CTA Case No. 4330 (Decision)

- -�- REPUBLIC OF THE PHILIPPINES COURT OF TAX APPEALS QUEZON CITY BANICO and SONS, INC., _, Petitioner , C.T.A. CASE NO. 4330 - versus - BUREAU OF INTERNAL REVENUE and EUFRACIO D. SANTOS, IN HIS CAPACITY AS DEPUTY COftftiSSIONER OF INTERNAL REVENUE, Respondents. X- - - - - ---- -X DEC I I 0 N This case is an appeal from the decision of the respondent, Bureau of Internal Revenue, assessing the petitione r the sums of P7 5, 778 .38 as defi ciency income tax due to disallowance of various expenses as deduc t i ons a nd P96, 992. 02 as deficiency surtax due to alleged unreason a ble a c cumulation of profits, both for the t a xable year 1979. The facts of the case are as follows: On January 11, 1985, petitioner Banico and Sons, Inc., a corporation duly organized and existing under and by virtue of the laws of I ,the Republic of the Philippines, received a demand letter with corresponding a ssessment not i ces, all dated July 11, -971

1 DECISION - C.T.A. CASE NO. 4330 -2- 1984 from the respondent assessing the corporation for deficiency income tax and surtax, details of which are shown below: Deficiency Income Tax ( g_�~-L...A. ~.-R_~_p_Q_!"d ?J__J!.L--~) Gross inco11e: p 83,589.14 P144,000.00 RPnt 69,185.00 83,589.14 Dividend 89,711.25 Other incoliE! _l:gLQ.{tn Gain on sale of seeuritil~s _.P.~,..Q.HJ~ p 8,599.48 Total gross inco.e 3,372.19 P4S0,344.S2 Less: lnco.e subjected to final tax: 4,519.40 1,000. 00 -~~~A!~.~.n Dividend 261.70 Share - Equitable Banking Corporation Pl64,526.2S Gain on sale of securities ---�� .�~-~. ~~ Taxable gross inco.e �-� ~8, JC!.3. Q~ Less: Allowable deductions: rP1�4~a6: �41~27:-8293 Interest and bank charges Taxes and licenses ---�----�~4.~~. !~ Donations and contributions p 47,907.70 Accountant and auditor' s fees SSS, Medicare and EC 1,952.40 St tionery and office supplies -~'Jl.~!-~ Hrt tftxnbl, inr.o p 75! 778.38 Tax due lht>reon less: Tax credit Deficiency incoliE! tax Add: 14Xint. fr. 4/16/80 to 7/31/80 20X int. fr. 8/01180 to 4/15/83 Total A10unt Due and Collectible Deficiency Surtax P450, 344.52 <~..!-I~-.-~..:....-R.t?s;;:...Q.r.-..!i!a..!...-..P~-~ ) ...1.3.;!,_~_1. 84 Total gros~ incoae lper stateaentl P216,380.68 Less: Total expenses Net lnco.e per state1ent _ ?..Q, {)!!_~.!.59 Add: Depreciation deducted Total net incote P295,183.27 Less: Assees-ents for deficiency inco~e Net profit _ ,9,90f?._lll 2SX surtax Add: l4X int. fr. 4/16/80 to 7/31/80 P24S,276.45 201 int. fr. 8/01 /80 to 4/15/83 i~""61;�3i9:i1 Total A�ount Due and Collectible 2,498.96 -~~�.H.~~. ~ p 96,992.02 97 2

