CIR v.

TOURS SPECIALIST
G.R. No. L-66416 March 21, 1990

FACTS:
A foreign tour agency entrusted to respondent, a domestic travel agency, money
for the purpose of paying the hotel room charges of tourists. Another reason for the
entrustment was to avoid transfer charges from time to time. Considering this
arrangement, CIR assessed respondent for deficiency tax including the gross receipts
of the entrusted hotel room charges.
Respondent contended that the money was entrusted to it as an act of
accommodation and to avoid several transfer charges. The CTA decided in favor of
respondent.

ISSUE:
Whether or not the entrusted money by the foreign agency form part of the gross
receipts subject to the deficiency tax.

HELD:
NO, the Tax Code does not specify that gross receipts from entrusted money is
taxable. Such money does not belong to the entrustee and does not benefit from it.
Further, no law is needed to make such express exemptions
In the case, the arrangement was only done to accommodate the foreign travel
agency. The respondent did not own the money nor did it benefit from it.
LIMPAN v. CIR
G.R. No. L-21570             July 26, 1966

FACTS:
The BIR discovered that petitioner, a domestic corporation engaged in the
business of leasing real properties, has understated its rental incomes. The CIR
demanded petitioner to pay deficiency tax and surcharge which the latter denied
because these payments were either deposited to the courts or have not been received
yet.

ISSUE:
Whether or not BIR was correct in assessing deficiency tax for undeclared rental
income.

HELD:
Yes, the BIR was correct. Jurisprudence dictates that there is constructive receipt
if it has been deposited to the court due to the refusal of acceptance.
In the case, it was found out that petitioner refused to accept payments from the
tenants which led the latter to deposit them to the court. Hence, petitioner was deemed
to constructively received the rental income and should have included it as part of its
income.
CIR v. CA
G.R. No. 95022 March 23, 1992

FACTS:
The GCL Retirement Plan is an employees' trust maintained by the employer,
GCL Inc. Its purpose was to provide retirement, pension, disability, and death benefits
to its employees. For this reason, petitioner CIR declared it as tax exempt. However,
petitioner assessed that bank deposit interests of the trust fund was an income that was
taxable.
Respondent CA believed otherwise and ordered a refund which petitioner sought
to reverse.

ISSUE:
Whether or not tax exemption extends up to bank interest deposits.

HELD:
Yes, tax exemptions apply to bank interest deposits. The Tax Code expressly
states that everything that forms part of the employer's trust is covered.
In the case, since the interests form part of the employer's trust, it is wrong to tax
it. Further, the SC added that taxing the interests which the employees trust
accumulated would go against the intention of the law.
BORROMEO v. CSC
G.R. No. 96032             July 31, 1991

FACTS:
Petitioner was the Chairman of the CSC, a Constitutional Commission. Upon
retirement, petitioner wrote COA a letter asking whether to include the cost of living
allowances (COLA) and representation and transportation allowances (RATA) received
at the time of retirement to the computation of the money value of the terminal leave
pay. COA replied that these allowances should be included. However, Department of
Budget and Management (DBM) refused to release the money. Respondent submitted
to DBM’s decision. Petitioner contended that DBM and respondent could not reverse
the decision of COA because it was final and executory. DBM rejected petitioner’s
contention citing that COA’s decision had no legal basis.

ISSUE:
Whether or not COLA and RATA received at the time of retirement should be included
in the computation of the money value of the terminal leave pay.

HELD:
Yes, it should be included. R.A. 910 expressly provides that COLA and RATA
should be included in the terminal leave pay.
In the case, the Administrative provision that DBM and CSC cited would not be
applicable to the cause of petitioner because it would only apply to cumulation of salary.
What petitioner was seeking was cumulation of leave credits which was proper for a
retiring employee. Hence, R.A. 910 would govern the cause of petitioner.
In addition, terminal leave pay would not form part of the gross income of
petitioner because terminal leave pay is considered as a retirement benefit. Thus, it is
not taxable.
MIGUEL J. OSSORIO PENSION FOUNDATION v. CA
G.R. No. 162175               June 28, 2010

