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G.R. No. L-19865 July 31, 1965

MARIA CARLA PIROVANO, etc., et al.,petitioners-appellants,

vs.

T! COMMI""ION!R O# INT!RNAL R!V!N$!,respondent-appellee.

Angel S. Gamboa for petitioners-appellants.Office of the Solicitor General for respondent-appellee.

R!%!", J.&.L., J.:

This case is a sequel to the case of Pirovano vs. De la Rama Steamship Co., 96 Phil. 335.

Briefly, the facts of the aforestated case may be stated as follos!

"nrico Pirovano as the father of the herein petitioners-appellants. #ometime in the early part of $9%$, &e la 'ama

#teamship (o. insured the life of said "nrico Pirovano, ho as then its President and )eneral *ana+er until the

time of his death, ith various Philippine and merican insurance companies for a total sum of one million pesos,

desi+natin+ itself as the beneficiary of the policies, obtained by it. &ue to the apanese occupation of the Philippinesdurin+ the second orld ar, the (ompany as unable to pay the premiums on the policies issued by its Philippine

insurers and these policies lapsed, hile the policies issued by its merican insurers ere /ept effective and

subsistin+, the 0e 1or/ office of the (ompany havin+ continued payin+ its premiums from year to year.

&urin+ the apanese occupation , or more particularly in the latter part of $9%%, said "nrico Pirovano died.

fter the liberation of the Philippines from the apanese forces, the Board of &irectors of &e la 'ama #teamship (o.

adopted a resolution dated uly $2, $9%6 +rantin+ and settin+ aside, out of the proceeds epected to be collected on

the insurance policies ta/en on the life of said "nrico Pirovano, the sum of P%22,222.22 for equal division amon+ the

four 4% minor children of the deceased, said sum of money to be convertible into %,222 shares of stoc/ of the

(ompany, at par, or $,222 shares for each child. #hortly thereafter, the (ompany received the total sum of

P6%3,222.22 as proceeds of the said life insurance policies obtained from merican insurers.

pon receipt of the last stated sum of money, the Board of &irectors of the (ompany modified, on anuary 6, $9%7,

the above-mentioned resolution by renouncin+ all its ri+hts title, and interest to the said amount of P6%3,222.22 in

favor of the minor children of the deceased, sub8ect to the epress condition that said amount should be retained by

the (ompany in the nature of a loan to it, drain+ interest at the rate of five per centum 45 per annum, and payable

to the Pirovano children after the (ompany shall have first settled in full the balance of its present remainin+ bonded

indebtedness in the sum of approimately P5,222,222.22. This latter resolution as carried out in a *emorandum

+reement on anuary $2, $9%7 and une $7, $9%7., respectively, eecuted by the (ompany and *rs. "stefania '.

Pirovano, the latter actin+ in her capacity as +uardian of her children 4petitioners-appellants herein find pursuant to

an epress authority +ranted her by the court.

:n une ;%, $9%7, the Board of &irectors of the (ompany further modified the last mentioned resolution providin+

therein that the (ompany shall pay the proceeds of said life insurance policies to the heirs of the said "nrico Pirovanoafter the (ompany shall have settled in full the balance of its present remainin+ bonded indebtedness, but the annual

interests accruin+ on the principal shall be paid to the heirs of the said "nrico Pirovano, or their duly appointed

representative, henever the (ompany is in a position to meet said obli+ation.

:n

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:n #eptember $3, $9%9, the stoc/holders of the (ompany formally ratified the various resolutions hereinabove

mentioned ith certain clarifyin+ modifications that the payment of the donation shall not be effected until such time

as the (ompany shall have first duly liquidated its present bonded indebtedness in the amount of P3,;62,=55.77 ith

the 0ational &evelopment (ompany, or fully redeemed the preferred shares of stoc/ in the amount hich shall be

issued to the 0ational &evelopment (ompany in lieu thereof> and that any and all taes, le+al fees, and epenses in

any ay connected ith the above transaction shall be char+eable and deducted from the proceeds of the life

insurance policies mentioned in the resolutions of the Board of &irectors.

:n *arch =, $95$, hoever, the ma8ority stoc/holders of the (ompany voted to revo/e the resolution approvin+ the

donation in favor of the Pirovano children.

s a consequence of this revocation and refusal of the (ompany to pay the balance of the donation amountin+ to

P56%,9=2.92 despite demands therefor, the herein petitioners-appellants represented by their natural +uardian, *rs.

"stefania '. Pirovano, brou+ht an action for the recovery of said amount, plus interest and dama+es a+ainst &e la

'ama #teamship (o., in the (ourt of and, on pril ;3, $955, a donorAs +ift ta in the total amount of P3%,37$.76 as also

assessed a+ainst &e la 'ama #teamship (o., hich the latter paid.

Petitioners-appellants herein contested respondent (ommissionerAs assessment and imposition of the doneesA +ift

taes and donorAs +ift ta and also made a claim for refund of the donorAs +ift ta so collected. 'espondent

(ommissioner overruled petitionersA claims> hence, the latter presented to 4; petitions for revie a+ainst

respondentAs rulin+s before the (ourt of Ta ppeals, said petitions havin+ been doc/eted as (T (ases 0os. 3%7

and 375. (T (ase 0o. 3%7 relates to the petition disputin+ the le+ality of the assessment of doneesA +ift taes and

donorAs +ift ta hile (T (ase 0o. 375 refers to the claim for refund of the donorAs +ift ta already paid.

fter the filin+ of respondentAs usual ansers to the petitions, the to cases, bein+ interrelated to each other, ere

tried 8ointly and terminated.

:n anuary 3$, $96;, the (ourt of Ta ppeals rendered its decision in the to cases, the dispositive part of hich

reads!

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?n resume, e are of the opinion, that 4$ the donorAs +ift ta in the sum of P3%,37$.76 as erroneously

assessed and collected, hence, petitioners are entitled to the refund thereof> 4; the doneesA +ift taes ere

correctly assessed> 43 the imposition of the surchar+e of ;5 is not proper> 4% the surchar+e of 5 is

le+ally due> and 45 the interest of $ per month on the deficiency doneesA +ift taes is due from petitioners

from *arch =, $955 until the taes are paid.

?0 ?0" ?TC TC" hence, the donation does not constitute a taable +ift under the provisions of #ection $2= of

the 0ational ?nternal 'evenue (ode.

The ar+ument for petitioners-appellants fails to ta/e into account the fact that neither in #panish nor in n+lo-

merican la as it considered that past services, rendered ithout relyin+ on a coetaneous promise, epress orimplied, that such services ould be paid for in the future, constituted cause or consideration that ould ma/e a

conveyance of property anythin+ else but a +ift or donation. This conclusion flos from the tet of rticle 6$9 of the

(ode of $==9 4identical ith rticle 7;6 of the present (ivil (ode of the Philippines!

hen a person +ives to another a thin+ ... on account of the latterAs merits or of the services rendered by

him to the donor, provided they do not constitute a demandable debt, ..., there is also a donation. ... .

