30National Development Co. vs. CommissionerGR L-53961, 151 SCRA
473! "#ne 19$7%a&ts' The National Development Co. (NDC) entered
into contracts in Tokyo with several Japanese shipbuilding
companies for the construction of ! ocean"going vessels. #nitial
payments were made in cash and through irrevocable letters of
credit. $hen the vessels were completed and delivered to the NDC in
Tokyo% the latter remitted to the shipbilders the amount of &'(
)%*++%,-*..* as interest on the balance of the purchase price. No
ta/ was withheld. The Commissioner then held NDC liable on such ta/
in the total amount of 0,%,%!1)..). The 2ureau of #nternal 3evenue
served upon the NDC a warrant of distraint and levy after
negotiations failed.(ss#e' $hether the NDC is liable for deficiency
ta/.)el*' The Japanese shipbuilders were liable on the interest
remitted to them under 'ection 1. of the Ta/ Code. The NDC is not
the one ta/ed. The imposition of the deficiency ta/es on the ND' is
a penalty for itsfailure to withhold the same from the Japanese
shipbuilders. 'uch liability is imposed by 'ection ,1(c) of the Ta/
Code. NDC was remiss in the discharge of its obligation of its
obligation as the withholding agent of the government and so should
be liable for its omission.31%is+er v. ,rini*a*GR 1751$, 43 -)(L
973.&to/er 3!, 19%a&ts' 0hilippine 4merican Drug Company
was a corporation duly organi5ed and e/isting under the lawsof the
0hilippine #slands% doing business in the City of 6anila. 7isher
was a stockholder insaid corporation. 'aid corporation% as result
of the business for that year% declared a 8stock dividend8 andthat
the proportionate share of said stock divided of 7isher was
0!)%-**. 'aid the stock dividend for thatamount was issued to
7isher. 7or this reason% Trinidad demanded payment of income ta/
for thestock dividend received by 7isher. 7isher paid under protest
the sum of 0--9.9 as income ta/on saidstock dividend. 7isher filed
an action for the recovery of 0--9.9. Trinidad demurred to the
petition uponthe ground that it did not state facts sufficient to
constitute cause of action. The demurrer was sustainedand 7isher
appealed. (ss#e' $hether or not the stock dividend was an income
and therefore ta/able. )el*' No. :enerally speaking% stock
dividends represent undistributed increase in the capital
ofcorporations or firms% ;ointstock companies% etc.% etc.% for a
particular period. The inventory ofthe property of the corporation
for particular period shows an increase in its capital% so that
thestock theretofore issued does not show the real value of the
stockholderuivalent%unlessit is otherwise specified. #tdoesnot mean
unreali5ed increments in the value of theproperty. 4stock dividend
really takes nothing from the property of the corporation% and adds
nothing to the interestsof the shareholders. #ts property is not
diminished and their interest are not increased. The
proportionalinterest of each shareholder remains the same. #n
short% the corporation is no poorer and the stockholderis no richer
then they were before. #n the case of Doyle vs. 6itchell 2ros. Co.
(!). &.'.% .9)% 6r. Justice 0itney% said that the term
8income8in its natural and obvious sense% imports something
distinct from principal or capital and conveying theidea of gain or
increase arising from corporate activity. #n the case of =isner vs.
6acomber (!,! &.'.% -9)% income was defined as the gain derived
from capital%from labor% or from both combined% provided it be
understood to include profit gained through a sale orconversion of
capital assets. $hen a corporation or company issues 8stock
dividends8 it shows that the companyual parts in computing and
assessing the additional income ta/ provided by the 4ct of Congress
of 91. The 4ttorney":eneral of the 0hilippines opined in favor of
6adrigal% but 3afferty% the &' C#3% decided against
6adrigal.4fter his payment under protest% 6adrigal instituted an
action to recover the sum of 01%-** alleged to have been wrongfully
and illegally assessed and collected% under the provisions of the
#ncome Ta/ Aaw. @owever% this was opposed by 3afferty% contending
that ta/es imposed by the #ncome Ta/ Aaw are ta/es upon income% not
upon capital or property% and that the con;ugal partnership has no
bearing on income considered as income. The C7# ruled in favor of
the defendants% 3afferty. (SS45' $hether 6adrigalEs income should
be divided into ! e>ual parts in the assessment and computation
of his ta/)5LD' NC. 'usana 0aterno% wife of Bicente 6adrigal% still
has an inchoate right in the property of her husband during the
life of the con;ugal partnership. 'he has an interest in the
ultimate property rights and in the ultimate ownership of property
ac>uired as income after such income has become capital. 'usana
has no absolute right to onehalf the income of the con;ugal
partnership. Not being sei5ed of a separate estate% she cannot make
a separate return in order to receive the benefit of e/emption%
which could arise by reason of the additional ta/. 4s she has no
estate and income% actually and legally vested in her and entirely
separate from her husbandEs property% the income cannot be
considered the separate income of the wife for purposes of
additional ta/. #ncome% as contrasted with capital and property% is
to be the test. The essential difference between capital and income
is that capital is a fund? income is a flow. 4 fund of property
e/isting at an instant of time is called capital. 4 flow of
services rendered by that capital by the payment of money from it
or any other benefit rendered by a fund of capital in relation to
such fund through a period of time is called income. Capital is
wealth% while income is the service of wealth. 4 ta/ onincome is
not ta/ on property.33 C.N6( v. C,AGR 4$53, 13 SCRA $3A#1#st 31,
199%a&ts' 0etitioners are employees of 0rocter and :amble
(0hilippine 6anufacturing Corporation%subsidiary of 0rocter F
:amble% a foreign corporation).During the years 9.* and 9.%
petitioners wereassigned to other subsidiaries of 0rocter F :amble
outside the 0hilippines% for which petitioners werepaid &'
dollars as compensation. 0etitioners filed their #T3s for 9.* and
9.% computing ta/ due by applying the dollar"to"peso conversion
based on thefloatingrateunder 2#3 3uling No. .*"*!.. #n9.1%
petitioners filedamened #T3s for 9.* and 9.% this time using the
par value of the peso as basis. This resulted in thealleged
overpayments% refund andGor ta/ credit% for which claims for refund
were filed. CT4 heldthat theproper conversionrate for thepurpose of
reportingandpayingthe0hilippine incometa/ on the dollar earnings of
petitioners are the rates prescribed under 3evenue 6emorandum
CircularsNos. .". and )".. The refund claims were denied. (ss#es'
() $hether or not petitionersuestion 9,. N 'ps filed their #T3 for
9,+ reporting a gross income 0%*.%!-..+, and a net income of
0.11%-*9.)) on which 01.%19,.)* was assessed after deducting
0)%-*,.,9 as withholding ta/. 'ps paid 1!+%!)..) on 4pril 9,. 6arch
9,9 N 'ps filed an amended #T3 for 9,+. They claimed a deduction of
0!*,%919.!) paidin 9,+ to &' govEt. 3espondents re>uested
refund of !%)1..9* C#3 failed to answer the claim for refund% resps
filed their petition with the Ta/ Court :.3. No. A"-+9 formerly CT4
case ,.*Odifferent caseGyearP is also a claim for refund in the
amount of 0,*%!+9.** as alleged overpaid income ta/ for 9,,o 7actsQ
#n 7eb 9,+ 'ps filed #T3 for 9,, R gross income of 0%...%!).+1 and
net income of 0%*,!%,,*.+. 9,+ N sps filed an amended #T3 2ack in
9,,% sps filed with the &' #nternal 3evenue 4gent in 6anila
their federal#T3 for the years 9).%9,",) on income from 0hil
sources on a cash basis 9,- N 'ps amended their 0hil #T3 for 9,, to
include the deductions of &' 7ederal income ta/es% interest
accrued up to 6ay ,% 9,,% and e/change and bank charges CT4 case
,.* was filed :.3. No. !)1) formerly CT4 Case No. .-1% facts are
similar but refer to AednickysE CT3 for 9,. filed in 7eb 9,-o #n
9,9 sps filed amended return for 9,. claiming deductions
representing ta/es paid to&' :ovEt.S Tac /ourt held that the
ta/es may be deducted because the 'ps did not signify in their #T3a
desireto avail themselves of the benefits of paragraph 1(2) of 'ec.
