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DECISION
CASTAÑEDA, JR., J : p
Before this Court is a Petition for Review praying for the cancellation
and withdrawal of the disputed deficiency tax assessment in the amount of
FIFTY MILLION THIRTY-SIX THOUSAND EIGHT HUNDRED ONE PESOS AND
SEVENTY ONE CENTAVOS (P50,036,801.71) for taxable year 1997.
Petitioner is a domestic corporation organized and existing under the
laws of the Republic of the Philippines, with principal office address at La
Fuerza Compound, Alabang-Zapote Road, Almanza, Las Piñas, Metro Manila.
1
V. Others:
Non filing of Quarterly Income Tax Return
1st Quarter P1,000.00
2nd Quarter 1,000.00
3rd Quarter 1,000.00
No Books of Accounts 25,000.00
––––––––––
Total Amount Due P28,000.00
=========
On February 21, 2001, the Assessment Division of BIR Revenue Region
No. 8 (Makati City) received petitioner's letter dated February 19, 2001,
formally protesting the aforementioned deficiency tax assessments pursuant
to Section 228 of the National Internal Revenue Code (NIRC) of 1997, as
amended; and requested that the same be reconsidered or reinvestigated
for lack of factual and legal bases. 3
On April 23, 2001, petitioner, through its external auditors, submitted
to respondent additional supporting documents to further bolster its
arguments against the subject assessments. 4
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On November 19, 2001, petitioner filed the present Petition in
accordance with Section 228 of the NIRC of 1997.
The following are issues 5 stipulated by the parties for this Court's
resolution:
"1. Whether or not Petitioner has undeclared sales in the amount of
P14,632,102.84 for VAT purposes;
2. Whether or not the following expenses were correctly disallowed by
the Respondent: interest and bank charges in the amount of
P4,886,275.00; foreign exchange loss in the amount of
P4,849,619.00; bad debts in the amount of P1,016,428.00;
miscellaneous in the amount of P1,078,915.00; and factory
overhead in the amount of P44,948,730.84;
3. Whether or not Petitioner had overstated its claim of expenses and
deductions against its income for 1997 in the amount of
P558,783.00;
4. Whether or not Petitioner is liable for non-withholding of taxes on
compensation for the months of January and February of taxable
year 1997 amounting to P107,264.72 and P81,082.46,
respectively and under-remitted the amounts of P6,000.00 and
P45,372.10 for the months of November and December of the
same taxable year.
5. Whether or not Petitioner is liable for deficiency expanded
withholding tax for non-withholding of rental, manpower,
professional fees, commissions, security services, repair and
maintenance, advertising and promotions in the aggregate
amount of P138,386.02;
6. Whether or not Petitioner is liable for Documentary Stamp Tax in the
amount of P54,921.23 on the original issuance of shares of stocks
in 1997;
7. Whether or not Petitioner failed to file its quarterly income tax
returns and failed to maintain its Book of Accounts;
8. Whether or not there is factual and legal basis for the deficiency
income tax, withholding tax on compensation, expanded
withholding tax, documentary stamp tax and compromise
penalty for taxable year 1997 covered by FAN No. 0000069-97-
01-710 dated January 17, 2001."
I. DEFICIENCY INCOME TAX
1.1. Undeclared Sales — P14,623,102.84
Respondent alleges that petitioner had undeclared sales amounting to
P14,623,102.84, which amount was lifted from an alleged discrepancy of
purchases amounting to P3,000,000.00. 6 The latter amount represents the
difference of purchases per VAT Returns (P28,183,820.50) and the figure
derived during the investigation (P25,183,820.50). As such, the alleged
understatement resulted in under-declaration of sales, shown as follows: DaHISE
. . . . The burden of proof that the expenses incurred are ordinary and
necessary is on the taxpayer and does not rest upon the Government.
To avail of the claimed deduction under Section 30(a)(1) of the
National Internal Revenue Code, it is incumbent upon the taxpayer to
adduce substantial evidence to establish a reasonably proximate
relation between the expenses to the ordinary conduct of the business
of the taxpayer. A logical link or nexus between the expense and the
taxpayer's business must be established by the taxpayer."
"SEC. 102. Bad debts. — Where all the surrounding and attending
circumstances indicate that a debt is worthless, and the debt is
charged off on the books of the taxpayer within the year, the same
may be allowed as a deduction in computing net income. There should
accompany the return a statement showing the propriety of any
deduction claimed for bad debts. Before a taxpayer may charge off and
deduct a debt, he must ascertain and be able to demonstrate, with a
reasonable degree of certainty, the uncollectibility of the debt. Any
amount subsequently received on account of a bad debt previously
charged off and allowed as a deduction for income tax purposes must
be included in gross income for the taxable year in which it is received.
In determining whether a debt is worthless, the Commissioner of
Internal Revenue will consider all pertinent evidence, including the
value of the collateral, if any, securing the debt and the financial
condition of the debtor.
Where the surrounding circumstances indicate that a debt is worthless
and uncollectible and that legal action to enforce payment would in all
probability not result in the satisfaction of execution on a judgment, a
showing of those facts will be sufficient evidence of the worthlessness
of the debt for the purpose of deduction. Bankruptcy is generally an
indication of the worthlessness of at least unsecured and unpreferred
debt. Actual determination of worthlessness in bankruptcy is
sometimes possible before and at the other times only when a
settlement in bankruptcy shall have been had. Where a taxpayer
ascertained a debt to be worthless and charged it off on one year, the
mere fact that bankruptcy proceedings instituted against the debtor
are terminated in a later year, confirming the conclusion that the debt
is worthless, will not authorize shifting the deduction to such later year.
If a taxpayer computes his income upon the basis of valuing his notes
or accounts receivable at their fair market value when received, which
may be less than their face value, the amount deductible for bad debts
in any case is limited to such original valuation."
3. the debt must be charged off during the taxable year; and
4. the debt must arise from the business or trade of the taxpayer.
Additionally, before a debt can be considered worthless, the taxpayer
must also show that it is indeed uncollectible even in the future.
Furthermore, there are steps outlined to be undertaken by the taxpayer to
prove that he exerted diligent efforts to collect the debts, viz.: (1) sending of
statement of accounts; (2) sending of collection letters; (3) giving the
account to a lawyer for collection; and (4) filing a collection case in court. 31
Petitioner submits that it diligently complied with the above-mentioned
requirements, and the same bad debts were fully documented.
This Court disagrees. IAEcCa
In proving that there is a valid and subsisting debt, the sales invoices
are the best evidence to prove that such transaction exists. Petitioner did not
present such documentary evidence; thus, the Court cannot accept the
correctness, validity and subsistence of the questioned bad debts expense.
Moreover, based on the examination conducted by the Independent CPA,
petitioner was not able to corroborate this expense with any other
supporting documents. The Independent CPA was not able to trace the
alleged expense to the 1996 Income Tax Return or 1996 audited financial
statements for possible set-up of provision for bad debts and it was further
revealed that petitioner does not have any bad debts expense recorded in
its books of account for the year ended December 31, 1997, for the balance
of Bad Debts Account as of December 31, 1997 is zero. Therefore, this Court
believes that the disallowance of bad debts expense in the amount of
P1,016,428.00 made by respondent is proper.
