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Commissioner of Internal Revenue v. Algue, et.al.

G.R. No. L-28896

Feb 17, 1988

Cruz, J.:

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, P75,000in 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 and 1959. Algue filed a protestor 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 distraint and
levy. Algue, however, filed a petition for review with the Court of Tax Appeals.

Whether the assessment was reasonable.

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.