Oe —the Philuppinad Court of Tax Appeals \ Urban Estates by Petitionss, et al. vs. E Case No, et al.

(Oe —THe PHILUPPINaD

COURT OF TAX APPEALS

\

URBAN ESTATES by

Petitionss, .

Ge ToAe

- Versus e CASE NO, 640

THE COMMISSIONER OF

INTERNAL REVENUE

Respondent.

AMENDED DECIS ION

.

Petitioner seeks a reconsideration of our decision of March 28, 1963, dismissing the sppeal for lack of jurisdiction in that the petition for review was filed beyond the thirty-day period prescribed in Section 11 _ ef Republie Act We. 1125.

In our decision of March 28, 1963, it was held that the herein anpeal sheuld have been filed not later - than March 27, 1959, but instead it was filed only on March 30, 1959, three days beyond the statutory period for filing the appeal. However, it has been show to the satisfaction of the Court that March 27, 1999 was Good Friday, a holiday; that the sueceeding day, March 28, was a special public holiday (Preelamation No. 567, March 20, 1959, 55 0.G. 2386)3 and thet March 29, the day follewing, was Sunday. Therefore, the herein appeal was timely filed on March 30, 1959.

VU Respondent, in opposing the motion for reconsider- ation, argues that the thirty-day period within which to appeal a disputed assessment ie to be counted from the dete of receipt of the assessment and not from the date of receipt by the taxnayer of the decision on the second motion for reconsideration. This question has been amply discussed and summarized in the case of Philippine 136 se

AMENDED DECISION «

€.T.Ae CASE NO. 640 o 2 «= Planters Investment Co. Inc., v. Actg. Commissioner of Internal Revenue, C.T.A. Case No. 1266, November 11, 1962, wherein it was stated:

"A careful review of the foregoing cases will show thet the element determina- tive of the appealability of a decision —

of the Cownisstoner of Internal Revenue

is its Ainality. If an assessment is not contested administratively, it is consid- ered as the final decision which is appeal- able to the Court of Tax Appeals within 30 days from receipt thereof. (Republic ve Magalona, + Republic v. Gamboa, Supra: Republic v. Albert -) I the assessment is contested or the taxnayer files a request for reconsideration there- of, and the assessment is modified or revised, the last unrevised or unmodified decision is appealable (Pangasinan Trans- portation Co., v. Blaquersa, $ Tomas B. Villemin v. Coll., $ Ker & Co., guora.) If the request for reconsidere- tion is denied, or the original assessment is maintained, the appealable decision is either the assessment itself (North Camari- ness Lumber v. Coll., 3 + Ker & Co.

v. Coll., guna.) or the sion on the request for reconsideration (St. Stevhen's Aasceiation v. Coll., t), dep upon which is the C seioner's final decision. * | From the evidence of record we are of the opinion that the doctrine anplicable to the case at bar is that laid down in the case of St. Stephen's Association y. Coll., G R. Ne. 11238, Auquet 21, 1958, reaffirmed in the case of Roman Catholic Archbishop of Cebu v. Cell., G. R. No. 16683, January 31, 1962, wherein the decision of the Com- missioner on the second metion for reconsideration was trested as the srpealable decision.

Having disocesed of the jurisdictional question, v we now come to the issue of whether or not the amounts of 9475.00 and 9940.00, representing audit and legal fees, may be allowed as deductions from petitioner's gross ine » 439 sor

AMENDED DECISION «

C.T.A. CASE NO. 640 3 «= come in 1954.

_ Respondent invekes the distinction between the cash methed © ef accounting and the accrual methed. It is urged thet the audit and legal fees became fixed in 1953 when the audit and legal services were rendered to petitioner, and not in 1934 when the bills therefor were received and paid. Apparently, respondent relies on the assumption that the engegement ef the auditing firm and the lawyer are on “retainer basis*. The facts do not tally with respondent's finding.

Section 40 ofethe National Internal Revenue Code provides!

"SEC. 40.

~ 3 _ sat —— » 5 be ad ‘fer the , ' : :

tions HAS Rood tohen as of a different - pere fed. x x x® (Underscoring supplied. )

A The foregoing provision orescribes that deductions for the taxable year are made te denend upon the accounting method used by the taxnayer. In the case at bar, peti-~ tioner used the accrual method of accounting. It empleyed the services of the firm te audit ite books from “year toe year" and the fee is determined by the length of ; service or work done to finish the audit of setitioner's books. The same holds true with resoect to the lawyer retained by cetitioner on a *¢ase to case basis" and whose fee become definite and accrued only when the case ~as terminated and unen presentation of the bill to peti. tioner. Under the accrual method, the “existence of a * 138 pee ~

AMENDED NECISTION «

C.T.A. CASE NO. 640 a4 a definite liability is the essence of accrual® (Mertens Vel. 2, par. 12.63, Revised Edition). Te an accrual taxpayer the expense is allowable when the lisbility there- for became fixed, end the amount is either ascertained or ascertainable in the taxable year (See U.S. v. Ander- son, 269 U.S. 422; Lucas v. American Code Co., 280 U.S. 443, Brown v. Helvering, 291 U.S. 199). For example, where the amount ef legel fees has not been previously agreed upon, it is net deductible until the bill there- for is rendered (Cold Metal Process Co., v. Commissioner of Internal Revenue, 17 TC 916}. It has alse been held that a fee is not aceruable until the amount is fixed even though services were rendered during the taxable year and the fee was not entirely contingent. (Canten Cetton Mille v. U.S... 94 F. Supp. 5613 see Kanne v. Amer- ican Factors Ltd., 190 F (2d) 155). While it may he certain that there were some liabilities for sudit and legal services in 1953, the amounts were undetermined until the bills were oresented to vetitioner in 1954..:

With respect te its income derived from interest, petitioner asserts that it hae maintained a consistent methed of reporting its interest income on cash basis, which method clearly reflects its net income. On the other hand, respondent made the adjustment of retitioner's interest income in 1954 on the qreund that the account~- ing method used by petitioner was irrequiar and did not clearly reflect its income.

Section 38 ef the Revenue Code provides:

“SEC. 3. = The net ine come shell be cotted ape the beste af the taxpayers annual eccounting period (fiscal 139 ad

AMENDED DECISION «

C.T-A. CASE NO. 640 « 5 « year or calendar year, as the case may be) in accordance with the method of sccount- ing regularly empleyed in keeping the books of such taxpeyer; but if no such method of eccounting has been s0 employed, or if th ce petitioner in this case has adopted a cone sistent accounting procedure, it is to be noted that it uses the “hybrid method of accounting*® i.e., petitioner files its income tax return and declares its deductions on accrual basis but simultanecusly reports its interest income en cash basis. We find this irrequler. Ins simi- lar case, the taxpayer kept ite accounts and filed its income tax returns upon the accrual basis except with resnect to interest income which was returned upon cash | basis from March 1, 1913 to December 31, 1934. It was held that the Commissioner did not err in holding that the interest income should likewise be reperted upon the accrual basis. (Schuman Carriage Co., Ltd., v. Commis- sioner of Internal Revenue, 43 U.S. 880). In view there- of, the adjustment made by respondent es regerds the in- terest income of vetitioner is in order. | It appears that errors have been committed by res- pondent in the computation of the acerved interest in- come of vetitioner. As shown by the testimony of peti- tioner’s witness and corroborated by the admission of respendent*s witness, the amount involved is only 913,251.17, inetead of #29,507.78.

IN VIEW OF ALL THE FOREGOING CONSIDERATIONS, we find and so hold that the herein appeal was filed within the > 140 a5”

VnVsas- ” =

AMENDED Vrwuso

C.T.A. CASE WO. 640 « 6 « period prescribeds that the amounts of #475.00 and 9540.00 as audit and legal fees, respectively, are de- ductible from the gross income of petitioner for 1934; | that it is error for petitioner to report its interest income on the cash basist and that the interest income of petitioner for the year under review is 913,251.17, in- stead of 929,507.78. Accordingly, the decision appealed from is hereby modified, and petitioner is ordered to pay to the Commissioner of Internal Revenue, or his auther- | ized representstives, within (30) days from the date this decision becomes final, the amount of #2,650.00 as defi- eiency income tax for the year 1954, commuted as follows:

Net income per return e«-.- 830,685.86 Adds Interest income con- sidered hve g although Net income Seeseeconeeeeeeen Tax due thereon ------------ aitte Less amount assessed and col-

AMOUNT GF TAX STILL DUE AND

COLLECT TRLE aceneme nena nem Bae PX $2.24 If said dattetnas tax is not veid within the said per ied, there shall be added to the unpaid amount the sure charge ef 53%, plus interest at the rate of 1% per month to be computed in accordance with Section 31(e)(2) of the Rev- enue Code, as amended, without proneuncement as to costs. Manile, May 6, 1963.

a a Sao a

ROMAM M4. UMALI

Asscociste Judge

Presiding Judge MART ANO NABLE did not take part. r 441