CIR v Algue Inc digest

FACTS

 Algue corp is a family corp engaged in engineering and construction activity.

It entered into an agreement with Philippine Sugar Estate Development Company, whereby it
was it to sell some of the latter’s assets. Pursuant to the agreement, Alberto, Eduardo, Isabel and
Guevarra and Edith, O’farell and Pablo Sanchez, all relatives induced other persons to invest in
the formation of Vegetable Oil Investement corp thus incurring promotional fees of P75,000
along the way. They were compensated by Algue corp for their services. Algue claimed this
promotional fees as a deduction for its ITR.

 January 14, 1965, Algue Inc, is received an assessment letter from CIR assessing P83,183.85 as
delinquency income taxes for the years 1958 and 1959. According to CIR, the payments in
connection with the promotional fees were fictitious and were unsubstantiated.
 4 days later on January 18, 1965, Algue flied a letter of protest or request for reconsideration,
which was received on the same day in the office of the CIR. 
 March 12, 1965, BIR agent Reyes presented a warrant of distraint and levy to Algue’s counsel
who refused to receive it on the ground of the pending protest. 

Upon presentation of the photocopy of the receipt of the letter protest, the BIR agent, deferred
service of the warrant. 4 

 On April 7, 1965, Algue was finally informed that the BIR was not taking any action on the
protest and it was only then that he accepted the warrant of distraint and levy earlier sought to be
served.5 
 April 23, 1965, Algue filed a petition for review with the CTA

RELEVANT ISSUE/S

 Whether Algue could claim the deduction.

RULING

 Answer

- Yes.

 Legal Basis

- Under sec 30 of the tax code, it provides:

Net income there shall be allowed as deductions —

(a) Expenses:
 (1) In general.--All the ordinary and necessary expenses paid or incurred during the taxable
year in carrying on any trade or business, including a reasonable allowance for salaries or
other compensation for personal services actually rendered…

 Application/Conclusion

- In this case, Algaue has proved that the payment of the fees was necessary and reasonable.
The court found that the promotional fees were not excessive. Alguae induced investors to
venture in a new corporation and for which it was rightfully and sufficiently recompensed.