Scribd Logo
Upload

Welcome to Scribd!

  • 434 views

    Atlas Vs CIR

    Uploaded by

    Royalhighness18
    The Court ruled that expenses paid to a public relations firm for services to sell additional shares of stock were not deductible as ordinary business expenses. To be deductible, expenses must be ordinary and necessary, paid within the tax year, and incurred while carrying out a trade or business. However, expenses related to recapitalization, reorganization, obtaining stock subscriptions, or selling stock are considered capital expenditures rather than deductible business expenses. Therefore, the public relations fees paid to sell additional shares were capital expenditures not deductible from taxable income.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd

    Atlas Vs CIR

    Uploaded by

    Royalhighness18
    434 views2 pages
    The Court ruled that expenses paid to a public relations firm for services to sell additional shares of stock were not deductible as ordinary business expenses. To be deductible, expenses must be ordinary and necessary, paid within the tax year, and incurred while carrying out a trade or business. However, expenses related to recapitalization, reorganization, obtaining stock subscriptions, or selling stock are considered capital expenditures rather than deductible business expenses. Therefore, the public relations fees paid to sell additional shares were capital expenditures not deductible from taxable income.

    Original Description:

    case digest

    Original Title

    Atlas vs CIR

    Copyright

    © © All Rights Reserved

    Available Formats

    DOCX, PDF, TXT or read online from Scribd

    Did you find this document useful?

    Is this content inappropriate?

    The Court ruled that expenses paid to a public relations firm for services to sell additional shares of stock were not deductible as ordinary business expenses. To be deductible, expenses must be ordinary and necessary, paid within the tax year, and incurred while carrying out a trade or business. However, expenses related to recapitalization, reorganization, obtaining stock subscriptions, or selling stock are considered capital expenditures rather than deductible business expenses. Therefore, the public relations fees paid to sell additional shares were capital expenditures not deductible from taxable income.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    434 views2 pages

    Atlas Vs CIR

    Uploaded by

    Royalhighness18
    The Court ruled that expenses paid to a public relations firm for services to sell additional shares of stock were not deductible as ordinary business expenses. To be deductible, expenses must be ordinary and necessary, paid within the tax year, and incurred while carrying out a trade or business. However, expenses related to recapitalization, reorganization, obtaining stock subscriptions, or selling stock are considered capital expenditures rather than deductible business expenses. Therefore, the public relations fees paid to sell additional shares were capital expenditures not deductible from taxable income.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    You are on page 1of 2

    Deductions

    ATLAS CONSOLIDATED MINING & DEVELOPMENT CORPORATION vs.COMMISSIONER


    OF INTERNAL REVENUE,
    G.R. No. L-26911; L-26924 January 27, 1981
    FACTS: For the year 1958, the Commissioner of Internal Revenue assessed Atlas for deficiency
    income tax of P761,789.12 which covers the disallowance of items claimed, particularly the
    stockholders relation service fee paid to P.K. Macker & Company, by Atlas as deductible from
    gross income. It appears that on December 27, 1957, Atlas increased its capital stock from
    P15,000,000 to P18,325,000. It was claimed by Atlas that its shares of stock worth P3,325,000
    were sold in the United States because of the services rendered by the public relations firm, P.
    K. Macker & Company.
    On Appeal, the Court of Tax Appeals ruled that the information about Atlas given out and played
    up in the mass communication media resulted in full subscription of the additional shares issued
    by Atlas; consequently, the questioned item, stockholders relation service fee, was in effect
    spent for the acquisition of additional capital, ergo, a capital expenditure.
    ISSUE: Whether or not the expenses paid for the services rendered by a public relations firm
    P.K MacKer & Co. labelled as stockholders relation service fee is an allowable deduction as
    business expense under Section 30 (a) (1) of the National Internal Revenue Code.
    RULING: No. The principle is recognized that when a taxpayer claims a deduction, he must
    point to some specific provision of the statute in which that deduction is authorized and must be
    able to prove that he is entitled to the deduction which the law allows. As previously adverted to,
    the law allowing expenses as deduction from gross income for purposes of the income tax is
    Section 30 (a) (1) of the National Internal Revenue which allows a deduction of "all the ordinary
    and necessary expenses paid or incurred during the taxable year in carrying on any trade or
    business." An item of expenditure, in order to be deductible under this section of the statute,
    must fall squarely within its language.
    We come, then, to the statutory test of deductibility where it is axiomatic that to be deductible as
    a business expense, three conditions are imposed, namely: (1) the expense must be ordinary
    and necessary, (2) it must be paid or incurred within the taxable year, and (3) it must be paid or

    incurred in carrying in a trade or business. 6 In addition, not only must the taxpayer meet the
    business test, he must substantially prove by evidence or records the deductions claimed under
    the law, otherwise, the same will be disallowed. The mere allegation of the taxpayer that an item
    of expense is ordinary and necessary does not justify its deduction. 7
    We sustain the ruling of the tax court that the expenditure of P25,523.14 paid to P.K. Macker &
    Co. as compensation for services carrying on the selling campaign in an effort to sell Atlas'
    additional capital stock of P3,325,000 is not an ordinary expense in line with the decision of U.S.
    Board of Tax Appeals in the case of Harrisburg Hospital Inc. vs. Commissioner of Internal
    Revenue. 14 Accordingly, as found by the Court of Tax Appeals, the said expense is not
    deductible from Atlas gross income in 1958 because expenses relating to recapitalization and
    reorganization of the corporation (Missouri-Kansas Pipe Line vs. Commissioner of Internal
    Revenue, 148 F. (2d), 460; Skenandos Rayon Corp. vs. Commissioner of Internal Revenue, 122
    F. (2d) 268, Cert. denied 314 U.S. 6961), the cost of obtaining stock subscription (Simons Co., 8
    BTA 631), promotion expenses (Beneficial Industrial Loan Corp. vs. Handy, 92 F. (2d) 74), and
    commission or fees paid for the sale of stock reorganization (Protective Finance Corp., 23 BTA
    308) are capital expenditures.
    That the expense in question was incurred to create a favorable image of the corporation in
    order to gain or maintain the public's and its stockholders' patronage, does not make it
    deductible as business expense. As held in the case of Welch vs. Helvering, efforts to establish
    reputation are akin to acquisition of capital assets and, therefore, expenses related thereto are
    not business expense but capital expenditures.

    You might also like