DECISION - C.T. A. CASE NO. 4 330 -3- Petitioner protested the a bo v e assess me nts on January 21, 1985 through a letter d ated Januar y 18 , 1985. On Dece mber 22, 1988, respond ent i ssued its � i nal decision, in a letter dated December 6 , 1988 s igned by co-respondent Deputy Comm i ssioner Eu � r a cio D. S antos, denying petitioner's protest fo r lack o� legal a nd .factual b i . Petit i oner thus sent, on January 20, 1989 t hrough registered ma il <c. T. A. Records, p . 27), t his p et i ti o n for rev iew which was received by th is Court on J a n u a ry 28, 1989. Responde nt on t he other hand, i n h i s answer a nd by way of special and af.firmative de�enses al l ege d among others, that: 1 > The assess ments have al ready become �i nal, executory and collect� ble, pursuant t o Sections 7 and 11 of Repub l ic Act <R. A. > No . 1 1 25, becau se the petition for review was .filed only on J a nuary 28, 1989, or t hirty seven (37 ) days a fter petitioner r e ceived on Decemb er 22, 1988 the l etter denying h is p r o test t o the assessments; 2 ) The expenses disallowed ma in ly consists of re n tals, dividends, interests, e"t;c. which are pass ive and fixed income that cannot be consi dered as ordi nary and necessa ry expenses deductible u nder the Tax Code; 97~

DECISION - C.T.A. CASE NO. 4330 -4- 3) The cash position of the company warrants a declaration of cash dividends to shareholders as the investments made were mainly on speculative securities; 4) Petitioner, being a closely held family .I corporation organized as a mere holding company, there exists a prima facie evidence of a scheme to avoid the tax upon its s hareholders; and ~ ) Th ARAeRamenta in qua f'ltlon w Ttt :iar.tu d :i.n accorda nce with law. Ref ore th i.a Court for co nsiders ion ere the following issues: 1. Whether or not the petition for review was filed within the prescriptive period of thirty <30) days, in compliance with Sections 7 and 11 of R.A. No. 1125; 2. Whether or not petitioner is liable for deficiency income tax amounting to P75,778.38; and 3. Whether or not petitioner is guilty of un reasonable accumul ation of profits making it liable for deficiency surtax in the amount of P96,992.02. This Court, in response to respondent's defense of prescription, holds that the petition for review was filed within the thirty-day period prescribed in Sections 7 and 11 of R. A. No. 1125. Section 1 of Rule 13 of the Rules of Court provides: "Section 1. ~}:_!:_:�n g____Jii -~!;l_______t.hJ?. filing o:f pleadings , gp u .r:t.L.____cjg:f..4 n...f?d. The notices, orders and cour t as required by appearances, motions , made by :filing them other papers with the these rules shall be

- DECISION - C.T.A. CASE NO. 4330 - 5- perAona lly with the clerk of the court or by sending them by :r:e.gis_t_E'T~J.f -...._f!l_a.:l.._.:t. In the first case, the clerk shall endorse on the pleading the date and hour of filing. In the second case, .t.J1 ~ --- ___c:;f. ~ t E?__ __Q_f____t.h.~_____!!L~J_.t!D.Q.___g_t_ !!1 o t i on s, ��-� p 1 E? _a c:;f. :1.. 11.9 a.'�� -���- Q.�_ ..~!! Y......__q..t Q.~.L...R.?.P ~!:-~------.9. r payments ___or. ........!:! E? p o.~ i :t.~-'-� _a a �-���--a h 9.~ Q_ b.y_____1;_l:!_~__p 9 ~.t.. qff ice ~tamp __ q_Q .. the . ~nve.J,..ope>___q_;r::- _j;._!:l~ .--r.~9.t~..t.D~. receipt, _s,h~l_J,____ b.e. COD.~i-~~:r..E;"q .....!il~.._ !;._b,_!;?___g_~.t.E'.___Q;{ :their .. :fi.ling, __ payment, . or ...!=fepo_a;l..,_1;___in __p _r;>ur:..t .!. Tl)e env:e.J,.qpe _._......s.h~ll .bE?_.. ?tJ: _~9.hE?J!._!_g~hE;>_rec_q]:"d of . ~he q~se ." <Underscoring supplied> Thus, it has been held that when a pleading, such as the herein petition for review, is sent by registered mail, the date of mailing of such pleading, as shown by the post office stamp on the envelope or registry receipt, shall be considered the date of filing <Mercader vs. Commissioner of Internal Revenue, C.T.A . CaRe No. 1997 , October 2,1969. > Although the petition for r eview in the case at bar was actually received by this Court on January 28, 1989, the post office stamp on the envelope indicates that the same was mailed on January 20, 1989 or twenty nine <29> calendar days after the petitioner recei ved the final decision of the respondent. Therefore, contrary to respondent's claim, t his action has not yet prescribed. This Court now comes to the issue on the merits. ) Petitioner claimed that the follo wing expenses were disallowed i 'n gross violatio n � of its ri~hts to 97 .

