Vous êtes sur la page 1sur 4

COLLECTOR V. GOODRICH INTERNATIONAL RUBBER CO.

Facts: Goodrich claimed for deductions based upon receipts issued, not by entities in which the alleged expenses had been
incurred, but by the officers of Goodrich who allegedly paid for them.
The Commissioner disallowed deductions in the amount of P50, 455.41 (for the year 1951) for bad debts and P30, 188.88 (for year
1952) for representation expenses.
Goodrich appealed from the said assessment to the Court of Tax Appeals (CTA) which allowed the deduction for bad debts but
disallowing the alleged representation expenses. CTA amended its decision allowing the deduction of representation expenses.
The Government appealed to the SC. The alleged bad debts are the following:
1. Portillo's Auto Seat Cover
630.31
2. Visayan Rapid Transit
17,810.26
3. Bataan Auto Seat Cover
373.13
4. Tres Amigos Auto Supply
1,370.31
5. P. C. Teodorolawphil
650.00
6. Ordnance Service, P.A.
386.42
7. Ordnance Service, P.C.
796.26
8. National land Settlement Administration
3,020.76
9. National Coconut Corporation
644.74
10. Interior Caltex Service Station
1,505.87
11. San Juan Auto Supply
4,530.64
12. P A C S A
45.36
13. Philippine Naval Patrol
14.18
14. Surplus Property Commission
277.68
15. Alverez Auto Supply
285.62
16. Lion Shoe Store
1,686.93
17. Ruiz Highway Transit
2,350.00
18. Esquire Auto Seat Cover
3,536.94
TOTAL
50, 455.41*
Issue: Whether or not these bad debts are properly deducted.
Held: The claim for deduction for debt numbers 1-10 is REJECTED. Goodrich has not established either that the debts are actually
worthless or that it had reasonable grounds to believe them to be so.
NIRC permits the deduction of debts actually ascertained to be worthless within the taxable year obviously to prevent arbitrary
action by the taxpayer, to unduly avoid tax liability.
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.
The payments made, after being characterized as bad debts, merely stresses the undue haste with which the same had been
written off. Goodrich has not proven that said debts were worthless. There was no evidence that the debtors cannot pay them.
SC held that the claim for bad debts are allowed but only up to P22, 627.35. (Those from Debts 11-18)

PHIL REFINING COMPANY V. CA


Facts: In 1985, petitioner filed its ITR where it claimed 16 items amounting to P713,070.93 as bad debts and therefor deductible.
Subsequently, the Commissioner for Internal Revenue disallowed such deductions and assessed petitioner to pay a deficiency tax
for the year of 1985. Petitioner paid the deficiency tax under protest which the Commissioner denied.

Upon a petition for review, the CTA modified the findings of the Commissioner by reducing the deficiency tax assessment on the
basis that three of the sixteen supposed bad debts could be allowed as deductions. The CA later on agreed with the CTA.
Issue: WoN the Phil Refining Company is liable for a deficiency tax as a result of disallowance of bad debts as deductible items?
Held: The SC upheld the ruling of the CA which it found to be in accordance with the SC's ruling in Collector v Goodrich. It held the
petitioner failed to substantiate the worthlessness of the 13 debts which it claimed as deductions. As per the ruling in Collector
v Goodrich, to qualify as a bad debt, a TP must show: 1. that there is a valid and subsisting debt;
2. that the debt must be actually ascertained to be worthless and uncollectible during the taxable year;
3. the debt must be charged off during the taxable year; and
4. the debt must arise from the business or trade of the TP.
In addition, the Court said, before a debt can be considered worthless, the TP must also show that it is indeed uncollectible even
in the future. Furthermore, the TP must undertake several steps to prove that he exerted diligent efforts to collect the debt:
1. sending statements of accounts to the debtors; 2. sending of collection letters; 3. giving the account to a lawyer for collection;
and 4. filing a collection case in court. In the case at bar, the petitioner miserably failed to show any of the foregoing.
The only piece of evidence it offered to show the worthlessness of the debts was the testimony of the company's financial adviser
or accountant. The Court found that this lacked the required probity to establish that the accounts it claimed as bad debts were
indeed worthless. Apart from such testimony, the petitioner failed to introduce even a single iota of evidence to bolster its claim
of worthlessness. (NOTE: In the rest of the case, the Court presents the allegation of the petitioner as to why it could not collect
on any of the 13 debts followed by a statement how the petitioner failed to introduce evidence to substantiate such allegation.)

