CTA Case No. 2341 (Decision)

~ I ;-;'\NDR.t.S BONI:E'.~ ':~0 COLLEG1':: .. Pe�t:i. tioner,. COl~MISSIO~ER OF IPTERNAL REVENUE and REGIONAL �rnRECTOR~ REVENUE REGION N04 20,, .&'esponden ts., X- - - - - - - - - - - - - - X DECI S I 0 N This is aD appeal from the decision of the Corrunissioner of Internal Revenue assessing against and demanding f r m petiti0l'1e r the total sum of P11,500~38 as deficiency income taxes for the years 1963, 1964, 19c5 and 1969, inclusive of surcharges~ interests and compromi~e penalties, and the sum of Pl, ~ 76.,3 0 as documentary stamp taxes and compron:i.se ~enalties for the years 1965, 1968 and 1969, itemized as follovlfi: 1963 ~ 3.,193.84 1964 3,849.92 1965 4,011 .. 92 1969 - - - - 444.70 Total Pll,500,38 1965 ~� - - 1968 - - 1969 - - Total It appears that petitioner Andres Bonifacio College, located at Dipolog City. was assessed and requir~d to pay the deficiency incone taxe~ inclusive of penalties, in the total amoun� of Pll*' 500.38, and documentary st.amp t..:x es, inclusi:.; 38

. .. DECISION - CTA CASE NO. 2341 -- 2 - cf compromise penalties~ in t he total sum of Pl,176.30& Petitioner had conceded, without qua- lification, its liability for the documentary stamp taxes and others in the amount of Pl0 476&30� not cov e red by its claim of exemption from income taxes~ On July 6g 19 71 , petitioner requested for reconsideration of the assessment on the groun d that it is exempt from income tax under the pro- vision of Section 27 (e) of the National Internal Revenue Code fo r being a domestic corporation organized and operated exclusively for educational purposes, no part o f its net income inured to the benefit of any private individual. The request for reconsiderat~on was denied by respondent Commissioner of Internal Reven ue, thru his Regional Directo r of Re gion No. 20q a n d was recei ved hy p e tition er on September 21, 1971. Hence, this appea l filed by petitioner on September 25, 1971. During th e hearing of this c a se, th e evid e nce shows that petit i o n er Andres Bon if acio Co llege is a non-stock corpora tion, a non-pro fit e d ucati onal institution, no income of which, during the period from 1963 to 1969 inured to the benefit of the offic ers and members o f its bo aJ;d of t rustees , ~ ompos e d ') f Fe '! icidad Arnatong and h<::r children$ .' . 1.. ~

DECISJ. Oi� ~- CT,~ CF.SE ;,l..i , 231!-l - - ,, ,_) As a matter of fact, when the school was f i rst established in 1940 as a single proprietorsh,ip by its founder, the late Amando 1\matong, it ViaS orga nized for the sole purpose of p:r:OL!OU.ng education and l earning , and was endowed with properties and assets given or contributed by its founder. In Kugust, 1941, the school was organized into a corporation, and was named 11,\ndrcs Bonifi., cio Insti t ute, 11 pre s umab ly under the provisions of the Private School Law. (C omm . i ct 180 , Sec . 3 ) Despite its commit ment to render educational service to fue peop l e , pa r ticu- lar l y in Z.amboanga , i t wa s ne ver t he r e c ipie nt of any donation . (p. 31, t.s . n . ) In order to be able to purs~e its educational objectives, li ke 011 other school COT!!Orat�ion~; , the f,nd r es oon i- �0cio College depended on its capital secure d froL1 normal ond usual channels, namely : (l) fror1i f:i.xed assets contributed by the:' J'.rnato ng family ; ( :~ ) from J.oans granted to the sc!w ol secured by the ~>rna tong fu1ni l y ( pp . 56 - 57 , t. s. n. ) ; ( J ) frorn profits OT eJrnec1 c;urplus , '.'hic)l were t..;SCd to p rchase its school equit:,dents and plants . (pp . 7 , 49 , t.s.n.) Th e College operated continuous ly , and i1 2ccordance with its objectives and purposes, and its dedicaLion to the pursuit of its objectives as a school was never denied nor ~t�tacked : eithe~ 11 0

~)ECISI.U!J -- CTF. C/ .S E n .:. ~:3 ~ 1 ,, ..... � �; directly or i ndirectly by rc~>pon.:ent CoE!mis:~ io r-ler !~ 'J 1 ' .r. In+ ern" l "n",..,. r + n 0 _ � ~- . (l I,.., 1,::; U 1_:; � \ J 0 1- 1�1, I 1' c " 0 ;:J � I o � Since i~s incorporation in 194 1 , pet i t i oner 'NOS never rec;uirec1 to pay inco,.lE: tax on its c;arninJ~i a:~sesscc~ r.mci rc~qu i roJ -cu pJy deficiency income tuxes by res ;;ondent for tlw year~, frorn 1963 to 1969 afores aid . Petitioner never declared any div i dend dis - trib uti on 2 nd no ne of it s j_ncome i nured t o the benef i t of the la-~e fo u ncJer /.r:1Eindo , .rnotong , or his wi~Jov1 , felic i dad 1\matong a nc' her childre n ( pp . 4 -10 , ~9 - 50 , 56 , t . s . n .), th latte r be in g t he o f ficers and ;r'er'lbers of the Board of Tr ustc~es . There were never any wit hdr a wa l of c o llege f un ds in t he form of div i dends� or pr ofit distr i butio n,( pp . 7 , 49 - 50 , t . s � n � ) Th e on l y r:1oney v1hi c h Fe lic i d ad f..rnatong , or tho m.:~1nb er s of her f urnil y r ece ived from the schoo l were their s a l ar i es f or servi ces ea ch of t hrm r endered t o the sc hoo l. (pp . 9 - 10 , 50 , t . s . n .) The e a rne d s ur p l us o f pe titi oner schoo l wer e use d , as afore s a i d , to pur c ha s e its e quipi nG nts anc~ p lan t s .( pp . 15 , 49 , t . s . n . ) ln 19.~.J , out o f i +c : l:2. , 7,1J . nc, net income , 1 7 , 705 . 00 wf'J s invesi:.ecJ .1.. ... ;::.;. in ~ h ..: a s se t ~. of t he sch oo l ; in l2.~~A , out o f i t s j_ts a~.sc:ts; in 12.Q~, out of its 1-17, 692 . 00 net 41

