TAX 1 DEDUCTIONS CASES UNDER BUSINESS EXPENSESG.R. No. 172231 February 12, 2007COMMISSIONER OF INTERNAL REVENUE,Petitioner,vs.ISABELA CULTURAL CORPORATION,Respondent.D E C I S I O NYNARES-SANTIAGO,J.:Petitioner Commissioner of Internal Revenue (CIR) assails the September 30, 2005 Decision1of the Court of Appeals in CA-G.R. SP No. 78426 affirming the February 26, 2003 Decision2of the Court of Tax Appeals (CTA) in CTA Case No. 5211, which cancelled and set aside the Assessment Notices for deficiency income tax and expanded withholding tax issued by the Bureau of Internal Revenue (BIR) against respondent Isabela Cultural Corporation (ICC).The facts show that on February 23, 1990, ICC, a domestic corporation, received from the BIR Assessment Notice No. FAS-1-86-90-000680 for deficiency income tax in the amount of P333,196.86, and Assessment Notice No. FAS-1-86-90-000681 for deficiency expanded withholding tax in the amount of P4,897.79, inclusive of surcharges and interest, both for the taxable year 1986.The deficiency income tax ofP333,196.86, arose from:(1) The BIRs disallowance of ICCs claimed expense deductions for professional and security services billed to and paid by ICC in 1986, to wit:(a) Expenses for the auditing services of SGV & Co.,3for the year ending December 31, 1985;4(b) Expenses for the legal services [inclusive of retainer fees] of the law firm Bengzon Zarraga Narciso Cudala Pecson Azcuna & Bengson for the years 1984 and 1985.5(c) Expense for security services of El Tigre Security & Investigation Agency for the months of April and May 1986.6(2) The alleged understatement of ICCs interest income on the three promissory notes due from Realty Investment, Inc.The deficiency expanded withholding tax ofP4,897.79(inclusive of interest and surcharge) was allegedly due to the failure of ICC to withhold 1% expanded withholding tax on its claimed P244,890.00 deduction for security services.7On March 23, 1990, ICC sought a reconsideration of the subject assessments. On February 9, 1995, however, it received a final notice before seizure demanding payment of the amounts stated in the said notices. Hence, it brought the case to the CTA which held that the petition is premature because the final notice of assessment cannot be considered as a final decision appealable to the tax court. This was reversed by the Court of Appeals holding that a demand letter of the BIR reiterating the payment of deficiency tax, amounts to a final decision on the protested assessment and may therefore be questioned before the CTA. This conclusion was sustained by this Court on July 1, 2001, in G.R. No. 135210.8The case was thus remanded to the CTA for further proceedings.On February 26, 2003, the CTA rendered a decision canceling and setting aside the assessment notices issued against ICC. It held that the claimed deductions for professional and security services were properly claimed by ICC in 1986 because it was only in the said year when the bills demanding payment were sent to ICC. Hence, even if some of these professional services were rendered to ICC in 1984 or 1985, it could not declare the same as deduction for the said years as the amount thereof could not be determined at that time.The CTA also held that ICC did not understate its interest income on the subject promissory notes. It found that it was the BIR which made an overstatement of said income when it compounded the interest income receivable by ICC from the promissory notes of Realty Investment, Inc., despite the absence of a stipulation in the contract providing for a compounded interest; nor of a circumstance, like delay in payment or breach of contract, that would justify the application of compounded interest.Likewise, the CTA found that ICC in fact withheld 1% expanded withholding tax on its claimed deduction for security services as shown by the various payment orders and confirmation receipts it presented as evidence. The dispositive portion of the CTAs Decision, reads:WHEREFORE, in view of all the foregoing, Assessment Notice No. FAS-1-86-90-000680 for deficiency income tax in the amount of P333,196.86, and Assessment Notice No. FAS-1-86-90-000681 for deficiency expanded withholding tax in the amount of P4,897.79, inclusive of surcharges and interest, both for the taxable year 1986, are hereby CANCELLED and SET ASIDE.SO ORDERED.9Petitioner filed a petition for review with the Court of Appeals, which affirmed the CTA decision,10holding that although the professional services (legal and auditing services) were rendered to ICC in 1984 and 1985, the cost of the services was not yet determinable at that time, hence, it could be considered as deductible expenses only in 1986 when ICC received the billing statements for said services. It further ruled that ICC did not understate its interest income from the promissory notes of Realty Investment, Inc., and that ICC properly withheld and remitted taxes on the payments for security services for the taxable year 1986.Hence, petitioner, through the Office of the Solicitor General, filed the instant petition contending that since ICC is using the accrual method of accounting, the expenses for the professional services that accrued in 1984 and 1985, should have been declared as deductions from income during the said years and the failure of ICC to do so bars it from claiming said expenses as deduction for the taxable year 1986. As to the alleged deficiency interest income and failure to withhold expanded withholding tax assessment, petitioner invoked the presumption that the assessment notices issued by the BIR are valid.The issue for resolution is whether the Court of Appeals correctly: (1) sustained the deduction of the expenses for professional and security services from ICCs gross income; and (2) held that ICC did not understate its interest income from the promissory notes of Realty Investment, Inc; and that ICC withheld the required 1% withholding tax from the deductions for security services.The requisites for the deductibility of ordinary and necessary trade, business, or professional expenses, like expenses paid for legal and auditing services, are: (a) the expense must be ordinary and necessary; (b) it must have been paid or incurred during the taxable year; (c) it must have been paid or incurred in carrying on the trade or business of the taxpayer; and (d) it must be supported by receipts, records or other pertinent papers.11The requisite that it must have been paid or incurred during the taxable year is further qualified by Section 45 of the National Internal Revenue Code (NIRC) which states that: "[t]he deduction provided for in this Title shall be taken for the taxable year in which paid or accrued or paid or incurred, dependent upon the method of accounting upon the basis of which the net income is computed x x x".Accounting methods for tax purposes comprise a set of rules for determining when and how to report income and deductions.12In the instant case, the accounting method used by ICC is the accrual method.Revenue Audit Memorandum Order No. 1-2000, provides that under the accrual method of accounting, expenses not being claimed as deductions by a taxpayer in the current year when they are incurred cannot be claimed as deduction from income for the succeeding year. Thus, a taxpayer who is authorized to deduct certain expenses and other allowable deductions for the current year but failed to do so cannot deduct the same for the next year.13The accrual method relies upon the taxpayers right to receive amounts or its obligation to pay them, in opposition to actual receipt or payment, which characterizes the cash method of accounting. Amounts of income accrue where the right to receive them become fixed, where there is created an enforceable liability. Similarly, liabilities are accrued when fixed and determinable in amount, without regard to indeterminacy merely of time of payment.14For a taxpayer using the accrual method, the determinative question is, when do the facts present themselves in such a manner that the taxpayer must recognize income or expense? The accrual of income and expense is permitted when the all-events test has been met. This test requires: (1) fixing of a right to income or liability to pay; and (2) the availability of the reasonable accurate determination of such income or liability.The all-events test requires the right to income or liability be fixed, and the amount of such income or liability be determined with reasonable accuracy. However, the test does not demand that the amount of income or liability be known absolutely, only that a taxpayer has at his disposal the information necessary to compute the amount with reasonable accuracy. The all-events test is satisfied where computation remains uncertain, if its basis is unchangeable; the test is satisfied where a computation may be unknown, but is not as much as unknowable, within the taxable year.The amount of liability does not have to be determined exactly; it must be determined with "reasonable accuracy." Accordingly, the term "reasonable accuracy" implies something less than an exact or completely accurate amount.[15]The propriety of an accrual must be judged by the facts that a taxpayer knew, or could reasonably be expected to have known, at the closing of its books for the taxable year.[16]Accrual method of accounting presents largely a question of fact; such that the taxpayer bears the burden of proof of establishing the accrual of an item of income or deduction.17Corollarily, it is a governing principle in taxation that tax exemptions must be construed instrictissimi jurisagainst the taxpayer and liberally in favor of the taxing authority; and one who claims an exemption must be able to justify the same by the clearest grant of organic or statute law. An exemption from the common burden cannot be permitted to exist upon vague implications. And since a deduction for income tax purposes partakes of the nature of a tax exemption, then it must also be strictly construed.18In the instant case, the expenses for professional fees consist of expenses for legal and auditing services. The expenses for legal services pertain to the 1984 and 1985 legal and retainer fees of the law firm Bengzon Zarraga Narciso Cudala Pecson Azcuna & Bengson, and for reimbursement of the expenses of said firm in connection with ICCs tax problems for the year 1984. As testified by the Treasurer of ICC, the firm has been its counsel since the 1960s.19From the nature of the claimed deductions and the span of time during which the firm was retained, ICC can be expected to have reasonably known the retainer fees charged by the firm as well as the compensation for its legal services. The failure to determine the exact amount of the expense during the taxable year when they could have been claimed as deductions cannot thus be attributed solely to the delayed billing of these liabilities by the firm. For one, ICC, in the exercise of due diligence could have inquired into the amount of their obligation to the firm, especially so that it is using the accrual method of accounting. For another, it could have reasonably determined the amount of legal and retainer fees owing to its familiarity with the rates charged by their long time legal consultant.As previously stated, the accrual method presents largely a question of fact and that the taxpayer bears the burden of establishing the accrual of an expense or income. However, ICC failed to discharge this burden. As to when the firms performance of its services in connection with the 1984 tax problems were completed, or whether ICC exercised reasonable diligence to inquire about the amount of its liability, or whether it does or does not possess the information necessary to compute the amount of said liability withreasonableaccuracy, are questions of fact which ICC never established. It simply relied on the defense of delayed billing by the firm and the company, which under the circumstances, is not sufficient to exempt it from being charged with knowledge of the reasonable amount of the expenses for legal and auditing services.In the same vein, the professional fees of SGV & Co. for auditing the financial statements of ICC for the year 1985 cannot be validly claimed as expense deductions in 1986. This is so because ICC failed to present evidence showing that even with only "reasonable accuracy," as the standard to ascertain its liability to SGV & Co. in the year 1985, it cannot determine the professional fees which said company would charge for its services.ICC thus failed to discharge the burden of proving that the claimed expense deductions for the professional services were allowable deductions for the taxable year 1986. Hence, per Revenue Audit Memorandum Order No. 1-2000, they cannot be validly deducted from its gross income for the said year and were therefore properly disallowed by the BIR.As to the expenses for security services, the records show that these expenses were incurred by ICC in 198620and could therefore be properly claimed as deductions for the said year.Anent the purported understatement of interest income from the promissory notes of Realty Investment, Inc., we sustain the findings of the CTA and the Court of Appeals that no such understatement exists and that only simple interest computation and not a compounded one should have been applied by the BIR. There is indeed no stipulation between the latter and ICC on the application of compounded interest.21Under Article 1959 of the Civil Code, unless there is a stipulation to the contrary, interest due should not further earn interest.Likewise, the findings of the CTA and the Court of Appeals that ICC truly withheld the required withholding tax from its claimed deductions for security services and remitted the same to the BIR is supported by payment order and confirmation receipts.22Hence, the Assessment Notice for deficiency expanded withholding tax was properly cancelled and set aside.In sum, Assessment Notice No. FAS-1-86-90-000680 in the amount of P333,196.86 for deficiency income tax should be cancelled and set aside but only insofar as the claimed deductions of ICC for security services. Said Assessment is valid as to the BIRs disallowance of ICCs expenses for professional services. The Court of Appeals cancellation of Assessment Notice No. FAS-1-86-90-000681 in the amount of P4,897.79 for deficiency expanded withholding tax, is sustained.WHEREFORE, the petition is PARTIALLY GRANTED. The September 30, 2005 Decision of the Court of Appeals in CA-G.R. SP No. 78426, is AFFIRMED with the MODIFICATION that Assessment Notice No. FAS-1-86-90-000680, which disallowed the expense deduction of Isabela Cultural Corporation for professional and security services, is declared valid only insofar as the expenses for the professional fees of SGV & Co. and of the law firm, Bengzon Zarraga Narciso Cudala Pecson Azcuna & Bengson, are concerned. The decision is affirmed in all other respects.The case is remanded to the BIR for the computation of Isabela Cultural Corporations liability under Assessment Notice No. FAS-1-86-90-000680.SO ORDERED.

