Commissioner of Internal Revenue vs. Algue Inc.
· During the intervening period, the warrant was premature and could
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
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
CASE DIGEST: TRIDHARMA MARKETING CORPORATION,
Petitioner, vs. COURT OF TAX APPEALS and the COMMISSIONER
OF INTERNAL REVENUE, Respondents. (G.R. No. 215950; June 20,
2016)
FACTS:
BIR assessed T with various tax deficiencies amounting to more than 4.640
billion pesos. Protest was filed. T paid 5.8 million pesos for its assessment on
WTC, DST and EWT and reiterated its interest to compromise alleged IT and
VAT deficiencies. FDDA was issued at 4.473 billion pesos.
T appealed the CIR's decision to the CTA 2D and moved for the suspension
of tax collection against it. However, the CTA 2D required T to post bond
equivalent to 150% of the assessment within 15 days from notice. Hence, T
was ordered to post 6.701 billion pesos as bond.
T petitioned for certiorari.
ISSUES:
[1] Did the CTA abuse its discretion in requiring bond that T is legally and
physically incapable of procuring?
[2] Was the bond requirement properly issued considering T's allegation of
illegal collection?
HELD:
[1] Yes, the CTA abused its discretion. Although the Tax Code empowers the
CTA to suspend tax collection by requiring either the (1) deposit of the tax
claimed or (2) surety bond for not more than double the amount, T was able
to show that it is not capable of producing the amount of 6.701 billion pesos
as its net worth is only almost 1 billion pesos. Plus, it is legally impossible to
procure the bond from bonding companies that are limited in their risk
assumptions.
What the CTA should have done is to conduct a preliminary hearing on T's
ability to deposit or procure bond. While there is legal justification for the
bond requirement, the power to tax is not the power to destroy. For the bond
to equal the deficiency assessment would practically deny to the petitioner
the meaningful opportunity to contest the validity of the assessments, and
would likely even impoverish it as to force it out of business.
[2] The bond requirement was not properly issued. Section 11 of R.A. 1125,
as amended, indicates that the requirement of the bond as a condition
precedent to suspension of the collection applies only in cases where the
processes by which the collection sought to be made by means thereof are
carried out in consonance with the law, not when the processes are in plain
violation of the law that they have to be suspended for jeopardizing the
interests of the taxpayer.
The Court is not in the position to rule on the correctness of the deficiency
assessment, which is a matter still pending in the CTA. The determination of
whether the methods, employed by the CIR in its assessment, jeopardized the
interests of a taxpayer for being patently in violation of the law is a question
of fact that calls for the reception of evidence.
National Power Corporation vs City of Cabanatuan
G.R. No. 149110 April 9, 2003
FACTS: Petitioner is a government-owned and controlled corporation created
under Commonwealth Act No. 120, as amended.
For many years now, petitioner sells electric power to the residents of
Cabanatuan City, posting a gross income of P107,814,187.96 in 1992.7
Pursuant to section 37 of Ordinance No. 165-92,8 the respondent assessed
the petitioner a franchise tax amounting to P808,606.41, representing 75% of
1% of the latter’s gross receipts for the preceding year.
Petitioner refused to pay the tax assessment arguing that the respondent has
no authority to impose tax on government entities. Petitioner also contended
that as a non-profit organization, it is exempted from the payment of all
forms of taxes, charges, duties or fees in accordance with sec. 13 of Rep. Act
No. 6395, as amended.
The respondent filed a collection suit in the RTC, demanding that petitioner
pay the assessed tax due, plus surcharge. Respondent alleged that petitioner’s
exemption from local taxes has been repealed by section 193 of the LGC,
which reads as follows:
“Sec. 193. Withdrawal of Tax Exemption Privileges.- Unless otherwise
provided in this Code, tax exemptions or incentives granted to, or presently
enjoyed by all persons, whether natural or juridical, including government
owned or controlled corporations, except local water districts, cooperatives
duly registered under R.A. No. 6938, non-stock and non-profit hospitals and
educational institutions, are hereby withdrawn upon the effectivity of this
Code.”
RTC upheld NPC’s tax exemption. On appeal the CA reversed the trial
court’s Order on the ground that section 193, in relation to sections 137 and
151 of the LGC, expressly withdrew the exemptions granted to the petitioner.
ISSUE: W/N the respondent city government has the authority to issue
Ordinance No. 165-92 and impose an annual tax on “businesses enjoying a
franchise
HELD: YES. Taxes are the lifeblood of the government, for without taxes,
the government can neither exist nor endure. A principal attribute of
sovereignty, the exercise of taxing power derives its source from the very
existence of the state whose social contract with its citizens obliges it to
promote public interest and common good. The theory behind the exercise of
the power to tax emanates from necessity;32 without taxes, government
cannot fulfill its mandate of promoting the general welfare and well-being of
the people.
Section 137 of the LGC clearly states that the LGUs can impose franchise tax
“notwithstanding any exemption granted by any law or other special law.”
This particular provision of the LGC does not admit any exception. In City
Government of San Pablo, Laguna v. Reyes,74 MERALCO’s exemption
from the payment of franchise taxes was brought as an issue before this
Court. The same issue was involved in the subsequent case of Manila
Electric Company v. Province of Laguna.75 Ruling in favor of the local
government in both instances, we ruled that the franchise tax in question is
imposable despite any exemption enjoyed by MERALCO under special laws,
viz:
“It is our view that petitioners correctly rely on provisions of Sections 137
and 193 of the LGC to support their position that MERALCO’s tax
exemption has been withdrawn. The explicit language of section 137 which
authorizes the province to impose franchise tax ‘notwithstanding any
exemption granted by any law or other special law’ is all-encompassing and
clear. The franchise tax is imposable despite any exemption enjoyed under
special laws.
