Friday, March 02, 2012

Collector of Internal Revenue vs. Batangas Transportation Company, [G.R. No. L-9692. January 6, 1958. 102 Phil. 822]

Facts: Respondent companies are two distinct and separate corporations engaged in the business of land transportation by means of motor buses, and operating distinct and separate lines. Joseph Benedict managed the Batangas Transportation, while Martin Olson was the manager of the Laguna Bus. To show the connection and close relation between the two companies, it should be stated that Max Blouse was the President of both corporations and owned about 30 per cent of the stock in each company. During the war, the American officials of these two corporations were interned in Santo Tomas, and said companies ceased operations. After Liberation, sometime in April 1945, the two companies were able to acquire 56 auto buses from the United States Army, and the two companies divided said equipment equally between themselves, registering the same separately in their respective names. 

Martin Olson resigned as Manager of the Laguna Bus and Joseph Benedict, who was then managing the Batangas Transportation, was appointed Manager of both companies by their respective Board of Directors. The head office of the Laguna Bus in San Pablo City was made the main office of both corporations. The two companies contributed money to a common fund to pay the sole general manager, the accounts and office personnel attached to the office of said manager, as well as for the maintenance and operation of a common maintenance and repair shop. Said common fund was also used to buy spare parts, and equipment for both companies, including tires. Said common fund was also used to pay all the salaries of the personnel of both companies, such as drivers, conductors, helpers and mechanics. At the end of each calendar year, all gross receipts and expenses of both companies were determined and the net profits were divided fifty-fifty, and transferred to the book of accounts of each company, and each company "then prepared its own income tax return from this fifty per centum of the gross receipts and expenditures, assets and liabilities thus transferred to it from the `Joint Emergency Operation' and paid the corresponding income taxes thereon separately" disregarding the expenses incurred in the maintenance and operation of each company and of the individual income of said companies. 

The Collector wrote the bus companies that there was due from them the deficiency income tax and compromise for the years 1946 to 1949, inclusive. The respondent companies appealed the assessment to the Court of Tax Appeals. The theory of the Collector is the Joint Emergency Operation was a corporation distinct from the two respondent companies, as defined in section 84 (b), and so liable to income tax under section 24, both of the National Internal Revenue Code. After hearing, the C.T.A. found and held, citing authorities, that the Joint Emergency Operation or joint management of the two companies "is not a corporation within the contemplation of section 84 (b) of the National Internal Revenue Code much less a partnership, association or insurance company", and therefore was not subject to the income tax under the provisions of section 24 of the same Code, separately and independently of respondent companies; so, it reversed the decision of the Collector. 

Issue: Whether or not the Joint Emergency Operation organized and operated by the 2 companies is a corporation within the meaning of Sec. 84 of the Revised Internal Revenue Code 

Held: Yes. The SC held that the tax code defines the term ”corporation” as including partnership no matter how created or organized, thereby indicating that a joint venture need not be undertaken in any of the standard forms, or in conformity with the usual requirements of the law on partnerships, in order that one could be deemed constituted for purposes of the tax on corporations. In this case, while the 2 companies were registered and operating separately, they were placed under one sole management called the “Joint Emergency Operation” for the purpose of economizing in overhead expenses. Although no legal personality may have been created by the Joint Emergency Operation, nevertheless, said joint management operated the business affairs of the 2 companies as though they constituted a single entity, company or partnership, thereby obtaining substantial economy and profits in the operation. The joint venture, therefore, falls under the provisions of sec.84(b) of the Internal Revenue Code, and consequently it is liable to income tax provided for corporations.

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