1*C.00.N (SS45' $CN a citi5en of the &' residing in 0hils who
derives income wholly from sources within the 0hils may deduct from
his gross income the income ta/es he has paid to &' govEt for
the ta/able yearT)5LD8RA,(.' 'CQ C#3 correct that the construction
and wording of 'ec. 1*c()2 of the #nternal 3evenue 4ct shows the
lawEs intent that the right to deduct income ta/es paid toforeign
government from the ta/payerEs gross income is given only as an
alternative or substitute to his right to claim a ta/ credit for
such foreign income ta/eso (2) N #ncome% war"profits% and e/cess
profits ta/es imposed by the authority of any foreign country? but
this deduction shall be allowed in the case of a ta/payer who does
not signify in his return his desire to have any e/tent the
benefits of paragraph (1) of this subsection (relating to credit
for foreign countries) 'o that unless the alien resident has a
right to claim such ta/ credit if he so chooses% he is precluded
from deducting the foreign income ta/es from his gross income. 7or
it is obvious that in prescribing that such deduction shall be
allowed in the case of a ta/payer who does not signify in his
return his desire to have any e/tent benefits of paragraph 1% the
statute assumes that the ta/payer in >uestion may signify his
desire to claim a ta/ credit and waive the deduction? otherwise%
the foreign ta/es would always be deductible and their mention
inthe list on non"deductible items in 'ec. 1*c might as well have
been omitted or at least e/pressly limited to ta/es on income from
sources outside the 0hilippine #slands @ad the law intended that
foreign income ta/es could be deducted from gross income in any
event% regardless of the ta/payerEs right to claim a ta/ credit% it
is the latter right that should be conditioned upon the ta/payerEs
waiving the deduction No danger of double creditGta/ation.o Double
ta/ation becomes obno/ious only where the ta/payer is ta/ed twice
for the benefit of the same governmental entityo The 0hilippine
government only receives the proceeds of one ta/o Justice and
e>uity demand that the ta/ on the income should accrue to the
benefit of the 0hilippineso 4ny relief from the alleged double
ta/ation should come from the &' since the formerEs right to
burden the ta/payer is solely predicated in is citi5enship% without
contributing to the production of wealth that is being ta/edo To
allow an alien resident to deduct from his gross income whatever
ta/es he pays to his own government amounts to conferring on the
latter the power to reduce the ta/ income of the 0hilippine
government simply by increasing the ta/ rates on the alien
resident.37 C(R v. (sa/ela C#lt#ral CorpGR 173%e/r#ar3 1, !!7
%a&ts' #sabelaCultural Corporation(#CC)%
adomesticcorporationreceivedanassessmentnoticefor
deficiencyincometa/ande/pandedwithholdingta/from2#3. #t
arosefromthedisallowance of #CCEs claimed e/pense for professional
and security services paid by #CC? aswell as the alleged
understatement of interest income on the three promissory notes due
from3ealty #nvestment #nc. The deficiency e/panded withholding ta/
was allegedly due to the failureof #CC to withhold L e"withholding
ta/ on its claimed deduction for security services. #CC sought a
reconsideration of the assessments. @aving received a final notice
of assessment%it brought the case to CT4% which held that it is
unappealable% since the finalnotice is not adecision. CT4Esruling
was reversedbyC4%which wassustainedby'C% andcasewasremandedtoCT4.
CT4 renderedadecisioninfavorof #CC. #t ruledthat
thedeductionsforprofessional
andsecurityserviceswereproperlyclaimed% it saidthat evenif
serviceswererendered in 9-) or 9-,% the amount is not yet
determined at that time. @ence it is a properdeduction in 9-+. #t
likewise found that it is the 2#3 which overstate the interest
income% whenit applied compounding absent any stipulation.
0etitioner appealed to C4% which affirmed CT4% hence the petition.
(ss#e' $hether or not the e/penses for professional and security
services are deductible. )el*' No. Cne of the re>uisites for the
deductibility of ordinary and necessary e/penses is that it
musthave been paid or incurred during the ta/able year. This
re>uisite is dependent on the methodof accounting of the
ta/payer. #n the case at bar% #CC is using the accrual method of
accounting.@ence% underthismethod% ane/penseisrecogni5edwhenit
isincurred. &ndera3evenue4udit 6emorandum% when the method of
accounting is accrual% e/penses not being claimed asdeductions by a
ta/payer in the current year when they are incurred cannot be
claimed in thesucceeding year. The accrual of income and e/pense is
permitted when the all"events test has been met.
Thistestre>uiresQ ) fi/ingof aright toincomeor liabilitytopay?
and!) theavailabilityof thereasonable accurate determination of
such income or liability. The test does not demand thatthe amount
of income or liability be known absolutely% only that a ta/payer
has at its disposal theinformation necessary to compute the amount
with reasonable accuracy. 7romthenatureof
theclaimeddeductionsandthespanof timeduringwhichthefirmwasretained%
#CC can be e/pected to have reasonably known the retainer fees
charged by the firm.They cannot give as an e/cuse the delayed
billing% since it could have in>uired into the amountof their
obligation and reasonably determine the amount. 38 Coll v.
