CIR vs. Algue Inc.

Commissioner of Internal Revenue vs. Algue Inc.

GR No. L-28896 | Feb. 17, 1988

Facts:
 Algue Inc. is a domestic corp engaged in engineering, construction and other allied activities
 On Jan. 14, 1965, the corp received a letter from the CIR regarding its delinquency income taxes from 1958-1959,
amtg to P83,183.85
 A letter of protest or reconsideration was filed by Algue Inc on Jan 18
 On March 12, a warrant of distraint and levy was presented to Algue Inc. thru its counsel, Atty. Guevara, who refused
to receive it on the ground of the pending protest
 Since the protest was not found on the records, a file copy from the corp was produced and given to BIR Agent
Reyes, who deferred service of the warrant
 On April 7, Atty. Guevara was informed that the BIR was not taking any action on the protest and it was only then
that he accepted the warrant of distraint and levy earlier sought to be served
 On April 23, Algue filed a petition for review of the decision of the CIR with the Court of Tax Appeals
 CIR contentions:
- the claimed deduction of P75,000.00 was properly disallowed because it was not an ordinary reasonable or
necessary business expense
- payments are fictitious because most of the payees are members of the same family in control of Algue and that
there is not enough substantiation of such payments
 CTA: 75K had been legitimately paid by Algue Inc. for actual services rendered in the form of promotional fees.
These were collected by the Payees for their work in the creation of the Vegetable Oil Investment Corporation of
the Philippines and its subsequent purchase of the properties of the Philippine Sugar Estate Development Company.

Issue: W/N the Collector of Internal Revenue correctly disallowed the P75,000.00 deduction claimed by Algue as
legitimate business expenses in its income tax returns

Ruling:
 Taxes are the lifeblood of the government and so should be collected without unnecessary hindrance, made in
accordance with law.
 RA 1125: the appeal may be made within thirty days after receipt of the decision or ruling challenged
 During the intervening period, the warrant was premature and could therefore not be served.
 Originally, CIR claimed that the 75K promotional fees to be personal holding company income, but later on
conformed to the decision of CTA
 There is no dispute that the payees duly reported their respective shares of the fees in their income tax returns and
paid the corresponding taxes thereon. CTA also found, after examining the evidence, that no distribution of dividends
was involved
 CIR suggests a tax dodge, an attempt to evade a legitimate assessment by involving an imaginary deduction
 Algue Inc. was a family corporation where strict business procedures were not applied and immediate issuance of
receipts was not required. at the end of the year, when the books were to be closed, each payee made an accounting
of all of the fees received by him or her, to make up the total of P75,000.00. This arrangement was understandable
in view of the close relationship among the persons in the family corporation
 The amount of the promotional fees was not excessive. The total commission paid by the Philippine Sugar Estate
Development Co. to Algue Inc. was P125K. After deducting the said fees, Algue still had a balance of P50,000.00 as
clear profit from the transaction. The amount of P75,000.00 was 60% of the total commission. This was a reasonable
proportion, considering that it was the payees who did practically everything, from the formation of the Vegetable
Oil Investment Corporation to the actual purchase by it of the Sugar Estate properties.
 Sec. 30 of the Tax Code: allowed deductions in the net income – Expenses - 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 xxx
 the burden is on the taxpayer to prove the validity of the claimed deduction
 In this case, Algue Inc. has proved that the payment of the fees was necessary and reasonable in the light of the
efforts exerted by the payees in inducing investors and prominent businessmen to venture in an experimental
enterprise and involve themselves in a new business requiring millions of pesos.
 Taxes are what we pay for civilization society. Without taxes, the government would be paralyzed for lack of the
motive power to activate and operate it. Hence, despite the natural reluctance to surrender part of one's hard
earned income to the taxing authorities, every person who is able to must contribute his share in the running of the
 government. The government for its part, is expected to respond in the form of tangible and intangible benefits
intended to improve the lives of the people and enhance their moral and material values
 Taxation must be exercised reasonably and in accordance with the prescribed procedure. If it is not, then the
taxpayer has a right to complain and the courts will then come to his succor

