Banico & Sons, Inc. v. Court of Tax Appeals

FIFTH DIVISION [CA-G.R. SP No. 32876. October 20, 1994.] (C.T.A. Case No. 4330) BANICO & SONS, INC. , petitioner , vs . HON. COURT OF TAX APPEALS, BUREAU OF INTERNAL REVENUE and EUFRACIO D. SANTOS, IN HIS CAPACITY AS DEPUTY COMMISSIONER OF INTERNAL REVENUE , respondents . D E C I S I O N JACINTO , J p : Elevated to this court for review is the decision dated 21 September 1993 of the Court of Tax Appeals in CTA Case No. 4330, entitled "Banico and Sons, Incorporated, Petitioner, versus Bureau of Internal Revenue and Eufracio D. Santos, in his capacity as Deputy Commissioner of Internal Revenue, Respondents," which affirmed with modifications respondent Commissioner's assessment of P75,778.38 for deficiency income tax, P96,992.02 for deficiency surtax on petitioner's unreasonable accumulation of surplus or profits for the taxable year 1979. The facts of the case as culled from the records are as follows: Petitioner, Banico & Sons. Inc. is a domestic corporation organized primarily for the purpose of engaging in the real estate business and secondarily, for engaging, among others, in agriculture. On 11 January 1985, petitioner received a demand letter with corresponding assessment notices, all dated 11 July 1984 from respondent Bureau of Internal Revenue (BIR) assessing the corporation for deficiency income tax, surtax, and deficiency real estate tax for the years 1979, computed as follows: Total Gross Income P450,344.52 Less: Income subject to final tax: Dividend P83,589.14 Share-Equit- table Banking Corporation 69,185.00 Gain on Sale of Securities 133,044.13 285,818.27 Taxable Gross Income P164,526.25 Less: Allowable Deductions: Interest & bank charges P8,599.48 Taxes & licenses 3,372.19 Donations & contributions 4,519.40 Accountant & Auditor's fee 1,000.00 SSS, Medicare & EC 261.70 Stationery & Office Supplies 646.25 18,399.02 Net Taxable Income 146,127.23 Tax Due thereon P48,450.89 Less: Tax Credit 543.19 47,907.70 Add: 14% interest from 4/16/80 to 7/31/80 1,952.40 20% interest from 8/01/80 to 4/15/83 25,918.28 Total Amount Due and Collectible P75,778.38 =========== Deficiency Surtax (C.T.A. Records p. 13) Total Gross Income (per Statement) P450,344.52 Less: Total Expense 233,963.84 Net Income per Statement 216,380.68 Add: Depreciation Deducted 78,802.59 Total Net Income 295,183.27 Less: Assessment for Deficiency Income 49,906.81 Net Profit P245,276.45 25% Surtax P61,319.11 Add: 14% interest from 4/16/80 to 7/31/80 2,498.96 20% interest from 8/01/80 to 4/15/83 33,173.95 Total Amount Due and Collectible P96,922.02 =========== Deficiency Real Estate Tax Basic Tax P3,000.00 Less: Amount Paid 1,000.00 Deficiency Privilege Tax 2,000.00 Add: 25% surcharge 500.00 Total 2,500.00 Add: 14% interest from 2/1/79 to 1/15/81 684.26 20% interest from 1/16/81 to 8/31/84 1,812.25 Total Amount Due and Collectible 4,996.51 =========== With the exception of the deficiency real estate tax, petitioner formally protested the abovementioned assessment through a letter dated 18 January 1985 on the ground that aside from being arbitrary and devoid of legal basis, the accumulation of surplus profits during the years under consideration was for the purpose of pursuing its real estate business, including but not limited to some proposed projects like salt making and the construction of an ice plant which were all in accord with the purposes for which the corporation was formed. To pursue these projects, the company invariably needs considerable amount of capital outlay, the only possible source of which is from accumulated earnings of the corporation which incidentally were not cash on hand or in bank but in marketable securities. On the contrary, the corporation was actually in need of more funds to pursue its proposed projects. Furthermore, it argued that "the company does not have sufficient cash from which to declare cash dividends and that to sell those securities will either result in a loss or at the very least, will hamper the company's speculative activities" (BIR Records P.99). On the disallowed expenses thus resulting in deficient income, petitioner contends that of the P233,963.84 legitimate expenses claimed as deductions from its gross income for the taxable year 1979 only P18,399.02 or approximately 8% was allowed to be claimed as deduction and P215,564.82 or 92% was disallowed, tabulated as follows: Nature of Expenses Claimed Allowed Disallowed Salaries, wages, bonuses allowance P63,000.00 none 63,000.00 Interest and Bank charges 8,599.48 8,599.48 none Taxes and License 1,372,19 3,372.19 (2,000) Gas and Oil 6,803.35 none 6,803.35 Telephone, Telegram and Cable 746.34 none 6,803.35 Ordinary Car Repair and Maintenance 12,926.10 none 12,926.10 Car Insurance and Registration 5,707.15 none 5,707.15 Representation