)en*erson1 SCRA 649%AC,S'9 'ps. 4rthur @enderson and 6arie
@enderson filed their annual income ta/ with the 2#3. 4rthur is
president of 4merican #nternational &nderwriters for the
0hilippines% #nc.% which is a domestic corporation engaged in the
business of general non"life insurance% and represents a group of
4merican insurance companies engaged in the business of general
non"life insurance.U The 2#3 demanded payment for alleged
deficiency ta/es. #n their computation% the 2#3 included as part of
ta/able incomeQ ) 4rthurEs allowances for rental% residential
e/penses% subsistence% water% electricity and telephone e/penses !)
entrance fee to the 6arikina :un and Country Club which was paid by
his employer for his account and 1) travelling allowance of his
wifeU The ta/payers ;ustifications are as followsQ) as to
allowances for rental and utilities% 4rthur did not receive money
for the allowances. #nstead% the apartment is furnished and paid
for by his employer"corporation (the mother company of 4merican
#nternational)% for the employer corporationEs purposes. The
spouses had no choice but to live in the e/pensive apartment% since
the company used it to entertain guests% to accommodate officials%
and to entertain customers. 4ccording to ta/payers% only 0 )%-**
per year is the reasonable amount that the spouses would be
spending on rental if they were not re>uired to live in those
apartments. Thus% it is the amount they deem is sub;ect to ta/. The
e/cess is to be treated as e/pense of the company.!) The entrance
fee should not be considered income since it is an e/pense of his
employer% and membership therein is merely incidental to his duties
of increasing and sustaining the business of his employer.1) @is
wife merely accompanied him to New Hork on a business trip as his
secretary% and at the employer"corporationEs re>uest% for the
wife to look at details of the plans of a building that his
employer intended to construct. 'uch must not be considered ta/able
income.U The Collector of #nternal 3evenue merely allowed the
entrance fee as nonta/able. The rent e/pense andtravel e/penses
were still held to be ta/able. The Court of Ta/ 4ppeals ruled in
favor of the ta/payers% thatsuch e/penses must not be considered
part of ta/able income. Aetters of the wife while in New Hork
concerning the proposed building were presented as evidence.(SS45'
6+et+er or not t+e rental allo:an&es an* travel allo:an&es
2#rnis+e* an* 1iven /3t+e emplo3er-&orporation are part o2
ta;a/le in&omeuota was included in the sale. 2y virtue of the
purchase% respondents owned one"third each of the undivided portion
of the plantation. 4fter the purchase of the plantation% herein
respondents took over the sugar cane farming on the plantation
beginning with the cropyear 9)-"9)9. 7or the crop year 9)-" 9)9 the
'an Carlos 6illing Co.%Atd. credited the respondents with their
shares in the gross sugar production.The respondents shared
e>ually the e/penses of production% on the basis of their
respectiveone"third undivided portions of the plantation. #n their
individualincome ta/ returns for the year 9)9 the respondents
included as part of their income their respective net profits
derived from their individual sugar production from the 8@acienda
7ortuna%8 as herein"above stated.Cn July % 9)9% the respondents
organi5ed themselves into a general co"partnership under the firm
name 8@acienda 7ortuna8% for the 8production of sugar cane for
conversion into sugar% palay and cornand such other products as may
profitably be produced on said hacienda% which products shall be
sold or otherwise disposed of for the purpose of reali5ing profit
for the partner"ship.8 The articles of general co"partnership were
registered in the commercial register of the officeof the 3egister
of Deeds in 2acolod City% Negros Cccidental% on July )% 9)9.
0aragraph ) of thearticles of general partnership provides that the
agreement shall have retroactive effect as of January% 9)9.(ss#e'
$hether or not respondent operated the K@acienda 7ortunaM as
partnership prior to the e/e"cution of articles of
co"partnership.R#lin1' Hes. 'uffice it to say that the conclusion
of the Court of Ta/ 4ppeals that the respondents operated the
8@acienda 7ortuna8 as a partnership prior to the e/ecution of the
articles of general co"partnership is based on findings of fact%
and $e find no reason in the record to disturb the findings of the
ta/ court on this matter. Cn the contrary% the intention of the
respondents to operate the 8@acienda 7ortuna8 as a partnership%
before July % 9)9% is clearly shown in paragraph ) of the articles
of generalco"partnership which provides that the partnership
agreement 8shall be retroactive as of January % 9)9.8 40-asal v.
C(RGR No. 78133October 18, 1988%AC,S'0etitioners bought two parcels
of land and another 1 parcels the following year. The ! parcelswere
sold in 9+- while the other 1 were sold in 9.*. 3eali5ing profits
from the sale% petitionersfiled capital gains ta/. @owever% they
were assessed with deficiency ta/ for corporate
incometa/es.(SS45'$hether or not petitioners formed an unregistered
partnership thereby assessed withcorporate income
ta/.R4L(NG'2ythecontract of partnership% twoor
morepersonsbindthemselvestocontributemoney% industryor
propertytoacommonfundwiththeintentionof
dividingprofitsamongthemselves. Thereis no evidence though% that
petitioners entered into an agreement tocontribute 60# to a common
fund and that they intend to divide profits among themselves.
Thepetitionerspurchasedparcelsof landandbecameco"ownersthereof.
Their transactionsofsellingthelotswereisolatedcases. Thecharacter
of habitualitypeculiar tothebusinesstransactions for the purpose of
gain was not present.Thesharingof returnsfoesnot initself
establishapartnershipwhether or not thepersons sharing therein have
a ;oint or common right or interest in the property. There must be
aclear intent toformpartnership% thee/istenceof a;uridical
personality different fromtheindividual partners% and the freedom
of each party to transfer or assign the whole property.41./illos v.
C(RGR 6$11$, 139 SCRA 436.&to/er 9, 19$5%a&ts' Cn 6arch !%
9.1 Jose Cbillos% 'r. bought two lots with areas of %!) and 9+1
s>uare meters of located at:reenhills% 'an Juan% 3i5al. The ne/t
day he transferred his rights to his four children% the
petitioners% to enablethem to build their residences. The Torrens
titles issued to them showed that they were co"owners of the
twolots.#n 9.)% or after having held the two lots for more than a
year% the petitioners resold them to the $alled City'ecurities
Corporation and Clga Cru5 Canada for the total sum of 011%*,*. They
derived from the sale a totalprofit of 01)% 1).-- or 011%,-) for
each of them. They treated the profit as a capital gain and paid an
incometa/ on one"half thereof or of 0+%.9!.#n 4pril% 9-*% the
Commissioner of #nternal 3evenue re>uired the four petitioners
to paycorporate incometa/on the total profit of 01)%11+ in addition
to individual income ta/ on their shares thereof. The
petitionersare being held liable for deficiency income ta/es and
penalties totalling 0!.%.-..+ on their profit of 01)%11+% in
addition to the ta/ on capital gains already paid by them.The
Commissioner acted on the theory that the four petitioners had
formed an unregistered partnership or ;ointventure The petitioners
contested the assessments. Two Judges of the Ta/ Court sustained
the same. @ence% theinstant appeal.(ss#e' $hether or not the
petitioners had indeed formed a partnership or ;oint venture and
thus liable for corporate ta/.)el*' The 'upreme Court held that the
petitioners should not be considered to have formed a
partnership;ust becausethey allegedly contributed 0.-%.*-.! to buy
the two lots% resold the same and divided the profit
amongthemselves. To regard so would result in oppressive ta/ation
and confirm the dictum that the power to ta/involves the power to
destroy. That eventuality should be obviated.4s testified by Jose
Cbillos% Jr.% they had no such intention. They were co"owners pure
and simple. To considerthem as partners would obliterate the
distinction between a co"ownership and a partnership. The
petitionerswere not engaged in any ;oint venture by reason of that
isolated transaction.S 4rticle .+9(1) of the Civil Code provides
that 8the sharing of gross returns does not of itself establish a
partnership% whether or not the persons sharing them have a ;oint
or common right or interest in any property from which the returns
are derived8. There must be an unmistakable intention to form a
partnership or ;oint venture.42-+ile; 0inin1 v. C(RGR 14$1$7April
16, !!$%AC,S'0hile/ 6ining Corp. entered into an agreement with
2aguio :old 6ining Co. for the former to manageand operate the
latterEs mining claim% known as the 'to. Nino 6ine. The partiesE
agreement wasdenominated as K0ower of 4ttorneyM which provides
inter aliaQ). $ithin three (1) years from date thereof% the
03#NC#04A (2aguio :old) shall make available tothe 64N4:=3' (0hile/
6ining) up to =A=B=N 6#AA#CN 0='C' (0%***%***.**)% in such amounts
asfrom time to time may be re>uired by the 64N4:=3' within the
said 1"year period% for use in the64N4:=6=NT of the 'TC. N#NC 6#N=.
