14 FEB
GR No. 143672| April 24, 2003 | J. Corona Test of Reasonableness
Facts:
Respondent corporation General Foods (Phils), which is engaged in the manufacture of “Tang”, “Calumet” and “Kool-Aid”, filed its income tax return for the fiscal year ending
February 1985 and claimed as deduction, among other business expenses, P9,461,246 for media advertising for
“Tang”.
The Commissioner disallowed 50% of the deduction claimed and assessed deficiency income taxes of P2,635,141.42
against General Foods, prompting the latter to file an MR which was denied.
General Foods later on filed a petition for review at CA, which reversed and set aside an earlier decision by CTA dismissing the company‟s appeal.
Issue:
W/N the subject media advertising expense for “Tang” was ordinary and necessary expense fully deductible under the NIRC
Held:
No. Tax exemptions must be construed in stricissimi juris against the taxpayer and liberally in favor of the taxing authority, and he who claims an exemption must be able to justify his claim by the clearest grant of organic or statute law. Deductions for income taxes partake of the nature of tax exemptions; hence, if tax exemptions are strictly construed, then deductions must also be strictly construed.
To be deductible from gross income, the subject advertising expense must comply with the following requisites: (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.
While the subject advertising expense was paid or incurred within the corresponding taxable year and was incurred in carrying on a trade or business, hence necessary, the parties‟
views conflict as to whether or not it was ordinary. To be deductible, an advertising expense should not only be necessary but also ordinary.
The Commissioner maintains that the subject advertising expense was not ordinary on the ground that it failed the two conditions set by U.S. jurisprudence: first, “reasonableness”
of the amount incurred and second, the amount incurred must not be a capital outlay to create “goodwill” for the product and/or private respondent‟s business. Otherwise, the expense must be considered a capital expenditure to be spread out over a reasonable time.
There is yet to be a clear-cut criteria or fixed test for
determining the reasonableness of an advertising expense.
There being no hard and fast rule on the matter, the right to a deduction depends on a number of factors such as but not limited to: the type and size of business in which the
taxpayer is engaged; the volume and amount of its net
earnings; the nature of the expenditure itself; the intention of the taxpayer and the general economic conditions. It is the interplay of these, among other factors and properly
weighed, that will yield a proper evaluation.
The Court finds the subject expense for the advertisement of a single product to be inordinately large. Therefore, even if it is necessary, it cannot be considered an ordinary expense deductible under then Section 29 (a) (1) (A) of the NIRC.
Advertising is generally of two kinds: (1) advertising to
stimulate the current sale of merchandise or use of services and (2) advertising designed to stimulate the future sale of merchandise or use of services. The second type involves expenditures incurred, in whole or in part, to create or maintain some form of goodwill for the taxpayer‟s trade or business or for the industry or profession of which the taxpayer is a member. If the expenditures are for the
advertising of the first kind, then, except as to the question of the reasonableness of amount, there is no doubt such
expenditures are deductible as business expenses. If,
however, the expenditures are for advertising of the second kind, then normally they should be spread out over a
reasonable period of time.
The company‟s media advertising expense for the promotion of a single product is doubtlessly unreasonable considering it comprises almost one-half of the company‟s entire claim for marketing expenses for that year under review. Petition granted, judgment reversed and set aside.
Philex Mining Corporation vs. CIR [G.R. No. 148187 (April 16, 2008)]
Post under case digests, Civil Law at Tuesday, February 21, 2012 Posted by Schizophrenic Mind
Facts: Petitioner Philex entered into an agreement with Baguio Gold Mining Corporation for the former to manage the latter’s mining claim know as the Sto. Mine. The parties’
agreement was denominated as “Power of Attorney”. The mine suffered continuing losses over the years, which resulted in petitioners’ withdrawal as manager of the mine.
The parties executed a “Compromise Dation in Payment”, wherein the debt of Baguio amounted to Php.
112,136,000.00. Petitioner deducted said amount from its gross income in its annual tax income return as “loss on the settlement of receivables from Baguio Gold against reserves and allowances”. BIR disallowed the amount as deduction for bad debt. Petitioner claims that it entered a contract of agency evidenced by the “power of attorney” executed by them and the advances made by petitioners is in the nature of a loan and thus can be deducted from its gross income.
Court of Tax Appeals (CTA) rejected the claim and held that it is a partnership rather than an agency. CA affirmed CTA Issue: Whether or not it is an agency.
Held: No. The lower courts correctly held that the “Power of Attorney” (PA) is the instrument material that is material in determining the true nature of the business relationship between petitioner and Baguio. An examination of the said PA reveals that a partnership or joint venture was indeed intended by the parties. While a corporation like the petitioner cannot generally enter into a contract of partnership unless authorized by law or its charter, it has been held that it may enter into a joint venture, which is akin to a particular partnership. The PA indicates that the parties had intended to create a PAT and establish a common fund for the purpose. They also had a joint interest in the profits of the business as shown by the 50-50 sharing of income of the mine.