There is nothin+ on record to sho that hen the late "nrico Pirovano rendered services as President and )eneral

*ana+er of the &e la 'ama #teamship (o. he as not fully compensated for such services, or that, because they

ere Dlar+ely responsible for the rapid and very successful development of the activities of the companyD 4'es. of

uly $2, $9%6. Pirovano epected or as promised further compensation over and in addition to his re+ular

emoluments as President and )eneral *ana+er. The fact that his services contributed in a lar+e measure to the

success of the company did not +ive rise to a recoverable debt, and the conveyances made by the company to his

heirs remain a +ift or donation. This is emphasi@ed by the directorsA 'esolution of anuary 6, $9%7, that Dout of

gratitudeD the company decided to renounce in favor of PirovanoAs heirs the proceeds of the life insurance policies in

question. The true consideration for the donation as, therefore, the companyAs +ratitude for his services, and not the

services themselves.

That the ta court re+arded the conveyance as a simple donation, instead of a remuneratory one as it as declared

to be in our previous decision, is but an innocuous error> hether remuneratory or simple, the conveyance remained

a +ift, taable under (hapter ;, Title ??? of the ?nternal 'evenue (ode.

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But then appellants contend, the entire property or ri+ht donated should not be considered as a +ift for taation

purposes> only that portion of the value of the property or ri+ht transferred, if any, hich is in ecess of the value of

the services rendered should be considered as a taable +ift. They cite in support #ection $$$ of the Ta (ode hich

provides that E

here property is transferred for less, than an adequate and full consideration in money or moneyAs orth,

then the amount by hich the value of the property eceeded the value of the consideration shall, for thepurpose of the ta imposed by this (hapter, be deemed a +ift, ... .

The fla in this ar+ument lies in the fact that, as copied from merican la, the term consideration used in this

section refers to the technical DconsiderationD defined by the merican a ?nstitute 4'estatement of (ontracts as

Danythin+ that is bar+ained for by the promisor and +iven by the promisee in echan+e for the promiseD 4lso, (orbin

on (ontracts, Fol. ?, p. 359. But, as e have seen, PirovanoAs successful activities as officer of the &e la 'ama

#teamship (o. cannot be deemed such consideration for the +ift to his heirs, since the services ere rendered lon+

before the (ompany ceded the value of the life policies to said heirs> cession and services ere not the result of one

bar+ain or of a mutual echan+e of promises.

nd the n+lo-merican la treats a subsequent promise to pay for past services 4li/e one to pay for improvements

already made ithout prior request from the promisor to be a nudum pactum4'oscorla vs. Thomas, 3 G.B. ;3%>

Peters vs. Poro, ;5 ' 6$5> (arson vs. (lar/, ;5 m. &ec. 79> Boston vs. &od+e, $; m. &ec. ;26, i.e., one that is

unenforceable in vie of the common la rule that consideration must consist in a le+al benefit to the promisee or

some le+al detriment to the promisor.

hat is more, the actual consideration for the cession of the policies, as previously shon, as the (ompanyAs

+ratitude to Pirovano> so that under section $$$ of the (ode there is no consideration the value of hich can be

deducted from that of the property transferred as a +ift. i/e Dlove and affection,D +ratitude has no economic value

and is not DconsiderationD in the sense that the ord is used in this section of the Ta (ode.

s stated by (hief ustice )riffith of the #upreme (ourt of *ississippi in his ell-/non boo/, D:utlines of the aD

4p. ;2% E

ove and affection are not considerations of value E they are not estimable in terms of value. 0or are sentiments of+ratitude for +ratuitous part favors or /indnesses> nor are obli+ations hich are merely moral. ?t has been ell said

that if a moral obli+ation ere alone sufficient it ould remove the necessity for any consideration at all, since the fact

of ma/in+ a promise impose, the moral obli+ation to perform it.D

?t is of course perfectly possible that a donation or +ift should at the same time impose a burden or condition on the

donee involvin+ some economic liability for him. , for eample, may donate a parcel of land to B on condition that

the latter assume a mort+a+e eistin+ on the donated land. ?n this case the donee may ri+htfully insist that the +ift ta

be computed only on the value of the land less the value of the mort+a+e. This, in fact, is contemplated by rticle 6$9

of the (ivil (ode of $==9 4rt. 7;6 of the Ta (ode hen it provides that there is also a donation Dhen the +ift

imposes upon the donee a burden hich is less than the value of the thin+ +iven.D #ection $$$ of the Ta (ode has in

vie situations of this /ind, since it also prescribes that Dthe amount by hich the value of the property eceeded the

value of the considerationD shall be deemed a +ift for the purpose of the ta. .

Petitioners finally contend that, even assumin+ that the donation in question is sub8ect to doneesA +ift taes, the

imposition of the surchar+e of 5 and interest of $ per month from *arch =, $955 as not 8ustified because the

proceeds of the life insurance policies ere actually received on pril 6, $955 and *ay $;, $955 only and in

accordance ith #ection $$54c of the Ta (ode> the filin+ of the returns of such ta became due on *arch $, $956

and the ta became payable on *ay $5, $956, as provided for in #ection $$64a of the same (ode. ?n other ords,

petitioners maintain that the assessment and demand for doneesA +ift taes as prematurely made and of no le+al

effect> hence, they should not be held liable for such surchar+e and interest.

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?t is ell to note, and it is not disputed, that petitioners-donees have failed to file any +ift ta return and that they also

failed to pay the amount of the assessment made a+ainst them by respondent in $955. This situation is covered by

#ection $$94b 4$ and 4c and #ection $;2 of the Ta (ode!

4b &eficiency.

4$ Payment not etended. E here a deficiency, or any interest assessed in connection thereith, or anyaddition to the taes provided for in section one hundred tenty is not paid in full ithin thirty days from the

date of the notice and demand from the (ommissioner, there shall be collected as a part of the taes,

interest upon the unpaid amount at the rate of one per centuma month from the date of such notice and

demand until it is paid. 4section $$9

4c Surcharge. E ?f any amount of the taes included in the notice and demand from the (ommissioner of

?nternal 'evenue is not paid in full ithin thirty days after such notice and demand, there shall be collected

in addition to the interest prescribed above as a part of the taes a surchar+e of five per centum of the

unpaid amount. 4sec. $$9

The failure to file a return as found by the loer court to be due to reasonable cause and not to illful ne+lect. :n

this score, the elimination by the loer court of the ;5 surchar+e is ad valorempenalty hich respondent

(ommissioner had imposed pursuant to #ection $;2 of the Ta (ode as proper, since said #ection $;2 vests in the

(ommissioner of ?nternal 'evenue or in the ta court poer and authority to impose or not to impose such penalty

dependin+ upon hether or not reasonable cause has been shon in the non-filin+ of such return.

:n the other hand, unli/e said #ection $;2, #ection $$9, para+raphs 4b 4$ and 4c of the Ta (ode, does not confer

on the (ommissioner of ?nternal 'evenue or on the courts any poer and discretion not to impose such interest and

surchar+e. ?t is li/eise provided for by la that an appeal to the (ourt of Ta ppeals from a decision of the

(ommissioner of ?nternal 'evenue shall not suspend the payment or collection of the ta liability of the tapayer

unless a motion to that effect shall have been presented to the court and +ranted by it on the +round that such

collection ill 8eopardi@e the interest of the tapayer 4#ec. $$, 'epublic ct 0o. $$;5> 'ule $;, 'ules of the (ourt of

Ta ppeals. ?t should further be noted that E

?t has been the uniform holdin+ of this (ourt that no suit for en8oinin+ the collection of a ta, disputed orundisputed, can be brou+ht, the remedy bein+ to pay the ta first, formerly under protest and no ithout

need of protect, file the claim ith the (ollector, and if he denies it, brin+ an action for recovery a+ainst him.

