M. EXPENSES IN GENERAL 1. Requisites for deductibility (ordinary, necessary) VISAYAN V. CIR G.R. No.

L-12798 30 May1960 Visayan Cebu Terminal, Co., Inc., petitioner v. Collector of Internal Revenue, respondent. Concepcion, J. DOCTRINE: "To be deductible, (said) business expenses must "ordinary and necessary expenses paid or incurred in carrying on any trade or business"; that (those) expenses "must also, meet the further test of reasonableness in amount" NATURE: Petition for Review FACTS: Visayan Terminal Co. Inc., is a corporation organized for the purpose of handling arrastre operations in the port of Cebu. Visayan filed its income tax return for 1951reporting a gross income of P420,633.40 and claimed deductions amounting to P379,036.95, leaving a net income of P41,596.45 on which it paid income tax in the sum of P8,319.20. The sum of P379,036.95 claimed as deductions consisted of various items, among which were the following:
1.Salaries (a) Salary and bonus of Juan Eugenio Lo P1,875.00 (b) Salary of Felix Go Chan 250.00 (c) Salary of Teomino Tiu Tiam 250.00 P 2,375.00 2. Representation expenses 75,855.88 3. Miscellaneous expenses (a) Christmas bonus given to various persons P1,500.00 (b) Tips to ships' officers 4,800.00 6,300.00 TOTAL P84,530.88

Visayan raises the issue of this disallowance in this present appeal

ISSUE: 1. W/N Visayan is entitled to claim deductions for representation expenses in the amount of P75 855.90? HELD/RATIO 1. NO The Tax Court based its allowance of ONLY P10 000.00 on a comparison of the gross income of Visayan versus its representation expenses as summarized below: Year 1949 1950 1951 1952 Gross Income P722,135.42 451,303.21 420,479.39 425,326.86 Net Profit P61,257.53 33,023.78 41,596.45 34,207.31 Representation Expense P83,703.54 10,424.39 75,855.88 63,618.64

The claimed deductions were disallowed by the CIR giving rise to a deficiency assessment of P 18 991.00 Upon reconsideration, the CIR allowed P 1875.00 as deduction for salaries and P 532.00 for miscellaneous expenses but maintained the disallowance of P75 855.90 as representation expenses On appeal to the CTA, the Tax Court allowed a deduction of P10 000.00 as reasonable representation expenses based on a comparison of the gross income and the representation expenses for the years 1950 to 1952 and disallowed the rest of the amount

The Tax Court held that the gross income for 1950 was greater than in 1951 and 1952 and yet the expenses for that year was only a little over P10 000.00 Hence, this figure is a reasonable amount considering that that some of the representation expenses claimed had been evidenced by vouchers or chits, but others were reimbursed "without presentation of supporting papers The aforementioned vouchers or chits were allegedly "destroyed when the house of Buenaventura M. Veloso, treasurer of appellant, where the records were kept was burned"; Accordingly, "it is not possible to determine the actual amount covered by supporting papers and the amount without supporting papers" Thus the Court is left with no choice but to deduce a reasonable amount of representation expenses based on the available data The Court explained that "representation expenses fall under the category of business expenses which" are allowable deductions from gross income if they meet the conditions prescribed by law", particularly section 30(a) (1) of the National Internal Revenue Code To be deductible, said business expenses must "ordinary and necessary expenses paid or incurred in carrying on any trade or business" Further, those expenses "must also, meet the test of reasonableness in amount", this test being "inherent in the phase `ordinary and necessary'" The evidence bears out the fact that the expenses were not liquidated. The receipts or vouchers were allegedly lost and no proof other than oral testimony served to substantiate the claims or deductions Thus the CTA was fully justified in extrapolating the allowable deductions from the data available to it Further, the amount of P10 000.00 appears reasonable in light of the expenses and gross income for the other years

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The Court noted that far from being arbitrary, the CTA was rather liberal in allowing P10 000.00 as representation expenses, there being absolutely no concrete evidence to substantiate the actual amount spent Thus the decision of the CTA allowing ONLY P10 000.00 as representation expenses must be upheld

bonuses insofar as they exceed the salaries of the recipients, as well as the interests on earned but unpaid salaries and bonuses. ISSUE: How much of additional compensation paid as bonuses may be considered reasonable in order that it may be allowed as deduction? LAW STUFF: The law involved here is Section 30 (a)(1) and (b)(1) of the National Internal Revenue Code: SEC. 30. Deductions from gross income. In computing net income there shall be allowed as deductions (a) Expenses: (1) In general. All the ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business, including a reasonable allowance for salaries or other compensation for personal services actually rendered; (b) Interest: (1) In general. The amount of interest paid within the taxable year on indebtedness, except on indebtedness incurred or continued to purchase or carry obligations the interest upon which is exempt from taxation as income under this Title. All ordinary and necessary expenses paid or incurred in carrying on a trade or business, including a reasonable allowance for salaries or other compensation for personal services actually rendered, may be allowed as deductions in computing the taxable income during the year. Here it is admitted that the bonuses paid to the officers and employees of petitioner, whether resident or non-resident, were paid to them as additional compensation for personal services actually rendered and as such can be considered as ordinary and necessary expenses incurred in the business within the meaning of the law, the only question in dispute being how much of said bonuses may be considered reasonable in order that it may be allowed as deduction. Petitioner gave: o non-resident president and vice president for the years 1950 and 1951 bonuses equal to 133-1/2% of their annual salaries and bonuses equal to 125-2/3% for the year 1952, o resident officers and employees it gave them much more on the alleged reason that they deserved them because of their valuable contribution to the business of the corporation which has made it possible for it to realize huge profits during the aforesaid years.

