PHILIPPINE REFINING COMPANY V. CA (TAX)

BAD DEBTS; REQUISITES FOR DEDUCTION

For debts to be considered as "worthless" and thereby qualify as "bad debts" making them deductible, the taxpayer should show that

1. there is a valid and subsisting debt;
2. the debt must be actually ascertained to be worthless and uncollectible during the taxable year;
3. the debt must be charged off during the taxable year; and
4. the debt must arise from the business or trade of the taxpayer.

Additionally, before a debt can be considered worthless, the taxpayer must also show that it is indeed uncollectible even in the future. Further, there are steps outlined to be undertaken by the taxpayer to prove that he exerted diligent efforts to collect the debts, viz:

1. sending of statement accounts;
2. sending of collection letters;
3. giving the account to a lawyer for collection; and
4. filing a collection case in court.

DEFICIENCY TAX ASSESSMENT; FAILURE TO PAY WITHIN 30 DAYS RENDERS TAXPAYER LIABLE FOR PAYMENT OF 25% SURCHARGE AND 20% INTEREST

As correctly pointed out by the Solicitor General, the deficiency tax assessment in this case, which was the subject of the demand letter of respondent Commissioner dated 11 April 1989 should have been paid within 30 days from receipt thereof. By reasons of petitioner's default thereon, the delinquency penalties of 25% surcharge and interest of 20% accrued from 11 April 1989. the fact the petitioner appealed the assessment to the CTA and that the same was modified does not relieve petitioner of the penalties incident to delinquency.

PENALTIES FOR DELINQUENCIES, INTENDED TO HASTEN PAYMENT OF TAXES

Tax laws imposing penalties for delinquencies are intended to hasten tax payments by punishing evasions or neglect of duty in respect thereof. If penalties could be condoned for flimsy reasons, the law imposing penalties for delinquencies would be rendered nugatory, and the maintenance of the Government and its multifarious activities will be adversely affected.

COLLECTION OF PENALTY AND INTEREST IN CASE OF DELINQUENCY, MANDATORY

We have likewise explained that it is mandatory to collect penalty and interest at the stated rate in case of delinquency. The intention of the law is to discourage delay in payment of taxes due the Government and in this sense, the penalty and interest are not penal but compensatory for the concomitant use of the funds by the taxpayer beyond the date when he is supposed to have paid them to the Government.