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Zamora vs. Collector of Internal RevenueNo. L-15290. May 31, 1963.

Taxation; Income taxes; Business expenses as deductions.

Promotion expenses constitute one of the deductions in con-ducting a business and shouldsatisfy the requirements of Section 30 of the Tax Code, which provides that in computingnet income, there shall be allowed as deductions all the ordinary and necessary expensespaid or incurred during the taxable year, in carrying on any trade or business (Vol. 4,Mertens, Law of Federal IncomeTaxation, sec. 25.03, p. 307).

Same; Same; Same; Requisites for deduction of business expenses.Representationexpenses fall under the category ofbusiness expenses which are allowable deductions fromgrossincome, if they meet the conditions prescribed by law, particularlysection 30(a) (1), ofthe Tax Code. To be deductible, they must be ordinary and necessary expenses paid orincurred in carrying on any trade or business, and should meet the further test ofreasonableness in amount. They should, moreover, be covered bysupporting papers; in theabsence thereof the amount properly deductible as representation expenses should bedetermined from allavailable data. (Visayan Cebu Terminal Co., Inc. v. Collector of Int.Rev., L-12798, May 30, 1960.)

Same; Capital gains taxes; Cost basis of property acquired in Japanese war notes.Thecost basis of property acquired inJapanese war notes is the equivalent of the war notes ingenuinePhilippine currency in accordance with the Ballantyne Scale ofvalues, and the determination of the gain derived or loss sustained in the sale of suchproperty is not affected by the decline at the time of sale, in the purchasing power of thePhilippine currency.

Statutory construction; Antecedents or legislative history of statute to be considered in itsinterpretation.Courts are permittedto look into and investigate the antecedents or thelegislative historyof the statutes involved (Director of Lands v. Abaya, et al., 63 Phil.559).

FACTS:Mariano Zamora, owner of the Bay View Hotel and Farmacia Zamora, filed his income taxreturns. The CIR found that he failed to file his return of the capital gains derived from thesale of certain real properties and claimed deductions which were not allowable. The

collector required him to pay deficiency income tax. On appeal by Zamora, the CTA reducedthe amount of deficiency income tax.

Zamora appealed, alleging that the CTA erred in dissallowing P10,478.50, as promotionexpenses incurred by his wife for the promotion of the Bay View Hotel and FarmaciaZamora (which is of P20,957.00, supposed business expenses).

Zamora alleged that the CTA erred in disallowing P10,478.50 as promotion expensesincurred by his wife for the promotion of the Bay View Hotel and Farmacia Zamora. He

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contends that the whole amount of P20,957.00 as promotion expenses, should be allowedand not merely one-half of it, on the ground that, while not all the itemized expenses aresupported by receipts, the absence of some supporting receipts has been sufficiently andsatisfactorily established.

ISSUE:Is the CTA correct in its decision allowing only one half of the alleged promotion expenses

reported by Zamora?

HELD:YES. The CTA is correct in allowing only one half of the reported promotion expenses.

Section 30, of the Tax Code, provides that in computing net income, there shall be allowedas deductions all the ordinary and necessary expenses paid or incurred during the taxableyear, in carrying on any trade or business. Since promotion expenses constitute one of the

deductions in conducting a business, same must satisfy these requirements. Claim for thededuction of promotion expenses or entertainment expenses must also be substantiated orsupported by record showing in detail the amount and nature of the expenses incurred.

Considering, as heretofore stated, that the application of Mrs. Zamora for dollar allocationshows that she went abroad on a combined medical and business trip, not all of herexpenses came under the category of ordinary and necessary expenses; part thereofconstituted her personal expenses. There having been no means by which to ascertainwhich expense was incurred by her in connection with the business of Mariano Zamora andwhich was incurred for her personal benefit, the Collector and the CTA in their decisions,considered 50% of the said amount of P20,957.00 as business expenses and the other 50%,as her personal expenses. We hold that said allocation is very fair to Mariano Zamora, there

having been no receipt whatsoever, submitted to explain the alleged business expenses, orproof of the connection which said expenses had to the business or the reasonableness of thesaid amount of P20,957.00.

In the case of Visayan Cebu Terminal Co., Inc. v. CIR., it was declared that representationexpenses fall under the category of business expenses which are allowable deductions fromgross income, if they meet the conditions prescribed by law, particularly section 30 (a) [1],of the Tax Code; that to be deductible, said business expenses must be ordinary andnecessary expenses paid or incurred in carrying on any trade or business; that thoseexpenses must also meet the further test of reasonableness in amount. They should also becovered by supporting papers; in the absence thereof the amount properly deductible asrepresentation expenses should be determined from available data.