DISPOSITION: Decision of the Court of Tax Appeals AFFIRMED Votes: Paras, C.J., Bengzon, Montemayor, Bautista Angelo, Labrador, Barrera and Gutierrez David, JJ., concur -Raffy 2. Compensation for personal services KUENZLE & STREIFF, INC. vs. THE COLLECTOR OF INTERNAL REVENUE October 20, 1959 DOCTRINE: There is no fixed test for determining the reasonableness of a given bonus as compensation. This depends upon many factors, one of them being "the amount and the quality of the services performed with relation to the business." Other tests suggested are: payment must be "made in good faith"; "the character of the taxpayer's business, the volume and amount of its net earnings, its locality, the type and extent of the services rendered, the salary policy of the corporation"; "the size of the particular business"; "the employees' qualifications and contributions to the business venture"; and "general economic conditions" However, "in determining whether the particular salary or compensation payment is reasonable, the situation must be considered as a whole. NATURE: review of a decision of the Court of Tax Appeals declaring petitioner liable for deficiency income tax PONENTE: Bautista-Angelo FACTS: Petitioner is a domestic corporation engaged in the importation of textiles, hardware, sundries, chemicals, pharmaceuticals, lumbers, groceries, wines and liquor; in insurance and lumber; o Petitioner deducted from its gross income certain items: salaries, directors' fees and bonuses of its non-resident president and vice-president; bonuses of its resident officers and employees; and interests on earned but unpaid salaries and bonuses of its officers and employees o Respondent disallowed the deductions of the items; assessed and demanded from petitioner the payment of deficiency income taxes; Court of Tax Appeals allowing as deductible all items comprising directors' fees and salaries of the non-resident president and vice-president, but disallowing the

PETITIONER CLAIMS: Petitioner contends that it is error to apply the same measure of reasonableness to both resident and non-resident officers because the nature, extent and quality of the

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services performed by each with relation to the business of the corporation widely differ. The payments of bonuses were strictly based on the amount of work performed, the nature of responsibility, the years of service, and the cost of living. RESPONDENT CLAIMS: That the trial court erred also in allowing the deduction bonuses in excess of the yearly salaries of their respective recipients predicated upon his own decision that the deductible amount of said bonuses should be only equal to their respective yearly salaries cannot also be sustained. COURT: There is no fixed test for determining the reasonableness of a given bonus as compensation. This depends upon many factors, one of them being "the amount and the quality of the services performed with relation to the business." Other tests suggested are: payment must be "made in good faith"; "the character of the taxpayer's business, the volume and amount of its net earnings, its locality, the type and extent of the services rendered, the salary policy of the corporation"; "the size of the particular business"; "the employees' qualifications and contributions to the business venture"; and "general economic conditions" However, "in determining whether the particular salary or compensation payment is reasonable, the situation must be considered as a whole.

SIDE ISSUE (on interests): As regards the amount of interests disallowed, we also find the ruling of the trial court justified. There is no dispute that these items accrued on unclaimed salaries and bonus participation of shareholders and employees. Under the law, in order that interest may be deductible, it must be paid "on indebtedness" (Section 30, (b)(1) of the National Internal Revenue Code). It is therefore imperative to show that there is an existing indebtedness which may be subjected to the payment of interest. Here the items involved are unclaimed salaries and bonus participation which in our opinion cannot constitute indebtedness within the meaning of the law because while they constitute an obligation on the part of the corporation, it is not the latter's fault if they remained unclaimed. It is well settled rule that the term indebtedness is restricted to its usual import which "is the amount which one has contracted to pay the use of borrowed money." o Since the corporation had at all times sufficient funds to pay the salaries of its employees, whatever an employee may fail to collect cannot be considered an indebtedness for it is the concern of the employee to collect it in due time. The willingness of the corporation to pay interest thereon cannot be considered a justification to warrant deduction. DISPOSITIVE: CTA decision affirmed, bonuses allowed. NOTE: Sorry kung magulo yung digest, there are a lot of little things which the case discussed. Hope the heading of the topics help. -Ice XXX 10. Expenses of private educational institutions Alhambra Cigar & Cigarette Manufacturing Co. v. Collector of Internal Revenue Ivan CF CALANOC vs CIR (29 Nov 1961) Kind of tax involved: AMUSEMENT TAX Sec 125 of the Tax Code provides that amusement tax is collected from the proprietor, lessee or operator of cockpits, cabarets, night or day clubs, boxing exhibitions, professional basketball games, JaiAlai, and racetracks. DOCTRINE: Payment for police protection given by Calanoc to the police is ILLEGAL since it is a consideration given by the petitioner to the police for the performance by the latter of functions required of them to be rendered by law.

RATIO: Respondents claim cannot be justified considering the factors we have already mentioned that play in the determination of the reasonableness of the bonuses or additional compensation that may be given to an officer or an employee which, if properly considered, warrant the payment of the bonuses in question to the extent allowed by the trial court. This is specially so considering the post-war policy of the corporation in giving salaries at low levels because of the unsettled conditions resulting from war and the imposition of government controls on imports and exports and on the use of foreign exchange which resulted in the diminution of the amount of business and the consequent loss of profits on the part of the corporation. The payment of bonuses in amounts a little more than the yearly salaries received considering the prevailing circumstances is in our opinion reasonable. ARE THE BONUSES GRANTED TO LOWER RANKING EMPLOYEES REASONABLE? No, but a certain amount should still be deductible. A.P. Kuenzle and H.A. Streiff have been the president and vice president, respectively, of the company. They have been the policy-makers for the company. All decisions to be made by the company on important matters and anything and everything outside of the routinary have always been determined by them and made only upon their instructions which had been strictly adhered to by the management of the Company. Indeed, the trial court was justified in expressing the view that "there is no special reason for granting greater bonuses to such lower ranking officers than those given to Messrs. Kuenzle and Streiff." We concur in this observation.

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The expenditures were rather EXCESSIVE, considering that the purpose of the law was for a charitable cause. FACTS: This case is a petition to review CTA decision which affirmed the assessment of CIR of amusement tax and surcharge against a boxing and wrestling exhibition held by petitioner Calanoc on 03 Dec 1949 at the Rizal Memorial Stadium. 24 Nov 1949 Social Welfare Commission (SCW) issued a solicitation permit, authorizing Calanoc (petitioner) to solicit and receive contributions for the orphans and destitute children of the Child Welfare Workers Club of the SCW. Such solicitation will be done through a boxing and wrestling exhibition at the Rizal Memorial Stadium. Calanoc financed and promoted the exhibition. BEFORE the exhibition took place, Calanoc applied with the Collector of Internal Revenue (CIR) for exemption from the payment of the amusement tax, based on Sec 260 of the NIRC. CIR says that such exemption will only be granted if Calanoc complies with the requirements of the law. AFTER the exhibition, CIR investigated the tax case of Calanoc. It was shown that the gross sales amounted to ~26K, expenditures was ~25K, net profit was only ~1K. Other items of expenditure included: o Police protection o Gifts o Parties o Items for representation Only the said net profit was remitted to the SCW for the said charitable purpose for which the permit was issued. CIR assessed amount against Calanoc. (around~7K) Sec of Finance authorized the denial of the application for exemption from payment of amusement tax where a) the net proceeds are not substantial OR b) where the expenses are exorbitant. ISSUE/S: Petitioner Calanoc questions the VALIDITY of the assessment of AMUSEMENT tax against him (as financer of the exhibition) Petitioners argument: Denied having received 1K as stadium fee. Such amount was not included in the receipts; says he cannot be made to pay almost 7 times the amount as amusement tax HELD +RATIO: AMUSEMENT TAX IS VALID. You cannot pay for services that are required by law to be performed by government officers. Also, the expenditures are excessive! Evidence showed that while Calanoc did not pay for the stadium fee, said amount was paid by the O-SO Beverages directly to the stadium for advertisement privileges during the exhibition. Since the stadium fee was paid by the concessionaire, Calanoc had no right to include the stadium fee among the items of his expenses. Such amount was unaccounted, and it went into the petitioners pocket.

