DE BORJA vs. GELLA et al. | GR. No. L-18330. July 31, 1963 (FULLTEXT)

GR. No. L-18330. July 31, 1963.

JOSE DE BORJA, petitioner-appellee, vs. VlCENTE G. GELLA, ET AL., respondents-appellants.

Obligations and contracts; Backpay certificates; Rights of assignee; Cannot be used to pay real estate taxes.—The assignee of backpay certificates cannot compel the government to accept said certificates in payment of his real estate taxes for the reason that in order that such payment may be allowed the tax must be owed by the applicant himself. This is the correct implication that may be drawn from the use of the words "his taxes" in Section 2 of Republic Act No. 304, as amended.

Same; Same; Same; Discounting at maturity or negotiation.—The right of an assignee or subsequent holder of a backpay certificate is at most to have it discounted upon maturity or to negotiate it in the meantime.

Same; Same; Same; Compensation cannot be effected with regard to assignee's real estate taxes.—Compensation cannot take place between the obligation of the appellee, an assignee of a backpay certificate, for real estate taxes, and the obligation of the government based on said certificates. In the first place, the debtor in the certificate of indebtedness is the Republic of the Philippines, whereas the real estate taxes owed by appellee are due to the City of Manila and Pasay City, each one of which having a distinct and separate personality from our Republic. With regard to the certificates, the creditor is the appellee while the debtor is the Republic of the Philippines. And with regard to the taxes, the creditors are the cities of Manila and Pasay while the debtor is the appellee. Therefore, each one of the obligors concerning the two obligations is not at the same time the principal creditor of the other. Secondly, it cannot be said that the certificates are already due. Although on their faces the certificates issued to appellee state that they are redeemable from its approval on June 18, 1948, yet the law provides that they are redeemable within ten years from the date of issuance of the certificates. Therefore, there is no certainty when the certificates are really redeemable within the meaning of the law.

APPEAL from from a decision of the Court of First Instance of Manila. Tan, J.

The facts are stated in the opinion of the Court.

     David Guevara for petitioner-appe|lee.

     Solicitor General for respondent-appellant Treasurer of the Philippines.

     Assistant City Fiscal H. A. Avendaño for respondentappellant Treasurer of Pasay City.

BAUTISTA ANGELO, J;:

(Jose de Borja has been delinquent in the payment of hisreal estate taxes since 1958 for properties located in the City of Manila and Pasay City and has offered to pay them with two negotiable certificates of indebtedness Nos. 3064 and 3065 in the amounts of P793.40 and P717.69, respectively. Borja ,was, however, a mere assignee of the aforesaid negotiable certificates, the applicants for backpay rights covered by them being respectively Rafael Vizcaya and Pablo Batario Luna.

The offers to pay the real estate taxes in question were rejected by the city treasurers of both Manila and Pasay cities on the ground of their limited negotiability under Section 2, Republic Act No. 304, as amended by Republic Act 800, and in the case of the city treasurer of Manila on the further ground that he was ordered not to accept them by the city mayor, for which reason Borja was prompted to bring the question to the Treasurer of the Philippines who opined, among others, that the negotiable certificates cannot be accepted as payment of real estate taxes inasmuch as the law provides for their acceptance from their backpay holder only or the original applicant himself, but not his assignee. In his letter of April 29, 1960 to the Treasurer of the Philippines, however, Borja entertained hope that the certificates would be accepted for payment in view of the fact that they were already long past due and redeemable, but his hope was frustrated. So 011 June 30, 1960, Borja filed an action., against the treasurers of both the City of Manila and Pasay City, as well as the Treasurer of the Philippines, to impel them to execute an act which the law allegedly requires them to perform, to wit: to accept the above-mentioned certificates of indebtedness considering that they were already due and redeemable so as not to deprive him illegally of his privilege to pay his obligation to the government thru such means.

Respondents in due time filed their answer setting up the reasons for their refusal to accept the certificates, and after the requisite trial was held, the court a quo rendered judgment the dispositive part of which reads:

"WHEREFORE, the treasurers of the City of Manila and Pasay City, their agents and other persons acting in their behalf are hereby enjoined from including petitioner's properties in the payment of real estate taxes, and to sell them at public auction, and respondent Treasurer of the Philippines, and the treasurers of the City of Manila and Pasay City are hereby ordered to accept petitioner's Negotiable Certificates of Indebtedness Nos. 3064 and 3065 in the sums of P793.40 and P717.39 in payment of real estate taxes of his properties in the City of Manila and Pasay City, respectively, without costs."

Respondents took this appeal on purely questions of law.

Reduced to bare essentials, the 12 errors assigned by appellants may be boiled down to the following: (a) has appellee the right to apply to the payment of his real estate taxes to the government of Manila and Pasay cities the certificates of indebtedness he holds while appellants have the correlative legal duty to accept the certificates in payment of said taxes?; (b) can compensation be invoked to extinguish appellee's real estate tax liability between the latter's obligation and the credit represented by said certificates of indebtedness?

Anent the first issue, the pertinent legal provision to be reckoned with is Section 2 of Republic Act No. 304, as amended by Republic Act No. 800, which in part reads:

"SEC. 2, The Treasurer of the Philippines shall, upon application, and within one year from the approval of this Act, and under such rules and regulations as may be promulgated by the Secretary; of Finance, acknowledge and file requests for the recognition of the right to the salaries and wages as provided in section one hereof, and notice of such acknowledgment shall be issued to the applicant which shall state the total amount of such salaries or wages due to the applicant, and certify that it shall be redeemed by the Government of the Philippines within ten years from the date of their issuance without interest: Pro'vided, that upon application x x x a certificate of indebtedness may be issued by the Treasurer of the Philippines covering the whole or part of the total salaries or wages the right to which has been duly acknowledged and recognized, provided that the face value of such certificate of indebtedness shall not exceed the amount that the applicant may need for the payment of (1) obligations subsisting at the time of the approval of this Act for which the applicant may directly be liable to the Government orto any of its branches or instrumentalities, or the corporations owned or controlled by the Government, or to any citizen of the Philippines, who may be willing to accept the same for such settlement; (2) his taxes; x x x and Provided, also, That any person who is not an alien, bank or other financial institution at least sixty per centum of whose capital is owned by Filipinos may, notwithstanding any provision of its charter, articles of incorporation, by-laws. or rules and regulations to the contrary, accept or discount at not more than three and one-half per centum per annum for ten years a negotiable certificate of indebtedness which shall be issued by the Treasurer of the Philippines upon application by a holder of a back pay acknowledgment x x x."

