G.R. No. L-11176; June 29, 1959
THE COLLECTOR OF INTERNAL REVENUE, petitioner, vs. MANILA LODGE NO. 761 OF THE BENEVOLENT & PROTECTIVE ORDER OF ELKS and THE COURT OF TAX APPEALS, respondents.

FACTS

The Collector of Internal Revenue assessed and demanded from Manila Lodge No. 761, a fraternal, civic, non-stock, non-profit organization, the payment of fixed privilege taxes as a retail dealer in liquor, fermented liquor, and tobacco for periods from 1946 to 1955, pursuant to subsections (i), (k), and (n) of Section 193 of the Tax Code. The assessments were based on the Lodge’s sale of these items at retail within its clubhouse, but such sales were made exclusively to its members and their guests. The Lodge contested the assessment, claiming exemption on the grounds that it was not engaged in the business of selling these goods for profit; the sales were made on a limited scale only to provide comfort and recreation to members, with prices set merely to cover operational expenses. The Court of Tax Appeals reversed the Collector’s decision, holding the Lodge not liable for the taxes. The Collector appealed this reversal.

ISSUE

Whether a fraternal, civic, non-stock, non-profit organization, which sells liquor and tobacco at retail exclusively to its members and their guests at prices sufficient only to cover operational expenses, is engaged in “business” and is therefore liable for the fixed privilege taxes imposed on retail dealers under Section 193 of the Tax Code.

RULING

The Supreme Court affirmed the decision of the Court of Tax Appeals, holding that the respondent Lodge is not liable for the privilege taxes. The Court ruled that the fixed taxes under Section 193, read in relation to Section 178 (which governs the payment of privilege taxes and is part of Title V, “Privilege Taxes on Business and Occupation”), apply only to persons or entities engaged in “business.” The term “business,” in its plain and ordinary meaning as used in the law and supported by dictionary definitions and judicial pronouncements, denotes an activity habitually engaged in principally for livelihood or gain. Since the Lodge is a non-profit organization selling the subject goods exclusively to members and guests without a view to profit—only to cover costs as part of its fraternal and social purposes—it is not engaged in the “business” of retail dealing as contemplated by the Tax Code. The administrative construction by the Bureau of Internal Revenue imposing the tax irrespective of profit motive was found inconsistent with the clear language and intent of the law. Therefore, the Lodge’s activity does not fall within the ambit of the privilege tax provisions.