[G.R. No. 143672.April 24, 2003]COMMISSIONER OF INTERNAL REVENUE,petitioner,vs. GENERAL FOODS (PHILS.), INC.,respondent.D E C I S I O NCORONA,J.:Petitioner Commissioner of Internal Revenue (Commissioner) assails the resolution[1]of the Court of Appeals reversing the decision[2]of the Court of Tax Appeals which in turn denied the protest filed by respondent General Foods (Phils.), Inc., regarding the assessment made against the latter for deficiency taxes.The records reveal that, on June 14, 1985, respondent corporation, which is engaged in the manufacture of beverages such as Tang, Calumet and Kool-Aid, filed its income tax return for the fiscal year ending February 28, 1985.In said tax return, respondent corporation claimed as deduction, among other business expenses, the amount ofP9,461,246 for media advertising for Tang.On May 31, 1988, the Commissioner disallowed 50% orP4,730,623 of the deduction claimed by respondent corporation. Consequently, respondent corporation was assessed deficiency income taxes in the amount ofP2,635, 141.42.The latter filed a motion for reconsideration but the same was denied.On September 29, 1989, respondent corporationappealed to the Court of Tax Appeals but the appeal was dismissed:With such a gargantuan expense for the advertisement of a singular product, which even excludes other advertising and promotions expenses, we are not prepared to accept that such amount is reasonable to stimulate the current sale of merchandise regardless of Petitioners explanation that such expense does not connote unreasonableness considering the grave economic situation taking place after the Aquino assassination characterized by capital fight, strong deterioration of the purchasing power of the Philippine peso and the slacking demand for consumer products(Petitioners Memorandum, CTA Records, p. 273).We are not convinced with such an explanation.The staggering expense led us to believe that such expenditure was incurred to create or maintain some form of good will for the taxpayers trade or business or for the industry or profession of which the taxpayer is a member.The term good will can hardly be said to have any precise signification;it is generally used to denote the benefit arising from connection and reputation(Words and Phrases, Vol. 18, p. 556 citing Douhart vs. Loagan, 86 III. App. 294).As held in the case of Welch vs. Helvering, efforts to establish reputation are akin to acquisition of capital assets and, therefore, expenses related thereto are not business expenses but capital expenditures.(Atlas Mining and Development Corp. vs. Commissioner of Internal Revenue, supra).For sure such expenditure was meant not only to generate present sales but more for future and prospective benefits.Hence, abnormally large expenditures for advertising are usually to be spread over the period of years during which the benefits of the expenditures are received(Mertens, supra, citing Colonial Ice Cream Co., 7 BTA 154).WHEREFORE, in all the foregoing, and finding no error in the case appealed from, we hereby RESOLVE to DISMISS the instant petition for lack of merit and ORDER the Petitioner to pay the respondent Commissioner the assessed amount ofP2,635,141.42 representing its deficiency income tax liability for the fiscal year ended February 28, 1985.[3]Aggrieved, respondent corporation filed a petition for review at the Court of Appeals which rendered a decision reversing and setting aside the decision of the Court of Tax Appeals:Since it has not been sufficiently established that the item it claimed as a deduction is excessive, the same should be allowed.WHEREFORE, the petition of petitioner General Foods (Philippines), Inc. is hereby GRANTED.Accordingly, the Decision, dated 8 February 1994 of respondent Court of Tax Appeals is REVERSED and SET ASIDE and the letter, dated 31 May 1988 of respondent Commissioner of Internal Revenue is CANCELLED.SO ORDERED.[4]Thus, the instant petition, wherein the Commissioner presents for the Courts consideration a lone issue: whether or not the subject media advertising expense for Tang incurred by respondent corporation was an ordinary and necessary expense fully deductible under the National Internal Revenue Code (NIRC).It is a governing principle in taxation that tax exemptions must be construedin strictissimi jurisagainst the taxpayer and liberally in favor of the taxing authority;[5]and he who claims an exemption must be able to justify his claim by the clearest grant of organic or statute law. An exemption from the common burden cannot be permitted to exist upon vague implications.[6]Deductions for income tax purposes partake of the nature of tax exemptions; hence, if tax exemptions are strictly construed, then deductions must also be strictly construed.We then proceed to resolve the singular issue in the case at bar.Was the media advertising expense for Tang paid or incurred by respondent corporation for the fiscal year ending February 28, 1985 necessary and ordinary, hence, fully deductible under the NIRC? Or was it a capital expenditure, paid in order to create goodwill and reputation for respondent corporation and/or its products, which should have been amortized over a reasonable period?Section 34 (A) (1), formerly Section 29 (a) (1) (A), of the NIRC provides:(A) Expenses.-(1)Ordinary and necessary trade, business or professional expenses.-(a)In general.-There shall be allowed as deduction from gross income all ordinary and necessary expenses paid or incurred during the taxable year in carrying on, or which are directly attributable to, the development, management, operation and/or conduct of the trade, business or exercise of a profession.Simply put, to be deductible from gross income, the subject advertising expense must comply with the following requisites: (a) the expense must be ordinary and necessary; (b) it must have been paid or incurred during the taxable year; (c) it must have been paid or incurred in carrying on the trade or business of the taxpayer; and (d) it must be supported by receipts, records or other pertinent papers.[7]The parties are in agreement that the subject advertising expense was paid or incurred within the corresponding taxable year and was incurred in carrying on a trade or business. Hence, it was necessary. However, their views conflict as to whether or not it was ordinary.To be deductible, an advertising expense should not only be necessary but also ordinary.These two requirements must be met.The Commissioner maintains that the subject advertising expense was not ordinary on the ground that it failed the two conditions set by U.S. jurisprudence: first, reasonableness of the amount incurred and second, the amount incurred must not be a capital outlay to create goodwill for the product and/or private respondents business.Otherwise, the expense must be considered a capital expenditure to be spread out over a reasonable time.We agree.There is yet to be a clear-cut criteria or fixed test for determining the reasonableness of an advertising expense. There being no hard and fast rule on the matter, the right to a deduction depends on a number of factors such as but not limited to: the type and size of business in which the taxpayer is engaged; the volume and amount of its net earnings; the nature of the expenditure itself; the intention of the taxpayer and the general economic conditions. It is the interplay of these, among other factors and properly weighed, that will yield a proper evaluation.In the case at bar, theP9,461,246 claimed as media advertising expense for Tang alone was almost one-half of its total claim for marketing expenses. Aside from that, respondent-corporation also claimedP2,678,328 as other advertising and promotions expense and anotherP1,548,614, for consumerpromotion.Furthermore, the subjectP9,461,246 mediaadvertising expense for Tang was almost double the amount of respondent corporationsP4,640,636 general and administrative expenses.We find the subject expense for the advertisement of a single product to be inordinately large. Therefore, even if it is necessary,it cannot be considered an ordinary expense deductible under then Section 29 (a) (1) (A) of the NIRC.Advertising is generally of two kinds: (1) advertising to stimulate thecurrentsale of merchandise or use of services and (2) advertising designed to stimulate thefuture sale of merchandise or use of services. The second type involves expenditures incurred, in whole or in part, to create or maintain some form of goodwill for the taxpayers trade or business or for the industry or profession of which the taxpayer is a member.If the expenditures are for the advertising of the first kind, then, except as to the question of the reasonableness of amount, there is no doubt such expenditures are deductible as business expenses.If, however, the expenditures are for advertising of the second kind, then normally they should be spread out over a reasonable period of time.We agree with the Court of Tax Appeals that the subject advertising expense was of the second kind.Not only was the amount staggering; the respondent corporation itself also admitted, in its letter protest[8]to the Commissioner of Internal Revenues assessment, that the subject media expense was incurred in order to protect respondent corporations brand franchise, a critical point during the period under review.The protection of brand franchise is analogous to the maintenance of goodwill or title to ones property.This is a capital expenditure which should be spread out over a reasonable period of time.[9]Respondent corporations venture to protect its brand franchise was tantamount to efforts to establish a reputation. This was akin to the acquisition of capital assets and therefore expenses related thereto were not to be considered as business expenses but as capital expenditures.[10]True, it is the taxpayers prerogative to determine the amount of advertising expenses it will incur and where to apply them.[11]Said prerogative, however, is subject to certain considerations.The first relates to the extent to which the expenditures are actually capital outlays; this necessitates an inquiry into the nature or purpose of such expenditures.[12]The second, which must be applied in harmony with the first, relates to whether the expenditures are ordinary and necessary. Concomitantly, for an expense to be considered ordinary, it must be reasonable in amount.The Court of Tax Appeals ruled that respondent corporation failed to meet the two foregoing limitations.We find said ruling to be well founded. Respondent corporation incurred the subject advertising expense in order to protect its brand franchise.We consider this as a capital outlay since it created goodwill for its business and/or product.TheP9,461,246 media advertising expense for the promotion of a single product, almost one-half of petitioner corporations entire claim for marketing expenses for that year under review, inclusive of other advertising and promotion expenses ofP2,678,328 andP1,548,614 for consumerpromotion,is doubtlessly unreasonable.It has been a long standing policy and practice of the Court to respect the conclusions of quasi-judicial agencies such as the Court of Tax Appeals, a highly specialized body specifically created for the purpose of reviewing tax cases. The CTA, by the nature of its functions, is dedicated exclusively to the study and consideration of tax problems.It has necessarily developed an expertise on the subject.We extend due consideration to its opinion unless there is an abuse or improvident exercise of authority.[13]Since there is none in the case at bar, the Court adheres to the findings of the CTA.Accordingly, we find that the Court of Appeals committed reversible error when it declared the subject media advertising expense to be deductible as an ordinary and necessary expense on the ground that it has not been established that the item being claimed as deduction is excessive. It is not incumbent upon the taxing authority to prove that the amount of items being claimed is unreasonable. The burden of proof to establish the validity of claimed deductions is on the taxpayer.[14]In the present case, that burden was not discharged satisfactorily.WHEREFORE, premises considered, the instant petition is GRANTED. The assailed decision of the Court of Appeals is hereby REVERSED and SET ASIDE.Pursuant to Sections 248 and 249 of the Tax Code, respondent General Foods (Phils.), Inc. is hereby ordered to pay its deficiency income tax in the amount ofP2,635,141.42, plus 25% surcharge for late payment and 20% annual interest computed from August 25, 1989, the date of the denial of its protest, until the same is fully paid.SO ORDERED.

