COMMISSIONER OF INTERNAL REVENUE VS. ALGUE, INC., AND THE COURT OF TAX APPEALS
G.R. No. L-28896, February 17, 1988
Facts:
1. The Philippine Sugar Estate Development Company had earlier appointed Algue as its agent, authorizing it to sell its land, factories and oil manufacturing process.
2. Pursuant to such authority, Alberto Guevara, Jr., Eduardo Guevara, Isabel Guevara, Edith O’ Farell, and Pablo Sanchez worked for the formation of the Vegetable Oil Investment Corporation, inducing other persons to invest in it.
3. Ultimately, after its incorporation largely through the promotion of the said persons, this new corporation purchased the PSEDC properties.
4. For this sale, Algue received as agent a commission of P125,000.00, and it was from this commission that the P75,000.00 promotional fees were paid to the aforenamed individuals..
5. the CIR disallowed the P75,000.00 deduction claimed by private respondent Algue as legitimate business expenses in its income tax returns
6. Hence, this present petition
Issue:
Whether or not the CIR correctly disallowed the P75,000.00 deduction
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Ruling:
The promotional fees was not excessive.
The total commission paid by the Philippine Sugar Estate Development Co. to the private respondent was P125,000.00. After deducting the said fees, Algue still had a balance of P50,000.00 as clear profit from the transaction. The amount of P75,000.00 was 60% of the total commission. This was a reasonable proportion, considering that it was the payees who did practically everything, from the formation of the Vegetable Oil Investment Corporation to the actual purchase by it of the Sugar Estate properties.
It is worth noting at this point that most of the payees were not in the regular employ of Algue nor were they its controlling stockholders.
The Solicitor General is correct when he says that the burden is on the taxpayer to prove the validity of the claimed deduction. In the present case, however, we find that the onus has been discharged satisfactorily. The private respondent has proved that the payment of the fees was necessary and reasonable in the light of the efforts exerted by the payees in inducing investors and prominent businessmen to venture in an experimental enterprise and involve themselves in a new business requiring millions of pesos. This was no mean feat and should be, as it was, sufficiently recompensed.
It is said that taxes are what we pay for civilized society. Without taxes, the government would be paralyzed for lack of the motive power to activate and operate it. Hence, despite the natural reluctance to surrender part of one's hard-earned income to the taxing authorities, every person who is able to must contribute his share in the running of the government. The government, for its 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 it is an arbitrary method of exaction by those in the seat of power.
Taxes are the lifeblood of the government and so should be collected without unnecessary hindrance. On the other hand, such collection should be made in accordance with law as any arbitrariness will negate the very reason for government itself. It is therefore necessary to reconcile the apparently conflicting interests of the authorities and the taxpayers so that the real purpose of taxation, which is the promotion of the common good, may be achieved.
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