The said =A=B=N 6#AA#CN 0='C' (0%***%***.**) shall bedeemed% for
internal audit purposes% as the ownerEs account in the 'to. Nino
03CJ=CT. 4ny part of any income of the 03#NC#04A from the 'TC. N#NC
6#N=% which is left with the 'to. Nino 03CJ=CT%shall be added to
such ownerEs account.,. $henever the 64N4:=3' shall deem it
necessary and convenient in connection with the64N4:=6=NT of the
'TC. N#NC 6#N=% they may transfer their own funds or property to
the 'to. Nino03CJ=CT% in accordance with the following
arrangementsQ(a) The properties shall be appraised and%together
with the cash% shall be carried by the 'to.Nino 03CJ=CT as a
special fund to be known as the 64N4:=3'E account.(b) The total of
the 64N4:=3'E account shall not e/ceed 0%***%***.**% e/cept with
priorapproval of the 03#NC#04A? provided% however% that if the
compensation of the 64N4:=3' as hereinprovided cannot be paid in
cash from the 'to. Nino 03CJ=CT% the amount not so paid in cash
shallbeadded to the 64N4:=3'E account.(c) The cash and property
shall not thereafter be withdrawn from the 'to. Nino 03CJ=CT
untiltermination of this 4gency.(d) The 64N4:=3'E account shall not
accrue interest. 'ince it is the desire of the 03#NC#04A toe/tend
to the 64N4:=3' the benefit of subse>uent appreciation of
property% upon a pro;ectedtermination of this 4gency% the ratio
which the 64N4:=3'E account has to the ownerEs account willbe
determined% and the corresponding proportion of the entire assets
of the 'TC. N#NC 6#N=%e/cluding the claims% shall be transferred to
the 64N4:=3'% e/cept that such transferred assetsshall not include
mine development% roads% buildings% and similar property which will
be valueless% orof slight value% to the 64N4:=3'. The 64N4:=3' can%
on the other hand% re>uire at their optionthat property
originally transferred by them to the 'to. Nino 03CJ=CT be
re"transferred to them. &ntilsuch assets are transferred to the
64N4:=3'% this 4gency shall remain subsisting./ / / /!. The
compensation of the 64N4:=3 shall be fifty per cent (,*L) of the
net profit of the 'to.Nino 03CJ=CT before income ta/. #t is
understood that the 64N4:=3' shall pay income ta/ on
theircompensation% while the 03#NC#04A shall pay income ta/ on the
net profit of the 'to. Nino 03CJ=CTafter deduction therefrom of the
64N4:=3'E compensation.0hile/ 6ining made advances of cash and
property in accordance with paragraph , of theagreement. @owever%
the mine suffered continuing losses over the years which resulted
to 0hile/6iningEs withdrawal as manager of the mine and in the
eventual cessation of mine operations. The parties e/ecuted a
KCompromise with Dation in 0aymentM wherein 2aguio :old admitted
anindebtedness to petitioner in the amount of 0.9%19)%***.** and
agreed to pay the same in threesegments by first assigning 2aguio
:oldEs tangible assets to 0hile/ 6ining% transferring to the
latter2aguio :oldEs e>uitable title in its 0hilodrill assets and
finally settling the remaining liability throughproperties that
2aguio :old may ac>uire in the future. The parties e/ecuted an
K4mendment to Compromise with Dation in 0aymentM where the
partiesdetermined that 2aguio :oldEs indebtedness to petitioner
actually amounted to 0!,9%1.%!),.**%which sum included liabilities
of 2aguio :old to other creditors that petitioner had assumed
asguarantor. These liabilities pertained to long"term loans
amounting to &'(%***%***.** contracted by 2aguio :old from the
2ank of 4merica NT F '4 and Citibank N.4. This time% 2aguio
:oldundertook to pay petitioner in two segments by first assigning
its tangible assets for0!.%-1-%*,.** and then transferring its
e>uitable title in its 0hilodrill assets for 0+%1*!%)!+.**. The
parties then ascertained that 2aguio :old had a remaining
outstanding indebtedness topetitioner in the amount of
0)%99+%.+-.**.0hile/ 6ining wrote off in its 9-! books of account
the remaining outstanding indebtedness of 2aguio :old by charging
0!%1+%***.** to allowances and reserves that were set up in 9-
and0!%-+*%.+-.** to the 9-! operations.#n its 9-! annual income ta/
return% 0hile/ 6ining deducted from its gross income the amount of
0!%1+%***.** as Kloss on settlement of receivables from 2aguio :old
against reserves andallowances.M @owever% the 2#3 disallowed the
amount as deduction for bad debt and assessedpetitioner a
deficiency income ta/ of 0+!%-%+.19. 0hile/ 6ining protested before
the 2#3 arguingthat the deduction must be allowed since all
re>uisites for a bad debt deduction were satisfied% towitQ (a)
there was a valid and e/isting debt? (b) the debt was ascertained
to be worthless? and (c) itwas charged off within the ta/able year
when it was determined to be worthless. 2#3 deniedpetitionerEs
protest. #t held that the alleged debt was not ascertained to be
worthless since 2aguio:old remained e/isting and had not filed a
petition for bankruptcy? and that the deduction did notconsist of a
valid and subsisting debt considering that% under the management
contract% petitionerwas to be paid ,*L of the pro;ectEs net
profit.(SS45' $CN the parties entered into a contract of agency
coupled with an interest which is notrevocable at will)5LD' No. 4n
e/amination of the K0ower of 4ttorneyM reveals that a partnership
or ;oint venture wasindeed intended by the parties.#n an agency
coupled with interest% it is the agency that cannot be revoked or
withdrawn by theprincipal due to an interest of a third party that
depends upon it% or the mutual interest of bothprincipal and agent.
