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
Commissioner vs. Algue GRL-28890, 17 February 1988 First Division, Cruz (J); 4 concur
Facts: The Philippine Sugar Estate Development Company (PSEDC) appointed Algue Inc. as its agent,
authorizing it to sell its land, factories, and oil manufacturing process. The Vegetable Oil Investment
Corporation (VOICP) purchased PSEDC properties. For the sale, Algue received a commission of
P125,000 and it was from this commission that it paid Guevara, et. al. organizers of the VOICP, P75,000 in
promotional fees. In 1965, Algue received an assessment from the Commissioner of Internal Revenue in
the amount of P83,183.85 as delinquency income tax for years 1958 amd 1959. Algue filed a protest or
request for reconsideration which was not acted upon by the Bureau of Internal Revenue (BIR). The
counsel for Algue had to accept the warrant of distrant and levy. Algue, however, filed a petition for review
with the Coourt of Tax Appeals.
Issue: Whether the assessment was reasonable.
Held: Taxes are the lifeblood of the government and so should be collected without unnecessary hindrance.
Every person who is able to pay must contribute his share in the running of the government. The
Government, for his 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. This symbiotic relationship is
the rationale of taxation and should dispel the erroneous notion that is an arbitrary method of exaction by
those in the seat of power. Tax collection, however, should be made in accordance with law as any
arbitrariness will negate the very reason for government itself. For all the awesome power of the tax
collector, he may still be stopped in his tracks if the taxpayer can demonstrate 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. It
has further proven that the payment of fees was reasonable and necessary in light of the efforts exerted by
the payees in inducing investors (in VOICP) to involve themselves in an experimental enterprise or a
business requiring millions of pesos. The assessment was not reasonable

Mactan Cebu International Airport Authority v Marcos (1996)

Mactan Cebu International Airport Authority v Marcos GR No 120082, September 11, 1996
FACTS:
Petitioner was created by virtue of RA 6958. Section 1 thereof states that the authority shall be exempt from
realty taxes imposed by the National Government or any of its political subdivisions, agencies and
instrumentalities. However, the Treasurer of Cebu City demanded payment for realty taxes from petitioner.
Petitioner filed a declaratory relief before the Regional Trial Court. The trial court dismissed the petitioner
ruling that the Local Government Code withdrew the tax exemption granted to Government owned and
controlled
corporation.

ISSUE:
Whether

the

city

of

Cebu

has

the

power

to

impose

taxes

on

petitioner

RULING:
Yes. Taxation is the rule and exemption is the exception, the exemption may thus be withdrawn at the
pleasure of the taxing authority. As to tax exemptions or incentives granted to or presently enjoyed by
natural or juridical persons, including government- owned and controlled corporations, section 193 of the
LGC prescribes the general rule, viz, they are withdrawn upon the effectivity of the LGC, except those
granted to local water districts, cooperatives, duly registered under RA 6938, non stock and nonprofit
hospitals and educational institutions and unless otherwise provided in the LGC.
Roxas vs. CTA
GR No. L-25043 | April 26, 1968
Facts:
Don Pedro Roxas and Dona Carmen Ayala, both Spanish, transmitted to their grandchildren by
hereditary succession the following properties:
a.
Agricultural lands with a total area of 19,000 hectares in Nasugbu, Batangas
Tenants who have been tilling the lands expressed their desire to purchase from Roxas y Cia, the
parcels which they actually occupied
The govt, in line with the constitutional mandate to acquire big landed estates and apportion them
among landless tenants-farmers, persuaded the Roxas brothers to part with their landholdings
The brothers agreed to sell 13,500 hec to the govt for P2.079Mn, plus 300K survey and subdivision
expenses
Unfortunately, the govt did not have funds
A special arrangement was made with the Rehabilitation Finance Corporation to advance to Roxas y
Cia the amount of P1.5Mn as loan
Under the arrangement, Roxas y Cia. allowed the farmers to buy the lands for the same price but by
installment, and contracted with the RFC to pay its loan from the proceeds of the yearly amortizations paid
by the farmers
In 1953 and 1955, Roxas y Cia. derived from said installment payments a net gain of P42,480.83 and
P29,500.71. 50% of said net gain was reported for income tax purposes as gain on the sale of capital asset
held for more than one year pursuant to Sec. 34 of the Tax Code

b.
-

c.