G.R. No. L-29790 February 25, 1982AGUINALDO INDUSTRIES CORPORATION (FISHING NETS DIVISIONS),petitioner,vs.COMMISSIONER OF INTERNAL REVENUE and THE COURT OF TAX APPEALS,respondents.PLANA ,J.:This is a petition for review of the decision and resolution of the Court of Tax Appeals in CTA Case No. 1636 holding the petitioner liable for the sum of P17,123.93 as deficiency income tax for l957, plus 5% surcharge and 1% monthly interest for late payment from December 15, 1957 until full payment is made.As summarized by the respondent Court, the facts are:... Aguinaldo Industries Corporation is a domestic corporation engaged in two lines of business, namely: (a) the manufacture of fishing nets, a tax-exempt industry, and (b) the manufacture of furniture. Its business of manufacturing fishing nets is handled by its Fish Nets Division, while the manufacture of Furniture is operated by its Furniture Division. For accounting purposes, each division is provided with separate books of accounts as required by the Department of Finance. Under the company's accounting method, the net income from its Fish Nets Division, miscellaneous income of the Fish Nets Division, and the income of the Furniture Division are computed individuallyPreviously, petitioner acquired a parcel of land in Muntinglupa, Rizal, as site of the fishing net factory. This transaction was entered in the books of the Fish Nets Division of the Company. Later, when another parcel of land in Marikina Heights was found supposedly more suitable for the needs of petitioner, it sold the Muntinglupa property, Petitioner derived profit from this sale which was entered in the books of the Fish Nets Division as miscellaneous income to distinguish it from its tax-exempt income.For the year 1957, petitioner filed two separate income tax returns one for its Fish Nets Division and another for its Furniture Division. After investigation of these returns, the examiners of the Bureau of Internal Revenue found that the Fish Nets Division deducted from its gross income for that year the amount of P61,187.48 as additional remuneration paid to the officers of petitioner. The examiner further found that this amount was taken from the net profit of an isolated transaction (sale of aforementioned land) not in the course of or carrying on of petitioner's trade or business. (It was reported as part of the selling expenses of the land in Muntinglupa, Rizal, the details of said transaction being as follows:

Selling price of landP432,031.00

DEDUCT:

Purchase price of landP71,120.00

Registration, documentary stamps

and other expenses191.05

Relocation survey450.00

P71,761.05

ADD SELLING EXPENSES

Commission51,723.72

Documentary stamps2,294.05

Topographic survey450.00

Officer's remuneration61,187.48186,416.30

NET PROFITP 244,416.70

Upon recommendation of aforesaid examiner that the said sum of P61,187.48 be disallowed as deduction from gross income, petitioner asserted in its letter of February 19, 1958, that said amount should be allowed as deduction because it was paid to its officers as allowance or bonus pursuant to Section 3 of its by-laws which provides as follows:From the net profits of the business of the Company shall be deducted for allowance of the President 3% for the first Vice President 1 %, for the second Vice President for the members of the Board of Directors 10% to he divided equally among themselves, for the Secretary of the Board for the General Manager for two Assistant General ManagersIn this connection, petitioner explains that to arrive at the aforesaid 20% it gets 20'7o of the profits from the furniture business and adds (the same) to 20 of the profit of the fish net venture. The P61,187.48 which is the basis of the assessment of P17,133.00 does not even represent the entire 20%, allocated as allowance in Section 3 of its by-laws but only 20% of the net profit of the non-exempt operation of the Fish Nets Division, that is, 20,%, of P305,869.89, which is the sum total of P305,802.18 representing profit from the sale of the Muntinglupa land, P45.21 representing interest on savings accounts, and P90.00 representing dividends from investment of the Fish Nets Division. (Pages 2-5, Decision.)Upon the submission of the case for judgment on the basis of the pleadings and BIR official records, the respondent Court rendered the questioned decision. Subsequently, on a motion for reconsideration filed by petitioner, the respondent Court issued a resolution dated September 30, 1968 imposing a 5% surcharge and 1% monthly interest on the deficiency assessment.Dissatisfied, petitioner has come to this Court on errors assigned in its brief.Petitioner argues that the profit derived from the sale of its Muntinglupa land is not taxable for it is tax-exempt income, considering that its Fish Nets Division enjoys tax exemption as a new and necessary industry under Republic Act 901.It must be stressed however that at the administrative level, the petitioner implicitly admitted that the profit it derived from the sale of its Muntinglupa land, a capital asset, was a taxable gain which was precisely the reason why for tax purposes the petitioner deducted therefrom the questioned bonus to its corporate officers as a supposed item of expense incurred for the sale of the said land, apart from the P51,723.72 commission paid by the petitioner to the real estate agent who indeed effected the sale. The BIR therefore had no occasion to pass upon the issue.To allow a litigant to assume a different posture when he comes before the court and challenge the position he had accepted at the administrative level, would be to sanction a procedure whereby the court which is supposed toreviewadministrative determinations would not review, but determine and decide for the first time, a question not raised at the administrative forum. This cannot be permitted, for the same reason that underlies the requirement of prior exhaustion of administrative remedies to give administrative authorities the prior opportunity to decide controversies within its competence, and in much the same way that, on the judicial level, issues not raised in the lower court cannot be raised for the first time on appeal.In the instant case, up to the time the questioned decision of the respondent Court was rendered, the petitioner had always implicitly admitted that the disputed capital gain was taxable, although subject to the deduction of the bonus paid to its corporate officers. It was only after the said decision had been rendered and on a motion for reconsideration thereof, that the issue of tax exemption was raised by the petitioner for the first time. It was thus not one of the issues raised by petitioner in his petition and supporting memorandum in the Court of Tax Appeals.We therefore hold that petitioner's belated claim for tax exemption was properly rejected.The remaining issues in this appeal are: (1) whether or not the bonus given to the officers of the petitioner upon the sale of its Muntinglupa land is an ordinary and necessary business expense deductible for income tax purposes; and (2) whether or not petitioner is liable for surcharge and interest for late payment.Anent the first question, the applicable legal provision is Sec. 30 (a) (1) of the Tax Code which reads:In computing net income there shall be allowed as deductions (a) Expenses:(1) In general. All the Ordinary andnecessaryexpenses paid or incurred during the taxable year in carrying on any trade or business, includinga reasonable allowancefor personal servicesactually rendered. ...On the basis of the foregoing standards, the bonus given to the officers of the petitioner as their share of the profit realized from the sale of petitioner's Muntinglupa land cannot be deemed a deductible expense for tax purposes, even if the aforesaid sale could be considered as a transaction for Carrying on the trade or business of the petitioner and the grant of the bonus to the corporate officers pursuant to petitioner's by-laws could, as an intra-corporate matter, be sustained. The records show that the sale was effected through a broker who was paid by petitioner a commission of P51,723.72 for his services. On the other hand, there is absolutely no evidence of any service actually rendered by petitioner's officers which could be the basis of a grant to them of a bonus out of the profit derived from the sale. This being so, the payment of a bonus to them out of the gain realized from the sale cannot be considered as a selling expense; nor can it be deemed reasonable and necessary so as to make it deductible for tax purposes. As stated by this Court in Alhambra Cigar and Cigarette Manufacturing Co. vs. Collector of Internal Revenue, G.R. No. L-12026, May 29, 1959, construing Section 30 (a) (1) of the Tax Code:. . . . whenever a controversy arises on the deductibility, for purposes of income tax, of certain items for alleged compensation of officers of the taxpayer, two (2) questions become material, namely: (a) Have personal services been actually rendered by said officers? (b) In the affirmative case, what is the reasonable allowance' thereforThen, this Court quoted with approval the appealed decision:. . . these extraordinary and unusual amounts paid by petitioner to these directors in the guise and form of compensation for their supposed services as such,without any relation to the measure of their actual services, cannot be regarded as ordinary and necessary expenseswithin the meaning of the law.This posture is in line with the doctrine in the law of taxation that the taxpayer must show that its claimed deductions clearly come within the language of the law since allowances, like exemptions, are matters of legislative grace.We now come to the issue regarding the imposition of 5% surcharge and 1% monthly interest for late payment of the deficiency tax on petitioner's income which was earned in 1957 and assessed on May 30, 19-08.The applicable law is Section 51 of the Tax Code which, before its amendment by Republic Act 2343 effective June 20, 1959, reads as follows:SEC. 51. Assessment and payment of income tax Assessment of tax. All assessments shall be made by the Collector of In ternal Revenue and all persons and corporations subject to tax shall be notified of the amount for which they are respectively liable on or before the first day of May of each successive year.(b) Time of payment. The total amount of tax imposed by this Title shall be paid on or before the fifteenth day of May following the close of the calendar year, by the person subject to tax, and, in the case of a corporation, by the president, vice- president, or other responsible officer thereof. If the return is made on the basis of a fiscal year, the total amount of the tax shall be paid on or before the f if teenth day of the fifth month following the close of the fiscal year.xxx xxx xxx(e) Surcharge and interest in case of delinquency. To any sum or sums due and unpaid after the dates prescribed in subsections (b), (c) and (d) for the payment of the same, there shall be added the sum of five per centum on the amount of tax unpaid and interest at the rate of one per centum a month upon said tax from the time the same became due, except from the estates of insane, deceased, or insolvent persons.Applying the foregoing provisions, the respondent Court said:It should be observed that, under the old Section 51 (e), the 5% surcharge and interest on deficiency was imposed from the time the tax became due, and said interest was imposable in case of non-payment on time, not only on the basic income tax, but also on the deficiency tax, since the deficiency was part and parcel of the taxpayer's income tax liability. It should further be observed that, although the Commissioner (formerly Collector) of Internal Revenue, under the old Section 51 (a) was required to assess the tax due, based on the taxpayer's return, and notify the taxpayer of said assessment, still, under subsection (b) of the same old Section 51, the time prescribed for the payment of tax was fixed, whether or not a notice of the assessment was given to the taxpayer (See Central Azucarera Don Pedro v. Court of Tax Appeals, et al. G.R. Nos. L-23236 & 23254, May 31, 1967).Inasmuch as petitioner had filed its income tax return for 1957 on the fiscal year basis ending June 30, 1957, the deficiency income tax in question should have been paid on or before November 15, 1957-the fifteenth day of the fifth month following the close of the fiscal year (See Sec. 51 (b),supra). It follows that petitioner is liable to the 5% surcharge and 1% monthly interest for late payment, not from June 30, 1958, but from November 15, 1957. Consequently, the payment of surcharge and interest on deficiency being statutory and therefore mandatory, petitioner is also hable, aside from the basic tax above mentioned, for the 5% surcharge and 1% monthly interest for late payment of the deficiency income tax from November 15, 1957 until paid. (CTA Resolution dated Sept. 30, 1968.)The rule as to when interest and surcharges on delinquency tax payments become chargeable is wen settled and the respondent Court applied it correctly. Construing the same provisions of the old Section 51 (e) and the Section 51 (d) of the Tax Code, as amended by Republic Act 2343, this Court held that the interest and surcharges on deficiency taxes are imposable upon failure of the taxpayer to pay the tax on the date fixed in the law for the payment thereof, which was, under the unamended Section 51 of the Tax Code, the fifteenth day of the fifth month following the close of the fiscal year in the case of taxpayers whose tax returns were made on the basis of fiscal years. [Commissioner of Internal Revenue vs. Connel Bros. Co. (Phil.), 40 SCRA 416.]The rule has to be so because a deficiency tax indicates non-payment of the correct tax, and such deficiency exists not only from the assessment thereof but from the very time the taxpayer failed to pay the correct amount of tax when it should have been paid (Ibid.) and the imposition thereof is mandatory even in the absence of fraud or wilful failure to pay the tax is full.As regards interest, the reason is The imposition of 1% monthly is but a just compensation to the State for the delay in paying the tax and for the concomitant use by the taxpayer of funds that rightfully should be in the government s hands. (U.S. vs. Goldstein, 189 F (2d) 752; Ross vs. U.S. 148 Fed. Supp. 330; U.S. vs. Joffray 97 Fed. (2d) 488.) The fact that the interest charged is made proportionate to the period of delay constitutes the best evidence that such interest is not penal but compensator (Castro vs. Collector of Internal Revenue, G.R. L-12174, Dec. 28, 1662, Resolution on Motion for Reconsideration.)As regards the prescribed 5%surcharge, this Court has had occasion to cite the reason for the strict enforcement thereof.Strong reasons of policy support a strict observance of this rule. Tax laws imposing penalties for deliquencies are clearly intended to hasten tax payments or to punish evasion or neglect of duty in respect thereof. If delays in tax payments are to be condoned for light reasons, the law imposing penalties for delinquencies would be rendered nugatory, and the maintenance of the government and its multifarious activities would be as precarious as taxpayers are wining or unwilling to pay their obligations to the state in time. Imperatives of public welfare will not approve of this result. (Jamora vs. Meer, 74 PhiL 22.)WHEREFORE, the judgment under review is affirmedin toto. Costs against the petitioner.SO ORDERED.