To begin with, it cannot be contended that appellants are in duty bound to accept the negotiable certificates of indebtedness held by appellee in payment of his real estate taxes for the simple reason that they were not obligations subsisting at the time of the approval of Republic Act No. 304 which took effect on June 18, 1948. It should be noted that the real estate taxes in question have reference to those due in 1958 and subsequent years. The law is explicit that in order that a certificate may be used in payment of an obligation the same must be subsisting at the time of its approval even if we hold that a tax partakes of this character, neither can it be contended that appellee can compel the government to accept the alleged certificates of indebtedness in payment of his real estate taxes under proviso No. 2 abovequoted also for the reason that in order that such payment may be allowed the tax must be owed by the applicant himself. This is the correct implication that may be drawn from the use by the law of the words "his taxes". Verily, the right to use the backpay certificate in settlement of taxes is given only to the applicant and not to any holder of any negotiable certificate to whom the law only gives the right to have it discounted by a Filipino citizen or corporation under certain limitations. Here appellee is not himself the applicant of the certificate. in question. He is merely an assignee thereof, Or a subsequent holder whose right is at most to have it discounted upon maturity—or to negotiate it in the meantime. A fortiori, it may be included that, not having the right to use said certificates to pay his taxes, appellee cannot compel appellants to accept them as he requests in the present petition for mandamus. As a consequence, we cannot but hold that mandamus does not lie against appellants because they have in no way neglected to perform an act enjoined upon them by law as a duty, nor have they unlawfully excluded appellee from the use or enjoyment of a right to which he is entitled.

We are aware of the cases2 cited by the court a quowherein the government banking institutions were ordered to accept the backpay certificates of petitioners in payment of their indebtedness to them, but they are not here in point because in the cases mentioned the petitioners were applicants and original holders of the corresponding backpay certificates. Here appellee is not.

With regard to the second issue, i.e., whether compensation can be invoked insofar as the two obligations are concerned, Articles 1278 and 1279 of the new Civil Code provide:

"ART. 1278. Compensation shall take place when ,two persons, in their own right, are creditors and debtors of each other.

"ART. 1279. In order that compensation may be proper, it is necessary:

1. That each one of the obligors be bound principally, and that he be at the same time a principal creditor of the other:

2. That both debts consist in a sum of money, or if the things due are consumable, they be of the same kind, and also of the same quality if the latter has been stated;

3. That the two debts be due;

4. That they be liquidated and demandable;

5. That over neither of them there be any retention or controversy, commenced by third persons and communicated in due time to the debtor."

It is clear from the above legal provisions that compensation cannot be effected with regard to the two obligations in question. In the first place, the debtor insofar as the certificates of indebtedness are concerned is the Republic of the Philippines, whereas the real estate taxes owed by appellee are due to the City of Manila and Pasay City, each one of which having a distinct and separate personality from our Republic. With regard to the certificates, the creditor is the appellee while the debtor is the Republic of the Philippines. And with regard to the taxes, the creditors are the City of Manila and Pasay City while the debtor is the appellee. It appears, therefore, that each one of the obligors concerning the two obligations is not at the same time the principal creditor of the other. It cannot also be said for certain that the certificates are already due. Although on their faces the certificates issued to appellee state that they are redeemable on June 18, 1958, yet the law does not say that they are redeemable from its approval on June 18, 1948 but "within ten years from the date of issuance" of the certificates. There is no certainty, therefore, when the certificates are really redeemable within the meaning of the law. Since the requisites for the accomplishment of legal compensation cannot be fulfilled, the latter cannot take place with regard to the two obligations as found by the court a quo.

WHEREFORE, the decision appealed from is reversed. The petition for mandamus is dismissed. The injunction issued against respondents-appellants is hereby lifted. No costs.

     Padilla, Labrador, Concepcion, Reyes, J.B.L., Barrera, Paredes, Dizon, Regala and Makalintal, JJ.,concur.

     Bengzon, C.J., took no part.

Decision reversed; petition for mandamus dismissed and injunction lifted.

Notes.—This case was reversed in Tirona vs. Cudiamat,L-21235, May 81, 1965, where backpay certificates in payment of real estate taxes is held valid and its acceptance mandatory which is also reiterated in Tirona vs. City Treasurer of Manila, L-24607, Jan. 29, 1968, 22 SCRA 219.

However, the rule that the right to use backpay certificates in settlement of taxes is given only to "applicants and original holders of such certificates and not to a mere assignee thereof", still stands. (Florentino vs. Philippine National Bank, 98 Phil. 959; Sabalino vs. Rehabilitation Finance Corporation, L-11790, Sept. 30, 1958.)

Case Digest: https://estlexfori.blogspot.com/2018/08/de-borja-vs-vlcente-g-gella-et-al-gr-no.html

DE BORJA vs. VlCENTE G. GELLA, et al. | GR No. L-18330. July 31, 1963

GR No. L-18330. July 31, 1963.

JOSE DE BORJA, petitioner-appellee, 

vs.

VlCENTE G. GELLA, ET AL., respondents-appellants.

Facts: 

Jose de Borja has been delinquent in the payment of his real estate taxes since 1958 for properties located in the City of Manila and Pasay City and has offered to pay them with two negotiable certificates of indebtedness in the amounts of P793.40 and P717.69, respectively. Borja ,was, however, a mere assignee of the aforesaid negotiable certificates. The said negotiable certificates were from Rafael Vizcaya and Pablo Batario Luna were the applicants for backpay rights covered by the instrument.

The offer to pay the real estate tax through the instrument in question were rejected by the City Treasurers of both Manila and Pasay. They based it on the ground of the instrument’s limited negotiability under Section 2, Republic Act No. 304, as amended by Republic Act 800

Furthermore, the City Treasurer of Manila: rejected it on the ground that he was ordered not to accept them by the city mayor.

Borja was prompted to bring the question before the Treasurer of the Philippines.

The Treasurer of the Philippines opined that the negotiable certificates cannot be accepted as payment of real estate taxes inasmuch as the law provides for their acceptance from their backpay holder only or the original applicant himself, but not his assignee.

Frustrated, Borja filed an action., against the treasurers of both the City of Manila and Pasay City, and the Treasurer of the Philippines, to impel them to execute an act which the law allegedly requires them to perform which is to accept the above-mentioned certificates of indebtedness considering that they were already due and redeemable so as not to deprive him illegally of his privilege to pay his obligation to the government thru such means.

