ALHAMBRA CIGAR and CIGARETTE MANUFACTURING COMPANY vs CIR (1967)

Facts:
The petitioner Alhambra Cigar have been paying A. P. Kuenzle and H.A.Streiff, non
resident aliens, who were its President and Vice-President respectively, their
salaries, officers; bonus, officers; commissions to managers
and
directors' fees
.Such were always claimed by the petitioner as ordinary expenses to be deducted from its gross
receipts for the purposes of Income Taxation. However, time has come that the CIR reduced the
amount thereof base on the sums paid to Mr. W. Eggmann, the residentTreasurer and Manager
Alhambra. Under the category of
salaries, officers
of the fixed annual compensation of A. P. Kuenzle and H. A. Streiff in the amount of P15,000.00
each the CIR allowed for each of them a salary of only P6,000.00 and disallowed the balance of
P9,000.00, or a total disallowance of P18,00.0,0 for both of them, for each of the years in
question. Under that of the
bonus, officers
of the amount under such category paid to the above gentlemen is P14,750.00 each, the CIR
allowed each of them a bonus of onlyP5,850.00, and disallowed the balance of P8,900.00 for
both of them for each year in question. As to the deduction in the concept of
commissions to managers
, the commissions paid by the petitioner-appellant to A. P. Kuenzle and H. A. Streiff for both of
them, were entirely disallowed by the CIR. Concerning the
directors' fees
paid to both officials by Alhambra, were also entirely disallowed by the CIR.
ISSUE: Whether or not such reduction and disallowances are just and reasonable.
Considering the nature of the services performed by Messrs. Kuenzle and Streiffthe salary of
P6,000.00 paid to each of them was reasonable and, therefore, deductions is ordinary and
necessary business expense. The bonus paid to each of said officers which were reduced to the
amount equivalent to that paid to Mr. W. Eggmann, the resident Treasurer and Manager of
Alhambra is also sound according to the factual milieu of this case. We agree with t
he Tax Court that
Upon the evidence of record, we find no justification to reverse or modify the decision of CIR
with respect to the disallowance of a portion of the salaries and bonuses paid to Messrs. Kuenzle
and Streiff. Alhambra seeks to justify the increase in the salaries of Messrs. Kuenzle and Streiff
on the ground of increased costs of living. The said officers of Alhambra are, however, nonresidents of the Philippines."

Republic

of

the

Philippines

Patanao

GR

No

L-22356,

July

21,

1967

FACTS:
Defendant was the holder of an ordinary timber license with concession at Esperanza, Agusan. The defendant failed
to file income tax returns for 1953 and 1954 and although he filed income tax returns for 1951, 1952, and 1955, the
same were false and fraudulent because he did not report substantial income earned by him from his business. He
was acquitted by the lower court. But, the Deputy Commissioner of Internal Revenue contends that the assessment
for the payment of the taxes in question has become final because it was not appealed.
ISSUE:
Whether

the

action

is

barred

by

prior

judgment,

defendant

having

been

acquitted

RULING:
No. Under the Penal Code the civil liability is incurred by reason of the offenders criminal act. The situation under the
income tax law is the exact opposite. Civil liability to pay taxes arises from the fact that one has engaged himself in
business and not because of any criminal act committed by him. The acquittal in the said criminal case cannot
operate to discharge defendant from the duty of paying the taxes which the law requires to be paid, since that duty is
imposed by statute prior to and independently of any attempts by the taxpayer to evade payment.