1.3.4. Miscellaneous — P1,078,915.00
Miscellaneous expenses were disallowed because of petitioner's failure
to show the required documents at the time of examination.
Petitioner argues that said miscellaneous expenses are ordinary and
necessary expenses which were incurred in the course of petitioner's trade
or business, and are thus valid deductions.
This Court rules otherwise.
The mere allegation of the taxpayer that an item of expense is ordinary
and necessary does not justify its deduction. 32 Petitioner should have
submitted supporting documents. And based on the examination conducted
by this Court, petitioner failed to present documents in support of said
expenses. In some instances, the disallowed miscellaneous expenses
amounting to P293,375.61, as per schedule 33 were supported by some
vouchers with attached sales invoices or official receipts. But a closer
examination of the invoices and official receipts would reveal that these
were addressed not in the name of the company but to a particular person
certainly not the petitioner in this case; therefore, non-deductible business
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expense. The variance of P785,539.39 is unsupported by sales invoices
and/or official receipts. Accordingly, the amount of P1,078,915.00, which
represents petitioner's miscellaneous expense, should be disallowed as
deduction against gross income.
1.3.5. Factory Overhead — P44,984,730.84
Respondent disallowed petitioner's deduction for factory overhead
amounting to P44,984,730.84 due to the latter's failure to substantiate the
same. Petitioner counters that the disallowance is erroneous because its
factory overhead expense is not P44,984,730.84 but only P33,974,357.60,
and said expense is fully substantiated and eligible for deduction.
This Court partially agrees with petitioner.
Since it was not shown how respondent arrived at the factory overhead
amount of P44,984,730.84, this Court is constrained to consider the factory
overhead amount of P33,974,357.60 reflected per petitioner's Schedule of
Cost of Goods Manufactured and Sold for the year 1997. 34 Thus, for
purposes of determining the amount of factory overhead deductible from
petitioner's 1997 gross income, the reference point shall be the amount of
P33,974,357.60 instead of P44,984,730.84. aCcADT
Amount Per
Account Description Reference No. Schedule
Manufacturing and Packing
Supplies
Office Supplies ZZZZ-5a(1)-3 216,465.47
Manufacturing Supplies ZZZZ-5a(2)-1 664,627.70
Packing Supplies ZZZZ-5a(3)-5 5,456,068.26
Design and Production Dev. ZZZZ-5a(4)-1 4,596.80
Other Supplies ZZZZ-5a(5)-2 470,577.27
Small Tools ZZZZ-5a(6)-1 172,512.10
Subtotal 6,984,847.60
Depreciation and Amortization
Depreciation ZZZZ-5b(1)-2 6,129,112.46
Amortization of Leasehold
ZZZZ-5b(2)-1 142,818.00
Improvements
Subtotal 6,271,930.46
Salaries, Wages and Bonus
13th month pay ZZZZ-5c(1)-2 1,094,818.70
SSS & Medicare
ZZZZ-5c(2)-4 393,471.78
Contributions
Salaries & Wages ZZZZ-5c(3)-3 4,828,115.21
Workmens Compensation ZZZZ-5c(4)-2 7,800.00
Commission ZZZZ-5c(5)-1 64,734.09
Subtotal 6,388,939.78
Shipping and Documentation ZZZZ-5d-3 2,003,864.89
Rental ZZZZ-5e-1 4,031,031.83
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Light, Water and Power ZZZZ-5f-2 1,974,386.14
Employee Benefits ZZZZ-5g(1)-2 9,485.00
Dental & Medical ZZZZ-5g(2)-2 95,707.98
Representation ZZZZ-5g(3)-1 210,333.70
Training and Seminar ZZZZ-5g(4)-1 96,192.72
Staff Meeting ZZZZ-5g(5)-1 11,226.81
Subtotal 422,946.21
Repairs and Maintenance
RM-Machinery ZZZZ-5h(1)-1 1,254,275.66
RM-Vehicle ZZZZ-5h(2)-1 139,185.99
RM-others ZZZZ-5h(3)-2 456,367.76
Subtotal 1,849,829.41
Transportation and Trucking
Transportation ZZZZ-5i(1)-5 630,050.96
Gas and Oil ZZZZ-5i(2)-1 220,041.45
Subtotal 850,092.41
Insurance ZZZZ-5j-1 315,210.02
Fumigation ZZZZ-5k-1 77,519.29
Security and Other Services
Security and Services ZZZZ-5l(1)-1 958,543.39
Other Services ZZZZ-5l(2)-1 1,831,398.74
Subtotal 2,789,942.13
–––––––––––
TOTAL 33,960,540.17
=========
It must be noted that the factory overhead of P33,960,540.17 as
indicated in the above schedule is lower by P13,817.43 when compared
against the amount of P33,974,357.60 claimed by petitioner. Such
discrepancy of P13,817.43 shall be disallowed outright.
Petitioner's factory overhead account of P33,960,540.17 included
salaries, wages and bonus in the amount of P6,388,939.78 for which
petitioner submitted check vouchers, journal vouchers and payroll
summaries. 35 However, the preceding documents, being self-serving, do not
prove actual payment of the amount of P6,388,939.78. Neither can the
amount of P6,388,939.78 be traced in the 1997 alphalist of employees
subjected to withholding tax on compensation. 36 Per petitioner's 1997
alphalist, gross salary payments amounted to only P14,456,048.56; while
petitioner's claimed direct labor in the amount of P12,239,144.87, 37
salaries, wages and bonus per Schedular Deductions in the amount of
P7,462,693.00 38 and salaries, wages and bonus under the factory overhead
account of P6,388,939.78 totaled P26,090,777.65. Clearly, petitioner's
claimed salaries, wages and bonus is a lot higher than the actual payments
shown in the 1997 alphalist. For petitioner's failure to explain such
discrepancy, the claimed salaries, wages and bonus in the amount of
P6,388,939.78 should be disallowed.
With reference to petitioner's claimed depreciation and amortization in
the amount of P6,271,930.46, the same is a valid deduction against
petitioner's 1997 gross income. As can be seen in the Schedule of
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Depreciation and Amortization attached to petitioner's 1997 Income Tax
Return, 39 the depreciation/amortization of petitioner's equipment, furniture
and fixtures, and leasehold improvements amounted to P10,198,161.00,
from which the amount of P2,653,728.00 was claimed as part of petitioner's
Schedular Deductions against gross income. 40 The remaining amount of
P7,544,433.00 was charged against petitioner's Cost of Goods Manufactured
and Sold. 41 Since respondent did not question petitioner's claimed
depreciation expense in the amount of P2,653,728.00, there is no reason
why the depreciation amount of P6,271,930.46 (included in the depreciation
amount of P7,544,433.00) being claimed by petitioner as part of its factory
overhead account cannot be allowed.
