30National Development Co. vs. CommissionerGR L-53961, 151 SCRA 473! "#ne 19$7%a&ts' The National Development Co. (NDC) entered into contracts in Tokyo with several Japanese shipbuilding companies for the construction of ! ocean"going vessels. #nitial payments were made in cash and through irrevocable letters of credit. $hen the vessels were completed and delivered to the NDC in Tokyo% the latter remitted to the shipbilders the amount of &'( )%*++%,-*..* as interest on the balance of the purchase price. No ta/ was withheld. The Commissioner then held NDC liable on such ta/ in the total amount of 0,%,%!1)..). The 2ureau of #nternal 3evenue served upon the NDC a warrant of distraint and levy after negotiations failed.(ss#e' $hether the NDC is liable for deficiency ta/.)el*' The Japanese shipbuilders were liable on the interest remitted to them under 'ection 1. of the Ta/ Code. The NDC is not the one ta/ed. The imposition of the deficiency ta/es on the ND' is a penalty for itsfailure to withhold the same from the Japanese shipbuilders. 'uch liability is imposed by 'ection ,1(c) of the Ta/ Code. NDC was remiss in the discharge of its obligation of its obligation as the withholding agent of the government and so should be liable for its omission.31%is+er v. ,rini*a*GR 1751$, 43 -)(L 973.&to/er 3!, 19%a&ts' 0hilippine 4merican Drug Company was a corporation duly organi5ed and e/isting under the lawsof the 0hilippine #slands% doing business in the City of 6anila. 7isher was a stockholder insaid corporation. 'aid corporation% as result of the business for that year% declared a 8stock dividend8 andthat the proportionate share of said stock divided of 7isher was 0!)%-**. 'aid the stock dividend for thatamount was issued to 7isher. 7or this reason% Trinidad demanded payment of income ta/ for thestock dividend received by 7isher. 7isher paid under protest the sum of 0--9.9 as income ta/on saidstock dividend. 7isher filed an action for the recovery of 0--9.9. Trinidad demurred to the petition uponthe ground that it did not state facts sufficient to constitute cause of action. The demurrer was sustainedand 7isher appealed. (ss#e' $hether or not the stock dividend was an income and therefore ta/able. )el*' No. :enerally speaking% stock dividends represent undistributed increase in the capital ofcorporations or firms% ;ointstock companies% etc.% etc.% for a particular period. The inventory ofthe property of the corporation for particular period shows an increase in its capital% so that thestock theretofore issued does not show the real value of the stockholderuivalent%unlessit is otherwise specified. #tdoesnot mean unreali5ed increments in the value of theproperty. 4stock dividend really takes nothing from the property of the corporation% and adds nothing to the interestsof the shareholders. #ts property is not diminished and their interest are not increased. The proportionalinterest of each shareholder remains the same. #n short% the corporation is no poorer and the stockholderis no richer then they were before. #n the case of Doyle vs. 6itchell 2ros. Co. (!). &.'.% .9)% 6r. Justice 0itney% said that the term 8income8in its natural and obvious sense% imports something distinct from principal or capital and conveying theidea of gain or increase arising from corporate activity. #n the case of =isner vs. 6acomber (!,! &.'.% -9)% income was defined as the gain derived from capital%from labor% or from both combined% provided it be understood to include profit gained through a sale orconversion of capital assets. $hen a corporation or company issues 8stock dividends8 it shows that the companyual parts in computing and assessing the additional income ta/ provided by the 4ct of Congress of 91. The 4ttorney":eneral of the 0hilippines opined in favor of 6adrigal% but 3afferty% the &' C#3% decided against 6adrigal.4fter his payment under protest% 6adrigal instituted an action to recover the sum of 01%-** alleged to have been wrongfully and illegally assessed and collected% under the provisions of the #ncome Ta/ Aaw. @owever% this was opposed by 3afferty% contending that ta/es imposed by the #ncome Ta/ Aaw are ta/es upon income% not upon capital or property% and that the con;ugal partnership has no bearing on income considered as income. The C7# ruled in favor of the defendants% 3afferty. (SS45' $hether 6adrigalEs income should be divided into ! e>ual parts in the assessment and computation of his ta/)5LD' NC. 'usana 0aterno% wife of Bicente 6adrigal% still has an inchoate right in the property of her husband during the life of the con;ugal partnership. 'he has an interest in the ultimate property rights and in the ultimate ownership of property ac>uired as income after such income has become capital. 'usana has no absolute right to onehalf the income of the con;ugal partnership. Not being sei5ed of a separate estate% she cannot make a separate return in order to receive the benefit of e/emption% which could arise by reason of the additional ta/. 4s she has no estate and income% actually and legally vested in her and entirely separate from her husbandEs property% the income cannot be considered the separate income of the wife for purposes of additional ta/. #ncome% as contrasted with capital and property% is to be the test. The essential difference between capital and income is that capital is a fund? income is a flow. 4 fund of property e/isting at an instant of time is called capital. 4 flow of services rendered by that capital by the payment of money from it or any other benefit rendered by a fund of capital in relation to such fund through a period of time is called income. Capital is wealth% while income is the service of wealth. 4 ta/ onincome is not ta/ on property.33 C.N6( v. C,AGR 4$53, 13 SCRA $3A#1#st 31, 199%a&ts' 0etitioners are employees of 0rocter and :amble (0hilippine 6anufacturing Corporation%subsidiary of 0rocter F :amble% a foreign corporation).During the years 9.* and 9.% petitioners wereassigned to other subsidiaries of 0rocter F :amble outside the 0hilippines% for which petitioners werepaid &' dollars as compensation. 0etitioners filed their #T3s for 9.* and 9.% computing ta/ due by applying the dollar"to"peso conversion based on thefloatingrateunder 2#3 3uling No. .*"*!.. #n9.1% petitioners filedamened #T3s for 9.* and 9.% this time using the par value of the peso as basis. This resulted in thealleged overpayments% refund andGor ta/ credit% for which claims for refund were filed. CT4 heldthat theproper conversionrate for thepurpose of reportingandpayingthe0hilippine incometa/ on the dollar earnings of petitioners are the rates prescribed under 3evenue 6emorandum CircularsNos. .". and )".. The refund claims were denied. (ss#es' () $hether or not petitionersuestion 9,. N 'ps filed their #T3 for 9,+ reporting a gross income 0%*.%!-..+, and a net income of 0.11%-*9.)) on which 01.%19,.)* was assessed after deducting 0)%-*,.,9 as withholding ta/. 'ps paid 1!+%!)..) on 4pril 9,. 6arch 9,9 N 'ps filed an amended #T3 for 9,+. They claimed a deduction of 0!*,%919.!) paidin 9,+ to &' govEt. 