Aguinaldo Industries Corporation vs. Commissioner of Internal Revenue Services Actually Rendered

3. Aguinaldo Industries Corporation vs.
10% they divided equally among themselves, for the

Commissioner of Internal Revenue; Services Secretary of the Board for the General Manager for
actually rendered two Assistant General Managers.
Facts: An action for review of the decision and Issue: whether the profit derived from the sale of its
dissolution of the CTA holding the petitioner liable Muntinglupa land is not taxable for it is tax-exempt
for deficiency tax for 1957, plus 5% surcharge and income, considering that its Fish Nets Division enjoys
1% monthly interest for late payment from tax exemption as a new and necessary industry
December 15, 1957 until full payment. under Republic Act 901.
Aguinaldo Industries Corporation is a domestic Ruling: It must be stressed however that at the
corporation engaged in two lines of business, administrative level, the petitioner implicitly
namely: (a) the manufacture of fishing nets, a tax- admitted that the profit it derived from the sale of
exempt industry, and the manufacture of furniture. its Muntinglupa land, a capital asset, was a taxable
Previously, Aguinaldo Industries acquired a parcel of gain.
land in Muntinglupa, Rizal, as site of the fishing net In the instant case, up to the time the questioned
factory. This transaction was entered in the books of decision of the respondent Court was rendered, the
the Fish Nets Division of the Company. Later, when petitioner had always implicitly admitted that the
another parcel of land in Marikina Heights was found disputed capital gain was taxable, although subject
supposedly more suitable for the needs of Aguinaldo to the deduction of the bonus paid to its corporate
Industries, it sold the Muntinglupa property, officers. It was only after the said decision had been
Aguinaldo Industries derived profit from this sale in rendered and on a motion for reconsideration
the amount of P244,416.70 which was entered in the thereof, that the issue of tax exemption was raised
books of the Fish Nets Division as miscellaneous by the petitioner for the first time. It was thus not
income to distinguish it from its tax-exempt income. one of the issues raised by petitioner in his petition
For the year 1957, Aguinaldo Industries filed two and supporting memorandum in the Court of Tax
separate income tax returns one for its Fish Nets Appeals. We therefore hold that petitioners belated
Division and another for its Furniture Division. After claim for tax exemption was properly rejected.
investigation of these returns, the examiners of the
BIR found that the Fish Nets Division deducted from Issue: WON the bonus given to the officers of
its gross income for that year the amount of Aguinaldo upon the sale of its Muntinglupa land is
61,187.48 as additional remuneration paid to the an ordinary and necessary business expense
officers of Aguinaldo Industries. The examiner deductible for income tax purposes?
recommended the disallowance of the 61,187.48
deduction because he found that this amount was Ruling: No.
taken from the net profit of an isolated transaction Sec. 30 (a) (1) of the Tax Code which reads:
(sale of aforementioned land) not in the course of or In computing net income there shall be allowed as
carrying on of Aguinaldo Industries 's trade or deductions
business. It appears from the books that such (a) Expenses:
deduction was claimed as part of the selling (1) In general. All the Ordinary and necessary
expenses of the land in Muntinglupa, Rizal. expenses paid or incurred during the taxable year in
Aguinaldo Industries insists that said amount should carrying on any trade or business, including a
be allowed as deduction because it was paid to its reasonable allowance for personal services actually
officers as allowance or bonus pursuant to Section 3 rendered x x
of its by-laws which provides as follows:
The bonus given to the officers of the Aguinaldo
From the net profits of the business of the Company Industries as their share of the profit realized from
shall be deducted for allowance of the President 3%, the sale of the land cannot be deemed a deductible
for the first Vice President 1%, for the second Vice expense for tax purposes, even if the aforesaid sale
President for the members of the Board of Directors could be considered as a transaction for Carrying on
the trade or business of the Aguinaldo Industries and
the grant of the bonus to the corporate officers
pursuant to Aguinaldo Industries' by laws could, as
an intra-corporate matter, be sustained. Evidence
show that the sale was effected through a broker
who was paid by Aguinaldo Industries a commission
for his services. On the other hand, there is
absolutely no evidence of any service actually
rendered by Aguinaldo Industries' officers which
could be the basis of a grant to them of a bonus out
of the profit derived from the sale. This being so, the
payment of a bonus to them out of the gain realized
from the sale cannot be considered as a selling
expense; nor can it be deemed reasonable and
necessary so as to make it deductible for tax
purposes. Thus, the extraordinary and unusual
amounts paid by Aguinaldo to these directors in the
guise and form of compensation for their supposed
services as such, without any relation to the
measure of their actual services, cannot be regarded
as ordinary and necessary expenses within the
meaning of the law.

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3. Aguinaldo Industries Corporation vs.

10% they divided equally among themselves, for the

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