Commissioner of Internal Revenue vs. Algue Inc.

GR No. L-28896 | Feb. 17, 1988

Facts:

· Algue Inc. is a domestic corp engaged in engineering, construction and other 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 corp 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 action on the protest and it
was only then that he accepted the warrant of distraint and levy earlier sought to be served

· On April 23, Algue filed a petition for review of the decision of the CIR with the Court of Tax
Appeals

· CIR contentions:

- the claimed deduction of P75,000.00 was properly disallowed because it 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 rendered in the form of
promotional fees. These were collected by the Payees for their work in the creation of the Vegetable Oil
Investment Corporation of the Philippines and its subsequent purchase of the properties of the
Philippine Sugar Estate 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 returns

Ruling:

· Taxes are the lifeblood of the government and so should be collected without 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 therefore not be served.

· Originally, CIR claimed that the 75K promotional fees to be personal holding company income, but
later on conformed to the decision of CTA

· There is no dispute that the payees duly reported their respective shares of the fees in their
income tax returns and paid the corresponding taxes thereon. CTA also found, after examining the
evidence, that no distribution of dividends 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 were 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 all of the fees received by him or her, to make up the total of
P75,000.00. This arrangement was understandable in view of the close relationship among the persons
in the family corporation

· The amount of the promotional fees was not excessive. The total commission 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 commission. This was a reasonable proportion, considering that it was the payees who did
practically everything, from the formation of the Vegetable Oil Investment Corporation 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 year in carrying on any trade or business,
including a reasonable allowance for salaries or other compensation for personal services actually
rendered xxx

· the burden is on the taxpayer to prove the validity of the claimed deduction

· In this case, Algue Inc. 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.

· Taxes are what we pay for civilization society. Without taxes, the government 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 income 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 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

· Taxation must be exercised reasonably and in accordance with the prescribed procedure. If it is
not, then the taxpayer has a right to complain and the courts 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.

Roxas y Cia vs Court of Tax Appeals 23 SCRA 276

Roxas y Cia vs Court of Tax Appeals

23 SCRA 276

Facts:

Don Pedro Roxas and Dona Carmen Ayala, Spanish subjects, transmitted to their grandchildren by
hereditary succession several properties. To manage the above-mentioned properties, said children,
namely, Antonio Roxas, Eduardo Roxas and Jose Roxas, formed a partnership called Roxas y Compania.
At the conclusion of the WW2, the tenants who have all been tilling the lands in Nasugbu for
generations expressed their desire to purchase from Roxas y Cia. the parcels which they actually
occupied. For its part, the Government, in consonance with the constitutional mandate to acquire big
landed estates and apportion them among landless tenants farmers, persuaded the Roxas brothers to
part with their landholdings. Conferences were held with the farmers in the early part of 1948 and
finally the Roxas brothers agreed to sell 13,500 hectares to the Government for distribution to actual
occupants for a price of P2,079,048.47 plus P300,000.00 for survey and subdivision expenses. It turned
out however that the Government did not have funds to cover the purchase price, and so a special
arrangement was made for the Rehabilitation Finance Corporation to advance to Roxas y Cia. the
amount of P1,500,000.00 as loan. Collateral for such loan were the lands proposed to be sold to the
farmers. Under the arrangement, Roxas y Cia. allowed the farmers to buy the lands for the same price
but by installment, and contracted with the Rehabilitation Finance Corporation to pay its loan from the
proceeds of the yearly amortizations paid by the farmers.

The CIR demanded from Roxas y Cia the payment of deficiency income taxes resulting from the inclusion
as income of Roxas y Cia. of the unreported 50% of the net profits for 1953 and 1955 derived from the
sale of the Nasugbu farm lands to the tenants, and the disallowance of deductions from gross income of
various business expenses and contributions claimed by Roxas y Cia. and the Roxas brothers. For the
reason that Roxas y Cia. subdivided its Nasugbu farm lands and sold them to the farmers on installment,
the Commissioner considered the partnership as engaged in the business of real estate, hence,100% of
the profits derived there from was taxed. The Roxas brothers protested the assessment but inasmuch as
said protest was denied, they instituted an appeal in the CTA which sustained the assessment. Hence,
this appeal.
Issue:

Is Roxas y Cia liable for the payment of deficiency income for the sale of Nasugbu farmlands?

