COMMISSIONER OF INTERNAL REVENUE, petitioner,

vs.
ALGUE, INC., and THE COURT OF TAX APPEALS, respondents.
G.R. No. L-28896 February 17, 1988
This case is filed by the Commission in Internal Revenue to question the validity of the P75,000
deduction claimed by Algue Inc. in its income tax return.

Algue Inc. Is a domestic corporation engaged in engineering and other allied activities. Algue claimed
P75,000 as a deduction because it is an ordinary and necessary expense in its business. Algue was
appointed agent of Philippine Sugar Estate Development Company (PSED) and was authorized to sell its
assets. Pursuant to this authority, Algue created Vegetable Oil Corporation of the Philippines which
subsequently purchased the properties of Philippine Sugar Estate Development Company. In the
process, Algue incurred P75,000 for promotional fees. It was also paid P126,000 for the services.

The BIR argues that these expenses were fictitious for lack of proper documentation and because they
were paid to members of the same family which controls Algue.

Ruling of the lower courts: They ruled in favor of Algue and found that the promotional fees were not
excessive.

HELD: The Supreme Court, speaking through Justice Cruz, ruled in favor of Algue. It held that Algue, as
the taxpayer has the burden of proving the validity of the claimed deduction and has indeed proved it.
The private respondent 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.
The Court went further statingg that taxes are what we pay for a civilzed society. But even as
we concede the inevitability and indispensability of taxation, it is a requirement in all democratic
regimes that it 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.

MELECIO R. DOMINGO, as Commissioner of Internal Revenue, petitioner,

vs.
HON. LORENZO C. GARLITOS, in his capacity as Judge of the Court of First Instance of Leyte,
and SIMEONA K. PRICE, as Administratrix of the Intestate Estate of the late Walter Scott Price,
respondents.
G.R. No. L-18994 June 29, 1963
Facts: Mellecio Domingo, as Commissioner of Internal Revenue filed a petition for certiorari and
mandamus against Hon. Lorenzo Garlitos to cancel the latter’ decision in a case pertaining the estate of
Walter Scott Price.

The estate of Price has been assessed to pay inheritance taxes, charges and penalties amounting to
P40,058.55. Commissioner Domingo filed a petition for execution of the judgement relating to
inheritance tax. The petition was denied because the Government was indebted to the estate in the
amount of P262,000. This is from the Leyte Cadastral Survey that Mr. Price conducted. Mrs. Price,
administratix of Mr . Price, entered into a contract with Director Castillo of the Bureau of Lands. Director
Castillo also executed a note directing President Carlos P. Garcia to pay the estate of Mr. Price. An
appropriation for P262,000 was included in RA 2700 as payment for the services he rendered.

ISSUE: Whether compensation has validly taken place between the Government and the estate.

HELD: The Supreme Court through Justice denied the petition of the provincial fiscal on the grounds
that there is already an appropriation for the purpose. Therefore, the claim of the Government for
inheritance taxes and of the estate for services has become overdue and demandable as well as fully
liquidated. Compensation therefore takes place by operation of law.