and Entertainment 4,226.62 none 4,226.62 Stationery Printing and Office Supplies 646.25 646.25 none Donation and Contribution 27,207.20 4,519.40 22,207.20 Business Travel 16,349.91 none 16,349.91 Accountant and Auditor's Fee 1,000.00 1,000.00 none Transportation and Freight 1,134.76 none 1,134.76 Depreciation 78,802.59 none 78,802.59 SSS, Medicare, EC Contribution 261.70 261.70 none Miscellaneous 4,590.60 none 4,590.60 Magazines and Periodicals 249.60 none 249.60 Membership Dues 340.00 none 340.00 Total P233,963.86 18,399.02 215,564.8 Percentage 100% 8% 92% Petitioner further argued that the foregoing expenses claimed as deductions from its gross income for the subject year and disallowed by respondents are legitimate and proper. The aforementioned expenses which were for salaries, gas, oil, telephone, car maintenance and depreciation, etc. are all ordinary and necessary expenses commonly or normally incurred by enterprises engaged in similar field of business. The same were all incurred and paid during the taxable year 1979, in the course of carrying on its business as a real estate corporation. Lastly, said expenses claimed as deductions are duly supported by vouchers, receipts and/or other documents. On 22 December 1988, respondent BIR denied petitioner's protest for lack of legal or factual basis. The petitioner filed a petition for review in the Court of Tax Appeals seeking reversal of respondent BIR's decision which denied its protest and prying that petitioner be cleared of any tax liability for the taxable year 1979. On 21 September 1993 respondent Court of Tax Appeals rendered the challenged decisions, the dispositive portion of which reads: WHEREFORE, in view of the foregoing, the final decision of the respondent ordering petitioner to pay the amounts of P75,778.38 for deficiency income and P96,992.02 for deficiency surtax is hereby AFFIRMED. SO ORDERED. In due time, both petitioner and respondent BIR filed separate Motions for Reconsideration, which were disposed of by respondent CTA on 13 December, 1993, as follows: WHEREFORE, the present Motion for Reconsideration filed by the Petitioner is hereby DENIED for lack of merit and the other Motion for Reconsideration filed by the Respondent is hereby GRANTED, ordering the Petitioner to pay the Respondent the amount of P287,355.38 as above computed. SO ORDERED. Hence, the present petition for review anchored on certain grounds which are quoted hereinbelow: IN RENDERING ITS SUBJECT DECISION DATED SEPTEMBER 21, 1993 AND ITS RESOLUTION DATED DECEMBER 13, 1993, THE HONORABLE RESPONDENT COURT OF TAX APPEALS COMPLETELY DISREGARDED THE UNDIVIDED TESTIMONIAL EVIDENCE PRESENTED BY HEREIN PETITIONER SHOWING THAT INCOME DERIVED BY HEREIN PETITIONER FOR THE TAXABLE YEAR IN QUESTION, WAS NOT DERIVED FROM PASSIVE SOURCES BUT DUE TO ACTIVE BUSINESS OPERATIONS. PETITIONER'S UNDISPUTED TESTIMONIAL EVIDENCE READILY SHOWS THAT PETITIONER DERIVED ITS INCOME FROM ACTIVE BUSINESS OPERATIONS SUCH THAT THE EXPENSES CLAIMED AS DEDUCTIONS FROM GROSS INCOME FOR THE SUBJECT TAXABLE YEAR ARE LEGITIMATE AND PROPER. IN RENDERING ITS SUBJECT DECISION DATED SEPTEMBER 21, 1993 AND ITS RESOLUTION DATED DECEMBER 13, 1993, THE HONORABLE RESPONDENT COURT OF TAX APPEALS COMPLETELY DISREGARDED THE UNDISPUTED TESTIMONIAL EVIDENCE PRESENTED BY HEREIN PETITIONER SHOWING IN PARTICULAR DETAIL THAT PETITIONER HAS CONSISTENTLY REPORTED AND CORRESPONDINGLY, RESPONDENT BUREAU OF INTERNAL REVENUE HAS CONSISTENTLY ALLOWED SIMILAR DEDUCTIONS FROM TAXABLE INCOME AS THOSE DISALLOWED IN THE QUESTIONED ASSESSMENT FOR TAXABLE YEARS IMMEDIATELY PREVIOUS AND SUBSEQUENT TO THE TAXABLE YEAR IN QUESTION. IN RENDERING ITS SUBJECT DECISION DATED SEPTEMBER 21, 1993 AND ITS RESOLUTION DATED DECEMBER 13, 1993, THE HONORABLE RESPONDENT COURT OF TAX APPEALS COMPLETELY DISREGARDED THE UNDISPUTED TESTIMONIAL EVIDENCE PRESENTED BY HEREIN PETITIONER SHOWING IN PARTICULAR DETAIL THAT PETITIONER HAS CONSISTENTLY REPORTED ACCUMULATED SURPLUS EARNINGS IN THE FORM OF MARKETABLE SECURITIES BOTH BEFORE AND AFTER THE TAXABLE YEAR IN QUESTION AND THIS WAS PASSED UPON BY RESPONDENT BUREAU OF INTERNAL REVENUE WITHOUT IMPOSING DEFICIENCY TAX FOR UNREASONABLE ACCUMULATION OF SURPLUS PROFITS. IN RENDERING ITS SUBJECT DECISION DATED SEPTEMBER 21, 1993 AND ITS RESOLUTION DATED DECEMBER 13, 1993, THE HONORABLE RESPONDENT COURT OF TAX APPEALS COMPLETELY DISREGARDED THE UNDISPUTED TESTIMONIAL EVIDENCE OFFERED BY HEREIN PETITIONER SHOWING THAT RETAINED EARNINGS FOR THE TAXABLE YEAR IN QUESTION WERE IN THE FORM OF MARKETABLE SECURITIES, THE LIQUIDATION OF WHICH AT THAT TIME WOULD LED TO SUBSTANTIAL LOSS. THE RULING OF THE HONORABLE RESPONDENT COURT OF TAX APPEALS UPHOLDING THE ASSESSMENT UPON PETITIONER FOR DEFICIENCY SURTAX ON UNREASONABLE ACCUMULATION OF SURPLUS PROFITS