3espondents re>uested refund of !%)1..9* C#3 failed to answer the claim for refund% resps filed their petition with the Ta/ Court :.3. No. A"-+9 formerly CT4 case ,.*Odifferent caseGyearP is also a claim for refund in the amount of 0,*%!+9.** as alleged overpaid income ta/ for 9,,o 7actsQ #n 7eb 9,+ 'ps filed #T3 for 9,, R gross income of 0%...%!).+1 and net income of 0%*,!%,,*.+. 9,+ N sps filed an amended #T3 2ack in 9,,% sps filed with the &' #nternal 3evenue 4gent in 6anila their federal#T3 for the years 9).%9,",) on income from 0hil sources on a cash basis 9,- N 'ps amended their 0hil #T3 for 9,, to include the deductions of &' 7ederal income ta/es% interest accrued up to 6ay ,% 9,,% and e/change and bank charges CT4 case ,.* was filed :.3. No. !)1) formerly CT4 Case No. .-1% facts are similar but refer to AednickysE CT3 for 9,. filed in 7eb 9,-o #n 9,9 sps filed amended return for 9,. claiming deductions representing ta/es paid to&' :ovEt.S Tac /ourt held that the ta/es may be deducted because the 'ps did not signify in their #T3a desireto avail themselves of the benefits of paragraph 1(2) of 'ec. 1*C.00.N (SS45' $CN a citi5en of the &' residing in 0hils who derives income wholly from sources within the 0hils may deduct from his gross income the income ta/es he has paid to &' govEt for the ta/able yearT)5LD8RA,(.' 'CQ C#3 correct that the construction and wording of 'ec. 1*c()2 of the #nternal 3evenue 4ct shows the lawEs intent that the right to deduct income ta/es paid toforeign government from the ta/payerEs gross income is given only as an alternative or substitute to his right to claim a ta/ credit for such foreign income ta/eso (2) N #ncome% war"profits% and e/cess profits ta/es imposed by the authority of any foreign country? but this deduction shall be allowed in the case of a ta/payer who does not signify in his return his desire to have any e/tent the benefits of paragraph (1) of this subsection (relating to credit for foreign countries) 'o that unless the alien resident has a right to claim such ta/ credit if he so chooses% he is precluded from deducting the foreign income ta/es from his gross income. 7or it is obvious that in prescribing that such deduction shall be allowed in the case of a ta/payer who does not signify in his return his desire to have any e/tent benefits of paragraph 1% the statute assumes that the ta/payer in >uestion may signify his desire to claim a ta/ credit and waive the deduction? otherwise% the foreign ta/es would always be deductible and their mention inthe list on non"deductible items in 'ec. 1*c might as well have been omitted or at least e/pressly limited to ta/es on income from sources outside the 0hilippine #slands @ad the law intended that foreign income ta/es could be deducted from gross income in any event% regardless of the ta/payerEs right to claim a ta/ credit% it is the latter right that should be conditioned upon the ta/payerEs waiving the deduction No danger of double creditGta/ation.o Double ta/ation becomes obno/ious only where the ta/payer is ta/ed twice for the benefit of the same governmental entityo The 0hilippine government only receives the proceeds of one ta/o Justice and e>uity demand that the ta/ on the income should accrue to the benefit of the 0hilippineso 4ny relief from the alleged double ta/ation should come from the &' since the formerEs right to burden the ta/payer is solely predicated in is citi5enship% without contributing to the production of wealth that is being ta/edo To allow an alien resident to deduct from his gross income whatever ta/es he pays to his own government amounts to conferring on the latter the power to reduce the ta/ income of the 0hilippine government simply by increasing the ta/ rates on the alien resident.37 C(R v. (sa/ela C#lt#ral CorpGR 173%e/r#ar3 1, !!7 %a&ts' #sabelaCultural Corporation(#CC)% adomesticcorporationreceivedanassessmentnoticefor deficiencyincometa/ande/pandedwithholdingta/from2#3. #t arosefromthedisallowance of #CCEs claimed e/pense for professional and security services paid by #CC? aswell as the alleged understatement of interest income on the three promissory notes due from3ealty #nvestment #nc. The deficiency e/panded withholding ta/ was allegedly due to the failureof #CC to withhold L e"withholding ta/ on its claimed deduction for security services. #CC sought a reconsideration of the assessments. @aving received a final notice of assessment%it brought the case to CT4% which held that it is unappealable% since the finalnotice is not adecision. CT4Esruling was reversedbyC4%which wassustainedby'C% andcasewasremandedtoCT4. CT4 renderedadecisioninfavorof #CC. #t ruledthat thedeductionsforprofessional andsecurityserviceswereproperlyclaimed% it saidthat evenif serviceswererendered in 9-) or 9-,% the amount is not yet determined at that time. @ence it is a properdeduction in 9-+. #t likewise found that it is the 2#3 which overstate the interest income% whenit applied compounding absent any stipulation. 0etitioner appealed to C4% which affirmed CT4% hence the petition. (ss#e' $hether or not the e/penses for professional and security services are deductible. )el*' No. Cne of the re>uisites for the deductibility of ordinary and necessary e/penses is that it musthave been paid or incurred during the ta/able year. This re>uisite is dependent on the methodof accounting of the ta/payer. #n the case at bar% #CC is using the accrual method of accounting.@ence% underthismethod% ane/penseisrecogni5edwhenit isincurred. &ndera3evenue4udit 6emorandum% when the method of accounting is accrual% e/penses not being claimed asdeductions by a ta/payer in the current year when they are incurred cannot be claimed in thesucceeding year. The accrual of income and e/pense is permitted when the all"events test has been met. Thistestre>uiresQ ) fi/ingof aright toincomeor liabilitytopay? and!) theavailabilityof thereasonable accurate determination of such income or liability. The test does not demand thatthe amount of income or liability be known absolutely% only that a ta/payer has at its disposal theinformation necessary to compute the amount with reasonable accuracy. 7romthenatureof theclaimeddeductionsandthespanof timeduringwhichthefirmwasretained% #CC can be e/pected to have reasonably known the retainer fees charged by the firm.They cannot give as an e/cuse the delayed billing% since it could have in>uired into the amountof their obligation and reasonably determine the amount. 38 Coll v. )en*erson1 SCRA 649%AC,S'9 'ps. 4rthur @enderson and 6arie @enderson filed their annual income ta/ with the 2#3. 4rthur is president of 4merican #nternational &nderwriters for the 0hilippines% #nc.