DECISION - C.T. A. CAS E NO . 433 0 .) -6- p roce d ural d u e process of l aw: <Peti t io n for Re v iew, C.T.A. Recor ds, p. 5 ) Salaries, rages, bonuses p 63,000. 00 none p 63, 000.00 p 8,599.48 Interest and bank charges 8,599. 48 nime Taxes and licenses 1, 372.19 3,372. 19 2,000. 001 Gas and oil 6,803.35 none 6, 803.35 Telephone, telegra� and cable none Car repair/taintenance 746. 34 none 746.34 Car insurance and registration 12,926.10 none 12, 926. 10 Representation and entertaintent 5,707. 15 none 5, 707. 15 Stationery, printing and supplies 4,226. 62 646.25 4,226. 62 Donations and contributions Business travel 646.25 4,519. 40 none Accountant and auditor's fees none 22,687.80 Transportation and freight 7.1' 207. 20 16,349. 91 Depreciation 16,349. 91 1,000.00 SSS, "edicare and EC contribution 1,000. 00 none none "iscellaneous 1, 134. 76 none 1, 134.76 "agazines and periodicals 78,802.59 261.70 78,802. 59 "e�bership dues none none 261. 70 none 4,590.60 TOTAL 4,590. 60 ._.�.!.UmL._ 249.60 249.60 ------�-~~�.QQ �-�-����--�~~Q~.Q9. P18, 399. 02 _P215, ~4. 8~ ~!3~t~~-~ It further alleged that: "The aforementioned expenses claimed as deductions consisting of expenses for salaries, gas and oil, telephone, car, maintenance, etc. !!.f..~..- ...~ J,.._l _ _9.J:"'A~!t9.:.f...Y.__~ng D.!?Gg.~"".!'lr.Y__.. ex.P..~.n.~~!':! commonly or normally incurred by enterprises engaged in a similar field of business. The same were all incurred and paid during t he taxable year 1979. The aforesaid deductions %or expenses were incurred in the course of carrying on its business as a real estate corporation. Lastly, t h ese expenses clai med as deductions are duly supported by vouchers, and/or other doc'uments which the exam�ner evidentl y did not bother to verify or consider altoget her." <Petition for Review, C.T.A. Records, p . 7> The applicable provision bf t he Tax Code is Section 30 which reads: ,I 976

DECISION - C.T.A. CASE NO. 4330 -7- "Section 30. Deductions from Gross Income - In computing net income, there shall be allowed as deduction - a. Expenses 1. In General. All the ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business, including a reasonable allowance for salaries or other compensation for personal services actually rendered: travelling expenses while a way fr om home in the pursuit of a trade or business, rentals or other payments required to be made as a � condition to t he continued use or possession, fo r he purpose of trade or business, of prope r y to which the taxpayer has not taken or a not taking title or i n which he has no equity. XXX XXX xxx" Since deductions from income are matters of legislative grace, only those expenses which are expressly provided for by law shall be allowed. Generally, however, before an e xpense is allowed as deduction, it must: 1) be both ordinary and necessaryJ 2> be paid or incurred within th e taxable year; and 3> be incurred in carrying on a trade or business. <Aranae, Updated National Internal Revenue Code, 1988 Edition, p.175). The burden of proof is on the petitioner to show that the expenses being questioned passed all the requirements for deduc tibili y. Only then will this Court allow such deductions. 977

