Zamora v.

CIR and CTA [8 SCRA 163]

Whether or not the disallowance of a part of the promotion expenses as deductible was proper.

The CTA was correct in disallowing a portion of the promotion expenses as deductible.

CTA erred in disallowing P10,478.50 as promotion expenses incurred by his wife for the promotion of the Bay View Hotel and Farmacia Zamora. (a) Zamora is claiming that his wife incurred P20,957.00 as promotion expenses and the whole amount should be allowed as deductions and not only half of it or P10,478.50. (b) The P20,957.00 was allegedly spent by Mrs. Esperanza A. Zamora (wife of Mariano), during her travel to Japan and the United States to purchase machinery for a new Tiki-Tiki plant, and to observe hotel management in modern hotels.

Esso Standard v. CIR [176 SCRA 149]

If margin fees are not taxes, whether or not they are necessary and ordinary business expenses, deductible from gross income.

Denied ESSOs claim for refund of overpayment of its 1959 and 1960 income taxes. Margin fees paid to the Central Bank could not be considered taxes or

Margin fees were deductible from gross income, either as (1) tax or as (2) an ordinary and necessary business expense.

Not all of Mrs. Zamoras expenses came under the category of ordinary and necessary expenses; part thereof constituted her personal expenses. (a) She went abroad on a combined medical and business trip. (b) No receipt whatsoever, were submitted to explain the alleged business expenses, or proof of the connection which said expenses had to the business or the reasonableness of the said amount of P20,957.00. (c) There having been no means by which to ascertain which expense was incurred by her in connection with the business of Mariano Zamora and which was incurred for her personal benefit, the Collector and the CTA in their decisions, considered 50% of the said amount of P20,957.00 as business expenses and the other 50%, as her personal expenses. The margin fee was imposed by the State in the exercise of its police power and not its power of taxation.

allowed as deductible business expenses.

Assuming arguendo the margin fees were not deductible, there was still an overpayment representing the excess interest.

The Court of Tax Appeals did not err when it held that the margin fees are NOT expenses in connection with the production or earning of ESSOs incomes in the Phil. They were expenses incurred in the disposition of said incomes; expenses for the remittances of funds after they have already been earned by ESSOs Philippine branch. Since the margin fees were incurred for the remittance of funds to ESSOs head office in NY, which is a separate and distinct income taxpayer from the Philippine branch, for its disposal abroad, it can never be said that the margin fees were appropriate and helpful in the development of ESSOs business in the Philippines exclusively or were incurred for the purposes proper to the conduct of the affairs of ESSOs Philippine branch exclusively or for the purpose of realizing a profit or minimizing a loss in the Philippines exclusively. An item of expenditure, in order to be deductible under the Tax Code as ordinary and necessary business expenses, must fall squarely within the language of the statutory provision. Such section is intended primarily, although not always necessarily, to cover expenditures of a recurring nature where the benefit derived from the payment is realized and

Gancayco v. Collector [1 SCRA 980

Whether or not the Farming expenses are deductible from the net income.

No evidence has been presented as to the nature of the said "farming expenses" other than the bare statement of petitioner that they were spent for the "development and cultivation of (his) property". No specification has been made as to the actual amount spent for purchase of tools, equipment or materials, or the amount spent for improvement. Respondent

Gancayco claims a deduction of 2 items, namely: (a) for farming expenses, P27,459.00; and (b) for representation expenses, P8,933.45.

claims that the entire amount was spent exclusively for clearing and developing the farm which were necessary to place it in a productive state. It is not, therefore, an ordinary expense but a capital expenditure. Accordingly, it is not deductible but it may be amortized, in accordance with section 75 of Revenue Regulations No. 2, cited above. See also, section 31 of the Revenue Code which provides that in computing net income, no deduction shall in any case be allowed in respect of any amount paid out for new buildings or for permanent improvements, or betterments made to increase the value of any property or estate.

exhausted within the taxable year. Accordingly, if the result of the expenditure is the acquisition of an asset which has an economically useful life beyond the taxable year, no deduction of such payment may be obtained under the provisions of the statute. In such cases, deduction must be obtained under the provisions of the statute which permit deductions for amortization, depreciation, depletion or loss Disallowance of Gancayco's claim for representation expenses is justified by the record, for, apart from the absence of receipts, invoices or vouchers of the expenditures in question, he could not specify the items constituting the same, or when or on whom or on what they were incurred. With respect to club dues, it has been held that where a corporation requires its officers to be members of social or athletic clubs to promote its business, and the club dues are paid by corporation, such dues are DEDUCTIBLE as ordinary and necessary business expenses. As regards the portion of the representation expenses pertaining to entertainment expenses, it has been sufficiently proven that said expenses were incurred to entertain Goodrichs

Goodrich International Co. v. Collector of Internal Revenue [CTA Case no. 468]

Whether or not representation expenses are deductible.

The CIR did not consider such expenses as deductible and assessed Goodrich with deficiency income tax.

Goodrich required the members of its staff to be members of athletic and social clubs for the purpose of establishing contracts with prospective customers and to entertain customers. As such, the expenses incurred from these activities as REPRESENTATION EXPENSES. A portion of these expenses pertain to club dues and the rest to entertainment expenses.