% which is a domestic corporation engaged in the business of general non"life insurance% and represents a group of 4merican insurance companies engaged in the business of general non"life insurance.U The 2#3 demanded payment for alleged deficiency ta/es. #n their computation% the 2#3 included as part of ta/able incomeQ ) 4rthurEs allowances for rental% residential e/penses% subsistence% water% electricity and telephone e/penses !) entrance fee to the 6arikina :un and Country Club which was paid by his employer for his account and 1) travelling allowance of his wifeU The ta/payers ;ustifications are as followsQ) as to allowances for rental and utilities% 4rthur did not receive money for the allowances. #nstead% the apartment is furnished and paid for by his employer"corporation (the mother company of 4merican #nternational)% for the employer corporationEs purposes. The spouses had no choice but to live in the e/pensive apartment% since the company used it to entertain guests% to accommodate officials% and to entertain customers. 4ccording to ta/payers% only 0 )%-** per year is the reasonable amount that the spouses would be spending on rental if they were not re>uired to live in those apartments. Thus% it is the amount they deem is sub;ect to ta/. The e/cess is to be treated as e/pense of the company.!) The entrance fee should not be considered income since it is an e/pense of his employer% and membership therein is merely incidental to his duties of increasing and sustaining the business of his employer.1) @is wife merely accompanied him to New Hork on a business trip as his secretary% and at the employer"corporationEs re>uest% for the wife to look at details of the plans of a building that his employer intended to construct. 'uch must not be considered ta/able income.U The Collector of #nternal 3evenue merely allowed the entrance fee as nonta/able. The rent e/pense andtravel e/penses were still held to be ta/able. The Court of Ta/ 4ppeals ruled in favor of the ta/payers% thatsuch e/penses must not be considered part of ta/able income. Aetters of the wife while in New Hork concerning the proposed building were presented as evidence.(SS45' 6+et+er or not t+e rental allo:an&es an* travel allo:an&es 2#rnis+e* an* 1iven /3t+e emplo3er-&orporation are part o2 ta;a/le in&omeuota was included in the sale. 2y virtue of the purchase% respondents owned one"third each of the undivided portion of the plantation. 4fter the purchase of the plantation% herein respondents took over the sugar cane farming on the plantation beginning with the cropyear 9)-"9)9. 7or the crop year 9)-" 9)9 the 'an Carlos 6illing Co.%Atd. credited the respondents with their shares in the gross sugar production.The respondents shared e>ually the e/penses of production% on the basis of their respectiveone"third undivided portions of the plantation. #n their individualincome ta/ returns for the year 9)9 the respondents included as part of their income their respective net profits derived from their individual sugar production from the 8@acienda 7ortuna%8 as herein"above stated.Cn July % 9)9% the respondents organi5ed themselves into a general co"partnership under the firm name 8@acienda 7ortuna8% for the 8production of sugar cane for conversion into sugar% palay and cornand such other products as may profitably be produced on said hacienda% which products shall be sold or otherwise disposed of for the purpose of reali5ing profit for the partner"ship.8 The articles of general co"partnership were registered in the commercial register of the officeof the 3egister of Deeds in 2acolod City% Negros Cccidental% on July )% 9)9. 0aragraph ) of thearticles of general partnership provides that the agreement shall have retroactive effect as of January% 9)9.(ss#e' $hether or not respondent operated the K@acienda 7ortunaM as partnership prior to the e/e"cution of articles of co"partnership.R#lin1' Hes. 'uffice it to say that the conclusion of the Court of Ta/ 4ppeals that the respondents operated the 8@acienda 7ortuna8 as a partnership prior to the e/ecution of the articles of general co"partnership is based on findings of fact% and $e find no reason in the record to disturb the findings of the ta/ court on this matter. Cn the contrary% the intention of the respondents to operate the 8@acienda 7ortuna8 as a partnership% before July % 9)9% is clearly shown in paragraph ) of the articles of generalco"partnership which provides that the partnership agreement 8shall be retroactive as of January % 9)9.8 40-asal v. C(RGR No. 78133October 18, 1988%AC,S'0etitioners bought two parcels of land and another 1 parcels the following year. The ! parcelswere sold in 9+- while the other 1 were sold in 9.*. 3eali5ing profits from the sale% petitionersfiled capital gains ta/. @owever% they were assessed with deficiency ta/ for corporate incometa/es.(SS45'$hether or not petitioners formed an unregistered partnership thereby assessed withcorporate income ta/.R4L(NG'2ythecontract of partnership% twoor morepersonsbindthemselvestocontributemoney% industryor propertytoacommonfundwiththeintentionof dividingprofitsamongthemselves. Thereis no evidence though% that petitioners entered into an agreement tocontribute 60# to a common fund and that they intend to divide profits among themselves. Thepetitionerspurchasedparcelsof landandbecameco"ownersthereof. Their transactionsofsellingthelotswereisolatedcases. Thecharacter of habitualitypeculiar tothebusinesstransactions for the purpose of gain was not present.Thesharingof returnsfoesnot initself establishapartnershipwhether or not thepersons sharing therein have a ;oint or common right or interest in the property. There must be aclear intent toformpartnership% thee/istenceof a;uridical personality different fromtheindividual partners% and the freedom of each party to transfer or assign the whole property.41./illos v. C(RGR 6$11$, 139 SCRA 436.&to/er 9, 19$5%a&ts' Cn 6arch !% 9.1 Jose Cbillos% 'r. bought two lots with areas of %!) and 9+1 s>uare meters of located at:reenhills% 'an Juan% 3i5al. The ne/t day he transferred his rights to his four children% the petitioners% to enablethem to build their residences. The Torrens titles issued to them showed that they were co"owners of the twolots.#n 9.)% or after having held the two lots for more than a year% the petitioners resold them to the $alled City'ecurities Corporation and Clga Cru5 Canada for the total sum of 011%*,*. They derived from the sale a totalprofit of 01)% 1).-- or 011%,-) for each of them. They treated the profit as a capital gain and paid an incometa/ on one"half thereof or of 0+%.9!.#n 4pril% 9-*% the Commissioner of #nternal 3evenue re>uired the four petitioners to paycorporate incometa/on the total profit of 01)%11+ in addition to individual income ta/ on their shares thereof. The petitionersare being held liable for deficiency income ta/es and penalties totalling 0!.%.-..+ on their profit of 01)%11+% in addition to the ta/ on capital gains already paid by them.The Commissioner acted on the theory that the four petitioners had formed an unregistered partnership or ;ointventure The petitioners contested the assessments. Two Judges of the Ta/ Court sustained the same. @ence% theinstant appeal.(ss#e' $hether or not the petitioners had indeed formed a partnership or ;oint venture and thus liable for corporate ta/.)el*' The 'upreme Court held that the petitioners should not be considered to have formed a partnership;ust becausethey allegedly contributed 0.