Hydro Resources Contractors Corporation v CTA

Facts:

National Irrigation Administration (NIA) entered into an agreement with Hydro Resources for the
construction of the Magat River Multipurpose Project in Isabela. Under their contract, Hydro was allowed to
procure new construction equipment, the payment for which will be advanced by NIA. Hydro shall repay
NIA the costs incurred and the manner of repayment shall be through deductions from each monthly
payment due to Hydro. Hydro shall repay NIA the full value of the construction before the eventual transfer
of ownership.

Upon transfer, Hydro was assessed an additional 3% ad valorem duty which it paid under protest. The
Collector of Customs then ordered for the refund of the ad valorem duty in the form of tax credit. This was
then reversed by the Deputy Minister of Finance.

Issue:

Whether or not the imposition of the 3% ad valorem tax on importations is valid.

Held:

No. EO 860 which was the basis for the imposition of the ad valorem duty took effect December 1982. The
importations were effected in 1978 and 1979 by NIA. It is a cardinal rule that laws shall have no retroactive
effect unless contrary is provided. EO 860 does not provide for its retroactivity. The Deputy Minister of
Finance even clarified that letters of credit opened prior to the effectivity of EO 860 are not subject to its
provisions.

In the case, the procurement of the equipment was not on a tax exempt basis as the import liabilities have
been secured to paid under a financial scheme. It is a matter of implementing a pre-existing agreement,
hence, the imported articles can only be subject to the rates of import duties prevailing at the time of entry
or withdrawal from the customs custody.

CIR v Algue
GR No. L-28896, February 17, 1988

FACTS:
The BIR assessed Algue a total amount of delinquency taxes of Php 83,183.85 for the years 1958 and
1959. It contends that the company's claimed deduction of Php 75,000 in the form of promotional fees is
disallowed because it was not ordinary reasonable or necessary business expenses. Algue filed a protest.

BIR did not take any action. So, Algue filed a petition for review with the Court of Tax Appeals which rule in
favor of Algue. Thus, the current petition.

ISSUE:
Whether the BIR correctly disallowed the deduction

RULING:
No.The burden is on the taxpayer to prove the validity of the claimed deduction. Here, the onus has been
discharged satisfactorily. Here, the onus has been discharged satisfactorily. The promotional fees were
necessary and reasonable in the light of the efforts exerted by the payees in the inducement of investors to
venture in an experimental enterprise. Thus, the payees should be sufficiently recompensed.

Chavez v Ongpin
GR No 76778, June 6, 1990

FACTS:
Section 21 of Presidential Decree 464 provides that every 5 years starting calendar year 1978, there shall
 be a provincial or city general revision of real property assessments. The general revision was completed in
1984.
On November 25, 1986, President Corazon Aquino issued EO 73 stating that beginning January 1, 1987,
the 1984 assessments shall be the basis of real property taxes. Francisco Chavez, a taxpayer and
landowner, questioned the constitutionality of EO 74. He alleges that it will bring unreasonable increase in
real property taxes.

ISSUE:
Is EO 73 constitutional?

RULING:
Yes. Without EO 73, the basis for collection of real property taxes will still be the 1978 revision of property
values. Certainly, to continue collecting real property taxes based on valuations arrived at several years
ago, in disregard of the increases in the value of real properties that have occurred since then is not in
consonance with a sound tax system.
Fiscal adequacy, which is one of the characteristics of a sound tax system, requires that sources of revenue
must be adequate to meet government expenditures and their variations.

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

Commissioner of Internal Revenue v Ayala Securities Corporation

Facts:

Ayala Securities Corp. (Ayala) failed to file returns of their accumulated surplus so Ayala was charged with
25% surtax by the Commissioner of internal Revenue. The CTA (Court of Tax Appeals) reversed the
Commissioners decision and held that the assessment made against Ayala was beyond the 5-yr
prescriptive period as provided in section 331 of the National Internal Revenue Code. Commissioner now
files a motion for reconsideration of this decision. Ayala invokes the defense of prescription against the right
of the Commissioner to assess the surtax.

Issue:

Whether or not the right to assess and collect the 25% surtax has prescribed after five years.

Held:

No. There is no such time limit on the right of the Commissioner to assess the 25% surtax since there is no
express statutory provision limiting such right or providing for its prescription. Hence, the collection of surtax
is imprescriptible. The underlying purpose of the surtax is to avoid a situation where the corporation unduly
retains its surplus earnings instead of declaring and paying dividends to its shareholders. SC reverses the
ruling of the CTA.