DECISION - C.T.A. CASE NO. 4330 -8- Petitioner rightly quoted in its petition <C.T.A. Records, p. 6> the meaning and appl ication o� the term "ordinary" and "necessary " as �all ows: "Expenses will ordinari ly be c onsi dered necessary if the expenditure is app ~op~~~~~ l'ln d .he 1 P-.:(.\J 1 ... in. .de .vg..J,._q_p), o..g__ ~ ot;i ... m~_:!,._nt~. :i,.o.J,JJg._ ..tJ:t~. t.~r. p_a,}.':E:;>L~.!~L.P.\,1 s .i n.'?.!?l?..� 0 b vi o us 1 y, u nd er suc h a view, the necessity involved is not absolute or inexorable. Normally, a taxpayer wil l not incur an expenditure unle ss ~.!?..Q:U.:i,_:r_~q_._._ Q~ j IJ_s :t...i, f.:!,. e 9._ .....9 Y....__tJ1 ~ ..........Jl.~ ~-c1.s...._..Q_!__J;.h�'___...._lJ. ~ 13...!.ng~_�.� Proceeding on that logical ass um pti o n, the courts are slow to override the t axpayer's judgement as to the necessit y for incurring the expenses. Consequent ly, the real di ficulties i n the interpretation of the terms ordinary and necessary arise not �rom the word necessary but �rom its companion word ordinary. The �act that expenses are necessary is not necessarily decisive since personal expenses can also be necessary. <Merten's Volume 4A, pp. 39-40). " <Underscoring supplied ) "An expense will be considered ordinary i� it normally occurs in connection with business simi lar to the one claiming the deduction. Ordinary does not imply that the payments must be habitual or norma l in the sense that the taxpayer will have to make them o�ten . A necessary expense must not be essential expense, but merely one that is PT.9 per .. <=m.<;L....1:11a c1.E;'.�.___:j. :r:L ...t h!? ______.:i,JJ..!-..~;r..~~-t_..___Q:f_.__tJJ ~. .J?usin es~ _,ppe;r.a,ti.P.Il� However , an expense will not be deductible i� it is necessary but not ordinary. (Michie' s Federal Tax Handbook, p. 3090>." <Underscoring Supplied > Un�ortunately, petitioner was not ab le to prove by preponderance of evidence, expenses it claimed as ,\ proper deductions from gross inc ome. It failed to convince this Court that the expenditures it claimed as deductions are "appropriate and he lp�ul in devel oping 978

DECISION - C.T.A. CASE NO. 4330 -9- and ma intaining the taxpayer's business " or " required or justified by the needs of the business" or "proper and made in the interest of the business o peration". As correctly stated by the respondent: "Th e expenses disal lowed are not ordinary and necessary expenses considering that the income of petitioner which consists mainly of rentals , dividends, interest, etc. and which are considered as passive and fixed income can be realized without the necessity of incurring the disallowed e xpenses. findings of the investigating examiner disclose that the rental income, which canst tutes the main bulk of petitioner's yearly i ncome, consists of advanced ren tal payable every five years beginn ing 1973 up to the year 1977. Taking into consideration p et itioner's other so u rces of income which are mo s tly passive i n nature , th e disallowed expenses cannot be considered as ordinary and necessary expenses deductible for taxation pur poses under Section 30 of the Tax Code. <A nswer, C.T . A. Records, pp. 36-37>." further, petitioner, for unknown reason, did not even bother to present a written forma l offer of its evidence and memorandum to support its allegations. Section 34 of Rule 132 of the Rules of Court provi des: "Offer of evidence.- The court shall consider no evidence which has not been fo rmal ly offered. The purpose for which the evidence is offered must be s pecified." Th e evidence deserves no considerat ion from the court if not formally offered in, evidence <Veran vs. Court of Tax Appeals 157 SCRA 438; People v s. Vill apana 161 SCRA 72; People vs. Carino 165 SCR A 664; People vs. Santito J r . 20 1 SCR A 87) . �. 9 ~ ~� I