-%.*-.! to buy the two lots% resold the same and divided the profit amongthemselves. To regard so would result in oppressive ta/ation and confirm the dictum that the power to ta/involves the power to destroy. That eventuality should be obviated.4s testified by Jose Cbillos% Jr.% they had no such intention. They were co"owners pure and simple. To considerthem as partners would obliterate the distinction between a co"ownership and a partnership. The petitionerswere not engaged in any ;oint venture by reason of that isolated transaction.S 4rticle .+9(1) of the Civil Code provides that 8the sharing of gross returns does not of itself establish a partnership% whether or not the persons sharing them have a ;oint or common right or interest in any property from which the returns are derived8. There must be an unmistakable intention to form a partnership or ;oint venture.42-+ile; 0inin1 v. C(RGR 14$1$7April 16, !!$%AC,S'0hile/ 6ining Corp. entered into an agreement with 2aguio :old 6ining Co. for the former to manageand operate the latterEs mining claim% known as the 'to. Nino 6ine. The partiesE agreement wasdenominated as K0ower of 4ttorneyM which provides inter aliaQ). $ithin three (1) years from date thereof% the 03#NC#04A (2aguio :old) shall make available tothe 64N4:=3' (0hile/ 6ining) up to =A=B=N 6#AA#CN 0='C' (0%***%***.**)% in such amounts asfrom time to time may be re>uired by the 64N4:=3' within the said 1"year period% for use in the64N4:=6=NT of the 'TC. N#NC 6#N=. The said =A=B=N 6#AA#CN 0='C' (0%***%***.**) shall bedeemed% for internal audit purposes% as the ownerEs account in the 'to. Nino 03CJ=CT. 4ny part of any income of the 03#NC#04A from the 'TC. N#NC 6#N=% which is left with the 'to. Nino 03CJ=CT%shall be added to such ownerEs account.,. $henever the 64N4:=3' shall deem it necessary and convenient in connection with the64N4:=6=NT of the 'TC. N#NC 6#N=% they may transfer their own funds or property to the 'to. Nino03CJ=CT% in accordance with the following arrangementsQ(a) The properties shall be appraised and%together with the cash% shall be carried by the 'to.Nino 03CJ=CT as a special fund to be known as the 64N4:=3'E account.(b) The total of the 64N4:=3'E account shall not e/ceed 0%***%***.**% e/cept with priorapproval of the 03#NC#04A? provided% however% that if the compensation of the 64N4:=3' as hereinprovided cannot be paid in cash from the 'to. Nino 03CJ=CT% the amount not so paid in cash shallbeadded to the 64N4:=3'E account.(c) The cash and property shall not thereafter be withdrawn from the 'to. Nino 03CJ=CT untiltermination of this 4gency.(d) The 64N4:=3'E account shall not accrue interest. 'ince it is the desire of the 03#NC#04A toe/tend to the 64N4:=3' the benefit of subse>uent appreciation of property% upon a pro;ectedtermination of this 4gency% the ratio which the 64N4:=3'E account has to the ownerEs account willbe determined% and the corresponding proportion of the entire assets of the 'TC. N#NC 6#N=%e/cluding the claims% shall be transferred to the 64N4:=3'% e/cept that such transferred assetsshall not include mine development% roads% buildings% and similar property which will be valueless% orof slight value% to the 64N4:=3'. The 64N4:=3' can% on the other hand% re>uire at their optionthat property originally transferred by them to the 'to. Nino 03CJ=CT be re"transferred to them. &ntilsuch assets are transferred to the 64N4:=3'% this 4gency shall remain subsisting./ / / /!. The compensation of the 64N4:=3 shall be fifty per cent (,*L) of the net profit of the 'to.Nino 03CJ=CT before income ta/. #t is understood that the 64N4:=3' shall pay income ta/ on theircompensation% while the 03#NC#04A shall pay income ta/ on the net profit of the 'to. Nino 03CJ=CTafter deduction therefrom of the 64N4:=3'E compensation.0hile/ 6ining made advances of cash and property in accordance with paragraph , of theagreement. @owever% the mine suffered continuing losses over the years which resulted to 0hile/6iningEs withdrawal as manager of the mine and in the eventual cessation of mine operations. The parties e/ecuted a KCompromise with Dation in 0aymentM wherein 2aguio :old admitted anindebtedness to petitioner in the amount of 0.9%19)%***.** and agreed to pay the same in threesegments by first assigning 2aguio :oldEs tangible assets to 0hile/ 6ining% transferring to the latter2aguio :oldEs e>uitable title in its 0hilodrill assets and finally settling the remaining liability throughproperties that 2aguio :old may ac>uire in the future. The parties e/ecuted an K4mendment to Compromise with Dation in 0aymentM where the partiesdetermined that 2aguio :oldEs indebtedness to petitioner actually amounted to 0!,9%1.%!),.**%which sum included liabilities of 2aguio :old to other creditors that petitioner had assumed asguarantor. These liabilities pertained to long"term loans amounting to &'(%***%***.** contracted by 2aguio :old from the 2ank of 4merica NT F '4 and Citibank N.4. This time% 2aguio :oldundertook to pay petitioner in two segments by first assigning its tangible assets for0!.%-1-%*,.** and then transferring its e>uitable title in its 0hilodrill assets for 0+%1*!%)!+.**. The parties then ascertained that 2aguio :old had a remaining outstanding indebtedness topetitioner in the amount of 0)%99+%.+-.**.0hile/ 6ining wrote off in its 9-! books of account the remaining outstanding indebtedness of 2aguio :old by charging 0!%1+%***.** to allowances and reserves that were set up in 9- and0!%-+*%.+-.** to the 9-! operations.#n its 9-! annual income ta/ return% 0hile/ 6ining deducted from its gross income the amount of 0!%1+%***.** as Kloss on settlement of receivables from 2aguio :old against reserves andallowances.M @owever% the 2#3 disallowed the amount as deduction for bad debt and assessedpetitioner a deficiency income ta/ of 0+!%-%+.19. 0hile/ 6ining protested before the 2#3 arguingthat the deduction must be allowed since all re>uisites for a bad debt deduction were satisfied% towitQ (a) there was a valid and e/isting debt? (b) the debt was ascertained to be worthless? and (c) itwas charged off within the ta/able year when it was determined to be worthless. 2#3 deniedpetitionerEs protest. #t held that the alleged debt was not ascertained to be worthless since 2aguio:old remained e/isting and had not filed a petition for bankruptcy? and that the deduction did notconsist of a valid and subsisting debt considering that% under the management contract% petitionerwas to be paid ,*L of the pro;ectEs net profit.(SS45' $CN the parties entered into a contract of agency coupled with an interest which is notrevocable at will)5LD' No. 4n e/amination of the K0ower of 4ttorneyM reveals that a partnership or ;oint venture wasindeed intended by the parties.