Ad 2. Taourlig Gp°Pre Prilippings Ourt of Tak Appeals Quheunn Cry Limpan Iaves Tot vs. C.OTET. Case Ho, et al.

DECISION -

CTA CASE NO, 1358 ee owned by petitioner, the resumé ef which is as fol- lowss Dpeperties involved Glaimes 8 Alloved Disalleued 1) Parafiague (personal) © 6,130.45 & <a- £6,130.%5

2) Maeva (Vicente Bldg)

3) » nares Menge aa TT tee aa ” &e Scho yrs.) Pres —Gh2si2 22.066.78 tetel PiZaGida2d Ehachdals Benschia6z The disallowances were made by respondent with respect to the Parsfiaque properties on the ground that the expenditures of petitioner on said properties are persgnai expenses. in the absence of evidence that the said properties vere used in connection with the busi- ness of petitioner in 1958 (t.s.n. pp. 136, 137, 155, 156-158), the claimed deduction should be disallowed.

As appearing in the abeve resumf, respondent dis~ Sllowed portions of the expenses in connection with the Vicenta, Dewey Bivd. ani Ispelete Gilda buildings. The disallewances are premized on the ground that the improvements made on the buildings are capital ani shoulé/be amortized.

rom the evidence of record, it appears that expenditares were incurred on anterials used for re- pairs in the nature of replacement of partitions, doors, windows anf other parts of the buildings owned by pe- 321 ee | ee

DSCISION «

CTA CASE MG, 1358 .

-$- titioner; fer plastering and painting the said build- ings; for repairs ef the air conditioners in one of the buildings; and fer mintenance of elevator servies in another (pp. 11-34, t.s.mey Hearing 6-30-66). Prom the foregoing, it would seem that the expenditures cover both repairs de@uctible as business expenses and capital expenditures, While petitioner presented a break down of these expenses (Bxhs, 6, G-1, G2, > Ge3 Gob, GS & GHG, pp» 92496, CTA rec.), which ex- A penses were not denied by respondent (p. 15, t.sem.), ‘ it, however, failed to make a proper segregation of the deductible frow the nen-deductible repairs, Where an expenditure covers both repairs deductible as - business expenses ani capital items, it is incumbent on the taxpayer to make a proper segregation; other- ( wise the entire expenditure will be disallowed \(Hertens, law of Federal Income Taxation, Vol. 4%, p. 373). AS- copdingly, the disallowance of the claimed deduction for and maintenanee is proper. { Petitioner gave luncheons and dinners attended by its boami of Gireecters, the neubers of their families (t.s.n., p. 7, tearing 6-30-66), engineers ané architects connected with petitioner's cons truc- tion program, ami mesbers of its office and field personnel (t.a.m., pe 98, Hearing 7-1-66), These

DECISION }

CTA CASE HO. 1358 « 6 « lancheons and dinners were given purportedly te improve the image of petitioner and to efford opportunities to ite empleyees te know the die rectors, And for those affairs, petitioner clsined eo deduction for enterteinment expenses in the total amount ef #1,000,80, of whieh #500.40 was 4isallewed by responient on the grouné that the expense was personal, in view of the purpeses for which the the questioned expenses were made, we believe that they hove some definite reasoneble purpose connected with the business of petitioner. fence, the dis- allowanes in the eum of ©900,.40 is not justified. 4 As regards the depreciation deductions on the buildings, respondent Gisalloved the sum of 20,133.69 on the basis of the recommendetion of his witness-exaniner, Narcelino 1. Ocampo. Peti- tioner seeks to justify the depreciation rates used by it as more continuations of those sdepted by the former /owners of the buildings.

JS Wehle the. weakness in respondent's method of determining the depreciation is shown by his exam iner's superficie) ocular inspection of the Gilda building (t.s.m,., p. 17%, Hearing 7-29-66) and the latter's failure to visit the Liberty ani Pepita apartments, Keel, [lang-llang, Jan antonio and Perdigon patlaings, nevertheless, petitioner should

DSCIsION «

CTA CASS HO, 1398 have proved affirmatively the correct ultimate fecta supporting the deductions for depreciation ' (see Mertens, Law of "ederal Income Taxation, Vol. », pe 125). Vor example, it should have established by evidence, testimonial or otherwise, the dates and nature ef construction, materials, design, past maine tenance, iaprovements, present cenditien and use, leca- tien and character ef the buildings in order to enable us te determine the reasenableness of the depreciation rates adopted by petitioners | lleving failed te do so, we are constrained to sustein the questioned dis~- allowances on the depreciation clains ef petitioner. Finally, respondent disallowed the sum ef 600.00 out ef the amount ef £1,057.00 elaimed by petitioner as less through pliferage, The disallewance in the sus of 600,00 is predicated upon the representation of the examiner that said less cannot be expleined by petitioner, Petitioner, however, points te an al- leged decision ef the Court of Yiret Instance ef Ma- aile in Criminal Case lio, 49736, certified copy of which was net presented before us despite the reserva- tion by petitioner's counsel of the right to present the seme as evidence. for failure of petitioner te satisfacherily explain the less ef the remaining belance, the dicallowance thereof is justified.

CL ————

.

DECISION ~

CTA CASE RO. 1358

WHEREFORE, the assesement appealed frem is modified. Petitioner is hereby ordered to pay to ‘ pespondent the amount ef §25,324.09 as deficiency income tax for the year 1959 and interest fron April, 1960 te September 7, 1962, itemized as fellows:

Het income per Feturn .cceceresnontscose 80,810.99 ""Ey Gielotaae Grapetae. costs ORR SMGME presen eevee Py 2) Maintenance & irs... vot 207 &) Less on pilferage fo 21 133-99 Het tei Income tax due thereon cescssecsecssese © FZ Less: Amount already pais CHoeeateeres aaa: ssabiie bahusess deen hort’ e ROR DE AE ae ae onal If the deficiency tax ie not paid in full within thirty (30) days from the date this decision be- comes final and executory, petitioner shall pay a surcharge of five per cent (5%) of the unpaid amount plus interest at the rate of one per cent (1%) s month, computed frea the date this decision becomes final until paid, provided thet the mexinaunm amount that my be gellected as interest shall not exceed the amount corresponding te a period of three (3) rj + ’ a

DBCISION 3

CTA CASE NO, 1358 - 9 «- years. Without proneuncement as to sests. SC ORDER.

Qtesen City, eptember 20, 1907.

’ act oot

Presiding Jodgs

WE COBNCTR: }

Acsecilate Jutge/

GAMON L. AVANCSIA

Associate Judze