Aguinaldo Industries Corporation v CIR and CTA

GR L-29790 Feb. 25, 1982

FACTS:
Aguinaldo Industries is a domestic corporation engaged in the manufacture of fishing
nets (tax exempt) and the manufacture of furniture, each representing two different
departments.
The company acquired a parcel of land in Muntinlupa, Rizal as part of the fishing net
factory. The said parcel of land was sold after another parcel of land in Marikina was
acquired. The company derived benefit from this sale. It was entered in the books of
the fishnets division as Miscellaneous income to distinguish it from its tax-exempt
income.
The BIR examiner disallowed the 61,187 additional remuneration as a deduction from
its gross income in the fishnets division. Petitioner explains that that the expense
represents allowance or bonus pursuant to its by-laws. BIR assessed deficiency and the
imposed 5% surcharge and 1% monthly interest on the said assessment.
ISSUES:
1. Is the gain taxable? YES.
2. Is the 61,187.48 Officer’s remuneration allowable as a deduction from gross
income? NO.
3. Is the petitioner liable for 5% surcharge and 1% interest? YES.

RULING:
1. Yes. The petitioner had always implicitly admitted that the disputed capital gain
was taxable, although subject to the deduction of the bonus paid to its corporate
officers. It was only after the said decision had been rendered and on a motion
for reconsideration thereof, that the issue of tax exemption was raised by the
petitioner for the first time. 
2. No. Even if the officers’ remuneration is allowable under its by-laws, it cannot be
allowed under tax laws. The records show that the sale was effected through a
broker who was paid by petitioner a commission of P51,723.72 for his services.
On the other hand, there is absolutely no evidence of any service actually
rendered by petitioner's officers which could be the basis of a grant to them of a
bonus out of the profit derived from the sale. This being so, the payment of a
bonus to them out of the gain realized from the sale cannot be considered as a
selling expense; nor can it be deemed reasonable and necessary so as to make
it deductible for tax purposes.

Doctrine in Alhambra Cigar v CIR, 2 requisites must be satisfied:

1. must be actually rendered
 2. reasonable allowance- must bear a relation to the measure of their actual
service

3. Yes. The 5% is based on the whole of the income tax liability, including the
deficiency tax from the time the tax became due. This must be strictly observed
since these are imposed to hasten tax collection, otherwise, condonation for light
reasons might render them nugatory. (purpose is penal)
1% monthly interest for late payment is also due from the time the tax should
have been paid. This is to compensate the State for the delay in the payment of
taxes. (purpose is compensatory)