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CASE DIGEST: Commissioner of lnternal Revenue (CIR) vs. Algue, Inc.

(158 SCRA 9), G.R. No. L-28896, February 17, 1988
$ Phil. Caselaw % June 28, 2021 & Case Digest , Taxation Law ' 0 Comments

Sure Ka Sa Lazada
Lazada Philippines

COMMISSIONER OF INTERNAL REVENUE vs. ALGUE and THE COURT OF TAX APPEALS
G.R. No. L-28896 February 17, 1988

FACTS:
The Philippine Sugar Estate Development Company had earlier appointed Algue as its agent,
authorizing it to sell its land, factories and oil manufacturing process. Pursuant to such
authority, Alberto Guevara, Jr., Eduardo Guevara, Isabel Guevara, Edith, O'Farell, and Pablo
Sanchez, worked for the formation of the Vegetable Oil Investment Corporation, inducing other
persons to invest in it. Ultimately, a!er its incorporation largely through the promotion of the
said persons, this new corporation purchased the PSEDC properties.

For this sale, Algue received as agent a commission of P126,000.00, and it was from this
commission that the P75,000.00 promotional fees were paid to the aforenamed individuals.
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The petitioner contends that the claimed deduction of P75,000.00 was properly disallowed
because it was not an ordinary reasonable or necessary business expense. The Court of Tax
Appeals had seen it di"erently. Agreeing with Algue, it held that the said amount had been
legitimately paid by the private respondent for actual services rendered. The payment was in the
form of promotional fees.

ISSUE: Whether or not the Collector of Internal Revenue correctly disallowed the P75,000.00
deduction claimed by private respondent Algue as legitimate business expenses in its income tax
returns.

RULING:
The Supreme Court agrees with the respondent court that the amount of the promotional fees
was not excessive. 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.

It is said that 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.

SUMMARY OF PRINCIPLES:

1. As a rule, the collection of taxes should be made in accordance with law.

Taxes are the lifeblood of the government and so should be collected

without unnecessary hindrance. On the other hand, such collection should
be made in accordance with law as any arbitrariness will negate the very
reason for government itself. It is therefore necessary to reconcile the
apparently conflicting interests of the authorities and the taxpayers so that
the real purpose of taxation, which is the promotion of the common good,
may be achieved.

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2. An appeal from a decision of the Commissioner of Internal Revenue with

the Court of Tax Appeals is 30 days from receipt thereof.

The chronology as shown in the case indicates that the petition was filed
seasonably. According to Rep. Act No. 1125, the appeal may be made within
thirty days a!er receipt of the decision or ruling challenged.

3. As a general rule, the warrant of distraint and levy is proof of the finality
of the assessment. An exception to this rule, however, is where there is a
letter of protest a!er receipt of notice of assessment.

It is true that as a rule the warrant of distraint and levy is "proof of the
finality of the assessment" and "renders hopeless a request for
reconsideration," being "tantamount to an outright denial thereof and
makes the said request deemed rejected." But there is a special
circumstance in the case at bar that prevents application of this accepted
doctrine.

The proven fact is that four days a!er the private respondent received the
petitioner's notice of assessment, it filed its letter of protest. This was
apparently not taken into account before the warrant of distraint and levy
was issued; indeed, such protest could not be located in the o"ice of the
petitioner. It was only a!er Atty. Guevara gave the BIR a copy of the protest
that it was, if at all, considered by the tax authorities. During the intervening
period, the warrant was premature and could therefore not be served.

4. As the Court of Tax Appeals correctly noted, the protest filed by private
respondent was not pro forma and was based on strong legal
considerations.

It thus had the e"ect of suspending on January 18, 1965, when it was filed,
the reglementary period which started on the date the assessment was
received, viz., January 14, 1965. The period started running again only on
April 7, 1965, when the private respondent was definitely informed of the
implied rejection of the said protest and the warrant was finally served on it.
Hence, when the appeal was filed on April 23, 1965, only 20 days of the
reglementary period had been consumed.

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5. The burden rests on the taxpayer to prove validity of the claimed

deduction successfully discharged.

In the present case, however, we find that the onus has been discharged
satisfactorily. The private respondent has proved that the payment of the
fees was necessary and reasonable in the light of the e"orts 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. This was no mean feat and should be, as it was,
su"iciently recompensed.

6. What is the purpose or rationale of taxation?

It is said that taxes are what we pay for civilized 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, This symbiotic relationship is the
rationale of taxation and should dispel the erroneous notion that it is an
arbitrary method of exaction by those in the seat of power.

Check out our collection of free case digests here:

1. Taxation Law
2. Remedial Law
3. Civil Law
4. Criminal Law
5. Legal Ethics

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