As to petitioner's claimed rental expense in the amount of
P4,031,031.83, this Court finds the same deductible against petitioner's
1997 gross income. Per the 1997 Schedular Deductions, rental expense
charged to petitioner's operations amounted to P1,766,634.00, which when
added to the rental amount of P4,031,031.83 being claimed by petitioner as
part of its factory overhead account, results in a total rental of
P5,797,665.83. Since the total rental payment of P5,997,282.20 per
petitioner's 1997 Alphalist of Payees Subjected to Expanded Withholding Tax
42 is greater than petitioner's claimed rental expense deduction for 1997 in
Security
743,229.00 958,543.39 641,112.00 1,599,655.39 (856,426.39)
Services
Other
1,903,423.00 1,831,398.74 - 1,831,398.74 72,024.26
Services
(Manpower)
Based on the above table, petitioner's total claimed deduction for
security services in the amount of P1,599,655.39 (including the amount of
P958,543.39, which formed part of petitioner's factory overhead account) is
greater by P856,426.39, as compared against the amount of P743,229.00
reflected in the alphalist. Since the actual payment for security services as
shown in the alphalist is lower than the total claimed deduction of
P1,599,655.39, the security services of P958,543.39 included under the
factory overhead account shall be disallowed.
As to petitioner's claimed deduction for other services in the amount of
P1,831,398.74, the same is a valid deduction against petitioner's 1997 gross
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income considering that the payments per petitioner's alphalist in the
amount of P1,903,423.00 is more than the claimed deduction of
P1,831,398.74.
As to the other expense items included in petitioner's factory overhead
account in the amount of P14,478,695.97, computed as follows:
Total Factory Overhead P33,960,540.17
Less: Salaries, Wages and Bonus 6,388,939.78
Depreciation and
6,271,930.46
Amortization
Rental 4,031,031.83
Security and Other
2,789,942.13
Services
–––––––––––––
Remaining Factory Overhead P14,478,695.97
============
this Court finds that only the amount of P2,092,303.20 is supported by valid
suppliers' invoices and/or official receipts; 44 thus, deductible against
petitioner's 1997 gross income. The balance of P12,386,392.77 shall be
disallowed for petitioner's failure to substantiate the same with proper
documents. IDcTEA
shall be remitted within ten (10) days after the end of each calendar
month with the filing of appropriate return. (BIR Form 1743-W).
However, taxes withheld from the last compensation/income payment
for the calendar year (December) shall be remitted on or before the
25th of January of the succeeding year. . . ."
Records show that petitioner filed its January, February, November, and
December 1997 Returns for withholding tax on compensation on the
following dates:
Period
Exhibit No. Date Filed
Covered
(1997)
VI. OTHERS
Respondent alleges that petitioner failed to file its Quarterly Income
Tax Returns and failed to maintain Books of Accounts. Such failure warrants
the imposition of compromise penalties in accordance with RR 1-90,
amounting to P28,000.00, broken down as follows:
Non filing of Quarterly Income Tax Return
1st Quarter P1,000.00
2nd Quarter 1,000.00
3rd Quarter 1,000.00
No Books of Accounts 25,000.00
–––––––––
Total Amount Due P28,000.00
========
Based on the verification of the Court-commissioned Independent CPA
on the said assessment, the following observations were noted:
"E. OTHER COMPROMISE PENALTIES
Income
P10,695,784.27 P2,673,946.07 P7,582,285.42 P20,952,015.76
Tax
EWT 9,001.34 2,250.34 6,966.79 18,218.47
––––––––––––– –––––––––––– –––––––––––– –––––––––––––
TOTAL P10,704,785.61 P2,676,196.41 P7,589,252.21 P20,970,234.23
==============================================
4. Exhibit "IIIII" — Annual Income Tax Return (BIR Form No. 1702)
with attachments;
Footnotes
1. Par. 1, Facts Admitted, Joint Stipulation of Facts and Issues (JSFI), Docket, p. 80.
2. Par. 5, Facts Admitted, JSFI, Docket, pp. 81-82.
3. Par. 6, Facts Admitted, JSFI, Docket, p. 83.
9. The 1977 Tax Code is applicable in the present case as the NIRC of 1997 took
effect only on January 1, 1998.
10. Commissioner of Internal Revenue vs. Atlas Consolidated Mining and
Development Corp., G.R. No. L-26924, January 27, 1981, 102 SCRA 246.
11. Supra.
12. Exhibit "W".
13. CA-G.R. SP No. 25308, April 7, 1992, which affirmed this Court's decision in
Delfin Ma. V. Cruz, Jr. vs. Commissioner of Internal Revenue, (CTA Case No.
3806, June 29, 1990).
14. Exhibits "ZZZZ-10b-31" and "ZZZZ-10b-32".
15. Exhibits "ZZZZ-10b-5", "ZZZZ-10b-26", and "ZZZZ-10b-27".
16. Exhibits "ZZZZ-10b-1 to 4", "ZZZZ-10b-6 to 25", "ZZZZ-10b-28 to 30".
47. Solid Cement Corp. vs. Liwayway Vinzons-Chato, in her Capacity as the
Commissioner of Internal Revenue, CTA Case No. 5420, May 27, 1999.
48. Docket, p. 38.
49. Exhibit "ZZZZ-6-4".
50. Exhibit "ZZZZ-6-5".
DECISION
MINDARO-GRULLA, J : p
This resolves the Petition for Review filed on April 7, 2014 by Bonifacio
Gas Corporation pursuant to Section 7 (a) (1) of Republic Act (RA) No. 1125,
otherwise known as "An Act Creating the Court of Tax Appeals," as
amended, 1 as well as Rule 4, Section 3 (a) (1), in relation to Rule 8, Section
4 (a), of the Revised Rules of the Court of Tax Appeals (RRCTA). 2
Petitioner seeks the cancellation and setting aside of the Assessment
Notice No. IT-LA4078/ELA4542-09-13-0153, the Formal Assessment Notice
(FAN), and the Final Decision on Disputed Assessment (FDDA), all issued by
the Commissioner of Internal Revenue, assessing it for alleged deficiency
income tax in the total amount of P504,432.41, inclusive of interest, for
taxable year (TY) 2009. 3
Petitioner Bonifacio Gas Corporation is a domestic corporation existing
under and by virtue of the laws of the Republic of the Philippines. It is duly
registered with the Securities and Exchange Commission (SEC), with
principal office address at 2nd Floor, Bonifacio Technology Centre, 31st St.
corner 2nd Ave., Bonifacio Global City, Taguig City, Metro Manila. 4
On the other hand, respondent is the duly appointed Commissioner of
the Bureau of Internal Revenue (BIR), authorized to perform the duties of his
office, including, among others, the power to decide disputed assessments
or other charges and penalties imposed in relation thereto pursuant to the
provisions of the National Internal Revenue Code (NIRC) of 1997, as
amended. Respondent holds office at the 5th Floor, BIR National Office
Building, Agham Road, Diliman, Quezon City.
