ALHAMBRA CIGAR & CIGARETTE MANUFACTURING COMPANY

vs.
THE COLLECTOR OF INTERNAL REVENUE
G.R Nos. L-12026 and L-12131
May 29, 1959
Facts:
The Alhambra Cigar and Cigarette Manufacturing Co. filed its income tax returns for the
years 1949, 1950, 1951, 1952 and 1953, and paid the income taxes computed in accordance with
said returns. Upon subsequent verification thereof, on November 27, 1954, the Collector of
Internal Revenue assessed and demanded from the company, by way of deficiency taxes for said
years, the sums of P26,369.04, P42,653.00, P61,308.00, P58,404.00 and P51,826.00,
respectively, or the aggregate sum of P240.560.04, plus 5 per cent surcharge and 1 per cent
monthly interest from January 15, 1955. The Company appealed through the CTA and rendered a
decision reducing the deficiency income taxes to P14,458.05, P20,176.00, P27,010.00,
P21,759.00 and P20,201.00, respectively, or a total of P103,604.05.
Issue: Whether or not the expenses claimed by the company are allowable deductions
Decision:
Under section 30 of the Tax Code, whenever a controversy arises on the deductibility, for
purposes of income tax, of certain items for alleged compensation of officers of the taxpayer, two
questions become material, namely: (a) Have "personal services" been "actually rendered" by
said officers? (b) In the affirmative case, what is the "reasonable allowance" therefor? When the
Collector disallowed the fees, bonuses and commissions aforementioned, and the company
appealed there from, it became necessary for the lower court to determine whether said officer
had correctly applied section 30 of the Tax Code, and this, in turn, required the consideration of
the two questions already adverted to. In the circumstances surrounding the case, the lower court
has correctly construed and applied said provision.
Decision affirmed.