Zamora v.

CIR

176

G.R. No. L-15280, May 31, 1963, Paredes, J.

Digested by Pat Law 129 A- Tax 1
Topic: Depreciation base
FACTS
Zamora, owner of the Bayview Hotel and Farmacia Zamora, Manila, filed his ITRs for 1951 and
1962.
CIR found that he failed to file his return of capital gains derived from the sale of certain real
properties and claimed deductions which were not allowable, including:
o 3 1/2 %, per annum, as the rate of depreciation of the Bay View Hotel
o P20, 597.00 as promotional expenses for the promotion of his hotels
CIR required Zamora to pay deficiency income tax. CTA affirmed.
o CTA only allowed 2 1/2 % as the rate of depreciation of Bay View Hotel.
ISSUES & HOLDING
Whether the 2 % rate of depreciation as ordered by CTA is proper- YES
RATIO
Re: rate of depreciation (relevant topic)
ZAMORA: 3 % per annum as rate of depreciation is justified because:
1.
2.
3.

The Ermita district, where the Bayview Hotel is located, is now becoming a commercial district
The hotel has no room for improvement
The changing modes in architecture, styles of furniture and decorative designs, must meet the taste of a fickle
public

SC: The CTA, in estimating the reasonable rate of depreciation allowance for hotels made of concrete
and steel at 2 %, the three factors mentioned had been taken into account already.
An average hotel building is estimated to have a useful life of 50 years, but inasmuch as the
useful life of the building for business purposes depends to a large extent on the suitability of the
structure to its use and location, its architectural quality, the rate of exchange in population, the
shifting of land values, as well as the extent and maintenance and rehabilitation, it is allowed a
depreciation rate of 2 % corresponding to a normal useful life of 40 years.
This finding was based on a publication of the US Federal Internal Revenue Service, which was
made after a study of the lives of the properties.
o True that the publication has no binding force but it has strong persuasive effect
considering that the same has been the result of scientific studies and observation for a
long period in the US after whose income tax law ours is patterned.

Re: Promotional expenses

Under the Tax Code, in computing net income, there shall be allowed as deductions all the
ordinary and necessary expenses paid or incurred during the taxable year, in carrying on any
trade or business.
Claims for deductions of promotion expenses or entertainment expenses must be substantiated or
supported by record in detail the amount and nature of the expense incurred.
In this case, the alleged expenses were not supported by receipts and no showing how the alleged
amount of P20, 957.00 was spent.
CTA considered 50% of the amount as business expense and 50% as personal expense. Said
allocation is fair considering that there was no receipt or proof whatsoever to explain the alleged
business expenses.

Re: capital gains derived from the sales of real properties in Manila and Quezon City
The purchase price was not entirely paid in Japanese war notes but 1.2 thereof was in PH
currency, and that during certain periods of the enemy occupation, the value of the Japanese war
notes was very much less than the value of the genuine PH currency.
This being the case, the Ballantyne Scale of values should be applied. (see case for computation)
o Basically, after applying the scale, there is additional income which Zamora failed to
declare in his ITR, so liable for income deficiency tax.
DISPOSITIVE
Affirmed. Petition denied.