Plaridel Surety Co vs. Collector

Plaridel Surety Co vs. Collector, GR No L-21520, Dec. 11, 1967

Petitioner Plaridel Surety is a domestic corporation engaged in the bonding business.

Petitioner surety and Constancio San Jose (principal), solidarily executed a performance bond in favor of the PL Galang Machinery to secure the performance of San Jose contractual obligation to produce and supply logs. To afford itself adequate protection against loss or damages on the performance, petitioner required San Jose and Ramon Cuervo to execute an indemnity agreement obligating themselves, solidarity to indemnify petitioner for whatever liability it may incur by reason of said performance bond. San Jose constituted a chattel mortgage on logging machineries and other movables in petitioners favor while Ramon Cuervo executed a real estate mortgage.

San Jose failed to deliver the logs to Galang Machinery and sued on the performance bond.  The lower court directed San Jose and Cuervo to reimburse petitioner for whatever amount it would pay Galang Machinery.

Petitioner in his income tax claimed that the amount P44,490 as deductible loss from its gross income.

CIR disallowed the claimed deductions and assessed against petitioner the sum P8,898, plus interest, as deficiency income tax for the year 1957.

ISSUE: WON petitioner can claim P44,490 as a deductible loss from its gross income.

Held:

NO

Petitioner was duly compensated for otherwise than by insurance- thru the mortgage in its favor executed by San Jose and Cuervo and it had not yet exhausted all its available remedies, especially as against Cuervo to minimize its loss.

LOSS is deductible only in the taxable year it actually happens or is sustained.  However, if it is compensable by insurance or otherwise deductions for the loss suffered is postponed to a subsequent year, with, to be precise, is that year in which it appears that no compensation at all can be had, on that there is a remaining or net loss.