ROXAS V. CTA
Facts: Don Pedro Roxas and Dona Carmen Ayala, Spanish subjects, transmitted to their grandchildren by hereditary succession
several properties. To manage the above-mentioned properties, said children, namely, Antonio Roxas, Eduardo Roxas and Jose
Roxas, formed a partnership called Roxas y Compania. At the conclusion of the WW2, the tenants who have all been tilling the
lands in Nasugbu for generations expressed their desire to purchase from Roxas y Cia. the parcels which they actually occupied.
For its part, the Government, in consonance 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. Conferences were held with the
farmers in the early part of 1948 and finally the Roxas brothers agreed to sell 13,500 hectares to the Government for distribution
to actual occupants for a price of P2,079,048.47 plus P300,000.00 for survey and subdivision expenses. It turned out however that
the Government did not have funds to cover the purchase price, and so a special arrangement was made for the Rehabilitation
Finance Corporation to advance to Roxas y Cia. The amount of P1,500,000.00 as loan. Collateral for such loan were the lands
proposed to be sold to the farmers. Under the arrangement, Roxas y Cia. allowed the farmers to buy the lands for the same price
but by installment, and contracted with the Rehabilitation Finance Corporation to pay its loan from the proceeds of the yearly
amortizations paid by the farmers. The CIR demanded from Roxas y Cia the payment of deficiency income taxes resulting from the
inclusion as income of Roxas y Cia. of the unreported 50% of the net profits for 1953 and 1955 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. For the reason that Roxas y Cia. subdivided its Nasugbu farm lands and sold them
to the farmers on installment, the Commissioner considered the partnership as engaged in the business of real estate, hence, 100%
of the profits derived therefrom was taxed. The Roxas brothers protested the assessment but inasmuch as said protest was denied,
they instituted an appeal in the CTA which sustained the assessment. Hence, this appeal.
Issue: Is Roxas y Cia. liable for the payment of deficiency income for the sale of Nasugbu farmlands?
Held: NO. The proposition of the CIR cannot be favorably accepted in this isolated transaction with its peculiar circumstances in
spite of the fact that there were hundreds of vendees. Although they paid for their respective holdings in installment for a period
of 10 years, it would nevertheless not make the vendor Roxas y Cia. a real estate dealer during the 10-year amortization period. It
should be borne in mind that 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 bounden 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. However, the
Government could not comply with its duty for lack of funds. Obligingly, 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. For this magnanimous act, the municipal council of Nasugbu passed a resolution expressing the
people's gratitude.
In fine, 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%.

