CTA Case No. 3238 (Decision)

M�PUf\UC 0 F THE PHil.lPPIN � C JURT 0 ~ TAX APPEA QUEZON CITY AS IAN PLANNERS AMALGAMATE D, INCORPORATED , