COMMISSIONER OF INTERNAL REVENUE v.

NORTON HARRISON COMPANY

(G.R. No. L-17618; 31 August 1964)

PETITIONER: Commission of Internal Revenue

RESPONDENT: Norton Harrison Company
PONENTE: Paredes, J.

TOPIC: Disregarding the Corporate entity

FACTS:
 Norton Harrison Company (“Norton”) is a corporation engaging in: the sale
of wholesale and retail of goods, acting as agents of manufacturers from the
US and other countries, and others
 Jackbilt is a corporation organized primarily for the making, producing, and
manufacturing of concrete blocks
 Norton entered into two agreements with Jackbilt
o First, {the agency agreement}
 Norton was made the sole and exclusive distributor of
manufactured blocks by Jackbilt
 Whenever a customer makes an order for concrete blocks to
Norton, the order is transmitted to Jackbilt, then JAckbilt
directly delivers the merchandise to the customer
o When the agency agreement expired, {the management agreement}
 During the existence of {the agency agreement}
o Norton acquired by sale all the outstanding sahres of stock of Jackbilt;
by reason of such transaction,
o the Commissioner of Internal Revenue (“CIR”) conducted an
investigation and assessed Norton for deficiency sales tax and
surcharges on the basis that the Sale of Norton to the public as the
original sale and not the transaction from Jackbilt.
o As Norton did not conform to the assessment the matter was brought
to the Court of Tax Appeals

ISSUES: Whether or not Norton Harrison Company must be treated as a distinct

personality from that of Jackbuilt

RULING: Negative. Although, the ownership of all stocks of a corporation by

another corporation does not necessarily entail the identity of a corporate interest
between the companies that would be considered a sufficient ground for
disregarding their distinct personalities. However, under the circumstances, the
separate identities of the two companies should be disregarded for the reasons as
follows:
 Norton owned all outstanding stocks of the Jackbilt
 Norton constituted Jackbilt’s Board of Directors, in usch a way as to actually
direct and manage the other’s affairs by making the same officers of the
board for both companies
  James E. Norton is President, Treasurer, Director and Stockholder of both
Norton and Jackbilt
 Norton financed the operations of Jackbilt
 Norton treats Jackbilt employees as its own
 Compensation given to Jackbilt board members indicate Jackbilt is merely a
department of Norton
 The offices of both companies share the same compound
 Payments made to Norton were also payable to Jackbilt

This is a case where the doctrine of piercing the corporate veil of fiction should
apply.

The advantages to Norton in maintaining a semblance of separate entities cannot be

ignored. If the income of Norton would be treated as separate from the income of
Jackbilt, then each would declare such earning separately for income tax purposes
and thus pay lesser tax.