FIRST DIVISION

[G.R. No. L-12798. May 30, 1960.]

VISAYAN CEBU TERMINAL CO., INC., petitioner and appellant,

vs. COLLECTOR OF INTERNAL REVENUE, respondent and
appellee.

Duterte & Rodriguez for petitioner.

Assistant Solicitor General Jose P. Alejandro and Atty. Sixto J. Javier for
respondent.

SYLLABUS

TAXATION; INCOME TAXES; DETERMINATION OF REPRESENTATION

EXPENSE. — The Court of Tax Appeals, in the instant case, had been patently
fair and reasonable, if not liberal, in allowing appellant to deduct a certain
amount as representation expenses on the basis of its gross income, net
income and representation expenses during the prior years, although there
was absolutely no concrete evidence of the sums actually spent for purposes
of representation. The explanation to the effect that the supporting papers of
some of the expenses had been destroyed when the house of appellant's
treasurer was burned, it not satisfactory, for appellant's records were
supposed to be kept in its offices, not in the residence of one of its officers.

DECISION

CONCEPCION, J : p

Petitioner 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 P41,596.45
Disallowances:
(1) Salaries 500.00
(2) Representation Expenses:
As claimed by appellant 75,855.88
Allowed 10,000.00 65,855.88
(3) Miscellaneous expenses 5,768.00
————
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 Net income subject to tax P113,720.33
Tax due on P113,720.33:
P100,000.00 at 20% P20,000.00
P13,720.00 at 28% 3,842.00 P23,842.00
Less tax previously assessed 8,325.00
and paid
————
Deficiency tax P15,517.00
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:
1. Salaries —
(a) Salary and bonus of Juan
Eugenio Lo P1,875.00
(b) Salary of Felix Go Chan 250.00
(c) Salary of Teotimo Tiu
Tiam 250.00 P2,375.00
2. Representation expenses 75,855.88
3. Miscellaneous expenses
(a) Christmas bonus given to
various persons 1,500.00
(b) Tips to ships' officers 4,800.00 6,300.00
Total 84,530.88
"The said sums of P2,375.00, P75,855.88 and P6,300.00,
representing said 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.
xxx xxx xxx
"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 P41,596.45
Disallowances:
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 per investigation:
salaries of officers P2,375.00
allowed per reaudit 1,875.00 500.00
per investigation and reaudit,
representation expenses 75,855.88
per investigation, miscellaneous
expenses 6,300.00
allowed per reaudit 532.00 5,768.00
Net income subject to tax
per reaudit P123,720.33
Tax due on P123,720.33:
P100,000.00 at 20% P20,000.00
P23,720.00 at 28% 6,642.00 26,642.00
Less tax previously assessed and paid 8,325.00
————
Deficiency tax P18,317.00
Add: 5% surcharge 915.85
1% monthly interest from
5/31/53 to 4/30/55 4,212.91
Compromise for late payment 40.00
————
Total amount due on April 30, 1955 P23,485.76
"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:
Year Gross Income Net Profit Representation
Expenses.
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 1949 P722,135.42 P61,257.53 P83,703.54
1950 451,303.21 33,023.78 10,424.39
1951 420,479.39 41,596.45 75,855.88
1952 425,326.86 34,207.31 63,618.64"
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.
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 Parás, C. J., Bengzon, Montemayor, Bautista Angelo, Labrador, Barrera,
and Gutiérrez David JJ., concur.

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