Residential house and lot at Wright St., Malate, Manila

After the marriage of Antonio and Eduardo, Jose lived in the house where he paid rentals of 8K/year to
Roxas y Cia
Shares of stocks in different corporations
To manage the properties, Antonio Roxas, Eduardo Roxas and Jose Roxas, the children, formed a
partnership called Roxas y Compania
On 1958, CIR demanded from Roxas y Cia the payment of real estate dealer's tax for 1952 amtg to
P150.00 plus P10.00 compromise penalty for late payment, and P150.00 tax for dealers of securities plus
P10.00 compromise penalty for late payment.
Basis: house rentals received from Jose, pursuant to Art. 194 of the Tax Code stating that an owner of a
real estate who derives a yearly rental income therefrom in the amount of P3,000.00 or more is considered
a real estate dealer and is liable to pay the corresponding fixed tax
The Commissioner further assessed deficiency income taxes against the brothers for 1953 and 1955,
resulting from the inclusion as income of Roxas y Cia of the unreported 50% of the net profits derived from
the sale of the Nasugbu farm lands to the tenants, and the disallowance of deductions from gross income
of various business expenses and contributions claimed by Roxas y Cia and the Roxas brothers
The brothers protested the assessment but was denied, thus appealing to the CTA
CTA decision: sustained the assessment except the demand for the payment of the fixed tax on dealer of
securities and the disallowance of the deductions for contributions to the Philippine Air Force Chapel and
Hijas de Jesus' Retiro de Manresa

Issue: Should Roxas y Cia be considered a real estate dealer because it engaged in the business of selling
real estate

a.

b.

c.

d.

Ruling: NO, being an isolated transaction

Real estate dealer: any person engaged in the business of buying, selling, exchanging, leasing or
renting property on his own account as principal and holding himself out as a full or part-time dealer in real
estate or as an owner of rental property or properties rented or offered to rent for an aggregate amount of
three thousand pesos or more a year:
Section 194 of the Tax Code, in considering as real estate dealers owners of real estate receiving rentals
of at least P3,000.00 a year, does not provide any qualification as to the persons paying the rentals
The fact that there were hundreds of vendees and them being paid for their respective holdings in
installment for a period of ten years, it would nevertheless not make the vendor Roxas y Cia. a real estate
dealer during the 10-year amortization period
the sale of the Nasugbu farm lands to the very farmers who tilled them for generations was not only in
consonance with, but more in obedience to the request and pursuant to the policy of our Government to
allocate lands to the landless
It was the duty of the Government to pay the agreed compensation after it had persuaded Roxas y Cia.
to sell its haciendas, and to subsequently subdivide them among the farmers at very reasonable terms and
prices. But due to the lack of funds, Roxas y Cia. shouldered the Government's burden, went out of its way
and sold lands directly to the farmers in the same way and under the same terms as would have been the
case had the Government done it itself
The power of taxation is sometimes called also the power to destroy. Therefore it should be exercised
with caution to minimize injury to the proprietary rights of a taxpayer. It must be exercised fairly, equally and
uniformly
Therefore, Roxas y Cia. cannot be considered a real estate dealer for the sale in question. Hence,
pursuant to Section 34 of the Tax Code the lands sold to the farmers are capital assets, and the gain
derived from the sale thereof is capital gain, taxable only to the extent of 50%
As to the deductions
P40 tickets to a banquet given in honor of Sergio Osmena and P28 San Miguel beer given as gifts to
various persons representation expenses
Representation expenses: deductible from gross income as expenditures incurred in carrying on a trade
or business
In this case, the evidence does not show such link between the expenses and the business of Roxas y
Cia
Contributions to the Pasay police and fire department and other police departments as Christmas funds
Contributions to the Christmas funds are not deductible for the reason that the Christmas funds were not
spent for public purposes but as Christmas gifts to the families of the members of said entities
Under Section 39(h), a contribution to a government entity is deductible when used exclusively for public
purposes
As to the contribution to the Manila Police trust fund, such is an allowable deduction for said trust fund
belongs to the Manila Police, a government entity, intended to be used exclusively for its public functions.
Contributions to the Philippines Herald's fund for Manila's neediest families
The contributions were not made to the Philippines Herald but to a group of civic spirited citizens
organized by the Philippines Herald solely for charitable purposes
There is no question that the members of this group of citizens do not receive profits, for all the funds
they raised were for Manila's neediest families. Such a group of citizens may be classified as an
association organized exclusively for charitable purposes mentioned in Section 30(h) of the Tax Code
Contribution to Our Lady of Fatima chapel at the FEU
University gives dividends to its stockholders
Located within the premises of the university, the chapel in question has not been shown to belong to the
Catholic Church or any religious organization
The contributions belongs to the Far Eastern University, contributions to which are not deductible under
Section 30(h) of the Tax Code for the reason that the net income of said university injures to the benefit of
its stockholders