On March 16, 2004, petitioner and the Bases Conversion Development
Authority (BCDA) executed a Supply Contract, wherein the former would
supply cold air to the latter. 5 The Supply Contract was later amended on
January 15, 2008. 6
Pursuant to the Letter of Authority No. LOA 2009 00004078 7 dated
May 24, 2010 and Letter of Authority No. Ela201000004542 8 dated
September 8, 2010, the assigned Revenue Officers of Revenue District Office
(RDO) No. 44-Taguig/Pateros conducted a tax audit on petitioner for all
internal revenue taxes covering TY 2009. 9 After the tax audit, respondent
issued a Preliminary Assessment Notice 10 (PAN) on January 15, 2013,
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assessing petitioner for alleged deficiency income tax in the amount of
P439,722.08.
Consequently, petitioner disputed the PAN on February 1, 2013. 11
On March 6, 2013, the Assessment Notice No. IT-LA4078/ELA4542-09-
13-0153 12 and the Formal Assessment Notice 13 were issued and received
by petitioner on March 12, 2013, 14 assessing it for basic deficiency income
tax in the amount of P281,181.78 for TY 2009, 15 computed as follows: 16
I. Income Tax
P-1 Bonifacio Gas Corporation (BGC) Protest Letter dated April 5, 2013
against the 2009 deficiency tax assessment with BIR receiving
stamp
dated April 5, 2013
P-1-a Sub-marking on P-1 referring to the BIR-RR8 Makati Assessment
Division receiving stamp dated April 5, 2013
P-2 Contract entitled "BONIFACIO TECHNOLOGY CENTER (BTC)
AIR-CONDITIONING TERMS AND CONDITIONS" between the
Bases Conversion Development Authority (BCDA) and BGC for
air-conditioning services 16 March 2004
Amendment to the Supply Contract dated January 15, 2008
P-3
between
BGC and BCDA
Certificate of Creditable Tax Withheld at Source (BIR Form No.
P-4
2307)
issued by BCDA to BGC covering the period February 2009 with tax
withheld amounting to P10,108.07
P-5 Certificate of Creditable Tax Withheld at Source (BIR Form No.
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2307)
issued by BCDA to BGC covering the period March 2009 with tax
withheld
amounting to P10,108.07
Certificate of Creditable Tax Withheld at Source (BIR Form No.
P-6
2307)
issued by BCDA to BGC covering the period April 2009 with tax
withheld
amounting to P10,438.70
Certificate of Creditable Tax Withheld at Source (BIR Form No.
P-7
2307)
issued by BCDA to BGC covering the period May 2009 with tax
withheld
amounting to P10,274.47
Certificate of Creditable Tax Withheld at Source (BIR Form No.
P-8
2307)
issued by BCDA to BGC covering the period June 2009 with tax
withheld
amounting to P10,274.47
Certificate of Creditable Tax Withheld at Source (BIR Form No.
P-9
2307)
issued by BCDA to BGC covering the period July 2009 with tax
withheld
amounting to P10,490.64
Certificate of Creditable Tax Withheld at Source (BIR Form No.
P-10
2307)
issued by BCDA to BGC covering the period August 2009 with tax
withheld amounting to P11,070.13
Certificate of Creditable Tax Withheld at Source (BIR Form No.
P-11
2307)
issued by BCDA to BGC covering the period September 2009 with
tax
withheld amounting to P9,611.42
Certificate of Creditable Tax Withheld at Source (BIR Form No.
P-12
2307)
issued by BCDA to BGC covering the period October 2009 with tax
withheld amounting to P9,611.42
Certificate of Creditable Tax Withheld at Source (BIR Form No.
P-14
2307)
issued by BCDA to BGC covering the period December 2009 with
tax
withheld amounting to P9,611.42
Certificate of Final Tax Withheld at Source (BIR Form No. 2306)
P-15
issued
by BCDA to BGC covering the period February 2009 with tax
withheld
amounting to P25,270.18
Certificate of Final Tax Withheld at Source (BIR Form No. 2306)
P-16
issued
by BCDA to BGC covering the period March 2009 with tax withheld
amounting to P25,270.18
Certificate of Final Tax Withheld at Source (BIR Form No. 2306)
P-23
issued
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by BCDA to BGC covering the period October 2009 with tax
withheld
amounting to P24,028.56
Certificate of Final Tax Withheld at Source (BIR Form No. 2306)
P-24
issued
by BCDA to BGC covering the period November 2009 with tax
withheld
amounting to P24,729.50
Certificate of Final Tax Withheld at Source (BIR Form No. 2306)
P-25
issued
by BCDA to BGC covering the period December 2009 with tax
withheld
amounting to P24,028.56
Billing Statement No. 024093 as of Feb. 5, 2009 issued by BGC to
P-26
BCDA
Billing Statement No. 024094 as of Feb. 5, 2009 issued by BGC to
P-27
BCDA
Billing Statement No. 024759 as of Mar. 6, 2009 issued by BGC to
P-28
BCDA
Billing Statement No. 024760 as of Mar. 6, 2009 issued by BGC to
P-29
BCDA
Billing Statement No. 024783 as of April 2, 2009 issued by BGC to
P-30
BCDA
Billing Statement No. 024784 as of April 2, 2009 issued by BGC to
P-31
BCDA
Billing Statement No. 025651 as of May 8, 2009 issued by BGC to
P-32
BCDA
Billing Statement No. 025652 as of May 8, 2009 issued by BGC to
P-33
BCDA
Billing Statement No. 027504 as of June 5, 2009 issued by BGC to
P-34
BCDA
Billing Statement No. 027505 as of June 5, 2009 issued by BGC to
P-35
BCDA
Billing Statement No. 027652 as of July 7, 2009 issued by BGC to
P-36
BCDA
Billing Statement No. 027653 as of July 7, 2009 issued by BGC to
P-37
BCDA
Billing Statement No. 028353 as of Aug. 7, 2009 issued by BGC to
P-38
BCDA
Billing Statement No. 028354 as of Aug. 7, 2009 issued by BGC to
P-39
BCDA
Billing Statement No. 029772 as of Sept. 7, 2009 issued by BGC to
P-40
BCDA
Billing Statement No. 030406 as of October 7, 2009 issued by BGC
P-41
to
BCDA
Billing Statement No. 031313 as of Nov. 10, 2009 issued by BGC to
P-42
BCDA
Billing Statement No. 032003 as of Dec. 9, 2009 issued by BGC to
P-43
BCDA
VAT Official Receipt No. 010198 dated Feb. 18, 2009 issued by BGC
P-44
to
cover receipt of BCDA's payment for the air-conditioning services
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net of
withholding taxes
VAT Official Receipt No. 010199 dated Feb. 18, 2009 issued by BGC
P-45
to
cover receipt of BCDA's payment for the air-conditioning services
net of
withholding taxes
VAT Official Receipt No. 010696 dated March 17, 2009 issued by
P-46
BGC to
cover receipt of BCDA's payment for the air-conditioning services
net of
withholding taxes
VAT Official Receipt No. 010697 dated March 17, 2009 issued by
P-47
BGC to
cover receipt of BCDA's payment for the air-conditioning services
net of
withholding taxes
VAT Official Receipt No. 010823 dated April 22, 2009 issued by
P-48
BGC to
cover receipt of BCDA's payment for the air-conditioning services
net of
withholding taxes
VAT Official Receipt No. 010824 dated April 22, 2009 issued by
P-49
BGC to
cover receipt of BCDA's payment for the air-conditioning services
net of
withholding taxes
VAT Official Receipt No. 011084 dated May 19, 2009 issued by BGC
P-50
to
cover receipt of BCDA's payment for the air-conditioning services
net of
withholding taxes
VAT Official Receipt No. 011085 dated May 19, 2009 issued by BGC
P-51
to
cover receipt of BCDA's payment for the air-conditioning services
net of
withholding taxes
VAT Official Receipt No. 011787 dated June 17, 2009 issued by
