Collector v Goodrich International Rubber Co. (G.R. No.

L-22265)

Facts:

Goodrich claimed for deductions based upon receipts issued, not by entities in which the
alleged expenses had been incurred, but by the officers of Goodrichwho allegedly paid for them.

The Commissioner disallowed deductions in the amount of P50,455.41 (for the year 1951) for
bad debts and P30,188.88 (for year 1952) for representation expenses.

Goodrich appealed from the said assessment to the Court of Tax Appeals (CTA) which allowed
the deduction for bad debts but disallowing the alleged representation expenses. CTA amended
its decision allowing the deduction of representation expenses.

The Government appealed to the SC. The alleged bad debts are the following:
1. Portillo's Auto Seat Cover 630.31
2. Visayan Rapid Transit 17,810.26
3. Bataan Auto Seat Cover 373.13
4. Tres Amigos Auto Supply 1,370.31
5. P. C. Teodorolawphil 650.00
6. Ordnance Service, P.A. 386.42
7. Ordnance Service, P.C. 796.26
8. National land Settlement Administration 3,020.76
9. National Coconut Corporation 644.74
10. Interior Caltex Service Station 1,505.87
11. San Juan Auto Supply 4,530.64
12. P A C S A 45.36
13. Philippine Naval Patrol 14.18
14. Surplus Property Commission 277.68
15. Alverez Auto Supply 285.62
16. Lion Shoe Store 1,686.93
17. Ruiz Highway Transit 2,350.00
18. Esquire Auto Seat Cover 3,536.94
TOTAL P50,455.41*

Issue:

Whether or not these bad debts are properly deducted.

Held:

The claim for deduction for debt numbers 1-10 is REJECTED. Goodrich has not established
either that the debts are actually worthless or that it had reasonable grounds to believe them to
be so.

NIRC permits the deduction of debts actually ascertained to be worthless within the taxable
year obviously to prevent arbitrary action by the taxpayer, to unduly avoid tax liability.

The requirement of ascertainment of worthlessness require proof of 2 facts:

1. That the taxpayer did in fact ascertain the debt to be worthless
 2. That he did so, in good faith.

Good faith on the part of the taxpayer is not enough. He must also how that he had reasonably
investigated the relevant facts and had drawn a reasonable inference from the information
obtained by him. In the case, Goodrich has not adequately made such showing.

The payments made, after being characterized as bad debts, merely stresses the undue haste
with which the same had been written off. Goodrich has not proven that said debts were
worthless. There was no evidence that the debtors can not pay them.

SC held that the claim for bad debts are allowed but only up to P22,627.35. (those from Debts
11-18)