FACTS:
Petitioner, a non-stock, non-profit corporation organized to administer the
employees’ trust fund of Victoria Milling Corporation (VMC), bought a portion of land
through VMC using part of the employees’ trust fund. Petitioner owned almost half of
the share. Eventually, it needed to sell the lot because it lacked the funds to pay the
retirement and pension benefits of VMC employees.
It sold the lot to Metrobank VMC being the sole vendor. Metrobank, as a
withholding agent, payed the taxes on the sale of real property. After which, petitioner
filed a tax refund because as a trustee of employees’ funds, its portion of the sale
should be exempted from tax.
BIR denied the claim. Petitioner failed to prove that it is a co-owner of the lot sold
by VMC and the deed of sale with the name of VMC alone was a sufficient evidence
that no co-ownership exists, hence, no tax exemption.

ISSUE: Whether or not petitioner was exempted from the tax on the sale of lots with
respect to its share.

HELD:
Yes, petitioner should be exempted from tax regarding the sale.
The Civil Code provides that when two or more entities agree to purchase a
property and further agreed that the said property shall be name to one of them, a trust
is formed. Also, the Tax Code provides that a corporation organized to administer
employees’ trust fund for the employees retirement and pension benefits is exempted
from payment of income tax as long as the trust fund is involved.
In the case, it is clearly established that petitioner and VMC are co-owners of the
lot sold as provided by their evidences. Also, petitioner has completely fulfilled the
requirements the law has provided for a corporation holding trust funds of employees be
tax-exempt. Therefore, petitioner should be exempted from the income tax on the sale
of real property up to the extent of its share.
COMMISSIONER OF INTERNAL REVENUE v. CITYTRUST INVESTMENT PHILS.,
INC.
G.R. No. 139786             September 27, 2006

FACTS:
Respondent, is domestic corporation engaged in doing quasi-banking activities. It
paid its tax amounting to 5% of its gross receipt total. Meanwhile, CTA decided a case
ruling that in computing the 5% gross receipt tax, it should be gross receipts less the
20% final withholding tax. Thus, respondent filed a refund in this light.
Petitioner argued that there was no specific law that excludes the 20% final
withholding tax from the computation. Further, imposing final withholding tax and gross
receipt tax does not constitute double taxation.

ISSUE:
Whether or not the 20% final withholding tax should be lessened in the computation of
the 5% gross receipt tax.

HELD:
No, the Supreme Court has decided several cases that have put light on what a
gross receipt is: gross receipts are the entire receipts without any deduction.
As applied in the case, the lessening of the 20% final withholding tax should not
be applied to the computation of the 5% gross receipt because it would go against the
definition of what a gross receipt is.
CONSOLIDATED CASES OF CONFEDERATION FOR UNITY ET AL v. CIR
G.R. No. 213446 July 03, 2018

FACTS:
Respondent, the Commissioner of Internal Revenue, issued an RMO to clarify
the responsibilities of the public sector to withhold taxes on its transactions as customer
and as under the Tax Code and special laws. Petitioner, organizations and unions of
employees from various government agencies, questioned the constitutionality of the
RMO, particularly Sections 3,4,6, and 7. Petitioners argued that the RMO classified as
taxable compensations which are considered by law as non-taxable fringe and de
minimis benefits.

ISSUE:
Whether or not the RMO issued by respondent is valid

HELD:
The RMO issued by respondent is partially valid.
The law gives the Commissioner the power to interpret tax laws and issue
directives and guidelines in light of this interpretation.
In the case, sections 3,4, and 7 merely mirrors what is provided in the Tax Code.
However, Section 6 designating the Provincial, City, Municipal, Barangay Treasurers
among others is not provided in the Tax Code. Hence, this is invalid.
IBC v. AMARILLA
G.R. No. 162775             October 27, 2006

FACTS:
Petitioner gave a salary increase that extended up to its retired employees. Four
of its retired employees asked for their share of the differentials. Petitioner refused with
a letter stating that the differentials would be used to offset the tax due to their
retirement benefits. The employees filed a complaint claiming that retirement benefits
are exempted from tax according to law. Petitioner on the other hand argued that
retirement benefits are only exempted from tax if it complied with all the requirements
provided by law, specifically, that the retirement benefit plan must be approved by the
BIR which consequently petitioner’s retirement benefit plan was not.