IS IN COMPLETE DISREGARD OF PETITIONER'S TESTIMONIAL EVIDENCE. IN RENDERING ITS SUBJECT DECISION AND IN DENYING PETITIONER'S MOTION FOR RECONSIDERATION BOTH WITH COMPLETE DISREGARD TO THE DETAILED UNDISPUTED TESTIMONIAL EVIDENCE PRESENTED BY PETITIONER, THE HONORABLE RESPONDENT COURT HAS DEPRIVED PETITIONER OF DUE PROCESS OF LAW. In its Comment to the petition, respondent BIR maintains that the factual findings of respondent Court is binding on the appellate court, and that respondent Court acted correctly in deciding the case without regard to petitioner's evidence which it did not formally offer. We find that the herein petitioner raises some procedural and substantive issues. On the first issue, We have to resolve whether respondent Court erred in not considering petitioner's documentary evidence purporting to show that respondent BIR's assessments for deficiency tax as well as deficiency surtax for unreasonable accumulation of surplus profits are unwarranted or arbitrary. And on its substantive aspect, the following issues may be appreciated: 1. Whether or not petitioner is liable for deficiency income tax amounting to P75,778.38; 2. Whether or not petitioner is guilty of unreasonable accumulation of profits making it liable for deficiency surtax in the amount of P96,992.02; and 3. Whether or not petitioner is liable for additional interest and penalty for both deficiency taxes on income and surtax from the date of assessment (11 July 1984) up to the maximum of three (3) years (11 July 1987) pursuant to Section 51(e) (2) and Section 51(e) (3) of the Tax Code, respectively. We have no reason to disturb the action taken by respondent Court in disregarding petitioner's documentary exhibits (Exhs A to S with submarkings) which he belatedly offered in evidence only after respondent Court had rendered judgment and only when he sought reconsideration thereof. As correctly pointed out by respondent Court, Section 34 of Rule 132 is explicit on this point: "[T]he court shall consider no evidence which has not been formally offered." Petitioner, therefore, has no one else to blame but itself for its neglect to formally offer documentary evidence at the proper time. On the substantive issues, after a thorough evaluation of the evidence on record, We sustain respondent CTA's finding on petitioner's tax liability. To help determine the propriety of the disallowance of the operation expenses, a careful evaluation must be made of the true nature of the actual business transactions conducted and the sources of income. The breakdown of the sources of income for the taxable year in question are as follows: 1979 Rental income P144,000.00 Dividends 83,589.14 Interest Gain on Sale of Securities 133,044.13 Other Income Advanced Rental Income P12,000.00 Commission (Anselmo Trinidad & Co.) 7,490.95 Sale of Copra 1,035.30 Share in the net earnings of Equitable Banking Corporation (Net of withholding tax) 69,185.00 89,711.25 P450,344.52 ========= Excluding dividends and gain on sale of securities, items of income subject to final tax and considered as passive sources of income, the taxable gross income consists of the following: Rental income (including advanced rental) P156,000.00 Commission 7,490.95 Sale of Copra 1,035.30 Total 164,526.25 As admitted by petitioner in its letter dated April 20, 1983 and per BIR Records (Revenue Examiner's Report dated 01 February 1983 submitted by Esperanza G. Miraflores), the rental income of Banico & Sons, Incorporated is derived from its property under lease to Caltex Philippines Incorporated entered into in 1978 over a period of five years in the amount of P720,000.00. With the exception of the income from the sale of copra amounting to P1,035.00, out of the P450,344.52 reported income for the taxable year 1979, the income of the company are either investment income which are passive in nature or rental income, received in advance and allocated over a period of five years. Said fact demonstrates that less than 1% of the company's income in 1979 was derived from "active business concerns". Therefore, it is logical to conclude that almost 100% of the company's income is passive in nature which can be realized with very little or no effort at all on the part of the recipient. Virtually, the corporation had no activities for the year 1978 and 1979, except holding properties and collecting rental income therefrom and engaging in the trading of stocks and securities from which it derived dividends and profit. Thus, with the nature of the sources of income already settled, We will now proceed to evaluate the propriety of the disallowed expenses. Section 30 of the Tax Code reads as follows: 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; traveling expenses while away from home in the pursuit of a trade or business, rentals