Ruling:

NO. The proposition of the CIR cannot be favorably accepted in this isolated transaction with its peculiar
circumstances in spite of the fact that there were hundreds of vendees. Although they paid for their
respective holdings in installment for a period of 10 years, it would nevertheless not make the vendor
Roxas y Cia. a real estate dealer during the 10-year amortization period. It should be borne in mind that
the sale of the Nasugbu farm lands to the very farmers who tilled them for generations was not only
inconsonance with, but more in obedience to the request and pursuant to the policy of our Government
to allocate lands to the landless. It was the bounden duty of the Government to pay the agreed
compensation after it had persuaded Roxas y Cia. to sell its haciendas, and to subsequently subdivide
them among the farmers at very reasonable terms and prices. However, the Government could not
comply with its duty for lack of funds. Obligingly, Roxas y Cia. shouldered the Government's burden,
went out of its way and sold lands directly to the farmers in the same way and under the same terms as
would have been the case had the Government done it itself. For this magnanimous act, the municipal
council of Nasugbu passed a resolution expressing the people's gratitude. In fine, Roxas y Cia. cannot be
considered a real estate dealer for the sale in question. Hence, pursuant to Section 34 of the Tax Code
the lands sold to the farmers are capital assets, and the gain derived from the sale thereof is capital gain,
taxable only to the extent of 50%

Sison vs Ancheta (1984)

Facts: Batas Pambansa 135 was enacted. Sison, as taxpayer, alleged that its provision (Section 1) unduly
discriminated against him by the imposition of higher rates upon his income as a professional, that it
amounts to class legislation, and that it transgresses against the equal protection and due process
clauses of the Constitution as well as the rule requiring uniformity in taxation.

Issue: Whether BP 135 violates the due process and equal protection clauses, and the rule on uniformity
in taxation.

Held: There is a need for proof of such persuasive character as would lead to a conclusion that there
was a violation of the due process and equal protection clauses. Absent such showing, the presumption
of validity must prevail. Equality and uniformity in taxation means that all taxable articles or kinds of
property of the same class shall be taxed at the same rate. The taxing power has the authority to make
reasonable and natural classifications for purposes of taxation. Where the differentitation 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 is therefore uniform. Taxpayers may be
classified into different categories, such as recipients of compensation income as against professionals.
Recipients of compensation income are not entitled to make deductions for income tax purposes as
there is no practically no overhead expense, while professionals and businessmen have no uniform costs
or expenses necessaryh to produce their income. There is ample justification to adopt the gross system
of income taxation to compensation income, while continuing the system of net income taxation as
regards professional and business income.

Tan Tiong Bio vs. CIR L-15778 April 23, 1962

Facts: The Central syndicate, a corporation organized under the laws of the Philippines, sent a letter to
the CIR that (a) it purchased from Dee Hong Lue the surplus properties which the said Dee Hong Lue
bought from the foreign liquidation Commission; (b) that it assumed that Lue’s obligation and would pay
a portion of the sales tax on the said surplus goods and; (c) they will pay in behalf of Dee Hong Lue as
deposit for the payment os the sales tax. Again, central syndicate wrote a letter to the CIR requesting a
refund for the purchase price of the goods obtained from Lue was reduced and adjusted. CIR
investigated the matter and decided that the central syndicate is the one liable to pa the sales tax since
they are the importer end the original seller of the surplus goods in question. CIR denied the request for
refund. The case was elevated to the court of tax appeals. CIR filed a motion requiring the central
syndicate to file a bond to guarantee the payment of the tax. The court of tax appeals denied CIR’s
motion and dismissed the appeal of central syndicate. Petitioners filed an appeal.

Issue: Whether or not the sales tax can still be enforced against the Central syndicate despite its
non existent personality

Held/Ruling: Yes, the sales tax can still be enforced against the central syndicate. An indebtedness of a
corporation to the federal government for income and excess profit taxes is not extinguished by the
dissolution of the corporation. Considering that the central syndicate realized from the sale of the
surplus goods and the sale of that surplus goods was the only transaction undertaken by the said
syndicate, there being no evidence to the contrary, the conclusion is that said net profit remained intact
and was distributed among the stockholders when the corporation liquidated and distributed its assets.
Petitioners, being the beneficiaries of the defunct corporation as such should be liable to pay the taxes
in question. The petitioners are liable for the tax in question only in proportion to their shares in the
distribution of the assets of the defunct corporation there being no express provision requiring the
stockholders of the corporation to be solidarily liable for its debts.

