This is a petition for review of a decision of the Court of Tax Appeals,  as  later  modified, declaring petitioner liable for the total sum of P33,187.00 as deficiency  income tax due for the years  1950, 1951  and 1952.

Petitioner  is  a domestic corporation  engaged  in  the importation of  textiles, hardware, sundries,  chemicals, Pharmaceuticals, lumbers, groceries, wines and liquor; in insurance and lumber; and in some exports.  In the income tax returns for the years 1950, 1951 and 1952 it filed with respondent, petitioner  deducted from its  gross  income certain items  representing salaries,  directors' fees  and bonuses  of its non-resident president and vice-president bonuses of  some of  its resident officers  and employees; and interests on earned but unpaid salaries and bonuses of its officers and employees.  The income tax computed in  accordance  with  these returns was  duly paid  by petitioner.

On July  2, 1953,  after  disallowing the  deductions of the items representing directors'  fees, salaries and bonuses of petitioner's  non-resident president and vice president; the bonus participation of certain resident officers  and employees; and the interests on earned but unpaid salaries and bonuses, respondent assessed and demanded from petitioner the payment of deficiency income taxes in the sums of  P26,370.00,  P53,865.00   and  P44,112.00 for the years 1950, 1951 and  1952,  respectively.  Petitioner requested for the re-examination  of  this assessment, and on June 8, 1955, respondent modified the same by allowing as deductible all items comprising directors' fees and salaries of the non-resident president and vice president, bull disallowing the bonuses insofar as they exceed the salaries of the recipients, as well as the interests on  earned but unpaid salaries and bonuses. Hence, for the years  1950, 1951  and 1952,  respondent  made  a new assessment and demanded from  petitioner as deficiency income taxes the amounts of  P10,147.00,  P26,783.00  and,  P20,481.00, respectively. Petitioner having taken the case on appeal  to the Court of Tax Appeals, the latter modified the assessment of respondent as stated in  the early part of this decision.

From this decision both parties have appealed, petitioner from that portion which holds  that the  measure of the reasonableness of  the bonuses  paid to  its non-resident president and vice president  should  be applied  to the bonuses given to resident officers and employees in determining  their  deducibility and  so only so  much of said bonuses  as applied to  the  latter should be  allowed  as deduction,  and respondent from that portion  of the decision  which allows the  deduction  of so  much of the bonuses  which  is  in  excess of  the yearly  salaries paid to the respective recipients  thereof.

The law involved here is Section 30 (a)  (1) and (&) (1) of the  National Internal Revenue  Code, the  pertinent provisions of which we quote:

"SEC. 30. Deductions from gross income. In  computing net  income there shall be allowed as deductions

(a) Expenses:

(1) In general All the  ordinary  and necessary expenses paid or incurred  during1 the taxable year in carrying on any trade or business, including a reasonable allowance for salaries  or other compensation for personal services  actually rendered; * * *

(b) Interest:

(1) In general The amount  of interest paid  within  the taxable year on indebtedness, except on indebtedness incurred or continued to purchase  or carry obligations the  interest upon which is exempt from taxation  as income under this  Title."

It would appear that all ordinary and necessary expenses paid or incurred in carrying on a trade or business, including a reasonable  allowance  for salaries  or other compensation  for  personal services actually  rendered, may be  allowed  as deductions in  computing the taxable income during the year.   It likewise appears  that the amount of interests paid within  the taxable year on any indebtedness may also be deducted  from the gross income. Here it is admitted that the bonuses paid to  the officers and employees of petitioner, whether resident or non-resident, were  paid to them as additional compensation for personal services actually rendered and as such can be considered as ordinary  and necessary expenses incurred in the business within the meaning of the law, the only question in dispute being how  much of  said bonuses may be considered reasonable in order that it  may be allowed as  deduction.

