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CIR v.

Algue
ISSUE: Whether or not the CIR correctly disallowed the P75,000.00 deduction
Facts: The Philippine Sugar Estate Development Company (PSEDC) appointed claimed by private respondent Algue as legitimate business expenses in its
Algue Inc. as its agent. Algue received a commission of 125,000.00 and it was income tax returns
from their commission that it paid organizers of VOICP 75,000.00 in proportional
fees. He received an assessment from the CIR. He filed a letter of protest or HELD: NO. The burden is on the taxpayer to prove the validity of the claimed
reconsideration. The CIR contends that the claimed deduction was properly deduction. In the present case, however, we find that the onus has been
disallowed because it was not an ordinary, reasonable or necessary expense. discharged satisfactorily. The private respondent has proved that the payment of
the fees was necessary and reasonable in the light of the efforts exerted by the
FACTS: Algue, Inc. is a domestic corporation engaged in engineering, payees in inducing investors and prominent businessmen to venture in an
construction and other allied activities. Philippine Sugar Estate Development experimental enterprise and involve themselves in a new business requiring
Company had earlier appointed Algue as its agent, authorizing it to sell its land, millions of pesos. This was no mean feat and should be, as it was, sufficiently
factories and oil manufacturing process. [There was a sale for which] Algue recompensed.
received as agent a commission of P126,000.00, and it was from this commission Taxes are the lifeblood of the government and so should be collected
that the P75,000.00 promotional fees were paid to the aforenamed individuals. without unnecessary hindrance. On the other hand, such collection should be
The payees duly reported their respective shares of the fees in their income tax made in accordance with law as any arbitrariness will negate the very reason for
returns and paid the corresponding taxes thereon, and there was no distribution government itself. It is therefore necessary to reconcile the apparently conflicting
of dividends was involved. [Algue claimed the 75,000 to be deductible from their interests of the authorities and the taxpayers so that the real purpose of taxation,
tax, which the CIR disallowed.] which is the promotion of the common good, may be achieved.
It is said that taxes are what we pay for civilization society. Without taxes,
Facts: The Philippine Sugar Estate Development Company had earlier appointed the government would be paralyzed for lack of the motive power to activate and
Algue as its agent, authorizing it to sell its land, factories and oil manufacturing operate it. Hence, despite the natural reluctance to surrender part of one's hard
process. Pursuant to such authority, Alberto Guevara, Jr., Eduardo Guevara, Isabel earned income to the taxing authorities, every person who is able to must
Guevara, Edith, O'Farell, and Pablo Sanchez, worked for the formation of the contribute his share in the running of the government. The government for its
Vegetable Oil Investment Corporation, inducing other persons to invest in it. part, is expected to respond in the form of tangible and intangible
Ultimately, after its incorporation largely through the promotion of the said benefits intended to improve the lives of the people and enhance their
persons, this new corporation purchased the PSEDC properties. For this sale, moral and material values. This symbiotic relationship is the rationale of
Algue received as agent a commission of P126,000.00, and it was from this taxation and should dispel the erroneous notion that it is an arbitrary
commission that the P75,000.00 promotional fees were paid to the aforenamed method of exaction by those in the seat of power.
individuals. But even as we concede the inevitability and indispensability of taxation,
The petitioner contends that the claimed deduction of P75,000.00 was properly it is a requirement in all democratic regimes that it be exercised reasonably and
disallowed because it was not an ordinary reasonable or necessary business in accordance with the prescribed procedure. If it is not, then the taxpayer has a
expense. The Court of Tax Appeals had seen it differently. Agreeing with Algue, it right to complain and the courts will then come to his succor. For all the awesome
held that the said amount had been legitimately paid by the private respondent power of the tax collector, he may still be stopped in his tracks if the taxpayer
for actual services rendered. The payment was in the form of promotional fees. can demonstrate, as it has here, that the law has not been observed.