#n this case% the non"revocation or non"withdrawal under paragraph
,(c) appliesto the advances made by petitioner who is supposedly
the agent and not the principal under thecontract. Thus% it cannot
be inferred from the stipulation that the partiesE relation under
theagreement is one of agency coupled with an interestand not a
partnership.Neither can paragraph + of the agreement be taken as an
indication that the relationship of theparties was one of agency
and not a partnership. 4lthough the said provision states that
Kthis4gency shall be irrevocable while any obligation of the
03#NC#04A in favor of the 64N4:=3' isoutstanding% inclusive of the
64N4:=3'E account%M it does not necessarily follow that the
partiesentered into an agency contract coupled with an interest
that cannot be withdrawn by 2aguio :old. The main ob;ect of the
K0ower of 4ttorneyM was not to confer a power in favor of
petitioner tocontract with third persons on behalf of 2aguio :old
but to create a business relationship betweenpetitioner and 2aguio
:old% in which the former was to manage and operate the latterEs
minethrough the partiesE mutual contribution of material resources
and industry. The essence of anagency% even one that is coupled
with interest% is the agentEs ability to represent his principal
andbring about business relations between the latter and third
persons. The strongest indication that petitioner was a partner in
the 'to. Nino 6ine is the fact that it wouldreceive ,*L of the net
profits as KcompensationM under paragraph ! of the agreement.
Theentirety of the partiesEcontractual stipulations simply leads to
no other conclusion than thatpetitionerEs KcompensationM is
actually its share in the income of the ;oint venture. 4rticle .+9
()) of the Civil Code e/plicitly provides that the Kreceipt by a
person of a share in the profits of a businessis prima facie
evidence that he is a partner in the business.43A/ra =alle3
Colle1e, (n&. v. A>#inoG.R. No. L-39!$6% 16 SCRA 1!6"#ne 15,
19$$%a&ts' 0etitioner% an educational corporation and
institution of higher learning duly incorporated withthe 'ecurities
and =/change Commission in 9)-% filed a complaint to annul and
declare void the KNoticeof 'ei5ureE and the KNotice of 'aleM of its
lot and building located at 2angued% 4bra% for non"payment ofreal
estateta/es andpenaltiesamountingto0,%)*.1. 'aidKNoticeof 'ei5ureM
byrespondents6unicipalTreasurer and 0rovincialTreasurer% defendants
below% was issued for the satisfaction of thesaid ta/es thereon.The
parties entered into a stipulation of facts adopted and embodied by
the trial court in its >uestioneddecision. The trial court ruled
for the government% holding that the second floor of the building
is beingusedbythedirectorforresidential purposesandthat
thegroundfloorusedandrentedbyNorthern6arketing Corporation% a
commercial establishment% and thus the property is not being used
e/clusivelyforeducational purposes. #nsteadofperfectinganappeal%
petitioneravailedoftheinstant petitionforreview on certiorari with
prayer for preliminary in;unction before the 'upreme Court% by
filing said petitionon . 4ugust 9.).(ss#e' whether or not the lot
and building are used e/clusively for educational
purposes)el*''ection!!% paragraph1%4rticleB#% of
thethen91,0hilippineConstitution% e/presslygrantse/emption from
realty ta/es for cemeteries% churches and parsonages or convents
appurtenant thereto%andall lands% buildings%
andimprovementsusede/clusivelyfor religious% charitableor
educationalpurposes. 3easonable emphasis has always been made that
the e/emption e/tends to facilities whichare incidental to and
reasonably necessary for the accomplishment of the main purposes.
The use of theschool building or lot for commercial purposes is
neither contemplated by law% nor by ;urisprudence. #n thecase at
bar% the lease of the first floor of the building to the Northern
6arketing Corporation cannot by anystretch of the imagination be
considered incidentalto the purpose of education. The test of
e/emptionfrom ta/ation is the use of the property for purposes
mentioned in the Constitution.The decision of the C7# 4bra (2ranch
#) is affirmed sub;ect to the modification that half of the
assessed ta/be returned to the petitioner. The modification is
derived from the fact that the ground floor is being usedfor
commercial purposes (leased) and the second floor being used as
incidental to education (residenceof the director).44N.=. Ree*eri2
Amster*am v. C(RGR 46!9"#ne 3, 19$$%AC,S'U 2oth vessels of
petitioner N.B. 3eederi; K4msterdamM called on 0hilippine ports to
load cargoes for foreign destinations.U The freight fees for these
transactions were paid in abroad. #n these two transactions%
petition 3oyal #nterocean Aines acted as husbanding agent for a fee
or commission on said vessels. No income ta/ has been paid by
K4msterdamM on the freight receipts.U 4s a result% Commissioner of
#nternal 3evenue filed the corresponding income ta/ returns for the
petitioner. Commissioner assessed petitioner for deficiency of
income ta/% as a non"resident foreign corporation NCT engaged in
trade or business.U Cn the assumption that the said petitioner is a
foreign corporation engaged in trade or business in the
0hilippines% petitioner 3oyal #nterocean Aines filed an income ta/
return of the aforementioned vessels and paid the ta/ in pursuant
to their supposed classification.U Cn the same date% petitioner
3oyal #nterocean Aines% as the husbanding agent of K4msterdamM%
filed a written protest against the abovementioned assessment made
by the respondent Commissioner. The protest was denied.U Cn appeal%
CT4 modified the assessment by eliminating the ,*L fraud compromise
penalties imposed upon petitioners. 0etitioner still was not
satisfied and decided to appeal to the 'C.(SS45' 6+et+er or not
N.=. Ree*eri? @Amster*amA s+o#l* /e ta;e* as a 2orei1n
&orporation not en1a1e* in tra*e or /#siness in t+e
-+ilippinesuivalent to at least!*percentagepoints sparedor waived
as otherwise consideredor deemedpaidbythe:overnment. @erein% the
claimant failed to show or ;ustify the ta/ return of the disputed
,L asit failed to show the actual amount credited by never be
allowed to ;eopardi5e the governmentEsfinancial position. The
submission of the Commissioner that 06C 0hilippines is but
awithholdingagent of thegovernment andthereforecannot
claimreimbursement of allegedoverpaid ta/es is completely
meritorious. The real party in interest is 06C"&'4% which
shouldprove that it is entitled under the &' Ta/ Code to a
&' 7oreign Ta/ Credit e>uivalent to at
least!*percentagepoints sparedor waived as otherwise consideredor
deemedpaidbythe:overnment. @erein% the claimant failed to show or
;ustify the ta/ return of the disputed ,L asit failed to show the
actual amount credited by the &' :overnment against the income
ta/ duefrom06C"&'4 onthedividendsreceivedfrom06C0hilippines?
topresent theincometa/return of 06C"&'4 for 9., when the
dividends were received? and to submit dulyauthenticated document
showing that the &' government credited teh !*L ta/ deemed paid
inthe0hilippines. The&':overnment against
theincometa/duefrom06C"&'4onthedividendsreceivedfrom06C0hilippines?
topresent theincometa/returnof 06C"&'4 for9., when the
dividends were received? and to submit duly authenticated document
showingthat the &' government credited teh !*L ta/ deemed paid
in the 0hilippines.51C3nami* -+ils (n&. v. CAG.R. No.
108067January 20, 2000%AC,S'0etitioner% Cyanamid 0hilippines% #nc.%
a corporation organi5ed under 0hilippine laws% is a
whollyownedsubsidiary of 4mericanCyanamidCo. basedin6aine% &'4.
