16. Cyanamid Phil. v CIR GR No.

108067

Facts:

Petitioner is a corporation organized under Philippine laws engaged in the manufacture of

pharmaceutical products and chemicals, and is a wholly owned subsidiary of American Cyanamid Co.
based in the US. The CIR assessed on petitioner a deficiency income tax of P119,817.00 for the year
1981. Petitioner protested the 25% surtax for undue accumulation of earnings and claimed that said
profits were retained to increase its working capital and would be used for reasonable business needs of
the company.

Issue:

Whether or not the accumulation of income by petitioner was justified and thus be excluded
from the 25% surtax.

Held:

No. Petitioner did not establish did not establish by clear and convincing evidence that their
accumulation of profits was for the immediate needs of the business. Under the Immediacy Test, the
words “reasonable needs of the business” meant the immediate needs of the business, and if the
corporation did not prove an immediate need for the accumulation of earnings and profits, such is not
for reasonable needs and thus the penalty tax would apply.