Also, Calanoc cannot justify the other expenses, such as police protection and gifts. SC says that most of the items of expenditures are either EXORBITANT or were NOT SUPPORTED by receipts. Payment for police protection given by Calanoc to the police is ILLEGAL since it is a consideration given by the petitioner to the police for the performance by the latter of functions required of them to be rendered by law. The expenditures were rather EXCESSIVE, considering that the purpose of the law was for a charitable cause.

WHEREFORE, the decision sought herein to be reviewed is hereby affirmed, with costs against the petitioner. Vote: En banc. Bengzon, C.J., Padilla, Bautista Angelo, Labrador, Concepcion, Reyes, J.B.L., Barrera, Paredes, Dizon and De Leon, JJ., concur. -Kriszanne N. INTEREST 3. Prepaid interest of individual on cash method of accounting COMMISSIONER OF INTERNAL REVENUE, petitioner, -versusCONSUELO L. VDA. DE PRIETO, respondents. (September 30, 1960 | G.R. No. L-13912 | En Banc) DOCTRINE: XXX (I)nterest on taxes is interest on indebtedness and is deductible. (U.S. vs. Jaffray, 306 U.S. 276. See also Lustig vs.U.S., 138 F. Supp. 870; Commissioner of Internal Revenue vs. Bryer, 151 F. 2d 267, 34 AFTR 151; Penrose vs.U.S. 18 F. Supp. 413, 18 AFTR 1289; Max Thomas Davis, et al. vs. Commissioner of Internal Revenue, 46 U.S. Boared of Tax Appeals Reports, p. 663, citing U.S. vs. Jaffray, 6 Tax Court of United States Reports, p. 255; Armour vs. Commissioner of Internal Revenue, 6 Tax Court of the United States Reports, p. 359; The Koppers Coal Co. vs. Commissioner of

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Dispositive: We have examined the records of the case and we agree with the lower court that most of the items of expenditures contained in the statement submitted to the agent are either exorbitant or not supported by receipts . We agree with the tax court that the payment of P461.65 for police protection is illegal as it is a consideration given by the petitioner to the police for the performance by the latter of the functions required of them to be rendered by law. The expenditures of P460.00 for gifts, P1,880.05 for parties and other items for representation are rather excessive, considering that the purpose of the exhibition was for a charitable cause.

Internal Revenue, 7 Tax Court of United States Reports, p. 1209; Toy vs.Commissioner of Internal Revenue; Lucas vs. Comm., 34 U.S. Board of Tax Appeals Reports, 877; Evens and Howard Fire Brick Co. vs. Commissioner of Internal Revenue, 3 Tax Court of United States Reports, p. 62). The rule applies even though the tax is nondeductible. (Federal Taxes, Vol. 2, Prentice Hall, sec. 163, 13,022; see also Merten's Law of Federal Income Taxation, Vol. 5, pp. 23-24.) XXX TYPE OF TAX INVOLVED: Donors Tax NATURE: (A)ppeal from a decision of the Court of tax Appeals reversing the decision of the Commissioner of Internal Revenue PONENTE: GUTIERREZ DAVID, J. FACTS: On December 4, 1945, the respondent conveyed by way of gifts to her four children, namely, Antonio, Benito, Carmen and Mauro, all surnamed Prieto, real property with a total assessed value of P892,497.50. After the filing of the gift tax returns on or about February 1, 1954, the petitioner Commissioner of Internal Revenue appraised the real property donated for gift tax purposes at P1,231,268.00, and assessed the total sum of P117,706.50 as donor's gift tax, interest and compromises due thereon. Of the total sum of P117,706.50 paid by respondent on April 29, 1954, the sum of P55,978.65 represents the total interest on account of deliquency. This sum of P55,978.65 was claimed as deduction, among others, by respondent in her 1954 income tax return. Petitioner, however, disallowed the claim and as a consequence of such disallowance assessed respondent for 1954 the total sum of P21,410.38 as deficiency income tax due on the aforesaid P55,978.65, including interest up to March 31, 1957, surcharge and compromise for the late payment. Under the law, for interest to be deductible, it must be shown that there be an indebtedness, that there should be interest upon it, and that what is claimed as an interest deduction should have been paid or accrued within the year. It is here conceded that the interest paid by respondent was in consequence of the late payment of her donor's tax, and the same was paid within the year it is sought to be declared. ISSUE: (a) Was such interest paid upon an indebtedness within the contemplation of section 30 (b) (1) of the Tax Code? HELD: (a) YES. The term "indebtedness" as used in the Tax Code of the United States containing similar provisions as in the above-quoted section has been defined as an unconditional and legally enforceable obligation for the payment of money. Within the meaning of that definition, it is apparent that a tax may be considered an indebtedness.

REASONING: A. MAIN ISSUE XXX (S)ection 30 (b) (1) of the Tax Code, the pertinent part of which reads: SEC. 30 Deductions from gross income. In computing net income there shall be allowed as deductions xxx xxx xxx (b) Interest: (1) In general. The amount of interest paid within the taxable year on indebtedness, except on indebtedness incurred or continued to purchase or carry obligations the interest upon which is exempt from taxation as income under this Title. The term "indebtedness" as used in the Tax Code of the United States containing similar provisions as in the above-quoted section has been defined as an unconditional and legally enforceable obligation for the payment of money. Within the meaning of that definition, it is apparent that a tax may be considered an indebtedness. Although taxes already due have not, strictly speaking, the same concept as debts, they are, however, obligations that may be considered as such. The term "debt" is properly used in a comprehensive sense as embracing not merely money due by contract but whatever one is bound to render to another, either for contract, or the requirement of the law. Where statute imposes a personal liability for a tax, the tax becomes, at least in a board sense, a debt. A tax is a debt for which a creditor's bill may be brought in a proper case. It follows that the interest paid by herein respondent for the late payment of her donor's tax is deductible from her gross income under section 30(b) of the Tax Code above quoted. The above conclusion finds support in the established jurisprudence in the United States after whose laws our Income Tax Law has been patterned. Thus, under sec. 23(b) of the Internal Revenue Code of 1939, as amended , which contains similarly worded provisions as sec. 30(b) of our Tax Code, the uniform ruling is that interest on taxes is interest on indebtedness and is deductible. The rule applies even though the tax is nondeductible. To sustain the proposition that the interest payment in question is not deductible for the purpose of computing respondent's net income, petitioner relies heavily on section 80 of Revenue Regulation No. 2 (known as Income Tax Regulation) promulgated by the Department of Finance, which provides that "the word `taxes' means taxes proper and no deductions should be allowed for amounts representing interest, surcharge, or penalties incident to delinquency." The court below, however,