P-52
BGC to
cover receipt of BCDA's payment for the air-conditioning services
net of
withholding taxes
VAT Official Receipt No. 011788 dated June 17, 2009 issued by
P-53
BGC to
cover receipt of BCDA's payment for the air-conditioning services
net of
withholding taxes
VAT Official Receipt No. 012343 dated July 20, 2009 issued by BGC
P-54
to
cover receipt of BCDA's payment for the air-conditioning services
net of
withholding taxes
VAT Official Receipt No. 012344 dated July 20, 2009 issued by BGC
CD Technologies Asia, Inc. © 2021 cdasiaonline.com
P-55 to
cover receipt of BCDA's payment for the air-conditioning services
net of
withholding taxes
VAT Official Receipt No. 012842 dated August 18, 2009 issued by
P-56
BGC to
cover receipt of BCDA's payment for the air-conditioning services
net of
withholding taxes
VAT Official Receipt No. 012843 dated August 18, 2009 issued by
P-57
BGC to
cover receipt of BCDA's payment for the air-conditioning services
net of
withholding taxes
VAT Official Receipt No. 013384 dated Sept. 22, 2009 issued by
P-58
BGC to
cover receipt of BCDA's payment for the air-conditioning services
net of
withholding taxes
VAT Official Receipt No. 014013 dated Oct. 20, 2009 issued by BGC
P-59
to
cover receipt of BCDA's payment for the air-conditioning services
net of
withholding taxes
VAT Official Receipt No. 014654 dated Nov. 23, 2009 issued by
P-60
BGC to
cover receipt of BCDA's payment for the air-conditioning services
net of
withholding taxes
VAT Official Receipt No. 015256 dated Dec. 21, 2009 issued by
P-61
BGC to
cover receipt of BCDA's payment for the air-conditioning services
net of
withholding taxes
Monthly Value Added Tax Declaration (BIR Form No. 2550M) of BGC
P-62
for
the period/month of January 2009 filed with the BIR
Monthly Value Added Tax Declaration (BIR Form No. 2550M) of BGC
P-63
for
the period/month of February 2009 filed with the BIR
Quarterly Value Added Tax Return (BIR Form No. 2550Q) of BGC for
P-64
the
1st Quarter of 2009 filed with the BIR
Monthly Value Added Tax Declaration (BIR Form No. 2550M) of BGC
P-65
for
the period/month of April 2009 filed with the BIR
Monthly Value Added Tax Declaration (BIR Form No. 2550M) of BGC
P-66
for
the period/month of May 2009 filed with the BIR
Quarterly Value Added Tax Declaration (BIR Form No. 2550Q) of
P-67
BGC
for the period/month of July 2009 filed with the BIR
Monthly Value Added Tax Declaration (BIR Form No. 2550M) of BGC
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P-69 for
the period/month of August 2009 filed with the BIR
Quarterly Value Added Tax Return (BIR Form No. 2550Q) of BGC for
P-70
the
3rd Quarter of 2009 filed with the BIR
Monthly Value Added Tax Declaration (BIR Form No. 2550M) of BGC
P-71
for
the period/month of October 2009 filed with the BIR
Monthly Value Added Tax Declaration (BIR Form No. 2550M) of BGC
P-72
for
the period/month of November 2009 filed with the BIR
Quarterly Value Added Tax Return (BIR Form No. 2550Q) of BGC for
P-73
the
4th Quarter of 2009 filed with the BIR
VAT Summary List of BGC for 1st Quarter of 2009 showing the
P-74
summary
of input and output VAT/VAT exempt sales per revenue source for
the 3
months covered by the taxable quarter
VAT Summary List of BGC for 2nd Quarter of 2009 showing the
P-75
summary
of input and output VAT/VAT exempt sales per revenue source for
the 3
months covered by the taxable quarter
VAT Summary List of BGC for 3rd Quarter of 2009 showing the
P-76
summary
of input and output VAT/VAT exempt sales per revenue source for
the 3
months covered by the taxable quarter
VAT Summary List of BGC for 4th Quarter of 2009 showing the
P-77
summary
of input and output VAT/VAT exempt sales per revenue source for
the 3
months covered by the taxable quarter
Monthly billing schedule for chilled water/air-con services of BGC
P-78
for
January 2009 covering Bonifacio Technology Center (BTC) tenants
showing locator profile, area, core operating hours, factor, number
of days,
amount, overtime charges, VAT and billed amount
Monthly billing schedule for chilled water/air-con services of BGC
P-79
for
February 2009 covering Bonifacio Technology Center (BTC) tenants
showing locator profile, area, core operating hours, factor, number
of days,
amount, overtime charges, VAT and billed amount
Monthly billing schedule for chilled water/air-con services of BGC
P-80
for
March 2009 covering Bonifacio Technology Center (BTC) tenants
showing
locator profile, area, core operating hours, factor, number of days,
amount,
overtime charges, VAT and billed amount
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P-81 Monthly billing schedule for chilled water/air-con services of BGC
for
April 2009 covering Bonifacio Technology Center (BTC) tenants
showing
locator profile, area, core operating hours, factor, number of days,
amount,
overtime charges, VAT and billed amount
Monthly billing schedule for chilled water/air-con services of BGC
P-82
for May
2009 covering Bonifacio Technology Center (BTC) tenants showing
locator
profile, area, core operating hours, factor, number of days, amount,
overtime charges, VAT and billed amount
Monthly billing schedule for chilled water/air-con services of BGC
P-83
for June
2009 covering Bonifacio Technology Center (BTC) tenants showing
locator
profile, area, core operating hours, factor, number of days, amount,
overtime charges, VAT and billed amount
Monthly billing schedule for chilled water/air-con services of BGC
P-84
for July
2009 covering Bonifacio Technology Center (BTC) tenants showing
locator
profile, area, core operating hours, factor, number of days, amount,
overtime charges, VAT and billed amount
Monthly billing schedule for chilled water/air-con services of BGC
P-85
for
August 2009 covering Bonifacio Technology Center (BTC) tenants
showing locator profile, area, core operating hours, factor, number
of days,
amount, overtime charges, VAT and billed amount
Monthly billing schedule for chilled water/air-con services of BGC
P-86
for
September 2009 covering Bonifacio Technology Center (BTC)
tenants
showing locator profile, area, core operating hours, factor, number
of days,
amount, overtime charges, VAT and billed amount
Monthly billing schedule for chilled water/air-con services of BGC
P-87
for
October 2009 covering Bonifacio Technology Center (BTC) tenants
showing locator profile, area, core operating hours, factor, number
of days,
amount, overtime charges, VAT and billed amount
Monthly billing schedule for chilled water/air-con services of BGC
P-88
for
November 2009 covering Bonifacio Technology Center (BTC)
tenants
showing locator profile, area, core operating hours, factor, number
of days,
amount, overtime charges, VAT and billed amount
Monthly billing schedule for chilled water/air-con services of BGC
P-89
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for
December 2009 covering Bonifacio Technology Center (BTC)
tenants
showing locator profile, area, core operating hours, factor, number
of days,
amount, overtime charges, VAT and billed amount
Portion of the BIR registered General Ledger of BGC Volume 1
P-90
consisting