DECISION - C'rA .ASE NO. 23�D income~ Pll 066oC1 was invested in its assets ; was inve3ted in its assetsr in 1967. out of i t.s Pl7 0 540 e7 8 net income, P17~338.04 was i nveste~ in assets. in 12�~q there was a loss due to fire yet it still invested its funds in assets in the sum Base up n the aforestated facts~ and having conceded liability o n documentary stamp tax and others~ unqualifi edly~ not overed by its claim for exemption, for the years 1965# 1968 and 19690 petitioner is bound to pay to respondent the sum of ?1~4 76.30 as unpaid documentary stamps tax for the years 1965� 1968 and 1969 The only issue left for resolution is whether or not petitioner is exempt from deficiency income tax liability for the years 1963u 19640 1965 and 1969# mde Section 27 (e) of the National Internal Revenue~ Code q whi �h provides as follovlS: Sec � 27 ,. ~emption frorrt___!.~__Q�! _�9_f.EQ- ~~- Qll.~� - 'rhe following organiza�tions shall not be taxed under this Title in respect to income r~ceived by them as such X XX XXX XXX (e) �<2rpor:.2_tiog or association orqan5. zeg ~nd O.�!:Ec ted exclusively .t�� rel i.giou.;;:~,.,. charitacle. sc:entific, athleti~, cultu- ra: ~ or .�<i~~.E.atiQf.@l J2tg-..I?os~.s. or for the rehab 'li t.at:i.on o� veterans !.l9.....E.�l�t: _of 1:.be net :ncome cf which inures to the bene- fll~-_s)(��~EX _,ED-~~:Ta�ti. '[:;_!oc}:holct~�Qr:_Lyf;{-� Y:b.9_~~::.J.:.: f.f2.Y.!E~u h9~~Y.!2.f.r. 'l'hat:. �the :Ln;"' come of whatever kind and character from any of its properties. real or personal~

.. 2.'341 - 6 -� or from any activity conducted for prcf:i.t ~ :::.c;IJardl.ess of the dis:"osition mad.c of such income~ , ~;hall be liable to the tax imposed under this Code; XXX XXX The deficiency incor:;,:; tax assessments for the ye0 rs 106.'3 , 1064 , 1965 a ncJ 196'; against petitioner \It:rc b,lSE':d on the findirHJS of res.-ondcnt 1 s Exarniner ,.cis :.. Holloreta that petitioner is not exe>.rnpt r:~~ ::J r,, 1ncoL.e tc1x for the years in question because it is aJlAQcdly owned by only one person, thJt is by Felicidad .\matcnCJ Dnd her cl:ild:-Eo:n and that it. wos incorporated ~erely to comply ~ith the re- c:uirer:1ents of law (p. 90 , t.s.n.; .�.~�?- al~Q. Exh. l , f'P � l 98 -l9S' , 8Ir1 re c. ) ; tha t after the declth of the late /.manr)o i'.LlatoncJ , the College bcc<HIIP an unret;::is- tereJ partnerrhip between said Felicidad Amatong and Ler cllilcrcn (p. 90 , t . s.n.); and th<1t portion~ survivin~ soousc J � (Fc:liciciad o I the late /.'na ndo r �jc Coi . . issionPr of }ntcrna l [~c v cnuc ~usti- tioner and anchored its de cision on the strength o f ,J u : c is i on i n t he c a s c o ~ L n i ve �c s it y o f t hc; Visayas vs. Cor:rn. of Internal Eovc:nue (G.. n. Ho . ~~ �3- ){

DECISION - CTA CASE NOq ~341 - 7- L-135 5 4 40 Oct, 30 , 1964; 12 SCRA 19 3 ), wh ere the Supreme Court disregarded the c orporate ficti.on of the University of the Visayas on account o f t he fact that there wa s ac t ua l di ve rsion of the net income through thei r use in a cquiring real p ro- perties adrr.ittedly belonging to the Un i ve-.:-sity ( Ibid# at page 1 9 ~) This Court b elieves that it was e rror to base pe t itioner's li abi~.ity f o r the d e ficiency income tax in question upon the decis i on i n t h e afore said case of the Univer sity of the Visayas$ and is wit h t he s t r onge st opinion a n d we so h old, t.hat the d ecision of th e St,lpreme Cour ~: in the o f v. G. Sine~ Educ a t i on a l Corp. (100 Phil. 127}, which i s substa nt i a lly sjmilar in f a ctual s ituation with this ca s e, is mo re concl usive and auth o ri- tati v eo Note ~hat in the Un i versity of the Visayas case , c i t ed by r-es p ondent as i ts sing l e a' ~ thori t y., the Univer sity i s a sto ck c orpo rate schoc l and the Preside n t therein an~ h is wi fe are t h e con- trolling sts ckho l ders who he l d 85% capital stock o f th e un ive rs i ty. (.QE. .. c i t., pp. 1 96- _97 ,.) And as stated here~ofo r e, t he income of t he univer- sity \�:as diverted for tLe pres i dent'.;;; and his wife 1 s personal use in acquiring prope i t ies which q, .'1