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held section 80 as inapplicable to the instant case because while it implements sections 30(c) of the Tax Code governing deduction of taxes, the respondent taxpayer seeks to come under section 30(b) of the same Code providing for deduction of interest on indebtedness. We find the lower court's ruling to be correct. Contrary to petitioner's belief, the portion of section 80 of Revenue Regulation No. 2 under consideration has been part and parcel of the development to the law on deduction of taxes in the United States. This notwithstanding, courts in that jurisdiction, however, have invariably held that interest on deficiency taxes are deductible, not as taxes, but as interest. Section 80 of Revenue Regulation No. 2, therefore, merely incorporated the established application of the tax deduction statute in the United States, where deduction of "taxes" has always been limited to taxes proper and has never included interest on delinquent taxes, penalties and surcharges. To give to the quoted portion of section 80 of our Income Tax Regulations the meaning that the petitioner gives it would run counter to the provision of section 30(b) of the Tax Code and the construction given to it by courts in the United States. Such effect would thus make the regulation invalid for a "regulation which operates to create a rule out of harmony with the statute, is a mere nullity." As already stated, section 80 implements only section 30(c) of the Tax Code, or the provision allowing deduction of taxes, while herein respondent seeks to be allowed deduction under section 30(b), which provides for deduction of interest on indebtedness. In conclusion, we are of the opinion and so hold that although interest payment for delinquent taxes is not deductible as tax under Section 30(c) of the Tax Code and section 80 of the Income Tax Regulations, the taxpayer is not precluded thereby from claiming said interest payment as deduction under section 30(b) of the same Code. DISPOSITIVE: IN VIEW OF THE FORGOING, the decision sought to be reviewed is AFFIRMED, without pronouncement as to costs. VOTES: Bengzon, Bautista Angelo, Labrador, Barrera, Paredes, and Dizon, JJ., concur. Paras, C. J., Concepcion, and Reyes, J.B.L., JJ., concur in the result. NO DISSENTING/CONCURRING OPINION. - Poy

O. TAXES 4. Tax Credits v. Tax Deduction CIR v. LEDNICKY (July 31, 1964) DOCTRINE: The right to deduct income taxes paid to a foreign government from the taxpayers gross income is given only as an alternative or substitute to his right to claim a tax credit for such foreign income taxes. Unless the alien resident has a right to claim a tax credit if he so chooses, he is precluded from deducting foreign income taxes from his gross income. NATURE: Petition for review of decisions of CTA PONENTE: Reyes, J.B.L., J. FACTS: Respondents are husband and wife, both American Citizens residing in the Philippines and have derived all their income from Philippine sources. Short version: Respondents were claiming DEDUCTIONS from Phil. income tax because they paid US federal income taxes

Fist case: Respondents filed their ITR for 1956, reporting a gross income of P1M, net income of P733K on which P317K was assessed (after deducting withholding tax). Respondents paid P326, 247.41, inclusive of withheld taxes. They filed an amended ITR and claimed a deduction of P205,939.24 paid in 1956 to the US government as federal income tax. Simultaneously, they requested refund of P112,437.90. When Commissioner failed to answer, they filed a petition with the Tax Court

Second Case: Respondents filed their domestic ITR for 1955 reporting a gross income of P1.7M and net income of P1.052M. They filed an amended ITR claiming a lesser income net income of P1.012M. On the basis of this, they paid P570K inclusive of withholding taxes. After audit, CIR determined a deficiency of P16K which respondents paid. Back in 1955, respondents filed with the US Internal Revenue Agent in Manila their federal ITR for 1947, 1951-1954 on income from Philippine sources on a cash basis. They paid in the same year, these federal income taxes (plus penalties and delinquency interests) in amount of P264K. Respondents thus amended their Philippine ITR for 1955 to include US federal income taxes as deductions (plus interest and exchange/bank charges) amounting to P516,445.15. They also filed a claim for refund of P166K which was later reduced to P150K Respondents brought suit in the Tax Court

Third Case: Respondents filed ITR for 1957 and paid P196K

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They filed an amended return claiming deductions of P190K representing taxes paid to US government on income derived wholly from Philippine sources. They sought refund of P90K as overpayment Respondents filed suit in tax court

that the taxpayer in question also may signify his desire to claim a tax credit and waive the deduction; otherwise the foreign taxes would always be deductible Had the law intended that foreign income taxes could be deducted from gross income in any event, regardless of the taxpayers right to claim a tax credit, it is the right to tax credit that should be conditioned upon the taxpayers waiving the deduction. The right to tax deduction would have been made unconditional (by omitting foreign taxes from the enumeration of non-deductions) while the right to tax credit would have been expressly conditioned upon the taxpayers not claiming any deduction. Petitioners admit that the purpose of the law is to prevent the taxpayer from claiming twice the benefits of his payment of foreign taxes, by deduction from gross income and by tax credit. The danger of double credit cannot exist if the taxpayer cannot claim benefit under either of these headings at his option, so that he must be entitled to a tax credit (respondents admittedly are NOT ENTITLED because all their income is derived from Philippine sources), or the option to deduct from gross income disappears altogether. Addl issue (not that important): WON there is double taxation? No, double taxation becomes obnoxious only if taxpayer is taxed twice for the benefit of the same govt entity. In the present case, while taxpayers have to pay tax twice on the same income, the Phil govt only receives the proceeds of one tax. Any relief from double taxation should come from US because income from Phil sources and respondents are domiciled here. DISPOSITION: Decision of CTA is reversed; disallowance of refunds claimed by respondent-spouses VOTE: Bengzon, CJ, Padilla, Bautista Angelo, Labrador, Concepcion, Paredes, Regala and Makalintal concur. -Steph CIR v Bicolandia Drug Co. July 21, 2006 Ponente: Velasco, Jr. 1. (1992) RA 74324 a. Granted senior citizens a 20% discount from all establishments relative to the use of transportation services, hotels and similar lodging establishments, restaurants and recreation centers and purchase of medicines. b. Permitted private establishments giving the discount to senior citizens to claim the cost as tax credit. In compliance with the law, the BIR issued RR 2-94, which defined "tax credit."5

