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Hospital De San Juan De Dios, Inc. vs. Commissioner of Internal Revenue G.R. No.

L-31305 May 10, 1990 Facts: Issue: Whether or not dividends and interests were deductible as business or administrative expenses. Held: No. Petitioner failed to establish by competent proof that its receipt of interests and dividends constituted the carrying on of a "trade or business" so as to warrant the deductibility of the expenses incurred in their realization. The Court upheld the findings of the Court of Tax Appeals that the interests and dividends received by the petitioner "were merely incidental income to petitioner's main activity, which is the operation of its hospital and nursing schools, hence the conclusion is inevitable that petitioner's activities never went beyond that of a passive investor, which under existing jurisprudence do not come within the purview of carrying on any 'trade or business'." ESSO STANDARD Eastern, Inc. vs. The Commissioner of Internal Revenue G.R. Nos. L-28508-9 July 7, 1989 Facts: Issue: Whether or not margin fee is a tax. Held: No. In Caltex (Phil.) Inc. v. Acting Commissioner of Customs, the Court stated through Justice Jose P. Bengzon: A margin levy on foreign exchange is a form of exchange control or restriction designed to discourage imports and encourage exports, and ultimately, 'curtail any excessive demand upon the international reserve' in order to stabilize the currency. Originally adopted to cope with balance of payment pressures, exchange restrictions have come to serve various purposes, such as limiting non-essential imports, protecting domestic industry and when combined with the use of multiple currency rates providing a source of revenue to the government, and are in many developing countries regarded as a more or less inevitable concomitant of their economic development programs. The Court concludes then that the margin fee was imposed by the State in the exercise of its police power and not the power of taxation.

Commissioner of Internal Revenue vs. Isabela Cultural Corporation, G.R. No. 172231 February 12, 2007 Facts: Isabela Cultural Corporation, a domestic corporation, received from the BIR an assessment notice for deficiency income tax and for deficiency expanded withholding tax inclusive of surcharges and interest, both for the taxable year 1986. The deficiency income tax arose from the BIRs disallowance of ICCs claimed expense deductions for professional and security services billed to and paid by ICC and the alleged understatement of ICCs interest income on the three promissory notes due from Realty Investment, Inc. The deficiency expanded withholding tax was allegedly due to the failure of ICC to withhold 1% expanded withholding tax on its claimed P244,890.00 deduction for security services. Issue: Whether or not the expenses for professional and security services from ICCs gross income are allowable deductions. Held: The requisites for the deductibility of ordinary and necessary trade, business, or professional expenses, like expenses paid for legal and auditing services, are: (a) the expense must be ordinary and necessary; (b) it must have been paid or incurred during the taxable year; (c) it must have been paid or incurred in carrying on the trade or business of the taxpayer; and (d) it must be supported by receipts, records or other pertinent papers. The requisite that it must have been paid or incurred during the taxable year is further qualified by Section 45 of the National Internal Revenue Code (NIRC). The Isabela Cultural Corporation failed to discharge the burden of proving that the claimed expense deductions for the professional services were allowable deductions for the taxable year 1986. Hence, per Revenue Audit Memorandum Order No. 1-2000, they cannot be validly deducted from its gross income for the said year and were therefore properly disallowed by the BIR. As to the expenses for security services, the records show that these expenses were incurred by ICC in 1986 and could therefore be properly claimed as deductions for the said year.

Aguinaldo Industries Corporation vs. Commissioner of Internal Revenue and The Court of Tax Appeals G.R. No. L-29790 February 25, 1982 Facts: Aguinaldo Industries Corporation is a domestic corporation engaged in the manufacture of fishing nets, a tax-exempt industry, and the

manufacture of furniture. Its business of manufacturing fishing nets is handled by its Fish Nets Division, while the manufacture of Furniture is operated by its Furniture Division. Petitioner acquired a parcel of land in Muntinglupa, Rizal, as site of the fishing net factory. Later, when another parcel of land in Marikina Heights was found supposedly more suitable for the needs of petitioner, it sold the Muntinglupa property, Petitioner derived profit from this sale which was entered in the books of the Fish Nets Division as miscellaneous income to distinguish it from its tax-exempt income. For the year 1957, petitioner filed two separate income tax returns one for its Fish Nets Division and another for its Furniture Division. After investigation of these returns, the examiners of the Bureau of Internal Revenue found that the Fish Nets Division deducted from its gross income for that year the amount of P61,187.48 as additional remuneration paid to the officers of petitioner. The examiner further found that this amount was taken from the net profit of an isolated transaction (sale of aforementioned land) not in the course of or carrying on of petitioner's trade or business. Issue: Whether or not the bonus given to the officers of the petitioner upon the sale of its Muntinglupa land is an ordinary and necessary business expense deductible for income tax purposes. Held: The bonus given to the officers of the petitioner as their share of the profit realized from the sale of petitioner's Muntinglupa land cannot be deemed a deductible expense for tax purposes, even if the aforesaid sale could be considered as a transaction for Carrying on the trade or business of the petitioner and the grant of the bonus to the corporate officers pursuant to petitioner's by-laws could, as an intra-corporate matter, be sustained. The records show that the sale was effected through a broker who was paid by petitioner a commission of P51,723.72 for his services. On the other hand, there is absolutely no evidence of any service actually rendered by petitioner's officers which could be the basis of a grant to them of a bonus out of the profit derived from the sale. This being so, the payment of a bonus to them out of the gain realized from the sale cannot be considered as a selling expense; nor can it be deemed reasonable and necessary so as to make it deductible for tax purposes.

Commissioner of Internal Revenue vs. Court of Appeals, Court of Tax Appeals and Young Men's Christian Association Of The Philippines, Inc.

G.R. No. 124043 October 14, 1998 Facts: Private Respondent YMCA is a non-stock, non-profit institution, which conducts various programs and activities that are beneficial to the public, especially the young people, pursuant to its religious, educational and charitable objectives. The commissioner of internal revenue (CIR) issued an assessment to private respondent for deficiency income tax, deficiency expanded withholding taxes on rentals and professional fees and deficiency withholding tax on wages. Private respondent formally protested the assessment. YMCA claimed that they will fall under the last paragraph of Section 27 of the Tax Code and any income derived therefrom shall not be taxable. Issue: Whether or not the rental income of the YMCA from its real estate subject to tax. Held: Yes. Taxes are the lifeblood of the nation, the Court has always applied the doctrine of strict in interpretation in construing tax exemptions. 18 Furthermore, a claim of statutory exemption from taxation should be manifest and unmistakable from the language of the law on which it is based. Thus, the claimed exemption "must expressly be granted in a statute stated in a language too clear to be mistaken." In the instant case, the exemption claimed by the YMCA is expressly disallowed by the very wording of the last paragraph of then Section 27 of the NIRC which mandates that the income of exempt organizations (such as the YMCA) from any of their properties, real or personal, be subject to the tax imposed by the same Code. Because the last paragraph of said section unequivocally subjects to tax the rent income of the YMCA from its real property, the Court is dutybound to abide strictly by its literal meaning and to refrain from resorting to any convoluted attempt at construction.