DECIS:LUlJ- .. CTi, Cf.;_i[: ,.;(..) . 23Li 1 - .._ (r~� were placed in the name of the prcs:;_dent , or his '-'!if.:.: , or both . In the c ase o-f the ,'\ncJrcs Donifa- c i 0 Co J.lc:gc' tl".ere is no CV icc nee to r~o i nt to the fact t;tat its net incomes, p,:;rticular:Ly ciurin~.J the years l9G3, lS64, 1965 and 1969 in question, were used by uny mc:nber of the J::)oarcJ of Trustees , l~E-: --- j_....- ferring to Fe 1 i.e ida cJ hr..a tong and hE?r chi ldrcn , for the acquisition of their properties, or other- wise inured to their personal benefits . This f6ctual situation al0ne differentiate this case (iai:<ctrically fror.t that of the case of the Lni-� versity of the Visayas . ln dirregarding the cor- porate fiction of petitioner college and cons i - c.icrinc; the incomE� thereof as that of the I m,;:tong L!..ily, rc:spondent took as basis the facts ( l) tl !o t the control of peti ~ ioner s chao l is lodged in the hands of only one family , the saic. fcli- cicCJ~l r.i-:1atong and her chi loren; anci ( 2) that in the decisior: of the Court of First Instonce of lar..bounga Gel i.orte , in Civil Case i-.o . 1749 e nt it l e d nJ, ndr e s Uon i fa c i o Co lle ge , e t c � v s . / .ma - tong, 11 ::Jated February ll, 1974, it C:isreg.:::rclec tho corporate fiction of saic collec_::c.: on the / <;;rounC: thot this ec:ucationul institution is under t~e absolute co ntrol of its Pre s ident ond his i!Til.lC'diate fari:ily, and the cuse of the Lniversity of the \ii~:;ayas, Q.l-2 � �Lt.. , was cited 45

DECISION--- CIA r.>.SE !!0 . 2341. n ;;..:' \ \ ~n support of that decision. '.!bile it !'lay be� concc�dcc~ that the hc:rcin petitioner college, a non-stock ccrpor~tP school, is under the c ontrol o:: ;:-�c�l_i_cidacl J\matcn(J and he:c f<:i,:ily, 1:vho cornpose the rx:r:'J:.;ership o�C tht: Boi:n.'d cf Trustees~ the control, however, of one family by itself, will not , we believe, be sufficient g::::-cund 2nd basis to disre!Jarcl the corporote pe:r --- sona lity and consider its net incorr:e as those of the c ontro lli ng members . This fact a lone wil l not suffice to dis~pgard the corporate persona- lity of tht:: school and vi ew the incorr:e of :;;aid corporation as those of its menibers so long as its cducationol purpose an~ objectives were fol- lowe~. In the Cniversity of the Visayas cas-, u~ on 1,r;hid1 T.lH: Court of� l�irst Instance of Zam- lloDnga hac1 basc�cl its decision i.n holding and ra ~c- ficti.on , the Supr eme Court therein clisre- ga~ded the corporDte fiction of the,Univcrsity os tn_;se o-F th-e controllinc_:: stockholder~; - thot 1Nife ' ---fir.s..~.l. ~v-- � be- t; i,::, 1. c as e s howe d c lear l , income were usPd in pur-� chas i::; :cE:a l prop:;rtie~, O\'ILecl by the t�:iivc:.r:; it:/

DECISION-- CTJ, C;.::.;E lj CJ . 2341 - 10 - names of President Gullas or his wife, or both; an d .�.~_.c_Q.!lQ_l::L , because Pr e sident Gullas , by his owr1 ad missi o n, a mong others , openly state d that the University of the Visayas belongs to and is n a turally his . By the acts of I-'r esident and ktrs. Gullas of usin g corporate income to purchase pr operti e s in the ir na me s a n d b y t he adrnis ~; ion tha t th e Univer s ity is a ctually theirs , they have, b y t he ir ovm act s of usi ng the inco1,1e of t he school to buy properti e s in their name s , ma de possible b y their control of 855~ of th e c apital stock of the c or por a ti o n , d isr e gar ded the ~ niversit y of the Vis a ya s indepe ndent cor porate personality,'" and the c or ~ or ate s ch o ol , b y these s an e acts , ~ad t he r e f or e shed itself of its corporat e fie - ti o n . These f a cts a nd circu ms t a nc e s were the grou nd u pon wh ic h t h e ~upr cme Court disr e gar ded the cor porate f iction of the Ln i versity of the Vi sJyas a n ~ cons i oe rin g the ne t inco n~ s o f th e :_n iv ersity as t lta t of t h o c on t ro lli ~19 sto c k - ho l de r s , a n C: l:c� l d th e L ni vc: rs it y not exc:1 npt f ror:: i n c or..e t a x cn c�e r the provi s ion of S e ction 27 ( e ) of the Ta x Code . The facts of the Uni- ver sit y of t he Vis aya s ca se are in re b lity dis- tinctly dissi ,iilar to the facts of the instant c c=; se of ~ondres do nifaci o Colle ge i n t hat th e? l a t te r wa s never us ed t o ~ uy pr o perti e s of the � 47

DECISION- .. CT/'. C/\SE Nu . 234 1 - ll -� c ontrc lli ng members -� the / .ma tong f<-J;Tti l y; that it ncj_ther abandoned its fcrm and substance as a non- stock , non-profit corporate educational institution; that none ofits inco t'le inured to the benefit of its 8errbers , or had failed in the accomp lishment of its purposes and obje ctives of cat ering to the r:: cl ucational m:ecl~; of the people in the areJ in which located ; and that its net inco me for the ye ars 1963, 1964 , 1965 , 1966 , 1967 and 1969 in qur:;~~tion were used to acqu::_re fixed assets , equip-� I:>ents , and faciliti e s for its ec:ucatio nal use; which facts \Jive no ground to pierce its corpo- r o t e veil and to ho l d ~~ he inccfl~E?S of the Co llege as tl-:o s e of the !. matong f <:r:1 ily. ith 1 1 respect to th<:: decision of the Cou rt .'. o f rjr s t .Inst ance of Za rboanga ~hich is one of the busis which the assess ucnt of the Cornmissio - ncr of Internal ~evenuc in 0ucstion is anchored , which rul..ed in effect thot pctit i o11c r e c\ Jc at i o - nal i nst itution is un der the abso lut e contro l of its President c:mC: his il ilme c!iCJtc fc-Hnily 'Nhi ch woul d warrant the conclusion that the corporate entity is on ~ltg_;r., Q_~Q. or- a busines s concJuit of re<;arcl o f its corporate f i ction , the decisicn of the Court of First Instance , left alore, will 48