#t isengagedinthemanufactureof pharmaceutical productsandchemicals%
awholesaler of importedfinishedgoods% and an importerGindentor. Cn
7ebruary .% 9-,% the C#3 sent an assessment letter topetitioner
anddemandedthepayment of deficiency incometa/ of
onehundrednineteenthousandeight hundredseventeen(09%-..**) pesos
for ta/able year 9-. 0etitionerclaimed that C#3Es assessment
representing the !,L surta/ on its accumulated earnings for theyear
9- had no legal basis. @ence the petition. (SS45'$GN 0=T#T#CN=3 #'
A#42A= 7C3 T@= 4CC&6&A4T=D =43N#N:' T4J 7C3 T@=H=43
9-)5LD'The Ta/Courtopted to determinetheworkingcapital sufficiency
by using the ratio betweencurrent assets to current liabilities.
The working capital needs of a business depend upon thenature of
the business% its credit policies%the amount of inventories% the
rate of turnover% theamount of accounts receivable% the collection
rate% the availability of credit to the business% andsimilar
factors. 0etitioner% by adhering to the 82ardahl8 formula% failed
to impress the ta/ courtwith the re>uired definiteness
envisioned by the statute. $e agree with the ta/ court that
theburden of proof to establish that the profits accumulated were
not beyond the reasonable needsof the company% remained on the
ta/payer. $ith petitionerEs failure to prove the C#3
incorrect%clearly and conclusively% this Court is constrained to
uphold the correctness of ta/ courtEs rulingas affirmed by the
Court of 4ppeals.52E0CA, C(R v. CA:.3. No. !)*)1Cctober )%
99-%a&ts' The main >uestion in this case isQ Kis the income
derived from rentals of real property owned
byHoung6enEsChristian4ssociationof the0hilippines(H6C4)
NestablishedasKawelfare%educational and charitable non"profit
corporationM N sub;ect to income ta/ under the N#3C andthe
ConstitutionT #n 9-*% H6C4 earned an income of 0+.+%-!9 from
leasing out a portion of itspremises to small shop owners% like
restaurants and canteen operators and 0))k form parkingfees. (ss#e'
#s the rental income of the H6C4 ta/ableT )el*' Hes. The e/emption
claimed by the H6C4 is e/pressly disallowed by the very wording of
thelast paragraph of then 'ec. !. of the N#3C? court is duty"bound
to abide strictly by its
literalmeaningandtorefrainfromresortingtoanyconvolutedattempt at
construction. Thesaidprovision mandates that the income of e/empt
organi5ations (such as H6C4) from any of theirproperties% real or
personal% be sub;ect to the ta/ imposed by the same Code.
0rivaterespondent is e/empt from the payment of property ta/% but
nit income ta/ on rentals from itsproperty.53-LD, v. C(R :3
,.!+)January 1% !**-%AC,S'0ADT terminated and compensated affected
employees in compliance with labor lawre>uirements. #t deducted
from separation pay withholding ta/es and remitted the same to
2#3.#n 99.% it filed a claim for ta/ refund and CT4 contended that
petitioner failed to show proof ofpayment of
separationpayandremittanceof theallegedwithheldta/es. C4
dismissedthesame and 0ADT assailed the decision arguing against the
need for proof that the employeesreceived their separation pay and
proffers actually received by terminated employees.(SS45' $hether
or not the withholding ta/es remitted to the 2#3 should be refunded
for havingbeen erroneously withheld and paid to the
latter.)5LD'Ta/refunds% liketa/e/emptions%
areconsideredstrictlyagainst theta/payer andliberally in favor of
the ta/ing authority% and the ta/payer bears the burden of
establishing thefactual basis of his claim for a refund. 4 ta/payer
must do two things to be able to successfullymake a claim for ta/
refundQ a) declare the income payments it received as part of its
grossincomeandb)establishthefact of withholding.4t all events%
theallegednewlydiscoveredevidence that 0ADT seeks to offer does not
suffice to established its claim for refund as it wouldstill have
to comply with 3evenue 3egulation +"-, by proving that the
redundant employees onwhose behalf it filed the claim for refund%
declared the separation pay received as part of theirgross income.
The same 3evenue 3egulation re>uired that the facts of
withholding isestablishedbyacopyof thestatement
dulyissuedbythepayor tothepayeeshowingtheamount paid and the amount
of ta/ withhold therefrom.54Atlas Consoli*ate* 0inin1 v. C(R:3 Nos.
)*) F )-.+1June -% !**.%AC,S'0etitionercorporation%
aB4T"registeredta/payerengagedinmining% production%
andsaleofvarious mineral products% filed claims with the 2#3 for
refundGcredit of input B4T on its purchasesof capital goods and on
its 5ero"rated sales in the ta/able >uarters of the years 99*
and 99!.2#3 did not immediately act on the matter prompting the
petitioner to file a petition for reviewbefore the CT4. The latter
denied the claims on the grounds that for 5ero"rating to apply% .*L
ofthe companyuarterly B4T return% and that sales to 04'43 and
0@#A0C' inside the =0X4 areta/edas e/portsbecausethesee/port
processing 5ones areto be managedas
aseparatecustomsterritoryfromtherest of the0hilippines% andthus%
forta/purposes% areeffectivelyconsidered as foreign territory% it
still denies the claims of petitioner corporation for refund of
itsinput B4T on its purchases of capital goods and effectively
5ero"rated sales during the periodclaimedfornot
beingestablishedandsubstantiatedbyappropriateandsufficient
evidence. Ta/ refunds are in the nature of ta/ e/emptions.#t is
regarded as in derogation of the sovereignauthority% and should be
construed in strictissimi ;uris against the person or entity
claiming thee/emption.The ta/payer who claims for e/emption must
;ustify his claim by the clearest grantof organic or statute law
and should not be permitted to stand on vague implications.
55A1#inal*o v. C(R:.3. No. A"!9.9* 7ebruary !,% 9-!%a&ts'
4guinaldo#ndustriesisengagedinthemanufactureof
fishingnets(ata/e/empt industry)%which is handled by its 7ish Nets
Division. #t is also engaged in the manufacture of furniturewhich
isoperated byits7urnitureDivision.=ach divisionis provided
withseparate booksofaccounts. Theincomefromthe7ishNetsDivision%
miscellaneousincomeof the7ishNetsDivision% and and the income from
the 7urniture Division are computed individually. 0etitioner
ac>uired a parcelof land in 6untinlupa 3i5alas site for its
fishing net factory. Thetransactionwasenteredinthebooksof
the7ishNetsDivision. Thecompanythenfoundanother parcel of
landin6arikina@eights% whichwas moresuitable.