No deficiency income tax is due for 1953 from Antonio Roxas, Eduardo Roxas and Jose Roxas. For 1955
they are liable to pay deficiency income tax in the sum of P109.00, P91.00 and P49.00, respectively

Garcia vs Executive Secretary GR No 101273 03 July 1992

Facts: Executive Order no 475 imposed an additional duty of 9% on crude oil and oil products while
Executive Order 478 imposed a special duty on crude oil and oil products. Petitioners claimed that
both EOs are unconstitutional because all revenue measures must originate from the House of
Representatives and the Tariff and Customs Code authorized the president to increase the tariff
duties only to protect local industries but not to raise additional revenue for the government.

Issue: Whether or not the tariff rates imposed are valid?

Decision: Petition dismissed for lack of merit. The assailed Executive Orders are valid. Congress may by
law authorize the president to fit tariff rates and other duties within specified limits. The issuance of these
EOs authorized by Sections 104 and 401 of the Tariff and Customs Code. There is nothing in the law that
suggests that the authority may only be exercised to protect local industries. Custom duties may be
designated to achieve more than one policy objective the protection of local industries and to raise revenue
for the government.
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211 SCRA 219 Political Law Congress Authorizing the President to Tax
In November 1990, President Corazon Aquino issued Executive Order No. 438 which imposed, in addition
to any other duties, taxes and charges imposed by law on all articles imported into the Philippines, an
additional duty of 5% ad valorem tax. This additional duty was imposed across the board on all imported
articles, including crude oil and other oil products imported into the Philippines. In 1991, EO 443 increased
the additional duty to 9%. In the same year, EO 475 was passed reinstating the previous 5% duty except
that crude oil and other oil products continued to be taxed at 9%. Enrique Garcia, a representative from
Bataan, avers that EO 475 and 478 are unconstitutional for they violate Section 24 of Article VI of the
Constitution which provides:
All appropriation, revenue or tariff bills, bills authorizing increase of the public debt, bills of local application,
and private bills shall originate exclusively in the House of Representatives, but the Senate may propose or
concur with amendments.
He contends that since the Constitution vests the authority to enact revenue bills in Congress, the
President may not assume such power by issuing Executive Orders Nos. 475 and 478 which are in the
nature of revenue-generating measures.
ISSUE: Whether or not EO 475 and 478 are constitutional.
HELD: Under Section 24, Article VI of the Constitution, the enactment of appropriation, revenue and tariff
bills, like all other bills is, of course, within the province of the Legislative rather than the Executive

