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YUTIVO SONS V.

CTA
Facts: Yutivo, a domestic corporation incorporated in 1916 under Philippine laws, was engaged in the
importation and sale of hardware supplies and equipment. After the first world war, it resumed its business
and bought a number of cars and trucks from General Motors(GM), an American Corporation licensed to
do business in the Philippines.
On June 13, 1946, the Southern Motors Inc,(SM) was organized to engage in the business of selling cars,
trucks and spare parts. One of the subscribers of stocks during its incorporation was Yu Khe Thai, Yu Khe
Siong and Hu Kho Jin, who are sons of Yu Tiong Yee, one of Yutivos founders.
After SMs incorporation and until the withdrawal of GM from the Philippines, the cars and trucks
purchased by Yutivo from GM were sold by Yutivo to SM which the latter sold to the public.
Yutivo was appointed importer for Visayas and Mindanao by the US manufacturer of cars and trucks sold
by GM. Yutivo paid the sales tax prescribed on the basis of selling price to SM. SM paid no sales tax on
its sales to the public.
An assessment was made upon Yutivo for deficiency sales tax. The Collector of Internal Revenue,
contends 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 a subsidiary of the latter.
The assessment was disputed by petitioner. After reinvestigation, a second assessment was made,
sustaining the validity of the first assessment. Yutivo contested the second assessment, alleging that
there is no valid ground to disregard the corporate personality of SM and to hold that it is an adjunct of
petitioner.
Issue: Whether or not the corporate personality of SM could be disregarded.
Held: Yes. A corporation is an entity separate and distinct from its stockholders and from other
corporations to which it may be connected. However, when the notion of legal entity is used to defeat
public convenience, justify wrong, protect fraud, or defend crime, the law will regard the corporation as an
association of persons, or, in the case of two corporations, merge them into one. When the corporation is
a mere alter ego or business conduit of a person, it may be disregarded.
SC ruled that CTA was not justified in finding that SM was organized to defraud the Government. SM was
organized in June 1946, from that date until June 30, 1947, GM was the importer of the cars and trucks
sold to Yutivo, which in turn was sold to SM. GM, as importer was the one solely liable for sales taxes.
Neither Yutivo nor SM was subject to the sales taxes. Yutivos liability arose only until July 1, 1947 when it
became the importer. Hence, there was no tax to evade.
However, SC agreed with the respondent court that SM was actually owned and controlled by petitioner.
Consideration of various circumstances indicate that Yutivo treated SM merely as its department or
adjunct:
a. The founders of the corporation are closely related to each other by blood and affinity.
b. The object and purpose of the business is the same; both are engaged in sale of vehicles, spare parts,
hardware supplies and equipment.
c. The accounting system maintained by Yutivo shows that it maintained high degree of control over SM
accounts.
d. Several correspondences have reference to Yutivo as the head office of SM. SM may even freely use
forms or stationery of Yutivo.

e. All cash collections of SMs branches are remitted directly to Yutivo.


f. The controlling majority of the Board of Directors of Yutivo is also the controlling majority of SM.
g. The principal officers of both corporations are identical. Both corporations have a common comptroller
in the person of Simeon Sy, who is a brother-in-law of Yutivos president, Yu Khe Thai.
h. Yutivo, financed principally the business of SM and actually extended all the credit to the latter not only
in the form of starting capital but also in the form of credits extended for the cars and vehicles allegedly
sold by Yutivo to SM.