Ruling of Tax Court: For respondents. Income paid to US may be deducted because respondents didnt signify in their ITR desire to avail of a tax credit for taxes paid to a foreign country. ISSUES/HELD: WON a citizen of US residing in the Philippines, who derives income wholly from Phil sources may deduct from gross income the income taxes paid to US? No. RATIO/RULING: Sec 30(c) (1) (B) of the Internal Revenue Act1 shows the laws intent that the right to deduct income taxes paid to foreign government from the taxpayers gross income is given only as an ALTERNATIVE or substitute to his right to claim a tax credit for such foreign income taxes under sec 30 (c) (3)2 and (4)3 Unless the alien resident has a right to claim such tax credit if he so chooses, he is precluded from deducting foreign income taxes from his gross income. In prescribing that deduction shall be allowed in the case of a taxpayer who does not signify in his return his desire to have to any extent the benefits of par (3) (relating to credits for taxes paid to foreign countries), the statute assumes SEC. 30. Deduction from gross income. In computing net income there shall be allowed as deductions (c) Taxes: (1) In general. Taxes paid or accrued within the taxable year, except (B) Income, war-profits, and excess profits taxes imposed by the authority of any foreign country; but this deduction shall be allowed in the case of a taxpayer who does not signify in his return his desire to have to any extent the benefits of paragraph (3) of this subsection (relating to credit for foreign countries); 2 Par. (c) (3) Credits against tax for taxes of foreign countries. If the taxpayer signifies in his return his desire to have the benefits of this paragraph, the tax imposed by this Title shall be credited with (B) Alien resident of the Philippines. In the case of an alien resident of the Philippines, the amount of any such taxes paid or accrued during the taxable year to any foreign country, if the foreign country of which such alien resident is a citizen or subject, in imposing such taxes, allows a similar credit to citizens of the Philippines residing in such country; 3Par. (c) (4) Limitation on credit. The amount of the credit taken under this section shall be subject to each of the following limitations: (A) The amount of the credit in respect to the tax paid or accrued to any country shall not exceed the same proportion of the tax against which such credit is taken, which the taxpayer's net income from sources within such country taxable under this Title bears to his entire net income for the same taxable year; and (B) The total amount of the credit shall not exceed the same proportion of the tax against which such credit is taken, which the taxpayer's net income from sources without the Philippines taxable under this Title bears to his entire net income for the same taxable year.
1

2.

An Act to Maximize the Contribution of Senior Citizens to Nation Building, Grant Benefits and Special Privileges and For Other Purposes 5 Tax Credit refers to the amount representing the 20% discount granted to a qualified senior citizen by all establishments relative to their utilization of transportation services, hotels and similar lodging establishments, restaurants, halls, circuses, carnivals and other similar places of culture, leisure and amusement , which discount
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(1995) Bicolandia Drug Co. (BDC aka Mercury Drug), a pharmaceutical products retailer, granted the 20% sales discount to qualified senior citizens purchasing their medicines in compliance with RA 7432. a. BDC treated this discount as a deduction from its gross income in compliance with RR 2-94 b. When it filed its 1995 Corporate Annual ITR, BDC declared a net loss position with no income tax liability. 4. (1996) BDC filed a claim for tax refund or credit. a. Its net losses for the year 1995 prevented it from benefiting from the treatment of sales discounts as a deduction from gross sales during the said taxable year. b. It alleged that the CIR erred in treating the 20% sales discount given to senior citizens as a deduction from its gross income for income tax purposes or other percentage tax purposes rather than as a tax credit. 5. (1998) To toll the running of the 2-year prescriptive period for filing a clam for refund, BDC appealed to the CTA. a. BDC argued that since Sec. 4 of RA 7432 provided that discounts granted to senior citizens may be claimed as tax credit, Section 2(i) of RR 2-94, which referred to the tax credit as the amount representing the 20% discount that "shall be deducted by the said establishments from their gross income for income tax purposes and from their gross sales for value-added tax or other percentage tax purposes," is illegal, void and without effect for being inconsistent with the statute it implements. 6. CTA Ruling a. Provisions of RA 7432 would prevail over RR 2-94, whose definition of "tax credit" deviated from the intendment of the law b. Partially granted the respondent's claim for a refund (reduced amount) 7. CA reversed CTA decision and annulled the award of tax refund. a. RA 7432 provided for a tax credit, not a tax refund ISSUE: WON the CTA erred in holding that the 20% sales discount granted to qualified senior citizens by the respondent pursuant to RA 7432 may be claimed as a tax credit, instead of a deduction from gross income or gross sales. HELD: NO 1. The problem stems from the issuance of RR 2-94 and the radical departure it made when it defined the "tax credit" that would be granted to establishments that give 20% discount to senior citizens. a. Under RR 2-94, the tax credit is "the amount representing the 20% discount granted to a qualified senior citizen., which discount shall be deducted by the said establishments from their gross income for income tax purposes and from their gross sales for valueadded tax or other percentage tax purposes." b. It equated "tax credit" with "tax deduction," contrary to the definition in Black's Law Dictionary6.

3.

2. 3.

4.

5.

6.
shall be deducted by the said establishments from their gross income for income tax purposes and from their gross sales for value-added tax or other percentage tax purposes . 6 An amount subtracted from an individual's or entity's tax liability to arrive at the total tax liability. A tax credit reduces the taxpayer's liability x x x, compared to a deduction which reduces taxable income upon which the tax liability is calculated. A credit differs from deduction to the extent that the former is subtracted from the tax while the latter is subtracted from income before the tax is computed.

7.

