YUTIVO VS.
CTA However, when the notion of legal entity is used to defeat public
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 from General 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 Yutivo’s founders. After SM’s
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.
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 and trucks 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.
Yutivo’s 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 SM’s 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 Yutivo’s
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 and vehicles allegedly sold by Yutivo to SM.