DECISI ON CTA CASE NO. 2311 - 12 - not b e such authority~ which this Court will fol- low a !�d hold, in similar vein, that the incomes of the C:Jllege are also the incomes of the controll- ing members - Felicidad J~,matong and her immediate family. In the first place, the decision of the CFI adverted to is pending decision on appeal in the Court of Appeals docketed as Amatong vs. Arna- t ong, G. R. No. L-,5687::1-R. In the case where a decision of a lower Court is on appeal, the deci- sion on appeal is stayed or suspended and is well- settled that the judgment appealed from cannot be used as evidence or used as estoppel, in any other Court, as long as that decision appealed from remains undetermined. (4 Am. Jur. 2d., Sec. 358, p. 836, �iting Di Nola v. Allison, 143 Cal 106, 76 F. 976.} Hence, the decision of the Cour~ of First Instance of Zamboanga del Norte does not have any evidentiary value c It proves ncthing. Secondly, to our mind, assuming even only for the sake of argument thct the decision is of evidentiary value, the conclusion that the corporate entity is an alter ego or business �conduit and,. �there- fore, warrants the disregard of corporate fie- tion is to our mind obiter dictum as the Court's co ~ clusion was not necessary or germane to th e disposition of the issue in that case as to who owns the properties subject of dispute therein, *~~ (.)

DECISlOH- CTt. C!5E l�XJ . 2341 - 13 - the Andres Bonif a cio College, or Felicidad Amatong , in which the CFJ of L.:arrboa nga held that the proper - ti.es subject tn the dispute were owned by Felicidad l:na tong and acquired fro m her own funds and not fra n the funds of the co_lege. J,s VK~ have stated , herc:�tofore , while _it is true that the petitioner college i s ovmed by or under the control of , Feli c idad hmatong and her fomi 1y, 1.vho also cor!�ipose the Board of Trustees , it is also well to bear always in mind , the settled lega l doctrine that a corporation is distinct although the majority stock (or shares) is owned by a sing le individual or corporation , and that it is sepa r ate even if it is a fami l y or close cor- porat i on . ,( 18 1\m . Ju r. 2d . 508--589 . ) The doctrine that a corporation i s a lega l entity e xi sting separate and distin ct frord the persons c ot npr i s in g it is a legal the ory introduced for the purpose of convenience and is subservient ~o the ends of justice. The cor 1Joration cJnc~ the incividuals that ovm all of its st ocks or s hares an d assets thereof are treated as identical , but courts tend to dis- re~2:i.' d cor po r2t e entity ond treat the sto ckhol de r s or shereho l ders as an association of i nd ividuals only when justice is not served (~~ t ropolitan holding Co . v. Snyder, cc;.,, 8th, 79 F (2d) 263 , 103 /-.Ul , 912, 13 i\fl! , Jur. 161)

DECISION - CTA CASE NO. 2341 - 14 - and corporate entity will be disregarded only where the corporation is "used as a cloak _o-:-: c o ver for . f.r:~..Q.r illegality 11 {13 Am. Jur., pp. 160-161) or Uf;ed to 11 _9ommit an L just.ice, evade the_Eayme nt of taxes, or violate the law 11 e (Carmelino Alvendi a , Handbook on the Corporati ~ ns, Insurance� and Negg tiable Instruments, 1967 Ed. , pp. 4-5.) It may be insisted by res pondent Commissioner of Internal Revenue that where a corporation is controlled by one family or a few individuals, the distinct personality thereof is lost. This is not so since tre distinct per sonality of th2 corporation is main- tained notwithstanding that it is controlled by one family. (18 Am. Jur. 2d., pp. 558-559). The mere fact that the Andres Bonifacio College is m1ned or con-r.rolled by one family - the Amato.ng family - will not give rise to the loss of its cor- porate personality and the piercing of its cor- porate v e il. It is well known principle of law that the disregard of the independent personality of a corporation can not be made whenever those in control thereof had truly and deliberately adopted the corporate organization to secure the advantage of continued management thereof so as to attain and accomplish its obj8ctives and pur- poses. (~ Schenley Dis t illers Corp. vs. u.s., 326 u.s. 432, 90 IJ Ed. 181 .. ) In the case of petitjoner in this instant case, there was no 1 t )'