or other payments required to be made as a condition to the continued use of possession, for the purpose or trade or business, of property to which the taxpayer has not taken or is not taking title or in which he has no equity. xxx xxx xxx A perusal of the aforequoted provision will show that before an expense can be allowed as a deduction. it must: 1. be both ordinary and necessary; 2. be paid or incurred within the taxable year; and 3. be incurred in carrying on a trade or business. The fact that the disallowed expenses were paid or incurred and supported by proper evidence is not disputed. What is put in issue is whether the expenses claimed is "ordinary" and "necessary" under the circumstances. To determine whether the disallowance of said operating expenses were improper, and exhaustive analysis of the term "ordinary" and "necessary" expenses must be made. As quoted in the decision of respondent CTA dated 21 September 1993 (pp 64, rollo) and by the petitioner in its petition for review (pp 24-25, rollo) the meaning, significance and application of the term "ordinary" and "necessary" are as follows: "Expenses will ordinarily be considered necessary if the expenditure is appropriate and helpful in developing and maintaining the taxpayer's business . Obviously, under such a view, the necessity involved is not absolute or inexorable. Normally, a taxpayer will not incur an expenditure unless required or justified by the needs of the business . Proceeding on that logical assumption, the courts are slow to override the taxpayer's judgment as to the necessity for incurring the expenses. Consequently, the real difficulties in the interpretation of the terms ordinary and necessary arise not from the word necessary but from its companion word ordinary. The fact that expenses are necessary is not necessarily decisive since personal expenses can also be necessary. (Merten's Volume 4A, pp. 39-40)" (Emphasis supplied). An expense will be considered ordinary if it normally occurs in connection with business similar to the one claiming the deduction. Ordinary does not imply that the payments must be habitual or normal in the sense that the taxpayer will have to make them often. A necessary expense must not be essential expense, but merely one that is proper and made in the interest of the business operation . However, an expense will not be deductible if it is necessary but not ordinary. (Michie's Federal Tax Handbook, p. 3090)" (Emphasis supplied). Generally, an expense is considered "ordinary" when it connotes a payment which is normal in relation to the business of the taxpayer and the surrounding circumstances. (Visayan Cebu Terminal Co. vs. Collector, CTA Case No. 128) It is considered "ordinary" when it is common to incur in the trade or business of the taxpayer and those with businesses similar to the one claiming the deduction. On the other hand, an expense is regarded as necessary if it is appropriate and helpful to the taxpayer's business. But the fact remains that not all expenses which are ordinary and necessary under the circumstances are allowed as deductions in an unlimited amount. The deduction claimed must be justified as reasonable both in nature amount. In the case now under review, the nature of the sources of income resulting from the actual business transactions conducted having been found to have emanated from passive sources, petitioner's contention on the impropriety of the disallowed expenses appears to be untenable. The petitioner failed to justify the claimed expenses as common to be incurred or normal and justified in relation to the actual business transactions conducted and not in relation to the primary and secondary purposes as stated in its Articles of Incorporation and By-laws. Petitioner likewise failed to justify that the claimed expenses were necessary for being appropriate and helpful in the realization of the income reported in the Financial Statements of the Company for the taxable year in question. It is elementary that all presumptions are in favor of the correctness of tax assessments, and as aptly stated "[A]s logical outgrowth of the presumption in favor of the validity of assessments when such assessments are assailed, the burden of proof is upon the complaining party. It is incumbent upon the property owner to show clearly that the assessment was erroneous in order to relieve itself from it" (51 Am Jur Sec. 655, p.629, cited in Aranas' Updated National Internal Revenue Code, 1988 edition). Since the income of the company, with the exception of the income from the sale of copra, is either passive in nature or accrued income, i.e. realized and received in advance, no further business activities which require unnecessary expenses for its realization are needed. From the foregoing discussion, We uphold the