Moreover, in an agency coupled with interest, it is the
agency that cannot be revoked or withdrawn by the principal due to an interest of a third party that depends upon it or the mutual interest of both principal and agent. In this case the non-revocation or non-withdrawal under the PA applies to the advances made by the petitioner who is the agent and not the principal under the contract. Thus, it cannot be
inferred from the stipulation that it is an agency.
THURSDAY, APRIL 23, 2009
BASILAN ESTATES V. CIR AND CTA (TAX)
The first question for resolution is whether depreciation shall be determined on the
acquisition cost or on the reappraised value of the assets.
DEPRECIATION is the gradual diminution in the
useful value of tangible property resulting from wear and tear and normal obsolescense. The term is also applied to amortization of the value of intangible assets, the use of which in the trade or business is definitely limited in duration. Depreciation
commences with the acquisition of the property and its owner is not bound to see his property gradually waste, without making provision out of earnings for its replacement. Accordingly, the law permits the taxpayer to recover gradually his capital investment in wasting assets free from income tax.
Precisely, Section 30 (f)(1) states:
In general - a reasonable allowance for deterioration of property arising out of its use or employment in the business or trade, or out of its not being used:
Provided, that when the allowance authorized under this subsection shall equal the capital invested by the taxpayer... no further allowance shall be made...
...allows deduction from gross income for
depreciation but limits the recovery to the capital invested in the asset being depreciated.
The income tax law does not authorize the
depreciation of an asset beyond its acquisition cost.
Hence, a deduction over and above such cost cannot be claimed and allowed. The reason is that
deductions from gross income are privileges, not matters of right. They are not created by implication but upon clear expression in the law.
Moreover, the recovery, free of income tax, of an amount more than the invested capital in an asset will transgress the underlying purpose of a
depreciation allowance. for then what the taxpayer would recover will be, not only the acquisition cost but also some profit. Recovery in due time thru depreciation on investment made is the philosophy behind depreciation allowance; the idea of profit on the investment made has never been the underlying reason for the allowance of a deduction for
depreciation.
Accordingly, the claim for depreciation has no
justification in the law. The determination therefore, of the Commissioner disallowing said amount,
affirmed by the CTA is sustained.
The second question for resolution is whether the miscellaneous expenses and officer's
travelling expenses are allowable expenses as the same could not be supported by
appropriate papers.
On this ground, the petitioner may be sustained for under Section 337 of the Tax Code, receipts and papers supporting such expenses need be kept by the taxpayer for a period of 5 years from the last entry. At the time of the investigation, said 5 years have lapsed. Taxpayer's stand on this issue is
therefore sustained.
The third question is on the unreasonably accumulated profits.
Section 25 of the Tax Code which imposes a surtax on profits unreasonably accumulated provides:
Sec. 25. Additional tax on corporations improperly accumulating profits or surplus - (a) Imposition of tax. - If any corporation, except banks, insurance companies, or personal holding companies, domestic or foreign, is formed or availed of for the purpose of preventing imposition of tax upon its shareholders or members or the shareholders or members of another corporation, through the medium of permitting its gains and profits to accumulate instead of being divided or distributed, there is levied and assessed against such corporation, for each taxable year, a tax equal to 25% of the undistributed portion of its
accumulated profits or surplus which shall be in
addition to the tax imposed by Section 24, and shall be computed, collected, and paid in the same
manner and subject to the same provisions of law, including penalties, as that tax.
Petitioner failed to provide sufficient explanation. In order to determine whether profits were accumulated for the reasonable needs of the business or to avoid the surtax upon shareholders, the controlling
intention of the taxpayer is that which is manifested at the time of the accumulation, not subsequently declared intentions which are merely the products of afterthought. As correctly held by the CTA, while certain expenses of the corporation were credited against large amounts, the unspent balance was
retained by the stockholders without refunding them to petitioner at the end of each year. These advances were in fact indirect loans to the stockholders
indicating the unreasonable accumulation or surplus beyond the needs of the business.
SILVERIO v. REPUBLIC
July 14, 2012 § Leave a Comment
Silverio v. Republic
October 22, 2007 (GR. No. 174689)
PARTIES:
petitioner: Rommel Jacinto Dantes Silverio respondent: Republic of the Philippines FACTS:
On November 26, 2002, Silverio field a petition for the
change of his first name “Rommel Jacinto” to “Mely” and his sex from male to female in his birth certificate in the RTC of Manila, Branch 8, for reason of his sex reassignment. He alleged that he is a male transsexual, he is anatomically male but thinks and acts like a female. The Regional Trial Court ruled in favor of him, explaining that it is consonance with the principle of justice and equality.