Algue Inc.’s appeal from the decision of the CIR was filed on time with the CTA in accordance with Rep. Act No. 1125. And we
also find that the claimed deduction by Algue Inc. was permitted under the Internal Revenue Code and should therefore not
have been disallowed by the CIR

Humberto Basco vs Philippine Amusements and Gaming Corporation

197 SCRA 52 – Political Law – Constitutional Law – Bill of Rights – Equal Protection Clause
Municipal Corporation – Local Autonomy – Imperium in Imperio

I n 1977, the Philippine Amusements and Gaming Corporation (PAGCOR) was

created by Presidential Decree 1067-A. PD 1067-B meanwhile granted PAGCOR the power
“to establish, operate and maintain gambling casinos on land or water within the territorial
jurisdiction of the Philippines.” PAGCOR’s operation was a success hence in 1978, PD 1399
was passed which expanded PAGCOR’s power. In 1983, PAGCOR’s charter was updated
through PD 1869. PAGCOR’s charter provides that PAGCOR shall regulate and centralize
all games of chance authorized by existing franchise or permitted by law. Section 1 of PD
1869 provides:
Section 1. Declaration of Policy. It is hereby declared to be the policy of the State to
centralize and integrate all games of chance not heretofore authorized by existing franchises
or permitted by law.
Atty. Humberto Basco and several other lawyers assailed the validity of the law creating
PAGCOR. They claim that PD 1869 is unconstitutional because a) it violates the equal
protection clause and b) it violates the local autonomy clause of the constitution.
Basco et al argued that PD 1869 violates the equal protection clause because it legalizes
PAGCOR-conducted gambling, while most other forms of gambling are outlawed, together
with prostitution, drug trafficking and other vices.
Anent the issue of local autonomy, Basco et al contend that P.D. 1869 forced cities like Manila
to waive its right to impose taxes and legal fees as far as PAGCOR is concerned; that Section
13 par. (2) of P.D. 1869 which exempts PAGCOR, as the franchise holder from paying any
“tax of any kind or form, income or otherwise, as well as fees, charges or levies of whatever
nature, whether National or Local” is violative of the local autonomy principle.
ISSUE:
1. Whether or not PD 1869 violates the equal protection clause.
2. Whether or not PD 1869 violates the local autonomy clause.
HELD:
1. No. Just how PD 1869 in legalizing gambling conducted by PAGCOR is violative of the
equal protection is not clearly explained in Basco’s petition. The mere fact that some gambling
activities like cockfighting (PD 449) horse racing (RA 306 as amended by RA 983),
sweepstakes, lotteries and races (RA 1169 as amended by BP 42) are legalized under certain
conditions, while others are prohibited, does not render the applicable laws, PD. 1869 for one,
unconstitutional.
Basco’s posture ignores the well-accepted meaning of the clause “equal protection of the
laws.” The clause does not preclude classification of individuals who may be accorded
different treatment under the law as long as the classification is not unreasonable or arbitrary.
A law does not have to operate in equal force on all persons or things to be conformable to
Article III, Sec 1 of the Constitution. The “equal protection clause” does not prohibit the
Legislature from establishing classes of individuals or objects upon which different rules shall
operate. The Constitution does not require situations which are different in fact or opinion to
be treated in law as though they were the same.
2. No. Section 5, Article 10 of the 1987 Constitution provides:
Each local government unit shall have the power to create its own source of revenue and to
levy taxes, fees, and other charges subject to such guidelines and limitation as the congress
may provide, consistent with the basic policy on local autonomy. Such taxes, fees and
charges shall accrue exclusively to the local government.
A close reading of the above provision does not violate local autonomy (particularly on taxing
powers) as it was clearly stated that the taxing power of LGUs are subject to such guidelines
and limitation as Congress may provide.
Further, the City of Manila, being a mere Municipal corporation has no inherent right to impose
taxes. The Charter of the City of Manila is subject to control by Congress. It should be
stressed that “municipal corporations are mere creatures of Congress” which has the power
to “create and abolish municipal corporations” due to its “general legislative powers”.
Congress, therefore, has the power of control over Local governments. And if Congress can
grant the City of Manila the power to tax certain matters, it can also provide for exemptions
or even take back the power.
Further still, local governments have no power to tax instrumentalities of the National
Government. PAGCOR is a government owned or controlled corporation with an original
charter, PD 1869. All of its shares of stocks are owned by the National Government.
Otherwise, its operation might be burdened, impeded or subjected to control by a mere Local
government.
This doctrine emanates from the “supremacy” of the National Government over local
governments.