Theythensoldthe6untinlupa property and the profit derived from the
sale was entered in the books of the 7ishNets Division as
miscellaneous income to separate it from its ta/ e/empt income. CT4
imposed a ,L surcharge and L monthly interest for the deficiency
assessment. 0etitionerthen stressed that the profit derived from
the sale of the land is not ta/able because the 7ishNets Div en;oys
ta/ e/emption under 34 9*. (ss#eQ $hether petitioner is liable for
surcharge and interest for late payment. )el*Q H='. #nterest and
surcharges on deficiency ta/es are imposable upon failure of the
ta/payer topaytheta/onthedatefi/edinthelawfor thepayment thereof%
whichwas% under theunamended 'ection , of the Ta/ Code% the ,th day
of the ,th month following the close of thefiscal year in the case
of ta/payers whose ta/ returns were made on the basis of fiscal
years. 4deficiency ta/ indicates non"payment of the correct ta/%
and such deficiency e/ists not only fromthe assessment thereof but
from the very time the ta/payer failed to pay the correct amount
ofta/ when it should have been paid and the imposition thereof is
mandatory even in the absenceof fraud or willful failure to pay the
ta/ is full. 56C(R v. (sa/ela C#lt#ral Corp. Frepeate*GGR
173%e/r#ar3 1, !!7 %a&ts' #sabelaCultural Corporation(#CC)%
adomesticcorporationreceivedanassessmentnoticefor
deficiencyincometa/ande/pandedwithholdingta/from2#3. #t
arosefromthedisallowance of #CCEs claimed e/pense for professional
and security services paid by #CC? aswell as the alleged
understatement of interest income on the three promissory notes due
from3ealty #nvestment #nc. The deficiency e/panded withholding ta/
was allegedly due to the failureof #CC to withhold L e"withholding
ta/ on its claimed deduction for security services. #CC sought a
reconsideration of the assessments. @aving received a final notice
of assessment%it brought the case to CT4% which held that it is
unappealable% since the finalnotice is not adecision. CT4Esruling
was reversedbyC4%which wassustainedby'C% andcasewasremandedtoCT4.
CT4 renderedadecisioninfavorof #CC. #t ruledthat
thedeductionsforprofessional
andsecurityserviceswereproperlyclaimed% it saidthat evenif
serviceswererendered in 9-) or 9-,% the amount is not yet
determined at that time. @ence it is a properdeduction in 9-+. #t
likewise found that it is the 2#3 which overstate the interest
income% whenit applied compounding absent any stipulation.
0etitioner appealed to C4% which affirmed CT4% hence the petition.
(ss#e' $hether or not the e/penses for professional and security
services are deductible. )el*' No. Cne of the re>uisites for the
deductibility of ordinary and necessary e/penses is that it
musthave been paid or incurred during the ta/able year. This
re>uisite is dependent on the methodof accounting of the
ta/payer. #n the case at bar% #CC is using the accrual method of
accounting.@ence% underthismethod% ane/penseisrecogni5edwhenit
isincurred. &ndera3evenue4udit 6emorandum% when the method of
accounting is accrual% e/penses not being claimed asdeductions by a
ta/payer in the current year when they are incurred cannot be
claimed in thesucceeding year. The accrual of income and e/pense is
permitted when the all"events test has been met.
Thistestre>uiresQ ) fi/ingof aright toincomeor liabilitytopay?
and!) theavailabilityof thereasonable accurate determination of
such income or liability. The test does not demand thatthe amount
of income or liability be known absolutely% only that a ta/payer
has at its disposal theinformation necessary to compute the amount
with reasonable accuracy. 7romthenatureof
theclaimeddeductionsandthespanof timeduringwhichthefirmwasretained%
#CC can be e/pected to have reasonably known the retainer fees
charged by the firm.They cannot give as an e/cuse the delayed
billing% since it could have in>uired into the amountof their
obligation and reasonably determine the amount. 575sso Stan*ar*
5astern v. C(R :3 !-,*-"9July .% 9-9%a&ts'=''C deducted from
its gross income for 9,9% as part of its ordinary and necessary
businesse/penses%the amount it had spent for drilling and
e/ploration of its petroleum conscessions.The Commissioner
disallowed the claim on the ground that the e/penses should be
capitali5edand might be written off as a loss only when a Kdry
holeM should result. @ence% =''C filed anamended return where it
asked for the refund of 01!1%!.* by reason of its abandonment% as
dryholes% of several of its oil wells. #t also claimed as ordinary
and necessary e/penses in the samereturn amount representing margin
fees it had paid to the Central 2ank on its profit remittancesto
its New Hork Cffice.(ss#e'$hether the marginfeesmay be considered
ordinary and necessary e/penses whenpaid.)el*'7or
anitemtobedeductibleasabusinesse/pense% thee/pensemust
ebeordinaryandnecessary? it must be paid or incurred within the
ta/able year? and it must be paid or incurred incarrying on a trade
or business. #n addition% the ta/payer must substantially prove by
evidenceor records the deductions claimed under law% otherwise% the
same will be disallowed. There hasbeen noattempt todefine Kordinary
and necessaryM with precision. @owever% as guidingprinciple in the
proper ad;udication of conflicting claims% an e/penses is
considered necessarywhere the e/penditure is appropriate and
helpdul in the development of the ta/payerEs
business.#tisordinarywhen it connotesapaymentwhich is normalin
relationtothe business oftheta/payer
andthesurroundingcircumstances.4ssumingthat
thee/penditureisordinaryandnecessaryintheoperationof
theta/payerEsbusiness? thee/penditure% tobeanallowablededuction as
a business e/pense% must be determined from the nature of the
e/penditure itself%and on the e/tent and permanency of the work
accomplished by the e/penditure. @erein% =''Chas not shownthat
theremittancetotheheadofficeof part of itsprofitswas
madeinfurtheranceof itsowntradeor business. Thepetitioner
merelypresumedthat all corporatee/penses are necessary and
appropriate in the absence of a showing that they are
illegalorultra vires? which is erroneous. Claims for deductions are
a matter of legislative grace and donot turn on mere e>uitable
considerations.58%5C,C v. CA, C,A B C(R :3 No. !91*December 9%
!**,%AC,S'0etitioner is a domestic banking corporation duly
organi5ed and e/isting under and byvirtue of 0hilippine laws. #n
the early part of 99!% the Cavite Development 2ank OCD2P%also a
domestic banking corporation% was merged with 0etitioner with the
latter as itssurviving entity OunderP the merger. 0etitioner being
the surviving entityO% itP ac>uired allOtheP assetsof CD2.
Duringtheperiodfrom99*to99%
CD2soldsomeac>uiredassetsinthecourseof whichit
allegedlywithheldthecreditableta/fromthesalesproceeds which
amounted to 0.,,%.,.**.