4&avid v. 'amos, et al., 92 Phil. 35$

#ection 326 of the 0ational ?nternal 'evenue (ode ... lays don the procedure to be folloed in those cases

herein a tapayer entertains some doubt about the correctness of a ta sou+ht to be collected. #aid

section provides that the ta, should first be paid and the tapayer should sue for its recovery afterards.

The purpose of the la obviously is to prevent delay in the collection of taes, upon hich the )overnment

depends for its eistence. To allo a tapayer to first secure a rulin+ as re+ards the validity of the ta before

payin+ it ould be to defeat this purpose. 40ational &ental #upply (o. vs. *eer, 92 Phil. ;65

Petitioners did not file in the loer court any motion for the suspension of payment or collection of the amount of

assessment made a+ainst them.

:n the basis of the above-stated provisions of la and applicable authorities, it is evident that the imposition of $

interest monthly and 5 surchar+e is 8ustified and le+al. s succinctly stated by the court belo, said imposition is

Dmandatory and may not be aived by the (ommissioner of ?nternal 'evenue or by the courtsD 4'esolution on

petitionersA motion for reconsideration, nne H?F, petition. Cence, said imposition of interest and surchar+e by the

loer court should be upheld.

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C"'"

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Fiva, throu+h defendant &el 'osario, offered B#-(B0, throu+h its vice-president (haro #antos-(oncio, a list ofthree 43 film pac/a+es 436 title from hich B#-(B0 may eercise its ri+ht of first refusal under the afore-saida+reement 4"hs. K$L par. ;, K;,L K;-L and K;-B M Fiva. B#-(B0, hoever throu+h *rs. (oncio, Kcan tic/ off onlyten 4$2 titlesL 4from the list Ke can purchaseL 4"h. K3L M Fiva and therefore did not accept said list 4T#0, une =,$99;, pp. 9-$2. The titles tic/ed off by *rs. (oncio are not the sub8ect of the case at bar ecept the film K*a+in+#ino Na *an.L

K9L MFiva.

:n pril ;, $99;, defendant &el 'osario and B#-(B0Os +eneral mana+er, "u+enio ope@ ???, met at the Tamarind)rill 'estaurant in Gue@on (ity to discuss the pac/a+e proposal of F?F. hat transpired in that lunch meetin+ is

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the sub8ect of conflictin+ versions. *r. ope@ testified that he and *r. &el 'osario alle+edly a+reed that B#-(B0as +ranted eclusive film ri+hts to fourteen 4$% films for a total consideration of P36 million> that he alle+edly putthis a+reement as to the price and number of films in a Knap/inL and si+ned it and +ave it to *r. &el 'osario 4"h. &>T#0, pp. ;%-;6, 77-7=, une =, $99;. :n the other hand. &el 'osario denied havin+ made any a+reement ithope@ re+ardin+ the $% Fiva films> denied the eistence of a nap/in in hich ope@ rote somethin+> and insistedthat hat he and ope@ discussed at the lunch meetin+ as FivaOs film pac/a+e offer of $2% films 45; ori+inals and 5;re-runs for a total price of P62 million. *r. ope@ promisin+ IsicJto ma/e a counter proposal hich came in the form

of a proposal contract nne K(L of the complaint 4"h. K$L M Fiva> "h K(L M B#-(B0.

:n pril 26, $99;, &el 'osario and *r. )raciano )o@on of 'B# #enior vice-president for

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preliminary in8unction to en8oin the 'T( from enforcin+ said orders. The case as doc/eted as (-).'. #P 0o.;9322.

:n 3 0ovember $99;, the (ourt of ppeals issued a temporary restrainin+ orderI$=Jto en8oin the airin+,broadcastin+, and televisin+ of any or all of the films involved in the controversy.

:n $= &ecember $99;, the (ourt of ppeals promul+ated a decisionI$9Jdismissin+ the petition in (-).'. #P0o. ;9322 for bein+ premature. B#-(B0 challen+ed the dismissal in a petition for revie filed ith this (ourt on $9

anuary $993, hich as doc/eted s ).'. 0o. $2=363.

?n the meantime the 'T( received the evidence for the parties in (ivil (ase 0o. G-9;-$;329. Thereafter, on ;=pril $993, it rendered a decisionI;2Jin favor of 'B# and F?F and a+ainst B#-(B0 disposin+ as follos!

C"'"

b P$9$,=%3.22 for the amount of print advertisement for K*a+in+ #ino Na *anL in variousnespapers>

c ttorneyOs fees in the amount of P$ million>

d P5 million as and by ay of moral dama+es>

e P5 million as and by ay of eemplary dama+es>

43

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$.% B#-(B0 shall have the ri+ht of first refusal to the net tenty-four 4;% F?F films for TF telecast under suchterms as may be a+reed upon by the parties hereto, provided, hoever, that such ri+ht shall be eercised by B#-(B0 ithin a period of fifteen 4$5 days from the actual offer in ritin+ 4'ecords, p. $%.

ICJoever, it is very clear that said ri+ht of first refusal in favor of B#-(B0 shall still be sub8ected to such terms asmay be a+reed upon by the parties thereto, and that the said ri+ht shall be eercised by B#-(B0 ithin fifteen 4$5days from the actual offer in ritin+.

#aid para+. $.% of the a+reement "hibit KL on the ri+ht of first refusal did not fi the price of the film ri+ht to thetenty-four 4;% films, nor did it specify the terms thereof. The same are still left to be a+reed upon by the parties.

?n the instant case, B#-(B0Os letter of re8ection "hibit 3 4'ecords, p. =9 stated that it can only tic/ off ten 4$2films, and the draft contract "hibit K(L accepted only fourteen 4$% films, hile para+. $.% of "hibit KL spea/s of thenet tenty-four 4;% films.

The offer of F?F as sometime in &ecember $99$, 4"hibits ;, ;-, ;-B> 'ecords, pp. =6-==> &ecision, p. $$,'ecords, p. $$52, hen the first list of F?F films as sent by *r. &el 'osario to B#-(B0. The Fice President ofB#-(B0, *rs. (haro #antos-(oncio, sent a letter dated anuary 6, $99; 4"hibit 3, 'ecords, p. =9 here B#-(B0 eercised its ri+ht of refusal by re8ectin+ the offer of F?F. s aptly observed by the trial court, ith the saidletter of *rs. (oncio of anuary 6, $99;, B#-(B0 had lost its ri+ht of first refusal. nd even if e rec/on the fifteen4$5 day period from

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of the second list 4the $99; on the contrary, it as brou+ht outdurin+ trial that ith or ithout the case or in8unction, 'B# ould have spent such an amount to +enerate interest inthe film.

