Professional Documents
Culture Documents
The spouses ARTHUR and MARIE Henderson are expats living in the Philippines.
o Arthur is the President of the American International Underwriters for the Philippines, Inc. (AIU), a
domestic corporation engaged in non-life insurance.
o He receives an annual basic salary of P30,000/month, plus allowances for living expenses, travel
expenses and utility bills.
o From 1948-1950, the spouses Henderson lived in the Embassy Apartments on Dakota St., Malate,
Manila, where they had a 3-bedroom suite, with a large sala, 2 bathrooms, kitchen and porch
o From 1950-1952, they lived in the Rosaria Apartments (also on Dakota St.), where they had
similarly palatial living quarters.
o The Sps. Henderson are childless, but regularly host society events and parties for company
officials, customers and guests, as part of Arthurs job as President.
TAX RETURNS filed by the Sps. Henderson for the years 1948-1952
Net
Personal
Taxable
Income
Exemption
Income
1948 29,573.79
2,500
27,073.79
1949 31,817.66
2,500
29,317.66
1950 34,815.74
3,000
31,815.74
1951 32,605.83
3,000
29,605.33
1952 36,780.11
3,000
33,780.11
TAX ASSESSED BY BIR AND PAID by the Sps. Henderson for the period 1948-1952
1948
Paid on May 14, 1949
2,068,12
Paid on Sep. 12, 1949
2,068.11
TOTAL
4,136.23
1949
Paid on May 13, 1950
2,314.95
Paid on Sep. 15, 1950
2,314.94
TOTAL
4,629.89
1950
Paid on Apr. 27, 1951
7,273.00
1951
Withheld from salary
5,780.40
1952
TOTAL PAID
360.50
361.20
5,660.40
1,160.30
1,160.00
7,981.00
Nov. 28, 1953 the BIR reassessed the Sps. Hendersons income for the same period, as follows:
1948
Net income per return
P29,573.79
Add:
Rent expense
7,200.00
Additional bonus for 1947 received May 13, 1948
6,500.00
Other income:
Manager's residential expense (2|29|48a|c 4.51)
1,400.00
Manager's residential expense (refer to 1948 P & L)
1,849.32
Entrance feeMarikina Gun & Country Club
200.00
Net income per investigation
46,723.11
Less: Personal exemption
2,500.00
Net taxable income
P44,223.11
Tax due thereon
Less: Amount of tax already paid per OR 52991 &
4,136.23
160473
Deficiency tax still due & assessable
1949
Net income per return
Add disallowances Capital loss (no capital gain)
Undeclared bonus
Rental allowance from A.I.U.
Subsistence allowance from A.I.U.
Net income per investigation
Less Personal exemption
Amount of income subject to tax
Tax due thereon
Less tax already assessed paid per OR Nos. 232366
& 247918
Deficiency tax due
1950
Net Income per return
Add:
Rent, electricity, water allowances
Net income per investigation
Less: Personal exemption
Net taxable income
Tax due thereon
Less: Tax already paid per O.R. No. 323173
Deficiency tax still due & assessable
1951
Net income per return
Add house rental allowance from AIU
Net income per investigation
Less personal exemptions
Amount of income subject to tax
Tax due thereon
Less tax already assessed and paid per OR Nos.
A33250 & 383318
Deficiency tax due
P4,426.24
P31,817.66
P3,248.84
3,857.75
1,800.00
6,051.60
P14,958.09
P46,775.75
2,500.00
P43,275.75
P8,292.21
4,629.89
P3,662.32
P34,815.74
8,373.73
P43,189.47
3,000.00
P40,189.47
P10,296.00
7,273.00
P3,023.00
P32,605.83
5,782.91
P38,388.74
3,000.00
P35,388.00
P8,560.00
6,502.00
P2,058.00
1952
Net income per return
Add:
Withholding tax paid by company
Traveling allowances
Allowances for rent, telephone, water, electricity,
etc.
Net income per investigation
Less: Personal exemption
Net taxable income
Tax due thereon
Less: Tax already withheld
P36,780.11
600.00
3,247.40
7,044.67
47,672.18
3,000.00
P44,672.18
P12,089.00
P5,660.40
The BIR added to the Sps. Hendersons taxable income their expenses for rent, utility bills, Marikina
Country Club membership and Maries travels to New York.
Jan. 26 & 27, 1954 Sps. Henderson moved for the reconsideration of the revised assessments.
