Gk No L28896 Iebruary 17 1988

CCMMISSICNLk CI IN1LkNAL kLVLNUL peLlLloner

vs
ALGUL INC and 1nL CCUk1 CI 1Ak ALALS respondenLs
lAC1S
1he hlllpplne Sugar LsLaLe uevelopmenL Company (SLuC) had earller appolnLed Alguelnc (prlvaLe respondenL)
as lLs agenL auLhorlzlng lL Lo sell lLs land facLorles and oll manufacLurlng process ursuanL Lo such auLhorlLy
AlberLo Cuevara !r Lduardo Cuevara lsabel Cuevara LdlLh Clarell and ablo Sanchez worked for Lhe
formaLlon of Lhe vegeLable Cll lnvesLmenL CorporaLlon (vClC) lnduclng oLher persons Lo lnvesL ln lL

ulLlmaLely
afLer lLs lncorporaLlon largely Lhrough Lhe promoLlon of Lhe sald persons Lhls new corporaLlon purchased Lhe
(SLuC) properLles

lor Lhls sale Algue recelved as agenL a commlsslon of 12300000 and lL was from Lhls
commlsslon LhaL Lhe 7300000 promoLlonal fees were pald Lo Lhe aforenamed lndlvlduals (payees)
rlvaLe respondenL recelved an assessmenL ln Lhe LoLal amounL of 8318383 as dellnquency lncome Laxes for Lhe
years 1938 and 1939 1he peLlLloner conLends LhaL Lhe clalmed deducLlon of 7300000 was properly dlsallowed
because lL was noL an ordlnary reasonable or necessary buslness expense
lSSuL
WheLher Lhe peLlLloner correcLly dlsallowed Lhe 7300000 deducLlon clalmed by prlvaLe respondenL as leglLlmaLe
buslness expenses ln lLs lncome Lax reLurns
PLLu
1he sald amounL had been leglLlmaLely pald by Lhe prlvaLe respondenL for acLual servlces rendered 1he paymenL
was ln Lhe form of promoLlonal fees 1hese were collecLed by Lhe ayees for Lhelr work ln Lhe creaLlon of Lhe
vegeLable Cll lnvesLmenL CorporaLlon of Lhe hlllpplnes and lLs subsequenL purchase of Lhe properLles of Lhe
hlllpplne Sugar LsLaLe uevelopmenL Company 1he amounL was earned Lhrough Lhe [olnL efforLs of Lhe persons
among whom lL was dlsLrlbuLed 1he prlvaLe respondenL has proved LhaL Lhe paymenL of Lhe fees was necessary
and reasonable ln Lhe llghL of Lhe efforLs exerLed by Lhe payees ln lnduclng lnvesLors and promlnenL buslnessmen
Lo venLure ln an experlmenLal enLerprlse and lnvolve Lhemselves ln a new buslness requlrlng mllllons of pesos
lL ls sald LhaL Laxes are whaL we pay for clvlllzaLlon socleLy WlLhouL Laxes Lhe governmenL would be paralyzed for
lack of Lhe moLlve power Lo acLlvaLe and operaLe lL Pence desplLe Lhe naLural relucLance Lo surrender parL of
ones hard earned lncome Lo Lhe Laxlng auLhorlLles every person who ls able Lo musL conLrlbuLe hls share ln Lhe
runnlng of Lhe governmenL 1he governmenL for lLs parL ls expecLed Lo respond ln Lhe form of Langlble and
lnLanglble beneflLs lnLended Lo lmprove Lhe llves of Lhe people and enhance Lhelr moral and maLerlal values 1hls
symbloLlc relaLlonshlp ls Lhe raLlonale of LaxaLlon and should dlspel Lhe erroneous noLlon LhaL lL ls an arblLrary
meLhod of exacLlon by Lhose ln Lhe seaL of power
1axes are Lhe llfeblood of Lhe governmenL and so should be collecLed wlLhouL unnecessary hlndrance Cn Lhe
oLher hand such collecLlon should be made ln accordance wlLh law as any arblLrarlness wlll negaLe Lhe very reason
for governmenL lLself lL ls Lherefore necessary Lo reconclle Lhe apparenLly confllcLlng lnLeresLs of Lhe auLhorlLles
and Lhe Laxpayers so LhaL Lhe real purpose of LaxaLlon whlch ls Lhe promoLlon of Lhe common good may be
achleved