B#-(B0 further contends that there as no other clear basis for the aards of moral and eemplarydama+es. The controversy involvin+ B#-(B0 and 'B# did not in any ay ori+inate from business transactionbeteen them. The claims for such dama+es did not arise from any contractual dealin+s or from specific actscommitted by B#-(B0 a+ainst 'B# that may be characteri@ed as anton, fraudulent, or rec/less> they arose byvirtue only of the filin+ of the complaint. n aard of moral and eemplary dama+es is not arranted here therecord is bereft of any proof that a party acted maliciously or in bad faith in filin+ an action. I;7J?n any case, free resortto courts for redress of ron+s is a matter of public policy. The la reco+ni@es the ri+ht of every one to sue for thathich he honestly believes to be his ri+ht ithout fear of standin+ trial for dama+es here by lac/ ofsufficient evidence, le+al technicalities, or a different interpretation of the las on the matter, the case ould lose+round.I;=J:ne ho, ma/es use of his on le+al ri+ht does no in8ury. I;9J?f dama+e results from filin+ of the complaint, itis damnum abs$ue in+uria.I32JBesides, moral dama+es are +enerally not aarded in favor of a 8uridical person, unlessit en8oys a +ood reputation that as debased by the offendin+ party resultin+ in social humiliation. I3$J

s re+ards the aard of attorneyOs fees, B#-(B0 maintains that the same had no factual, le+al, or equitable8ustification. ?n sustainin+ the trial courtOs aard, the (ourt of ppeals acted in clear disre+ard of the doctrine laiddon in )uan v. CamaganacanI3;Jthat the tet of the decision should state the reason hy attorneyOs fees are bein+aarded> otherise, the aard should be disalloed. Besides, no bad faith has been imputed on, much less provedas havin+ been committed by, B#-(B0. ?t has been held that Khere no sufficient shoin+ of bad faith ould bereflected in a partyOs persistence in a case other than an erroneous conviction of the ri+hteousness of his cause,

attorneyOs fees shall not be recovered as cost.L I33J

:n the other hand, 'B# asserts that there as no perfected contract beteen B#-(B0 and F?F absentmeetin+ of minds beteen them re+ardin+ the ob8ect and consideration of the alle+ed contract. ?t affirms that B#-(B0Os claim of a ri+ht of first refusal as correctly re8ected by the trial court. 'B# insists the premium it had paid forthe counterbond constituted a pecuniary loss upon hich it may recover. ?t as obli+ed to put up the counterbonddue to the in8unction procured by B#-(B0. #ince the trial court found that B#-(B0 had no cause of action or validclaim a+ainst 'B# and, therefore not entitled to the rit of in8unction, 'B# could recover from B#-(B0 the premiumpaid on the counterbond. (ontrary to the claim of B#-(B0, the cash bond ould prove to be more epensive, asthe loss ould be equivalent to the cost of money 'B# ould fore+o in case the P32 million came from its funds oras borroed from ban/s.

'B# li/eise asserts that it as entitled to the cost of advertisements for the cancelled shoin+ of the filmK!aging Sino "a !anL because the print advertisements ere out to announce the shoin+ on a particular day andhour on (hannel 7, i.e.#in its entirety at one time, not as series to be shon on a periodic basis. Cence, the print

advertisements ere +ood and relevant for the particular date of shoin+, and since the film could not be shon onthat particular date and hour because of the in8unction, the epenses for the advertisements had +one to aste.

s re+ards moral and eemplary dama+es, 'B# asserts that B#-(B0 filed the case and secured in8unctionspurely for the purpose of harassin+ and pre8udicin+ 'B#. Pursuant then to rticles $9 and ;$ of the (ivil (ode, B#-(B0 must be held liable for such dama+es. (itin+ ,olentino,I3%Jdama+es may be aarded in cases of abuse of ri+htseven if the done is not illicit, and there is abuse of ri+hts here a plaintiff institutes an action purely for the purpose ofharassin+ or pre8udicin+ the defendant.

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?n support of its stand that a 8uridical entity can recover moral and eemplary dama+es, private respondent 'B#cited People v. *anero,I35Jhere it as stated that such entity may recover moral and eemplary dama+es if it has a+ood reputation that is debased resultin+ in social humiliation. ?t then ratiocinates> thus!

There can be no doubt that 'B#O reputation has been debased by B#-(B0Os acts in this case. hen 'B# as notable to fulfill its commitment to the viein+ public to sho the film K*a+in+ #ino Na *anL on the scheduled dates andtimes 4and on to occasions that 'B# advertised, it suffered serious embarrassment and social humiliation. hen

the shoin+ as cancelled, irate vieers called up 'B#O offices and sub8ected 'B# to verbal abuse 4KAnnounce %ayong announce# hindi ninyo naman ilalabas 'nanlolo%o yata %ayo& 4"h. 3-'B#, par.3. This alone as not somethin+'B# brou+ht upon itself. ?t as eactly hat B#-(B0 had planted to happen.

The amount of moral and eemplary dama+es cannot be said to be ecessive. To reasons 8ustify the amount of theaard.

The first is that the humiliation suffered by 'B#, is national in etent. 'B#O operations as a broadcastin+ company isIsicJ nationide. ?ts clientele, li/e that of B#-(B0, consists of those ho on and atch television. ?t is not anea++eration to state, and it is a matter of 8udicial notice that almost every other person in the country atchestelevision. The humiliation suffered by 'B# is multiplied by the number of televieers ho had anticipated theshoin+ of the film, K*a+in+ #ino Na *anL on *ay ;= and 0ovember 3, $99; but did not see it oin+ to thecancellation. dded to this are the advertisers ho had placed commercial spots for the telecast and to hom 'B#had a commitment in consideration of the placement to sho the film in the dates and times specified.

The second is that it is a competitor that caused 'B# suffer the humiliation. The humiliation and in8ury are far +reaterin de+ree hen caused by an entity hose ultimate business ob8ective is to lure customers 4vieers in this caseaay from the competition.I36J

4; ob8ect certain hich is thesub8ect of the contract> and 43 cause of the obli+ation, hich is established. I3=J contract under+oes three sta+es!

4a preparation, conception, or +eneration, hich is the period of ne+otiation and bar+ainin+, endin+ at themoment of a+reement of the parties>

4b perfection or birth of the contract, hich is the moment hen the parties come to a+ree on the termsof the contract> and

4c consummation or death, hich is the fulfillment or performance of the terms a+reed upon in thecontract.I39J

(ontracts that are consensual in nature are perfected upon mere meetin+ of the minds. :nce there is

concurrence beteen the offer and the acceptance upon the sub8ect matter, consideration, and terms of payment acontract is produced. The offer must be certain. To convert the offer into a contract, the acceptance must beabsolute and must not qualify the terms of the offer> it must be plain, unequivocal, unconditional, and ithout varianceof any sort from the proposal. qualified acceptance, or one that involves a ne proposal, constitutes a counter-offerand is a re8ection of the ori+inal offer. (onsequently, hen somethin+ is desired hich is not eactly hat is proposedin the offer, such acceptance is not sufficient to +enerate consent because any modification or variation from theterms of the offer annuls the offer.I%2J

hen *r. &el 'osario of Fiva met *r. ope@ of B#-(B0 at the Tamarind )rill on ; pril $99; to discuss thepac/a+e of films, said pac/a+e of $2% F?F films as F?FOs offer to B#-(B0 to enter into a ne

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ehibition of 53 films for a consideration of P35 million. This counter-proposal could be nothin+ less than the counter-offer of *r. ope@ durin+ his conference ith &el 'osario at Tamarind )rill 'estaurant. (learly, there as noacceptance of F?FOs offer, for it as met by a counter-offer hich substantially varied the terms of the offer.

