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Case 327 | Plaridel Surety & Insurance Co. v. CIR (1967) | Losses
Facts: Petitioner Plaridel Surety, a domestic corporation engaged in the
bonding business, and Constancio San Jose (as principal), solidarily executed a
performance bond in favor of PL Galang Machinery to secure the performance
of San Jose’s contractual obligation to produce and supply logs. San Jose and one
Ramon Cuervo executed an indemnity agreement obligating themselves,
solidarily, to indemnify petitioner for whatever liability it may incur by reason
of said performance bond. San Jose constituted a chattel mortgage on logging
machineries and other movables while Ramon Cuervo executed a real estate
mortgage. San Jose later failed to deliver the logs to Galang Machinery and the
latter sued on the performance bond. CFI adjudged San Jose and petitioner
liable and directed San Jose and Cuervo to reimburse petitioner for whatever
amount it would pay Galang Machinery—CA affirmed. Petitioner effected
payment in favor of Galang Machinery in the total sum of P44,490.00 pursuant
to the final decision of the CA. In its income tax return for the year 1957,
petitioner claimed the said amount of P44,490.00 as deductible loss from its
gross income and, accordingly, paid the amount of P136.00 as its income tax for
1957. CIR disallowed the claimed deduction.
Issue: Whether petitioner can claim P44,490 as deductible loss from its gross
income.
Ruling: No. Petitioner was duly compensated through the mortgage in its favor
executed by San Jose and Cuervo and it had not yet exhausted all its available
remedies, especially as against Cuervo to minimize its loss. The rule is that loss
deduction will be denied if there is a measurable right to compensation
for the loss, with ultimate collection reasonably clear. So where there is
reasonable ground for reimbursement, the taxpayer must seek his redress and
may not secure a loss deduction until he establishes that no recovery may be
had. In other words, the taxpayer (herein petitioner) must exhaust his remedies
first to recover or reduce his loss. (Main Point, pp. 319)
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Case 328 | Alhambra Cigar v. Collector, CTA (1956) | Losses
Facts: The Alhambra Cigar and Cigarette Manufacturing Co. filed its income tax
returns for the years 1949, 1950, 1951, 1952 and 1953, and paid the income
taxes computed in accordance with said returns. With particularity to 1949, it
appears that one of petitioner's salesman made a sale on credit and sent a
driver to collect the money—said driver was held up and robbed of his
collection amounting to 1,903.04 php. This occurred sometime in November of
1948, but petitioner's management had the matter investigated only in the early
part of 1949. After it was satisfied that the salesman or his driver could not be
entirely blamed for such loss, petitioner bore one-half of the sum of 1,903.04
php, or 951.92 php, and the other half was paid by the salesman. The
deductibility of the said amount of 951.92 php borne by the corporation is
now the point in controversy between the parties.
Respondent: contends that the responsible employee should be the one to
shoulder the burden and not the corporation; and if ever the loss should be
allowed, it should have been claimed in 1948, not in 1949. Petitioner: claims
otherwise.
Issue: Whether the 951.92 php should be deductible.
Ruling: Yes. On the contention of respondent that the loss should have been
claimed in 1948, it will be noted that the law contemplates the deduction from
gross income of losses only which are fixed by identifiable events. The income
tax law is concerned only with realized losses and it was only in 1949 that
petitioner reasonably ascertained the fact of and the amount of the loss so as to
justify its deduction. Before that, the loss was not yet evidenced by a closed and
completed transaction as the possibility of reimbursement was still real and
substantial. The said amount of 951.92 php is therefore an allowable deduction
in 1949.
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Case 329 | Collector v. Goodrich Intl. Rubber Co. | Losses

Facts: In a CTA decision, It set aside the CIR assessments for deficiency income
taxes allegedly due from Goodrich International Rubber Company for years
1951 and 1952. The assessments were based on disallowed deductions claimed
by Goodrich, consisting of several alleged bad debts and representation
expenses allegedly incurred in 1952. Goodrich had appealed to CTA, which
initially rendered a decision allowing the deduction for bad debts only but on
MR, allowed said deductions for representation expenses. The claim for
deduction thereof is based upon receipts issued, not by the entities in which the
alleged expenses had been incurred, but by the officers of Goodrich who
allegedly paid them. Hence this appeal by petitioner Collector of Internal Rev. to
the SC seeking to set aside the CIR decision and alleging 18 bad debts.

Issue: Whether all deductions made for bad debts for 1951 were proper.

Ruling: No, not all. The claim for deduction for debt numbers 1-10 is
REJECTED. In this case, the claim for bad debts are allowed but only those from
Debts 11-18— these accounts were properly written off (mostly because
debtors had no properties to be attached or insolvent); hence the deduction of
these 8 accounts as bad debts should be allowed. In sum, respondent
Goodrich has not proven that said debts were worthless. There is no
evidence that the debtors cannot pay them.

Main Point (pp. 320), re-stated in the full text: 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.