ISSUE:
Whether or not, the retirement benefits of the 4 retired employees are tax exempt.

HELD:
No, the employees retirement benefits are taxable.
In order for a retirement benefit plan to be exempted, the Tax Code has provided
requisites to be complied with. One of these is that the retirement benefit plan must be
approved by the BIR.
In the case, the petitioner has the duty to prove that its retirement benefit plan
has been approved by the BIR; which it failed. Hence, because of lack of requirements,
the retirement benefit plan of the retirees is taxable as it is considered as an income
which petitioner promised to shoulder. Moreover, the retirees could not avail of their
differentials because it would be used by the petitioner to pay for their taxes.
MARIANO P. PASCUAL v. CIR
G.R. No. L-78133 October 18, 1988

FACTS:
Petitioners bought several parcels of land and sold them eventually. From their
net profit, both paid their individual capital gains tax while availing of the tax amnesty on
that year.
After several years, respondent assessed petitioners and establish a deficiency
corporate income taxes from the sale of the lots. Petitioners argued that they availed tax
amnesty and paid their corresponding taxes. However, respondent reiterated that their
co-ownership status migrated to an unregistered partnership or joint venture when they
did their transactions concerning the lots. Thus, what they have paid were their
individual income taxes, but because of the unregistered partnership they also had to
pay corporate income taxes.

ISSUE:
Whether or not petitioners formed an unregistered partnership and be held liable for
corporate income tax.

HELD:
No, for a partnership to form, the law provides that both must enter an agreement
that they will devote their resources and in return shall have their share of profits and
there must be a clear intention that they wanted to establish a juridical entity to
represent them.
In the case, there was no evidence of such agreement. A mere sharing of the
profit would not suffice to assume that a partnership existed. On the other hand, what
was clear was that the intention was to form a co-ownership based on the sale and
acquisition of the lots. Hence, because what was established was co-ownership, there
would be no need to pay corporate income tax.
OBILLOS, JR v. CIR (139 SCRA 436)
G.R. No. L-68118 October 29, 1985

FACTS:
Petitioners inherited several lots from their father. Eventually, they have decided
to sell these lots and divided the profit between them. They treated their profits as
capital gains and paid the tax accordingly. Afterwhich, the CIR assessed against them
deficiency taxes and were required to pay income tax on their shares, tax fraud
surcharge, and interests on the basis that they have formed an unregistered
partnership.

ISSUE:
Whether or not there was an unregistered partnership between the sibling requiring
them to pay additional taxes.

HELD:
Petitioners were co-owners. The Tax Code is clear that the sharing of gross
income does not necessarily mean that there is a partnership, whether or not the
persons sharing them have a joint or common right or interest in any property from
which returns are derived. Further, considering them as partners would remove the
distinction between co-ownership and partnership.
AFISCO INSURANCE v. CA (302 SCRA 1)
G.R. No. 112675 January 25, 1999

FACTS:
Petitioner, together with 40 insurance companies, entered into a reinsurance
treaty with Munich, a non-resident foreign insurance corporation. Under the treaty,
petitioners were required to form a pool which petitioners have complied with. After
sometime, petitioners submitted a financial statement thinking that they were exempted
from income tax. Regardless, the CIR assessed them and were required to pay
deficiency corporate taxes. Petitioners protested the deficiency because the elements
for their pool to be considered as a corporation were not all present, but the CIR
contended otherwise.

ISSUE:
Whether or not the pool formed by petitioners were considered as a corporation and
hence taxable as such.