G.R. No. L-26911 January 27, 1981ATLAS CONSOLIDATED MINING & DEVELOPMENT CORPORATION,petitioner,vs.COMMISSIONER OF INTERNAL REVENUE,respondent.G.R. No. L-26924 January 27, 1981COMMISSIONER OF INTERNAL REVENUE,petitioner,vs.ATLAS CONSOLIDATED MINING & DEVELOPMENT CORPORATION and COURT OF TAX APPEALS,respondents.DE CASTRO,J.:These are two (2) petitions for review from the decision of the Court of Tax Appeals of October 25, 1966 in CTA Case No. 1312 entitled "Atlas Consolidated Mining and Development Corporation vs. Commissioner of Internal Revenue." One (L-26911) was filed by the Atlas Consolidated Mining & Development Corporation, and in the other L-26924), the Commissioner of Internal Revenue is the petitioner.This tax case (CTA No. 1312) arose from the 1957 and 1958 deficiency income tax assessments made by the Commissioner of Internal Revenue, hereinafter referred to as Commissioner, where the Atlas Consolidated Mining and Development Corporation, hereinafter referred to as Atlas, was assessed P546,295.16 for 1957 and P215,493.96 for 1958 deficiency income taxes.Atlas is a corporation engaged in the mining industry registered under the laws of the Philippines. On August 20, 1962, the Commissioner assessed against Atlas the sum of P546,295.16 and P215,493.96 or a total of P761,789.12 as deficiency income taxes for the years 1957 and 1958. For the year 1957, it was the opinion of the Commissioner that Atlas is not entitled to exemption from the income tax under Section 4 of Republic Act 9091because same covers only gold mines, the provision of which reads:New mines, and old mines which resume operation, when certified to as such by the Secretary of Agriculture and Natural Resources upon the recommendation of the Director of Mines, shall be exempt from the payment of income tax during the first three (3) years of actual commercial production. Provided that, any such mine and/or mines making a complete return of its capital investment at any time within the said period, shall pay income tax from that year.For the year 1958, the assessment of deficiency income tax of P761,789.12 covers the disallowance of items claimed by Atlas as deductible from gross income.On October 9, 1962, Atlas protested the assessment asking for its reconsideration and cancellation.2Acting on the protest, the Commissioner conducted a reinvestigation of the case.On October 25, 1962, the Secretary of Finance ruled that the exemption provided in Republic Act 909 embraces all new mines and old mines whether gold or other minerals.3Accordingly, the Commissioner recomputed Atlas deficiency income tax liabilities in the light of the ruling of the Secretary of Finance. On June 9, 1964, the Commissioner issued a revised assessment entirely eliminating the assessment of P546,295.16 for the year 1957. The assessment for 1958 was reduced from P215,493.96 to P39,646.82 from which Atlas appealed to the Court of Tax Appeals, assailing the disallowance of the following items claimed as deductible from its gross income for 1958:Transfer agent's fee.........................................................P59,477.42Stockholders relation service fee....................................25,523.14U.S. stock listing expenses..................................................8,326.70Suit expenses..........................................................................6,666.65Provision for contingencies..................................... .........60,000.00Total....................................................................P159,993.91After hearing, the Court of Tax Appeals rendered a decision on October 25, 1966 allowing the above mentioned disallowed items, except the items denominated by Atlas as stockholders relation service fee and suit expenses.4Pertinent portions of the decision of the Court of Tax Appeals read as follows:Under the facts, circumstances and applicable law in this case, the unallowable deduction from petitioner's gross income in 1958 amounted to P32,189.79.Stockholders relation service fee.................................... P25,523.14Suit and litigation expenses................................................6,666.65Total................................................................................... P32,189.79As the exemption of petitioner from the payment of corporate income tax under Section 4, Republic Act 909, was good only up to the Ist quarter of 1958 ending on March 31 of the same year, only three-fourth (3/4) of the net taxable income of petitioner is subject to income tax, computed as follows:1958Total net income for 1958.................................P1,968,898.27Net income corresponding to taxable period April 1 to Dec. 31, 1958, 3/4 ofP1,968,898.27..........................................................1,476,673.70

Add: 3/4 of promotion fees of P25,523.14..............................................................P19,142.35Litigation expenses........................................................................6, 666.65

Net income per decision..........................................11, 02,4 2.70Tax due thereon.........................................................412,695.00Less: Amount already assessed .............................405,468.00DEFICIENCY INCOME TAX DUE............................P7,227.00