The definition of the term "tax credit" is plain and clear, and the attempt of RR 2-94 to define it differently is the root of the conflict. PETITIONER: There should first be payment of the tax before the tax credit can be claimed. a. COURT: In the NIRC, we see at least one instance where this is not the case: VAT-registered person, whose sales are zero-rated or effectively zero-rated. It speaks of a tax credit for tax due, so payment of the tax has not yet been made in that particular example. PETITIONER: Since RA 7432 used the word "may," the availability of the tax credit to private establishments is only permissive. Petitioner further argues that the definition of the term "tax credit" in RR 2-94 was validly issued under the authority granted by the law to the DOF to formulate the needed guidelines. It further explained that RR 2-94 can be harmonized with RA 7432, such that the definition of the term "tax credit" in RR 2-94 is controlling. It claims that to do otherwise would result in Section 4(a) of RA 7432 impliedly repealing Section 204 (c) of the NIRC. a. COURT i. RR 2-94 is still subordinate to RA 7432, and in cases of conflict, the implementing rule will not prevail over the law it seeks to implement. ii. Confliciting laws cannot be harmonized because there is a great divide separating the idea of "tax credit" and "tax deduction," as seen in the definition in Black's Law Dictionary. iii. The claimed absurdity of Sec. 4(a) of RA 7432 impliedly repealing Sec. 204(c) of the NIRC could only come about if it is accepted that a tax credit is akin to a tax refund wherein payment of taxes must be made in order for it to be claimed. But as shown in Sec. 112(a) of the NIRC, it is not always necessary for payment to be made for a tax credit to be available. PETITIONER: Should private establishments be allowed to claim tax credits for discounts given to senior citizens, they would be earning and not just be reimbursed for the discounts given. a. COURT i. It is clear that the lawmakers intended the grant of a tax credit to complying private establishments like the respondent. ii. If the private establishments appear to benefit more from the tax credit than originally intended, it is not for petitioner to say that they shouldn't. The tax credit may actually have provided greater incentive for the private establishments to comply with RA 7432, or quicker relief from the cut into profits of these businesses. RR 2-94 is null and void for failing to conform to the law it sought to implement. Therefore under RA 7432, BDC is entitled to its claim of a tax credit. Also, RA 7432 has already been amended by RA 9257 (Expanded Senior Citizens Act of 2003). The term "tax credit" is no longer used. The 20% discount granted is treated in the following manner:

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8.

DISPOSITIVE: Petition DENIED. Assailed CA Decision AFFIRMED. -Zoilo Mercury Drug Corporation v. Commissioner of Internal Revenue (July 20, 2011) Kind of tax: income tax Doctrine: the 20% sales discount for Senior Citizens is to be treated as a tax deduction and NOT a tax credit Nature: petition for review on certiorari Ponente: Facts: 1.Pursuant to RA 7432, Mercury Drug granted 20% sales discount to qualified senior citizens on their purchases of medicines. For taxable year April to December 1993 and January to December 1994, the amounts representing the 20% sales discount totalled P3,719,287.68 and P35,500,593.44, respectively, which Mercury claimed as deductions from its gross income. 2. Realizing that Republic Act No. 7432 allows a tax credit for sales discounts granted to senior citizens, petitioner filed with the Commissioner of Internal Revenue (CIR) claims for refund. 3. When the CIR failed to act upon petitioners claims, the latter filed a petition for review with the Court of Tax Appeals. On 6 September 2000, the Court of Tax Appeals rendered the following judgment: Petition for Review is hereby PARTIALLY GRANTED. Accordingly, Revenue Regulations No. 2-94 of the CIR is declared null and void insofar as it treats the 20% discount given by private establishments as a deduction from gross sales. CIR is hereby ORDERED to GRANT A REFUND OR ISSUE A TAX CREDIT CERTIFICATE to Mercury Drug in the reduced amount of P1,688,178.43 representing the latters overpaid income tax for the

4. Upon appeal to CA, CA affirmed CTA. Hence this appeal. Issue: Is the claim for tax credit to be based on the full amount of the 20% senior citizen discount or the acquisition cost of the item sold? Held: YES, it should be based on full amount of 20% senior citizens discount. RATIO: Sec. 4 of RA 7432 clearly states: The senior citizens shall be entitled to the following: a. the grant of 20% discount from all establishments relative to the utilization of transportation services, hotels and similar lodging establishments, restaurants and recreation centers and the purchase of medicines anywhere in the country, Provided, that private establishments may claim the cost as tax credit. The burden imposed on private establishments amounts to taking of private property for public use with just compensation in the form of a tax credit. Proviso specifically allows the 20% discount to be claimed as tax credit, and not merely as deduction from gross sales or gross income. The law however, is silent as to how cost of the discount as tax credit should be construed. There is nothing novel in this question. As we have held in the case of Bicolandia Drug Corp. v. CIR, etc. the term cost refers to the amount of the 20% discount extended to senior citizens in the purchase of their medicine. We reiterated this ruling in the 2008 case of Cagayan Valley Drug. The tax credit should be equivalent to the actual 20% sales discount granted to the senior citizens. The previous ruling of the CTA that the tax credit is based only on the cost of the discount which was interpreted to cover only direct acquisition cost, excluding administrative and other incremental costs, is struck down by the Court. DISPOSITIVE: The judgment of the lower court affirmed with modification. VOTES: 2nd Division; Carpio, Brion, De Castro and Peralta concur.

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The establishment may claim the discounts granted under (a), (f), (g) and (h) as tax deduction based on the net cost of the goods sold or services rendered. b. Provided, That the cost of the discount shall be allowed as deduction from gross income for the same taxable year that the discount is granted. c. Provided, further, that the total amount of the claimed tax deduction net of value added tax if applicable, shall be included in their gross sales receipts for tax purposes and shall be subject to proper documentation and to the provisions of the NIRC, as amended. Under RR 4-2006, "(o)nly the actual amount of the discount granted or a sales discount not exceeding 20% of the gross selling price can be deducted from the gross income, net of value added tax, if applicable, for income tax purposes, and from gross sales or gross receipts of the business enterprise concerned, for VAT or other percentage tax purposes." Under the new law, there is no tax credit to speak of, only deductions.

a.

taxable year 1993. However, the claim for refund for taxable year 1994 is denied for lack of merit. CTA: declared that the 20% sales discount should be treated as a tax credit rather than a mere deduction from gross income. But there are irregularities and discrepancies in the cash slips submitted by Mercury as basis for tax refund so those for 1994 and some of amounts for 1993 are disallowed. The amount of P3,522,123.25 corresponding to 1993 will be further reduced to P2,989,930.43 as this Courts computation is based on the cost of the 20% discount and not on the total amount of the 20% discount based on the decision of the Court of Appeals in Commissioner of Internal Revenue v. Elmas Drug Corporation, CA-SP No. 49946 promulgated on October 19, 1999, where it ruled: "Thus the cost of the 20% discount represents the actual amount spent by drug corporations in complying with the mandate of RA 7432. Working on this premise, it could not have been the intention of the lawmakers to grant these companies the full amount of the 20% discount as this could be extending to them more than what they actually sacrificed when they gave the 20% discount to senior citizens." Similarly the amount of P8,789,792.27 corresponding to taxable year 1994 will be reduced to P7,393,094.28 based on the aforequoted Court of Appeals decision.