#n an agency coupled with interest% it is the agency that cannot be revoked or withdrawn by theprincipal due to an interest of a third party that depends upon it% or the mutual interest of bothprincipal and agent. #n this case% the non"revocation or non"withdrawal under paragraph ,(c) appliesto the advances made by petitioner who is supposedly the agent and not the principal under thecontract. Thus% it cannot be inferred from the stipulation that the partiesE relation under theagreement is one of agency coupled with an interestand not a partnership.Neither can paragraph + of the agreement be taken as an indication that the relationship of theparties was one of agency and not a partnership. 4lthough the said provision states that Kthis4gency shall be irrevocable while any obligation of the 03#NC#04A in favor of the 64N4:=3' isoutstanding% inclusive of the 64N4:=3'E account%M it does not necessarily follow that the partiesentered into an agency contract coupled with an interest that cannot be withdrawn by 2aguio :old. The main ob;ect of the K0ower of 4ttorneyM was not to confer a power in favor of petitioner tocontract with third persons on behalf of 2aguio :old but to create a business relationship betweenpetitioner and 2aguio :old% in which the former was to manage and operate the latterEs minethrough the partiesE mutual contribution of material resources and industry. The essence of anagency% even one that is coupled with interest% is the agentEs ability to represent his principal andbring about business relations between the latter and third persons. The strongest indication that petitioner was a partner in the 'to. Nino 6ine is the fact that it wouldreceive ,*L of the net profits as KcompensationM under paragraph ! of the agreement. Theentirety of the partiesEcontractual stipulations simply leads to no other conclusion than thatpetitionerEs KcompensationM is actually its share in the income of the ;oint venture. 4rticle .+9 ()) of the Civil Code e/plicitly provides that the Kreceipt by a person of a share in the profits of a businessis prima facie evidence that he is a partner in the business.43A/ra =alle3 Colle1e, (n&. v. A>#inoG.R. No. L-39!$6% 16 SCRA 1!6"#ne 15, 19$$%a&ts' 0etitioner% an educational corporation and institution of higher learning duly incorporated withthe 'ecurities and =/change Commission in 9)-% filed a complaint to annul and declare void the KNoticeof 'ei5ureE and the KNotice of 'aleM of its lot and building located at 2angued% 4bra% for non"payment ofreal estateta/es andpenaltiesamountingto0,%)*.1. 'aidKNoticeof 'ei5ureM byrespondents6unicipalTreasurer and 0rovincialTreasurer% defendants below% was issued for the satisfaction of thesaid ta/es thereon.The parties entered into a stipulation of facts adopted and embodied by the trial court in its >uestioneddecision. The trial court ruled for the government% holding that the second floor of the building is beingusedbythedirectorforresidential purposesandthat thegroundfloorusedandrentedbyNorthern6arketing Corporation% a commercial establishment% and thus the property is not being used e/clusivelyforeducational purposes. #nsteadofperfectinganappeal% petitioneravailedoftheinstant petitionforreview on certiorari with prayer for preliminary in;unction before the 'upreme Court% by filing said petitionon . 4ugust 9.).(ss#e' whether or not the lot and building are used e/clusively for educational purposes)el*''ection!!% paragraph1%4rticleB#% of thethen91,0hilippineConstitution% e/presslygrantse/emption from realty ta/es for cemeteries% churches and parsonages or convents appurtenant thereto%andall lands% buildings% andimprovementsusede/clusivelyfor religious% charitableor educationalpurposes. 3easonable emphasis has always been made that the e/emption e/tends to facilities whichare incidental to and reasonably necessary for the accomplishment of the main purposes. The use of theschool building or lot for commercial purposes is neither contemplated by law% nor by ;urisprudence. #n thecase at bar% the lease of the first floor of the building to the Northern 6arketing Corporation cannot by anystretch of the imagination be considered incidentalto the purpose of education. The test of e/emptionfrom ta/ation is the use of the property for purposes mentioned in the Constitution.The decision of the C7# 4bra (2ranch #) is affirmed sub;ect to the modification that half of the assessed ta/be returned to the petitioner. The modification is derived from the fact that the ground floor is being usedfor commercial purposes (leased) and the second floor being used as incidental to education (residenceof the director).44N.=. Ree*eri2 Amster*am v. C(RGR 46!9"#ne 3, 19$$%AC,S'U 2oth vessels of petitioner N.B. 3eederi; K4msterdamM called on 0hilippine ports to load cargoes for foreign destinations.U The freight fees for these transactions were paid in abroad. #n these two transactions% petition 3oyal #nterocean Aines acted as husbanding agent for a fee or commission on said vessels. No income ta/ has been paid by K4msterdamM on the freight receipts.U 4s a result% Commissioner of #nternal 3evenue filed the corresponding income ta/ returns for the petitioner. Commissioner assessed petitioner for deficiency of income ta/% as a non"resident foreign corporation NCT engaged in trade or business.U Cn the assumption that the said petitioner is a foreign corporation engaged in trade or business in the 0hilippines% petitioner 3oyal #nterocean Aines filed an income ta/ return of the aforementioned vessels and paid the ta/ in pursuant to their supposed classification.U Cn the same date% petitioner 3oyal #nterocean Aines% as the husbanding agent of K4msterdamM% filed a written protest against the abovementioned assessment made by the respondent Commissioner. The protest was denied.U Cn appeal% CT4 modified the assessment by eliminating the ,*L fraud compromise penalties imposed upon petitioners. 0etitioner still was not satisfied and decided to appeal to the 'C.(SS45' 6+et+er or not N.=. Ree*eri? @Amster*amA s+o#l* /e ta;e* as a 2orei1n &orporation not en1a1e* in tra*e or /#siness in t+e -+ilippinesuivalent to at least!*percentagepoints sparedor waived as otherwise consideredor deemedpaidbythe:overnment. @erein% the claimant failed to show or ;ustify the ta/ return of the disputed ,L asit failed to show the actual amount credited by never be allowed to ;eopardi5e the governmentEsfinancial position. The submission of the Commissioner that 06C 0hilippines is but awithholdingagent of thegovernment andthereforecannot claimreimbursement of allegedoverpaid ta/es is completely meritorious. The real party in interest is 06C"&'4% which shouldprove that it is entitled under the &' Ta/ Code to a &' 7oreign Ta/ Credit e>uivalent to at least!*percentagepoints sparedor waived as otherwise consideredor deemedpaidbythe:overnment. @erein% the claimant failed to show or ;ustify the ta/ return of the disputed ,L asit failed to show the actual amount credited by the &' :overnment against the income ta/ duefrom06C"&'4 onthedividendsreceivedfrom06C0hilippines? topresent theincometa/return of 06C"&'4 for 9., when the dividends were received? and to submit dulyauthenticated document showing that the &' government credited teh !