HELD:
Jurisprudence dictates that a pool is a corporation as evidence by a common
fund. The pool also has an existing executive board and the fact that while the pool is
not in itself, a reinsurer and does not issue any insurance policy it gives benefits,
particularly economically, to the business of the ceding companies and Munich.
AVON INSURANCE PLC v. CA (278 SCRA 312)
G.R. No. 97642 August 29, 1997

FACTS:
Yupangco Cotton Mills (Yupangco) acquired reinsurance policies for its
properties with several foreign reinsurance companies which includes the petitioner.
While the policies are in effect, Yupangco’s properties were caught in a fire. Expecting
indemnification, Yupangco sought to collect from Worldwide Security and Insurance
Co., but the latter pointed out that Yupangco still had remaining balance with it and was
thus asked to collect from the other reinsurance companies. Hence, Yupangco instituted
a collection suit against against the petitioners. Petitioners claimed that they are foreign
corporations doing business in the Philippines, and thus, cannot be subjects to the
jurisdiction of the Philippine courts.

ISSUE:
Whether or not petitioners are foreign corporations doing business in the Philippines.

HELD:
No, the term “doing business in the Philippines” implies that there is a continuous
commercial acts to that extent that the performed acts are connected with the usual
ordinary business connected to the purpose and object of its organization. Further, the
reinsurance treaties between the petitioners were made through an international
insurance broker, and not through any entity or means remotely connected with the
Philippines. Hence, there would be no reason for it to be subject to the State’s
regulation for such foreign corporation has no legal existence. Doing otherwise would
violate the essence of sovereignity.
CIR v. BRITISH OVERSEAS AIRWAYS CORP
G.R. No. L-65773-74 April 30, 1987

FACTS:
Respondent is a 100% government-owned British corporation engaged in
international airline business. As a member of the Interline Air Transport Association, it
operates air transportation service and sells transportation tickets over the routes of the
other airline members including the Philippines. It had no landing rights within the
Philippines and thus had no transportation services offered here. However, it
maintained sales agents in the Philippines selling respondent’s tickets. Thus, it was
assessed by the CIR and demanded payments for deficiency taxes.

ISSUE:
Whether or not the income acquired by the sales agents from selling respondent’s ticket
constitute an income that is derived from the Philippines which make it taxable.

HELD:
Yes, the Tax Code clearly states that The source of an income is the property,
activity or service that produced the income. If the activity is derived from activity within
the Philippines, then the source of income can be considered coming from the
Philippines. A deeper reason behind is that the activity that is economically beneficial
(the selling of tickets) is being accorded protection by the Philippine Government.
Hence, respondent should share its support to the government through paying taxes
accordingly.
SOUTH AFRICAN AIRWAYS V. CIR
G.R. NO. 180356               FEBRUARY 16, 2010

FACTS:
Petitioner is a foreign corporation registered existing under the laws of South
Africa. Its main office is located in South Africa. It has no landing rights in the
Philippines and is considered as an internal air carrier. However, it has a sales agent in
the Philippines selling tickets for the petitioner. Thus, it has paid corporate tax in the rate
of 32%. However, it subsequently filed a claim for refund contending that it was only
liable to pay 2.5% of its gross billings.

ISSUE:
Whether or not petitioner’s income is sourced within the Philippines and is to be taxed at
32% of the gross billings?

HELD:
Yes, petitioner is to be taxed at 32% of its gross billings. The 2.5% percent tax
liability is applicable for foreign corporations that are international air carriers
maintaining flights to and from the Philippines which the petitioner is not. Hence,
because petitioner is a non-resident foreign corporation having no flights within the
Philippines but performs activities that generate income within, it is required to pay the
tax at the rate of 32%.
BDO V. REPUBLIC OF THE PHILIPPINES
G.R. NO. 198756 JANUARY 13, 2015

FACTS:
The Bureau of Treasury (BoTr) announced the auction of the PEACE bonds
which the BOTr declared as not subject to 20% withholding tax since the issue was
limited to 19 buyers/lenders. RCBC won the bid sold and distributed the government
bonds to the petitioners.
Before the maturity of the PEACE bonds, BIR issued a ruling that the said bonds
were subject to final withholding tax and its interests were imposable not only to
petitioners, but also to RCBC.

ISSUES:
Whether or not the 20-lender rule apply to the PEACE bonds; and
Whether or not RCBC is liable to pay the 20% FTW.

