GR L 18297; (November, 1966) (Digest)
G.R. No. L-18297 November 29, 1966
COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. CADWALLADER PACIFIC COMPANY, respondent.
FACTS
The Commissioner of Internal Revenue assessed Cadwallader Pacific Company, a Philippine corporation with a branch office in Arcadia, California, for fixed and percentage taxes and surcharges as a commercial broker for the years 1955 to 1957. The assessment was based on transactions where Cadwallader executed contracts in Manila with local customers for the sale of merchandise, with the seller named as “Cadwallader Pacific Company — P.O. Box 565, Arcadia, California, U.S.A.” The contracts were forwarded to the California branch, which procured the goods and shipped them directly to the buyer on its own invoice. Title passed upon shipment in California, and risks, taxes, and duties were for the buyer’s account. The irrevocable letters of credit were drawn in favor of Cadwallader. The Commissioner argued Cadwallader acted as a commercial broker by bringing about sales between local customers and its foreign branch or by bringing buyers and sellers together.
ISSUE
Whether Cadwallader Pacific Company is liable for taxes as a commercial broker or commission merchant under Section 194(t) of the Tax Code for its transactions.
RULING
No. The Supreme Court affirmed the Court of Tax Appeals’ decision setting aside the assessment. Cadwallader is not a commercial broker or commission merchant. The contract named Cadwallader as the seller, letters of credit were in its favor, it owned the price paid, its branch bought the goods, the invoice listed the branch as shipper, and no privity existed between the buyer and any foreign manufacturer. Cadwallader assumed the risk of non-payment and did not act as a negotiator or middleman contracting in another’s name. The fundamental duty of a broker is to bring the minds of buyer and seller to an agreement, which Cadwallader did not do, as it was itself the seller. The stipulations on shipment and passage of title did not negate Cadwallader’s acquisition of title. Furthermore, a commission merchant sells entrusted goods for a principal with title remaining in the principal, whereas Cadwallader purchased with its own capital and sold for its own account. Thus, Cadwallader’s activities fell outside the statutory definitions.