*L ta/ deemed paid inthe0hilippines. The&':overnment against theincometa/duefrom06C"&'4onthedividendsreceivedfrom06C0hilippines? topresent theincometa/returnof 06C"&'4 for9., when the dividends were received? and to submit duly authenticated document showingthat the &' government credited teh !*L ta/ deemed paid in the 0hilippines.51C3nami* -+ils (n&. v. CAG.R. No. 108067January 20, 2000%AC,S'0etitioner% Cyanamid 0hilippines% #nc.% a corporation organi5ed under 0hilippine laws% is a whollyownedsubsidiary of 4mericanCyanamidCo. basedin6aine% &'4. #t isengagedinthemanufactureof pharmaceutical productsandchemicals% awholesaler of importedfinishedgoods% and an importerGindentor. Cn 7ebruary .% 9-,% the C#3 sent an assessment letter topetitioner anddemandedthepayment of deficiency incometa/ of onehundrednineteenthousandeight hundredseventeen(09%-..**) pesos for ta/able year 9-. 0etitionerclaimed that C#3Es assessment representing the !,L surta/ on its accumulated earnings for theyear 9- had no legal basis. @ence the petition. (SS45'$GN 0=T#T#CN=3 #' A#42A= 7C3 T@= 4CC&6&A4T=D =43N#N:' T4J 7C3 T@=H=43 9-)5LD'The Ta/Courtopted to determinetheworkingcapital sufficiency by using the ratio betweencurrent assets to current liabilities. The working capital needs of a business depend upon thenature of the business% its credit policies%the amount of inventories% the rate of turnover% theamount of accounts receivable% the collection rate% the availability of credit to the business% andsimilar factors. 0etitioner% by adhering to the 82ardahl8 formula% failed to impress the ta/ courtwith the re>uired definiteness envisioned by the statute. $e agree with the ta/ court that theburden of proof to establish that the profits accumulated were not beyond the reasonable needsof the company% remained on the ta/payer. $ith petitionerEs failure to prove the C#3 incorrect%clearly and conclusively% this Court is constrained to uphold the correctness of ta/ courtEs rulingas affirmed by the Court of 4ppeals.52E0CA, C(R v. CA:.3. No. !)*)1Cctober )% 99-%a&ts' The main >uestion in this case isQ Kis the income derived from rentals of real property owned byHoung6enEsChristian4ssociationof the0hilippines(H6C4) NestablishedasKawelfare%educational and charitable non"profit corporationM N sub;ect to income ta/ under the N#3C andthe ConstitutionT #n 9-*% H6C4 earned an income of 0+.+%-!9 from leasing out a portion of itspremises to small shop owners% like restaurants and canteen operators and 0))k form parkingfees. (ss#e' #s the rental income of the H6C4 ta/ableT )el*' Hes. The e/emption claimed by the H6C4 is e/pressly disallowed by the very wording of thelast paragraph of then 'ec. !. of the N#3C? court is duty"bound to abide strictly by its literalmeaningandtorefrainfromresortingtoanyconvolutedattempt at construction. Thesaidprovision mandates that the income of e/empt organi5ations (such as H6C4) from any of theirproperties% real or personal% be sub;ect to the ta/ imposed by the same Code. 0rivaterespondent is e/empt from the payment of property ta/% but nit income ta/ on rentals from itsproperty.53-LD, v. C(R :3 ,.!+)January 1% !**-%AC,S'0ADT terminated and compensated affected employees in compliance with labor lawre>uirements. #t deducted from separation pay withholding ta/es and remitted the same to 2#3.#n 99.% it filed a claim for ta/ refund and CT4 contended that petitioner failed to show proof ofpayment of separationpayandremittanceof theallegedwithheldta/es. C4 dismissedthesame and 0ADT assailed the decision arguing against the need for proof that the employeesreceived their separation pay and proffers actually received by terminated employees.(SS45' $hether or not the withholding ta/es remitted to the 2#3 should be refunded for havingbeen erroneously withheld and paid to the latter.)5LD'Ta/refunds% liketa/e/emptions% areconsideredstrictlyagainst theta/payer andliberally in favor of the ta/ing authority% and the ta/payer bears the burden of establishing thefactual basis of his claim for a refund. 4 ta/payer must do two things to be able to successfullymake a claim for ta/ refundQ a) declare the income payments it received as part of its grossincomeandb)establishthefact of withholding.4t all events% theallegednewlydiscoveredevidence that 0ADT seeks to offer does not suffice to established its claim for refund as it wouldstill have to comply with 3evenue 3egulation +"-, by proving that the redundant employees onwhose behalf it filed the claim for refund% declared the separation pay received as part of theirgross income. The same 3evenue 3egulation re>uired that the facts of withholding isestablishedbyacopyof thestatement dulyissuedbythepayor tothepayeeshowingtheamount paid and the amount of ta/ withhold therefrom.54Atlas Consoli*ate* 0inin1 v. C(R:3 Nos. )*) F )-.+1June -% !**.%AC,S'0etitionercorporation% aB4T"registeredta/payerengagedinmining% production% andsaleofvarious mineral products% filed claims with the 2#3 for refundGcredit of input B4T on its purchasesof capital goods and on its 5ero"rated sales in the ta/able >uarters of the years 99* and 99!.2#3 did not immediately act on the matter prompting the petitioner to file a petition for reviewbefore the CT4. The latter denied the claims on the grounds that for 5ero"rating to apply% .*L ofthe companyuarterly B4T return% and that sales to 04'43 and 0@#A0C' inside the =0X4 areta/edas e/portsbecausethesee/port processing 5ones areto be managedas aseparatecustomsterritoryfromtherest of the0hilippines% andthus% forta/purposes% areeffectivelyconsidered as foreign territory% it still denies the claims of petitioner corporation for refund of itsinput B4T on its purchases of capital goods and effectively 5ero"rated sales during the periodclaimedfornot beingestablishedandsubstantiatedbyappropriateandsufficient evidence. Ta/ refunds are in the nature of ta/ e/emptions.#t is regarded as in derogation of the sovereignauthority% and should be construed in strictissimi ;uris against the person or entity claiming thee/emption.The ta/payer who claims for e/emption must ;ustify his claim by the clearest grantof organic or statute law and should not be permitted to stand on vague implications. 55A1#inal*o v. C(R:.3. No. A"!9.9* 7ebruary !,% 9-!%a&ts' 4guinaldo#ndustriesisengagedinthemanufactureof fishingnets(ata/e/empt industry)%which is handled by its 7ish Nets Division. #t is also engaged in the manufacture of furniturewhich isoperated byits7urnitureDivision.=ach divisionis provided withseparate booksofaccounts. Theincomefromthe7ishNetsDivision% miscellaneousincomeof the7ishNetsDivision% and and the income from the 7urniture Division are computed individually. 0etitioner ac>uired a parcelof land in 6untinlupa 3i5alas site for its fishing net factory. Thetransactionwasenteredinthebooksof the7ishNetsDivision. Thecompanythenfoundanother parcel of landin6arikina@eights% whichwas moresuitable. Theythensoldthe6untinlupa property and the profit derived from the sale was entered in the books of the 7ishNets Division as miscellaneous income to separate it from its ta/ e/empt income. CT4 imposed a ,L surcharge and L monthly interest for the deficiency assessment. 