Thus% petitioner% being the surviving entity of the merger%
filed this 0etition for 3eviewafter its administrative claim for
refund was not acted upon.(SS45' $hether petitioner adduced
sufficient evidence to prove its entitlement to a refund)5LD'4
ta/payer must thus do two things to be able to successfully make a
claim for the ta/ refundQ(a) declare the income payments it
received as part of its gross income and (b) establish thefact of
withholding. 0etitioner relies heavily on the confirmation receipts
with the correspondingofficial receipts andpayment orders tosupport
its case. 'tanding alone% however% thesedocumentsonlyestablishthat
CD2withheldcertainamountsin99*and99. #t doesnotfollowthat the
payments reflected in the confirmation receipts relate to the
creditablewithholdingta/esarisingfromthesaleof
theac>uiredproperties. Theclaimthat CD2hade/cess creditable
withholding ta/es can only be upheld if it were clearly and
positively shownthat the amounts on the various confirmation
receipts were the amounts withheld by virtue of thesale of the
ac>uired assets. 59C(R v. General %oo*sG.R. No. 143672April 24,
2003 %AC,S'The records revealthat%on June)%9-,% respondent
corporation% whichis engaged in themanufacture of beverages such as
KTang%M KCalumetM and KDool"4id%M filed its income ta/ returnfor
the fiscal year ending 7ebruary !-% 9-,.#n said ta/ return%
respondent corporation claimedas deduction% among other business
e/penses% the amount of 09%)+%!)+ for media advertisingfor
KTang.MCn 6ay 1% 9--% the Commissioner disallowed ,*L or 0)%.1*%+!1
of the deduction claimed byrespondent corporation. Conse>uently%
respondent corporation was assessed deficiency incometa/esin the
amountof0!%+1,% ).)!.The latter filed a motion for reconsideration
butthesame was denied.Cn 'eptember !9% 9-9% respondent
corporationappealed to the Court of Ta/ 4ppeals but theappeal was
dismissed(SS45'$GNthe sub;ect media advertising e/pense for KTangM
incurred by respondentcorporation was an ordinary and necessary
e/pense fully deductible under the National #nternal3evenue Code
(N#3C) )5LD'$e find the sub;ect e/pense for the advertisement of a
single product to be inordinately large.Therefore% evenif it
isnecessary%it cannot beconsideredanordinarye/pensedeductibleunder
then 'ection !9 (a) () (4) of the N#3C.4ccordingly% we find that
the Court of 4ppeals committed reversible error when it declared
thesub;ect media advertising e/pense to be deductible as an
ordinary and necessary e/pense onthegroundthat Kit hasnot
beenestablishedthat theitembeingclaimedasdeductionise/cessive.M #t
is not incumbent upon the ta/ing authority to prove that the amount
of items beingclaimed is unreasonable. The burden of proof to
establish the validity of claimed deductions ison the ta/payer.!O)P
#n the present case% that burden was not discharged
satisfactorily.60C(R v. Le*ni&73:3 A"-+9% A"-!-+% A"!)1)July 1%
9+)2%a&ts''pouses B= and 6aria Balero Aednicky are 4merican
citi5ens residing in the 0hilippines% andhave derived all their
income from 0hilippine sources since 9).. #n 9,,% the spouses filed
withthe &' #nternal 3evenue agent in 6anila their 7ederal
income ta/ return for 9).% 9, to 9,)onincomefrom0hilippinesources.
7rom9,+to9,-% theyfiledtheirdomesicincometa/returns in compliance
with local laws. They amended their ta/ returns in 9,9 to include
theirta/es paid to the &' 7ederal:overnment% interests% and
e/change and bank charges. Theyfiled their claims for
refund.(ss#e'$hether income ta/ paid to foreign governments can be
deducted from the gross income or asa ta/ credit.)el*'The lawEs
intent is that the right to deduct income ta/es paid to foreign
government from theta/payerEs gross income is given only as an
alternative or substitute to his right to claim a ta/credit for
sich foreign income ta/es? so that unless the alien resident has a
right to claim suchta/ credit if he so chooses% he is precluded
from deducting the foreign income ta/es from hisgross income. The
prupose of the law is to prevent the ta/payer from claiming twice
the benefitsof his payment of foreign ta/es% by deduction from
gross income and by ta/ credit. To allow analien resident to deduct
from his gross income whatever ta/es he pays to his own
governmentamounts to confer on the latter power to reduce the ta/
income of the 0hilippine :overnment.'uch result is incompatible
with the status of the 0hilippines as an independent and
sovereignstate. 4ny relief from the alleged double ta/ation should
come from the &nited 'tates% since itsright to burden the
ta/payer is solely predicated on the ta/payerEs citi5enship%
withoutcontributing to the production of the wealth that is being
ta/ed.61C(R v. Central L#Hon Dr#1 Corp.:.3. No. )-,!June !+%
!**+%AC,S' 3espondentis a domestic corporation primarily engaged in
retailing of medicines andother pharmaceutical products. #n 99+% it
operated si/ (+) drugstores under thebusiness name and style
V6ercury Drug.E 7rom January to December 99+% respondentgranted
twenty (!*L) percent sales discount to >ualified senior citi5ens
on theirpurchases of medicines pursuant to 3epublic 4ct No. O3.4.P
.)1! and its #mplementing3ules and 3egulations.7or the said period%
the amount allegedly representing the !*Lsales discount granted by
respondent to >ualified senior citi5ens totaled 09*)%.+9.**.Cn
4pril ,% 99.% respondent filed its 4nnual #ncome Ta/ 3eturn for
ta/able year 99+declaring therein that it incurred net losses from
its operations.Cn January +% 99-% respondent filed with petitioner
a claim for ta/ refundGcredit in theamount of09*)%.+9.**allegedly
arising fromthe!*Lsales discount grantedbyrespondent to
>ualified senior citi5ens in compliance with O3.4.P
.)1!.&nable to obtainaffirmative response from petitioner%
respondent elevated its claim to the Court of Ta/4ppeals O(CT4 or
Ta/ Court)P via a 0etition for 3eview.(SS45' $hether respondent may
claim the !*L sales discount as a ta/ credit instead ofas a
deduction from gross income or gross sales)5LD''ection )a) of 34
.)1! grants to senior citi5ens the privilege of obtaining a !*
percentdiscounton their purchase of medicine from any private
establishmentin the country.The latter may then claim the cost of
the discount as a tax credit.2ut can such credit beclaimed% even
though an establishment operates at a loss. 'ections !.iand ) of
3evenue 3egulations No. (33) !"9) define tax creditas the !*percent
discount deductible from gross incomefor income taxpurposes% or
from grosssales for B4T or other percentage ta/ purposes.#n effect%
the tax credit benefit under 34.)1! is related to a sales
discount.This contrived definition is improper% considering thatthe
latter has to be deducted from gross sales in order to compute the
gross income inthe income statementand cannot be deducted again%
even for purposes of computingthe income tax.62-+ile; 0inin1 v. C(R
:3 No. !,.*)4ugust !-% 99-%AC,S' 0etitioner 0hile/ 6ining Corp.
assails the decision of the Court of 4ppeals affirming the Court
ofTa/ 4ppeals decision ordering it to pay the amount of 0*.. 6 as
e/cise ta/ liability for theperiod from the !nd >uarter of 99 to
the !nd >uarter of 99! plus !*L annual interest from99) until
fully paid pursuant to 'ections !)- and !)9 of the Ta/ Code of 9...
0hile/ protestedthe demand for paymentoftheta/ liabilities stating
thatit has pending claims for B4T inputcreditGrefund for theta/es
it paid for theyears 9-9to99 in theamountof 0!* 6 plusinterest.
Therefore these claims for ta/ creditGrefund should be applied
against the ta/ liabilities.(SS45' Can there be an off"setting
between the ta/ liabilities vis"a"vis claims of ta/ refund of
thepetitionerT)5LD'No. 0hile/