The Republic, through the OSG, filed a petition for certiorari in the Court of Appeals alleging that there is no law allowing change of name by reason of sex alteration. Petitioner filed a reconsideration but was denied. Hence, this petition.
ISSUE:
WON change in name and sex in birth certificate are allowed by reason of sex reassignment.
HELD:
No. A change of name is a privilege and not a right. It may be allowed in cases where the name is ridiculous, tainted with dishonor, or difficult to pronounce or write; a nickname
is habitually used; or if the change will avoid confusion. The petitioner’s basis of the change of his name is that he
intends his first name compatible with the sex he thought he transformed himself into thru surgery. The Court says that his true name does not prejudice him at all, and no law
allows the change of entry in the birth certificate as to sex on the ground of sex reassignment. The Court denied the
petition.
Philam Asset Management, Inc. vs CTA
G.R.156637 and 162004; December 14, 2005
Facts: Petitioner acts as investment manager of PFI &PBFI. It provides management &technical services and thus respectively paid for it’s services. PFI & PBFI withhold the amount of equivalent to 5% creditable tax regulation. On April 3, 1998, filed ITR with a net loss thus incurred withholding tax. Petitioner filed for refund from BIR but was unanswered . CTA denied the petition for review. CA held that to request for either a refund or credit of income tax paid, a corporation must signify it’s intention by marking the corresponding box on it’s annual corporate adjustment return.
Issue: Whether or not petitioner is entitled to a refund of it’s creditible taxes.
Ruling: Any tax income that is paid in excess of it’s amount due to the government may be refunded, provided that a taxpayer properly applies for the refund. One can not get a tax refund and a tax credit at the same time for the same excess to income taxes paid. Failure to signify one’s intention in Final Assessment Return
(FAR) does not mean outright barring of a valid request for a refund
Requiring that the ITR on the FAR of the succeeding year be
presented to the BIR in requesting a tax refund has no basis in law and jurisprudence. The Tax Code likewise allows the refund of taxes to taxpayer that claims it in writing within 2 years after payment of the taxes. Technicalities and legalism should not be misused by the government to keep money not belonging to it, and thereby enriched itself at the expense of it’s law-abiding citizens.
DELPHER TRADES CORPORATION vs. IAC G.R. No. L-69259 January 26, 1988
Facts:
Delfin Pacheco and sister Pelagia were the owners of a parcel of land in Polo (now Valenzuela). On April 3, 1974, they leased to Construction Components International Inc. the property and
providing for a right of first refusal should it decide to buy the said property.
Construction Components International, Inc. assigned its rights and obligations under the contract of lease in favor of Hydro Pipes Philippines, Inc. with the signed conformity and consent of Delfin and Pelagia. In 1976, a deed of exchange was executed between lessors Delfin and Pelagia Pacheco and defendant Delpher Trades Corporation whereby the Pachecos conveyed to the latter the
leased property together with another parcel of land also located in
Malinta Estate, Valenzuela for 2,500 shares of stock of defendant corporation with a total value of P1.5M.
On the ground that it was not given the first option to buy the leased property pursuant to the proviso in the lease agreement, respondent Hydro Pipes Philippines, Inc., filed an amended complaint for reconveyance of the lot. Trivia lang: Delpher Trades Corp is owned by the Pacheco Family, managed by the sons and daughters of Delfin and Pelagia. Their primary defense is that there is no transfer of ownership because the Pachecos
remained in control of the original co-owners. The transfer of ownership, if anything, was merely in form but not in substance.
Issue:
WON the Deed of Exchange of the properties executed by the Pachecos and the Delpher Trades Corporation on the other was meant to be a contract of sale which, in effect, prejudiced the
Hydro Phil’s right of first refusal over the leased property included in the “deed of exchange”? NO
Held:
By their ownership of the 2,500 no par shares of stock, the
Pachecos have control of the corporation. Their equity capital is 55% as against 45% of the other stockholders, who also belong to the same family group. In effect, the Delpher Trades Corporation is a business conduit of the Pachecos. What they really did was to invest their properties and change the nature of their ownership from unincorporated to incorporated form by organizing Delpher Trades Corporation to take control of their properties and at the same time save on inheritance taxes.
The “Deed of Exchange” of property between the Pachecos and
Delpher Trades Corporation cannot be considered a contract of sale. There was no transfer of actual ownership interests by the Pachecos to a third party. The Pacheco family merely changed their ownership from one form to another. The ownership
remained in the same hands. Hence, the private respondent has no basis for its claim of a light of first refusal under the lease contract.
CAVEAT: The case has not fully explained the difference between sale and barter. So here is a foreign decision.