0etitionerthen stressed that the profit derived from the sale of the land is not ta/able because the 7ishNets Div en;oys ta/ e/emption under 34 9*. (ss#eQ $hether petitioner is liable for surcharge and interest for late payment. )el*Q H='. #nterest and surcharges on deficiency ta/es are imposable upon failure of the ta/payer topaytheta/onthedatefi/edinthelawfor thepayment thereof% whichwas% under theunamended 'ection , of the Ta/ Code% the ,th day of the ,th month following the close of thefiscal year in the case of ta/payers whose ta/ returns were made on the basis of fiscal years. 4deficiency ta/ indicates non"payment of the correct ta/% and such deficiency e/ists not only fromthe assessment thereof but from the very time the ta/payer failed to pay the correct amount ofta/ when it should have been paid and the imposition thereof is mandatory even in the absenceof fraud or willful failure to pay the ta/ is full. 56C(R v. (sa/ela C#lt#ral Corp. Frepeate*GGR 173%e/r#ar3 1, !!7 %a&ts' #sabelaCultural Corporation(#CC)% adomesticcorporationreceivedanassessmentnoticefor deficiencyincometa/ande/pandedwithholdingta/from2#3. #t arosefromthedisallowance of #CCEs claimed e/pense for professional and security services paid by #CC? aswell as the alleged understatement of interest income on the three promissory notes due from3ealty #nvestment #nc. The deficiency e/panded withholding ta/ was allegedly due to the failureof #CC to withhold L e"withholding ta/ on its claimed deduction for security services. #CC sought a reconsideration of the assessments. @aving received a final notice of assessment%it brought the case to CT4% which held that it is unappealable% since the finalnotice is not adecision. CT4Esruling was reversedbyC4%which wassustainedby'C% andcasewasremandedtoCT4. CT4 renderedadecisioninfavorof #CC. #t ruledthat thedeductionsforprofessional andsecurityserviceswereproperlyclaimed% it saidthat evenif serviceswererendered in 9-) or 9-,% the amount is not yet determined at that time. @ence it is a properdeduction in 9-+. #t likewise found that it is the 2#3 which overstate the interest income% whenit applied compounding absent any stipulation. 0etitioner appealed to C4% which affirmed CT4% hence the petition. (ss#e' $hether or not the e/penses for professional and security services are deductible. )el*' No. Cne of the re>uisites for the deductibility of ordinary and necessary e/penses is that it musthave been paid or incurred during the ta/able year. This re>uisite is dependent on the methodof accounting of the ta/payer. #n the case at bar% #CC is using the accrual method of accounting.@ence% underthismethod% ane/penseisrecogni5edwhenit isincurred. &ndera3evenue4udit 6emorandum% when the method of accounting is accrual% e/penses not being claimed asdeductions by a ta/payer in the current year when they are incurred cannot be claimed in thesucceeding year. The accrual of income and e/pense is permitted when the all"events test has been met. Thistestre>uiresQ ) fi/ingof aright toincomeor liabilitytopay? and!) theavailabilityof thereasonable accurate determination of such income or liability. The test does not demand thatthe amount of income or liability be known absolutely% only that a ta/payer has at its disposal theinformation necessary to compute the amount with reasonable accuracy. 7romthenatureof theclaimeddeductionsandthespanof timeduringwhichthefirmwasretained% #CC can be e/pected to have reasonably known the retainer fees charged by the firm.They cannot give as an e/cuse the delayed billing% since it could have in>uired into the amountof their obligation and reasonably determine the amount. 575sso Stan*ar* 5astern v. C(R :3 !-,*-"9July .% 9-9%a&ts'=''C deducted from its gross income for 9,9% as part of its ordinary and necessary businesse/penses%the amount it had spent for drilling and e/ploration of its petroleum conscessions.The Commissioner disallowed the claim on the ground that the e/penses should be capitali5edand might be written off as a loss only when a Kdry holeM should result. @ence% =''C filed anamended return where it asked for the refund of 01!1%!.* by reason of its abandonment% as dryholes% of several of its oil wells. #t also claimed as ordinary and necessary e/penses in the samereturn amount representing margin fees it had paid to the Central 2ank on its profit remittancesto its New Hork Cffice.(ss#e'$hether the marginfeesmay be considered ordinary and necessary e/penses whenpaid.)el*'7or anitemtobedeductibleasabusinesse/pense% thee/pensemust ebeordinaryandnecessary? it must be paid or incurred within the ta/able year? and it must be paid or incurred incarrying on a trade or business. #n addition% the ta/payer must substantially prove by evidenceor records the deductions claimed under law% otherwise% the same will be disallowed. There hasbeen noattempt todefine Kordinary and necessaryM with precision. @owever% as guidingprinciple in the proper ad;udication of conflicting claims% an e/penses is considered necessarywhere the e/penditure is appropriate and helpdul in the development of the ta/payerEs business.#tisordinarywhen it connotesapaymentwhich is normalin relationtothe business oftheta/payer andthesurroundingcircumstances.4ssumingthat thee/penditureisordinaryandnecessaryintheoperationof theta/payerEsbusiness? thee/penditure% tobeanallowablededuction as a business e/pense% must be determined from the nature of the e/penditure itself%and on the e/tent and permanency of the work accomplished by the e/penditure. @erein% =''Chas not shownthat theremittancetotheheadofficeof part of itsprofitswas madeinfurtheranceof itsowntradeor business. Thepetitioner merelypresumedthat all corporatee/penses are necessary and appropriate in the absence of a showing that they are illegalorultra vires? which is erroneous. Claims for deductions are a matter of legislative grace and donot turn on mere e>uitable considerations.58%5C,C v. CA, C,A B C(R :3 No. !91*December 9% !**,%AC,S'0etitioner is a domestic banking corporation duly organi5ed and e/isting under and byvirtue of 0hilippine laws. #n the early part of 99!% the Cavite Development 2ank OCD2P%also a domestic banking corporation% was merged with 0etitioner with the latter as itssurviving entity OunderP the merger. 0etitioner being the surviving entityO% itP ac>uired allOtheP assetsof CD2. Duringtheperiodfrom99*to99% CD2soldsomeac>uiredassetsinthecourseof whichit allegedlywithheldthecreditableta/fromthesalesproceeds which amounted to 0.,,%.,.**.

