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

OSMEA vs. ORBOS

220 SCRA 703
GR No. 99886, March 31, 1993
" To avoid the taint of unlawful delegation of the power to tax, there must be a
standard which implies that the legislature determines matter of principle and lays
down fundamental policy."
FACTS: Senator John Osmea assails the constitutionality of paragraph 1c of PD
1956, as amended by EO 137, empowering the Energy Regulatory Board (ERB) to
approve the increase of fuel prices or impose additional amounts on petroleum
products which proceeds shall accrue to the Oil Price Stabilization Fund (OPSF)
established for the reimbursement to ailing oil companies in the event of sudden
price increases. The petitioner avers that the collection on oil products
establishments is an undue and invalid delegation of legislative power to tax.
Further, the petitioner points out that since a 'special fund' consists of monies
collected through the taxing power of a State, such amounts belong to the State,
although the use thereof is limited to the special purpose/objective for which it was
created. It thus appears that the challenge posed by the petitioner is premised
primarily on the view that the powers granted to the ERB under P.D. 1956, as
amended, partake of the nature of the taxation power of the State.
ISSUE: Is there an undue delegation of the legislative power of taxation?
HELD: None. It seems clear that while the funds collected may be referred to as
taxes, they are exacted in the exercise of the police power of the State. Moreover,
that the OPSF as a special fund is plain from the special treatment given it by E.O.
137. It is segregated from the general fund; and while it is placed in what the law
refers to as a "trust liability account," the fund nonetheless remains subject to the
scrutiny and review of the COA. The Court is satisfied that these measures comply
with the constitutional description of a "special fund." With regard to the alleged
undue delegation of legislative power, the Court finds that the provision conferring
the authority upon the ERB to impose additional amounts on petroleum products
provides a sufficient standard by which the authority must be exercised. In addition
to the general policy of the law to protect the local consumer by stabilizing and
subsidizing domestic pump rates, P.D. 1956 expressly authorizes the ERB to impose
additional amounts to augment the resources of the Fund.

Lutz vs. Araneta [December 22, 1955, (98 Phil 148)]

Facts: Commonwealth Act No. 567, otherwise known as Sugar Adjustment Act was
promulgated in 1940 to stabilize the sugar industry so as to prepare it for the
eventuality of the loss of its preferential position in the United States market and
the imposition of export taxes. Plaintiff, Walter Lutz, in his capacity as Judicial
Administrator of the Intestate Estate of Antonio Jayme Ledesma, seeks to recover
from the Collector of Internal Revenue the sum of P14,666.40 paid by the estate as
taxes, under Sec.3 of the Act, alleging that such tax is unconstitutional and void,
being levied for the aid and support of the sugar industry exclusively, which in
plaintiffs opinion is not a public purpose for which a tax may be constitutionally
levied. The action has been dismissed by the Court of First Instance.
Issue: Whether or not the tax imposed is constitutional.
Held: Yes. The act is primarily an exercise of the police power. It is shown in the Act
that the tax is levied with a regulatory purpose, to provide means for the
rehabilitation and stabilization of the threatened sugar industry.
It is inherent in the power to tax that a state be free to select the subjects of
taxation, and it has been repeatedly held that inequalities which result from a
singling out of one particular class for taxation or exemption infringe no
constitutional limitation.
The funds raised under the Act should be exclusively spent in aid of the sugar
industry, since it is that very enterprise that is being protected. It may be that other
industries are also in need of similar protection; but the legislature is not required
by the Constitution to adhere to a policy of all or none.