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321

CollectorofInternalRevenuevs.ClubFilipino,Inc.deCebu
No.L12719.May31,1962.

THECOLLECTOROFINTERNALREVENUE,
petitioner,vs.THECLUBFILIPINO,INC.DE
CEBU,respondent.
TaxationPercentageTaxBarandRestaurantWhenoperatornotengagedinbusiness.Theliabilityforfixed
andpercentagetaxesasprovidedbySections182,183and191oftheTaxCodedoesnotipsofactoattachby
merereasonoftheoperationofabarandrestaurant.Fortheliabilitytoattach,theoperatorthereofmustbe
engagedinthebusinessasabarkeeperandrestaurateur.
SameWordsandPhrases"Business",meaningof.Theplainandordinarymeaningofbusinessisrestrictedto
activitiesoraffairswhereprofitisthepurposeorlivelihoodisthemotive,andthetermbusinesswhenused
withoutqualification,shouldbeconstruedinitsplainandordinarymeaning,restrictedtoactivitiesforprofitor
livelihood.
SameClubFilipino,Inc.deCebuNotengagedinbarandrestaurant.TheClubFilipino,Inc.deCebuwas
organizedtodevelopandcultivatesportsofallclassanddenomination,forthehealthfulrecreationand
entertainmentofitsstockholdersandmembersthatuponitsdissolution,itsremainingassets,afterpayingdebts
shallbedonatedtoacharitablePhilippineInstitutioninCebuthatitisoperatedmainlywithfundsderivedfrom
membershipfeesandduesthattheClub'sbarandrestaurantcateredonlytoitsmembersandtheirgueststhat
therewasinfactnocashdividenddistributiontoitsstockholdersandthatwhateverwasderivedonretailfrom
itsbarandrestaurantwasusedtodefrayitsoveralloverheadexpensesandtoimproveitsgolfcourse(costplus
expensesbasis),itstandstoreasonthattheClubisnotengagedinthebusinessofanoperatorofbarand
restaurant.
PETITIONforreviewofadecisionoftheCourtofTaxAppeals.
ThefactsarestatedintheopinionoftheCourt.
SolicitorGeneralforpetitioner.
V.Jaime&L.E.Petillaforrespondent.
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CollectorofInternalRevenuevs.ClubFilipino,Inc.deCebu

PAREDES,J.:
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ThisisapetitiontoreviewthedecisionoftheCourtofTaxAppeals,reversing1thedecisionoftheCollectorof
InternalRevenue,assessingagainstanddemandingfromthe"ClubFilipino,Inc.deCebu",thesumof
P12,068.84asfixedandpercentagetaxes,surchargeandcompromisepenalty,allegedlyduefromitasakeeper
ofbarandrestaurant.
AsfoundbytheCourtofTaxAppeals,the"ClubFilipino,Inc.deCebu,"(Club,forshort),isaciviccorporation
organizedunderthelawsofthePhilippineswithanoriginalauthorizedcapitalstockofP22,000.00,whichwas
subsequentlyincreasedtoP200,000.00,amongothers,to"proporcionar,operar,ymanteneruncampodegolf,
tenis,gimnesio(gymnasiums),juegodebolos(bowlingalleys),mesasdebillarypool,ytodaclasedejuegosno
prohibidosporleyesgeneralesyordenanzasgeneralesydesarollarycultivardeportesdetodaclasey
denominacioncualquieraparaelrecreoyentrenamientosaludabledesusmiembrosyaccionistas"(sec.2,
EscrituradeIncorporationdelClubFilipino,Inc.,Exh.A).Neitherinthearticlesorbylawsisthereaprovision
relativetodividendsandtheirdistribution,althoughitiscovenantedthatuponitsdissolution,theClub's
remainingassets,afterpayingdebts,shallbedonatedtoacharitablePhilippineInstitutioninCebu(Art.27,
EstatutosdelClub,Exh.Aa.).
TheClubownsandoperatesaclubhouse,abowlingalley,agolfcourse(onalotleasedfromthegovernment),
andabarrestaurantwhereitsellswinesandliquors,softdrinks,mealsandshortorderstoitsmembersandtheir
guests.ThebarrestaurantwasanecessaryincidenttotheoperationoftheclubanditsgolfcourseTheclubis
operatedmainlywithfundsderivedfrommembershipfeesanddues.Whateverprofitsithad,wereusedto
defrayitsoverheadexpensesandtoimproveitsgolfcourse.In1951,asaresultofacapitalsurplus,arisingfrom
therevaluationofitsrealproperties,thevalueorpriceofwhichincreased,theClubdeclaredstockdividends
butnoactualcashdividendsweredistributedtothestockholders.In1952,aBIRagentdiscoveredthat
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CollectorofInternalRevenuevs.ClubFilipino,Inc.deCebu
theClubhasneverpaidpercentagetaxonthegrossreceiptsofitsbarandrestaurant,althoughitsecuredB4,B
9(a)andB7licenses.InaletterdatedDecember22,1952,theCollectorofInternalRevenueassessedagainst
anddemandedfromtheClub,thefollowingsums:
Aspercentagetaxonitsgrossreceiptsduringthe
taxyears1946to1951...........................................................................................................

