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CIR vs Norton and Harrison


In 1911 Norton and Harrison entered into an agreement with Jackbilt to

be the sole and exclusive distributor of concrete blocks manufactured by
Jackbilt. Payment for the order is transmitted to Norton and then later to
Harrison less service charge effectively making Norton as the one selling them
on record. The agreement was later terminated and changed fixing a monthly
fee. During the existence of such agreement Norton acquired by purchase all
the shares of stock Jackbilt, this caused the CIR to asses Norton of deficiency in
sales tax amounting to 32,000. The CIR considered the sale of Norton of the
blocks to the public as an original sale and not merely a transaction with

The Commissioner of Internal Revenue contends that since Jackbilt was

owned and controlled by Norton & Harrison, the corporate personality of the
Jackbilt should be disregarded for sales tax purposes, and the sale of Jackbilt
blocks by petitioner to the public must be considered as the original sales from
which the sales tax should be computed.

The Tax Court ruled in favor of Norton, stating that The term "original
sale" has been defined as the first sale by every manufacturer, producer or
importer. (Sec. 5, Com. Act No. 503.) Subsequent sales by persons other than
the manufacturer, producer or importer are not subject to the sales tax. They
further explained that there was no sale by Jackbilt to Norton thus there was no
original sale and that they were merely agents thus the deficiency tax sales
should be assessed against Jackbuilt. Hence should be assessed separately
from Norton.

Issue: Whether Norton and Jackbilt should be considered as separate and

distinct in the computation of deficiency sales tax.

Held: No, It has been settled that the ownership of all the stocks of a
corporation by another corporation does not necessarily breed an identity of
corporate interest between the two companies and be considered as a
sufficient ground for disregarding the distinct personalities However, in the
case at bar, we find sufficient grounds to support the theory that the separate
identities of the two companies should be disregarded, Norton being the owner
of all the outstanding stocks; Norton being a member of the board of directors
with direct control and management among others.
The court also cited that ... to allow a taxpayer to deny tax liability on
the ground that the sales were made through another and distinct corporation
when it is proved that the latter is virtually owned by the former or that they
are practically one and the same is to sanction a circumvention of our tax