DECI S ION G.T.A . CAHE NU. 4330 - 10 - There is a presumption as to the c orrectness and validity of the assessment <Collect or va. Bohol Land Transportation Co., 107 Phil. 965). Since the presumpt ion was not d estro yed by the peti t i oner, t his Court has no course but to affirm the aame. With regard to deficiency surtax, th is Court upholds the respondent ' s assessment. The pP.r � n . r1t p < v l't on o.f h N l ion 1 Int r nal Revenue o e t h en i Secti on 2 wh c h provides: "Section 25. Addi ional Tax on Corpora t ions Imprcp r ly Ao o umulat2ng Profits or Surplus. <a> Imposi tion of Ta x. - If any corporation , except banks, insurance companies, or personal holding companies, whether domestic or fore gn, is formed or availed or for the purpose of preve nting t he imposition of he x upon its s hareholders or members or the shareholders or members of another corporation , through the medium of permitting its gains and profits to accumulate instead of being divided or d istributed, there is levied and assessed against suc h corporation, for each taxa ble y e ar, a tax equal to twen t y - five per centum of the undis tr i buted portion of its accumula ted pr ofits or surplus which shall be in addition to the tax imposed by Section 24, and shall be computed, collected and paid in the sa me manner and subject to the same provisions of law, including penalties, as that tax. XXX XXX XXX <c > Evide n ce det.erminati ve of purposes. The fact that the e arnings,or profits of a corporation are pe rmitted , to ac umulate beyond the rea sona ble nee ds � of the business shall be determinative of the purpose to avoid the tax u pon its shareholders or me mb ers unle s s the corporat ion, by clea r 980

DECISION - C.T.A. CASE NO. 4330 - 11 - preponderance of evidence, shall prove the contrary." In the case of Basilan Estates, Inc. v. Commissioner of Internal Revenue <21 SCR A 17), the Supreme Court ruled that the taxpayer unreasonably accumulated its corporate profits based on the following circumstances: "1. Strang financial position of the pet itioner as of Dece mber 31 , 1953. Assets were P388,617.00 while the liabilities amounted to only P61,117.31 or a ratio of 6: 1. ? . An Pi l CJ ~~l , th o pnr , inn h d ~ on F.J I dP.J �a hl e capital adequate t o meet th e reasona ble need s of the business amounting to P 327 ,499. 69 <assets less liabilities>. .J 3. The P200,000.00 reserved for electrificat i on of drier and mechan ization a n d the P50,0UO.OO reserved for malaria control were reverted to its surplus in 1953 . 4. Withdrawal by shareholders of large sums of money as personal loans. 5. Investments of undistributed earnings in assets having no proximate connection with the business as hospital building and equipment worth P59,794.72. 6. In 1953, with an increase of surplus amounting to P677,232.01, the capital stock was increased to P500,000.00 although there was no need for such increase. " Petitioner claimed that "<t>he foregoing c ircumstances do not exist in the case of petitioner I Ba nic o and Sons , Inc. " <Petition for Review, C.T.A. Hecords, p. 10 > However, it conceded that "the c o rporatio n disclosed a strong financial position in 98

DECISION - C.T.A. CAS E NO. 4330 - 12 - t h e year of 1979 a s s h o wn by the fact tha t out of th e total ass e ts am o unting to P4, 356,65 3.00, outstanding l i ab i l i t ies amo unte d o nl y to P704,314.00 for an asset- l iab ility ratio of 6. 1 to 1. " ( Lbid. ) Pe t itioner would like to i mpress u pon th i s Court t hat there was no un r easonable accumulation o f profits . It argued that (1) it had no a de q ua te c apital to meet the reasonable needs of the bus iness ; ( 2 ) its shareholders had not wit h drawn l a r g e sum o f mo n ey as personal loan from the cor poration; and (3) it had not invested ita earn ings i n asset s h a v i ng no proximate connec tion to the business but had invested the s ame in accordance with the primary and sec ondary purposes for which the corporation was organized. The arguments would n ot s tand s c ru ti n y of this _, Court. Firstly, peti ioner, in a letter to respondent dated December 23 , 1982 <B.I. R . Re cord s, P� 99), c l aimed that corporate funds were ti e d u p i n r eal properties, marketable securit ies, and t emporary in vestment which resulted to inadequac y of its. capital to meet the reason able needs of t he business . The claim h owever, was belied by t h e fin anci al sta t e me nts \ I submitted by the corporation . Th e sta tements showed that, in 1979, the petitioner had a n increase in 98 2

