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    CIR Vs Algue

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    Rodney Atibula
    This case involved a corporation, Algue Inc., that deducted promotional fees paid from its gross income on its tax returns for 1958-1959. The Bureau of Internal Revenue disallowed the deduction, arguing it was not an ordinary and necessary business expense. The Supreme Court ruled the fees were a reasonable and necessary expense, as the payments successfully promoted the formation and funding of a new corporation. While taxes are important, deductions must also be allowed according to law to avoid arbitrariness. If a taxpayer can prove the law was not followed, as in this case, the courts will intervene on their behalf.

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    CIR Vs Algue

    Uploaded by

    Rodney Atibula
    180 views2 pages
    This case involved a corporation, Algue Inc., that deducted promotional fees paid from its gross income on its tax returns for 1958-1959. The Bureau of Internal Revenue disallowed the deduction, arguing it was not an ordinary and necessary business expense. The Supreme Court ruled the fees were a reasonable and necessary expense, as the payments successfully promoted the formation and funding of a new corporation. While taxes are important, deductions must also be allowed according to law to avoid arbitrariness. If a taxpayer can prove the law was not followed, as in this case, the courts will intervene on their behalf.

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    CIR vs Algue

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    This case involved a corporation, Algue Inc., that deducted promotional fees paid from its gross income on its tax returns for 1958-1959. The Bureau of Internal Revenue disallowed the deduction, arguing it was not an ordinary and necessary business expense. The Supreme Court ruled the fees were a reasonable and necessary expense, as the payments successfully promoted the formation and funding of a new corporation. While taxes are important, deductions must also be allowed according to law to avoid arbitrariness. If a taxpayer can prove the law was not followed, as in this case, the courts will intervene on their behalf.

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    © All Rights Reserved
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    Download as docx, pdf, or txt
    180 views2 pages

    CIR Vs Algue

    Uploaded by

    Rodney Atibula
    This case involved a corporation, Algue Inc., that deducted promotional fees paid from its gross income on its tax returns for 1958-1959. The Bureau of Internal Revenue disallowed the deduction, arguing it was not an ordinary and necessary business expense. The Supreme Court ruled the fees were a reasonable and necessary expense, as the payments successfully promoted the formation and funding of a new corporation. While taxes are important, deductions must also be allowed according to law to avoid arbitrariness. If a taxpayer can prove the law was not followed, as in this case, the courts will intervene on their behalf.

    Copyright:

    © All Rights Reserved
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    of 2

    COMMISSIONER v. ALGUE, INC.

    GR No. L-28896, February 17, 1988


    158 SCRA 9

    FACTS: Private respondent corporation Algue Inc. filed its income tax returns for 1958 and 1959showing deductions, for
    promotional fees paid, from their gross income, thus lowering their taxable income. The BIR assessed Algue based on such
    deductions contending that the claimed deduction is disallowed because it was not an ordinary, reasonable and necessary
    expense.

    ISSUE: Should an uncommon business expense be disallowed as a proper deduction in computation of income taxes, corollary
    to the doctrine that taxes are the lifeblood of the government?

    HELD: No. 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 xperimental 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.
    It is well-settled that taxes are the lifeblood of the government and so should be collected without unnecessary hindrance On
    the other hand, such collection should be made in accordance with law as any arbitrariness will negate the very reason for
    government itself. It is therefore necessary to reconcile the apparently conflicting interests of the authorities and the taxpayers
    so that the real purpose of taxation, which is the promotion of the common good, may be achieved.
    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.



    G.R. No. L-28896 February 17, 1988
    COMMISSIONER OF INTERNAL REVENUE, petitioner,
    vs.
    ALGUE, INC., and THE COURT OF TAX APPEALS, respondents.

    FACTS:
    The Philippine Sugar Estate Development Company had earlier appointed Algue as its agent, authorizing it to sell its
    land, factories and oil manufacturing process. Pursuant to such authority, Alberto Guevara, Jr., Eduardo Guevara,
    Isabel Guevara, Edith, O'Farell, and Pablo Sanchez, worked for the formation of the Vegetable Oil Investment
    Corporation, inducing other persons to invest in it. Ultimately, after its incorporation largely through the promotion
    of the said persons, this new corporation purchased the PSEDC properties. For this sale, Algue received as agent a
    commission of P126, 000.00, and it was from this commission that the P75, 000.00 promotional fees were paid to
    the a forenamed individuals.

    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.

    ISSUE:

    Whether or not the Collector of Internal Revenue correctly disallowed the P75, 000.00 deduction claimed by
    private respondent Algue as legitimate business expenses in its income tax returns.

    RULING:

    The Supreme Court agrees with the respondent court that the amount of the promotional fees was not excessive.
    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.

    It is said that 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.

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