TodayisWednesday,March15,2017

Custom Search

RepublicofthePhilippines
SUPREMECOURT
Manila

ENBANC

G.R.No.L12719May31,1962

THECOLLECTOROFINTERNALREVENUE,petitioner,
vs.
THECLUBFILIPINO,INC.DECEBU,respondent.

OfficeoftheSolicitorGeneralforpetitioner.
V.JaimeandL.E.Petillaforrespondent.

PAREDES,J.:

This is a petition to review the decision of the Court of Tax Appeals, reversing the decision of the Collector of
InternalRevenue,assessingagainstanddemandingfromthe"ClubFilipino,Inc.deCebu",thesumofP12,068.84
as fixed and percentage taxes, surcharge and compromise penalty, allegedly due from it as a keeper of bar and
restaurant.

As found by the Court of Tax Appeals, the "Club Filipino, Inc. de Cebu," (Club, for short), is a civic corporation
organized under the laws of the Philippines with an original authorized capital stock of P22,000.00, which was
subsequently increased to P200,000.00, among others, to it "proporcionar, operar, y mantener un campo de golf,
tenis,gimnesio(gymnasiums),juegodebolos(bowlingalleys),mesasdebillarypool,ytodaclasedejuegosno
prohibidos por leyes generales y ordenanzas generales y desarollar y cultivar deportes de toda clase y
denominacion cualquiera para el recreo y entrenamiento saludable de sus miembros y accionistas" (sec. 2,
Escritura de Incorporacion del Club Filipino, Inc. Exh. A). Neither in the articles or bylaws is there a provision
relativetodividendsandtheirdistribution,althoughitiscovenantedthatuponitsdissolution,theClub'sremaining
assets,afterpayingdebts,shallbedonatedtoacharitablePhilippineInstitutioninCebu(Art.27,EstatutosdelClub,
Exh.Aa.).

TheClubownsandoperatesaclubhouse,abowlingalley,agolfcourse(onalotleasedfromthegovernment),and
a barrestaurant where it sells wines and liquors, soft drinks, meals and short orders to its members and their
guests. The barrestaurant was a necessary incident to the operation of the club and its golfcourse. The club is
operatedmainlywithfundsderivedfrommembershipfeesanddues.Whateverprofitsithad,wereusedtodefrayits
overhead expenses and to improve its golfcourse. In 1951. as a result of a capital surplus, arising from the re
valuation of its real properties, the value or price of which increased, the Club declared stock dividends but no
actualcashdividendsweredistributedtothestockholders.In1952,aBIRagentdiscoveredthattheClubhasnever
paidpercentagetaxonthegrossreceiptsofitsbarandrestaurant,althoughitsecuredB4,B9(a)andB7licenses.
InaletterdatedDecember22,1852,theCollectorofInternalRevenueassessedagainstanddemandedfromthe
Club,thefollowingsums:

Aspercentagetaxonitsgrossreceipts
duringthetaxyears1946to1951 P9,599.07
Surchargetherein 2,399.77
Asfixedtaxfortheyears1946to1952 70.00
Compromisepenalty 500.00

TheClubwrotetheCollector,requestingforthecancellationoftheassessment.Therequesthavingbeendenied,
theClubfiledtheinstantpetitionforreview.

Thedominantissuesinvolvedinthiscasearetwofold:
1.WhethertherespondentClubisliableforthepaymentofthesumof12,068.84,asfixedandpercentagetaxes
andsurchargesprescribedinsections182,183and191oftheTaxCode,underwhichtheassessmentwasmade,
inconnectionwiththeoperationofitsbarandrestaurant,duringtheperiodsmentionedaboveand

2.WhetheritisliableforthepaymentofthesumofP500.00ascompromisepenalty.

Section182,oftheTaxCodestates,"Unlessotherwiseprovided,everypersonengaginginabusinessonwhichthe
percentagetaxisimposedshallpayinfullafixedannualtaxoftenpesosforeachcalendaryearorfractionthereof
inwhichsuchpersonshallengageinsaidbusiness."Section183providesingeneralthat"thepercentagetaxeson
businessshallbepayableattheendofeachcalendarquarterintheamountlawfullydueonthebusinesstransacted
duringeachquarteretc."Andsection191,sameTaxCode,provides"Percentagetax...Keepersofrestaurants,
refreshmentparlorsandothereatingplacesshallpayataxthreepercentum,andkeepersofbarandcafeswhere
winesorliquorsareservedfivepercentumoftheirgrossreceipts...".Ithasbeenheldthattheliabilityforfixedand
percentagetaxes,asprovidedbythesesections,doesnotipsofactoattachbymerereasonoftheoperationofa
barandrestaurant.Fortheliabilitytoattach,theoperatorthereofmustbeengagedinthebusinessasabarkeeper
andrestaurateur.Theplainandordinarymeaningofbusinessisrestrictedtoactivitiesoraffairswhereprofitisthe
purposeorlivelihoodisthemotive,andthetermbusinesswhenusedwithoutqualification,shouldbeconstruedin
itsplainandordinarymeaning,restrictedtoactivitiesforprofitorlivelihood(TheColl.ofInt.Rev.v.ManilaLodge
No. 761 of the BPOE [Manila Elks Club] & Court of Tax Appeals, G.R. No. L11176, June 29, 1959, giving full
definitionsoftheword"business"Coll.ofInt.Rev.v.Sweeney,etal.[InternationalClubofIloilo,Inc.],G.R.No.L
12178,Aug.21,1959,thefactsofwhicharesimilartotheonesatbarManilaPoloClubv.B.L.Meer,etc.,No.L
10854,Jan.27,1960).

