Collector of Internal Revenue v. Club Filipino
REITERATIONFacts
The Antecedents: The Collector of Internal Revenue assessed Club Filipino, Inc. de Cebu (Club) for P12,068.84 in fixed and percentage taxes, surcharge, and compromise penalty, alleging it was a keeper of a bar and restaurant. The Club is a civic corporation organized to provide recreational facilities, including a golf course, bowling alley, and a bar-restaurant, for its members and guests. Its operations are funded mainly by membership fees and dues, and any profits are used for overhead and facility improvements. The Club declared stock dividends in 1951 from a capital surplus but no cash dividends were distributed. Procedural History: A BIR agent discovered the Club had not paid percentage tax on its bar and restaurant receipts. The Collector of Internal Revenue issued an assessment. The Club requested cancellation, which was denied. The Petition: The Club filed a petition for review with the Court of Tax Appeals, which reversed the Collector's decision. The Collector of Internal Revenue then filed this petition for review.
Issue(s)
Whether the Club Filipino, Inc. de Cebu is liable for fixed and percentage taxes, surcharges, and compromise penalties in connection with the operation of its bar and restaurant. Whether the Club is engaged in the business of a barkeeper and restaurateur.
Ruling
The Court affirmed the decision of the Court of Tax Appeals, ruling that Club Filipino, Inc. de Cebu is not liable for the assessed fixed and percentage taxes, surcharges, and compromise penalties. The petition was dismissed.
Ratio Decidendi
On the issue of liability for fixed and percentage taxes, surcharges, and compromise penalties: The Court held that liability for fixed and percentage taxes under Sections 182, 183, and 191 of the Tax Code does not automatically attach by merely operating a bar and restaurant. The operator must be engaged in the business as a barkeeper and restaurateur. The plain and ordinary meaning of 'business' is restricted to activities where profit is the purpose or livelihood is the motive. The Court found that the Club was organized for the development and cultivation of sports for the recreation of its members, its operations were mainly funded by membership fees and dues, profits were used for overhead and improvements, and no cash dividends were distributed. Therefore, the Club was not engaged in the business of operating a bar and restaurant. On the issue of whether the Club is engaged in the business of a barkeeper and restaurateur: The Court reiterated that the primary object of the corporation, as stated in its articles and by-laws, is determinative. While the Club is a stock corporation, this fact does not alter the finding that it is not engaged in the business of operating a bar and restaurant. The Court noted that for a stock corporation to exist, it must have the authority to distribute dividends or surplus profits, which was absent in the Club's articles and by-laws. The Court emphasized that taxes should not be imposed on fraternal, civic, non-profit, non-stock organizations unless the intent to the contrary is manifest. Since the Club was not engaged in the business of a barkeeper and restaurateur, it was not liable for the taxes, and consequently, not liable for any penalty, including the compromise penalty.
Main Doctrine
A civic corporation, even if a stock corporation, is not liable for percentage and fixed taxes on its bar and restaurant operations if these are merely incidental to its primary purpose of promoting sports and recreation for its members, and if profits derived are used to defray overhead expenses and improve facilities, rather than distributed as dividends.