decision of the CTA disallowing the expenses. On the issue of unreasonable accumulation of profit, the surtax or additional tax on corporations improperly accumulating profits or surplus was embodied in the then Section 25 of the Tax Code. On 01 January 1986 Executive order No. 37 repealed said provision. Revenue Memorandum Circular No. 26-86 explained the reason for the repeal thus: The tax on improper accumulation of surplus is essentially a penalty tax designed to compel corporations to distribute corporate earnings so that the said earnings will be taxed to the shareholders. The exemption of dividends from income tax renders the improperly accumulated surplus tax meaningless. Accordingly, the provisions of the tax on improper accumulation of surplus are repealed and replaced with provisions to govern the taxation of foreign corporations which are lifted from section 24 (b)." However, the repeal of the tax law does not carry with it the tax liability proceeding from an assessment properly made before the repeal of the law governing the tax liability. The pertinent provision governing the imposition of the surtax of 25% on improperly accumulated surplus or profit of the corporation at the time the tax was due and at the time of the assessment on 11 July 1984 was embodied in Section 25 of the Tax Code which provided as follows: Section 25. Additional tax on corporation improperly accumulating profits or surplus (a) Imposition of tax . If any corporation, except banks, insurance companies or personal holding companies, whether domestic or foreign, is formed or availed of for the purpose of preventing the imposition of the tax upon its shareholders 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 distributed, there is levied and assessed against such corporation, for each taxable year, a tax equal to twenty-five per centum of the undistributed portion of its accumulated profits or surplus which shall be in addition to the tax imposed by Section twenty-four, and shall be computed, collected and paid in the same manner and subject to the same provisions of law, including penalties, as that tax. (b) Prima facie evidence . The fact that any corporation is a mere holding company shall be prima facie evidence of a purpose to avoid the tax upon its shareholders or members. Similar presumption will lie in the case of an investment company where at any time during the taxable year more than fifty per centum in value of its outstanding stock is owned, directly or indirectly, by one person. (c) Evidence determinative of purpose . The fact that the earnings or profits of a corporation are permitted to accumulate beyond the reasonable needs of the business shall be determinative of the purpose to avoid the tax upon its shareholders or members unless the corporation by clear preponderance of evidence, shall prove the contrary. In the light of the abovequoted provision and on the authority of the ruling in Basilan Estates, Inc. vs Commissioner of Internal Revenue (21 SCRA 17), the Commissioner found that petitioner accumulated its surplus or profit as of 1979 in the amount of P245,276.45 based on the following circumstances: 1. Strong financial position of the petitioner as of December 31, 1979. Assets were P4,356,653.00, outstanding liabilities amounted only to P704,314.00 or a ratio of 6.1 to 1. 2. As of 1979, the corporation had considerable capital adequate to meet the reasonable needs of the business amounting to P3,652,338.41 (assets less liabilities or net assets) 3. While no loan have been granted to the stockholders, the BIR Records reveal that the latter gave bonuses, salaries, and wages; gasoline allowances; car repairs, insurance, registration and maintenance allowances; representation allowances, personal donations and contributions; business travels; telephone charges, etc. to its shareholders and this may therefore be treated as distribution of dividends. 4. Petitioner's increased investments in marketable securities failed to meet the 'immediacy test' as discussed in the case of Manila Wine Merchants vs. CIR (127 SCRA 483). 