of 5 pages showing the G/L Account 700.20500.004 for Output VAT
recorded for the period from Jan. 1, 2009 to Jan. 31, 2009
Portion of the BIR registered General Ledger of BGC Volume 2
P-91
consisting
of 4 pages showing the G/L Account 700.20500.004 for Output VAT
recorded for the period from Feb. 1, 2009 to Feb. 28, 2009
Portion of the BIR registered General Ledger of BGC Volume 3
P-92
consisting
of 3 pages showing the G/L Account 700.20500.004 for Output VAT
recorded for the period from Mar. 1, 2009 to Mar. 31, 2009
Portion of the BIR registered General Ledger of BGC Volume 4
P-93
consisting
of 3 pages showing the G/L Account 700.20500.004 for Output VAT
recorded for the period from April 1, 2009 to April 30, 2009
Portion of the BIR registered General Ledger of BGC Volume 5
P-94
consisting
of 3 pages showing the G/L Account 700.20500.004 for Output VAT
recorded for the period from May 1, 2009 to May 31, 2009
Portion of the BIR registered General Ledger of BGC Volume 6
P-95
consisting
of 4 pages showing the G/L Account 700.20500.004 for Output VAT
recorded for the period from June 1, 2009 to June 30, 2009
Portion of the BIR registered General Ledger of BGC Volume 7
P-96
consisting
of 5 pages showing the G/L Account 700.20500.004 for Output VAT
recorded for the period from July 1, 2009 to July 31, 2009
Portion of the BIR registered General Ledger of BGC Volume 8
P-97
consisting
of 4 pages showing the G/L Account 700.20500.004 for Output VAT
recorded for the period from August 1, 2009 to August 31, 2009
Portion of the BIR registered General Ledger of BGC Volume 9
P-98
consisting
of 5 pages showing the G/L Account 700.20500.004 for Output VAT
recorded for the period from September 1, 2009 to September 30,
2009
Portion of the BIR registered General Ledger of BGC Volume 10
P-99
consisting
of 5 pages showing the G/L Account 700.20500.004 for Output VAT
recorded for the period from October 1, 2009 to October 31, 2009
Portion of the BIR registered General Ledger of BGC Volume 11
P-100
consisting
of 5 pages showing the G/L Account 700.20500.004 for Output VAT
recorded for the period from November 1, 2009 to November 30,
2009
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P-101 Portion of the BIR registered General Ledger of BGC Volume 12
consisting
of 3 pages showing the G/L Account 700.20500.004 for Output VAT
recorded for the period from December 1, 2009 to December 31,
2009
Print out of Annual Income Tax Return (BIR Form No. 1702) of BGC
P-102
for
the taxable year 2009 filed through the Electronic Filing and
Payment
System (EFPS) of the BIR with Filing Reference No.
121000003721499
electronically filed on April 15, 2010 consisting of 10 printed pages
P-103 Reconciliation of FS and ITR dated December 31, 2009 showing the
adjustments or reconciliations made per FS and per ITR covering
taxable
year 2009
P-104 Judicial Affidavit of Maribel T. Tinonas dated September 30, 2014
P-104-a Sub-marking on Exhibit "P-104" pertaining to the printed name and
signature of Maribel T. Tinonas
Judicial Affidavit of Ma. Catherine C. Bachoco dated September 30,
P-105
2014
P-105-a Sub-marking on Exhibit "P-105" pertaining to the printed name and
signature of Ma. Catherine C. Bachoco
On the other hand, respondent's counsel manifested during the
hearing on January 27, 2015 that respondent would no longer be presenting
evidence in this case. 27
The case was declared submitted for decision on October 14, 2015, 28
considering respondent's Memorandum 29 received by the Court on June 25,
2015 and the Records Verification 30 issued by the Court's Judicial Records
Division on October 7, 2015, stating that petitioner failed to file its
Memorandum.
The sole issue stipulated upon by the parties for the Court's
determination is as follows:
"Whether or not petitioner is liable for deficiency income tax
amounting to P504,432.41 inclusive of interest computed from April
16, 2010 until April 4, 2014." 31
The Court shall determine first the timeliness of the filing of the instant
petition.
Section 228 of the National Internal Revenue Code of 1997, as
amended, provides:
"SEC. 228. Protesting of Assessment. — When the
Commissioner or his duly authorized representative finds that proper
taxes should be assessed, he shall first notify the taxpayer of his
findings: Provided, however, That a preassessment notice shall not be
required in the following cases:
xxx xxx xxx
The taxpayers shall be informed in writing of the law and the
facts on which the assessment is made; otherwise, the assessment
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shall be void.
Within a period to be prescribed by implementing rules and
regulations, the taxpayer shall be required to respond to said notice.
If the taxpayer fails to respond, the Commissioner or his duly
authorized representative shall issue an assessment based on his
findings.
Such assessment may be protested administratively by filing a
request for reconsideration or reinvestigation within thirty (30) days
from receipt of the assessment in such form and manner as may be
prescribed by implementing rules and regulations. Within sixty (60)
days from filing of the protest, all relevant supporting documents
shall have been submitted; otherwise, the assessment shall become
final.
If the protest is denied in whole or in part, or is not acted upon
within one hundred eighty (180) days from submission of documents,
the taxpayer adversely affected by the decision or inaction may
appeal to the Court of Tax Appeals within thirty (30) days from
receipt of the said decision, or from the lapse of the one hundred
eighty (180)-day period; otherwise, the decision shall become final,
executory and demandable."
Based on the foregoing, petitioner had thirty (30) days from receipt of
the FDDA on March 6, 2014 or until April 5, 2014 within which to appeal
before this Court.
Considering that April 5, 2014 fell on a Saturday, petitioner filed this
Petition for Review on the next working day which was April 7, 2014. 32
Thus, the instant petition was timely filed.
The Court shall now determine whether petitioner is liable for alleged
deficiency income tax.
In the FDDA dated February 28, 2014, respondent assessed petitioner
for deficiency income tax in the total amount of P504,432.41, inclusive of the
interest computed from April 16, 2010 to April 4, 2014, for TY 2009. Details
are as follows: 33
Separate Opinions
DEL ROSARIO, P.J., concurring and dissenting opinion:
Footnotes
1. Sec. 7. Jurisdiction. — The CTA shall exercise:
2. Rule 4, Sec. 3. Cases within the jurisdiction of the Court in Division. — The
Court in Division shall exercise:
(a) Exclusive original over or appellate jurisdiction to review by appeal the
following:
xxx xxx xxx
(1) Decisions of the Commissioner of Internal Revenue in cases involving
disputed assessments, refunds of internal revenue taxes, fees or other
charges, penalties in relation thereto, or other matters arising under the
National Internal Revenue Code or other laws administered by the Bureau
of Internal Revenue;
36. Line 115, Schedule 7, Annual Income Tax Return, Exhibit "P-102", Docket, p.
619.