It should be  noted  that petitioner gave to its non-resident president and vice president for the years  1950 and 1951  bonuses equal to 133-½ %  of their annual salaries and  bonuses equal to  125 2/3%   for   the  year   1952, whereas with regard to its resident officers and employees it gave them much more on the alleged reason  that they deserved them  because of their  valuable contribution to the business of the corporation which has made it possible for  it to realize  huge profits during the  aforesaid years.  And  the  Court of Tax Appeals ruled that while the bonuses given to  the non-resident officers  are reasonable  considering their yearly salaries  and the services actually rendered  by  them, the  bonuses given  to the resident officers and employees are, however, quite excessive,  the court  saying  on  this  point  that  "there is no special reason for granting greater bonuses to such lower ranking officers than those  given to Messrs. Kuenzle and Streiff,"  Petitioner now disputes this  ruling insofar as the  resident officers  and  employees are concerned  contending that the  same is not in accordance with the  usual pattern to be followed in determining the reasonableness of  a given compensation because it  ignores the nature, extent and quality  of the services actually  rendered  by its resident officers  and employees.

It is a general rule that "Bonuses to employees made in  good faith and  as  additional compensation  for the services actually rendered by the employees are deductible, provided  such payments, when added to the  stipulated salaries, do  not exceed  a  reasonable compensation for the  services  rendered"  (4 Mertens, Law  of Federal Income Taxation, Sec. 25.50,  p. 410). The condition precedents to the  deduction of bonuses to  employees are: (1)  the payment of the bonuses is in fact compensation; (2)  it must be for personal services actually rendered; and (3) the bonuses, when added to  the salaries, are "reasonable  *  * *  when measured by the amount and quality  of the services performed with  relation  to the business of the particular taxpayer" (Idem, Sec.  25.44, p. 395).  Here it  is  admitted  that the  bonuses  are  in fact compensation  and  were paid for  services  actually rendered.  The only question is whether the payment of said bonuses is reasonable.

There is no  fixed  test for  determining  the  reasonableness of  a  given  bonus as compensation.  This depends upon many factors, one of them being "the amount and  quality of the  services performed with relation  to the business."  Other  tests suggested are: payment must be "made in good faith"; "the character of the taxpayer's business,  the volume  and amount of its net earnings, its locality, the type and extent of the services rendered, the  salary policy of the  corporation";  "the size  of the particular  business";  "the employees' qualifications and contributions to the business venture"; and 'general economic  conditions"  (4 Mertens,  Law of Federal  Income Taxation, Sec.  25.44,  25.49, 25.50, 25.51,  pp. 407-412). However, "in determining  whether the  particular salary or compensation payment is reasonable, the situation must be considered as a whole.  Ordinarily, no single factor is decisive.  *  *  * it is important to keep in mind that it seldom happens that the application of one test can give satisfactory answer, and that ordinarily it is the interplay of several factors, properly weighted for the particular case, which must furnish the final answer" (Idem.).

Considering the different tests  formulated above,  was the trial court justified in holding that the reasonableness of the amount of bonuses given to resident officers and employees should follow the same pattern for determining the  reasonableness  of the amount  of bonuses given to non- resident officers?

Petitioner contends that it is error to apply the same measure of  reasonableness to both resident and non-resident officers because the nature, extent and quality of the services performed  by each with  relation to  the business of the corporation  widely differ, as can be plainly seen by  considering the  factors already  mentioned above, to wit, the character,  size and volume of the business of the taxpayer, the profits made, the volume and amount of its earnings, the salary policy of the taxpayer, the amount and quality of the  services performed,  the employee's qualifications  and contributions  to  the business  venture, and the general economic conditions prevailing in  the place of business.   And  elaborating  on these factors in connection with  the business of petitioner, its  counsel made a detailed exposition of the facts and figures showing in a nutshell that  through the efficient  management, personal effort and  valuable contribution rendered by the resident officers  and employees,  the  corporation realized huge profits during the years 1950, 1951 and 1952, which entitle them to the bonuses that were given to them for those years, especially having in  mind, the after-liberation policy of the corporation of giving  salaries  at low levels because  of the unsettled conditions  that prevailed  after the war and the imposition  of  controls  on exports  and imports and on the uses of foreign  exchange without prejudice of making up later  for  that shortcoming  by giving them additional compensation in the form of bonuses if the financial situation of the  corporation would warrant. As the  General Manager  Jung  testified,  the payments of bonuses were strictly based  on the amount of work performed, the nature of responsibility, the years of service, and  the cost of living.