DECIS I GfJ - CTA CASE NO . 2341 s howi ng that the me mb ers - the Amatong fa ffiily - ha ve used the c o ll ege for their financial ad van- t ac e or t hat the inco me s of the sch ool wer e us e d for the ir pers ona l purposes or ends , like th e use of the income of the sc hoo l t o acqu ir e pro pe r t ies in t he ir name s , or oth er wis e use t he mo ney of the co llege f or their perso nal be nefi ts. Gn the con- tr a ry , t he r e ar e amp l e and u ndi s puted evi de nce tha t this schc o l vva~, rik"Jnocjed and di r e ct ec: a cc o:c�- ding to its pri ma ry pu rpose or ob jective s of se r- v i ng the co i;n~�tuni t y b y pr ovi d i ng f or th e ir edu- cat i ona l nec~d s of th e peo ple i n Z.amb oanga cle l :,orte anc ad j a cent ar ea s . ;..ore over , vie r.~ust a 1\r>:a ys r ememb e r t ha t t he pier cin g of t ho ve il of c orpor ate fic t i on should not br:� cf:p li ecl prt: ci pit.a t e ly but v; ith gr eat cau - t o� n ( l.e l () r r~ .J� u,.:.~_ . ' ?cl . , 560 ; Kl e i n vs . Ta x Su pe r- - L.... 1 \.!l e visors , ?82 LS 19 , 7 5 L Ec} . 140.) It not hav ing b'::en sLown, the r efore , based on the f orer;:o i ng ;:;rincip l cs, ( l) t hat pet i:Licner ; -.ndr cs Uon i. f aci o s i o;; oE 'fraud or i llegalit y , suc h a s t he ac t of usin:, its ii:COt �.es or r::onc y to [�.'UY r,ropcr ti e s for the !nernbe:r s Dn cJ pl.::cir;c; them in the i r name s a nd not in the name of the schoo l (Uni versity l:or�,�',r,', , 0 .:::.1. �t 't�!r- \r�l s:) ';,'�"' S vc:; .-�---c�rr: Ir1+ Pe \1 Cl� �t ) � O " -�~ --- -- ) -� '- o �L o' tha t pet i t i oner wa s us ed a s a rne a ns t o evade the:

DECISION CTA CASE NO. 2341 - 16 - payment o f tax ~ s~ or violate a law (Carmelino Al v ndia ~ QE� c i t:, ) 1 that petitioner abandoned i t s form and substance as a non-stock., non-profit corporate school, such that none of its inc ome inured to the bene f it of the members under any guise. or failed to accomplish its purpo se and objectives by its continued management as a non- stock corporate school by catering to the educa- tional needs of the people in the area, or other- wise sought to obtain its educational purposes and objectives, (Schenley Distillers Corp. VS o U.s. 2�� cit.; PPo 9-10, 49, 56~ t.s.no), its personality cannot be di s regarded. On the contrary, th~ net incomes of the. petitioner for the years 1963, 196 4,. 1965, 1966, 1967 and 1969, � were as aforesaiC ~sed by the school to acquire its fixed asse stsg equip- ment. buildings and facilities for its educational use. Finally, if only as word of cautionq the doctrine of the piercing of the veil of corpo- rate fiction, in order to be applicable , must essential ~ Y have to depend, in the first 1ns- tance, upon the existence of fraud, which act may be exemplified by the act of diverting the income of the corporation {a suppose-ly inde- pendent entity), and using it to purchase real properties for the personal interest or needs of the stockholders or members (an equally in- ~�)' '{ - � ' ...1'

DE CISIO N- .. CT/'. C.21SE t:O . 234 1 - 17 - depe ndent l ega l personality from that of the corporat io n) , l ike in the case of the University of t he Visaya s , cited heretofore . The frau dulent a ct ; ostensibly a pure question of fact, inu st first exist, or be ~ omm it ted before there can be judi ci al disregard of a cor ,orate personality . In other words , the d is ~egard of corporate fi e- t ion t akes pla ce on ly after a cle a r exist e nce , occur rence or perpetration of fraudu l ent , i lle- gu l or crh1ina 1 a cts . J\nd these a cts mu st be clea r and convincing to justify t he pier c inQ of the corporate veil , anc1 can no t . pr osper on t he t as is of ner o spe cu l at i on , since fraud , illega- l it y or c:rir;1e is never presumed (Yutiv o & So ns ::c> rdvJare Co . vs . CTA, G. n . L-13 ::?.03 , Jan . 28 , 19 6 1 , 110 Phi l ; 7 5 1 , 7 59) , or depe nd on circu mst a nces v:hich , a t rnost , create susp ici on .( Ha ywo od Lu mbe r ~~ ;,,inir:g Co . vs . Co r;;:1 is s io ner , ~7 8 769 ; ~-.alene v . Conrr, issi oner , lCO F 2d ., :)07 , �:i:t~Q. in .'utivo So:-1s l-!ardwa re Co . vs . C'L". : Qp_. s_:;_]..t.) It rtiJY br.:: insistecJ tl: CJt the /.nclrc:s Doni f a - cio College� is an .Q._li.Q.� QQQ or _ccndu_i_i of Feli- c idac1 ,. r; at ~)r 1 , lr:cl he r c hi.ldren . In ord0r to a :-;;-.:. ly the alter e(JO or c o nC.ui.t doctrine , it n;u s t be shown that the member s of the l\rnatong f amily h<Jv<-: , by t,h.r:rr:se lves or by thei ~ own personal <Jet s , disregarde d th e personality ' of their non~ 1 ~e")' '

DECISION .. CTA c~SE NO. 2341 - 18 - stock corporate school or make their corporation mere conduit or agency for the transaction of �their ov.�n personal and private inter .., sts, or by their ov�1n pe rs onal acts or acimission,. the school is theirs, like the admission made by President Gul ~ as , in the University of the Visayas case, to the effect that the University of the Visayas belongs to and is actually his and that the incomes of the University were used to purchase real properties which were placed in its President's name or his wife or both, the separate and independent personality of the corporation and members, thereof, is lost and ceased to exist. (Seftan vs. San Diego Trust & Savings Ba1k ~ Cal. App. 106, F. 2d. 4 974 1 9 84.) But the disregard of corporate identity can not be done whenever t r e corpo~ation, as in this ins- tant case, had carried on its true business ac~ t ivity a nd the fact that the owners hav e retained direction of its affairs down to its minute de- tails will make no difference tax-wise. (National Ca rbide Corp. vs. Commissionerq 10 ALR 573.) Finally, in order t o hold a corporation an alter eoo of ar o�ther personality and, hence, dis- r Lgard its corporate existence, it is not enough to s h ow that i t is in fact an a~ter ~ or con- duit of another person, b ut its ex istence as