Section 193 buttresses the withdrawal of extant tax exemption privileges. By
stating that unless otherwise provided in this Code, tax exemptions or
incentives granted to or presently enjoyed by all persons, whether natural or
juridical, including government-owned or controlled corporations except (1)
local water districts, (2) cooperatives duly registered under R.A. 6938, (3)
non-stock and non-profit hospitals and educational institutions, are
withdrawn upon the effectivity of this code, the obvious import is to limit the
exemptions to the three enumerated entities. It is a basic precept of statutory
construction that the express mention of one person, thing, act, or
consequence excludes all others as expressed in the familiar maxim expressio
unius est exclusio alterius. In the absence of any provision of the Code to the
contrary, and we find no other provision in point, any existing tax exemption
or incentive enjoyed by MERALCO under existing law was clearly intended
to be withdrawn.
Reading together sections 137 and 193 of the LGC, we conclude that under
the LGC the local government unit may now impose a local tax at a rate not
exceeding 50% of 1% of the gross annual receipts for the preceding calendar
based on the incoming receipts realized within its territorial jurisdiction. The
legislative purpose to withdraw tax privileges enjoyed under existing law or
charter is clearly manifested by the language used on (sic) Sections 137 and
193 categorically withdrawing such exemption subject only to the exceptions
enumerated. Since it would be not only tedious and impractical to attempt to
enumerate all the existing statutes providing for special tax exemptions or
privileges, the LGC provided for an express, albeit general, withdrawal of
such exemptions or privileges. No more unequivocal language could have
been used.”76 (emphases supplied)
Doubtless, the power to tax is the most effective instrument to raise needed
revenues to finance and support myriad activities of the local government
units for the delivery of basic services essential to the promotion of the
general welfare and the enhancement of peace, progress, and prosperity of
the people. As this Court observed in the Mactan case, “the original reasons
for the withdrawal of tax exemption privileges granted to government-owned
or controlled corporations and all other units of government were that such
privilege resulted in serious tax base erosion and distortions in the tax
treatment of similarly situated enterprises.” With the added burden of
devolution, it is even more imperative for government entities to share in the
requirements of development, fiscal or otherwise, by paying taxes or other
charges due from them.
CHURCHHILL & TAIT VS RAFFERTY
32 PHIL 580 (1915)
FACTS:
Plaintiffs put up a billboard on a private land located in Rizal Province “quite
distance from the road and strongly built, not dangerous to the safety of the
people, and contained no advertising matter which is filthy, indecent, or
deleterious to the morals of the community.” However, defendant Rafferty,
Collector of Internal Revenue, decided to remove the billboards after due
investigation made upon the complaints of the British and German Consuls.
Act No. 2339 authorized the then Collector of Internal Revenue to remove
after due investigation, any billboard exposed to the public view if it decides
that it is offensive to the sight or is otherwise a nuisance.
In the agreed statement of facts submitted by the parties, the plaintiffs "admit
that the billboards mentioned were and still are offensive to the sight."
The Court of First Instance perpetually restrains and prohibits the defendant
and his deputies from collecting and enforcing against the plaintiffs and their
property the annual tax mentioned and described in subsection (b) of section
100 of Act No. 2339, effective July 1, 1914, and from destroying or
removing any sign, signboard, or billboard, the property of the plaintiffs and
decrees the cancellation of the bond given by the plaintiffs. Hence, this
petition.
ISSUE:
WON Act No. 2339 was a legitimate exercise of the police power of the
Government?
HELD:
YES. Things offensive to the senses, such as sight, smell or hearing, may be
suppressed by the State especially those situated in thickly populated
districts. Aesthetics may be regulated by the police power of the state, as long
as it is justified by public interest and safety.
Moreover, if the police power may be exercised to encourage a healthy social
and economic condition in the country, and if the comfort and convenience of
the people are included within those subjects, everything which encroaches
upon such territory is amenable to the police power of the State. Hence, the
judgment of the CFI is reversed.
Cu Unjieng vs. Patstone
GR 16254, 21 February 1922
First Division, Ostrand (J): 4 concur, 1 took no part
Facts: G. A. Cu Unjieng desired to erect a warehouse in Azcarraga street was
denied a building permit until he shall have made provision for the
construction of an arcade over the sidewalk in front of the building, and until
he shall have further complied with Section 1 of Ordinance 301 of the City of
Manila, i.e. payment of 1/2 of the assessed value of the city land. Cuunjieng
filed a petition for a writ of mandamus to compel the city engineer to issue
the permit.
Issue: Whether the fee was validly imposed.
Held: The allowable amount of license fee or tax depends so much on the
special circumstances of each particular case. Adjudications, however, appear
to recognize 3 classes of licenses (license forregulation of useful occupations
or enterprises; licenses for the regulation of non-useful occupations or
enterprises; and licenses for revenue only), which should be taken into
consideration in determining the reasonableness of the license fee. Herein, in
imposing a fee equal to 1/2 of the assessed value of the portion of the
sidewalk covered by the arcade, the municipal board exceeded its powers.
The construction of buildings is a useful enterprise and the amount of the
license fee should therefore be limited to the cost of licensing, regulating,
and surveillance. As it does not appear such cost would materially increase
through the construction of the arcade, the excess fee is clearly imposed for
the purpose of revenue. There is nothing in the charter of the City indicating
legislative intent to confer tot the municipal board to impose a license tax for
revenue on the construction of buildings. Although the city can require the
construction of arcades in certain circumstances, the license fee prescribed by
Ordinance 301 is illegal.