FACTS: Algue Inc. is a domestic corp engaged in engineering, construction and other allied activities.

The Philippine Sugar Estate Development Company had earlier appointed Algue as its agent, authorizing it to sell its land, factories and oil manufacturing process. Pursuant to such authority, Alberto Guevara, Jr., Eduardo Guevara, Isabel Guevara, Edith, O'Farell, and Pablo Sanchez, worked for the formation of the Vegetable Oil Investment Corporation, inducing other persons to invest in it. Ultimately, after its incorporation largely through the promotion of the said persons, this new corporation purchased the PSEDC properties. For this sale, Algue received as agent a commission of P125, 000.00. From this amount, Algue Inc. paid the five family members P75,000 as promotional fees. Algue, Inc. declared this P75,000 as a deduction from its income tax as a legitimate business expense. 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 contends that the deduction of P75,000.00 was properly disallowed because it was not an ordinary reasonable or necessary business expense. CIR also claims that 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. However, the CTA said that the 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 P75,000 is tax-deductible as a legitimate business expense of Algue, Inc. HELD: Yes, the P75,000 promotional fee is tax-deductible. Sec. 30: 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 Sec. 30 of the Tax Code provides that ordinary and necessary expenses 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 are tax-deductible. However, the burden in proving the validity of a claimed deduction belongs to the taxpayer. In this case, the burden has been satisfactorily discharged by the taxpayer Algue, Inc.

CIR VS. ALGUE

Algue, Inc. was able to prove that the promotional fees were not fictitious and were in fact paid periodically to the five family members. Moreover, the amount of the promotional fees was reasonable, considering that the five payees actually performed a service for Algue, Inc. by making the sale of the properties of PSEDC possible. As a result of this sale, Algue, Inc. earned a net commission of P50,000. 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. Taxes are what we pay for civilized 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 ones hard-earned income, every person who is able to must contribute his share in running the government. The government, for its part, is expected to respond in the form of BENEFITS for general welfare. This symbiotic relationship is the rationale of taxation and should dispel the erroneous notion that it is an arbitrary exaction by those in the seat of power. However, it should also be exercised reasonably and in accordance with the prescribed procedure. If it is not, the taxpayer has a right to complain to the courts. For all the awesome power of the tax collector, he may still be stopped in his tracks if the taxpayer can demonstrate, as it has here, that the law has not been observed. Herein, the claimed deduction (pursuant to Section 30[a] [1] of the Tax Code and Section 70 [1] of Revenue Regulation 2: as to compensation for personal services) had been legitimately by Algue Inc.