DECISION - C.T.A. CASE NO. 4330 - 13 - investment amounting to P694,531.81 computed as follows: narketable securities and teaporary invest~ents: As of Oeceaber 31, 1979 IBIR records, p. 271 P2,933,930.62 Less: As of January 1, 1979 !BIR Records, p. 101 Increase in invest�ent in 1979 r~. 239. 398�.at :p:-.-::::6:::9::0'4.:!-5��3:-�1�~-.:8: :1.� In arguing that "the co mpany does not have sufficient cash from which to d eclare cash dividends and that to sell the se securiti es will either res ult in a loss or at the very least, will h a mper the company's speculative activities", <B. I. R. Rec or ds, p.99) petitioner did not explai n, to the satisfaction of this Court why it invested an additio n al P694,531.81 worth of securities. Furthermore, contrary to petitioner 's contention, it had considerable capital a dequ ate to meet the reasonable needs of the business amounting to P3,652 , 338.41 <assets less liabilities). Secondly, while it is true that no personal loans were gran �ted to the shareholders by the petitioner, the B.l.R. Records reveal that the latter gave bonuses, salaries . and wage s~ gasoline al lowanc es ; car ' rep airs, insurance, registration and maintenance a ll owances; representation allowances ; personal donations and c ontributions; business travels: telephone c harges; etc. which, as previously discussed "not for services rendered to enhance the business of the company xxx

.. DECISION - C.T.A. CASE NO. 4330 - 14 - (H) ow e v er , i t maybe treat e d as distribution of divide nds to the stoc kholders. " <B.I.R. Records, p. 5 5) An d t hi r d ly , p e ti t ione r failed to support its last argume nt. I t s pe tition reads a s follows: "C R >esp onde nts evi d en tly failed to consider the pri mary and s e conda r y pur poses for whic h t h e petitioner c orp o r atio n wa s organi z ed. Among o thers, t he co mpany was organ ize d to engage in the real estate busines s , a gricu lture a nd i n inves tment i n ma rketable sec u rities, b o nds, d e bent ur es, e t c. Likewise evident is that responde nt' s examiner a lso overlooked the fact a s disclosed in the financia l statement !or the yea r that the petition er cor poration had under s tudy , pro posed, various projects such as c onstructi on of a n ice plant and sal t making pr oject, whi ch are all in line with he purposes for which he corpor ation was f ormed . xxx Considering the purposes for whi ch the petit i oner corporatio n wa s formed tog et her with the various proj e cts i t was intending to unrl er take , it ca n not be sa id that Ba n ico an d ~; n o n , In c . h d allow d impr op er ecc u rn u l tion o1 e arnings beyond t he re s ona ble need s of its business. On the contr ary, t he ' <J J p<trat i o n wa s a c tu ll y i n ne d of rnor f u nds to pursu e i t s proposed v a r i ous �' projects." <C.T .A. Records , pp. 8- 9 > In the case of Manila Wine Merchants. Inc. vs. Commissi oner of Inter n a l Re v e nue <127 S CR A 483>, the Su pr eme Co u r t, quot ing Mer ten s , Law of Fede r al I ncome Tax a tion, held: "A prerequisite to t he i mposition of the tax h a s been th at the corp or a tion be for med or ava i led of for t he pur pose of avoidi ng the i nc ome t ax (or s urtax> on its shareholder s , or on the s hareholders of any other