Trial Court:  Treasurer of the Philippines, and the treasurers of the City of Manila and Pasay City are ordered to accept petitioner's Negotiable Certificates of Indebtedness in the sums of P793.40 and P717.39 in payment of real estate taxes of his properties in the City of Manila and Pasay City, respectively, without costs.

Issue: 
Whether Borja has the right to apply to the payment of his real estate taxes to the government of Manila and Pasay through the certificates of indebtedness he holds while appellants have the correlative legal duty to accept the certificates in payment of said taxes

Ruling: 
No. The appellants are not duty bound bound to accept the negotiable certificates of indebtedness held by appellee in payment of his real estate taxes for the simple reason that they were not obligations subsisting at the time of the approval of Republic Act No. 304 which took effect on June 18, 1948. 

It should be noted that the real estate taxes in question have reference to those due in 1958 and subsequent years. The law is explicit that in order that a certificate may be used in payment of an obligation the same must be subsisting at the time of its approval even if we hold that a tax partakes of this character, neither can it be contended that appellee can compel the government to accept the alleged certificates of indebtedness in payment of his real estate taxes under Section 2 of RA 304, also for the reason that in order that such payment may be allowed the tax must be owed by the applicant himself. This is the correct implication that may be drawn from the use by the law of the words "his taxes". Verily, the right to use the backpay certificate in settlement of taxes is given only to the applicant and not to any holder of any negotiable certificate to whom the law only gives the right to have it discounted by a Filipino citizen or corporation under certain limitations.

Here appellee is not himself the applicant of the certificate. in question. He is merely an assignee thereof, Or a subsequent holder whose right is at most to have it discounted upon maturity—or to negotiate it in the meantime. A fortiori, it may be included that, not having the right to use said certificates to pay his taxes, appellee cannot compel appellants to accept them as he requests in the present petition for mandamus.

As a consequence, we cannot but hold that mandamus does not lie against appellants because they have in no way neglected to perform an act enjoined upon them by law as a duty, nor have they unlawfully excluded appellee from the use or enjoyment of a right to which he is entitled.

Full text: http://estlexfori.blogspot.com/2018/08/gr.html

BPI-FAMILY SAVINGS BANK, INC. vs. COURT OF APPEALS et al | G.R. No. 122480. April 12, 2000.

G.R. No. 122480. April 12, 2000.*

BPI-FAMILY SAVINGS BANK, INC., petitioner,

vs.

COURT OF APPEALS, COURT OF TAX APPEALS and the COMMISSIONER OF INTERNAL REVENUE, respondents.

Facts:
This case involves a claim for tax refund for an amount of P112,491.00 representing BPI’s tax withheld for the year 1989.

It was shown that BPI had in its 1989 Income Tax Return that BPI had a total refundable amount of P297,492 inclusive of the P112,491.00 being claimed as tax refund in the present case. BPI declared that the said refundable amount will be applied as tax credit to the succeeding taxable year.

The next taxable year, on October 11, 1990, BPI filed a written claim for refund in the amount of P112,491.00 with the Commissioner of Internal Revenue alleging that it did not apply the 1989 refundable amount of P297,492.00 (including P112,491.00) to its 1990 Annual Income Tax Return or other tax liabilities due to the business losses it incurred for the same year.

While waiting for the CIR, BPI filed a petition for review with the Court of Tax Appeals, seeking for refund. But the CTA dismissed BPI’s petition for its allege failure to present as evidence its ITR for 1990 in order to establish the fact that BPI has not yet credited the amount which is the subject of the controversy to its 1990 income tax liability.

Issue:
Whether BPI is entitled to the refund 

Ruling:
Yes. BPI is entitled to the tax refund.

It is undisputed that petitioner had excess withholding taxes for the year 1989 and was thus entitled to a refund amounting to P112,491. Pursuant to Section 69 of the 1986 Tax Code which states that a corporation entitled to a refund may opt either (1) to obtain such refund or (2) to credit said amount for the succeeding taxable year, petitioner indicated in its 1989 Income Tax Return that it would apply the said amount as a tax credit for the succeeding taxable year, 1990.

In this case, BPI presented evidence to prove its claim that it did not apply the tax credit. A copy of the Final Adjustment Return was attached to the motion for reconsideration filed in the CTA. The said return clearly showed that BPI incurred P52,480,173 as net loss in 1990 which clearly shows that it could not have applied the amount in dispute as a tax credit.’

It should be stressed that the rationale of the rules of procedure is to secure a just determination of every action. They are tools designed to facilitate the attainment of justice. But there can be no just determination of the present case if the return submitted to the CTA was ignored, on grounds of strict technicality. To repeat, it is an undisputed fact that BPI suffered a net loss in 1990; accordingly, it incurred no tax liability to which the tax credit could be applied. Consequently, there is no reason for the BIR and the Court to withhold the tax refund which rightfully belongs to BPI.

Tax Refunds; Strictissimi Juris
The CIR claim that Tax Refunds are in the nature of tax exemptions and thus, must be strictly construed against the claimant.

BPI was able to establish its claim, though it may have failed to strictly comply with the rules of procedure. But the Court could not disregard the cold, undisputed fact that BPI suffered losses in 1990 and it could not have applied the amount claimed as tax credits.

Substantial justice, equity and fair play are on the side of BPI. Technicalities and legalisms, however exalted, should not be misused by the government to keep money not belonging to it and thereby enrich itself at the expense of its law-abiding citizens. If the State expects its taxpayers to observe fairness and honesty in paying their taxes, so must it apply the same standard against itself in refunding excess payments of such taxes. Indeed, the State must lead by its own example of honor, dignity and uprightness.

CIR VS. TOKYO SHIPPING. LTD | G.R. No. L-68252 May 26, 1995

G.R. No. L-68252 May 26, 1995

COMMISSIONER OF INTERNAL REVENUE, petitioner, 

vs.

TOKYO SHIPPING CO. LTD., represented by SORIAMONT STEAMSHIP AGENCIES INC., and COURT OF TAX APPEALS, respondents.

Doctrine: 
A claim for refund is in the nature of a claim for exemption and should be construed in strictissimi juris against the taxpayer.

Facts:
Tokyo Shipping Co. is a foreign corporation represented in the Philippines by Soriamont Steamship Agencies, Inc. 

In 1980, NASUTRA2 chartered M/V Gardenia, a vessel owned by Tokyo Shipping, to load 16,500 metric tons of raw sugar in the Philippines. The operations supervisor of Soriamont Agency, pursuant to the said charter agreement, paid the required income and common carrier's taxes worth P107,142.75 which was based on the expected gross receipts of the vessel.

