 2: as to
compensation for personal services) had been legitimately by Algue Inc. It
has further proven that the payment of fees was reasonable and necessary

The assessment was not reasonable. .in light of the efforts exerted by the payees in inducing investors (in VOICP) to involve themselves in an experimental enterprise or a business requiring millions of pesos.