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Basilan Estates Inc. v. CIR No. 32

(1) Basilan Estates claimed deductions for depreciation of assets based on their reappraised value rather than acquisition cost from 1950 to 1953. The CIR disallowed the deductions. (2) Tax law allows deduction from gross income for depreciation but limits recovery to capital invested in the asset. Depreciation deductions cannot exceed acquisition cost. (3) The court ruled in favor of the CIR, finding that depreciation must be determined based on acquisition cost, not reappraised value, as the tax law does not authorize deductions beyond actual investment in the asset.

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78 views2 pages

Basilan Estates Inc. v. CIR No. 32

(1) Basilan Estates claimed deductions for depreciation of assets based on their reappraised value rather than acquisition cost from 1950 to 1953. The CIR disallowed the deductions. (2) Tax law allows deduction from gross income for depreciation but limits recovery to capital invested in the asset. Depreciation deductions cannot exceed acquisition cost. (3) The court ruled in favor of the CIR, finding that depreciation must be determined based on acquisition cost, not reappraised value, as the tax law does not authorize deductions beyond actual investment in the asset.

Uploaded by

David Valencia
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOC, PDF, TXT or read online on Scribd
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BASILAN ESTATES, INC. v. CIR G.R. No. L-22492 September 5, 1967 BENGZON, J.P., J.

FACTS: Petitioner Basilan Estates, Inc., a Philippine corporation engaged in the coconut industry, claimed deductions for the depreciation of its assets on the basis of their acquisition cost. As of January 1, 1950 , it changed the depreciable value of said assets by increasing it to conform with the increase in cost for their replacement. Accordingly, from 1950 to 1953 it deducted from gross income the value of depreciation computed on the reappraised value. Respondent CIR disallowed the deductions claimed by petitioner, consequently assessing the latter of deficiency income taxes. ISSUE: Whether or not the depreciation shall be determined on the acquisition cost rather than the reappraised value of the assets RULING: YES. The following tax law provision allows a deduction from gross income for depreciation but limits the recovery to the capital invested in the asset being depreciated: (1)In general. A reasonable allowance for deterioration of property arising out of its use or employment in the business or trade, or out of its not being used: Provided, That when the allowance authorized under this subsection shall equal the capital invested by the taxpayer . . . no further allowance shall be made. . . . The income tax law does not authorize the depreciation of an asset beyond its acquisition cost. Hence, a deduction over and above such cost cannot be claimed and allowed. The reason is that deductions from gross income are privileges, not matters of right. They are not created by implication but upon clear expression in the law [Gutierrez v. Collector of Internal Revenue, L-19537, May 20, 1965].

Depreciation is the gradual diminution in the useful value of tangible property resulting from wear and tear and normal obsolescense. It commences with the acquisition of the property and its owner is not bound to see his property gradually waste, without making provision out of earnings for its replacement. The recovery, free of income tax, of an amount more than the invested capital in an asset will transgress the underlying purpose of a depreciation allowance. For then what the taxpayer would recover will be, not only the acquisition cost, but also some profit. Recovery in due time thru depreciation of investment made is the philosophy behind depreciation allowance; the idea of profit on the investment made has never been the underlying reason for the allowance of a deduction for depreciation.

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