However, upon arriving at Guimaras Port of Iloilo, the vessel has no sugar to load. So on January 10, 1981, NASUTRA and Tokyo Shipping's agent mutually agreed to have the vessel sail for Japan without any cargo.

Tokyo Shipping now claims for a refund on the prepaid income and common carrier's taxes as such was erroneous since no receipt was realized from the charter agreement.

The CIR however contested the petition. It alleged that (1) taxes are presumed to have been collected in accordance with law; (2) in an action for refund, the burden of proof is upon the taxpayer to show that taxes are erroneously or illegally collected, and the taxpayer's failure to sustain said burden is fatal to the action for refund; and (3) claims for refund are construed strictly against tax claimants.

Issue: 
Whether the Tokyo Shipping is entitled to a refund of the taxes it prepaid to the government

Ruling:
Yes. Pursuant to Section 24 (b) (2) of the National Internal Revenue Code, a resident foreign corporation engaged in the transport of cargo is liable for taxes depending on the amount of income it derives from sources within the Philippines. Thus, before such a tax liability can be enforced the taxpayer must be shown to have earned income sourced from the Philippines.

Although the Supreme Court agrees with CIR that a claim for refund is in the nature of a claim for exemption and should be construed in strictissimi juris against the taxpayer. And there can be no disagreement with the CIR's stance that Tokyo Shipping has the burden of proof to establish the factual basis of its claim for tax refund. The Supreme Court held that sufficient evidence has been adduced by Tokyo Shipping in proving that it derived no receipt from its charter agreement with NASUTRA. This finding of fact rests on a rational basis, and hence, must be sustained. BIR should refund without any unreasonable delay what it has erroneously collected. 

In Roxas v. Court of Tax Appeals, the Supreme Court has held:
The power of taxation is sometimes called also the power to destroy. Therefore it should be exercised with caution to minimize injury to the proprietary rights of a taxpayer. It must be exercised fairly, equally and uniformly, lest the tax collector kill the "hen that lays the golden egg." And, in order to maintain the general public's trust and confidence in the Government this power must be used justly and not treacherously.

CIR VS. ALGUE INC. | G.R. No. L-28896 February 17, 1988

G.R. No. L-28896 February 17, 1988

COMMISSIONER OF INTERNAL REVENUE, petitioner, 

vs.

ALGUE, INC., and THE COURT OF TAX APPEALS, respondents.

Facts: 
Algue Inc., a domestic corporation engaged in engineering, construction and other allied activities, received a letter from the BIR (Commissioner of Internal Revenue) assessing it with delinquency income taxes totalling P83,183.85 as for the years 1958 and 1959. Algue filed a request for reconsideration.

On March 12, 1965, a warrant of distraint and levy was presented to Algue Inc., through its counsel, Atty. Alberto Guevara, Jr., who refused to receive it on the ground of the pending protest. 

However, when Atty. Guevara was finally informed that the BIR was not taking any action on the protest, he accepted the warrant of distraint and levy earlier sought to be served.

Algue, then, sought to claim a P75,000 deduction, but was denied by the CIR. The CTA, however, ruled in favor of Algue and allowed the deduction, stating that the said amount had been legitimately paid by Algue, Inc. as promotional fees for the work in the formation of Vegetable Oil Investment Corporation of the Philippines and its subsequent purchase of the properties of the Philippine Sugar Estate Development Corporation. 

Issue: 
Whether the CTA was correct in allowing the P75,000 deduction claimed by Algue Inc. 

Ruling: 
Yes. The Supreme Court upheld the ruling of the Court of Tax Appeals and allowed the deduction claimed by Algue Inc.

It has been established that the Philippine Sugar Estate Development Company had earlier appointed Algue as its agent, authorizing it to sell its land, factories and oil manufacturing process. In addition to this, testimonies of witness has shown that the said amount was not made in one lump sum but periodically and in different amounts as each payee's need arose. It should be remembered that this was a family corporation where strict business procedures were not applied and immediate issuance of receipts was not required. Even so, at the end of the year, when the books were to be closed, each payee made an accounting of all of the fees received by him or her, to make up the total of P75,000.00. Admittedly, everything seemed to be informal. This arrangement was understandable, however, in view of the close relationship among the persons in the family corporation.

Moreover, the SC agreed with the CTA that the amount of the promotional fees was not excessive. The total commission paid by the Philippine Sugar Estate Development Co. to the private respondent was P125,000.00. After deducting the said fees, Algue still had a balance of P50,000.00 as clear profit from the transaction. The amount of P75,000.00 was 60% of the total commission. This was a reasonable proportion, considering that it was the payees who did practically everything, from the formation of the Vegetable Oil Investment Corporation to the actual purchase by it of the Sugar Estate properties.

As correctly stated by the Solicitor General, the taxpayer has the burden to prove the validity of the claimed deduction. And in the present case, the onus has been discharged satisfactorily. Algue has proved that the payment of the fees was necessary and reasonable in the light of the efforts exerted by the payees in inducing investors and prominent businessmen to venture in an experimental enterprise and involve themselves in a new business requiring millions of pesos. This was no mean feat and should be, as it was, sufficiently recompensed.

Further, there is no dispute that the payees duly reported their respective shares of the fees in their income tax returns and paid the corresponding taxes thereon. The Court of Tax Appeals also found, after examining the evidence, that no distribution of dividends was involved.

Algue Inc. has proved that the payment of the fees was necessary and reasonable in the light of the efforts exerted by the payees in inducing investors and prominent businessmen to venture in an experimental enterprise and involve themselves in a new business requiring millions of pesos. This was no mean feat and should be, as it was, sufficiently recompensed.

Taxation Defined
It is said that taxes are what we pay for civilization society. Without taxes, the government would be paralyzed for lack of the motive power to activate and operate it. Hence, despite the natural reluctance to surrender part of one's hard earned income to the taxing authorities, every person who is able to must contribute his share in the running of the government. The government for its part, is expected to respond in the form of tangible and intangible benefits intended to improve the lives of the people and enhance their moral and material values. This symbiotic relationship is the rationale of taxation and should dispel the erroneous notion that it is an arbitrary method of exaction by those in the seat of power.

But even as we concede the inevitability and indispensability of taxation, it is a requirement in all democratic regimes that it be exercised reasonably and in accordance with the prescribed procedure. If it is not, then the taxpayer has a right to complain and the courts will then come to his succor. For all the awesome power of the tax collector, he may still be stopped in his tracks if the taxpayer can demonstrate, as it has here, that the law has not been observed.