B#-(B0Os reliance in im/et/ai #ons *illin+, ?nc. v. (ourt of ppealsI%$Jand (illonco Realty Company v.)ormaheco# *nc.,I%;Jis misplaced. ?n these cases, it as held that an acceptance may contain a request for certainchan+es in the terms of the offer and yet be a bindin+ acceptance as lon+ as Kit is clear that the meanin+ of theacceptance is positively and unequivocally to accept the offer, hether such request is +ranted or not.L This rulin+as, hoever, reversed in the resolution of ;9 *arch $996, I%3Jhich ruled that the acceptance of an offer must beunqualified and absolute, i.e.#it Kmust be identical in all respects ith that of the offer so as to produce consent ormeetin+s of the minds.L

:n the other hand, in (illonco#cited in im%et%ai#the alle+ed chan+es in the revised counter-offer ere notmaterial but merely clarificatory of hat had previously been a+reed upon. ?t cited the statement in Stuart v. ran%linife *nsurance Co.I%%Jthat Ka vendorOs chan+e in a phrase of the offer to purchase, hich chan+e does not essentiallychan+e the terms of the offer, does not amount to a re8ection of the offer and the tender of a counter-offer.LI%5JCoever, hen any of the elements of the contract is modified upon acceptance, such alteration amounts toa counter-offer.

?n the case at bar, B#-(B0 made no unqualified acceptance of F?FOs offer hence, they underent period ofbar+ainin+. B#-(B0 then formali@ed its counter-proposals or counter-offer in a draft contract. F?F throu+h itsBoard of &irectors, re8ected such counter-offer. "ven if it be conceded arguendothat &el 'osario had accepted thecounter-offer, the acceptance did not bind F?F, as there as no proof hatsoever that &el 'osario had the specific

authority to do so.

nder the (orporation (ode,I%6Junless otherise provided by said (ode, corporate poers, such as the poerto enter into contracts, are eercised by the Board of &irectors. Coever, the Board may dele+ate such poers toeither an eecutive committee or officials or contracted mana+ers. The dele+ation, ecept for the eecutivecommittee, must be for specific purposes.I%7J&ele+ation to officers ma/es the latter a+ents of the corporation>accordin+ly, the +eneral rules of a+ency as to the bindin+ effects of their acts ould apply. I%=J

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:n cross-eamination *r. ope@ testified!

G hat as ritten in this nap/inR

The total price, the brea/don the /non Fiva movies, the 7 bloc/buster movies and the other 7 Fiva moviesbecause the price as bro/en don accordin+ly. The none IsicJ Fiva and the seven other Fiva movies andthe sharin+ beteen the cash portion and the concerned spot portion in the total amount of P35 million

pesos.

0o, hich is hichR P36 million or P35 millionR This ea/ens B#-(B0Os claim.

tsn pp. ;3-;%, une 2=, $99;. The saiddraft has a ell defined meanin+.

Q

#ince "hibit K(L is only a draft, or a tentative, provisional or preparatory ritin+ prepared for discussion, the termsand conditions thereof could not have been previously a+reed upon by B#-(B0 and Fiva. "hibit K(L could nottherefore le+ally bind Fiva, not havin+ a+reed thereto. ?n fact, *s. (oncio admitted that the terms and conditionsembodied in "hibit K(L ere prepared by B#-(B0Os layers and there as no discussion on said terms andconditionsQ.

s the parties had not yet discussed the proposed terms and conditions in "hibit K(,L and there as no evidencehatsoever that Fiva a+reed to the terms and conditions thereof, said document cannot be a bindin+ contract. Thefact that Fiva refused to si+n "hibit K(L reveals only to IsicJ ell that it did not a+ree on its terms and conditions,and this court has no authority to compel Fiva to a+ree thereto.

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as it should be because corporate poer to enter into a contract is lod+ed in the Board of &irectors. 4#ec. ;3,(orporation (ode. ithout such board approval by the Fiva board, hatever a+reement ope@ and &el 'osarioarrived at could not ripen into a valid bindin+ upon Fiva 41ao Na #in Tradin+ vs. (ourt of ppeals, ;29 #('763. The evidence adduced shos that the Board of &irectors of Fiva re8ected "hibit K(L and insisted that the filmpac/a+e for $2% films be maintained 4"h. K7-$ M (ica. I%9J

The contention that B#-(B0 had yet to fully eercise its ri+ht of first refusal over tenty-four films under the

$992

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ppeals to challen+e the order on the matter. (learly then, it as not necessary for 'B# to file acounterbond. Cence, B#-(B0 cannot be held responsible for the premium 'B# paid for the counterbond.

0either could B#-(B0 be liable for the print advertisements for K*a+in+ #ino Na *anL for lac/ of sufficientle+al basis. The 'T( issued a temporary restrainin+ order and later, a rit of preliminary in8unction on the basis of itsdetermination that there eisted sufficient +round for the issuance thereof. 0otably, the 'T( did not dissolve thein8unction on the +round of lac/ of le+al and factual basis, but because of the plea of 'B# that it be alloed to put upa counterbond.

s re+ards attorneyOs fees, the la is clear that in the absence of stipulation, attorneyOs fees may be recoveredas actual or compensatory dama+es under any of the circumstances provided for in rticle ;;2= of the (ivil (ode. I5=J

The +eneral rule is that attorneyOs fees cannot be recovered as part of dama+es because of the policy that nopremium should be placed on the ri+ht to liti+ate. I59JThey are not to be aarded every time a party ins a suit. Thepoer of the court t aard attorneyOs fees under rticle ;;2= demands factual, le+al, and equitable 8ustification.I62J"ven hen a claimant is compelled to liti+ate ith third persons or to incur epenses to protect his ri+hts, stillattorneyOs fees may not be aarded here no sufficient shoin+ of bad faith could be reflected in a partyOspersistence in a case other than an erroneous conviction of the ri+hteousness of his cause.I6$J

s to moral dama+es the la is #ection $, (hapter 3, Title HF???, Boo/ ?F of the (ivil (ode. rticle ;;$7 thereofdefines hat are included in moral dama+es, hile rticle ;;$9 enumerates the cases here they may berecovered. rticle ;;;2 provides that moral dama+es may be recovered in breaches of contract here the defendantacted fraudulently or in bad faith. 'B#Os claim for moral dama+es could possibly fall only under item 4$2 of rticle

;;$9, thereof hich reads!

4$2 cts and actions referred to in rticles ;$, ;6, ;7, ;=, ;9, 32, 3;, 3% and 35.