Add: 1/2 % monthly interestfrom 6-20-59 to 6-20-62 (18%)....................................P1,300.89TOTAL AMOUNT DUE & COLLECTIBLE............P8,526.22From the Court of Tax Appeals' decision of October 25, 1966, both parties appealed to this Court by way of two (2) separate petitions for review docketed as G. R. No. L-26911 (Atlas, petitioner) and G. R. No. L-29924 (Commissioner, petitioner).G. R. No. L-26911Atlas appealed only that portion of the Court of Tax Appeals' decision disallowing the deduction from gross income of the so-called stockholders relation service fee amounting to P25,523.14, making a lone assignment of error that THE COURT OF TAX APPEALS ERRED IN ITS CONCLUSION THAT THE EXPENSE IN THE AMOUNT OF P25,523.14 PAID BY PETITIONER IN 1958 AS ANNUAL PUBLIC RELATIONS EXPENSES WAS INCURRED FOR ACQUISITION OF ADDITIONAL CAPITAL, THE SAME NOT BEING SUPPORTED BY THE EVIDENCE.It is the contention of Atlas that the amount of P25,523.14 paid in 1958 as annual public relations expenses is a deductible expense from gross income under Section 30 (a) (1) of the National Internal Revenue Code. Atlas claimed that it was paid for services of a public relations firm, P.K Macker & Co., a reputable public relations consultant in New York City, U.S.A., hence, an ordinary and necessary business expense in order to compete with other corporations also interested in the investment market in the United States.5It is the stand of Atlas that information given out to the public in general and to the stockholder in particular by the P.K MacKer & Co. concerning the operation of the Atlas was aimed at creating a favorable image and goodwill to gain or maintain their patronage.The decisive question, therefore, in this particular appeal taken by Atlas to this Court is whether or not the expenses paid for the services rendered by a public relations firm P.K MacKer & Co. labelled as stockholders relation service fee is an allowable deduction as business expense under Section 30 (a) (1) of the National Internal Revenue Code.The principle is recognized that when a taxpayer claims a deduction, he must point to some specific provision of the statute in which that deduction is authorized and must be able to prove that he is entitled to the deduction which the law allows. As previously adverted to, the law allowing expenses as deduction from gross income for purposes of the income tax is Section 30 (a) (1) of the National Internal Revenue which allows a deduction of "all the ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business." An item of expenditure, in order to be deductible under this section of the statute, must fall squarely within its language.We come, then, to the statutory test of deductibility where it is axiomatic that to be deductible as a business expense, three conditions are imposed, namely: (1) the expense must be ordinary and necessary, (2) it must be paid or incurred within the taxable year, and (3) it must be paid or incurred in carrying in a trade or business.6In addition, not only must the taxpayer meet the business test, he must substantially prove by evidence or records the deductions claimed under the law, otherwise, the same will be disallowed. The mere allegation of the taxpayer that an item of expense is ordinary and necessary does not justify its deduction.7While it is true that there is a number of decisions in the United States delving on the interpretation of the terms "ordinary and necessary" as used in the federal tax laws, no adequate or satisfactory definition of those terms is possible. Similarly, this Court has never attempted to define with precision the terms "ordinary and necessary." There are however, certain guiding principles worthy of serious consideration in the proper adjudication of conflicting claims. Ordinarily, an expense will be considered "necessary" where the expenditure is appropriate and helpful in the development of the taxpayer's business.8It is "ordinary" when it connotes a payment which is normal in relation to the business of the taxpayer and the surrounding circumstances.9The term "ordinary" does not require that the payments be habitual or normal in the sense that the same taxpayer will have to make them often; the payment may be unique or non-recurring to the particular taxpayer affected.10There is thus no hard and fast rule on the matter. The right to a deduction depends in each case on the particular facts and the relation of the payment to the type of business in which the taxpayer is engaged. The intention of the taxpayer often may be the controlling fact in making the determination.11Assuming that the expenditure is ordinary and necessary in the operation of the taxpayer's business, the answer to the question as to whether the expenditure is an allowable deduction as a business expense must be determined from the nature of the expenditure itself, which in turn depends on the extent and permanency of the work accomplished by the expenditure.12It appears that on December 27, 1957, Atlas increased its capital stock from P15,000,000 to P18,325,000.13It was claimed by Atlas that its shares of stock worth P3,325,000 were sold in the United States because of the services rendered by the public relations firm, P. K. Macker & Company. The Court of Tax Appeals ruled that the information about Atlas given out and played up in the mass communication media resulted in full subscription of the additional shares issued by Atlas; consequently, the questioned item, stockholders relation service fee, was in effect spent for the acquisition of additional capital, ergo, a capital expenditure.We sustain the ruling of the tax court that the expenditure of P25,523.14 paid to P.K. Macker & Co. as compensation for services carrying on the selling campaign in an effort to sell Atlas' additional capital stock of P3,325,000 is not an ordinary expense in line with the decision of U.S. Board of Tax Appeals in the case of Harrisburg Hospital Inc. vs. Commissioner of Internal Revenue.14Accordingly, as found by the Court of Tax Appeals, the said expense is not deductible from Atlas gross income in 1958 because expenses relating to recapitalization and reorganization of the corporation (Missouri-Kansas Pipe Line vs. Commissioner of Internal Revenue, 148 F. (2d), 460;Skenandos Rayon Corp. vs. Commissioner of Internal Revenue, 122 F. (2d) 268, Cert. denied 314 U.S. 6961), the cost of obtaining stock subscription (Simons Co., 8 BTA 631), promotion expenses (Beneficial Industrial Loan Corp. vs. Handy, 92 F. (2d) 74), and commission or fees paid for the sale of stock reorganization (Protective Finance Corp., 23 BTA 308) are capital expenditures.That the expense in question was incurred to create a favorable image of the corporation in order to gain or maintain the public's and its stockholders' patronage, does not make it deductible as business expense. As held in the case ofWelch vs. Helvering,15efforts to establish reputation are akin to acquisition of capital assets and, therefore, expenses related thereto are not business expense but capital expenditures.We do not agree with the contention of Atlas that the conclusion of the Court of Tax Appeals in holding that the expense of P25,523.14 was incurred for acquisition of additional capital is not supported by the evidence. The burden of proof that the expenses incurred are ordinary and necessary is on the taxpayer16and does not rest upon the Government. To avail of the claimed deduction under Section 30(a) (1) of the National Internal Revenue Code, it is incumbent upon the taxpayer to adduce substantial evidence to establish a reasonably proximate relation petition between the expenses to the ordinary conduct of the business of the taxpayer. A logical link or nexus between the expense and the taxpayer's business must be established by the taxpayer.G. R. No. L-26924-In his petition for review, the Commissioner of Internal Revenue assigned as errors the following:ITHE COURT OF TAX APPEALS ERRED IN ALLOWING THE DEDUCTION FROM GROSS INCOME OF THE SO- CALLED TRANSFER AGENT'S FEES ALLEGEDLY PAID BY RESPONDENT;IITHE COURT OF TAX APPEALS ERRED IN ALLOWING THE DEDUCTION FROM GROSS INCOME OF LISTING EXPENSES ALLEGEDLY INCURRED BY RESPONDENT;IIITHE COURT OF TAX APPEALS ERRED IN HOLDING THAT THE AMOUNT OF P60,000 REPRESENTED BY RESPONDENT AS "PROVISION FOR CONTINGENCIES" WAS ADDED BACK BY RESPONDENT TO ITS GROSS INCOME IN COMPUTING THE INCOME TAX DUE FROM IT FOR 1958;IVTHE COURT OF TAX APPEALS ERRED IN DISALLOWING ONLY THE AMOUNT OF P6,666.65 AS SUIT EXPENSES, THE CORRECT AMOUNT THAT SHOULD HAVE BEEN DISALLOWED BEING P17,499.98.It is well to note that only in the Court of Tax Appeals did the Commissioner raise for the first time (in his memorandum) the question of whether or not the business expenses deducted from Atlas gross income in 1958 may be allowed in the absence of proof of payments.17Before this Court, the Commissioner reiterated the same as ground against deductibility when he claimed that the Court of Tax Appeals erred in allowing the deduction of transfer agent's fee and stock listing fee from gross income in the absence of proof of payment thereof.The Commissioner contended that under Section 30 (a) (1) of the National Internal Revenue Code, it is a requirement for an expense to be deductible from gross income that it must have been "paid or incurred during the year" for which it is claimed; that in the absence of convincing and satisfactory evidence of payment, the deduction from gross income for the year 1958 income tax return cannot be sustained; and that the best evidence to prove payment, if at all any has been made, would be the vouchers or receipts issued therefor which ATLAS failed to present.Atlas admitted that it failed to adduce evidence of payment of the deduction claimed in its 1958 income tax return, but explains the failure with the allegation that the Commissioner did not raise that question of fact in his pleadings, or even in the report of the investigating examiner and/or letters of demand and assessment notices of ATLAS which gave rise to its appeal to the Court of Tax Appeal.18It was emphasized by Atlas that it went to trial and finally submitted this case for decision on the assumption that inasmuch as the fact of payment was never raised as a vital issue by the Commissioner in his answer to the petition for review in the Court of Tax Appeal, the issues is limited only to pure question of lawwhether or not the expenses deducted by petitioner from its gross income for 1958 are sanctioned by Section 30 (a) (1) of the National Internal Revenue Code.On this issue of whether or not the Commissioner can raise the fact of payment for the first time on appeal in its memorandum in the Court of Tax Appeal, we fully agree with the ruling of the tax court that the Commissioner on appeal cannot be allowed to adopt a theory distinct and different from that he has previously pursued, as shown by the BIR records and the answer to the amended petition for review.19As this Court said in the case of Commissioner of Customs vs. Valencia20such change in the nature of the case may not be made on appeal, specially when the purpose of the latter is to seek a review of the action taken by an administrative body, forming part of a coordinate branch of the Government, such as the Executive department. In the case at bar, the Court of Tax Appeal found that the fact of payment of the claimed deduction from gross income was never controverted by the Commissioner even during the initial stages of routinary administrative scrutiny conducted by BIR examiners.21Specifically, in his answer to the amended petition for review in the Court of Tax Appeal, the Commissioner did not deny the fact of payment, merely contesting the legitimacy of the deduction on the ground that same was not ordinary and necessary business expenses.22As consistently ruled by this Court, the findings of facts by the Court of Tax Appeal will not be reviewed in the absence of showing of gross error or abuse.23We, therefore, hold that it was too late for the Commissioner to raise the issue of fact of payment for the first time in his memorandum in the Court of Tax Appeals and in this instant appeal to the Supreme Court. If raised earlier, the matter ought to have been seriously delved into by the Court of Tax Appeals. On this ground, we are of the opinion that under all the attendant circumstances of the case, substantial justice would be served if the Commissioner be held as precluded from now attempting to raise an issue to disallow deduction of the item in question at this stage. Failure to assert a question within a reasonable time warrants a presumption that the party entitled to assert it either has abandoned or declined to assert it.On the second assignment of error, aside from alleging lack of proof of payment of the expense deducted, the Commissioner contended that such expense should be disallowed for not being ordinary and necessary and not incurred in trade or business, as required under Section 30 (a) (1) of the National Internal Revenue Code. He asserted that said fees were therefore incurred not for the production of income but for the acquisition petition of capital in view of the definition that an expense is deemed to be incurred in trade or business if it was incurred for the production of income, or in the expectation of producing income for the business. In support of his contention, the Commissioner cited the ruling inDome Mines, Ltd vs. Commisioner of Internal Revenue24involving the same issue as in the case at bar where the U.S. Board of Tax Appeal ruled that expenses for listing capital stock in the stock exchange are not ordinary and necessary expenses incurred in carrying on the taxpayer's business which was gold mining and selling, which business is strikingly similar to Atlas.On the other hand, the Court of Tax Appeal relied on the ruling in the case ofChesapeake Corporation of Virginia vs. Commissioner of Internal Revenue25where the Tax Court allowed the deduction of stock exchange fee in dispute, which is an annually recurring cost for the annual maintenance of the listing.We find theChesapeake decisioncontrolling with the facts and circumstances of the instant case. InDome Mines, Ltd casethe stock listing fee was disallowed as a deduction not only because the expenditure did not meet the statutory test but also because the same was paid only once, and the benefit acquired thereby continued indefinitely, whereas, in theChesapeake Corporation case, fee paid to the stock exchange was annual and recurring. In the instant case, we deal with the stock listing fee paid annually to a stock exchange for the privilege of having its stock listed. It must be noted that the Court of Tax Appeal rejected theDome Mines casebecause it involves a payment made only once, hence, it was held therein that the single payment made to the stock exchange was a capital expenditure, as distinguished from the instant case, where payments were made annually. For this reason, we hold that said listing fee is an ordinary and necessary business expenseOn the third assignment of error, the Commissioner con- tended that the Court of Tax Appeal erred when it held that the amount of P60,000 as "provisions for contingencies" was in effect added back to Atlas income.On this issue, this Court has consistently ruled in several cases adverted to earlier, that in the absence of grave abuse of discretion or error on the part of the tax court its findings of facts may not be disturbed by the Supreme Court.26It is not within the province of this Court to resolve whether or not the P60,000 representing "provision for contingencies" was in fact added to or deducted from the taxable income. As ruled by the Court of Tax Appeals, the said amount was in effect added to Atlas taxable income.27The same being factual in nature and supported by substantial evidence, such findings should not be disturbed in this appeal.Finally, in its fourth assignment of error, the Commissioner contended that the CTA erred in disallowing only the amount of P6,666.65 as suit expenses instead of P17,499.98.It appears that petitioner deducted from its 1958 gross income the amount of P23,333.30 as attorney's fees and litigation expenses in the defense of title to the Toledo Mining properties purchased by Atlas from Mindanao Lode Mines Inc. in Civil Case No. 30566 of the Court of First Instance of Manila for annulment of the sale of said mining properties. On the ground that the litigation expense was a capital expenditure under Section 121 of the Revenue Regulation No. 2, the investigating revenue examiner recommended the disallowance of P13,333.30. The Commissioner, however, reduced this amount of P6,666.65 which latter amount was affirmed by the respondent Court of Tax Appeals on appeal.There is no question that, as held by the Court of Tax Ap- peals, the litigation expenses under consideration were incurred in defense of Atlas title to its mining properties. In line with the decision of the U.S. Tax Court in the case ofSafety Tube Corp. vs. Commissioner of Internal Revenue,28it is well settled that litigation expenses incurred in defense or protection of title are capital in nature and not deductible. Likewise, it was ruled by the U.S. Tax Court that expenditures in defense of title of property constitute a part of the cost of the property, and are not deductible as expense.29Surprisingly, however, the investigating revenue examiner recommended a partial disallowance of P13,333.30 instead of the entire amount of P23,333.30, which, upon review, was further reduced by the Commissioner of Internal Revenue. Whether it was due to mistake, negligence or omission of the officials concerned, the arithmetical error committed herein should not prejudice the Government. This Court will pass upon this particular question since there is a clear error committed by officials concerned in the computation of the deductible amount. As held in the case of Vera vs. Fernandez,30this Court emphatically said that taxes are the lifeblood of the Government and their prompt and certain availability are imperious need. Upon taxation depends the Government's ability to serve the people for whose benefit taxes are collected. To safeguard such interest, neglect or omission of government officials entrusted with the collection of taxes should not be allowed to bring harm or detriment to the people, in the same manner as private persons may be made to suffer individually on account of his own negligence, the presumption being that they take good care of their personal affair. This should not hold true to government officials with respect to matters not of their own personal concern. This is the philosophy behind the government's exception, as a general rule, from the operation of the principle of estoppel.31WHEREFORE, judgment appealed from is hereby affirmed with modification that the amount of P17,499.98 (3/4 of P23,333.00) representing suit expenses be disallowed as deduction instead of P6,666.65 only. With this amount as part of the net income, the corresponding income tax shall be paid thereon, with interest of 6% per annum from June 20, 1959 to June 20,1962.SO ORDERED.

