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loan, coupled with its concomitant interests, should have been treated as the
lender's capital investment and not a deductible expense on the part of the
borrower Oranbo.
As for the UCPB loan, petitioner argues that interests thereon could not likewise
qualify as deductible expense. Oranbo, which is in realty business, having utilized
the loan for the purchase of land, thus amounting to acquisition of capital asset and,
therefore, all attendant expenses including interest payments on the incurred loan
are deemed capital expenditures and not deductible business expenses.
The petition fails. IEaHSD
It has been established, even implicitly admitted by petitioner, that Oranbo
contracted loans from BPI and UCPB in 1989 and 1990, respectively in the course of
and relative to its business operations for which it paid interests thereon.
The general rule is that interest expenses are deductible against gross income, and
it certainly includes interest paid under loans incurred in relation to the carrying on
of the taxpayer's business (Paper Industries Corporation of the Philippines v. Court
of Appeals, 250 SCRA 434, 1995). Thus, under Section 29 (b) of then existing 1997
Tax Code, now section 34 (B-1) of the Tax Reform Act of 1997, the interests paid or
incurred within a taxable year on indebtedness in connection with the taxpayer's
profession, trade or business may be deducted against gross income.
The records of the present case provide no reason why Oranbo's interest payments
should not fall under the said rule, such interest payments having been made for
loans obtained in connection with Oranbo's business.
Petitioner's argument that the BPI loan suspiciously exceed Oranbo's capital stock
and so must be considered, together with the interests thereon, as the lender's
capital investment deserves scant consideration. No proof had been adduced that
the loan was actually the consideration for BPI's acquisition of shares of stock in
Oranbo. Petitioner's claim was mere speculation. The loan thus stands as it is an
indebtedness incurred by Oranbo for which it paid interests.
Petitioner's argument that the UCPB loan the proceeds of which Oranbo used to
purchase land is really capital expenditure and so are the interests thereon likewise
deserves scant consideration. The Tax Code clearly requires that for interest to be
deductible, it must be on business debts (The Law on Income Taxation, Teodoro and
De Leon p. 107) or "on indebtedness in connection with the taxpayer's profession,
trade or business." As earlier indicated, Oranbo is engaged in the realty business
and the loan with which it acquired land or real property is unmistakably a business
debt for which interest payments thereon are plainly deductible. TCDcSE
In line, as a matter of principle the conclusion reached by an agency such as the
CTA will not be set aside, it being by the nature of its function, dedicated exclusively
to the study and consideration of tax problems and has necessarily developed an
expertise on the subject, unless there has been an abuse or improvident exercise of
authority (Commissioner of Internal Revenue v. Court of Appeals, 303 SCRA 614,
1999) none of which is present in the case at bench.
WHEREFORE, the assailed decision is hereby AFFIRMED.
SO ORDERED.
Rivera and De Guia-Salvador, JJ ., concur.