YUTIVO SONS HARDWARE VS CTA CASE DIGEST
G.R. No. L-13203 January 28, 1961
YUTIVO SONS HARDWARE COMPANY, petitioner,vs.
COURT OF TAX APPEALS and COLLECTOR OF INTERNAL REVENUE, respondents
CORPORATION LAW; ALTER EGO CASE
- Yutivo Sons Hardware Co. is a domestic corporation, organized under the laws of the Philippines, and was engaged, prior to the last world war, in the importation and sale of hardware supplies and equipment. After the liberation, it resumed its business and bought a number of cars and trucks from General Motors Overseas Corporation (GM), an American corporation licensed to do business in the Philippines. As importer, GM paid sales tax prescribed by the Tax Code on the basis of its selling price to Yutivo. Said tax being collected only once on original sales, Yutivo paid no further sales tax on its sales to the public
- Southern Motors, Inc. (SM) was organized to engage in the business of selling cars, trucks and spare parts and it had appear to have been subscribed into equal proportions by the sons of Yutivo founders
- When GM decided to withdraw from the Philippines, it appointed Yutivo as importer for the Visayas and Mindanao, and Yutivo continued its previous arrangement of selling exclusively to SM. In the same way that GM used to pay sales taxes based on its sales to Yutivo, the latter, as importer, paid sales tax prescribed on the basis of its selling price to SM, and since such sales tax, as already stated, is collected only once on original sales, SM paid no sales tax on its sales to the public
- The Collector of Internal Revenue made an assessment upon Yutivo claiming that the taxable sales were the retail sales by SM to the public and not the sales at wholesale made by, Yutivo to the latter inasmuch as SM and Yutivo were one and the same corporation, the former being the subsidiary of the latter
- After another investigation, the respondent Collector, redetermined that the aforementioned tax assessment was lawfully due the government and in addition assessed deficiency sales tax due from petitioner
- This second assessment was contested by the petitioner Yutivo before the CTA, alleging that there is no valid ground to disregard the corporate personality of SM and to hold that it is an adjunct of petitioner Yutivo
- Finding against Yutivo and sustaining the respondent Collector's theory that there was no legitimate or bona fide purpose in the organization of SM and the apparent objective of its organization being to evade the payment of taxes and that it was owned (or the majority of the stocks thereof are owned) and controlled by Yutivo and is a mere subsidiary, branch, adjunct, conduit, instrumentality or alter ego of the latter, the CTA disregarded its separate corporate existence
- Reconsideration of this decision having been denied, Yutivo brought the case to this Court thru the present petition for review
ISSUE:
HELD:Whether or not CTA correctly disregarded the technical defense of separate corporate entity in order to arrive at the true tax liability of Yutivo
- YES. It is an elementary and fundamental principle of corporation law that a corporation is an entity separate and distinct from its stockholders and from other corporation petitions to which it may be connected. Another rule is that, when the corporation is the "mere alter ego or business conduit of a person, it may be disregarded."
- The court was inclined to agree that SM was actually owned and controlled by petitioner as to make it a mere subsidiary or branch of the latter created for the purpose of selling the vehicles at retail and maintaining stores for spare parts as well as service repair shops. It is not disputed that the petitioner, is completely controlled by the Yutivo, Young or Yu family. The founders of the corporation are closely related to each other and most of its stockholders are members of their family. Ccash or funds of SM, including those of its branches which are directly remitted to Yutivo, are placed in the custody and control of Yutivo, resources and subject to withdrawal only by Yutivo. SM's being under Yutivo's control, the former's operations and existence became dependent upon the latter. Apart from the accounting system, other facts corroborate or independently show that SM is a branch or department of Yutivo
- SM is under the management and control of Yutivo by virtue of a management contract entered into between the two parties. In fact, the controlling majority of the Board of Directors of Yutivo is also the controlling majority of the Board of Directors of SM. At the same time the principal officers of both corporations are identical. In addition both corporations have a common comptroller in the person of Simeon Sy, who is a brother-in-law of Yutivo's president, Yu Khe Thai. There is therefore no doubt that by virtue of such control, the business, financial and management policies of both corporations could be directed towards common ends
- Wherefore, Southern Motors being but a mere instrumentality, or adjunct of Yutivo, the Court of Tax Appeals correctly disregarded the technical defense of separate corporate entity in order to arrive at the true tax liability of Yutivo.