Topic: Tax Returns and Other Administrative RequirementsPASEO REALTY AND DEVELOPMENT CORP. vs.COURT OF APPEALSG.R. No.

119286 October 13, 2004FACTS:

Paseo Realty and Development Corporation, a domestic corporation engaged in the lease of two parcels of land at Paseo de Roxas in Makati
City. On April 16, 1990, petitioner filed its Income Tax Return for the calendaryear1989 declaring a gross income of P1,855,000.00, deductions
of P1,775,991.00, net income of P79,009.00, anincome tax due thereon in the amount of P27,653.00, prior
year‘s excess credit of P146,026.00, and creditable taxes withheld in 1989 of
P54,104.00 or a total tax credit of P200,130.00 and credit balance of P172,477.00.In a resolution dated October 21, 1993 Respondent
Courtreconsidered its decision of July 29, 1993 and dismissed the petition for review, stating that it has
―overlooked
the fact
that the petitioner‘s
1989 Corporate Income Tax Return
(Exh. ―A‖)
indicated that the amount of P54,104.00 subject of
petitioner‘s claim for refund has
already been included as part and parcel of the P172,477.00 which the petitioner automatically applied as tax
credit for the succeeding taxable year 1990.‖
Petitioner filed a Motion for Reconsideration which was denied by respondent Court on March 10,1994.Petitioner filed a Petition for Review
dated April 3, 1994with the
Courtof Appeals. Resolving the twin issues of whether petitioner is entitled to a refund of P54,104.00 representingcreditable taxes withheld in
1989 and whether petitioner applied such creditable taxes withheld to its 1990income tax liability, the appellate court held that petitioner is not
entitled to a refund because it had alreadyelected to apply the total amount of P172,447.00, which includes the P54,104.00 refund claimed,
against itsincome tax liability for 1990. The appellate court elucidated on the reason for
its dismissal of petitioner‘s claim
for refund.
ISSUE:
Whether or not the alleged excess taxes paid by a corporation during a taxable year should be refunded orcredited against its tax liabilities for
the succeeding year?
RULING:
The petition must be denied. As a matter of principle, it is not advisable for this Court to set aside theconclusionreached by an agency such as the
CTA which is, by the very nature of its functions, dedicated exclusively to thestudy and consideration of tax problems and has necessarily
developed an expertise on the subject, unless therehas been an abuse or improvident exercise of its authority. This interdiction finds particular
application in thiscase since the CTA, after
careful consideration of the merits of the Commissioner of Internal Revenue‘s motion
for reconsideration, reconsidered its earlier decision which ordered the latter to refund the amount of P54,104.00 to petitioner. Its resolution
cannot be successfully assailed based, as it is, on the pertinent laws asapplied to the facts.
Petitioner‘s 1989 tax return indicates an
aggregate creditable tax of P172,477.00, representing its 1988 excesscredit of P146,026.00 and 1989 creditable tax of P54,104.00 less tax due for
1989, which it elected to apply astax credit for the succeeding taxable year.According to petitioner, it successively utilized this amount when it
obtained refunds in CTA Case No. 4439 andCTA Case No. 4528 and applied its1990 tax liability, leaving a balance of P54,104.00, the amount
subject of theinstant claim for refund.
The confusion as to petitioner‘s entitlement to a refund could altogether have
beenavoided had it presented its tax return for 1990. Such return would have shown whether petitioner actuallyapplied its 1989 tax credit of
P172,477.00, which includes the P54,104.00 creditable taxes withheld for 1989subject of the instant claim for refund, against its 1990 tax liability
as it had elected in its 1989 return, or at least,whether
petitioner‘s tax credit of
P172,477.00 was applied to its approved refunds asitclaims. As clearly shown from the above-quoted provisions, in case the corporation isentitled
to a refund of theexcess estimated quarterly income taxes paid, the refundable amount shown on its final adjustment return maybe credited
against the estimated quarterly income tax liabilities for the taxable quarters of the succeeding year.The carrying forward of any excess or
overpaid income tax for a given taxable year is limited to the succeedingtaxable year only. Taxation is a destructive power which interferes with
the personal and property rights of thepeople and takes from them a portion of their property for the support of the government. And since taxes
arewhat we pay for civilized society, or are the lifeblood of the nation, the law frowns against exemptions fromtaxation and statutes granting tax
exemptions are thus construed strictissimi juris against the taxpayer andliberally in favor of the taxing authority. A claim of refund or exemption
from tax payments must be clearlyshown and be based on language in the law too plain to be mistaken. Else wise stated, taxation is the
rule,exemption therefrom is the exception.
 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

Lutz vs. Araneta [December 22, 1955, (98 Phil 148)]

Post under case digests, Taxation at Friday, February 24, 2012 Posted by Schizophrenic Mind

Facts: Commonwealth Act No. 567, otherwise known as SugarAdjustment Act was promulgated in 1940 “to stabilize the sugar

industry so as to prepare it for the eventuality of the loss of its preferential position in the United States market and the imposition of

export taxes.” Plaintiff, Walter Lutz, in his capacity as Judicial Administrator of the Intestate Estate of Antonio Jayme Ledesma,

seeks to recover from the Collector of Internal Revenue the sum of P14,666.40 paid by the estate as taxes, under Sec.3 of the Act,

alleging that such tax is unconstitutional and void, being levied for the aid and support of the sugar industry exclusively, which in

plaintiff’s opinion is not a public purpose for which a tax may be constitutionally levied. The action has been dismissed by the Court

of First Instance.

Issue: Whether or not the tax imposed is constitutional.

Held: Yes. The act is primarily an exercise of the police power. It is shown in the Act that the tax is levied with a regulatory purpose,

to provide means for the rehabilitation and stabilization of the threatened sugar industry.

It is inherent in the power to tax that a state be free to select the subjects of taxation, and it has been repeatedly held that

“inequalities which result from a singling out of one particular class for taxation or exemption infringe no constitutional limitation.”

The funds raised under the Act should be exclusively spent in aid of the sugar industry, since it is that very enterprise that is being

protected. It may be that other industries are also in need of similar protection; but the legislature is not required by the

Constitution to adhere to a policy of “all or none.”