Esso Standard Eastern vs.

Commissioner
GR 28508-9, 7 July 1989
First Division, Cruz (J): 4 concur

Facts: ESSO deducted from its gross income for 1959, as part of its ordinary and necessary
business expenses, the amount it had spent for drilling and exploration of its petroleum
conscessions. The Commissioner disallowed the claim on the ground that the expenses
should be capitalized and might be written off as a loss only when a dry hole should result.
Hence, ESSO filed an amended return where it asked for the refund of P323,270 by reason of
its abandonment, as dry holes, of several of its oil wells. It also claimed as ordinary and
necessary expenses in the same return amount representing margin fees it had paid to the
Central Bank on its profit remittances to its New York Office.

Issue: Whether the margin fees may be considered ordinary and necessary expenses when
paid.

Held: For an item to be deductible as a business expense, the expense must ebe ordinary
and necessary; it must be paid or incurred within the taxable year; and it must be paid or
incurred in carrying on a trade or business. In addition, the taxpayrer must substantially
prove by evidence or records teh deductions claimed under law, otherwise, the same will be
disallowed. There has been no attempt to define ordinary and necessary with precision.
However, as guiding principle in the proper adjudication of conflicting claims, an expenses is
considered necessary where the expenditure is appropriate and helpdul in the development
of the taxpayers business. It is ordinary when it connotes a payment which is normal in
relation to the business of the taxpayer and the surrounding circumstances. Assuming that
the expenditure is ordinary and necessary in the operation of the taxpayers business; the
expenditure, to be an allowable deduction as a business expense, must be determined from
the nature of the expenditure itself, and on the extent and permanency of the work
accomplished by the expenditure. Herein, ESSO has not shown that the remittance to the
head office of part of its profits was made in furtherance of its own trade or business. The
petitioner merely presumed that all corporate expenses are necessary and appropriate in
the absence of a showing that they are illegal or ultra vires; which is erroneous. Claims for
deductions are a matter of legislative grace and do not turn on mere equitable
considerations.

Apostolic Prefect of Mountain Province vs. City Treasurer of Baguio City

GR 47252, 18 April 1941
En Banc, Imperial (J): 4 concur
Facts: The Apostolic Prefect is a corporation sole, of religious character, organized under the
Philippine laws, and with residence in Baguio, The City imposed a special assessment
against properties within its territorial jurisdiction, including those of the Apostolic Prefect,
which benefits from its drainage and sewerage system. The Apostolic Prefect contends that
its properties should be free of tax.

Issue: Whether the Apostolic Prefect, as a religious entity, is exempt from the payment of
the special assessment.

Held: In its broad meaning, tax includes both general taxes and special assessment. Yet
actually, there is a recognized distinction between them in that assessment is confined to
local impositions upon property for the payment of the cost of public improvements in its
immediate vicinity and levied with reference to special benefits to the property assessed. A
special assessment is not, strictly speaking, a tax; and neither the decree nor the
Constitution exempt the Apostolic Prefect from payment of said special assessment.
Furthermore, arguendo that exemption may encompass such assessmen, the Apostolic
Prefect cannot claim exemption as it has not proven the property in question is used
exclusively for religious purposes; but that it appearsthat the same is being used to other
non-religious purposes. Thus, the Apostolic Prefect is required to pay the special
assessment.

Caltex Philippines vs. Commission on Audit (COA)

GR 92585, 8 May 1992
En Banc, Davide (J): 12 concur, 2 took no part
Facts: In 1989, COA sent a letter to Caltex, directing it to remit its collection to the Oil Price
Stabilization Fund (OPSF), excluding that unremitted for 1986 and 188 of the additional tax
on petroleum products authorized under Section 8 of PD 1956; and that pending such
remittance, all its claims for reimbursement from the OPSF shall be held in abeyance. Caltex
requested COA, notwithstanding an early release of its reimbursement certificates from the
OPSF, which COA denied. On 31 May 1989, Caltex submitted a proposal to COA for the
payment and the recovery of claims. COA approved the proposal but prohibited Caltex from
further offseting remittances and reimbursements for the current and ensuing years. Caltex
moved for reconsideration.

Issue: Whether the amounts due from Caltex to the OPSF may be offsetted against Caltex
outstanding claims from said funds.

Held: Taxation is no longer envisioned as a measure merely to raise revenue to support the
existence of government; taxes may be levied with a regulatory purpose to provide means
for the rehabilitation and stabilization of a threatened industry which is affected with public
interest as to be within the police power of the state. PD 1956, as amended by EO 137,
explicitly provides that the source of OPSF is taxation. A taxpayer may not offset taxes due
from the claims that he may have against the government. Taxes cannot be the subject of
compensation because the government and taxpayer are not mutually creditors and debtors
of each other and a claim for taxes is not such a debt, demand, contract or judgment as is
allowed to be set-off.