DECISION CTA CASE NO 2341 - 19 - such ~). ter ~22 or �Qlldu it must also be shown to promote fraud 8 defeat justice, or produce ~nequi- table results (Imperial Paper & Color Corp. vs. Saxsell, 114 Fed. Rep. 2d.~ 49� 52 0 ) In the Uni- versity of the Visayas case, by the interlocking of the pro~erties and incomes of the University and its owners, it gave the Supreme Court cause to disregard the separa ~�.e personality of the Univer- sity and strip it of its exemption under Section 27(e) of the National Internal Revenue Code. In the case at bar., the Andres Bonifacio College, by reason of its nature as a non-stock corporate school, derived its capital contri- butions from the Amat:.ong family, and from dona-� tions or gift s ~ legacies, . bequeaths and endow- ment. The sources of this capital neither expected to recover their capital contribution, nor receive any share in the pecuniary benefit or earnings which it realizee And as a non-profit corpora te school, it never declared, as~oresaid, dividends. (pp. 7 6 ~9, t.s.n . ) As a matter of fact~ the earned surplus for the College during the years in question were used to purchase and acquire its fixed assets for its use. This educational ins- titution was incorporated under the Corporation Law but in complianc e with the mandatory provi... sion of Section 3 of CommonvJeal th Act 180 of the Private School law to the effect that all pri- vate schools under sole proprietorship should be 5G

GEClSION- .. CT/\ CASE NG. 234 1 - 20 - r egistere d as a c orporation, but it wa s a c ondi- tio n .�_i_ne Ql:!.�.. Q..QD.. for the grant ing to it by the Go vernme nt of the recognition of its cours e s. Its i ncorpo rati on under Act 1459, as r eq uire d under Se ction 3 , Commonwealth Act Ko. 180 is to assure its continue d and unint errupted educatio- nal service to the people . There are no longer any schoo l or edu cationa l ins t ituti on t oday , regulated by the Depa rt ment (n ow hd nistry) of Education , that has not incorporatf.)d . In the case of a non-st ock , non - profit corporate schoo l, su ch as the /�.ndres Bon ifacio College , i t s irnpor- tant f eatu re a s a non -st ock cor porate school is its ab ilit y to pr ovi de a fir mer or solid finan- cial base upon which to operate because it can se cure for it s support.and mainte nan ce , contri - but i ons , loans , donat ions , and others . In ' the case of a non -st ock , non - prof it cor porate schoo l, it is less r:1cti vated to the pursui t cf profit or income . The2 profit , ga i n or incone :~lot i.vCJtion of the school is ideally absent . Of course , the i:.enbers , owners or officers of the non-stock , non - prof it school may re~eive , jus t like the ~resid ent , teachers a nd office rs in the Ca rt- mout h Col lege case, continuously as long as the s choo l continues to ex ist, their s ala r ies anrl emo - lcrnents for their e�fe cti ve uancJgement and direction

Dk.CI.::>lOi,l- �� CTi:.c. C. .~.iE I.O . 2341 - 21 - over the non - stock , no n- profit corporate schobl . (Trustees of Dartmouth Co llege v. \ioodward , 4 �.:he at 512 , 4 Le d . 629 , 638 ; ~Q. a l so V. G. Sin c e Ed uca tional Corporati on , 100 Ph il. 127 .) Listin guished from a stock corporation , a no n- sto ck corporation , whicb is fr eq uently re- ferred t o as eleemosynary corporation , if not cr eat e d for cha r i ty , i s organized for educat i ona l pur poses . L-Fred.e ric k C. Fisher , Ib.~LJ~biJj._p_pi n e l~_V.LQf_~_t_ock_ Co�por~tiQ.Q.?_, 19 29 Ed . (T he Luw yers Cooperative Publishing Co ., i..a nila , 1929 , p . )J This cor poration b y its obj e cts and purposes , is not cr2ated for gain or profit . I t is orga - ni~ed to r e nder ser vice to the people i n ar eas where the Go v ernr~n~ is not fully capab l e in s ubsi d i z ing tlle edu ca t i onal ser vi ces i n those a re as . The hndres Conif a cio Co l lege f a l l s under this cat egory of corporat ion . Its distin cti ve mar!<. is the absence of s 1ares of stoc ks to be ne - � f it the r:Jetibers in the fcrr:1 of di s t r i buta b l.e divi de nds . But U:is does not Iileun that t he me rnbe rs ca nnot t ake pay for the a ct ua l services they ac- tually render to the cor por ation . The true test of t~is kind of i nstitution is its origin , for~ :; r1 ci it s ob j e ct i v e s � , �. c o lle ge or u ni ve r s it y with�- out shares of sto c ks , foun ded or t he purpose of dissiL.inating know led ge and erected a t the expense of private i.ndividua ls, is r egarded uS 11 eleer:1osy- nary corpo:caticn . 11 L-'.li lli. urn L1ead Fletc her ,

DECISIUF - CT!. C/ .SE !~C . 234 1 - 22 - 1931 Ed ., (Callaghan & Co . , Chicago , USA , pp . 189- The origin , form , obj e ctives and a ctual operations of this non~stock , non-profit educa- tiona l i nst it ut ion - the Andr es Bo ni f aci o Col l ege - shows that it was or gan iz ed original ly in l9~D a s a sing l e propriet orshi p for the promotion of edu- cat i on and l ea rni ng and is en dowed with proper - ties and assets c on tri bute~ by i ts founder, ~mando ,\rnatong . lt was never reci i e nt of any do na t ion ,... ( p . 31 , t.s . n . ) The College deri ved its capita l a nd wh ic h v:e re us ed to a cquire fixed assets of t he s c: ho ol c ont ributed by the /.r.1atong fa mily sec red fror: loans .and f rom the prof its of the school a feat ure attendant i n non-profit, non-stock corpo- r ations, (~g_g_ !�!a ti ona l Carbide Corp . vs. Co n1m . 10 /\LR 2 � , 573.) The co l le ge wa s ope r ated along it s des ired educat i onal pur pos e s and object i ves and this wa s not denied or dis put ed by r e spon- dent directly or indir ect ly~( p . 1~ , t . s . n . ) Since 194 1 , the s aid petitioner ' as not paid � nco, ,e tax until in 19 69 �when it wa s assessed b rc spondent ~ (p. 55 , t.s . n . ) The petitioner neve r de c lared any dividend and since its f ounding, no inco nc of the s ame had i:~ured to t~e benefit of the founder or his wife , Fe li ci dad tma tong, or�

DE CI S I 01~ �- CT/\ C/\~3E ilO . 2341 - 23 �- her children4(pp. 9-10, 49-56 , t.s . n.) There were no withdrawals made of the coll ege funds whic h can be taken in the fcrrn of dividend: or a'l"c+rl"hJJt"l on fpo 7 l~~ -ro~J... ~~\. +u ~9 ~o .. - - - - ' ?? r ) , .;::) L--�- ,J.J .., ' \ -J J. � ..___ ' +L. . c~ � l . The only mo ne y r ece ive d by Felic idad Amatong or the membe rs of her farni l y, afte r the death of her husband in 1943 , who were and stil l the officers or member s of the Boa rd of Trustees were t heir Scllari es for services rendered by them to the school . ( pp . 9- 10 , 50 , t . s . n . ) The prof its of the school from 1963 to 1969, except in 1968 where there was a loss, were a l l invested in the assets of the school or otherwise used to� purc ha se equipment and plants . ( pp . 8--9 , 14 , 15 , Ll 9 , t.s . n . ) On the basis of the i~~dia t el y for eg oi ng pa r agra phs s hovving sur:nnar ily the form , obje�ctives, and operat ion s of the schoo l, this cas e is clear- ' ly unlike: that�.of the cas e of the Un i versity of the Visayas and , hence , the de c is i on i n the lat te r is ir:app lic able . This is so be cau s e there is no single evidence in thi s case po inting t o t he fact t hat the Andr e s Bo nifacio � Colle ge 1 s net i nco!iJe , dur in g the ye ars 1963 to 1969 , except in 1968 where ther e was a l oss , vvas div erted to tlb e use of any mernb er of the ;:1ma ton g farnily wh o constitu�tf: the membership of the Board of Truste es , or had- 60

DECIS I U'~ -- CT!\ C/S E NO . 2341 - 24 -�� in f a ct inured to their personal financi al bene- fit , a cts ak in t o profit di s tribution . Mdreover, the f a cts in the Andres Bonifacio Colle ge is very dif fe r ent f rom the facts in the University of the Visayas case . The Andres Bonif a cio Col l ege , being a non-stock cor por ate institution, is akin to and more clos e l y re semb l es that of fue V. G. Since Edu cationa l Co rpor ation , .Q.R. � cit_., which is a non-stock c orporate school and no income of which was shown to have i nured to the bene fit of its Pre si dent , V. G. Since , or his famil y, and which was held by t he Supr eme Court as an exempt entity from the p~Vmen t o f income tax under Section 27 ( e ) of the Tax Co de . The decision in the ~as e of Since Edu cat iona l InstitLtion is the author ity which square ly ap�l i es t o the facts in the case of herein petitioner Anc) r e s Bonifacio College. A close s cru t iny of the de cision in the Since Edu cationa l Institution ' s case sh ows tha t it i s owned and contro lled b y Presidrot V. G. S inco and hi s family, but none of the i nco me of the school was shown to have been used for fue persona l bene- fit of the S i nce fami ly with the ex ception only of the salar i es pa i d t o the officers and emplo- yees , who belongs to his f amily . As there wa s no i ncome of the Sin ce Ed uc at ion~l Corporation G1

DECISION- .. CIA CJ.SE NO. 2341 - 25 - which had inured to the benefit of President V. G. Since a nd his family , the corporate personality Y..t!}.!___?_ir]_s.:_g__f~HflilY, an d as such, the High Court held it exe mpt fr om inco me tax un Ger the provi- sions of Se cti on 27 (e) of the Nat ional Internal Revenue Code. A more de tailed view of the V. G. Sinco Ed u- cational Inst i tut ion 1 s ca se s hows that it was organized on September 21 , 1951 as a non-stock corpor ati on and capita li zed by Pres ident V. G. Since and rr;embers of his immed i a t e fa1 ily. It ea r ned pro fi t s fr om 1949 t o 1953 . In 1949, it had a net income of �3 , 098 . 86 ; in 1950, Pl7 , 038.59; in 195 1 , P26 , 868 . 60; in 1953 , f223 . 56 and in 1952 , it s uf fered a lo s s. The Collector of Internal Revenue asse ss ed V. G. Since Edu cat i onal institut i on 1 s i ncome t ax from 1950 to 1951 in the s um o f i 5 , 364 . 77 , VJ hi ch wa s pa i d b y the college . But wi th in tw o ye ars from payment , the s ch oo l cor'ii:Jen ced acti on i n t he Court of First I nst ance for the r e f und of i ncome t ax pai d , wh ich was la ter transmitted to this Court for judi cial disposition . In that ca se, the V.G . ~inca ~duca- ti onal Cor poration cla i med itself to be exempt- from payment of income tax be cause it is a non-