37. G.R. No. L-13656, January 31, 1962.
38. Exhibit "P-102", Docket, pp. 613 to 622.
Gentlemen :
This refers to your letter dated January 18, 2010 stating that Nestle
Philippines, Inc. (NPI) with Tax Identification No. (TIN) 000-421-786-000 is a
domestic corporation engaged in the manufacture of brand food products
and beverages. NPI proposes to change the useful lives of its assets in
claiming depreciation deduction, both for tax and financial accounting
purposes based on the experience of the technical community and the
feedback received by the Engineering Department of NPI as a result of NPI's
annual review procedures. The proposed changes in useful lives of NPI's
assets and the reasons for the proposed changes are as follows:
Asset Current Proposed Reason for the Change in
Useful Life Useful Life Useful Life
In BIR Ruling No. DA-305-2007 dated May 17, 2007, this Office allowed
NPI to change the useful life of its manual tricycles from 5 years to 3 years in
claiming depreciation deduction, both for tax and financial accounting
purposes, considering the condition of the parts of the assets, the purpose
for which they were designed and built and the company's annual
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refurbishment practices.
Based on the foregoing, this Office hereby confirms that NPI can
change the useful life of the assets described above in claiming depreciation
deduction, both for tax and financial accounting purposes, and that NPI can
adopt such change for existing and newly acquired assets starting January 1,
2010.
This ruling is being issued on the basis of the foregoing facts as
represented. However, if upon investigation, it will be ascertained that the
facts are different, then this ruling shall be considered as null and void.
Gentlemen :
This refers to your letter dated August 25, 2009 requesting in behalf of
your client, RCBC REALTY CORPORATION ("RRC"), for a ruling on the proper
computation of RRC's depreciation expense for tax purposes upon its
adoption of the International Accounting Standards ("IAS") No. 16 for
financial statement purposes beginning January 1, 2006.
It is represented that RRC is a corporation duly organized and existing
under the laws of the Philippines with business address at RCBC Plaza, 6819
Sen. Gil Puyat corner Ayala Avenue, Makati City; that for both financial
accounting and tax purposes, RRC has primarily adopted the straight line
method for depreciating its Property, Plant and Equipment ("PPE") and
traditionally classifies its PPE into the following categories:
Building (depreciating over 50 years)
In reply thereto, please be informed that Section 34 (F) of the Tax Code
of 1997 states that there shall be allowed as a depreciation deduction a
reasonable allowance for the exhaustion, wear and tear (including
reasonable allowance for obsolescence) of property used in trade or
business. The term reasonable allowance shall include, but not limited to, an
allowance computed in accordance with the rules and regulations prescribed
by the Secretary of Finance, upon recommendation of the Commissioner,
under any of the following methods:
(a) The straight-line method;
(b) Declining-balance method, using a rate not exceeding twice the
rate which would have been used had the annual allowance been
computed under the method described in Subsection (F) (1);
(c) The sum-of the-years-digit method; and
(d) Any other method which may be prescribed by the Secretary of
Finance upon recommendation of the Commissioner. SIcTAC
Gentlemen :
This refers to your letter dated November 23, 1987 in behalf of your
client, Printwell, Inc. (PI) requesting opinion as to whether or not the
production of printed boxes and labels are considered manufacturing
activities wherein a 10% sales tax could be billed separately in the invoice.
It is represented that Printwell, Inc. (PI), an export producer registered
with the Board of Investments under P.D. 1789, as amended, is an industrial
packaging printer engaged in the production of printed folding boxes,
cartons and labels for various manufacturing entities; that the basic raw
materials used in the production of said articles are paper and paperboard
imported only upon previous orders and in accordance with the specific size,
shape, grade and kind of material required; that said materials are taxed at
the rate of 10% upon the certification of your client's customers addressed
to the Bureau of the purpose for which said materials are used; that in the
production of printed labels, the manufacturing process likewise varies
depending on the technical specifications and aesthetic features desired by
customers; and that due to the aforesaid circumstances, your client cannot
indiscriminately engage in mass production.
In reply, please be informed that in the light of the Supreme Court
decision in the case of Celestino Co. & Co. vs. Commissioner of Internal
Revenue, 99 Phil. 841, pertinent portion of which is quoted hereunder as
follows:
"MANUFACTURER: FILING ORDERS ACCORDING TO
SPECIFICATIONS DOES NOT ALTER CHARACTER OF ESTABLISHMENT . —
A factory which habitually makes sash, windows and doors, and sells
the goods for public is a manufacturer. The fact that the windows and
doors are made by it only when customers place their orders and
according to such form or combination as suit the fancy of the
purchasers does not alter nature of the establishment."
the fact that printed boxes and labels are specially designed for customers in
accordance with the specifications they give your client does not divert the
latter of its character as a manufacturer of printed boxes, and labels. (BIR
Ruling No. 105-87) Accordingly, the tax that your client may bill separately in
the invoice to customers is the manufacturers sales tax at the rate of 10%
based on the certification of your client's customers that the same are used
as packaging materials of essential articles pursuant to Section 163(2)(n) of
the Tax Code, as amended by Executive Order No. 36.
Pursuant to Section 100 of the Tax Code as amended by E.O. No. 273,
effective January 1, 1988, there shall be levied, assessed and collected on
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every sale, barter or exchange of goods, a value-added tax equivalent to
10% of the gross selling price or gross value in money of the goods sold,
bartered or exchanged, such tax to be paid by the seller or transferor.
Accordingly, beginning said date, your client is subject to the 10% VAT.
Gentlemen :
This refers to your letter dated February 15, 1995 requesting for
authority to change your method of computing depreciation expense for
your fixed assets from Straight Line Method to Declining Balance, effective
April, 1995. LLjur
LIWAYWAY VINZONS-CHATO
Commissioner of Internal Revenue
SYLLABUS
DECISION
BENGZON, J.P., J : p
In 1953, the year involved in this case, taxpayer claimed the following
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depreciation deduction:
Reappraised assets P47,342.53
New assets consisting of hospital building
and equipment 3,910.45
__________
Total depreciation P51,252.98
__________
Upon investigation and examination of taxpayer's books and papers, the
Commissioner of Internal Revenue found that the reappraised assets
depreciated in 1953 were the same ones upon which depreciation was
claimed in 1952. And for the year 1952, the Commissioner had already
determined, with taxpayer's concurrence, the depreciation allowable on said
assets to be P36,842.04, computed on their acquisition cost at rates fixed by
the taxpayer. Hence, the Commissioner pegged the deductible depreciation
for 1953 on the same old assets at P36,842.04 and disallowed the excess
thereof in the amount of P10,500.49.
The question for resolution therefore is whether depreciation shall be
determined on the acquisition cost or on the reappraised value of the assets.