Department. It does not follow, however, that therefore Executive Orders Nos. 475 and 478, assuming they
may be characterized as revenue measures, are prohibited to be exercised by the President, that they must
be enacted instead by the Congress of the Philippines.
Section 28(2) of Article VI of the Constitution provides as follows:
(2) The Congress may, by law, authorize the President to fix within specified limits, and subject to such
limitations and restrictions as it may impose, tariff rates, import and export quotas, tonnage and wharfage
dues, and other duties or imposts within the framework of the national development program of the
Government.
There is thus explicit constitutional permission to Congress to authorize the President subject to such
limitations and restrictions as [Congress] may impose to fix within specific limits tariff rates . . . and other
duties or imposts . . . . In this case, it is the Tariff and Customs Code which authorized the President ot
issue the said EOs.
Churchill v Concepcion (1916)
FACTS:
Section 100 of Act 2339 imposed an annual tax of P4 per square meter upon electric signs, billboards, and
spaces used for posting or displaying temporary signs, and all signs displayed on premises not occupied by
buildings. The section was amended by Act 2432, reducing the tax to P2 per square meter. Francis A.
Churchill and Stewart Tait, co-partners in Mercantile Advertising Agency, owned a billboard to which they
were taxes at P104. The tax was paid under protest. Churchill and Tait instituted the action to recover the
amount.
ISSUE:
Is
the

statute

RULING:
No,

and

the

tax

the

imposed

void

tax

for

lack
is

of

uniformity?
valid.

Uniformity in taxation means that all taxable articles or kinds of property, of the same class, shall be taxed
at the same rate. It does not mean that all lands, chattels, securities, incomes, occupations, franchises,
privileges, necessities, and luxuries shall all be assessed at the same rate. Different articles may be taxed
at different amounts provided the rate is uniform on the same class everywhere, with all people, at all
times.
Herein, the Act imposes a tax of P2 per square meter or a fraction thereof upon every electric sign,
billboard, etc. Wherever found in the Philippine Islands. The rule of taxation upon such signs is uniform
throughout the islands. The rule does not require taxes to be graded according to the value of the subjects
upon which they are imposed, especially those levied as privilege or occupation taxes.

Villanueva v City of Iloilo (1968)

Villanueva
GR

v
No

City
L-26521,

v
December

28,

Iloilo
1968

FACTS:
On September 30, 1946, the Municipal Board of Iloilo City enacted Ordinance 86 imposing license tax fees
upon
tenement houses. The validity of such ordinance was challenged by Eusebio and Remedios Villanueva,
owners of four tenement houses containing 34 apartments. The Supreme Court held the ordinance to be
ultra views. On January 15, 1960, however, the municipal board, believing that it acquired authority to enact

an ordinance of the same nature pursuant to the Local Autonomy Act, enacted Ordinance 11, Eusebio and
Remedios
Villanueva
assailed
the
ordinance
anew.
ISSUE:
Does

Ordinance

11

violate

the

rule

of

uniformity

of

taxation?

RULING:
No. The Court has ruled the tenement houses constitute a distinct class of property and that taxes are
uniform and equal when imposed upon all property of the same class or character within the taxing
authority.
The fact that the owners of the other classes of buildings in Iloilo are not imposed upon by the ordinance, or
that tenement taxes are imposed in other cities do not violate the rule of equality and uniformity. The rule
does not require that taxes for the same purpose should be imposed in different territorial subdivisions at
the same time. So long as the burden of tax falls equally and impartially on all owners or operators of
tenement houses similarly classified or situated, equality and uniformity is accomplished. The presumption
that tax statutes are intended to operate uniformly and equally was not overthrown therein.
Pepsi Cola Bottiling Co. vs City of Butuan (1968)
February 15, 2013 markerwins Tax Law
Facts: Ordinance 110 was enacted by the City of Butuan imposing a tax of P0.10 per case of 24 bottles of
softdrinks or carbonated drinks. The tax was imposed upon dealers engeged in selling softdrinks or
carbonated drinks. When Ordinance 110, the tax was imposed upon an agent or consignee of any person,
association, partnership, company or corporation engaged in selling softdrinks or carbonated drinks, with
agent or consignee being particularly defined on the inserted provision Section 3-A. In effect, merchants
engaged in the sale of softdrinks, etc. are not subject to the tax unless they are agents or consignees of
another dealer who must be one engaged in business outside the City. Pepsi-Cola Bottling Co. filed suit to
recover sums paid by it to the city pursuant to the Ordinance, which it claims to be null and void.
Issue: Whether the Ordinance is discriminatory.
Held: The Ordinance, as amended, is discriminatory since only sales by agents or consignees of outside
dealers would be subject to the tax. Sales by local dealers, not acting for or on behalf of other merchants,
regardless of the volume of their sales , and even if the same exceeded those made by said agents or
consignees of producers or merchants established outside the city, would be exempt from the tax. The
classification made in the exercise of the authority to tax, to be valid must be reasonable, which would be
satisfied if the classification is based upon substantial distinctions which makes real differences; these are
germane to the purpose of legislation or ordinance; the classification applies not only to present conditions
but also to future conditions substantially identical to those of the present; and the classification applies
equally to all those who belong to the same class. These conditions are not fully met by the ordinance in
question.
Pepsi-Cola Bottling Co. vs. City of Butuan GR L-22814, 28 August 1968 En Banc, Concepcion (J): 5
concur