*oral dama+es are in the cate+ory of an aard desi+ned to compensate the claimant for actual in8ury sufferedand not to impose a penalty on the ron+doer.I6;JThe aard is not meant to enrich the complainant at the epense ofthe defendant, but to enable the in8ured party to obtain means, diversion, or amusements that ill serve to obviate themoral sufferin+ he has under+one. ?t is aimed at the restoration, ithin the limits of the possible, of thespiritual status $uo ante, and should be proportionate to the sufferin+ inflicted.I63JTrial courts must then +uard a+ainstthe aard of eorbitant dama+es> they should eercise balanced restrained and measured ob8ectivity to avoidsuspicion that it as due to passion, pre8udice, or corruption or the part of the trial court .I6%J

The aard of moral dama+es cannot be +ranted in favor of a corporation because, bein+ an artificial personand havin+ eistence only in le+al contemplation, it has no feelin+s, no emotions, no senses. ?t cannot, therefore,eperience physical sufferin+ and mental an+uish, hich can be eperienced only by one havin+ a nervous system.I65JThe statement in People v. *aneroI66Jand !ambulao umber Co. v. P/) I67Jthat a corporation may recover moraldama+es if it Khas a +ood reputation that is debased, resultin+ in social humiliationL is an obiter dictum. :n this scorealone the aard for dama+es must be set aside, since 'B# is a corporation.

The basic la on eemplary dama+es is #ection 5 (hapter 3, Title HF???, Boo/ ?F of the (ivil (ode. These areimposed by ay of eample or correction for the public +ood, in addition to moral, temperate, liquidated, orcompensatory dama+es.I6=JThey are recoverable in criminal cases as part of the civil liability hen the crime ascommitted ith one or more a++ravatin+ circumstances>I69Jin quasi-delicts, if the defendant acted ith +rossne+li+ence>I72Jand in contracts and quasi-contracts, if the defendant acted in a anton, fraudulent, rec/less,oppressive, or malevolent manner.I7$J

?t may be reiterated that the claim of 'B# a+ainst B#-(B0 is not based on contract, quasi-contract, delict, orquasi-delict. Cence, the claims for moral and eemplary dama+es can only be based on rticles $9, ;2, and ;$ ofthe (ivil (ode.

The elements of abuse of ri+ht under rticle $9 are the folloin+! 4$ the eistence of a le+al ri+ht or duty, 4;hich is eercised in bad faith, and 43 for the sole intent of pre8udicin+ or in8urin+ another. rticle ;2 spea/s of the+eneral sanction for all provisions of la hich do not especially provide for their on sanction> hile rticle ;$ dealsith acts contra bonus mores, and has the folloin+ elements! 4$ there is an act hich is le+al, 4; but hich iscontrary to morals, +ood custom, public order, or public policy, and 43 and it is done ith intent to in8ure.I7;J

Ferily then, malice or bad faith is at the core of rticles $9, ;2, and ;$. *alice or bad faith implies a consciousand intentional desi+n to do a ron+ful act for a dishonest purpose or moral obliquity. I73J#uch must be substantiatedby evidence.I7%J

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There is no adequate proof that B#-(B0 as inspired by malice or bad faith. ?t as honestly convinced of themerits of its cause after it had under+one serious ne+otiations culminatin+ in its formal submission of a draftcontract. #ettled is the rule that the adverse result of an action does notper sema/e the action ron+ful and sub8ectthe actor to dama+es, for the la could not have meant impose a penalty on the ri+ht to liti+ate. ?f dama+es resultfrom a personOs eercise of a ri+ht, it is damnum abs$ue in+uria.I75J

0!R!#OR!, the instant petition is )'0T"&. The challen+ed decision of the (ourt of ppeals in (-).'.(F 0o. %%$;5 is hereby '"F"'#"& ecept as to unappealed aard of attorneyOs fees in favor of F?F Productions,?nc.

0o pronouncement as to costs.

"O OR!R!.

G.R. No. L-53961 Ju*e 3), 198

NATIONAL !V!LOPM!NT COMPAN%, petitioner,

vs.

COMMI""ION!R O# INT!RNAL R!V!N$!, respondent.

CR$2, J.:

e are as/ed to reverse the decision of the (ourt of Ta ppeals on the +round that it is erroneous. e have

carefully studied it and find it is not> on the contrary, it is supported by la and doctrine. #o findin+, e affirm.

'educed to simplest terms, the bac/+round facts are as follos.

The national &evelopment (ompany entered into contracts in To/yo ith several apanese shipbuildin+ companies

for the construction of telve ocean-+oin+ vessels. 1The purchase price as to come from the proceeds of bonds

issued by the (entral Ban/. (?nitial payments ere made in cash and throu+h irrevocable letters of credit. 3

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'epublic of the Philippines. Pursuant thereto, the remainin+ payments and the interests thereon ere remitted in

due time by the 0&( to To/yo. The vessels ere eventually completed and delivered to the 0&( in To/yo. 5

The 0&( remitted to the shipbuilders in To/yo the total amount of #S%,266,5=2.72 as interest on the balance of the

purchase price. 0o ta as ithheld. The (ommissioner then held the 0&( liable on such ta in the total sum of

P5,$$5,;3%.7%. 0e+otiations folloed but failed. The B?' thereupon served on the 0&( a arrant of distraint and levy

to enforce collection of the claimed amount.6

The 0&( ent to the (ourt of Ta ppeals.

The B?' as sustained by the (T ecept for a sli+ht reduction of the ta deficiency in the sum of P922.22,

representin+ the compromise penalty. The 0&( then came to this (ourt in a petition for certiorari.

The petition must fail for the folloin+ reasons.

The apanese shipbuilders ere liable to ta on the interest remitted to them under #ection 37 of the Ta (ode, thus!

#"(. 37. *ncome from sources 0ithin the Philippines. 1 4a )ross income from sources ithin the

Philippines. E The folloin+ items of +ross income shall be treated as +ross income from sources

ithin the Philippines!

4$ *nterest. 1 ?nterest derived from sources ithin the Philippines, and interest on bonds, notes,

orother interest-bearing obligations of residents# corporate or other0ise2

The petitioner ar+ues that the apanese shipbuilders ere not sub8ect to ta under the above provision because all

the related activities E the si+nin+ of the contract, the construction of the vessels, the payment of the stipulated price,

and their delivery to the 0&( E ere done in To/yo. 8The la, hoever, does not spea/ of activity but of Dsource,D

hich in this case is the 0&(. This is a domestic and resident corporation ith principal offices in *anila.

s the Ta (ourt put it!

?t is quite apparent, under the terms of the la, that the )overnmentAs ri+ht to levy and collect

income ta on interest received by forei+n corporations not en+a+ed in trade or business ithin the

Philippines is not planted upon the condition that Athe activity or labor E and the sale from hich

the 4interest income floed had its situsA in the Philippines. The la specifies! A?nterest derived

from sources ithin the Philippines, and interest on bonds, notes, or other interest-bearin+

obli+ations of residents, corporate or otherise.A 0othin+ there spea/s of the Aact or activityA of non-

resident corporations in the Philippines, or place here the contract is si+ned. The residence of the

obligorho pays the interest rather than the physical location of the securities, bonds or notes or

the place of payment, is the determinin+ factor of the source of interest income. 4*ertens, a of

#umitomo Ban/,

td., $9 BT %=2> "state of .". *c/innon, 6 BT %$;> #tandard *arine ?ns. (o., td., % BT =53>

*arine ?ns. (o., td., % BT =67. ccordin+ly, if the obli+or is a resident of the Philippines the

interest payment paid by him can have no other source than ithin the Philippines. The interest ispaid not by the bond, note or other interest-bearin+ obli+ations, but by the obli+or. 4#ee mertens,

?d.# Fol. =, p. $;%.