DECISION - C.T.A. CASE NO. 4 330 - 15 - corporation by permitting the earnings and profits of the corporation to accumulate instead of dividing them among or distributing them to the shareholders. If the earnings and profits were distributed , thP s hareho ders would be required to pay a n income tax thereon whereas , if the d atri bution were not made to them, they would incur no tax in respect to the undistributed earnings and profits of the corporation. The touchstone of liability is the purpose behind the accumu lation of t he income and not the consequences of the accumulation. Thus, if the fail ure to pay dividends is due o some other cause, such as the us e ...9 f u n dis t rib_u \ e>_c:L -~a rn..:!..D. g s___stJ:l q__ .P.t:::.Qfi t,g for t 11 e .... ea~g_r:g:~ble. ___nl?..~ds__,__J:;>.f .� _,_:t_h�?__ ~B~.~.;l,.!J�.'_~~. such purpose does not fall wit hin t he interdiction of the statute. To de erm'ne the 'reasonable needs' of the business in order to j ust ify an accumulation o earnings, he Courts of the United St~ e hav e invented the so-called 'I.mmediacy...T~s.t.' which cons trued the words 're sonable needs f he us ness' to mean he . mme!-Ha e .._..Jleeds ... ot...... j.~e_p_~_gi __ -~-~-' and i t was genera ly held that 'if the cor poration did not prove an i mmedi te n ed for the accumula ion o the earn�ng and prof its, the sccumula ion was not for he r sona ble needs of the busin s , �n th penal y tax would apply.~ <Underscorin g suppli ed > In that case, the Supreme Court affirmed the decision of this Court in finding that "the purchase of the U. S . A. Treasury bond s were in n o way related to petitioner's bu si n ess of importi ng and selling wines whisky, liquors and distilled s pirits, and thus construed as an investment beyond the reasonable needs I I of the business. " It further held t hat: "In order to determine whether profits are accumulated �or the reasonable rieeds o f the business as to avoid the surtax upon . 985

DECISION - C.T.A. CASE NO. 4330 - 16 - _, shareholders, the controlling intention of the taxpayer is that which is manifested at the time of accumulation not subsequently declared intentions which are merely the product of afterthought. f... spec>q~,l,?.t_i_y_E;>___ ?nd _:i,ndefi,ni t~-- pu~pose ..... ~;i,.l,.l__ not ___ su_f;fip~!.-- _____l:_h~. !!!f:='rE?_. r:e_99gni ti,_on.. __ of . _a _ ;futl:lr:e_...P.r:.9.P-tl?.!'.l___g.D.c:i.....t.D.!'?. ciiscussio_n, _of. __ po~~j.ble .... a\'1~ a+:t;e.:rQ?ti_\.'1?. E!Olut,ions i s _r:tot _ suff;i,._ciep_t . .. Qe.J:i r:tiJ:.er:te ~s of plan coupled wi t.h act ion ta_\5E?J),__:t.9.W.~r.!:f.s ______i,\~? consummat.i<:J.n.. _are___ e~s_e_n_t;i..?.~. � " <Underscoring supplied> In the case under consideration, petitioner, in the taxable year 1979, had an increase in investment amounting to P694,531.81. Its pleading, however, is bereft of any explanation on what type or kind of investments it entered into during the year. Petitioner was confident that by mere stating that the corporation was organized to engage in the business of investing in marketable securities, bonds or debentures, the corporation is no longer liable under Section 25 of the Tax Code. In line with the doctrine enunciated in nanila Wine nerchants, case (supra>, this court finds the conclusion made by the petitioner totally misplaced. As to the proposed construction of an ice plant and salt making project, petitioner in the course of the trial, failed to present as part of its evidence, the AT ticles of IncorporAtion and I ,the Bo rd Resolutions to prove the approval or existence of the projects. Consequently, this Court finds the proposal speculative '\- 986 �'

_! DECISION - C.T.A. CASE NO. 4330 - 17 - and indefinite. They are mer ely conjectures, surmises or spec ulations which did not pass the "immediacy test" as discussed in the above - cited case . WHEREFORE, in view of the foregoing, the final decision of the respondent ordering petitione~ to pay the am o unts of P75,778.38 for deficiency income tax and P96,99 2 .02 for deficiency surtax is hereby AFFIRft ED. SO ORDERED. Quezon City, Metro Manila, September 21, 1993. Q~(Q,~ ERHESTO D. ACOSTA Presiding Judge WE CON CUR: . GRUBA t(y z~,. Judge RAI10N 0 DE V . 'A Asso ciate Jud e CERTIFICATE I hereby certify that this decision was reached after due consultation among the members of the Court of Ta x Ap p eals in a c c o rdan c e with Section 13, Article VIII of th e Constitution. ~ Q.O-~ ERNESTO D. ACOSTA Presiding Judge 98 '(