5. The additional investments on marketable securities worth P694,531.81 militate against the argument that the company does not have sufficient cash from which to declare cash dividends. Considering the foregoing circumstances, we now proceed to determine whether the accumulation of surplus by the company was improper as to be beyond the reasonable needs of the business and with the purpose of avoiding the payment of progressive tax. Petitioner failed to support its averment that it needs reserved funds for real estate acquisition and development and that it had not invested its earnings in assets having no proximate connection to the business but had invested the same in accordance with the primary and secondary purposes for which the corporation was organized. In this connection, we quote with approval respondent CTA's exhaustive discussion on the findings that petitioner unreasonably accumulated its profits to avoid the imposition of progressive tax on its shareholders thus: "And thirdly, petitioner failed to support its last argument. Its petition reads as follows: "(R)espondents evidently failed to consider the primary and secondary purposes for which the petitioner corporation was organized. Among others, the company was organized to engage in the real estate business, agriculture and in investment in marketable securities, bonds, debentures, etc. Likewise evident is that respondent's examiner also overlooked the fact as disclosed in the financial statement for the year that the petitioner corporation had under study, proposed, various projects such as construction of an ice plant and salt making project, which are all in line with the purposes for which the corporation was formed. . . . Considering the purposes for which the petitioner corporation was formed together with the various projects it was intending to undertake, it cannot be said that Banico and Sons, Inc. had allowed improper accumulation of earnings beyond the reasonable needs of its business. On the contrary, the corporation was actually in need of more funds to pursue its proposed various projects." (C.T.A. Records, pp. 8-9) In the case of Manila Wine Merchant's, Inc. vs. Commissioner of Internal Revenue (127 SCRA 483), the Supreme Court, quoting Mertens, Law of Federal Income Taxation, held: "A prerequisite to the imposition of the tax has been that the corporation be formed or availed of for the purpose of avoiding the income tax (or surtax) on its shareholders, or on the shareholders of any other 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, the shareholders would be required to pay an income tax thereon whereas, if the distribution 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 accumulation of the income and not the consequences of the accumulation. Thus, if the failure to pay dividends is due to some other cause, such as the use of undistributed earnings and profits for the reasonable needs of the business, such purpose does not fall within the interdiction of the statute. To determine the 'reasonable needs' of the business in order to justify an accumulation of earnings, the Courts of the United States have invented the so-called 'Immediacy Test' which construed the words 'reasonable needs of the business' to mean the immediate needs of the business, and it was generally held that if the corporation did not prove an immediate need for the accumulation of the earnings and profits, the accumulation was not for the reasonable needs of the business, and the penalty tax would apply" (Emphasis supplied.) xxx xxx xxx 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 Manila Wine Merchants 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 Articles of Incorporation and the Board Resolutions to prove the approval or existence of the projects. Consequently, this Court finds the proposal speculative and indefinite. They are merely conjectures, surmises or speculations which did not pass the 'immediacy test' as discussed in the above-cited case (pp 69-71, rollo). Anent the issue of the imposition of additional interest and surcharge on both the deficiency taxes on income and surtax pursuant to Section 51 (e) (2) and section 51 (e) (3) of the Tax Code, respectively, which was prayed for in respondent BIR's Motion for Reconsideration (pp 130-132, CTA Record), Section 51, paragraph (e) makes no distinction nor does it establish exceptions. It directs the collection of the surcharge and interest at the stated rates upon any sum or sums due and unpaid after the dates prescribed in subsections (b), (c), and (d) thereof for the payment of the amounts due. The provision, therefore, is mandatory in case of delinquency. It is obvious that the interest and surcharge are invariably considered as "part of the tax" so that the rule governing payment of taxes on the dates fixed by law would apply, and would leave no room for discretion on the part of revenue officials or the Court of Tax Appeals for that matter. (Comm. vs. Limpan Investment Corp., L-28571, July 31, 1970) WHEREFORE, in view of the foregoing, there being no reversible error in the judgment appealed from as modified by respondent Court's Resolution dated 13 December 1993, the same is AFFIRMED in its entirety. Consequently, petitioner is hereby ordered to pay the Bureau of Internal Revenue the sum of P287,355.38, representing the total amount due and collectible, which includes therein the 10% surcharge and the 20% interest computed up to a maximum of three years. SO ORDERED. Francisco and Garcia, JJ., concur.