Cere in the case at bar, petitioner 0ational &evelopment (ompany, a corporation duly or+ani@ed

and eistin+ under the las of the 'epublic of the Philippines, ith address and principal office at

(alle Pure@a, #ta. *esa, *anila, Philippines unconditionally promised to pay the apanese

shipbuilders, as obli+or in fourteen 4$% promissory notes for each vessel, the balance of the

contract price of the telve 4$; ocean-+oin+ vessels purchased and acquired by it from the

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apanese corporations, includin+ the interest on the principal sum at the rate of five per cent 45

per annum. 4#ee "hs. D&D, &-$D to D&-$3D, pp. $22-$$3, (T 'ecords> par. $$, Partial #tipulation of

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#ec. 534b. /onresident aliens.E ll persons, corporations and +eneral co-partnership 4companies

colectivas, in hatever capacity actin+, includin+ lessees or mort+a+ors of real or personal

capacity, eecutors, administrators, receivers, conservators, fiduciaries, employers, and all officers

and employees of the )overnment of the Philippines havin+ control, receipt, custody> disposal or

payment of interest, dividends, rents, salaries, a+es, premiums, annuities, compensations,

remunerations, emoluments, or other fied or determinable annual or cate+orical +ains, profits and

income of any nonresident alien individual, not en+a+ed in trade or business ithin the Philippinesand not havin+ any office or place of business therein, shall 4ecept in the cases provided for in

subsection 4a of this section deduct and ithhold from such annual or periodical +ains, profits and

income a ta to tenty 4no 32per centum thereof8 ...

#ec. 5%. Payment of corporation income ta at source. E ?n the case of forei+n corporations

sub8ect to taation under this Title not en+a+ed in trade or business ithin the Philippines and not

havin+ any office or place of business therein, there shall be deducted and ithheld at the source in

the same manner and upon the same items as is provided in section fifty-three a ta equal to thirty

4no 35per centumthereof, and such ta shall be returned and paid in the same manner and

sub8ect to the same conditions as provided in that section!....

*anifestly, the said underta/in+ of the 'epublic of the Philippines merely +uaranteed the obli+ations of the 0&( but

ithout diminution of its tain+ poer under eistin+ las.

?n su++estin+ that the 0&( is merely an administrator of the funds of the 'epublic of the Philippines, the petitioner

closes its eyes to the nature of this entity as a corporation. s such, it is +overned in its proprietary activities not only

by its charter but also by the (orporation (ode and other pertinent las.

The petitioner also for+ets that it is not the 0&( that is bein+ taed. The ta as due on the interests earned by the

apanese shipbuilders. ?t as the income of these companies and not the 'epublic of the Philippines that as

sub8ect to the ta the 0&( did not ithhold.

?n effect, therefore, the imposition of the deficiency taes on the 0&( is a penaltyfor its failure to ithhold the same

from the apanese shipbuilders. #uch liability is imposed by #ection 534c of the Ta (ode, thus!

#ection 534c. Return and Payment. E "very person required to deduct and ithhold any ta under

this section shall ma/e return thereof, in duplicate, on or before the fifteenth day of pril of each

year, and, on or before the time fied by la for the payment of the ta, shall pay the amount

ithheld to the officer of the )overnment of the Philippines authori@ed to receive it. "very such

person is made personally liable for such ta, and is indemnified a+ainst the claims and demands

of any person for the amount of any payments made in accordance ith the provisions of this

section. 4s amended by #ection 9, '.. 0o. ;3%3.

?nPhilippine Guaranty Co. v. ,he Commissioner of *nternal Revenue and the Court of ,a Appeals#13 the (ourt

quoted ith approval the folloin+ re+ulation of the B?' on the responsibilities of ithholdin+ a+ents!

?n case of doubt, a ithholdin+ a+ent may alays protect himself by ithholdin+ the ta due, and

promptly causin+ a query to be addressed to the (ommissioner of ?nternal 'evenue for the

determination hether or not the income paid to an individual is not sub8ect to ithholdin+. ?n case

the (ommissioner of ?nternal 'evenue decides that the income paid to an individual is not sub8ect

to ithholdin+, the ithholdin+ a+ent may thereupon remit the amount of a ta ithheld. 4;nd par.,

#ec. ;22, ?ncome Ta 'e+ulations.

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D#trict observance of said steps is required of a ithholdin+ a+ent before he could be released from liability,D so said

ustice ose P. Ben+son, ho rote the decision. D)enerally, the la frons upon eemption from taation> hence,

an eemptin+ provision should be construed strictissimi +uris.D 1

The petitioner as remiss in the dischar+e of its obli+ation as the ithholdin+ a+ent of the +overnment an so should

be held liable for its omission.

C"'"

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G.R. No. 96)16 Octo4e+ 1, 1991

COMMI""ION!R O# INT!RNAL R!V!N$!, petitioner,

vs.

T! CO$RT O# APP!AL" a* !#R!N P. CA"TAN!A, respondents.

eovigildo !onasterial for private respondent.

R 3 S O 9 , * O /

PADILLA, J.:p

,he issue to be resolved in this petition for revie0 on certiorari is 0hether or not terminal leave pay received by a

government official or employee on the occasion of his compulsory retirement from the government service is sub+ect

to 0ithholding 4income6 ta.

:e resolve the issue in the negative.

Private respondent 3fren P. Castaneda retired from the government service as Revenue Attache in the Philippine

3mbassy in ondon# 3ngland# on ;< December ;=>? under the provisions of Section ;? 4c6 of Common0ealth Act

;>@# as amended. 9pon retirement# he received# among other benefits# terminal leave pay from 0hich petitioner

Commissioner of *nternal Revenue 0ithheld P;?#B.; allegedly representing income ta thereon.

Castaneda filed a formal 0ritten claim 0ith petitioner for a refund of the P;?#B.;# contending that the cash

e$uivalent of his terminal leave is eempt from income ta. ,o comply 0ith the t0o-year prescriptive period 0ithin

0hich claims for refund may be filed# Castaneda filed on ;@ uly ;=>5 0ith the Court of ,a Appeals a Petition for

Revie0# see%ing the refund of income ta 0ithheld from his terminal leave pay.

,he Court of ,a Appeals found for private respondent Castaneda and ordered the Commissioner of *nternal

Revenue to refund Castaneda the sum of P;?#B.; 0ithheld as income ta. 4#Anne ECE# petition6.

Petitioner appealed the above-mentioned Court of ,a Appeals decision to this Court# 0hich 0as doc%eted as G.R.

/o. >

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,he Court has already ruled that the terminal leave pay received by a government official or employee is not sub+ect

to 0ithholding 4income6 ta. *n the recent case of esus /. )orromeo vs. ,he Fon. Civil Service Commission# et

al.# G.R. /o. =@

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G.R. No. 1((31 #e4+ua+y 1(, ())

COMMI""ION!R O# INT!RNAL R!V!N$!, Petitioner,

vs.

I"A&!LA C$LT$RAL CORPORATION,'espondent.

