Case Summary (G.R. No. L-28896)
Key Dates and Procedural Background
• January 14, 1965 – CIR issues delinquency assessment of ₱83,183.85 for taxable years 1958–1959.
• January 18, 1965 – Algue files letter of protest, duly stamped received by the CIR.
• March 12, 1965 – Warrant of distraint and levy presented; Algue’s counsel refuses service citing pending protest.
• April 7, 1965 – CIR informs counsel of implied protest rejection and serves the warrant.
• April 23, 1965 – Algue files petition for review with the Court of Tax Appeals (CTA), within the thirty-day period under Republic Act No. 1125.
Substantive Issue
Whether the CIR properly disallowed Algue’s claim of ₱75,000 as promotional fees—a deduction for “ordinary and necessary” business expenses—and whether Algue’s appeal was timely and in accordance with law.
Court of Tax Appeals Findings
• The ₱75,000 was paid from Algue’s ₱125,000 commission for services rendered in organizing the Vegetable Oil Investment Corporation and facilitating the asset purchase.
• Payments were made periodically, not as dividends; each payee reported and paid income taxes on their share.
• The amount represented 60% of the total commission, a reasonable allowance given the promoters’ substantial efforts.
Legal Framework and Analysis
Applicable Constitution: 1987 Philippine Constitution (ratified February 1987)
Statutes and Regulations:
• Republic Act No. 1125 – Thirty-day period for filing an appeal from a CIR decision.
• National Internal Revenue Code, Sec. 30(a)(1) – Deduction of ordinary and necessary business expenses, including reasonable compensation for services rendered.
• Revenue Regulations No. 2, Sec. 70(1) – Compensation payments must be reasonable and actually for services rendered.
Analysis:
• The timely protest suspended and then restarted the reglementary period, rendering the April 23 petition seasonable.
Case Syllabus (G.R. No. L-28896)
Background and Policy Considerations
- Taxes are described as the “lifeblood of the government” and must be collected without unnecessary hindrance.
- Collection must follow legal procedures; arbitrariness undermines the government’s legitimacy.
- The purpose of taxation is the promotion of the common good, requiring a balance between revenue authorities’ powers and taxpayers’ rights.
Statement of Facts
- Algue, Inc. is a domestic corporation engaged in engineering, construction, and allied activities.
- On January 14, 1965, the Commissioner of Internal Revenue assessed Algue for P83,183.85 as delinquent income taxes for 1958 and 1959.
- On January 18, 1965, Algue filed a letter of protest/request for reconsideration, physically received by the BIR on the same day.
- A warrant of distraint and levy was prepared on March 12, 1965, but was not served due to the pending protest.
- On April 7, 1965, when informed that the protest had been disregarded, Algue’s counsel accepted service of the warrant.
- On April 23, 1965, Algue filed a petition for review with the Court of Tax Appeals (CTA).
Procedural Issue: Timeliness of the Appeal
- Republic Act No. 1125 grants a 30-day period to appeal after receipt of the decision or ruling challenged.
- The filing of the letter of protest on January 18, 1965 suspended the reglementary period.
- The period resumed on April 7, 1965, when the implied rejection of the protest was communicated and the warrant was served.
- Only 20 days of the 30-day period had elapsed by April 23, 1965, making the CTA petition timely.