P9,599.07

Surchargetherein..................................................................................................................

2,399.77

Asfixedtaxfortheyears1946to1952...............................................................................

70.00

Compromisepenalty............................................................................................................

500.00

TheClubwrotetheCollector,requestingforthecancellationoftheassessment.Therequesthavingbeendenied,
theClubfiledtheinstantpetitionforreview.Thedominantissuesinvolvedinthiscasearetwofold:
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1.1.WhethertherespondentClubisliableforthepaymentofthesumof12,068.84,asfixedandpercentage
taxesandsurchargesprescribedinsections182,183and191oftheTaxCode,underwhichtheassessment
wasmade,inconnectionwiththeoperationofitsbarandrestaurant,duringtheperiodsmentionedabove
and
2.2.WhetheritisliableforthepaymentofthesumofP500.00ascompromisepenalty.
Section182,oftheTaxCodestates,"Unlessotherwiseprovided,everypersonengaginginabusinessonwhich
thepercentagetaxisimposedshallpayinfullafixedannualtaxoftenpesosforeachcalendaryearorfraction
thereofinwhichsuchpersonshallengageinsaidbusiness."Section183providesingeneralthat"thepercentage
taxesonbusinessshallbepayableattheendofeachcalendarquarterintheamountlawfullydueonthebusiness
transactedduringeachquarteretc."Andsection191,sameTaxCode,provides"PercentagetaxxxxKeepers
ofrestaurants,refreshmentparlorsandothereatingplacesshallpayataxthreepercentum,andkeepersofbar
andcafeswherewinesorliquorsareserved,fivepercentumoftheirgrossreceiptsxxx".Ithasbeenheldthat
theliabilityforfixedandpercentagetaxes,asprovidedbythesesections,doesnotipsofactoattachbymere
reasonoftheoperationofabarandrestaurant.Fortheliabilitytoattach,theoperatorthereofmustbeengagedin
thebusinessasabarkeeperand
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CollectorofInternalRevenuevs.ClubFilipino,Inc.deCebu