ATLAS CONSOLIDATED MINING CO. V. CIR


Facts: Atlas Consolidated Mining & Devt Corp is a corporation engaged in the mining industry. It was assessed deficiency income
tax for the year 1958 as a result of the disallowance of certain items claimed by the company as deductions from its gross income.
Atlas claimed the following items as deductible from its gross income: (1) transfer agents fee, (2) stockholders relation service fee,
(3) US stock listing expenses, (4) suit expenses, (5) provision for contingencies. The Commissioner of Internal Revenue disallowed
all these items. Atlas elevated the issue to the Court of Tax Appeals. The CTA rendered a decision allowing the said items, except
for the stockholders relation service fee and the suit expenses. Both Atlas and the CIR went to the Supreme Court to appeal the
CTA decision. In GR No. L-26911, Atlas argues that the CTA should not have disallowed the stockholders relation service fee. The
corporation contends that such fee constitutes an ordinary and necessary business expense, and should, therefore, be allowed as
a deductible expense from the companys gross income. In GR No. L-26924, the CIR argues that the transfer agents fee and the US
stock listing fee should not have been allowed as deductions from gross income in the absence of proof of payment for such
expenses. The CIR also argues that the US stock listing expenses should be disallowed for not being ordinary and necessary and
not incurred in trade or business, as required under Sec 30 (a) (1) of the National Internal Revenue Code. The CIR also contends
that the correct amount of disallowance for suit expenses should be PhP 17,499.98 and not PhP 6,666.65.
Issue: In GR No. L-26911, whether or not the expenses paid for the services rendered by a public relations firm, P. K. Macker & Co.,
labeled as stockholders relation service fee is an allowable deduction as business expense. In GR No. L-26924, whether or not the
transfer agents fee and the US stock listing fee should have been allowed as deduction in the absence of proof of payments.
Whether or not the US stock listing expenses should be disallowed for not being ordinary and necessary and not incurred in trade
or business. Whether PhP 17,499.98 or PhP 6,666.65 is the correct amount of disallowance for suit expenses.
Held: GR No. L-26911. Under Sec 30 (a) (1) of the Tax Code, three conditions have to be complied with before a business expense
is allowed as a deduction from gross income: (1) the expense must be ordinary and necessary, (2) it must be paid or incurred within
the taxable year, and (3) it must be paid or incurred in carrying a trade or business. The Court sustained the ruling of the CTA that
the expenditure paid to P. K. Macker & Co. denominated as stockholders relation service fee is not an ordinary expense. The fee
was paid to the PR firm as compensation for services carrying on the selling campaign in an effort to sell Atlas additional capital
stock. Such is not an ordinary expense because, according to the Court, expenses relating to the recapitalization and reorganization
of a corporation, the cost of obtaining stock subscription, promotion expenses, and commission or fees paid for the sale of stock
reorganization are capital expenditures. The stockholders relation service fee is not deductible from Atlas gross income.
GR No. L-26924. The Court agreed with the CTA that the CIR cannot raise the issue of payment for the first time on appeal. The
fact of payment was never controverted by the CIR during the proceedings. Failure to assert a question within a reasonable time
warrants a presumption that the party entitled to assert it either has abandoned or declined to assert it. The Court held that the
US stock listing fee is an ordinary and necessary business expense and was correctly allowed by the CTA as a deduction. The stock
listing fee is paid annually to a stock exchange for the privilege of having Atlas stock listed. A single payment made to the stock
exchange is considered a capital expenditure (Domes Mines case). However, payments to the stock exchange made annually or in
a recurring manner are considered ordinary and necessary business expenses (Chesapeake Corporation case). The fees paid by
Atlas partake of the latter. The Court reiterated that it is well-settled that litigation expenses incurred in defense or protection of
title are capital in nature and not deductible. The Court sustained the CIR that the correct amount of disallowance for litigation or
suit expenses is PhP 17,499.98.

FILIPINAS SYNTHETIC FIBER CORP. V. CA


Topic: When does the liability to hold tax at source on income payments accrue?
FACTS: Filipinas Synthetic Fiber Corp., a domestic corporation, is protesting part of the deficiency withholding tax assessed upon
it by the Commissioner of Internal Revenue which pertains to interest and compromise penalties for the alleged late payment of
withholding taxes due on interest loans, royalties, and guarantee fees paid by Filipinas Synthetic Fiber Corp. to non-resident
corporations.
ISSUE AND RULING:
1. Whether the liability to withhold tax at source on income payments to non-resident foreign corporations arises upon
remittance of the amounts due to the foreign creditors or upon accrual thereof.
The Tax Code is silent as to when the duty to withhold the taxes arise. Thus, to determine the same, an inquiry as to the nature of
the accrual method of accounting (which is the method used by the petitioner) must be made. Under the accrual basis method, it
is the right to receive income, and not the actual receipt, that determines when to include the amount in gross income. Therefore,
the liability arises UPON REMITTANCE OF THE AMOUNTS, and not upon accrual thereof.
NOTES:
Under the accrual basis method of accounting, income is reportable when all the events have occurred that fix the taxpayers right
to receive the income, and the amount can be determined with reasonable certainty.
Requisites of the accrual method of accounting:
a. That the right to receive the amount must be valid, unconditional and enforceable;
b. The amount must be reasonably susceptible of accurate estimate; and
c. There must be a reasonable expectation that the amount will be paid in due course.