Facts:

The case, Isabela Sugar Co., Inc. vs. Alfredo L. Yatco, Collector of Internal Revenue, was decided by the Supreme Court of the Philippines on April 25, 1939. The plaintiff, Isabela Sugar Co., Inc., is engaged in the milling of sugar cane, both their own and that of associated planters. The sugar produced is sold through the Sugar Central Agency of the Philippine National Bank. Upon receipt of payment for the sold sugar, this agency deducts an amount of interest related to the advances provided to Isabela Sugar Co., Inc. These advances are calculated based on the approximate value of the sugar sold, and section 1462 of the Revised Administrative Code imposes a 1% percentage tax on gross receipts for such industries. The plaintiff contested the application of this tax on the interest amount deducted by the Sugar Central Agency from the gross receipts.

In the lower court, the plaintiff filed a complaint seeking recovery of the amount paid as tax on the gross receipts, arguing that

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Facts:

Background of the Case

• The plaintiff, ISABELA SUGAR CO., INC., is engaged in the milling of sugar cane and operates in conjunction with associated planters.
• The sugar produced in its mill is sold through the Sugar Central Agency of the Philippine National Bank.

Transactional Arrangement with the Central Agency

• The Philippine National Bank’s Sugar Central Agency handles the receipt of payment for the sold sugar.
• Upon receipt, the Agency deducts an amount representing the interest on advances made to the plaintiff; these advances are based on the approximate value of the sugar sold.

Tax Imposition Under the Revised Administrative Code

• Section 1462 of the Revised Administrative Code mandates a percentage tax of 1 percent on the gross receipts derived from the milling industry.
• The tax is computed on the total amount received from the sales of sugar before any deductions, including the interest deduction made by the Central Agency.

Central Issue Presented in the Case

• The dispute centers on whether the interest deducted by the Sugar Central Agency should be excluded from or included in the gross receipts subject to the percentage tax.
• The question is crucial because the calculation of “gross receipts” under the law must clarify whether deductions such as interest affect the taxable base.

Procedural History and Decision

• The plaintiff filed a complaint to recover the amount of the percentage tax paid as a result of the deduction.
• The trial court rendered a decision which was then appealed, leading to the present resolution where the appellate court examined the interpretation and application of Section 1462.

Issue:

Tax Base Interpretation

• Whether the gross receipts should be computed as the total amount received from the sale of sugar before deductions, including interest on advances.
• Whether deducting the interest on advances from the gross receipts alters the taxable amount imposed by Section 1462.

Nature of the Deducted Interest

• Whether the deducted interest is merely a cost of production and thus should be excluded from the gross receipts for tax purposes.
• The legal effect of such deductions on the overall computation of percentage tax liability.

Ruling:

• (Subscriber-Only)

Ratio:

• (Subscriber-Only)

Doctrine:

• (Subscriber-Only)