Thus% petitioner% being the surviving entity of the merger% filed this 0etition for 3eviewafter its administrative claim for refund was not acted upon.(SS45' $hether petitioner adduced sufficient evidence to prove its entitlement to a refund)5LD'4 ta/payer must thus do two things to be able to successfully make a claim for the ta/ refundQ(a) declare the income payments it received as part of its gross income and (b) establish thefact of withholding. 0etitioner relies heavily on the confirmation receipts with the correspondingofficial receipts andpayment orders tosupport its case. 'tanding alone% however% thesedocumentsonlyestablishthat CD2withheldcertainamountsin99*and99. #t doesnotfollowthat the payments reflected in the confirmation receipts relate to the creditablewithholdingta/esarisingfromthesaleof theac>uiredproperties. Theclaimthat CD2hade/cess creditable withholding ta/es can only be upheld if it were clearly and positively shownthat the amounts on the various confirmation receipts were the amounts withheld by virtue of thesale of the ac>uired assets. 59C(R v. General %oo*sG.R. No. 143672April 24, 2003 %AC,S'The records revealthat%on June)%9-,% respondent corporation% whichis engaged in themanufacture of beverages such as KTang%M KCalumetM and KDool"4id%M filed its income ta/ returnfor the fiscal year ending 7ebruary !-% 9-,.#n said ta/ return% respondent corporation claimedas deduction% among other business e/penses% the amount of 09%)+%!)+ for media advertisingfor KTang.MCn 6ay 1% 9--% the Commissioner disallowed ,*L or 0)%.1*%+!1 of the deduction claimed byrespondent corporation. Conse>uently% respondent corporation was assessed deficiency incometa/esin the amountof0!%+1,% ).)!.The latter filed a motion for reconsideration butthesame was denied.Cn 'eptember !9% 9-9% respondent corporationappealed to the Court of Ta/ 4ppeals but theappeal was dismissed(SS45'$GNthe sub;ect media advertising e/pense for KTangM incurred by respondentcorporation was an ordinary and necessary e/pense fully deductible under the National #nternal3evenue Code (N#3C) )5LD'$e find the sub;ect e/pense for the advertisement of a single product to be inordinately large.Therefore% evenif it isnecessary%it cannot beconsideredanordinarye/pensedeductibleunder then 'ection !9 (a) () (4) of the N#3C.4ccordingly% we find that the Court of 4ppeals committed reversible error when it declared thesub;ect media advertising e/pense to be deductible as an ordinary and necessary e/pense onthegroundthat Kit hasnot beenestablishedthat theitembeingclaimedasdeductionise/cessive.M #t is not incumbent upon the ta/ing authority to prove that the amount of items beingclaimed is unreasonable. The burden of proof to establish the validity of claimed deductions ison the ta/payer.!O)P #n the present case% that burden was not discharged satisfactorily.60C(R v. Le*ni&73:3 A"-+9% A"-!-+% A"!)1)July 1% 9+)2%a&ts''pouses B= and 6aria Balero Aednicky are 4merican citi5ens residing in the 0hilippines% andhave derived all their income from 0hilippine sources since 9).. #n 9,,% the spouses filed withthe &' #nternal 3evenue agent in 6anila their 7ederal income ta/ return for 9).% 9, to 9,)onincomefrom0hilippinesources. 7rom9,+to9,-% theyfiledtheirdomesicincometa/returns in compliance with local laws. They amended their ta/ returns in 9,9 to include theirta/es paid to the &' 7ederal:overnment% interests% and e/change and bank charges. Theyfiled their claims for refund.(ss#e'$hether income ta/ paid to foreign governments can be deducted from the gross income or asa ta/ credit.)el*'The lawEs intent is that the right to deduct income ta/es paid to foreign government from theta/payerEs gross income is given only as an alternative or substitute to his right to claim a ta/credit for sich foreign income ta/es? so that unless the alien resident has a right to claim suchta/ credit if he so chooses% he is precluded from deducting the foreign income ta/es from hisgross income. The prupose of the law is to prevent the ta/payer from claiming twice the benefitsof his payment of foreign ta/es% by deduction from gross income and by ta/ credit. To allow analien resident to deduct from his gross income whatever ta/es he pays to his own governmentamounts to confer on the latter power to reduce the ta/ income of the 0hilippine :overnment.'uch result is incompatible with the status of the 0hilippines as an independent and sovereignstate. 4ny relief from the alleged double ta/ation should come from the &nited 'tates% since itsright to burden the ta/payer is solely predicated on the ta/payerEs citi5enship% withoutcontributing to the production of the wealth that is being ta/ed.61C(R v. Central L#Hon Dr#1 Corp.:.3. No. )-,!June !+% !**+%AC,S' 3espondentis a domestic corporation primarily engaged in retailing of medicines andother pharmaceutical products. #n 99+% it operated si/ (+) drugstores under thebusiness name and style V6ercury Drug.E 7rom January to December 99+% respondentgranted twenty (!*L) percent sales discount to >ualified senior citi5ens on theirpurchases of medicines pursuant to 3epublic 4ct No. O3.4.P .)1! and its #mplementing3ules and 3egulations.7or the said period% the amount allegedly representing the !*Lsales discount granted by respondent to >ualified senior citi5ens totaled 09*)%.+9.**.Cn 4pril ,% 99.% respondent filed its 4nnual #ncome Ta/ 3eturn for ta/able year 99+declaring therein that it incurred net losses from its operations.Cn January +% 99-% respondent filed with petitioner a claim for ta/ refundGcredit in theamount of09*)%.+9.**allegedly arising fromthe!*Lsales discount grantedbyrespondent to >ualified senior citi5ens in compliance with O3.4.P .)1!.&nable to obtainaffirmative response from petitioner% respondent elevated its claim to the Court of Ta/4ppeals O(CT4 or Ta/ Court)P via a 0etition for 3eview.(SS45' $hether respondent may claim the !*L sales discount as a ta/ credit instead ofas a deduction from gross income or gross sales)5LD''ection )a) of 34 .)1! grants to senior citi5ens the privilege of obtaining a !* percentdiscounton their purchase of medicine from any private establishmentin the country.The latter may then claim the cost of the discount as a tax credit.2ut can such credit beclaimed% even though an establishment operates at a loss. 'ections !.iand ) of 3evenue 3egulations No. (33) !"9) define tax creditas the !*percent discount deductible from gross incomefor income taxpurposes% or from grosssales for B4T or other percentage ta/ purposes.#n effect% the tax credit benefit under 34.)1! is related to a sales discount.This contrived definition is improper% considering thatthe latter has to be deducted from gross sales in order to compute the gross income inthe income statementand cannot be deducted again% even for purposes of computingthe income tax.62-+ile; 0inin1 v. C(R :3 No. !,.*)4ugust !-% 99-%AC,S' 0etitioner 0hile/ 6ining Corp. assails the decision of the Court of 4ppeals affirming the Court ofTa/ 4ppeals decision ordering it to pay the amount of 0*.. 6 as e/cise ta/ liability for theperiod from the !nd >uarter of 99 to the !nd >uarter of 99! plus !*L annual interest from99) until fully paid pursuant to 'ections !)- and !)9 of the Ta/ Code of 9... 0hile/ protestedthe demand for paymentoftheta/ liabilities stating thatit has pending claims for B4T inputcreditGrefund for theta/es it paid for theyears 9-9to99 in theamountof 0!* 6 plusinterest. Therefore these claims for ta/ creditGrefund should be applied against the ta/ liabilities.(SS45' Can there be an off"setting between the ta/ liabilities vis"a"vis claims of ta/ refund of thepetitionerT)5LD'No. 0hile/