HELD:
Yes, the 20-lender rule may apply depending on the numbers of lenders “at any
one time.” The law specifies that if there 20 or more lenders the debt instrument is
considered to be a deposit substitute which is subject to FWT. The term “at any one
time” is determined Government Securities Eligible Dealer (GSED)- bidder distributes
(by itself or through an underwriter) the government securities to final holders.
No. They may still not be held liable to pay the 20% FWT. RCBC and the rest of
the investors relied on the opinions of the BIR in its Ruling Nos. 020-2011, 035-2001
and DA 175-01 which provide that the “20 or more lenders” is to be determined at the
time of the original issuance. Under the said rulings, the PEACe Bonds were not to be
treated as deposit substitutes.
DUMAGUETE CATHEDRAL CREDIT COOP v. CIR
G.R. No. 182722 January 22, 2010

FACTS:
BIR examined the petitioner’s book of accounts and other accounting books and
issued deficiency withholding taxes covered the payments of the honorarium of the
Board of Directors, other fees for necessary and professional services, and penalties
and interests. Petitioner notified the BIR that it would pay the deficiencies excluding the
penalties and interests.

ISSUE:
Whether or not DCCCO is liable to pay the deficiency withholding taxes on interests
from savings and time deposits of its members as well as the delinquency interest of
20% per annum?

HELD:
No, petitioner is not liable. The Tax Code clearly states that the final tax at the
rate of twenty percent (20%) is hereby imposed upon the amount of interest on currency
bank deposit and yield or any other monetary benefit from the deposit substitutes and
from trust funds and similar arrangement. This law only applies to banks and not
cooperatives. Further, the Constitution and the Cooperative Code of the Philippines
emphasize that cooperatives enjoy a preferential tax treatment which exempts their
members from the application of previously stated law. Moreover, the Supreme Court
reiterates that preferential tax treatment is given to cooperatives because they are
considered as instruments for social justice and economic development.
CIR v. GOODYEAR PHILS
G.R. No. 216130 August 03, 2016

FACTS:
Respondent, a domestic corporation duly organized and existing under the laws
of the Philippines, filed an application for relief from double taxation before the
International Tax Affairs division of the BIR to confirm that the redemption of
respondent’s preferred shares owned by an American company was not subject to
Philippine income tax. Still, respondent made the payments to the BIR.

Two years after, respondent filed an administrative claim for refund before the
BIR but was denied because respondent failed to exhaust administrative remedies by
filing its petition before the CTA, and it failed to submit complete supporting documents
before the BIR.

ISSUE:
Whether respondent correctly and timely sought judicial redress, notwithstanding that its
administrative and judicial claims were filed only 13 days apart.

HELD:
Yes, a deeper interpretation of the relevant law in the Tax Code means that it is
not necessary for the taxpayer to wait for the final resolution of its administrative claim
for refund, since doing so would be tantamount to the taxpayer’s forfeiture of its right to
seek judicial recourse should the two-year prescriptive period expire without the
appropriate judicial claim being filed. What the Tax Code requires is that an
administrative claim be first filed. Had respondent awaited the action of petitioner
knowing fully well that the prescriptive period was about to lapse, it would have
resultantly forfeited its right to seek a judicial review of its claim, thereby suffering
irreparable damage.
GAW v. CIR
G.R. No. 222837 July 23, 2018

FACTS:
Petitioner, sold 10 parcels of land for which he paid Capital Gains Tax and
Documentary Stamp Tax. Eventually, respondent declared that petitioner was not liable
for the 6% CGT but for the 32% regular income tax and 12% Value Added Tax (VAT)
because the properties sold were ordinary, and not capital assets. Respondent also
pointed out that petitioner has misdeclared his income, misclassified the properties, and
used multiple tax identification numbers to avoid being assessed the correct taxes.
Hence, the DOJ filed two criminal information for tax evasion against petitioner.
For the 2008 deficiency tax assessment, which involved the same tax liabilities
sought to be recovered in the pending criminal case petitioner sought clarification with
the CTA whether he has to file a separate petition to question the deficiency
assessment which the latter answered that the recovery of the civil liabilities was
deemed instituted with the consolidated criminal cases.