restaurateur.Theplainandordinarymeaningofbusinessisrestrictedtoactivitiesoraffairswhereprofitisthe
purposeorlivelihoodisthemotive,andthetermbusinesswhenusedwithoutqualification,shouldbeconstrued
initsplainandordinarymeaning,restrictedtoactivitiesforprofitorlivelihood(TheColl.ofInt.Rev.v.Manila
LodgeNo.761oftheBPOE[ManilaElksClub]&CourtofTaxAppeals,G.R.No.L11176,June29,1959,
givingfulldefinitionsoftheword"business"Coll.ofInt.Rev.v.Sweeney,etal.[InternationalClubofIloilo,
Inc.],G.R.No.L12178,Aug.21,1959,thefactsofwhicharesimilartotheonesatbarManilaPoloClubv.B.
L.Meer,etc.,No.L10854,Jan.27,1960).
HavingfoundasafactthattheClubwasorganizedtodevelopandcultivatesportsofallclassanddenomination,
forthehealthfulrecreationandentertainmentofitsstockholdersandmembersthatuponitsdissolution,its
remainingassets,afterpayingdebts,shallbedonatedtoacharitablePhilippineInstitutioninCebuthatitis
operatedmainlywithfundsderivedfrommembershipfeesandduesthattheClub'sbarandrestaurantcatered
onlytoitsmembersandtheirgueststhattherewasinfactnocashdividenddistributiontoitsstockholdersand
thatwhateverwasderivedonretailfromitsbarandrestaurantwasusedtodefrayitsoveralloverheadexpenses
andtoimproveitsgolfcourse(costplusexpensesbasis),itstandstoreasonthattheClubisnotengagedinthe
businessofanoperatorofbarandrestaurant(sameauthorities,citedabove).
ItisconcededthattheClubderivedprofitfromtheoperationofitsbarandrestaurant,butsuchfactdoesnot
necessarilyconvertitintoaprofitmakingenterprise.ThebarandrestaurantarenecessaryadjunctsoftheClub
tofosteritspurposesandtheprofitsderivedtherefromarenecessarilyincidentaltotheprimaryobjectof
developingandcultivatingsportsforthehealthfulrecreationandentertainmentofthestockholdersand
members.ThataClubmakessomeprofit,doesnotmakeitaprofitmakingClub.Ashasbeenremarkedaclub
shouldalwaysstrive,wheneverpossible,tohavesurplus(JesusSacredHeartCollegev.CollectorofInt.Rev.,
G.R.No.L
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CollectorofInternalRevenuevs.ClubFilipino,Inc.deCebu
6807,May24,1954CollectorofInt.Rev.v.SincoEducationalCorp.,G.R.No.L9276,Oct.23,1956).
Itisclaimedthatunlikethetwocasesjustcited(supra),whicharenonstock,theappelleeClubisastock
corporation.Thisisunmeritorious.ThefactsthatthecapitalstockoftherespondentClubisdividedintoshares,
doesnotdetractfromthefindingofthetrialcourtthatitisnotengagedinthebusinessofoperatorofbarand
restaurant.WhatisdeterminativeofwhetherornottheClubisengagedinsuchbusinessisitsobjectorpurpose,
asstatedinitsarticlesandbylaws.Itisafamiliarrulethattheactualpurposeisnotcontrolledbythecorporate
formorbythecommercialaspectofthebusinessprosecuted,butmaybeshownbyextrinsicevidence,including
thebylawsandthemethodofoperation.Fromtheextrinsicevidenceadduced,theTaxCourtconcludedthatthe
Clubisnotengagedinthebusinessasabarkeeperandrestaurateur.
Moreover,forastockcorporationtoexist,tworequisitesmustbecompliedwith,towit:(1)acapitalstock
dividedintosharesand(2)anauthoritytodistributetotheholdersofsuchshares,dividendsorallotmentsofthe
surplusprofitsonthebasisofthesharesheld(sec.3,ActNo.1459).Inthecaseatbar,nowhereinitsarticlesof
incorporationorbylawscouldbefoundanauthorityforthedistributionofitsdividendsorsurplusprofits.
Strictlyspeaking,itcannot,therefore,beconsideredastockcorporation,withinthecontemplationofthe
corporationlaw.
"Ataxisaburden,and,assuch,itshouldnotbedeemedimposeduponfraternal,civic,nonprofit,nonstock
organizations,unlesstheintenttothecontraryismanifestandpatent"(Collectorv.BPOEElksClub,et
al.,supra),whichisnotthecaseinthepresentappeal.
HavingarrivedattheconclusionthatrespondentClubisnotengagedinthebusinessasanoperatorofabarand
restaurant,andtherefore,notliableforfixedandpercentagetaxes,itfollowsthatitisnotliableforanypenalty,
muchlessofacompromisepenalty.
WHEREFORE,thedecisionappealedfromisaffirmedwithoutcosts.
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Estradavs.Santiago

Padilla,BautistaAngelo,Labrador,Concepcion,Reyes,J.B.L.,BarreraandDizon,JJ.,concur.
Bengzon,C.J.,isonofficialleave.
Decisionaffirmed.
Note.SeeCollectorofInternalRevenuevs.ManilaLodgeNo.761,L11176,June29,1959ManilaPoloClub
vs.Meer,L10854,Jan.27,1960.SeealsoCollectorofInternalRevenuevs.ConventionofPhilippineBaptist
Churches,L11807,Jan.28,1961,1SCRA114,wheretheCourtheldthatthesaleofdrugstopayingpatients
wasnotsubjecttosalestax.
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