Collector of Internal Revenue v. Club Filipino, Inc.
De Cebu - Assessed P12k (as fixed and percentage taxes inclusive of surcharges based
- Corp had bar and restaurant but does not make it a stock corp.
F:
1. Club Filipino, Inc De Cebu.
 A civic corp. w/ an authorized capital of P22k => Later, increased to
P200k.
 AOI and B-L do not contain any prov relative to dividends and their
distribution (though it is agreed that upon its dissolution, the Club’s
remaining assets, after paying its debts, shall be donated to a charitable Phil.
institution in Cebu)
 Owns and operates “a clubhouse, a bowling alley, a golf course, and a bar
restaurant.
- Bar and restaurant was necessary incident to the operation of the
Club.
- Golf course is operated mainly with funds derived from membership
fees and dues.
- Profits were used to defray its overhead expenses and to improve its
golf course.
2. As a result of capital surplus (arising from the reevaluation of its real properties
which increased), the Club declared stock dividends (but no actual cash
dividends were distributed to the stockholders).
BIR: Discovered that the Club has never paid percentage taxes on the gross receipt
of its bar and restaurant.
Digester: Saturnino, J.
on Sec. 1821 and 1912, Tax Code)
---------------------------------------------------------------------------------------------------
I: W/ the Club is liable to pay the taxes assessed against it - NO
H:
 The liability for fixed and percentage taxes [under TC] does not ipso facto attach
by mere reason of the operation of a bar and restaurant.
- For liability to attach, the operator must be engaged in the business as a
bar keeper and restaurateur.
Meaning of business
- The plain and ordinary meaning of business is restricted to activities or
affairs where profit is the purpose OR livelihood is the motive
- The term ‘business’ when used w/o qualification, should be construed in
its plain and ordinary meaning (restricted to activities for profit or
livelihood)
IN THIS CASE:
- Club derived profits from the operation of its bar and restaurant => BUT, such
fact does not necessarily convert it into a profit making enterprise.
 Bar and restaurant are necessary adjunct of the Club to foster its purpose
and the profits derived arc necessarily incidental to its PRIMARY OBJECT
= Developing and cultivating sports for the healthful recreation and
entertainment of the stockholders and members.
1Sec. 182, Tax Code: Provides that “unless otherwise provided, every person
engaging in a business on which the percentage tax is imposed shall pay in full a fixed
annual tax of ten pesos for each calendar year of fraction thereof x x x”.
2Sec. 191, Tax Code: Provides that “keepers of restaurant, refreshment parlors and
other eating places shall pay a tax of 3% of their gross receipts, x x”
  Jesus Sacred Heart College v. CA and CJ Rev. v. Cinco Educ’l Corp:3
A club should always strive whenever possible, to have a surplus

Collector argues:
- Cited cases, corp. involved were non-stock corp. BUT here, Club is a Stock
Corp.

Court: Disagrees.
 The fact that the capital of the Club is divided into shares docs not detract
from the finding of the Trial Court that it is NOT ENGAGED in the
business of operator of bar and restaurant.

 What is determinative of W/N the Club is engaged in such business

is = is its object or purpose as stated in its AOI and B-L.

 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 B-L and the method of operation).

 Here, from the extrinsic evidence given, Tax Court concluded that the
Club is not engaged in the business as a bar keeper and restaurateur.

- Moreover, for a Stock Corp. to exists, 2 reqs. must be complied:

1) A capital stock divided into shares, and
2) An authority to distribute to the holders of such shares, dividends or
allotments of surplus profits on the basis of the shares held (Sec. 3 Act. No.
1459).

 Here, nowhere in its AOI and B-L could be found an authority for the
distribution of its dividends or surplus profits.
 Hence, it cannot be considered as stock corp. w/in the contemplation
of CC.

3[Jesus Sacred Heart College v. C.J. Rev., GR No. L-6807 May 24, 1954; C.J. Rev. v.
Cinco Educ’l Corp., GR No. L-9276, Cot 23,1956]

Digester: Saturnino, J.