Taxes are the lifeblood of the government and so should be collected without unnecessary hindrance. However, such collection should be made in accordance with law as any arbitrariness will negate the very reason for government itself. It is therefore necessary to reconcile the apparently conflicting interests of the authorities and the taxpayers so that the real purpose of taxation, which is the promotion of the common good, may be achieved.

COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. TOKYO SHIPPING CO. et al | G.R. No. 68252. May 26, 1995.

G.R. No. 68252. May 26, 1995.^*

COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. TOKYO SHIPPING CO., LTD., represented by SORIAMONT STEAMSHIP AGENCIES, INC., and COURT OF TAX AP-PEALS, respondents.

Taxation; A claim for refund is in the nature of a claim for exemption and should be construed in strictissimi juris against the taxpayer.—We agree with petitioner that a claim for refund is in the nature of a claim for exemption and should be construed in strictissimi juris against the taxpayer. Likewise, there can be no disagreement with petitioner’s stance that private respondent has the burden of proof to establish the factual basis of its claim for tax refund.

PETITION for review on certiorari of a decision of the Court of Tax Appeals.

The facts are stated in the opinion of the Court.

     Gadioma Law Offices for private respondent.

PUNO, J.:

For resolution is whether or not private respondent Tokyo Shipping Co. Ltd., is entitled to a refund or tax credit for amounts representing pre-payment of income and common carrier’s taxes under the National Internal Revenue Code, section 24(b)(2), as amended.¹

Private respondent is a foreign corporation represented in the Philippines by Soriamont Steamship Agencies, Incorporated. It owns and operates tramper vessel M/V Gardenia. In December 1980, NASUTRA² chartered M/V Gardenia to load 16,500 metric tons of raw sugar in the Philippines.³ On December 23, 1980, Mr. Edilberto Lising, the operations supervisor of Soriamont Agency,⁴ paid the required income and common carrier’s taxes in the respective sums of FIFTY-NINE THOUSAND FIVE HUNDRED TWENTY-THREE PESOS and SEVENTY-FIVE CENTAVOS (P59,523.75) and FORTY-SEVEN THOUSAND SIX HUNDRED NINETEEN PESOS (P47,619.00), or a total of ONE HUNDRED SEVEN THOUSAND ONE HUNDRED FORTY-TWO PESOS and SEVENTY-FIVE CENTAVOS (P107,142.75) based on the expected gross receipts of the vessel.⁵ Upon arriving, however, at Guimaras Port of Iloilo, the vessel found no sugar for loading. On January 10, 1981, NASUTRA and private respondent’s agent mutually agreed to have the vessel sail for Japan without any cargo.

Claiming the pre-payment of income and common carrier’s taxes as erroneous since no receipt was realized from the charter agreement, private respondent instituted a claim for tax credit or refund of the sum ONE HUNDRED SEVEN THOUSAND ONE HUNDRED FORTY-TWO PESOS and SEVENTY-FIVE CENTAVOS (P107,142.75) before petitioner Commissioner of Internal Revenue on March 23, 1981. Petitioner failed to act promptly on the claim, hence, on May 14, 1981, private respondent filed a petition for review⁶ before public respondent Court of Tax Appeals.

Petitioner contested the petition. As special and affirmative defenses, it alleged the following: that taxes are presumed to have been collected in accordance with law; that in an action for refund, the burden of proof is upon the taxpayer to show that taxes are erroneously or illegally collected, and the taxpayer’s failure to sustain said burden is fatal to the action for refund; and that claims for refund are construed strictly against tax claimants.⁷

After trial, respondent tax court decided in favor of the private respondent. It held: 
“It has been shown in this case that 1) the petitioner has complied with the mentioned statutory requirement by having filed a written claim for refund within the two-year period from date of payment; 2) the respondent has not issued any deficiency assessment nor disputed the correctness of the tax returns and the corresponding amounts of prepaid income and percentage taxes; and 3) the chartered vessel sailed out of the Philippine port with absolutely no cargo laden on board as cleared and certified by the Customs authorities; nonetheless 4) respondent’s apparent bit of reluctance in validating the legal merit of the claim, by and large, is tacked upon the ‘examiner who is investigating petitioner’s claim for refund which is the subject matter of this case has not yet submitted his report. Whether or not respondent will present his evidence will depend on the said report of the examiner.’ (Respondent’s Manifestation and Motion dated September 7, 1982). Be that as it may the case was submitted for decision by respondent on the basis of the pleadings and records and by petitioner on the evidence presented by counsel sans the respective memorandum.

“An examination of the records satisfies us that the case presents no dispute as to relatively simple material facts. The circumstances obtaining amply justify petitioner’s righteous indignation to a more expeditious action. Respondent has offered no reason nor made effort to submit any controverting documents to bash that patina of legitimacy over the claim. But as might well be, towards the end of some two and a half years of seeming impotent anguish over the pendency, the respondent Commissioner of Internal Revenue would furnish the satisfaction of ultimate solution by manifesting that ‘it is now his turn to present evidence, however, the Appellate Division of the BIR has already recommended the approval of petitioner’s claim for refund subject matter of this petition. The examiner who examined this case has also recommended the refund of petitioner’s claim. Without prejudice to withdrawing this case after the final approval of petitioner’s claim, the Court ordered the resetting to September 7, 1983.’ (Minutes of June 9, 1983 Session of the Court). We need not fashion any further issue into an apparently settled legal situation as far be it from a comedy of errors it would be too much of a stretch to hold and deny the refund of the amount of prepaid income and common carrier’s taxes for which petitioner could no longer be made accountable.”

On August 3, 1984, respondent court denied petitioner’s motion for reconsideration, hence, this petition for review on certiorari.

Petitioner now contends: (1) private respondent has the burden of proof to support its claim of refund; (2) it failed to prove that it did not realize any receipt from its charter agreement; and (3) it suppressed evidence when it did not present its charter agreement.

We find no merit in the petition.

There is no dispute about the applicable law. It is Section 24 (b)(2) of the National Internal Revenue Code which at that time provides as follows:

 “A corporation organized, authorized, or existing under the laws of any foreign country, engaged in trade or business within the Philippines, shall be taxable as provided in subsection (a) of this section upon the total net income derived in the preceding taxable year from all sources within the Philippines: Provided, however, That international carriers shall pay a tax of two and one-half per cent (2 1/2%) on their gross Philippine billings: ‘Gross Philippine Billings’ include gross revenue realized from uplifts anywhere in the world by any international carrier doing business in the Philippines of passage documents sold therein, whether for passenger, excess baggage or mail, provided the cargo or mail originates from the Philippines. The gross revenue realized from the said cargo or mail include the gross freight charge up to final destination. Gross revenue from chartered flights originating from the Philippines shall likewise form part of ‘Gross Philippine Billings’ regardless of the place or payment of the passage documents. x x x.”