Tan v. Del Rosario Digest

Tan v Del Rosario

Facts:
1. Two consolidated cases assail the validity of RA 7496 or the Simplified Net Income
Taxation Scheme ("SNIT"), which amended certain provisions of the NIRC, as well as the
Rules and Regulations promulgated by public respondents pursuant to said law.

2. Petitioners posit that RA 7496 is unconstitutional as it allegedlyviolates the following

provisions of the Constitution:

-Article VI, Section 26(1) — Every bill passed by the Congress shall embrace only one
subject which shall be expressed in the title thereof.
- Article VI, Section 28(1) — The rule of taxation shall be uniform and equitable. The
Congress shall evolve a progressive system of taxation.
- Article III, Section 1 — No person shall be deprived of . . . property without due process
of law, nor shall any person be denied the equal protection of the laws.

3. Petitioners contended that public respondents exceeded their rule-making authority in

applying SNIT to general professional partnerships. Petitioner contends that the title of
HB 34314, progenitor of RA 7496, is deficient for being merely entitled, "Simplified Net
Income Taxation Scheme for the Self-Employed and Professionals Engaged in the Practice
of their Profession" (Petition in G.R. No. 109289) when the full text of the title actually
reads,
'An Act Adopting the Simplified Net Income Taxation Scheme For The Self-Employed and
Professionals Engaged In The Practice of Their Profession, Amending Sections 21 and 29
of the National Internal Revenue Code,' as amended. Petitioners also contend it violated
due process.

5. The Solicitor General espouses the position taken by public respondents.

6. The Court has given due course to both petitions.

ISSUE: Whether or not the tax law is unconstitutional for violating due process

NO. The due process clause may correctly be invoked only when there is a clear
contravention of inherent or constitutional limitations in the exercise of the tax power.
No such transgression is so evident in herein case.

1. Uniformity of taxation, like the concept of equal protection, merely requires that all
subjects or objects of taxation, similarly situated, are to be treated alike both in privileges
and liabilities. Uniformity does not violate classification as long as: (1) the standards that
are used therefor are substantial and not arbitrary, (2) the categorization is germane to
achieve the legislative purpose, (3) the law applies, all things being equal, to both present
and future conditions, and (4) the classification applies equally well to all those belonging
to the same class.
2. What is apparent from the amendatory law is the legislative intent to increasingly shift
the income tax system towards the schedular approach in the income taxation of
individual taxpayers and to maintain, by and large, the present global treatment on
taxable corporations. The Court does not view this classification to be arbitrary and
inappropriate.

ISSUE 2: Whether or not public respondents exceeded their authority in promulgating

the RR

No. There is no evident intention of the law, either before or after the amendatory
legislation, to place in an unequal footing or in significant variance the income tax
treatment of professionals who practice their respective professions individually and of
those who do it through a general professional partnership.

