GR L 9687; (June, 1961) (Digest)
G.R. No. L-9687. June 30, 1961.
LIDDELL & CO., INC., petitioner-appellant, vs. THE COLLECTOR OF INTERNAL REVENUE, respondent-appellee.
FACTS
Liddell & Co., Inc., a domestic corporation, was engaged in importing and retailing automobiles. In late 1948, it amended its corporate purpose to limit itself to importation only. Subsequently, Liddell Motors, Inc. was organized, with Frank Liddell’s wife holding virtually all shares. Liddell & Co. then sold imported vehicles exclusively to Liddell Motors, which retailed them to the public. The Collector of Internal Revenue assessed a deficiency sales tax against Liddell & Co., arguing that the two corporations were identical and that Liddell & Co.’s taxable sales were the final retail sales to the public made by Liddell Motors, not its wholesale sales to the latter. The Court of Tax Appeals upheld the assessment, imposing a liability of P1,317,629.61, including a 50% fraud surcharge.
ISSUE
The primary issue is whether Liddell & Co., Inc. and Liddell Motors, Inc. are separate taxable entities, or whether the latter is merely an alter ego of the former, making Liddell & Co. liable for sales tax based on the retail price.
RULING
The Supreme Court modified the decision. It held that while the two corporations were indeed owned and controlled by the same interests (the Liddell family), they maintained separate juridical personalities. The mere fact that one corporation sells exclusively to another commonly owned corporation does not, by itself, justify disregarding their separate entities for tax purposes. There was no proof that the corporate setup was designed specifically to evade taxes. Following the precedent in Yutivo Sons Hardware Co. v. Collector, the Court ruled that the taxable sales of Liddell & Co. were its wholesale sales to Liddell Motors, not the subsequent retail sales. Consequently, the tax deficiency was recomputed based on the wholesale prices. However, the 50% fraud surcharge was deleted as there was no evidence of a deliberate false return intended to defraud the government. A 25% surcharge for late payment was upheld. The final liability was reduced to P426,811.67 plus the 25% surcharge and interest. The Collector was ordered to refund any excess payment made by Liddell & Co. under protest.