Facts: Ordinance 110 was enacted by the City of Butuan imposing a tax of P0.10 per case of 24 bottles of
softdrinks or carbonated drinks. The tax was imposed upon dealers engeged in selling softdrinks or
carbonated drinks. When Ordinance 110, the tax was imposed upon an agent or consignee of any person,
association, partnership, company or corporation engaged in selling softdrinks or carbonated drinks, with
agent or consignee being particularly defined on the inserted provision Section 3-A. In effect, merchants
engaged in the sale of softdrinks, etc. are not subject to the tax unless they are agents or consignees of
another dealer who must be one engaged in business outside the City. Pepsi-Cola Bottling Co. filed suit to
recover sums paid by it to the city pursuant to the Ordinance, which it claims to be null and void.
Issue: Whether the Ordinance is discriminatory.
Held: The Ordinance, as amended, is discriminatory since only sales by agents or consignees of outside
dealers would be subject to the tax. Sales by local dealers, not acting for or on behalf of other merchants,
regardless of the volume of their sales , and even if the same exceeded those made by said agents or
consignees of producers or merchants established outside the city, would be exempt from the tax. The
classification made in the exercise of the authority to tax, to be valid must be reasonable, which would be
satisfied if the classification is based upon substantial distinctions which makes real differences; these are
germane to the purpose of legislation or ordinance; the classification applies not only to present conditions
but also to future conditions substantially identical to those of the present; and the classification applies
equally to all those who belong to the same class. These conditions are not fully met by the ordinance in
question.
Surigao Consolidated Mining vs. Collector GR L-14878, 26 December 1963 En Banc, Ragala (J): 10
concur
Facts: Before the outbreak of the War, the Surigao Consolidated Mining Co. was operating its mining
concessions in Mainit, Surigao. Due to the interruption of communications at the outbreak of the war, the
company lost contact with its mines and never received the production reports for the 4th quarter of 1941.
To avoid incurring any tax liability or penalty, it deposited of check payable to and indorsed in favor of the
City Treasurer, in payment of ad valorem taxes for the said period. After the war, the company filed its ad
valorem tax for the said period pursuant to Commonwealth Act 772. Its return was revised, until eventually
the company claimed a refund of P17,158.01. The collector of Internal Revenue denied the request for
refund.
Issue: Whether Surigao Consolidated may recover its tax payment in light of the condonation made under a
subsequent law, RA 81.
Held: RA 81, Section 1(d) provided that all unpaid royalties, ad valorem or specific taxes on all minerals
mined from mining claims or concessions existing an din force on 1 January 1942, and which minerals
were lost by reason of war, of circumstance arising therefrom are condoned The provision refers to the
condonation of unpaid taxes only. The condonation of a tax liability is equivalent and is in the nature of tax
exemption. Being so, it should be sustained only when expressed in explicit terms, and it cannot be
extended beyond the plain meaning of those terms. He who claims an exemption from his share of the
common burden of taxation must justify his claim by showing t hat the Legislature intended to exempt him.
The company failed to show any portion of the law that explicitly provided for a refund of those taxpayers
who had paid their taxes on the items.