45.

Basilan
 Under Section 331 of the Tax Code requiring 5 years within which to
assess deficiency taxes, the assessment is deemed made when notice
to this effect is released, mailed or sent by the Collector of Internal
Revenue to the taxpayer, and it is not required that the notice be
received by the taxpayer within the aforementioned 5-year period.
 Depreciation is the gradual diminution in the useful value of tangible
property resulting from wear and tear and normal obsolescence. The
term is also applied to amortization of the value of intangible assets,
the use of which in the trade or business is definitely limited in
duration.
 Depreciation commences with the acquisition of the property and its
owner is not bound to see his property gradually waste, without
making provision out of earnings for its replacement.
 The income tax law does not authorize the depreciation of an asset
beyond its acquisition cost. Hence, a deduction over and above cost
cannot be claimed and allowed. The reason is that deductions from
gross income are privileges, not matters of right.

46. Hospital De San Juan De Dios, Inc.

 And, as the principle of allocating expenses is grounded on the
premise that the taxable income was derived from carrying on a
trade or business, as distinguished from mere receipt of interests and
dividends from one’s investments, the Court of Tax Appeals correctly
ruled that said income should not share in the allocation of
administrative expenses.
 Hospital de San Juan De Dios, Inc., according to its Articles of
Incorporation, was established for purposes “which are benevolent,
charitable and religious, and not for financial gain” (p. 12, Petitioner’s
Brief). It is not carrying on a trade or business for the word “business”
in its ordinary and common use means “human efforts which have for
 their end living or reward; it is not commonly used as descriptive of
charitable, religious, educational or social agencies” or “any particular
occupation or employment habitually engaged in especially for
livelihood or gain” or “activities where profit is the purpose or
livelihood is the motive.”

47. CIR vs General Foods

 Deductions for income tax purposes partake of the nature of tax
exemptions; hence, if tax exemptions are strictly construed, then
deductions must also be strictly construed.
 Simply put, to be deductible from gross income, the subject
advertising expense must comply with the following requisites: (a) the
expense must be ordinary and necessary; (b) it must have been paid or
incurred during the taxable year; (c) it must have been paid or
incurred in carrying on the trade or business of the taxpayer; and (d) it
must be supported by receipts, records or other pertinent papers.
 Protection of brand franchise is analogous to the maintenance of
goodwill or title to one’s property, a capital expenditure which should
be spread out over a reasonable period of time.
 The Commissioner maintains that the subject advertising expense was
not ordinary on the ground that it failed the two conditions set by U.S.
jurisprudence: first, “reasonableness” of the amount incurred and
second, the amount incurred must not be a capital outlay to create
“goodwill” for the product and/or private respondent’s business.
Otherwise, the expense must be considered a capital expenditure to
be spread out over a reasonable time.

48. CM Hoskins
 In Valenzuela & Sheriff, Inc. vs. Commissioner of Internal Revenue
decided by this Court on May 29, 1969,4 we reaffirmed the test of
 reasonableness, enunciated in the earlier 1967 case involving the
same parties, that: "It is a general rule that 'Bonuses to employees
made in good faith and as additional compensation for the services
actually rendered by the employees are deductible, provided such
payments, when added to the stipulated salaries, do not exceed a
reasonable compensation for the services rendered'
 The conditions precedent to the deduction of bonuses to employees
are: (1) the payment of the bonuses is in fact compensation; (2) it
must be for personal services actually rendered; and (3) the bonuses.
when added to the salaries, are 'reasonable x x x when measured by
the amount and quality of the services performed with relation to the
business of the particular taxpayer'
 "There is no fixed test for determining the reasonableness of a given
bonus as compensation. This depends upon many factors, one of them
being 'the amount and quality of the services performed with relation
to the business,' Other tests suggested are: payment must be 'made in
good faith'; 'the character of the taxpayer's business, the volume and
amount of its net earnings, its locality, the type and extent of the
services rendered, the salary policy of the corporation'; 'the size of the
particular business'; 'the employees' qualifications and contributions
to the business venture'; and 'general economic conditions' (4
Mertens, Law of Federal Income Taxation, Secs. 25.44, 25.49, 25.50,
25.51, pp. 407-412). However, 'in determining whether the particular
salary or compensation payment is reasonable, the situation must be
considered as a whole. Ordinarily, no single factor is decisive. x x x it is
important to keep in mind that it seldom happens that the application
of one test can give satisfactory answer, and that ordinarily it is the
interplay of several factors, properly weighted for the particular case,
which must furnish the final answer." C. M. Hoskins & Co., Inc. vs.
Commissioner of Internal Revenue, 30 SCRA 434, No. L-24059
November 28, 1969