G.R. No. L-12798. May 30, 1960
VISAYAN CEBU TERMINAL CO., INC., PETITIONER AND APPELLANT, VS. COLLECTOR OF INTERNAL REVENUE, RESPONDENT AND APPELLEE.
CONCEPCION, J.:
Visayan Cebu Terminal Co., Inc., seeks a review of the decision of the
Court of Tax Appeals in the above entitled case. The dispositive part
of said decision reads as follows:
“For the
Foregoing Considerations, the decision appealed from is hereby
modified, and appellant is hereby ordered to pay the Collector of
Internal Revenue, within a reasonable period to be fixed by the latter,
the sum of P15,517.00, computed below:
Net income per return Disallowances: Salaries Representation Expenses: As claimed by appellant Allowed Miscellaneous expenses Net income subject to tax Tax due on P113,720.33: P100,000.00 at 20% P13,720.00 at 28% Less tax previously assessed and paid Deficiency tax With costs against appellant.”
The facts, which are not disputed, are set forth in the aforementioned decision, from which we quote:
“The
appellant, Visayan Cebu Terminal Co. Inc., is a corporation organized
for the purpose of handling arrastre operations in the port of Cebu. It
was awarded the contract for the said arrastre operations by the Bureau
of Customs, pursuant to Act No. 3002, as amended.“On March 1, 1952, appellant filed its income tax return
for 1951 reporting a gross income of P420,633.40 and claimed deductions
amounting to P379,036.95, leaving a net income of P41,596.45 on which
it paid income tax in the sum of P8,319.29. The sum of P379,036.95
claimed as deductions consisted of various items, among which were the
following:
Salaries— Salary and bonus of Juan Eugenio Lo Salary of Felix Go Chan Salary of Teotimo Tiu Tiam Representation expenses Miscellaneous expenses Christmas bonus given to various persons Tips to ships’ officers Total “The
said sums of P2,375.00, P75,855.88 and P6,300.00, representing
salaries, representation expenses and miscellaneous expenses,
respectively, or a total of P84.530.88, were disallowed by the
Collector of Internal Revenue, thus giving rise to a deficiency
assessment of P18,991.00.
* * * * * * *
“Upon
request for reconsideration, the Collector modified the deficiency
income tax assessment by allowing the deduction from appellant’s gross
income of the salary of Juan Eugenio Lo in the sum of P1,875.00 and
miscellaneous expenses amounting to P532.00, at the same time
maintaining the disallowance of the full amount of P75,855.88 as
representation expenses. The revised deficiency assessment is itemized
in the letter of the Collector dated March 26, 1955, and is reproduced
below:
Net income as per return Disallowances: per investigation: salaries of officers allowed per reaudit per investigation and reaudit, representation expenses per investigation, miscellaneous expenses allowed per reaudit Net income subject to tax per reaudit Tax due on P123,720.33: P100,000.00 at 20% P23,720.00 at 28% Less tax previously assessed and paid Deficiency tax Add: 5% surcharge 1% monthly interest from 5|31|53 to 4|30|55 Compromise for late payment Total amount due on April 30, 1955 “Appellant
has agreed to the disallowance of the sum P500.00 representing the
salaries of Felix Go Chan and Teotimo Tiu Tiam at P250.00 each, and the
sum of P5,768.00, representing miscellaneous expenses. The only issue
raised in this appeal relates to the deductibility of the sum of
P75,855.88 as representation expenses.”
Passing upon said issue, which is, also, the only one raised in this
appeal, the lower court held 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 National Internal Revenue 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”, this test being “inherent in the phase
‘ordinary and necessary’ “; that some of the representation
expenses claimed by appellant had been evidenced by vouchers or chits,
but others were reimbursed “without presentation of supporting papers;
that the aforementioned vouchers or chits were allegedly “destroyed
when the house of Buenaventura M. Veloso, treasurer of appellant, where
the records were kept was burned”; that, accordingly, “it is not
possible to determine the actual amount covered by supporting papers
and the amount without supporting papers”; that the court should,
therefore, “determine from all available data the amount properly
deductible as representation expenses”; that “during the period of four
(4) years from 1949 to 1952, appellant had gross income, net profits
and claimed representation expenses as follows:
Expenses
and
that “from the above figures, we may infer that the sum of P10,000 may
be considered reasonably necessary for entertainment expenses of
appellant in 1951, it having claimed a little over the amount in 1950,
when its gross income was more than its gross income in 1951 and 1952”,
and because “it allegedly spent for entertainment purposes in 1948 the
sum of P500.00 only.” Hence, the lower court modified the assessment of
the taxes due from appellant herein the manner set forth in the
beginning of this decision.
In its brief, appellant does not
assail any of the premises upon which the aforementioned conclusion of
the lower court was predicated. What is more, it relied upon, and,
even, quoted some of the views expressed in the decision appealed from.
Appellant, however, maintains that said court had acted arbitrarily in
considering the representation expenses in 1950, not those incurred in
1949 and 1952, in fixing the amount deductible in 1951. This pretense
is clearly untenable. It appears: (a) that part of the alleged
representation expenses had never had any supporting paper; (b) that
the vouchers and chits covering other representation expenses had been
allegedly destroyed; (c) that there is no documentary evidence on
record of any of the representation expenses in question; (d) that no
testimonial evidence has been introduced on any specific item of said
alleged expenses; (e) that there is no more than oral proof to the
effect that payments had been made to appellant’s officers for
representation expenses allegedly made by the latter and about the
general nature of such alleged expenses; (f) that the gross income in
1950 exceeded the gross income in 1951 and 1952, and (g) that the
representation expenses in 1948 amounted to P500 only. Under these
circumstances, the lower court was fully justified in concluding that
the representation expenses in 1951 should be slightly less than those
incurred in 1950.
Upon the other hand, appellant has not
even tried to show why its representation expenses in 1951 should be
deemed bigger than the amount allowed by the lower court. In fact, the
latter had been patently fair and reasonable, if not rather liberal, in
allowing appellant to deduct P10,000.00 as representation expenses for
1951, there being absolutely no concrete evidence of the sums then
actually spent for purposes of representation. It may not be amiss to
note that the explanation to the effect that the supporting paper of
some of those expenses had been destroyed when the house of the
treasurer was burned, can hardly be regarded as satisfactory, for
appellant’s records are supposed to be kept in its offices, not in the
residence of one of its officers.
Being in accordance with
the facts and the law, the decision appealed from is hereby affirmed,
with costs against petitioner-appellant, Visayan Cebu Terminal Co.,
Inc. It is so ordered.
Paras, C. J., Bengzon, Montemayor, Bautista Angelo, Labrador, Barerra, and Gutierrez David JJ., concur.
Reyes, J.B.L., and Endencia, JJ., took no part.