Commissioner vs. Algue, Inc., G.R. No. L-28896, February 17, 1988

CASE: Commissioner vs. Algue, Inc., G.R. No. L-28896, February 17, 1988

FACTS: 

Private respondent, a domestic corporation engaged in engineering, construction and other allied activities, received a letter from the petitioner assessing it in the total amount of P83,183.85 as delinquency income taxes for the years 1958 and 1959.  Algue flied a letter of protest or request for reconsideration. 

The disputed amount was a P75,000 deduction claimed by Algue as promotional fees paid to individuals for their work in creating the Vegetable Oil Investment Corporation and its purchase of properties from the Philippine Sugar Estate Development Company.

The petitioner contends that the claimed deduction of P75,000.00 was properly disallowed because it was not an ordinary reasonable or necessary business expense. 

The Court of Tax Appeals had seen it differently. Agreeing with Algue, it held that the said amount had been legitimately paid by the private respondent for actual services rendered. The payment was 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.

Petitioner claim that the payments are fictitious because most of the payees are members of the same family in control of Algue

ISSUE: Whether or not the P75,000 deduction claimed by Algue as promotional fees was a legitimate business expense

RULING: 

YES. The Supreme Court affirmed the decision of the Court of Tax Appeals, finding that the claimed deduction was permissible under the Internal Revenue Code. The Court found that the amount was earned through the joint efforts of the persons among whom it was distributed, who worked for the formation of the Vegetable Oil Investment Corporation and induced other persons to invest in it. The Court also noted that the payees duly reported their respective shares of the fees in their income tax returns and paid the corresponding taxes, and that the amount was not excessive given the total commission received by Algue.

OTHER NOTES: 

The burden is on the taxpayer to prove the validity of the claimed deduction. In the present case, however, we find that the onus has been 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 payees in inducing investors and prominent businessmen to venture in an experimental enterprise and involve themselves in a new business requiring millions of pesos. This was no mean feat and should be, as it was, sufficiently recompensed.

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. This symbiotic relationship is the rationale of taxation and should dispel the erroneous notion that it is an arbitrary method of exaction by those in the seat of power.

But even as we concede the inevitability and indispensability of taxation, it is a requirement in all democratic regimes that it 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. For all the awesome power of the tax collector, he may still be stopped in his tracks if the taxpayer can demonstrate, as it has here, that the law has not been observed.