BPI vs. Court of Appeals, et. al. 122480 April 12, 2000

Facts: Petitioner, having paid in excess its withholding taxes in 1989, had a refundable amount of
P297,492. It indicated in the same 1989 Income Tax Return that the refundable amount was to be
applied as tax credit for the succeeding taxable year. Petitioner, however, did not apply the tax credit in
its 1990 Income Tax Return, claiming that it incurred business losses. Instead, it notified the BIR that it
would claim P112,491.90 of the refundable amount as tax refund. Subsequently, it filed a petition for
review with the Court of Tax Appeals seeking the refund. Respondents CTA and CA denied the claim,
finding that since petitioner previously declared that it would apply the refund as tax credit, it is
presumed to have already done so. They ruled that petitioner failed to overcome the said presumption
when it did not present as evidence its 1990 Income Tax Return to establish the fact that it did not credit
the amount. Hence, this Petition for Review.

Issue: Whether or not the petitioner is entitled to the refund representing excess creditable withholding
tax paid for the taxable year 1989.

Held: The SC has ruled in the affirmative. It is undisputed that petitioner was entitled to a refund of the
excess withholding taxes paid by it for the taxable year 1989. And pursuant to Section 69 of the 1986
Tax Code, a corporation entitled to a refund may opt either to obtain such refund or to credit the said
amount for the succeeding taxable year. Petitioner presented evidence to prove its claim that it did not
apply the amount as tax credit; on the other hand, the respondent CIR did not present any evidence or
opposition to the evidence supplied by petitioner. Technicalities and legalisms, however exalted, should
not be misused by the government to keep money not belonging to it and thereby enrich itself at the
expense of its law-abiding citizens. If the State expects its taxpayers to observe fairness and honesty in
paying their taxes, so must it apply the same standard against itself in refunding excess payments of
such taxes.

Commissioner of Internal Revenue vs. Cebu Portland Cement Co.

G.R. No. L-29059, 15 December 1987

Facts: CTA decision ordered the petitioner CIR to refund to the Cebu Portland Cement Company,
respondent, P 359,408.98 representing overpayments of ad valorem taxes on cement sold by
it. Execution of judgement was opposed by the petitioner citing that private respondent had an
outstanding sales tax liability to which the judgment debt had already been credited. In fact, there was
still a P4 M plus balance they owed. The Court of Tax Appeals, in holding that the alleged sales tax
liability of the private respondent was still being questioned and therefore could not be set-off against
the refund, granted private respondent's motion. The private respondent questioned the assessed tax
based on Article 186 of the Tax Code, contending that cement was adjudged a mineral and not a
manufactured product; and thusly they were not liable for their alleged tax deficiency. Thereby,
petitioner filed this petition for review.

Issue: Whether or not assessment of taxes can be enforced even if there is a case contesting it.

Held: The argument that the assessment cannot as yet be enforced because it is still being contested
loses sight of the urgency of the need to collect taxes as "the lifeblood of the government." If the
payment of taxes could be postponed by simply questioning their validity, the machinery of the state
would grind to a halt and all government functions would be paralyzed. That is the reason why, save for
the exception in RA 1125 , the Tax Code provides that injunction is not available to restrain collection of
tax. Thereby, we hold that the respondent Court of Tax Appeals erred in its order.

Gomez vs Palomar et.al GR No. 23645 October 29, 1968

Facts: The petitioner mailed a letter at the post office (in San Fernando,Pampanga) addressed to one
Aquino (of Singalong,Manila) which did not bear the special anti-TB stamp as required by a statute
which is RA 1635,1 as amended by RA 2631,2 it was returned to petitioner. Latter sought relief in the CFI
to test the constitutionality of the statute, as well as the implementing administrative orders issued,
contending that it violates the equal protection clause of the Constitution and that it is not levied for a
public purpose as no special benefits accrue to mail users as taxpayers, and it violates the rule of
uniformity in taxation. Lower court declared the statute unconstitutional which made respondent postal
authorities to appeal.

Issue: Whether or not the statute as well as the administrative orders violates the Constitutional
limitation upon the power to tax that it must be for public purpose?

Ruling: No, the eradication of a dreaded disease is a public purpose, but if by public purpose the
petitioner means benefit to a taxpayer as a return for what he pays, then it is sufficient answer to say
that the only benefit to which the taxpayer is constitutionally entitled is that derived from his enjoyment
of the privileges of living in an organized society, established and safeguarded by the devotion of taxes
to public purposes. Any other view would preclude the levying of taxes except as they are used to
compensate for the burden on those who pay them and would involve the abandonment of the most
fundamental principle of government — that it exists primarily to provide for the common good. Nor is
the rule of uniformity and equality of taxation infringed by the imposition of a flat rate rather than a
graduated tax. A tax need not be measured by the weight of the mail or the extent of the service
rendered. We have said that considerations of administrative convenience and cost afford an adequate
ground for classification. The same considerations may induce the legislature to impose a flat tax which
in effect is a charge for the transaction, operating equally on all persons within the class regardless of
the amount involved.