& " ( ? # ? : 0

%NAR!"-"ANTIAGO, J.:

Petitioner (ommissioner of ?nternal 'evenue 4(?' assails the #eptember 32, ;225 &ecision$of the (ourt of ppeals

in (-).'. #P 0o. 7=%;6 affirmin+ the

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assessment and may therefore be questioned before the (T. This conclusion as sustained by this (ourt on uly $,

;22$, in ).'. 0o. $35;$2.=The case as thus remanded to the (T for further proceedin+s.

:n nor of a circumstance, li/e delay in payment or breach of contract, that ould 8ustify the

application of compounded interest.

i/eise, the (T found that ?(( in fact ithheld $ epanded ithholdin+ ta on its claimed deduction for security

services as shon by the various payment orders and confirmation receipts it presented as evidence. The dispositive

portion of the (TOs &ecision, reads!

C"'" and 4; held that ?(( did not understate its interest

income from the promissory notes of 'ealty ?nvestment, ?nc> and that ?(( ithheld the required $ ithholdin+ ta

from the deductions for security services.

The requisites for the deductibility of ordinary and necessary trade, business, or professional epenses, li/e

epenses paid for le+al and auditin+ services, are! 4a the epense must be ordinary and necessary> 4b it must have

been paid or incurred durin+ the taable year> 4c it must have been paid or incurred in carryin+ on the trade or

business of the tapayer> and 4d it must be supported by receipts, records or other pertinent papers. $$

The requisite that it must have been paid or incurred durin+ the taable year is further qualified by #ection %5 of the

0ational ?nternal 'evenue (ode 40?'( hich states that! DItJhe deduction provided for in this Title shall be ta/en for

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the taable year in hich Vpaid or accruedO or Vpaid or incurredO, dependent upon the method of accountin+ upon the

basis of hich the net income is computed D.

ccountin+ methods for ta purposes comprise a set of rules for determinin+ hen and ho to report income and

deductions.$;?n the instant case, the accountin+ method used by ?(( is the accrual method.

'evenue udit *emorandum :rder 0o. $-;222, provides that under the accrual method of accountin+, epenses notbein+ claimed as deductions by a tapayer in the current year hen they are incurred cannot be claimed as

deduction from income for the succeedin+ year. Thus, a tapayer ho is authori@ed to deduct certain epenses and

other alloable deductions for the current year but failed to do so cannot deduct the same for the net year. $3

The accrual method relies upon the tapayerOs ri+ht to receive amounts or its obli+ation to pay them, in opposition to

actual receipt or payment, hich characteri@es the cash method of accountin+. mounts of income accrue here the

ri+ht to receive them become fied, here there is created an enforceable liability. #imilarly, liabilities are accrued

hen fied and determinable in amount, ithout re+ard to indeterminacy merely of time of payment.$%

and 4; the

availability of the reasonable accurate determination of such income or liability.

The all-events test requires the ri+ht to income or liability be fied, and the amount of such income or liability be

determined ith reasonable accuracy. Coever, the test does not demand that the amount of income or liability be

/non absolutely, only that a tapayer has at his disposal the information necessary to compute the amount ith

reasonable accuracy. The all-events test is satisfied here computation remains uncertain, if its basis is

unchan+eable> the test is satisfied here a computation may be un/non, but is not as much as un/noable, ithin

the taable year. Te aou*t o7 la4lty oe *ot a:e to 4e ete+*e e;actly< t ut 4e ete+*e =t

>+eao*a4le accu+acy.> Acco+*?ly, te te+ >+eao*a4le accu+acy> @le oet*? le ta* a* e;act o+

co@letely accu+ate aou*t.'15

Te @+o@+ety o7 a* acc+ual ut 4e u?e 4y te 7act tat a ta;@aye+ B*e=, o+ coul +eao*a4ly 4e

e;@ecte to a:e B*o=*, at te clo*? o7 t 4ooB 7o+ te ta;a4le yea+.'16ccrual method of accountin+presents lar+ely a question of fact> such that the tapayer bears the burden of proof of establishin+ the accrual of an

item of income or deduction.$7

(orollarily, it is a +overnin+ principle in taation that ta eemptions must be construed instrictissimi +urisa+ainst the

tapayer and liberally in favor of the tain+ authority> and one ho claims an eemption must be able to 8ustify the

same by the clearest +rant of or+anic or statute la. n eemption from the common burden cannot be permitted to

eist upon va+ue implications. nd since a deduction for income ta purposes parta/es of the nature of a ta

eemption, then it must also be strictly construed.$=

?n the instant case, the epenses for professional fees consist of epenses for le+al and auditin+ services. The

epenses for le+al services pertain to the $9=% and $9=5 le+al and retainer fees of the la firm Ben+@on Uarra+a

0arciso (udala Pecson @cuna Ben+son, and for reimbursement of the epenses of said firm in connection ith

?((Os ta problems for the year $9=%. s testified by the Treasurer of ?((, the firm has been its counsel since the

$962Os.$9

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s previously stated, the accrual method presents lar+ely a question of fact and that the tapayer bears the burden of

establishin+ the accrual of an epense or income. Coever, ?(( failed to dischar+e this burden. s to hen the firmOs

performance of its services in connection ith the $9=% ta problems ere completed, or hether ?(( eercised

reasonable dili+ence to inquire about the amount of its liability, or hether it does or does not possess the information

necessary to compute the amount of said liability ith reasonableaccuracy, are questions of fact hich ?(( never

established. ?t simply relied on the defense of delayed billin+ by the firm and the company, hich under the

circumstances, is not sufficient to eempt it from bein+ char+ed ith /noled+e of the reasonable amount of theepenses for le+al and auditin+ services.

?n the same vein, the professional fees of #)F (o. for auditin+ the financial statements of ?(( for the year $9=5

cannot be validly claimed as epense deductions in $9=6. This is so because ?(( failed to present evidence shoin+

that even ith only Dreasonable accuracy,D as the standard to ascertain its liability to #)F (o. in the year $9=5, it

cannot determine the professional fees hich said company ould char+e for its services.

?(( thus failed to dischar+e the burden of provin+ that the claimed epense deductions for the professional services

ere alloable deductions for the taable year $9=6. Cence, per 'evenue udit *emorandum :rder 0o. $-;222,

they cannot be validly deducted from its +ross income for the said year and ere therefore properly disalloed by the

B?'.

s to the epenses for security services, the records sho that these epenses ere incurred by ?(( in $9=6;2and

could therefore be properly claimed as deductions for the said year.

nent the purported understatement of interest income from the promissory notes of 'ealty ?nvestment, ?nc., e

sustain the findin+s of the (T and the (ourt of ppeals that no such understatement eists and that only simple

interest computation and not a compounded one should have been applied by the B?'. There is indeed no stipulation

beteen the latter and ?(( on the application of compounded interest.;$nder rticle $959 of the (ivil (ode, unless

there is a stipulation to the contrary, interest due should not further earn interest.

i/eise, the findin+s of the (T and the (ourt of ppeals that ?(( truly ithheld the required ithholdin+ ta from its

claimed deductions for security services and remitted the same to the B?' is supported by payment order and

confirmation receipts.;;Cence, the ssessment 0otice for deficiency epanded ithholdin+ ta as properly

cancelled and set aside.

?n sum, ssessment 0otice 0o.