_ �ECl~J C~\1 - .. c;Tt\ Cf.'.SE NO . 234 1 26 - stock , non-profit corporation maintained exclu- 5ively for educational purposes and no part of its net income had inured to the benefit of V,G . -~inca, Pre sid ent and founder, under the provi- sion s of Sectio n 27 (e) of the Tax Code . Respondent Collector of Internal Revenue, however, clai0ed that , based upon the personal withdrawals ( accounts payable) made by V. G. Since , .:Jmong others , 0 great portion s of the profits realized by the V.G. Since Edu cational Corporativn were channeled anc refu nded to the persona l benefit 6f V. G. Sinco , who was the founC:er ." (lQ.iQ. , at p . 13 ::,.) The issue in the V.G . Since case was: "Is it really correct to suy that 1-. pel l ee (V.C.J . Since Educat ional Cor- poratio ) . is an educat i onal institution in Nhic h part of its inco~e inure~ to the benefit of om~ of its stocl~holders x x x ? 11 (IQ.t_Q. , p . 132.) The Supreme Court in.its decision in the ca se of V.G . Sin ce Edu cational Institution, he l d that the personal \Ni t.l1drawo ls, a mong others, rr,ode by Presi dent V. G. Since were ai!l ounts ac- tunlly dr avm from s a l~rics v:hich 'Nere not collec- t ed and had stood in the books as a ccrued expen- ses. The perso nal withdrawals of money by Pre- sident V.G . Sin ce were , therefore , actually his 63 \.

DECISION .' CTA Cr-.~ E i'~ G . 234 1 - 27 - own rn::me y or funds . ( Ibi_Q. . ) The Supreme Court also stated that, on that b3sis , it is "t oo sweeping if not unfair to con- elu de that pa rt of the income of the a ppe llee as an i nstitution inu red to the benefit of one of its sto ckholde rs simply be caus e pa rt of the inc- co8e was carried i n its books as a ccu mula te d sa- l a r ies as president an d teacher . 11 The fact is that the V. G. Si nco Educa t ional Corporatio n is a non- profi t i nstitution , and si nce its organi zation it never distributed divi- dends or profits to its members . Gf cour se , part of its i ncome we nt to pay its t ea chers or profes - sor s and other inc i de ntal expenses of the school , but none of the inco me has eve r b een channe l ed t o ti1e benefit of s ny individu a l member. The authorities cite d in the S inco c a ~e are very cle ar in their prono unc ements that wha te ve r pa ymen t is r:-1ude to those who work fo r a sch oo l or co ll ege a s a renume ration f or the ir services is not consi dere d as distributi on of profit as woul d oake the sch oo l one condu cted for profit . Thus , in the ca se cited therein where the pr in- cipal of f ic er of a school w<::, s f on11e r l y its ow ~- ner, and such principal was given a salary for hi s s ervices , it was held that t he school is not conducted for profit me r e ly because moderate

DECI S l uN- CTP. C!SE NO . 234 1 - 2.0 -- sa l aries wer e pa i d t o t he pri nci pal a nd to the t ea chers . The Court a l.so sa i cl t hat th er e a r e , or ha d a l ways been , very f ew edu ca ti ona l e nterprises in the :hilippines wh i ch a r e supported b y dona t i ons and these org<Jn i za t io ns us ua l l y ha ve pre cari ous existen ce . It a l so s t ated that the pr ec is e ob- ject i ve of granting e xempti on f r om pa yme nt of inco!,,e t ax un'.:'cr Se ct i on 27 ( e ) of the Ta x Co de is to encaur~se the e s tablishment cf sc hoo l s in the I�hi l ippines c iting t he case of Jesus Sa cred Heart College vs . Cal l. of Int . Re ven ue , 95 Ph i l. 16 . ln another point ra i sed by t he Co lle ctor of In~ernal Revenue in the V. G. S i nco ca se , he ns s erted �that by the acqu i sition of bui l di ngs and equiprnents \':it h t he use oi the i nc orne of th e schoo l. , the properties were enhan ced a nd the the; steel :;a l ders or Ii!Cidl.;er-~, sir.ce t he pr opert i es of tho corporat io n ma y be sold a t any time and tiie profits divided among the sto ck ho l ders or me~bers . Un th i s s cor e , t he Supreme Co urt he l d t! �Jclt this c l aim of rcs ponclcnt wus s pe cu l at i ve . I t stat ed f urther tha t t he a cquisit ion of the faci lit ie�s r edo un ded t o t he be ne fi t , not of 65

DECISICN- CTA CASE 1~0 . 2341 - 29 - President V. G. Sinco or his family , but the ins- titution itself . It also stated that it cannot be posit ively asserted that the properties and equipments will redound to the benefit of its stockholders, for no one can predi tt the finan- cial condition of the institution upon its dis- solution , and the meTe provision for the later distribution of its assets does not remove the right of an educational institution to tax exemp- tion , and the fact that the members may receive some benefits on dissolution upon distribution of the assets is a contingency too remote to have any material bearing upon the question whether or not there was a scheme to avoid taxation and its honesty of purpose as an edu- cational institution was not challenged . Accordingly , in the light of the decision in the case of V. G. Sinco Educationa l Institu- tion , we are of the opinion and so hold that petitioner Andres Bonifacio College is exempt under Section 27 (e) of the Tax Code from the payment of the deficiency income tax , inclusive of surcharge , interest and compromise penalties in the total sum of 1-11 , 500 . 38 covering the years 1963, 1964 , 1965 and 1969 . \1!--IEREFORE, the decision of the Commissim er of Internal Revenue appealed from , insofar as it

DECISION CTA CASE NO. 2341 - 30 - holds petitioner liable for de fi ciency income tax, inclusive of surcharge, interest and com- promis ~ enalties in the tot al sum of P11 ,500.38 for the years 1963, 1964, 1965 and 1969, is her eby set aside . However, peti tioner is hereby ordered .o pay respondent Corrunissioner of Internal Revenue th e sum of Pl,476 . 30 as documentary stamp taxes for the years 1965, 1968 and 1969 within 30 days from receipt of this decisiono No pronouncement as to costs. SO ORDERED. Quezon City# Metro Manilaq January 26~ 1981 . / TA~. 'RoAuUIN ssoci.ate Judge I CONCUR: ~~tit~~ L AMqNTE FILLE~ p Pr esiding Judge ;,ssociate Judge G7