G.R. No. L-15290 May 31, 1963MARIANO ZAMORA,petitioner,vs.COLLECTOR OF INTERNAL REVENUE and COURT OF TAX APPEALS,respondents.-----------------------------G.R. No. L-15280 May 31, 1963COLLECTOR OF INTERNAL REVENUE,petitioner,vs.MARIANO ZAMORA,respondent.-----------------------------G.R. No. L-15289 May 31, 1963ESPERANZA A. ZAMORA, as Special Administratrix of Estate of FELICIDAD ZAMORA,petitioner,vs.COLLECTOR OF INTERNAL REVENUE and COURT OF TAX APPEALS,respondents.-----------------------------G.R. No. L-15281 May 31, 1963COLLECTOR OF INTERNAL REVENUE,petitioner,vs.ESPERANZA A. ZAMORA, as Special Administratrix, etc.respondent.Office of the Solicitor General for petitioner.Rodegelio M. Jalandoni for respondents.PAREDES,J.:In the above-entitled cases, a joint decision was rendered by the lower court because they involved practically the same issues. We do so, likewise, for the same reason.Cases Nos. L-15290 and L-15280Mariano Zamora, owner of the Bay View Hotel and Farmacia Zamora, Manila, filed his income tax returns the years 1951 and 1952. The Collector of Internal Revenue found that he failed to file his return of the capital gains derived from the sale of certain real properties and claimed deductions which were not allowable. The collector required him to pay the sums of P43,758.50 and P7,625.00, as deficiency income tax for the years 1951 and 1952, respectively (C.T.A. Case No. 234, now L-15290). On appeal by Zamora, the Court of Tax Appeals on December 29, 1958, modified the decision appealed from and ordered him to pay the reduced total sum of P30,258.00 (P22,980.00 and P7,278.00, as deficiency income tax for the years 1951 and 1952, respectively), within thirty (30) days from the date the decision becomes final, plus the corresponding surcharges and interest in case of delinquency, pursuant to section 51(e), Int. Revenue Code. With costs against petitioner.Having failed to obtain a reconsideration of the decision, Mariano Zamora appealed (L-15290), alleging that the Court of Tax Appeals erred (1) In dissallowing P10,478.50, as promotion expenses incurred by his wife for the promotion of the Bay View Hotel and Farmacia Zamora (which is of P20,957.00, supposed business expenses):(2) In disallowing 3-% per annum as the rate of depreciation of the Bay View Hotel Building;(3) In disregarding the price stated in the deed of sale, as the costs of a Manila property, for the purpose of determining alleged capital gains; and(4) In applying the Ballantyne scale of values in determining the cost of said property.The Collector of Internal Revenue (L-15280) also appealed, claiming that the Court of Tax Appeals erred (1) In giving credence to the uncorroborated testimony of Mariano Zamora that he bought the said real property in question during the Japanese occupation, partly in Philippine currency and partly in Japanese war notes, and(2) In not holding that Mariano Zamora is liable for the payment of the sums of P43,758.00 and P7,625.00 as deficiency income taxes, for the years 1951 and 1952, plus the 5% surcharge and 1% monthly interest, from the date said amounts became due to the date of actual payment.Wherefore, the parties respectfully pray that the foregoing stipulation of facts be admitted and approved by this Honorable Court, without prejudice to the parties adducing other evidence to prove their case not covered by this stipulation of facts.1wph1.tCases Nos. L-15289 and L-15281Mariano Zamora and his deceased sister Felicidad Zamora, bought a piece of land located in Manila on May 16, 1944, for P132,000.00 and sold it for P75,000.00 on March 5, 1951. They also purchased a lot located in Quezon City for P68,959.00 on January 19, 1944, which they sold for P94,000 on February 9, 1951. The CTA ordered the estate of the late Felicidad Zamora (represented by Esperanza A. Zamora, as special administratrix of her estate), to pay the sum of P235.50, representing alleged deficiency income tax and surcharge due from said estate. Esperanza A. Zamora appealed and alleged that the CTA erred: The Commissioner of Internal Revenue likewise appealed from the decision, claiming that the lower court erred: (1) In giving credence to the uncorroborated testimony of Mariano Zamora that he bought the real property involved during the Japanese occupation, partly in genuine Philippine currency and partly in Japanese war notes; and(2) In not holding that Esperanza A. Zamora, as administratrix, is liable for the payment of the sum of P613.00 as deficiency income tax and 50% surcharge for 1951, plus 50% surcharge and 1% monthly interest from the date said amount became due, to the date of actual payment.It is alleged by Mariano Zamora that the CTA erred in disallowing P10,478.50 as promotion expenses incurred by his wife for the promotion of the Bay View Hotel and Farmacia Zamora. He contends that the whole amount of P20,957.00 as promotion expenses in his 1951 income tax returns, should be allowed and not merely one-half of it or P10,478.50, on the ground that, while not all the itemized expenses are supported by receipts, the absence of some supporting receipts has been sufficiently and satisfactorily established. For, as alleged, the said amount of P20,957.00 was spent by Mrs. Esperanza A. Zamora (wife of Mariano), during her travel to Japan and the United States to purchase machinery for a new Tiki-Tiki plant, and to observe hotel management in modern hotels. The CTA, however, found that for said trip Mrs. Zamora obtained only the sum of P5,000.00 from the Central Bank and that in her application for dollar allocation, she stated that she was going abroad on a combined medical and business trip, which facts were not denied by Mariano Zamora. No evidence had been submitted as to where Mariano had obtained the amount in excess of P5,000.00 given to his wife which she spent abroad. No explanation had been made either that the statement contained in Mrs. Zamora's application for dollar allocation that she was going abroad on a combined medical and business trip, was not correct. The alleged expenses were not supported by receipts. Mrs. Zamora could not even remember how much money she had when she left abroad in 1951, and how the alleged amount of P20,957.00 was spent.Section 30, of the Tax Code, provides that in computing net income, there shall be allowed as deductions all the ordinary and necessary expenses paid or incurred during the taxable year, in carrying on any trade or business (Vol. 4, Mertens, Law of Federal Income Taxation, sec. 25.03, p. 307). Since promotion expenses constitute one of the deductions in conducting a business, same must testify these requirements. Claim for the deduction of promotion expenses or entertainment expenses must also be substantiated or supported by record showing in detail the amount and nature of the expenses incurred (N.H. Van Socklan, Jr. v. Comm. of Int. Rev.; 33 BTA 544). Considering, as heretofore stated, that the application of Mrs. Zamora for dollar allocation shows that she went abroad on a combined medical and business trip, not all of her expenses came under the category of ordinary and necessary expenses; part thereof constituted her personal expenses. There having been no means by which to ascertain which expense was incurred by her in connection with the business of Mariano Zamora and which was incurred for her personal benefit, the Collector and the CTA in their decisions, considered 50% of the said amount of P20,957.00 as business expenses and the other 50%, as her personal expenses. We hold that said allocation is very fair to Mariano Zamora, there having been no receipt whatsoever, submitted to explain the alleged business expenses, or proof of the connection which said expenses had to the business or the reasonableness of the said amount of P20,957.00. While in situations like the present, absolute certainty is usually no possible, the CTA should make as close an approximation as it can, bearing heavily, if it chooses, upon the taxpayer whose inexactness is of his own making.In the case ofVisayan Cebu Terminal Co., Inc. v. Collector of Int. Rev., G.R. No. L-12798, May 30, 1960, it was declared that representation expenses fall under the category of business expenses which are allowable deductions from gross income, if they meet the conditions prescribed by law, particularly section 30 (a) [1], of the Tax Code; that to be deductible, said business expenses must be ordinary and necessary expenses paid or incurred in carrying on any trade or business; that those expenses must also meet the further test of reasonableness in amount; that when some of the representation expenses claimed by the taxpayer were evidenced by vouchers or chits, but others were without vouchers or chits, documents or supporting papers; that there is no more than oral proof to the effect that payments have been made for representation expenses allegedly made by the taxpayer and about the general nature of such alleged expenses; that accordingly, it is not possible to determine the actual amount covered by supporting papers and the amount without supporting papers, the court should determine fromall available data, the amount properly deductible as representation expenses.In view hereof, We are of the opinion that the CTA, did not commit error in allowing as promotion expenses of Mrs. Zamora claimed in Mariano Zamora's 1951 income tax returns, merely one-half or P10,478.50.Petitioner Mariano Zamora alleges that the CTA erred in disallowing 3-% per annum as the rate of depreciation of the Bay View Hotel Building but only 2-%. In justifying depreciation deduction of 3-%, Mariano Zamora contends that (1) the Ermita District, where the Bay View Hotel is located, is now becoming a commercial district; (2) the hotel has no room for improvement; and (3) the changing modes in architecture, styles of furniture and decorative designs, "must meet the taste of a fickle public". It is a fact, however, that the CTA, in estimating the reasonable rate of depreciation allowance for hotels made of concrete and steel at 2-%, the three factors just mentioned had been taken into account already. Said the CTANormally, an average hotel building is estimated to have a useful life of 50 years, but inasmuch as the useful life of the building for business purposes depends to a large extent on the suitability of the structure to its use and location, its architectural quality, the rate of change in population, the shifting of land values, as well as the extent and maintenance and rehabilitation. It is allowed a depreciation rate of 2-% corresponding to a normal useful life of only 40 years (1955 PH Federal Taxes, Par14160-K). Consequently, the stand of the petitioners can not be sustained.As the lower court based its findings on Bulletin F, petitioner Zamora, argues that the same should have been first proved as a law, to be subject to judicial notice. Bulletin F, is a publication of the US Federal Internal Revenue Service, which was made after a study of the lives of the properties. In the words of the lower court: "It contains the list of depreciable assets, the estimated average useful lives thereof and the rates of depreciation allowable for each kind of property. (See 1955 PH Federal Taxes, Par. 14, 160 to Par. 14, 163-0). It is true that Bulletin F has no binding force, but it has a strong persuasive effect considering that the same has been the result of scientific studies and observation for a long period in the United States after whose Income Tax Law ours is patterned." Verily, courts are permitted to look into and investigate the antecedents or the legislative history of the statutes involved (Director of Lands v. Abaya, et al., 63 Phil. 559). Zamora also contends that his basis for applying the 3-% rate is the testimony of its witness Mariano Katipunan, who cited a book entitled "Hotel Management Principles and Practice" by Lucius Boomer, President, Hotel Waldorf Astoria Corporation. As well commented by the Solicitor General, "while the petitioner would deny us the right to use Bulletin F, he would insist on using as authority, a book in Hotel management written by a man who knew more about hotels than about taxation. All that the witness did (Katipunan) . . . is to read excerpts from the said book (t.s.n. pp. 99-101), which admittedly were based on the decision of the U.S. Tax Courts, made in 1928 (t.s.n. p. 106)". In view hereof, We hold that the 2-% rate of depreciation of the Bay View Hotel building, is approximately correct.The next items in dispute are the undeclared capital gains derived from the sales in 1951 of certain real properties in Malate, Manila and in Quezon City, acquired during the Japanese occupation.The Manila property (Esperanza Zamora v. Coll. of Int. Rev., Case No. L-15289). The CTA held in this case, that the cost basis of property acquired in Japanese war notes is the equivalent of the war notes in genuine Philippine currency in accordance with the Ballantyne Scale of values, and that the determination of the gain derived or loss sustained in the sale of such property is not affected by the decline at the time of sale, in the purchasing power of the Philippine currency. It was found by the CTA that the purchase price of P132,000.00 was not entirely paid in Japanese War notes but thereof or P66,000.00 was in Philippine currency, and that during certain periods of the enemy occupation, the value of the Japanese war notes was very much less than the value of the genuine Philippine currency. On this point, the CTA declared Finally, it is alleged that the purchase price of P132,000.00 was not entirely paid in Japanese war notes, Mariano Zamora, co-owner of the property in question, testified that P66,000.00 was paid in Philippine currency and the other P66,000.00 was paid in Japanese war notes. No evidence was presented by respondent to rebut the testimony of Mariano Zamora; it is assailed merely as being improbable. We have examined this question thoroughly and we are inclined to give credence to the allegation that a portion of the purchase price of the property was paid in Philippine money. In the first place, it appears that the Zamoras owned the Farmacia Zamora which continued to engage in business during the war years and that a considerable portion of its sales was paid for in genuine Philippine currency. This circumstance enabled the Zamoras to accumulate Philippine money which they used in acquiring the property in question and another property in Quezon City. In the second place, P132,000.00 in Japanese war notes in May, 1944 is equivalent to only P11,000.00. The property in question had at the time an assessed value of P27,031.00 (in Philippine currency). Considering the well known fact that theassessed valueof real property is very much below the fairmarket value, it is incredible that said property should have been sold by the owner thereof for less than one-half of its assessed value. These facts have convinced us of the veracity of the allegation that of the purchase price of P132,000.00 the sum of P66,000.00 was paid in Philippine currency, so that only the sum of P66,000.00 was paid in Japanese War notes.This being the case, the Ballantyne Scale of values, which was the result of an impartial scientific study, adopted and given judicial recognition, should be applied. As the value of the Japanese war notes in May, 1944 when the Manila property was bought, was 1 of the genuine Philippine Peso (Ballantyne Scale), and since the gain derived or loss sustained in the disposition of this property is to reckoned in terms of Philippine Peso, the value of the Japanese war notes used in the purchase of the property, must be reduced in terms of the genuine Philippine Peso to determine the cost of acquisition. It, therefore, results that since the sum of P66,000.00 in Japanese war notes in May, 1944 is equivalent to P5,500.00 in Philippine currency (P66,000.00 divided by 12), the acquisition cost of the property in question is P66,000.00 plus P5,500.00 or P71,500.00 and that as the property was sold for P75,000.00 in 1951, the owners thereof Mariano and Felicidad Zamora derived a capital gain of P3,500.00 or P1,750.00 each.The Quezon City Property (Mariano Zamora v. Coll. of Customs, Case No. 15290). The Zamoras alleged that the entire purchase price of P68,959.00 was paid in Philippine currency. The collector, on the other hand, contends that the purchase price of P68,959.00 was paid in Japanese war notes. The CTA, however, giving credence to Zamora's version, said . . . If , as contended by respondent, the purchase price of P68,959.00 was paid in Japanese war notes, the purchase price in Philippine currency would be only P17,239.75 (P68,959.00 divided by 4, 34.00 in war notes being equivalent to P1.00 in Philippine currency). The assessed value of said property in Philippine currency at the time of acquisition was P46,910.00. It is quite incredible that real property with an assessed value of P46,910.00 should have been sold by the owner thereof in Japanese war notes with an equivalent value in Philippine currency of only P17,239.75. We are more inclined to believe the allegation that it was purchased forP68,959.00 in genuine Philippine currency. Since the property was sold for P94,000.00 on February 9, 1951, the gain derived from the sale is P15,361.75, after deducting from the selling price the cost of acquisition in the sum of P68,959.00 and the expense of sale in the sum of P9,679.25.The above appraisal is correct, and We have no plausible reason to disturb the same.Consequently, the total undeclared income of petitioners derived from the sales of the Manila and Quezon City properties in 1951 is P17,111.75 (P1,750.00 plus P15,361.75), 50% of which in the sum of P8,555.88 is taxable, the said properties being capital assets held for more than one year.IN VIEW HEREOF, the petition in each of the above-entitled cases is dismissed, and the decision appealed from is affirmed, without special pronouncement as to costs.