ISSUE:
Whether or not the civil action to question the 2008 FDDA deemed instituted with the
criminal case for tax evasion?

HELD:
No, the civil action filed by petitioner to question the 2008 FDDA is not deemed
instituted with the criminal case for tax evasion. What is instituted with the criminal
action is only the action to recover civil liability arising from the crime. This means that
an acquittal from the crime does not relieve the tax payer from paying the taxes
because that obligation is imposed by a statute.
CIR v. GENERAL FOODS PHILS. INC
G.R. No. 143672            April 24, 2003

FACTS:
Respondent, a domestic corporation filed its income tax return for a given period and
claimed as a deduction a media advertisement for one of their products. Petitioner
refused to allow the deduction because the reason for the expense must not only be
necessary but also ordinary. Petitioner also emphasized that two conditions must be
met for an expense to be considered ordinary. The conditions are that the amount
incurred must not be a capital outlay to create “goodwill” for the product or respondent’s
business and the amount incurred must be reasonable. These conditions were not met
by respondent according to petitioner.

ISSUE:
Whether or not petitioner must be allowed the deductions.

HELD:
No, a general principle in Taxation is that 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. A deduction for an income tax is considered as an exemption, and hence the
principle applies in this case.
 There being no hard and fast rule regarding the determination of the reasonableness of
a deduction, respondent must have convinced the court to favor it. Regardless, 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.
ING BANK v. CIR
G.R. No. 167679               July 22, 2015

FACTS:
Petitioner, a foreign banking corporation with a license to operate in the
Philippines and authorized by the Bangko Sentral ng Pilipinas, determined the bonuses
it would give to its employees but was only distributed in the succeeding year.
Eventually, respondent issued tax deficiencies in the form of withholding taxes on
bonuses accruing to its officers and employees during the taxable year the bonuses
were determined. However, Petitioner claimed that it was not liable to pay such
deficiencies because the liability would only arise when the bonuses were distributed.

ISSUE:
Whether or not petitioner is liable for deficiency withholding tax on accrued bonuses for
the taxable year when it was determined.

HELD:
Yes, the Tax Code is clear that the obligation of the employer to deduct and
withhold the taxes arise when the income was paid or accrued or recorded as an
expense in the employer’s books, whichever comes first.

In the case, petitioner registered the bonuses into its books as deductible
expense. Therefore, its obligation to withhold the related withholding tax due from the
deductions for the accrued bonuses arose at the time of accrual and not the time of the
payment.
ATLAS CONSOLIDATED MINING v. CIR
G.R. Nos. 141104 & 148763             June 8, 2007

FACTS:
Petitioner, a corporation engaged in the business of mining filed an application
with the BIR for the refund of its input VAT on its purchases of goods and on its zero-
rated sales. CTA denied the claim because it was not filed within the prescripted 2-year
period. Further, since the refunds were in its nature considered exemption, petitioner
failed to submit documents and evidences to support its claims for refunds.

ISSUE:
Whether or not the judicial claim for refund by the petitioner will prosper.

HELD:
No, it is an established general principle that when it comes to exemptions, the
taxpayer must justify his claim by clear organic statute and supporting evidences. In the
of petitioner, in order for its refund to prosper must not only prove that it is a VAT
registered entity and that it filed its claim within the prescriptive period, it must also
substantiate the input VAT by purchase invoices or official receipts. Which the petitioner
failed to do before the BIR and CTA.
HOSPITAL DE SAN JUAN DE DIOS v. CIR
G.R. No. L-31305 May 10, 1990

FACTS:
Petitioner is engaged in both taxable and non-taxable operations. The income
derived from the operations of the hospital and the nursing school are exempt from
income tax while the rest of petitioner’s income are subject thereto. In the computation
of its taxable income, petitioner allowed all its taxable income to share in the allocation
of administrative expenses. Respondent, however, disallowed the interests and
dividends from sharing in the allocation of administrative expense on the ground that the
expenses incurred in the administration or management of petitioner’s investments are
not allowable business expenses inasmuch as they were not incurred in ‘carrying on
any trade or business’ within the contemplation of the law.