People v. Domasian

G.R. No. 95322 March 1, 1993

Lessons Applicable:

Laws Applicable: Art. 4

FACTS:
• March 11, 1982 morning: While Enrico was walking with Tirso Ferreras, his classmate, along
Roque street in the poblacion of Lopez, Quezon, he was approached by Pablito Domasian who
requested his assistance in getting his father's signature on a medical certificate. Enrico agreed to
help and rode with the man in a tricycle to Calantipayan, where he waited outside while the man
went into a building to get the certificate. Enrico became apprehensive and started to cry when,
instead of taking him to the hospital, the man flagged a minibus and forced him inside, holding him
firmly all the while. The man told him to stop crying or he would not be returned to his father. When
they alighted at Gumaca, they took another tricycle, this time bound for the municipal building from
where they walked to the market. Here the man talked to a jeepney driver and handed him an
envelope addressed to Dr. Enrique Agra, the boy's father. The two then boarded a tricycle headed
for San Vicente. As Enrico was crying and being firmly held, Alexander Grate, the tricycle driver
became suspicious and asked Domasian about his relationship with the boy who told him they were
brothers. Their physical differences and the wide gap between their ages made Grate doubt so he
immediately reported the matter to two barangay tanods when his passengers alighted from the
tricycle. Grate and the tanods went after the two and saw the man dragging the boy. Noticing that
they were being pursued, Domasian was able to escape, leaving Enrico behind. Enrico was on his
way home in a passenger jeep when he met his parents, who were riding in the hospital ambulance
and already looking for him.
• At about 1:45 in the afternoon of the same day, after Enrico's return, Agra received an envelope
containing a ransom note. The note demanded P1 million for the release of Enrico and warned that
otherwise the boy would be killed. Agra thought the handwriting in the note was familiar. After
comparing it with some records in the hospital, he gave the note to the police, which referred it to the
NBI for examination
• March 11, 1982 1:45 pm: Agra received an envelope containing a ransom note demanding P1
million otherwise Enrico will be killed. . Agra thought the handwriting in the note was familiar so he
referred it to the NBI for examination and it turned out to be Dr. Samson Tan’s signature.
• Domasian and Tan were subsequently charged with the crime of kidnapping with serious illegal
detention in the Regional Trial Court of Quezon
o Domasian’s alibi: at the time of the incident he was watching a mahjong game in a friend's house
and later went to an optical clinic with his wife for the refraction of his eyeglasses
o Dr. Tan’s alibi: he was in Manila
• Enrico, Tirso Ferreras and Grate all pointed Domasian.
• RTC: Domasian and Tan guilty as charged and sentenced them to suffer the penalty of reclusion
perpetua and all accessory penalties
• Appealed

ISSUE: W/N Domasian and Tan is guilty of kidnapping kidnapping with serious illegal detention

HELD: YES. appealed decision is AFFIRMED

• Art. 267. Kidnapping and serious illegal detention may consist not only in placing a person in an
enclosure but also in detaining him or depriving him in any manner of his liberty
• Tan claims that the lower court erred in not finding that the sending of the ransom note was an
impossible crime which he says is not punishable.
• Tan conveniently forgets the first paragraphs of the same article, which clearly applies to him,
thus:
Art. 4. Criminal liability. — Criminal liability shall be incurred:
1. By any person committing a felony (delito) although the wrongful act done be different from that
which he intended.
• Even before the ransom note was received, the crime of kidnapping with serious illegal detention
had already been committed. The act cannot be considered an impossible crime because there was
no inherent improbability of its accomplishment or the employment of inadequate or ineffective
means. The sending of the ransom note would have had the effect only of increasing the penalty to
death under the last paragraph of Article 267 although this too would not have been possible under
the new Constitution.
• On the issue of conspiracy, we note first that it exists when two or more persons come to an
agreement concerning the commission of a felony and decide to commit it, whether they act through
physical volition of one or all, proceeding severally or collectively. These acts were complementary
to each other and geared toward the attainment of the common ultimate objective, viz., to extort the
ransom of P1 million in exchange for Enrico's life.
• The motive for the offense is not difficult to discover. According to Agra, Tan approached him 6
days before the incident happened and requested a loan of at least P15,000.00. Agra said he had no
funds at that moment and Tan did not believe him, angrily saying that Agra could even raise a million
pesos if he really wanted to help.