HavingfoundasafactthattheClubwasorganizedtodevelopandcultivatesportsofallclassanddenomination,for
thehealthfulrecreationandentertainmentofitsstockholdersandmembersthatuponitsdissolution,itsremaining
assets,afterpayingdebts,shallbedonatedtoacharitablePhilippineInstitutioninCebuthatitisoperatedmainly
withfundsderivedfrommembershipfeesandduesthattheClub'sbarandrestaurantcateredonlytoitsmembers
and their guests that there was in fact no cash dividend distribution to its stockholders and that whatever was
derived on retail from its bar and restaurant was used to defray its overall overhead expenses and to improve its
golfcourse (costplusexpensesbasis), it stands to reason that the Club is not engaged in the business of an
operatorofbarandrestaurant(sameauthorities,citedabove).

It is conceded that the Club derived profit from the operation of its bar and restaurant, but such fact does not
necessarilyconvertitintoaprofitmakingenterprise.ThebarandrestaurantarenecessaryadjunctsoftheClubto
fosteritspurposesandtheprofitsderivedtherefromarenecessarilyincidentaltotheprimaryobjectofdeveloping
andcultivatingsportsforthehealthfulrecreationandentertainmentofthestockholdersandmembers.ThataClub
makes some profit, does not make it a profitmaking Club. As has been remarked a club should always strive,
wheneverpossible,tohavesurplus(JesusSacredHeartCollegev.CollectorofInt.Rev.,G.R.No.L6807,May24,
1954CollectorofInt.Rev.v.SincoEducationalCorp.,G.R.No.L9276,Oct.23,1956). 1wph1.t

It is claimed that unlike the two cases just cited (supra), which are nonstock, the appellee Club is a stock
corporation. This is unmeritorious. The facts that the capital stock of the respondent Club is divided into shares,
does not detract from the finding of the trial court that it is not engaged in the business of operator of bar and
restaurant.WhatisdeterminativeofwhetherornottheClubisengagedinsuchbusinessisitsobjectorpurpose,as
statedinitsarticlesandbylaws.Itisafamiliarrulethattheactualpurposeisnotcontrolledbythecorporateformor
by the commercial aspect of the business prosecuted, but may be shown by extrinsic evidence, including the by
lawsandthemethodofoperation.Fromtheextrinsicevidenceadduced,theTaxCourtconcludedthattheClubis
notengagedinthebusinessasabarkeeperandrestaurateur.

Moreover,forastockcorporationtoexist,tworequisitesmustbecompliedwith,towit:(1)acapitalstockdivided
into shares and (2) an authority to distribute to the holders of such shares, dividends or allotments of the surplus
profits on the basis of the shares held (sec. 3, Act No. 1459). In the case at bar, nowhere in its articles of
incorporation or bylaws could be found an authority for the distribution of its dividends or surplus profits. Strictly
speaking,itcannot,therefore,beconsideredastockcorporation,withinthecontemplationofthecorporationlaw.

A tax is a burden, and, as such, it should not be deemed imposed upon fraternal, civic, nonprofit, nonstock
organizations,unlesstheintenttothecontraryismanifestandpatent"(Collectorv.BPOEElksClub,etal.,supra),
whichisnotthecaseinthepresentappeal.

HavingarrivedattheconclusionthatrespondentClubisnotengagedinthebusinessasanoperatorofabarand
restaurant, and therefore, not liable for fixed and percentage taxes, it follows that it is not liable for any penalty,
muchlessofacompromisepenalty.

WHEREFORE,thedecisionappealedfromisaffirmedwithoutcosts.

Padilla,BautistaAngelo,Labrador,Concepcion,Reyes,J.B.L.,BarreraandDizon,JJ.,concur.
Bengzon,C.J.,isonleave.