ISSUE:
Whether or not the dividends and interests are expenses incurred in carrying on any
trade or business, hence, deductible as business expense.

HELD:
No, the Supreme Court holds on to the long-established principle that when it is
an exemption, the shall be interpreted strictly against the petitioner and in favor of the
government. The court found that petitioner failed to establish by competent proof that
its receipt of interests and dividends constituted the carrying on of a trade or business
so as to warrant the deductibility of the expenses incurred in their realization. Petitioner
could have easily required any of its responsible officials to testify on this regard but it
failed to do so.
C.M. HOSKINS v. CIR
G.R. No. L-24059      November 28, 1969

FACTS:
Petitioner, a domestic corporation engaged in the real estate business as broker,
managing agents and administrators, filed its income tax return and paid its tax
liabilities. Upon verification, CIR disallowed four items of deductions and assessed
against it tax deficiencies and interests. One of the disallowed items was the
supervision fees paid to Mr. Hoskins, the founder and stockholder of the petitioner
company.

ISSUE:
Whether or not the disallowance of the deductions from the tax liability of petitioner is
proper.

HELD:
No, the disallowance is proper. It did not pass the test of reasonableness which
is bonuses to employees made in good faith and as additional compensation for
services actually rendered by the employees are deductible, provided such payments,
when added to the salaries do not exceed the compensation for services rendered.
In the case, Mr.Hoskins the payment made to him by petitioner, which Mr.
Hoskins founded and was the owner of the 99.6% of the shares in the company, was
not only considered as a large amount, but also was unnecessary. The fact that the
payment was ordered by the Board of Directors would not find any merit here since
Mr.Hoskins could control the Board.
CIR v. ALGUE INC.
G.R. No. L-28896 February 17, 1988

FACTS:
Respondent, a domestic corporation, has rendered its services to the Philippine
Sugar Estate Development Company as its agent. The latter paid the respondent its
commission as an agent. The respondent then paid promotional fees to several people.
Eventually, upon assessment, the BIR disallowed the deduction because it was not an
ordinary, reasonable, and necessary expense because the people respondent paid
promotional fees were all relatives. Respondent filed a protest and acquired a favorable
decision from the CTA.

Issue:
Whether or not the claimed deductions by the respondent is a legitimate business
expenses in its income tax returns.

Held:
Yes, the promotional fees were reasonable and necessary. The case being an
exception, the taxpayer has the burden of proof to prove the validity of the claimed
deduction. This was done by the respondent substantially.
The effort exerted by the recipients of the fees were all necessary to further the
cause of the business that would require a very large amount of money which was a
very important part of the plan. Further, the recipients had practically did everything
justifying the payments they received.
CIR v. SMITH KLINE
G.R. No. L-54108 January 17, 1984

FACTS:
Respondent declared its net taxable income and paid the corresponding
liabilities. It claimed a certain deduction from its gross income as its share as a head
office overhead expenses. Eventually, it filed an amendment return because respondent
claimed that there was an overpayment. It further stated in the certification that the
allocation was made on the basis of the percentage of gross income in the Philippines
to gross income of the corporation as a whole. By reason of the new adjustment,
respondent’s s tax liability was greatly reduced.

ISSUE:
Whether or not the amended return filed by respondent is contrary to law.

HELD:
No, the amended files were not contrary to law. The Tax Code states clearly that
where an expense is clearly related to the production of Philippine-derived income or to
Philippine operations, that expense can be deducted from the gross income acquired in
the Philippines without resorting to apportionment. Clearly, the weight of evidence
bolsters its position that the amount in the amended claim represented the correct
ratable share, the same having been computed pursuant to section 37(b) and section
160.
PHILIPPINE REFINING CO v CA
G.R. No. 118794 May 8, 1996

FACTS:
Petitioner was assessed by CIR for deficiency taxes. Petitioner protested that the
deficiencies were from bad debts and interest expense which were allowable and legal
deductions. CIR ignored it and issued a warrant of garnishment against PRC's deposits
on its bank accounts. Hence, petitioner elevated the case to the CTA and CA which
rendered unfavaorable decisions because the failed to satisfy the requirements of
worthlessness of a debt:

ISSUE:
Whether or not petitioner should be liable for penalties and interests.