They argued that:
o They did not receive said allowances because these were paid by AIU directly to the landlord,
utility. etc.
o They had no choice but to live in the apartments provided by AIU, since the entertainment functions
were part of Arthurs functions as President.
o If ever the utility bills were to be added to taxable income, only the amount of P3,900 should be
added since this is the amount which the Sps. Henderson would have spent on rent and utility had
it been up to them to choose their living arrangements, since they were childless and needed less
living space than was provided to them by AIU
o The expense for Marikina Country Club membership is incidental to Arthurs functions as President
o Maries traveling expense should not be added because she only went to New York at the behest of
the AIU Chairman to study the details of the plans and decorations of the building which AIU
planned to build on its Dewey (now Roxas) Boulevard property, because Arthur could not come and
the chairman felt that Marie was more closer to those problems.
May 27, 1955 The BIR Conference Staff recommended the affirmance of the assessments to the CIR,
with the exception of the P200 membership fee for the Marikina Country Club.
The CIR adopted the recommendation of the Conference Staff and demanded the payment of deficiency
taxes for the years 1948-1952, plus 5% surcharge and 1% monthly interest from Mar. 1, 1954, on top of P80
late payment penalty, to be paid to the Manila City Treasurer not later than July 31, 1955.
Jan. 30, 1956 Sps. Henderson filed another request for reconsideration, proposing that the BIR add
P4,800 to their taxable income, representing the value to [Arthur] of the benefits he derived therefrom
measured by what he had saved on account thereof in the ordinary course of his life * * * for which he would
have spent in any case. (i.e., yung natira sa ibinigay ng AIU kung hindi sila required mamuhay nang
marangya); and reiterating the arguments in their 1st request for reconsideration.
Feb. 10, 1956 The Sps. filed a refund request with the BIR for overpayment of income tax for the years
1948-52. The BIR (as usual) did not act on the request.
Feb. 15, 1956 Sps. Henderson filed with the CTA a petition for review of the BIR decision.
ISSUES (HELD)
1) W/N the nature of Arthurs job mandated the use of luxurious living quarters (YES)
2) W/N only the ratable value of the benefits to the spouses should be added to taxable income (YES)
3) W/N the traveling expense should be added to taxable income (NO)
4) W/N the 1948 managers residential expense should be added to taxable income (NO)
RATIO
PRELIMINARY: Sec. 29 of the then-prevailing NIRC (CA 466), defines gross income: Gross income includes
gains, profits, and income derived from salaries, wages, or compensation for personal service of whatever kind and
in whatever form paid, or from professions, vocations, trades, businesses, commerce, sales, or dealings in property,
whether real or personal, growing out of the ownership or use of or interest, in such property; also from interest,
rents, dividend, securities, or the transactions of any business carried on for gain or profit, or gains, profits, an income
derived; from any source whatever.
1) HIGH EXECUTIVE POSITION AND SOCIAL STANDING OF ARTHUR DEMANDED AND COMPELLED [THE
SPOUSES] TO LIVE IN MORE SPACIOUS AND PRETENTIOUS QUARTERS LIKE THE ONES THEY HAD
OCCUPIED
they hosted parties at their apartment every Friday night, there were 18-20 people at
every party and these included officials of AIU and other corporations.
movies were shown after these parties for the entertainment of the guests
These are substantiated by the correspondence between Arthur and Marie while the latter was in New York,
as well as the letter written by Arthur addressed to the AIU Chairman.
No part of the allowance was retained by Marie or Arthur, nor did it redound to their benefit.
Maries tumor operation was a mere incidence of the trip. She simply took advantage of her presence in the
city.
4) CLAIM FOR DEDUCTION OF MANAGERS RESIDENTIAL EXPENSE IS SUPPORTED BY EVIDENCE
Testimony of BIR Examiner Ramos: P3,249.32 was placed in the books of AIU as living expenses of Mar
and Mrs. Henderson in the quarters they occupied in 1948 and that the amount of P1,400 was included
as managers residential expense while P1,849.32 was entered as profit and loss.
Testimony of Buenaventura Lobriza, acting head of AIU accounting department: rentals, utility, water, and
telephone bills of corporate executives were entered in the books as subsistence allowances and
expenses and salaries of employees and officers were kept in another separate account. The rental and
utility bills were not charged to salary accounts.
Such evidence supports the Sps. Hendersons claim that the 1948 entry for managers residential
expense should be treated as rentals and utilities expense and hence not part of the ratable value subject
to tax.
COMPUTATION OF THE SC
1948
Net income per return
ADD: Additional bonus for 1947
received May 13, 1948
Ratable value of benefits
Net income
Less: Personal exemption
Net taxable income
Tax due thereon
P29,573.79
6,500.00
4,800
40,873.79
2,500.00
P38,373.79
6.957.19
8,562.47
Refundable amount
Add: Refundable amount for 1949
Refundable amount for 1950
Refundable amount for 1951
Refundable amount for 1952
TOTAL REFUNDABLE AMOUNT
1,605.28
569.33
1,294.00
354.00
2,164.00
5,986.61
DISPOSITION: Judgment modified. CIR ordered to refund P5,986.61 to the Sps. Henderson.