While it  may be  admitted  that the resident officers and  employees had performed their duty well and rendered  efficient  service and for  that  reason  were  given greater compensation than the non-resident officers, it does not necessarily follow that they should be given greater amount of additional compensation  in the form  of  bonuses than what was given to  the non-resident officers. The  reason  for  this is  that, in the opinion of the management itself of the corporation, said non-resident officers had rendered the same amount of efficient personal service and contribution to deserve equal  treatment in compensation  and other emoluments with the particularity that their liberation  yearly  salaries had  been much  smaller.

Thus, according to counsel for petitioner, the following is the  contribution made  by  said non- resident officers of the corporation: "A.P.  Kuenzle  and H.A.  Streiff, had dedicated  abroad, especially in New York City, New York, U.S.A. and  Zurich, Switzerland, their full time  and attention to the services  of Kuenzle & Streiff, Inc.;  engaging themselves exclusively  in the  purchases abroad of the merchandise for the supply of the import business of the Kuenzle &  Streiff,  Inc., taking  care of its orders of the importation of the  merchandise and also of their shipments to the  said  Company,  making contacts and effecting transactions with the suppliers abroad,  and directing, controlling and supervising  the business operations and  affairs of the company  by directives. * * * They have been the policy-makers for the company.   All  decisions to be made by the  company on  important matters and  anything and everything outside of the routinary have always been first determined by them and made only upon their  instructions  which had been strictly adhered to by the management  of the Company.   A. P. Kuenzle and H. A. Streiff have been the president and vice president, respectively, of the company for many years before 1950, 1951  and  1952 and during these particular  years up to the present."  Indeed, the trial  court  was justified in expressing the  view  that  "there is  no special reason for granting greater bonuses to such  lower  ranking officers  than those  given  to Messrs.  Kuenzle and  Streiff." We  concur in this observation.

The contention of respondent that the trial court erred also  in allowing  as  deduction  bonuses in excess of the yearly salaries  of their respective recipients predicated upon his  own decision that the deductible amount of said bonuses should be only equal  to  their respective yearly salaries cannot  also  be  sustained.  This claim cannot be justified  considering the factors we have already mentioned that  play in the determination of the reasonableness of the bonuses  or additional compensation that may be given to  an officer  or  an employee which, if  properly considered, warrant the payment of the bonuses in question  to the extent allowed  by the trial court.   This  is specially  so considering the post-war policy of  the corporation  in giving salaries at  low levels  because  of the unsettled conditions resulting from war and the imposition of government controls on imports and exports and on the use of foreign exchange which resulted in the diminution of the amount  of business and the  consequent loss  of profits on  the  part  of the corporation.   The  payment of bonuses  in  amounts a little  more  than  the  yearly salaries received considering the prevailing circumstances is in our opinion reasonable.

As regards the amount of interests disallowed, we also find  the  ruling of the trial court justified. There is no dispute that these items accrued  on unclaimed  salaries and  bonus  participation of shareholders  and employees.

Under the law, in order that interest may be deductible, it must  be paid "on indebtedness" (Section 30, (b)  (1) of  the National  Internal  Revenue  Code).  It is therefore imperative to show that there is an existing indebtedness which may be subjected to the payment of interest. Here the items involved are unclaimed salaries and bonus participation  which in our opinion cannot constitute indebtedness within the meaning of the law because  while they constitute an obligation on the part of the corporation, it is not the  latter's fault if they remained unclaimed. It is a  well-settled  rule  that  the term indebtedness is restricted to its usual import which "is the amount which one has contracted to pay for the use of borrowed money."^[1] Since the  corporation had  at  all times  sufficient funds to pay the salaries of its employees, whatever an employee may fail to collect cannot  be considered  an indebtedness for it is the concern of the employee to collect it in due time.   The willingness of the corporation to pay interest thereon cannot be considered a justification  to warrant deduction.

Wherefore,  the decision appealed from is affirmed,  without pronouncement as to  costs.

Paras, C. J. Bengzon,  Padilla, Montemayor, Labrador, Conception, Endencia, Barrera, and Gutierrez David, JJ., concur.

---

^[1] Old Colony R. Co.. vs. Com. of Internal Revenue, 284 U. S. 552, 76 L. ed. 484,  52  S. Ct. 211; Deputy vs. Pierre  S. Du  Pont,  308 U. S.t 498, 84 L.  ed., 424, 60 S. Ct., 863.