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CIR Vs Club Filipino

The CIR assessed taxes on the gross receipts of Club Filipino Inc.'s bar and restaurant operations. However, the Supreme Court ruled that Club Filipino was not liable for these taxes because it was organized as a non-profit civic corporation, not as a business. Any profits from the bar and restaurant were used to maintain club facilities and were not distributed to shareholders. While the club had capital stock, its articles and bylaws did not allow for dividend distributions. Therefore, the court determined Club Filipino was not engaged in the business of operating a bar and restaurant for profit.

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162 views3 pages

CIR Vs Club Filipino

The CIR assessed taxes on the gross receipts of Club Filipino Inc.'s bar and restaurant operations. However, the Supreme Court ruled that Club Filipino was not liable for these taxes because it was organized as a non-profit civic corporation, not as a business. Any profits from the bar and restaurant were used to maintain club facilities and were not distributed to shareholders. While the club had capital stock, its articles and bylaws did not allow for dividend distributions. Therefore, the court determined Club Filipino was not engaged in the business of operating a bar and restaurant for profit.

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lovekimsohyun89
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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CIR VS CLUB FILIPINO INC.

DE CEBU

• Club Filipino is a civic corporation organized under laws of Phil

•
with original authorized capital stock of P22K subsequently increased to P200K to
operate and maintain its facilities

• No provision re: dividends and distribution in the articles of incorporation or the by-
laws BUT it was covenanted that upon the corporation’s dissolution, the Club’s
remaining assets, after paying debts, shall be donated to a charitable institution in
Cebu

• The club owns and operates a club house, a bowling alley, a golf course (on a lot
leased from the gov’t) and a bar-restaurant (where it sells wines, liquors, soft drinks,
meals and short orders to its members and their guests)

• the bar-restaurant was a necessary incident to the operation of the club and its
golf course

• The club is operated mainly with funds derived from membership fees and dues

• Profits are used to defray its overhead expenses and to improve its golf course

• 1951 — there was a capital surplus from the revaluation of its real properties (the
value of which had increased) so the Club declared stock dividends

• no actual cash was distributed to the stockholders

• 1952 — a BIR agent discovered that the Club had never paid percentage tax on the
gross receipt of its bar and restaurant, although it secured B-4, B-9(a) and B-7
licenses

• Letter dated Dec 22, 1952 — CIR assessed and demanded from the club sums

• CA — reversed decision of CIR

ISSUES:

• W/N the respondent Club is liable for the payment of the sum of P12,068 as fixed
and percentage taxes and surcharge prescribed in Sec 182, 183 and 191 of the Tax
Code, under which the assessment was made in connection with the operation of its
bar and restaurant — NO, it is not.

• W/N it is liable for the payment of P500 as compromise penalty — NO, it is not.

LAW:

• Sec 182 of Tax Code

• Unless otherwise provided every person engaging in a business on which the %


tax is imposed shall pay in full a fixed annual tax of P10 for each calendar year or
fraction thereof in which such person shall engage in said business

• Sec 183 of Tax Code

• provides in general that “the % taxes on business shall be payable at the end of
each calendar quarter in the amount lawfully due on the business transacted
during each quarter”

• Sec 191 of Tax Code

• % tax … keepers of restaurants, refreshments parlors and other eating places


shall pay a tax of 3%, and keepers of bars and cafes where wines and liquors are
served 5% of their gross receipts…

• Has been held that the liability for fixed and percentage taxes, as provided by these
sections, does not ipso facto attach by mere reason of the operation of a bar and
restaurant.

• For liability to attach, the operator thereof must be engaged in the business as
a barkeeper and restauranteur.
• Plain ordinary meaning of business is restricted to activities or affairs where profit is
the purpose or livelihood is the motive, and the term business when used without
qualification, should be construed in its plain and ordinary meaning; restricted to
activities for profit or livelihood.

CLUB IS NOT ENGAGED IN THE BUSINESS OF AN OPERATION OF ITS BAR AND


RESTAURANT

• Club was organized to develop and cultivate sports of all class and denomination

• for the healthful recreation and entertainment of its stockholders and members

• that upon its dissolution, its remaining assets, after paying debts, shall be donated to
a charitable Philippine Institution in Cebu

• that it is operated mainly with funds derived from membership fees and dues

• that the Club’s bar and restaurant catered only to its members and their guests

• there was in fact no cash dividend distribution to its stockholders and that whatever
was derived on retail from its bar and restaurants was used to defray its overall
overhead expenses and to improve its golf-course

THAT A CLUB MAKES A PROFIT DOESN’T MAKING IT A PROFIT-MAKING CLUB

• True, the Club derived profit from the operation of its bar and restaurant BUT that
fact doesn’t necessarily convert it into a profit-making enterprise.

• The bar and restaurant are necessary adjuncts of the Club to foster its purpose and
the profits derived there are necessary incidental to the primary object of developing
and cultivating sports for the healthful recreation and entertainment of the
stockholders and members

CIR ARG: Unlike the previous two cases however, the Club is a stock operation and
not a non-stock operation.

SC: NO.

• The fact that the capital stock of the respondent Club is divided into shares does not
detract from the finding of the trial court that it is not engaged in the business of
operating a bar and restaurant

• What is determinative of w/n the Club is engaged in such a business is its object or
purpose as stated in its articles and by-laws

• GR: The actual purpose is not controlled by the corporate form or by the commercial
aspect of the business prosecuted but may be shown by extrinsic evidence,
including the by-laws and the method of operation

For a stock corporation to exist, two requisites must be complied with:

1. a capital stock divided into shares

2. an authority to distribute to the holders of such shares, dividends or allotments of


the surplus profits on the basis of the shares held

APPLICATION:

• In the case at bar, nowhere in its articles of incorporation or by-laws could be found
an authority for the distribution of its dividends or surplus profits

• It cannot, strictly speaking, be considered a stock corporation, within the


contemplation of corporation law

RULING: Petition dismissed.

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