Bachrach Motor v. Collector of Internal Revenue
REITERATIONFacts
The Antecedents: Bachrach Motor Co., Inc. (plaintiff) sold automobiles and auto-trucks on cash or installment plans. The defendant, Collector of Internal Revenue, demanded payment of percentage sales tax on the interest earned from installment sales, plus a surcharge for non-payment. The plaintiff paid the demanded sum under protest and requested a refund. Procedural History: The Court of First Instance held that the interest formed part of the purchase price and thus the tax was properly collected. The plaintiff appealed this decision. The Petition: The plaintiff sought to recover the sales tax paid under protest on the interest accrued from installment sales.
Issue(s)
Whether the interest accrued on deferred payments for automobiles and auto-trucks sold on the installment plan is subject to percentage sales tax. Whether the sales tax should be based on the actual selling price at the time of disposal or on the total amount paid including interest.
Ruling
The appealed judgment is reversed. The defendant is ordered to refund to the plaintiff the sum of P3,113.67 collected as percentage sales tax on the interest. Without interest and costs.
Ratio Decidendi
On whether the interest accrued on deferred payments is subject to percentage sales tax: The Court held that the sales tax is levied on the "actual selling price or value of the things in question at the time they are disposed of." In installment sales, the disposal of the goods and the passage of title occur at the time of the sale, not upon full payment of the installments. Therefore, the selling price is fixed at that point. The interest that accrues on the deferred payments represents compensation for the use of money or credit extended to the purchaser, which is distinct from the selling price of the goods themselves. Such interest may be subject to income tax but not to sales tax. On whether the sales tax should be based on the actual selling price at the time of disposal or on the total amount paid including interest: The Court reiterated that the tax is based on the "actual selling price or value of the things in question at the time they are disposed of." In the example provided, the truck was disposed of on June 19, 1923, with a selling price of P8,500. The subsequent interest of P168.75, which brought the total payment to P8,668.75, accrued after the disposal of the truck. Thus, the sales tax should only be based on the P8,500 selling price, not on the total amount paid including interest. The ruling in Inchausti & Co. vs. Cromwell was distinguished, as it dealt with the cost and expense of baling hemp which was considered part of the value of the goods, unlike interest on outstanding credits.
Main Doctrine
The sales tax is based on the actual selling price or value of the goods at the time they are disposed of, and does not include interest accrued on deferred payments made under an installment plan.