El Dorado Oil Works v. Collector of Internal Revenue
REITERATIONFacts
The Antecedents: El Dorado Oil Works, a foreign corporation organized under the laws of California with its principal place of business in San Francisco, was licensed to transact business in the Philippine Islands. It maintained a resident purchasing agent in the Philippines. During the second quarter of 1922, through its agent, El Dorado Oil Works purchased copra valued at P389,760.98 from various Philippine merchants. This copra was shipped to its principal office in San Francisco, California, where it was either manufactured or sold. Procedural History: The sellers of the copra had paid the 1% percentage tax under Section 1459 of the Administrative Code of 1917. However, the Collector of Internal Revenue levied and assessed an additional sum of P3,897.61 against El Dorado Oil Works for the same transactions. El Dorado Oil Works paid this amount under protest, asserting it was not a merchant engaged in the sale, barter, or exchange of personal property within the Philippine Islands, and that the tax was invalid as the copra was for manufacture abroad. The Petition: The protest was denied by the Collector. The lower court, distinguishing the case from Murphy v. Trinidad and being misled by dicta in El Dorado Oil Works v. Collector of Internal Revenue (45 Phil., 1), ruled that El Dorado Oil Works was not a merchant under Section 1459 and ordered the refund of the tax. The defendant appealed this decision.
Issue(s)
Whether El Dorado Oil Works, a foreign corporation purchasing copra in the Philippines and shipping it abroad for manufacture or sale, is considered a merchant subject to the percentage tax under Section 1459 of the Administrative Code of 1917. Whether the percentage tax under Section 1459 of the Administrative Code of 1917 applies only to Philippine merchants or also to foreign merchants making consignments abroad.
Ruling
The judgment appealed from is reversed, and the defendant is absolved from the complaint. No costs will be allowed.
Ratio Decidendi
On the issue of whether El Dorado Oil Works is a merchant subject to the percentage tax: The Court held that El Dorado Oil Works is considered a merchant within the meaning of Section 1459 of the Administrative Code of 1917. The Court reasoned that the statute clearly applies to all merchants making consignments of merchandise abroad, regardless of whether they are foreign or domestic entities. The act of purchasing copra in the Philippines and consigning it for sale or manufacture abroad constitutes engaging in business activities that fall within the purview of the tax law. The Court rejected the argument that the tax only applies to sales conducted within the Philippine Islands, emphasizing that the law targets the act of consignment itself. On the issue of whether the tax applies only to Philippine merchants: The Court found no basis for the contention that Section 1459 of the Administrative Code of 1917 is limited to Philippine merchants. The language of the statute is clear and its intent is obvious: to levy a percentage tax on consignments made by merchants. The Court illustrated that just as a foreign doctor collecting herbs or a foreign lawyer collecting laws would be subject to a Philippine statute imposing a percentage tax on such collections, a foreign merchant making consignments from the Philippines is subject to the percentage tax on those consignments. The Court reiterated that the arguments presented in the Vegetable Oil Corporation case, which are similar to those in the present case, remain unanswered and support the imposition of the tax on foreign merchants.
Main Doctrine
A foreign corporation engaged in purchasing copra in the Philippines and shipping it abroad for manufacture or sale is considered a merchant subject to the percentage tax on consignments under Section 1459 of the Administrative Code of 1917, even if it does not sell, barter, or exchange property within the Philippine Islands.