HELD:
Yes, petitioner should pay penalties and interests.
It is a general principle in Taxation that when it comes to exemption, the taxpayer
has the burden of proof to prove that he is exempted. In this case the petitioner failed to
do such. The petitioner was burdened to prove that the bad debts were worthless debts
in order for it to be considered as allowable deductions. Aside from the requirements to
consider a debt worthless, petitioner must also prove to the court that the debts would
be impossible to collect. All these were not sufficiently proved by the petitioner. What it
merely presented were testimonies by its own accountant.
CHAMBER OF REAL ESTATE AND BUILDERS ASSOC. v. CIR
G.R. No. 160756               March 9, 2010

FACTS:
Petitioner is an association of real estate developers and builders in the
Philippines. It questions the validity of the imposition of minimum corporate income tax
(MCIT) on corporations and creditable withholding tax (CWT) on sales of real properties
classified as ordinary assets. The MCIT violates the due process clause as it levies
income tax even if there is no realized gain, while CWT violates the Constitutional
provision on Equal Protection because CWT is being levied upon real estate enterprises
but not on other enterprises, more particularly those in the manufacturing sector.

ISSUE:
Whether or not the impositions of the MCIT on domestic corporations and CWT on
income from sales of real properties classified as ordinary assets unconstitutional?

HELD:
No, both are constitutional.
The MCIT does not tax capital but only taxes income as shown by the fact that
the MCIT is arrived at by deducting the capital spent by a corporation in the sale of its
goods. Besides, there are sufficient safeguards that exist for the MCIT: (1) it is only
imposed on the 4th year of operations; (2) the law allows the carry forward of any
excess MCIT paid over the normal income tax; and (3) the Secretary of Finance can
suspend the imposition of MCIT in justifiable instances. As for the CWT, there is no
violation of equal protection even if the CWT is levied only on the real industry as the
real estate industry is, by itself, a class on its own and can be validly treated different
from other businesses.
DIZON v. CTA
G.R. No. 140944             April 30, 2008

FACTS:
Petitioner administered the properties of the deceased, Jose P. Fernandez, and
filed a petition for the probate of his will. During this course, petitioner alleged that
several requests for extension of the period to file the required estate tax return were
granted by the BIR since the assets of the estate, as well as the claims against it, had
yet to be collated, determined and identified.
Petitioner requested the probate court's authority to sell several properties
forming part of the Estate, for the purpose of paying its creditors. However, the
Assistant Commissioner for Collection of the BIR, issued Estate Tax Assessment Notice
demanding payment as deficiency estate tax.
Petitioner filed a petition for review with the CTA and CA claiming that BIR failed
to comply with the doctrine's requisites because the documents herein remained simply
part of the BIR records and were not duly incorporated in the court records, hence, the
lack of a formal offer of evidence which was fatal to BIR's cause. This was argued
against by the respondent saying that the documents, being part of the records of the
case and duly identified in a duly recorded testimony are considered evidence even if
the same were not formally offered.

Issue:
Whether or not the CTA and the CA gravely erred in allowing the admission of the
pieces of evidence which were not formally offered by the BIR.

Held:
 Yes, the CTA and CA gravely erred in allowing the admission of the pieces of
evidence which were not formally offered by the BIR.
The Revised Rules on Evidence clearly states that the court shall consider no
evidence which has not been formally offered.  Hence, the evidences can be given no
weight as the rules on documentary evidence require that these documents must be
formally offered before the CTA.  The mere fact that a particular document is identified
and marked as an exhibit does not mean that it has already been offered as part of the
evidence of a party. Further, Strict adherence to the said rule is not a trivial matter
because considering these evidences will lead to laxity and needless delays affecting
the speedy administration of justice.