Pursuant to this provision, a resident foreign corporation engaged in the transport of cargo is liable for taxes depending on the amount of income it derives from sources within the Philippines. Thus, before such a tax liability can be enforced the taxpayer must be shown to have earned income sourced from the Philippines. We agree with petitioner that a claim for refund is in the nature of a claim for exemption⁸ and should be construed in strictissimi jurisagainst the taxpayer.⁹ Likewise, there can be no disagreement with petitioner’s stance that private respondent has the burden of proof to establish the factual basis of its claim for tax refund.

The pivotal issue involves a question of fact—whether or not the private respondent was able to prove that it derived no receipts from its charter agreement, and hence is entitled to a refund of the taxes it pre-paid to the government.

The respondent court held that sufficient evidence has been adduced by the private respondent proving that it derived no receipt from its charter agreement with NASUTRA. This finding of fact rests on a rational basis, and hence must be sustained. Exhibits “E,” “F,” and “G” positively show that the tramper vessel M/V “Gardenia” arrived in Iloilo on January 10, 1981 but found no raw sugar to load and returned to Japan without any cargo laden on board. Exhibit “E” is the Clearance Vessel to a Foreign Port issued by the District Collector of Customs, Port of Iloilo while Exhibit “F” is the Certification by the Officer-in-Charge, Export Division of the Bureau of Customs Iloilo. The correctness of the contents of these documents regularly issued by officials of the Bureau of Customs cannot be doubted as indeed, they have not been contested by the petitioner. The records also reveal that in the course of the proceedings in the court a quo, petitioner hedged and hawed when its turn came to present evidence. At one point, its counsel manifested that the BIR examiner and the appellate division of the BIR have both recommended the approval of private respondent’s claim for refund. The same counsel even represented that the government would withdraw its opposition to the petition after final approval of private respondents’ claim. The case dragged on but petitioner never withdrew its opposition to the petition even if it did not present evidence at all. The insincerity of petitioner’s stance drew the sharp rebuke of respondent court in its Decision and for good reason. Taxpayers owe honesty to government just as government owes fairness to taxpayers.

In its last effort to retain the money erroneously prepaid by the private respondent, petitioner contends that private respondent suppressed evidence when it did not present its charter agreement with NASUTRA. The contention cannot succeed. It presupposes without any basis that the charter agreement is prejudicial evidence against the private respondent.¹⁰ Allegedly, it will show that private respondent earned a charter fee with or without transporting its supposed cargo from Iloilo to Japan. The allegation simply remained an allegation and no court of justice will regard it as truth. Moreover, the charter agreement could have been presented by petitioner itself thru the proper use of a subpoena duces tecum. It never did either because of neglect or because it knew it would be of no help to bolster its position.¹¹ For whatever reason, the petitioner cannot take to task the private respondent for not presenting what it mistakenly calls “suppressed evidence.”

We cannot but bewail the unyielding stance taken by the government in refusing to refund the sum of ONE HUNDRED SEVEN THOUSAND ONE HUNDRED FORTY TWO PESOS AND SEVENTY FIVE CENTAVOS (P107,142.75) erroneously prepaid by private respondent. The tax was paid way back in 1980 and despite the clear showing that it was erroneously paid, the government succeeded in delaying its refund for fifteen (15) years. After fifteen (15) long years and the expenses of litigation, the money that will be finally refunded to the private respondent is just worth a damaged nickel. This is not, however, the kind of success the government, especially the BIR, needs to increase its collection of taxes. Fair deal is expected by our taxpayers from the BIR and the duty demands that BIR should refund without any unreasonable delay what it has erroneously collected. Our ruling in Roxas v. Court of Tax Appeals¹² is apropos to recall:

“The power of taxation is sometimes called also the power to destroy. Therefore it should be exercised with caution to minimize injury to the proprietary rights of a taxpayer. It must be exercised fairly, equally and uniformly, lest the tax collector kill the ‘hen that lays the golden egg.’ And, in order to maintain the general public’s trust and confidence in the Government this power must be used justly and not treacherously.”

IN VIEW HEREOF, the assailed decision of respondent Court of Tax Appeals, dated September 15, 1983, is AFFIRMED in toto. No costs.

SO ORDERED.

     Narvasa (C.J., Chairman), Regalado and Mendoza, JJ. , concur.

Judgment affirmed in toto.

Note.—Option for either a refund or automatic tax credit scheme does not ipso facto confer on the taxpayer the right to avail the same. (San Carlos Milling Co., Inc. vs. Commissioner of Internal Revenue, 228 SCRA 135 [1993])

———o0o———

COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. ALGUE, INC. | GR No. L-28896. February 17, 1988

GR No. L-28896. February 17, 1988.*

COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. ALGUE, INC., and THE COURT OF TAX APPEALS, respondents.

Taxation; Nature of taxes; Purpose of taxation; Collection of taxes should be made in accordance with law.—Taxes are the lifeblood of the government and so should be collected without unnecessary hindrance. On the other hand, such collection should be made in accordance with law as any arbitrariness will negate the very reason for government itself. It is therefore necessary to reconcile the apparently conflicting interests of the authorities and the taxpayers so that the real purpose of taxation, which is the promotion of the common good, may be achieved.

Same; Appeal; Appeal from a decision of the Commissioner of Internal Revenue with the Court of Tax Appeals is 30 days from receipt thereof.—The above chronology shows that the petition was filed seasonably. According to Rep. Act No. 1125, the appeal may be made within thirty days after receipt of the decision or ruling challenged.

Same; Warrant of distraint and levy; Rule that the warrant of distraint and levy is proof of the finality of the assessment; Exception is where there is a letter of protest after receipt of notice of assessment.—It is true that as a rule the warrant of distraint and levy is "proof of the finality of the assessment" and "renders hopeless a request for reconsideration," being "tantamount to an outright denial thereof and makes the said request deemed rejected." But there is a special circumstance in the case at bar that prevents application of this accepted doctrine. The proven fact is that four days after the private respondent received the petitioner's notice of assessment, it filed its letter of protest. This was apparently not taken into account before the warrant of distraint and levy was issued; indeed, such protest could not be located in the office of the petitioner. It was only after Atty. Guevara gave the BIR a copy of the protest that it was, if at all, considered by the tax authorities. During the intervening period, the warrant was premature and could therefore not be served.