G.R. No. L-24059November 28, 1969C. M. HOSKINS & CO., INC.,petitioner,vs.COMMISSIONER OF INTERNAL REVENUE,respondent.Ross, Salcedo, Del Rosario, Bito and Misa for petitioner.Office of the Solicitor General Arturo A. Alafriz, Assistant Solicitor General Felicisimo R. Rosete and Special Attorney Michaelina R. Balasbas for respondent.TEEHANKEE,J.:We uphold in this taxpayer's appeal the Tax Court's ruling that payment by the taxpayer to its controlling stockholder of 50% of its supervision fees or the amount of P99,977.91 is not a deductible ordinary and necessary expense and should be treated as a distribution of earnings and profits of the taxpayer.Petitioner, a domestic corporation engaged in the real estate business as brokers, managing agents and administrators, filed its income tax return for its fiscal year ending September 30, 1957 showing a net income of P92,540.25 and a tax liability due thereon of P18,508.00, which it paid in due course. Upon verification of its return, respondent Commissioner of Internal Revenue, disallowed four items of deduction in petitioner's tax returns and assessed against it an income tax deficiency in the amount of P28,054.00 plus interests. The Court of Tax Appeals upon reviewing the assessment at the taxpayer's petition, upheld respondent's disallowance of the principal item of petitioner's having paid to Mr. C. M. Hoskins, its founder and controlling stockholder the amount of P99,977.91 representing 50% of supervision fees earned by it and set aside respondent's disallowance of three other minor items. The Tax Court therefore determined petitioner's tax deficiency to be in the amount of P27,145.00 and on November 8, 1964 rendered judgment against it, as follows:WHEREFORE, premises considered, the decision of the respondent is hereby modified. Petitioner is ordered to pay to the latter or his representative the sum of P27,145.00, representing deficiency income tax for the year 1957, plus interest at 1/2% per month from June 20, 1959 to be computed in accordance with the provisions of Section 51(d) of the National Internal Revenue Code. If the deficiency tax is not paid within thirty (30) days from the date this decision becomes final, petitioner is also ordered to pay surcharge and interest as provided for in Section 51 (e) of the Tax Code, without costs.Petitioner questions in this appeal the Tax Court's findings that the disallowed payment to Hoskins was an inordinately large one, which bore a close relationship to the recipient's dominant stockholdings and therefore amounted in law to a distribution of its earnings and profits.We find no merit in petitioner's appeal.As found by the Tax Court, "petitioner was founded by Mr. C. M. Hoskins in 1937, with a capital stock of 1,000 shares at a par value of P1.00 each share; that of these 1,000 shares, Mr. C. M. Hoskins owns 996 shares (the other 4 shares being held by the other four officers of the corporation), which constitute exactly 99.6% of the total authorized capital stock (p. 92, t.s.n.); that during the first four years of its existence, Mr. C. M. Hoskins was the President, but during the taxable period in question, that is, from October 1, 1956 to September 30, 1957, he was the chairman of the Board of Directors and salesman-broker for the company (p. 93, t.s.n.); that as chairman of the Board of Directors, he received a salary of P3,750.00 a month, plus a salary bonus