Depreciation is the gradual diminution in the useful value of tangible
property resulting from wear and tear and normal obsolescense. The term is
also applied to amortization of the value of intangible assets, the use of
which in the trade or business is definitely limited in duration. 2 Depreciation
commences with the acquisition of the property and its owner is not bound
to see his property gradually waste, without making provision out of earnings
for its replacement. It is entitled to see that from earnings the value of the
property invested is kept unimpaired, so that at the end of any given term of
years, the original investment remains as it was in the beginning. It is not
only the right of a company to make such a provision, but it is its duty to its
bond and stockholders, and, in the case of a public service corporation, at
least, its plain duty to the public. 3 Accordingly, the law permits the taxpayer
to recover gradually his capital investment in wasting assets free from
income tax. 4 Precisely, Section 30 (f) (1) which states:
"(1) In general. — A reasonable allowance for deterioration of
property arising out of its use or employment in the business or trade,
or out of its not being used: Provided, that when the allowance
authorized under this subsection shall equal the capital invested by the
taxpayer . . . no further allowance shall be made. . . ."
allows a deduction from gross income for depreciation but limits the
recovery to the capital invested in the asset being depreciated.
The income tax law does not authorize the depreciation of an asset
beyond its acquisition cost. Hence, a deduction over and above such cost
cannot be claimed and allowed. The reason is that deductions from gross
income are privileges, 5 not matters of right. 6 They are not created by
implication but upon clear expression in the law. 7
Moreover, the recovery, free of income tax, of an amount more than
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the invested capital in an asset will transgress the underlying purpose of a
depreciation allowance. For then what the taxpayer would recover will be,
not only the acquisition cost, but also some profit. Recovery in due time thru
depreciation of investment made is the philosophy behind depreciation
allowance; the idea of profit on the investment made has never been the
underlying reason for the allowance of a deduction for depreciation.
Accordingly, the claim for depreciation beyond P36,842.04 or in the
amount of P10,500.49 has no justification in the law. The determination,
therefore, of the Commissioner of Internal Revenue disallowing said amount,
affirmed by the Court of Tax Appeals, is sustained.
B. Expenses. — The next item involves disallowed expenses incurred in
1953, broken as follows:
Miscellaneous expenses P6,759.17
Officer's travelling expenses 2,300.40
_________
Total P9,059.57
_________
1. Collector of Internal Revenue vs. Bautista, L-12250 & L-12259, May 27, 1959.
2. Jose Arañas, Annotations and Jurisprudence on the National Internal Revenue
Code, as Amended, Second Ed., Vol. 1, p. 263.
3. Knoxville vs. Knoxville Water Co., 212 U.S. 1, 53 L. ed. 371.
4. Detroit Edison Co. vs. Commissioner, 131 F (2d) 619 (CCA 6th, 1942), Aff'd 319
U.S. 98, 87 L. ed. 1286, 63 S.Ct. 902.
5. Palmer vs. State Commission of Revenue & Taxation, 156 Kan. 690, 135 P. 2d.
899.
6. Southern Weaving Co. vs. Query, 206 SC 307, 34 SE 2d 51.
7. See Gutierrez vs. Collector of Internal Revenue, L-19537, May 20, 1965.
8. Collector of Internal Revenue vs. Binalbagan Estate, Inc., L- 12752, Jan. 30,
1965.
9. Jacob Mertens, Jr., The Law of Federal Income Taxation, Vol. 7, Cumulative
Supplement, p. 213.
10. Ibid., p. 229.
DECISION
ACR-600307-66/63
Petitioner claims that the income it realized from the sale of oil tar and
industrial insecticide forms part of its gross receipts subject to franchise tax
under Sections 9 and 10 of its charter (Act No. 2039) which read:
"Section 9. The grantee shall annually on the fifth day of January
of each year pay to the city of Manila and to the municipalities of the
Province of Rizal in which gas is sold, two and one-half per centum of
the gross receipts within said city and municipalities, respectively,
during the preceding year. Said payment shall be in lieu of all taxes,
Insular, provincial and municipal, except taxes on the real estate,
buildings, plant, machinery, and other personal property belonging to
the grantee.
"Section 10. The grantee shall keep a record of all gas and other
products sold and collections made. The books and accounts of the
grantee shall be kept in the city of Manila and shall be subject to
inspection and audit by the proper municipal authorities and the Insular
Auditor."
Petitioner contends that oil tar and industrial insecticide are by-
products resulting from the manufacture of gas, the proceeds from the sales
of which are subject to franchise tax under Section 10 of its charter.
Accordingly, it is alleged that the proceeds from the sales of said articles are
exempt from income tax.
The word "by-products" refers to those materials which in the
cultivation or manufacture of any given commodity remain over, and which
possess or can be brought to possess a market value of their own (Phil.
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Manufacturing Co. v. Meer, 76 Phil. 436). Admittedly, the oil tar and
industrial insecticide are by-products that result in the process of
manufacturing gas as authorized by the charter of petitioner. Petitioner does
not manufacture oil tar and industrial insecticide for sale as an independent
business. It follows that the sale of said by-products is not taxable
independently of petitioner's principal business. (See Macondray v.
Sarmiento, 90 Phil. 709; Ah Nam v. City of Manila, 109 Phil. 808.) The
proceeds of the sales of such by-products are, therefore, part of petitioner's
gross receipts in the operation of its franchise which are subject to franchise
tax; hence, exempt from income tax.
As regards the rate of depreciation applicable to steel cylinders used
as containers of gas sold by petitioner, respondent claims that since the
estimated economic usefulness of steel cylinders fixed in Bulletin "F" of the
U.S. Internal Revenue Service is 25 years, the said steel cylinders should be
depreciated at an annual depreciation rate of 4%.
On the other hand, petitioner contends that the depreciation rate of
10% per annum is based upon the literature from the manufacturers of the
steel cylinders which requires users of such cylinders to have them tested
every ten years because experience shows that several cylinders are no
longer fit for use after ten years of use. In view of this instruction of the
manufacture of the cylinders the economic usefulness of the cylinders has
been estimated at 10 years. LLphil
Petitioner has shown, and respondent has not disputed, the fact that
several of such steel cylinders were discarded after ten years, and although
sums were still serviceable after ten years is no reason why said steel
cylinders should all be depreciated for a period in excess of 10 years.
Petitioner could not ascertain from the start what cylinders would last 10
years and those which would last more than that period. Again, while a
taxpayer is permitted to use different methods of depreciation appropriate to
different classes of property, he is required to use a consistent method with
regard to each class. (PH Federal Tax Handbook, 1955 ed., Par. 2005.) We
find no sufficient justification to sustain respondent as regards the
depreciation deduction allowable for said steel cylinders.
In view of the foregoing, the decision appealed from is hereby
reversed. Without pronouncement as to costs. cdasia
SO ORDERED.
ROMAN M. UMALI
CD Technologies Asia, Inc. © 2021 cdasiaonline.com
Presiding Judge
WE CONCUR:
ESTANISLAO R. ALVAREZ
Associate Judge
RAMON L. AVANCEÑA
Associate Judge