G.R. No. L-45369; April 25, 1939
ISABELA SUGAR CO., INC. vs. ALFREDO L. YATCO, as Collector of Internal Revenue

FACTS

The plaintiff, Isabela Sugar Co., Inc., is engaged in milling sugar cane. It sells the manufactured sugar through the Sugar Central Agency of the Philippine National Bank. The Bank, after receiving the sale proceeds, deducts the amount of interest due on advances it had made to the plaintiff. The plaintiff paid the 1% percentage tax on its gross receipts under section 1462 of the Revised Administrative Code but sought a refund, claiming the interest deducted by the Bank should not be included in the taxable gross receipts.

ISSUE

Whether the interest deducted by the Philippine National Bank from the sale proceeds of the sugar forms part of the plaintiff’s “gross receipts” subject to the 1% percentage tax under section 1462 of the Revised Administrative Code.

RULING

Yes. The Supreme Court affirmed the judgment of the lower court. The entire amount received from the sale of the sugar, before any deduction, constitutes the gross receipt of the business. The interest deducted by the Bank on its advances is part of that gross receipt. Such advances and the interest thereon are costs of production or business operation. For purposes of the percentage tax, gross receipt means the total receipt before deducting the costs of production. Therefore, the tax is properly levied on the full amount, inclusive of the deducted interest.

AI Generated by Armztrong.