Yutivo Sons Hardware Co. vs.

CTA


Facts: Yutivo, a domestic corporation incorporated in
1916 under Philippine laws, was engaged in the
importation and sale of hardware supplies and equipment.
After the first world war, it resumed its business and
bought a number of cars and trucks fromGeneral
Motors(GM), an American Corporation licensed to do
business in the Philippines.

On June 13, 1946, the Southern Motors Inc,(SM) was
organized to engage in the business of selling cars, trucks
and spare parts. One of the subscribers of stocks during
its incorporation was Yu Khe Thai, Yu Khe Siong and Hu
Kho Jin, who are sons of Yu Tiong Yee, one of Yutivos
founders.

After SMs incorporation and until the withdrawal of GM
from the Philippines, the cars and trucks purchased by
Yutivo from GM were sold by Yutivo to SM which the latter
sold to the public.

Yutivo was appointed importer for Visayas and Mindanao
by the US manufacturer of cars and trucks sold by GM.
Yutivo paid the sales tax prescribed on the basis of selling
price to SM. SM paid no sales tax on its sales to the
public.

An assessment was made upon Yutivo for deficiency
sales tax. The Collector of Internal Revenue, contends
that the taxable sales were the retail sales by SM to the
public and not the sales at wholesale made by Yutivo to
the latter inasmuch as SM and Yutivo were one and the
same corporation, the former being a subsidiary of the
latter.

The assessment was disputed by petitioner. After
reinvestigation, a second assessment was made,
sustaining the validity of the first assessment. Yutivo
contested the second assessment, alleging that there is
no valid ground to disregard the corporate personality of
SM and to hold that it is an adjunct of petitioner.

Issue: Whether or not the corporate personality of SM
could be disregarded.

Held: Yes. A corporation is an entity separate and distinct
from its stockholders and from other corporations to which
it may be connected. However, when the notion of legal
entity is used to defeat public convenience, justify wrong,
protect fraud, or defend crime, the law will regard the
corporation as an association of persons, or, in the case of
two corporations, merge them into one. When the
corporation is a mere alter ego or business conduit of a
person, it may be disregarded.

SC ruled that CTA was not justified in finding that SM was
organized to defraud the Government. SM was organized
in June 1946, from that date until June 30, 1947, GM was
the importer of the cars andtrucks sold to Yutivo, which in
turn was sold to SM. GM, as importer was the one solely
liable for sales taxes. Neither Yutivo nor SM was subject
to the sales taxes. Yutivos liability arose only until July 1,
1947 when it became the importer. Hence, there was no
tax to evade.

However, SC agreed with the respondent court that SM
was actually owned and controlled by petitioner.
Consideration of various circumstances indicate that
Yutivo treated SM merely as its department or adjunct:

a. The founders of the corporation are closely related to
each other by blood and affinity.

b. The object and purpose of the business is the same;
both are engaged in sale of vehicles, spare parts,
hardware supplies and equipment.

c. The accounting system maintained by Yutivo shows that
it maintained high degree of control over SM accounts.

d. Several correspondences have reference to Yutivo as
the head office of SM. SM may even freely use forms or
stationery of Yutivo.

e. All cash collections of SMs branches are remitted
directly to Yutivo.

f. The controlling majority of the Board of Directors of
Yutivo is also the controlling majority of SM.

g. The principal officers of both corporations are identical.
Both corporations have a common comptroller in the
person of Simeon Sy, who is a brother-in-law of Yutivos
president, Yu Khe Thai.

h. Yutivo, financed principally the business of SM and
actually extended all the credit to the latter not only in the
form of starting capital but also in the form of credits
extended for the cars andvehicles allegedly sold by Yutivo
to SM.