GR 20871; (April, 1971) (Digest)
G.R. No. L-20871. April 30, 1971. KER & CO., LTD., petitioner, vs. JOSE B. LINGAD, as Acting Commissioner of Internal Revenue, respondent.
FACTS
Petitioner Ker & Co., Ltd. was assessed by the Commissioner of Internal Revenue for commercial broker’s percentage taxes, surcharge, and compromise penalty for the period 1949 to 1953. The assessment stemmed from petitioner’s contractual relationship with United States Rubber International (the Company). Under their agreement, petitioner was designated as a “Distributor” for specified territories. The Company would consign its products to petitioner, who was tasked with promoting and selling them. The contract stipulated that all goods on consignment remained the property of the Company until sold by petitioner. The Company retained control over resale prices, discounts, terms of payment, and could change these terms at its discretion. Petitioner was required to remit the sale price, less its commission, to the Company and to report sales monthly. Upon termination of the agreement, all unsold goods were to be held for the Company’s account.
Petitioner sought cancellation of the assessment, arguing it acted as a buyer and seller, not a broker. The Commissioner denied the request. The Court of Tax Appeals upheld the assessment, ruling petitioner was a commercial broker under the Tax Code. Petitioner appealed to the Supreme Court.
ISSUE
Whether the petitioner, Ker & Co., Ltd., is liable for the commercial broker’s percentage tax under Section 194(t) of the National Internal Revenue Code based on its consignment agreement with United States Rubber International.
RULING
Yes. The Supreme Court affirmed the decision of the Court of Tax Appeals, holding petitioner liable as a commercial broker. The Court applied the decisive test established in Commissioner of Internal Revenue v. Constantino: a dealer is considered a broker subject to tax if the consignor retains ownership of the goods delivered for resale, and the price and terms of sale remain under the consignor’s control. Examining the contract, the Court found the Company maintained pervasive control. Ownership of the goods remained with the Company until sale; the Company set and could alter resale prices, discounts, and payment terms; petitioner merely remitted proceeds minus its commission; and unsold goods reverted to the Company. These stipulations negated a vendor-vendee relationship and instead established petitioner as an entity selling goods for the account of another, fitting the definition of a commercial broker. The Court deferred to the expertise of the Court of Tax Appeals in revenue matters, finding no grave abuse of discretion. The contract’s clear terms, not any ambiguity, governed the tax classification. Thus, petitioner was correctly held liable for the broker’s tax.