Liddell and Co.

vs The Collector of Internal Revenue

Nature: Appeal from the decision of the Court of Tax Appeals imposing a tax deficiency liability on Liddell and
Co. Inc

Facts: Liddell & Co. is a domestic corporation with an authorized capital of 100,000 divided into 1000 share at
100 pesos each. Its purpose was to engage in the business of importing and retailing Oldsmobile, Chevrolet
passenger, GMC and Chevrolet trucks.

On December 20 1948, Liddell Motors Inc. was organized and registered with the Securities and Exchange
Commission with an authorized capital stock of 100,000.

Beginning January 1949 Liddell & Co. stopped retailing cars and trucks and conveyed them instead to Liddell
Motors which sold the vehicles to the public with a steep mark up. Liddell & Co. paid sales taxes on the basis
of its sales to Liddell Motors Inc. considering said sales as original sales.

Upon review, CIR determined that Liddell Motors was a mere alter ego of Liddell & Co and thereafter assessed
a sales tax deficiency including surcharges. The computation was made without deducting from the selling
price, the taxes already paid by Liddell & Co in its sales to Liddell Motors Inc.

The Court of Appeals upheld the position of the CIR.

Issues:

1. Whether the Liddell Motors Inc. is a mere alter ego of Liddell & Co.
2. Whether the assessment of tax liability by Court of Tax Appeals is correct.

Ruling:

1. It is of course accepted that the mere fact that one or more corporations are owned and controlled by
Frank Liddell directly or indirectly is not by itself sufficient to justify the disregard of the separate
corporate entity of one from the other. If the corporation is a substantial one, conducted lawfully and
without fraud on one another, its separate identity is to be respected.