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Gala vs Ellice Agro Industrial Corp.

Doctrine: The legal right of a taxpayer to reduce the amount of what otherwise, could be his taxes or altogether to avoid them, by means which the law permits, could be doubted Facts: The spouses Manuel and Alicia Gala and their children Guia Domingo, Ofelia Gala, Raul Gala and Rita Benson, and their encargados (rough translation; representatives) VirgilioGaleon and Julian Jader, formed and organized Ellice Agro Industrial Corporation (Ellice). As payment for their subscriptions the Spouses Gala transferred several parcles of land to Ellice. Subsequently, the children and the encargados formed and organized another corporation, Margo Management and Development Corporation (Margo). The father, Manuel Gala, sold his shares in Ellice to Margo. Subsequently, Alicia transferred her shares to Margo. In 1990, a special stockholders meeting of Margo was held where a new board of directors was elected. Raul Gala was elected as chairman, president, and general manager. During the meeting, the board approved the commencement of proceeding to annul the dispositions of Margoss property made by Alicia Gala. Similarity, a special stockholders meeting was held in Ellice. A new board was elected and Raul Gala also became chairman, president and GM of Ellice, Raul Gala along with the respondents filed a case against the petitiones in the SEC for accounting and restitution for alleged mismanagement of funds of Ellice. In turn the petitioners filed in the SEC a petition for the nullification of the election of directors of officers of both Margo and Ellice. Essentially, petitioners sought to disregard the separate juridical personalities of two corporations, namely, Ellice Agro-Industrial Corporation and Margo Management and Development Corporation, for the purpose of treating all property purportedly owned by said corporations as properly solely owned by the Gala Spouses. Among their arguments were: (1) said corporations were organized for purpose of exempting the property the property of the Gala Spouses from the coverage of land reform laws, and (2) the two corporations were meant to be used as mere tools for the avoidance of estate taxes. Issue: Whether the separate juridical personalities of Ellice and Margo could be disregard on the grounds that they were meant to be tools to avoid land reform laws and estate taxes. Held: NO, a perusal of the Articles of Incorporation of Ellice and Margo shows no sign of the allegedly illegal purposes that petitioners are complaining of. And even assuming that the petitioners allegations were true, the legality of the purposes for which the two corporations were formed should be first threshed out in an administrative case before the Securities and Exchange Commission. (Doctrine of Primary Jurisdiction). Moreover, on the contention that Ellice and Margo were meant to be tools for the avoidance of estate taxes, the court said th at the legal right of a taxpayer to reduce the amount of what otherwise could be his taxes or altogether avoid them, by means which the law permits, cannot be doubted. (citing: Liddel& Co., Inc c. CIR) Note: Simplified, this case is about a feud between family members who organized two corporation. Petitioners are Alicia Gala (mother), Guia Domingo (sister), and Rita Benson (Sister), Respondents are Raul Gala (brother), Ellice Inc., and Margo Inc. (the family corporations).