Same; Same; Same; Same; Protest filed, not pro forma, and was based on strong legal considerations; Case at bar.—As the Court of Tax Appeals correctly noted, the protest filed by private respondent was not pro forma and was based on strong legal considerations. It thus had the effect of suspending on January 18, 1965, when it was filed, the reglementary period which started on the date the assessment was received, viz., January 14, 1965. The period started running again only on April 7, 1965, when the private respondent was definitely informed of the implied rejection of the said protest and the warrant was finally served on it. Hence, when the appeal was filed on April 23, 1965, only 20 days of the reglementary period had been consumed.

Same; Income Tax; Payments in promotional fees, not fictitious; Claimed deduction of P75,000 proper; Strict business procedures not applied in a family corporation.—We find that these suspicions were adequately met by the private respondent when its President, Alberto Guevara, and the accountant, Cecilia V. de Jesus, testified that the payments were not made in one lump sum but periodically and in different amounts as each payee's need arose. It should be remembered that this was a family corporation where strict business procedures were not applied and immediate issuance of receipts was not required. Even so, at the end of the year, when the books were to be closed, each payee made an accounting of all of the fees received by him or her, to make up the total of P75,000.00. Admittedly, everything seemed to be informal. This arrangement was understandable, however, in view of the close relationship among the persons in the family corporation.

Same; Same; Same; Same; Amount of promotional fees, not excessive.—We agree with the respondent court that the amount of the promotional fees was not excessive. The total commission paid by the Philippine Sugar Estate Development Co. to the private respondent was P1 25,000.00. After deducting the said fees, Algue still had a balance of P50,000.00 as clear profit from the transaction. The amount of P75,000.00 was 60% of the total commission. This was a reasonable proportion, considering that it was the payees who did practically everything, from the formation of the Vegetable Oil Investment Corporation to the actual purchase by it of the Sugar Estate properties.

Same; Same; Same; Same; Burden on taxpayer to prove validity of the claimed deduction, successfully discharged; Payment of the fees was necessary and reasonable.—The Solicitor General is correct when he says that the burden is on the taxpayer to prove the validity of the claimed deduction. In the present case, however, we find that the onus has been discharged satisfactorily. The private respondent has proved that the payment of the fees was necessary and reasonable in the light of the efforts exerted by the payees in inducing investors and prominent businessmen to venture in an experimental enterprise and involve themselves in a new business requiring millions of pesos. This was no mean feat and should be, as it was, sufficiently recompensed.

Same; Same; Rationale of taxation.—It is said that taxes are what we pay for civilized society. Without taxes, the government would be paralyzed for lack of the motive power to activate and operate it. Hence, despite the natural reluctance to surrender part of one's hard-earned income to the taxing authorities, every person who is able to must contribute his share in the running of the government. The government, for its part, is expected to respond in the form of tangible and intangible benefits intended to improve the lives of the people and enhance their moral and material values, This symbiotic relationship is the rationale of taxation and should dispel the erroneous notion that it is an arbitrary method of exaction by those in the seat of power.

APPEAL from the decision of the Court of Tax Appeals.

The facts are stated in the opinion of the Court.

CRUZ, J.:

Taxes are the lifeblood of the government and so should be collected without unnecessary hindrance. On the other hand, such collection should be made in accordance with law as any arbitrariness will negate the very reason for government itself. It is therefore necessary to reconcile the apparently conflicting interests of the authorities and the taxpayers so that the real purpose of taxation, which is the promotion of the common good, may be achieved.

The main issue in this case is whether or not the Collector of Internal Revenue correctly disallowed the P75,000.00 deduction claimed by private respondent Algue as legitimate business expenses in its income tax returns. The corollary issue is whether or not the appeal of the private respondent from the decision of the Collector of Internal Revenue was made on time and in accordance with law.

We deal first with the procedural question.

The record shows that on January 14, 1965, the private respondent, a domestic corporation engaged in engineering, construction and other allied activities, received a letter from the petitioner assessing it in the total amount of P83,183.85 as delinquency income taxes for the years 1958 and 1959.1 On January 18, 1965, Algue filed a letter of protest or request for reconsideration, which letter was stamp-received on the same day in the office of the petitioner.2 On March 12, 1965, a warrant of distraint and levy was presented to the private respondent, through its counsel, Atty. Alberto Guevara, Jr., who refused to receive it on the ground of the pending protest.3 A search of the protest in the dockets of the case proved fruitless. Atty. Guevara produced his file copy and gave a photostat to BIR agent Ramon Reyes, who deferred service of the warrant.4On April 7, 1965, Atty. Guevara was finally informed that the BIR was not taking any action on the protest and it was only then that he accepted the warrant of distraint and levy earlier sought to be served.5 Sixteen days later, on April 23, 1965, Algue filed a petition for review of the decision of the Commissioner of Internal Revenue with the Court of Tax Appeals.6

The above chronology shows that the petition was filed seasonably. According to Rep. Act No. 1125, the appeal may be made within thirty days after receipt of the decision or ruling challenged.7 It is true that as a rule the warrant of distraint and levy is "proof of the finality of the assessment"8 and "renders hopeless a request for reconsideration,"9 being "tantamount to an outright denial thereof and makes the said request deemed rejected."10

But there is a special circumstance in the case at bar that prevents application of this accepted doctrine.

The proven fact is that four days after the private respondent received the petitioner's notice of assessment, it filed its letter of protest. This was apparently not taken into account before the warrant of distraint and levy was issued; indeed, such protest could not be located in the office of the petitioner. It was only after Atty. Guevara gave the BIR a copy of the protest that it was, if at all, considered by the tax authorities. During the intervening period, the warrant was premature and could therefore not be served.

As the Court of Tax Appeals correctly noted,11 the protest filed by private respondent was not pro forma and was based on strong legal considerations. It thus had the effect of suspending on January 18, 1965, when it was filed, the reglementary period which started on the date the assessment was received, viz., Jaauary 14, 1965. The period started running again only on Ap 7, 1965, when the private respondent was definitely informed of the implied rejection of the said protest and the warrant was finally served on it. Hence, when the appeal was filed on April 23, 1965, only 20 days of the reglementary period had been consumed.

Now for the substantive question.