Notes: Copied from Anns (my thanks!) tax deduction: a reduction of the income subject to tax, for various items, especially expenses incurred to produce income; a reduction in the taxable income tax credit is a sum deducted from the total amount a taxpayer owes to the state; a direct reduction of the taxes due - Justin 5. Fines and penalties Gutierrez v. Collector of Internal Revenue. G.R. No. L-19537. May 20, 1965 Miggy P. LOSSES 2. Completed transactions FERNANDEZ HERMANOS, INC v CIR 30 Sept 1969 Note: Nahirapan ako sa case na to like crazy. So bear with the digest. Thanks. Doctrine: No bad debt could arise where there is no valid and subsisting debt. It has been held that if the debtor corporation, although losing money or insolvent, was still operating at the end of the taxable year, the debt is not considered worthless and therefore not deductible. Nature: Appeals from 2 decision of the CTA Ponente: Teehankee, J. Facts: The taxpayer, Fernandez Hermanos, Inc., is a domestic corporation organized for the principal purpose of engaging in business as an "investment company" with main office at Manila. Upon verification of the taxpayer's income tax returns for the period in question, the Commissioner of Internal Revenue assessed against the taxpayer the sums of P13,414.00, P119,613.00, P11,698.00, P6,887.00 and P14,451.00 as alleged deficiency income taxes for the years 1950, 1951, 1952, 1953 and 1954, respectively. Said assessments were the result of alleged discrepancies found upon the examination and verification of the taxpayer's income tax returns for the said years, summarized by the Tax Court in its decision of June 10, 1963 in CTA Case No. 787, as follows: 1. Losses a. Losses in Mati Lumber Co. (1950) P 8,050.00 353,134.25

1950 1951

8,989.76 27,732.66

d. Losses in Hacienda Dalupiri 1950 17,418.95 1951 29,125.82 1952 26,744.81 1953 21,932.62 1954 42,938.56 e. Losses in Hacienda Samal 1951 8,380.25 1952 7,621.73 2. Excessive depreciation of Houses 1950 P 8,180.40 1951 8,768.11 1952 18,002.16 1953 13,655.25 1954 29,314.98 3. Taxable increase in net worth 1950 P 30,050.00 1951 1,382.85 4. Gain realized from sale of real property in 1950 P 11,147.2611

The Tax Court sustained the Commissioner's disallowances of Item 1, sub-items (b) and (e) and Item 2 of the above summary, but overruled the Commissioner's disallowances of all the remaining items. It therefore modified the deficiency assessments accordingly, found the total deficiency income taxes due from the taxpayer for the years under review to amount to P123,436.00 instead of P166,063.00 as originally assessed by the Commissioner, and rendered the following judgment: WHEREFORE, the decision appealed from is hereby modified, and petitioner is ordered to pay the sum of P123,436.00 within 30 days from the date this decision becomes final. If the said amount, or any part thereof, is not paid within said period, there shall be added to the unpaid amount as surcharge of 5%, plus interest as provided in Section 51 of the National Internal Revenue Code, as amended. With costs against petitioner. (Pp. 75, 76, Taxpayer's Brief as appellant) Both parties have appealed from the respective adverse rulings against them in the Tax Court's decision. Issues: A. The correctness of the Tax Court's rulings with respect to the disputed items of disallowances enumerated in the Tax Court's summary reproduced above (Relevant Issue) B. Whether or not the government's right to collect the deficiency income taxes in question has already prescribed.

b. Losses in or bad debts of Palawan Manganese Mines, Inc. (1951) c. Losses in Balamban Coal Mines

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We find no reason to disturb this finding of the Tax Court. There was adequate basis for the writing off of the stock as worthless securities. Assuming that the Company would later somehow realize some proceeds from its sawmill and equipment, which were still existing as claimed by the Commissioner, and that such proceeds would later be distributed to its stockholders such as the taxpayer, the amount so received by the taxpayer would then properly be reportable as income of the taxpayer in the year it is received. (b) Disallowance of losses in or bad debts of Palawan Manganese Mines, Inc. (1951). While it continued to give advances, it decided to write off as worthless the sum of P353,134.25. This amount "was arrived at on the basis of the total of advances made from 1945 to 1949 in the sum of P438,981.39, from which amount the sum of P85,647.14 had to be deducted, the latter sum representing its pre-war assets. (t.s.n., pp. 136-139, Id)." From these facts, and as admitted by petitioner itself, Palawan Manganese Mines, Inc., was still in operation when the advances corresponding to the years 1945 to 1949 were written off the books of petitioner. Under the circumstances, was the sum of P353,134.25 properly claimed by petitioner as deduction in its income tax return for 1951, either as losses or bad debts? It will be noted that in giving advances to Palawan Manganese Mine Inc., petitioner did not expect to be repaid. In other words, if there were no earnings or profits, there was no obligation to repay those advances. It has been held that the voluntary advances made without expectation of repayment do not result in deductible losses. 1955 PH Fed. Taxes, Par. 13, 329, citing W. F. Young, Inc. v. Comm., 120 F 2d. 159, 27 AFTR 395; George B. Markle, 17 TC. 1593. Is the said amount deductible as a bad debt? As already stated, petitioner gave advances to Palawan Manganese Mines, Inc., without expectation of repayment. Petitioner could not sue for recovery under the memorandum agreement because the obligation of Palawan Manganese Mines, Inc. was to pay petitioner 15% of its net profits, not the advances. No bad debt could arise where there is no valid and subsisting debt. It has been held that if the debtor corporation, although losing money or insolvent, was still operating at the end of the taxable year, the debt is not considered worthless and therefore not deductible.

