Collector vs BatangasTranspo and Laguna-Tayabas bus 102 Phil 822

Facts:

Respondent bus companies are 2 distinct and separate corporations, engaged in the business of land transportation by means of motor
busses and operating distinct and separate lines.

During the war, the two companies lost their respective businesses. Post-war, they were able to acquire56 auto busses from the US
Army which they divided equally.Two years later, Martin Olsen resigned as manager and Joseph Benedict was appointed as Manager of
both companies by their respective Board of Directors. According to Benedict, the purpose of the jointmanagement called “Joint
Emergency Operation” was to economize in overhead expenses. At the end of each calendar year, all gross receipts and expenses of
both companies are determined and the net profitwere divided 50-50 then transferred to the book of accounts of each company, and
each company prepares its own income tax return from their 50% share.The CIR theorizes that the 2 companies pooled their resources
in the establishment of the JointEmergency Operation thereby forming a joint venture. He believes that a corporation exists, distinct
fromthe 2 respondent companies.The CTA held that the Joint Emergency Operation is not a corporation within the contemplation of
the NIRC, much less a partnership, association or insurance company, and therefore was not subject to income tax separately and
independently of respondent companies.

Issue:

Whether or not the two transportation companies involved are liable to the payment of income tax as acorporation on the theory that
the joint emergency operation organized and operated by them is a corporation within the meaning of Sec 84 of the Revised Internal
Revenue Code

Ruling:

Yes. although no legal personality may have been created by the Joint Emergency Operation, nevertheless said joint venture or joint
management operated the business affairs of the 2 companies as though they constituted a single entity, company or partnership,
thereby obtaining substantial economy and profits in the operation.

Further, from the standpoint of income tax law, the procedure and practice of the 2 buscompanies in determining the net income of
each was arbitrary and unwarranted. After all, the 2companies operates in 2 different lines, in different provinces or territories, with
differentequipment and personnel it cannot possibly be true and correct to say that the end of each year,the gross receipts and income
in the gross expenses of two companies are exactly the same for purposes of the payment of income tax.Thus, the Court held that the
Joint Emergency Operation or sole management or joint venture inthis case falls under the provisions of section 84 (b) of the Internal
Revenue Code, andconsequently, it is liable to income tax provided for in section 24 of the same code.* But they were exempted from
paying 25% surcharge for failure to file a tax return, because of their honest belief (based on advice of their attorneys and accountants)
that they are not required to do so