The petitioner contends that the claimed deduction of P75,000.00 was properly disallowed because it was not an ordinary, reasonable or necessary business expense. The Court of Tax Appeals had seen it differently. Agreeing with Algue, it held that the said amount had been legitimately paid by the private respondent for actual services rendered. The payment was in the form of promotional fees. These were collected by the payees for their work in the creation of the Vegetable Oil Investment Corporation of the Philippines and its subsequent purchase of the properties of the Philippine Sugar Estate Development Company.

Parenthetically, it may be observed that the petitioner had originally claimed these promotional fees to be personal holding company income12 but later conformed to the decision of the respondent court rejecting this assertion.13 In fact, as the said court found, the amount was earned through the joint efforts of the persons among whom it was distributed. It has been established that the Philippine Sugar Estate Development Company had earlier appointed Algue as its agent, authorizing it to sell its land. factories and oil manufacturing process. Pursuant to such authority, Alberto Guevara, Jr., Eduardo Guevara, Isabel Guevara, Edith O'Farell, and Pablo Sanchez worked for the formation of the Vegetable Oil Investment Corporation, inducing other persons to invest in it.14 Ultimately, after its incorporation largely through the promotion of the said persons, this new corporation purchased the PSEDC properties.15 For this sale, Algue received as agent a commission of P125,000.00, and it was from this commission that the P75,000.00 promotional fees were paid to the aforenamed individuals.16

There is no dispute that the payees duly reported their respective shares of the fees in their income tax returns and paid the corresponding taxes thereon.17 The Court of Tax Appeals also found, after examining the evidence, that no distribution of dividends was involved.18

The petitioner claims that these payments are fictitious because most of the payees are members of the same family in control of Algue. It is argued that no indication was made as to how such payments were made, whether by check or in cash, and there is not enough substantiation of such payments. In short, the petitioner suggests a tax dodge, an attempt to evade a legitimate assessment by involving an imaginary deduction.

We find that these suspicions were adequately met by the private respondent when its President, Alberto Guevara, and the accountant, Cecilia V. de Jesus, testified that the payments were not made in one lump sum but periodically and in different amounts as each payee's need arose.19 It should be remembered that this was a family corporation where strict business procedures were not applied and immediate issuance of receipts was not required. Even so, at the end of the year, when the books were to be closed, each payee made an accounting of all of the fees received by him or her, to make up the total of P75,000.00.20 Admittedly, everything seemed to be informal. This arrangement was understandable, however, in view of the close relationship among the persons in the family corporation.

We agree with the respondent court that the amount of the promotional fees was not excessive. The total commission paid by the Philippine Sugar Estate Development Co. to the private respondent was P125,000.00.21 After deducting the said fees, Algue still had a balance of P50,000.00 as clear profit from the transaction. The amount of P75,000.00 was 60% of the total commission. This was a reasonable proportion, considering that it was the payees who did practically everything, from the formation of the Vegetable Oil Investment Corporation to the actual purchase by it of the Sugar Estate properties.

This finding of the respondent court is in accord with the following provision of the Tax Code:

"SEC. 30. Deductions from gross income.—In computing net income there shall be allowed as deductions—

Expenses:

In general.—All the ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business, including a reasonable allowance for salaries or other compensation for personal services actually rendered; x x x"22 and Revenue Regulations No. 2, Section 70 (1), reading as follows:

"SEC. 70. Compensation for personal services.—Among the ordinary and necessary expenses paid or incurred in carrying on any trade or business may be included a reasonable allowance for salaries or other compensation for personal services actually rendered. The test of deductibility in the case of compensation payments is whether they are reasonable and are, in fact, payments purely for service. This test and its practical application may be further stated and illustrated as follows:

"Any amount paid in the form of compensation, but not in fact as the purchase price of services, is not deductible. (a) An ostensible salary paid by a corporation may be a distribution of a dividend on stock. This is likely to occur in the case of a corporation having few stockholders, practically all of whom draw salaries. If in such a case the salaries are in excess of those ordinarily paid for similar services, and the excessive payment correspond or bear a close relationship to the stockholdings of the officers of employees, it would seem likely that the salaries are not paid wholly for services rendered, but the excessive payments are a distribution of earnings upon the stock. x x x" (Promulgated Feb. 11, 1931, 30 O.G. No. 18, 325.)

It is worth noting at this point that most of the payees were not in the regular employ of Algue nor were they its controlling stockholders.23

The Solicitor General is correct when he says that the burden is on the taxpayer to prove the validity of the claimed deduction. In the present case, however, we find that the onus has been discharged satisfactorily. The private respondent has proved that the payment of the fees was necessary and reasonable in the light of the efforts exerted by the payees in inducing investors and prominent businessmen to venture in an experimental enterprise and involve themselves in a new business requiring millions of pesos. This was no mean feat and should be, as it was, sufficiently recompensed.

It is said that taxes are what we pay for civilized society. Without taxes, the government would be paralyzed for lack of the motive power to activate and operate it. Hence, despite the natural reluctance to surrender part of one's hard-earned income to the taxing authorities, every person who is able to must contribute his share in the running of the government. The government for its part, is expected to respond in the form of tangible and intangible benefits intended to improve the lives of the people and enhance their moral and material values. This symbiotic relationship is the rationale of taxation and should dispel the erroneous notion that it is an arbitrary method of exaction by those in the seat of power.

But even as we concede the inevitability and indispensability of taxation, it is a requirement in all democratic regimes that it be exercised reasonably and in accordance with the prescribed procedure. If it is not, then the taxpayer has a right to complain and the courts will then come to his succor. For all the awesome power of the tax collector, he may still be stopped in his tracks if the taxpayer can demonstrate, as it has here, that the law has not been observed.

We hold that the appeal of the private respondent from the decision of the petitioner was filed on time with the respondent court in accordance with Rep. Act No. 1125. And we also find that the claimed deduction by the private respondent was permitted under the Internal Revenue Code and should therefore not have been disallowed by the petitioner.

ACCORDINGLY, the appealed decision of the Court of Tax Appeals is AFFIRMED in toto, without costs.

SO ORDERED.

Teehankee (C.J.), Narvasa, Gancayco and Griño-Aquino, JJ., concur.

Decision affirmed.

Notes.—Tax assessment by tax examiners are presumed correct and made in good faith. Taxpayer has duty to prove otherwise. (Commissioner of lnternal Revenue vs. Construction Resources of Asia, Inc., 145 SCRA 671.)

Commission on Audit cannot make a final decision on tax questions, (Phil, Telegraph and Telephone Corp. vs, Commission on Audit, 146 SCRA 190.)