(c) Disallowance of losses in Balamban Coal Mines (1950 and 1951). The Court sustains the Tax Court's disallowance of the sums of P8,989.76 and P27,732.66 spent by the taxpayer for the operation of its Balamban coal mines in Cebu in 1950 and 1951, respectively, and claimed as losses in the taxpayer's returns for said years. The Tax Court correctly held that the losses "are deductible in 1952, when the mines were abandoned, and not in 1950 and 1951, when they were still in operation (d) and (e) Allowance of losses in Hacienda Dalupiri (1950 to 1954) and Hacienda Samal (1951-1952). The Commissioner questions that the losses sustained by the taxpayer were properly based on the inventory method of accounting. He concedes, however, "that the regulations referred to does not specify how the inventories are to be made. The Tax Court, however, felt satisfied with the evidence presented by the taxpayer ... which merely consisted of an alleged physical count of the number of the livestock in Hacienda Dalupiri for the years involved." 11 The Tax Court was satisfied with the method adopted by the taxpayer as a farmer breeding livestock, reporting on the basis of receipts and disbursements. We find no Compelling reason to disturb its findings. 2. Disallowance of excessive depreciation of buildings (1950-1954). During the years 1950 to 1954, the taxpayer claimed a depreciation allowance for its buildings at the annual rate of 10%. The Commissioner claimed that the reasonable depreciation rate is only 3% per annum, and, hence, disallowed as excessive the amount claimed as depreciation allowance in excess of 3% annually. We sustain the Tax Court's finding that the taxpayer did not submit adequate proof of the correctness of the taxpayer's claim that the depreciable assets or buildings in question had a useful life only of 10 years so as to justify its 10% depreciation per annum claim, such finding being supported by the record. The taxpayer's contention that it has many zero or one-peso assets, 12 representing very old and fully depreciated assets serves but to support the Commissioner's position that a 10% annual depreciation rate was excessive. 3. Taxable increase in net worth (1950-1951). The Commissioner advances no valid grounds in his brief for contesting the Tax Court's findings. Certainly, these increases in the taxpayer's net worth were not taxable increases in net worth, as they were not the result of the receipt by it of

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Held & Ratio: A. (a) Allowance of losses in Mati Lumber Co. (1950). The Commissioner of Internal Revenue questions the Tax Court's allowance of the taxpayer's writing off as worthless securities in its 1950 return the sum of P8,050.00 representing the cost of shares of stock of Mati Lumber Co. acquired by the taxpayer on January 1, 1948, on the ground that the worthlessness of said stock in the year 1950 had not been clearly established. The Court, however, found that "the company ceased operations in 1949 when its Manager and owner, a certain Mr. Rocamora, left for Spain ,where he subsequently died. When the company eased to operate, it had no assets, in other words, completely insolvent. This information as to the insolvency of the Company reached (the taxpayer) in 1950," when it properly claimed the loss as a deduction in its 1950 tax return, pursuant to Section 30(d) (4) (b) or Section 30 (e) (3) of the National Internal Revenue Code.

The Tax Court's disallowance of the write-off was proper. We sustain the government's position that the advances made by the taxpayer to its 100% subsidiary, Palawan Manganese Mines, Inc. amounting to P587,308,07 as of 1951 were investments and not loans. 5 The evidence on record shows that the board of directors of the two companies since August, 1945, were identical and that the only capital of Palawan Manganese Mines, Inc. is the amount of P100,000.00 entered in the taxpayer's balance sheet as its investment in its subsidiary company. 6 This fact explains the liberality with which the taxpayer made such large advances to the subsidiary, despite the latter's admittedly poor financial condition. For such losses or bad debts must be ascertained to be so and written off during the taxable year, are therefore deductible in full or not at all, in the absence of any express provision in the Tax Code authorizing partial deductions.

unreported or unexplained taxable income, but were shown to be merely the result of the correction of errors in its entries in its books relating to its indebtednesses to certain creditors, which had been erroneously overstated or listed as outstanding when they had in fact been duly paid. The Tax Court's action must be affirmed. 4. Gain realized from sale of real property (1950). We likewise sustain as being in accordance with the evidence the Tax Court's reversal of the Commissioner's assessment on all alleged unreported gain in the sum of P11,147.26 in the sale of a certain real property of the taxpayer in 1950. As found by the Tax Court, the evidence shows that this property was acquired in 1926 for P11,852.74, and was sold in 1950 for P60,000.00, apparently, resulting in a gain of P48,147.26. 14 The taxpayer reported in its return a gain of P37,000.00, or a discrepancy of P11,147.26. 15 It was sufficiently proved from the taxpayer's books that after acquiring the property, the taxpayer had made improvements totalling P11,147.26, 16 accounting for the apparent discrepancy in the reported gain. In other words, this figure added to the original acquisition cost of P11,852.74 results in a total cost of P23,000.00, and the gain derived from the sale of the property for P60,000.00 was correctly reported by the taxpayer at P37,000.00. B. On the second issue of prescription, the taxpayer's contention that the Commissioner's action to recover its tax liability should be deemed to have prescribed for failure on the part of the Commissioner to file a complaint for collection against it in an appropriate civil action, as contradistinguished from the answer filed by the Commissioner to its petition for review of the questioned assessments in the case a quo has long been rejected by this Court. This Court has consistently held that "a judicial action for the collection of a tax is begun by the filing of a complaint with the proper court of first instance, or where the assessment is appealed to the Court of Tax Appeals, by filing an answer to the taxpayer's petition for review wherein payment of the tax is prayed for." 17 This is but logical for where the taxpayer avails of the right to appeal the tax assessment to the Court of Tax Appeals, the said Court is vested with the authority to pronounce judgment as to the taxpayer's liability to the exclusion of any other court. In the present case, regardless of whether the assessments were made on February 24 and 27, 1956, as claimed by the Commissioner, or on December 27, 1955 as claimed by the taxpayer, the government's right to collect the taxes due has clearly not prescribed, as the taxpayer's appeal or petition for review was filed with the Tax Court on May 4, 1960, with the Commissioner filing on May 20, 1960 his Answer with a prayer for payment of the taxes due, long before the expiration of the five-year period to effect collection by judicial action counted from the date of assessment.

Vote: EB. Concepcion, Dizon, Makalintal, Zaldivar, Sanchez, Castro, Fernando, Capistrano, and Barredo concur. - Wiggy

(Meron pang other cases pero inulit lang yung ibang parts tas din a rin naman relevant. Di ko na sinali.) Dispositive: Judgment of the Court of Tax Appeals, subject of the appeals in Cases Nos. L-21551 and L-21557, as modified by the crediting of the losses of P36,722.42 disallowed in 1951 and 1952 to the taxpayer for the year 1953 as directed in paragraph 1 (c) of this decision, is hereby affirmed.

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