CIR v. Palanca, Jr. [18 SCRA 496]

Whether or not an interest paid on the delinquent payment of estate and inheritance tax can be considered as an interest on indebtedness as to be allowed as a deduction on Palancas gross income.

A tax is not an indebtedness. Debts are due to the government in its corporate capacity, while taxes are due to the government in its sovereign capacity. A debt is a sum of money due upon contract express or implied or one which is evidenced by a judgment. Taxes are imposts levied by government for its support or some special purpose which the government has recognized. In view of this distinction, the Commission submits that the deductibility of "interest on indebtedness" from a person's income tax under Section 30(b) (1) cannot extend to "interest on taxes.

interest paid on delinquent payment of estate and inheritance tax can be considered as an interest on indebtedness. Therefore, such may be allowed as a deduction on gross income.

customers. In Commissioner of Internal Revenue vs. Prieto, the SC explicitly announced that while the distinction between "taxes" and "debts" was recognized in this jurisdiction, the variance in their legal conception does not extend to the interests paid on them, at least insofar as Section 30 (b) (1) of the National Internal Revenue Code is concerned. Thus, 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 Palanca 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 deducted.
Section 30(b) (1) of the Tax Code reads: Sec. 30. Deductions from gross income In computing net income there shall be allowed as deductions xxx xxx xxx "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 US containing similar provisions as in the above-quoted section has been defined as the 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. It follows that the interest paid by Palanca Jr. for the late payment of his donor's tax is deductible from his income under section 30 (b) of the Tax Code. CIR v. Vda. De Prieto [109 Phil. 592] Whether or not the interest on account of delinquency in paying the donors tax, can be claimed as deduction in the income tax return. Section 80 of Revenue Regulation 2 promulgated by the DOF, 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. Because the loans had been incurred for the purchase of machinery and equipment, the interest payments on those loans should have been capitalized instead and claimed as a depreciation deduction taking into account the adjusted basis of the machinery and equipment (original acquisition cost plus interest charges) over the useful life of such assets. Interest on account of delinquency in paying the donors tax can be claimed as a deduction in income tax. 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. [T[he general rule is that interest expenses are deductible against gross income and this certainly includes interest paid under loans incurred in connection with the carrying on of the business of the taxpayer. In the instant case, the CIR does not dispute that the interest payments were made by PICOP on loans incurred in connection with the carrying on of the registered operations of PICOP. Neither does the CIR deny that such

Paper Industries v. CA [250 SCRA 434]

Whether or not PICOP is entitled to deductions against income of Interest payments on loans for the purchase of machinery and equipment

In 1969, 1972 and 1977, PICOP obtained loans from foreign creditors in order to finance the purchase of machinery and equipment needed for its operations. In its 1977 Income Tax Return, PICOP claimed interest payments made in 1977, amounting to P42,840,131.00, on these loans as a deduction from its 1977 gross income.

CIR v. Lednicky [G.R. No. L-18169]

Whether or not a citizen of the US residing in the Philippines, may deduct from his gross income the income taxes he has paid to the US government for the taxable year on the strength of Sec. 30 (c-1) of the Philippine Internal Revenue Code.

The wording of section 30 (c) (1) (B) of the Internal Revenue Act shows the laws intent that the right to deduct income taxes paid to foreign government form 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) and (4), so that 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. The wording that such deduction shall be allowed in case of a taxpayer who does not signify his desire to have the benefits of par 3, assumes that the taxpayer may also signify his desire to claim a tax credit and waive the deduction. The Commissioner of Internal Revenue assessed against the taxpayer as alleged deficiency income taxes for the years 19501954. Fernandez claimed several deductions, one of which was the losses or bad debt as regards the funds it gave to Palawan Manganese Mines, which were disallowed by the CIR. The taxpayer had been duly compensated for otherwise than by insurance, and that it had not

If the respondent taxpayers are not allowed to deduct the income taxes they are required to pay to the government of the United States in their return for Philippine income tax, they would be subjected to double taxation.

interest payments were legally due and demandable under the terms of such loans, and in fact paid by PICOP during the tax year 1977. Had the law intended that foreign income taxes be deducted from gross income in any event, regardless of the taxpayers right to claim credit, it is the right to credit that should be conditioned upon the waiving of the deduction, and the right to reduction under subsection (c-1B) would have been made absolute. 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.

Fernandez Hermanos v. CIR [29 SCRA 552]

Whether or not the disallowances on the basis of bad debts and losses should be allowed.

Fernandez claimed for several deductions, one of which was the losses incurred as regards the money it gave to Palawan Manganese.

It has been held that the voluntary advances made without expectation of repayment do not result in deductible losses. No bad debt could arise where there is no valid and subsisting debt.

Plaridel Security v. CIR [21 SCRA 1187]

Whether or not the amount paid to P.L. Galang is a deductible loss.

Even if there is a right to compensation by insurance or otherwise, the deduction can be

The rule is that loss deduction will be denied if there is a measurable right to

exhausted all remedies minimize its losses.

to

taken in the year of actual loss where the possibility of recovery is remote.

compensation for the loss, with ultimate collection reasonably clear. So where there is reasonable ground for reimbursement, the taxpayer must seek his redress and may not secure a loss deduction until he establishes that no recovery may be had. In other words, as the Tax Court put it, the taxpayer (Plaridel) must exhaust his remedies first to recover or reduce his loss.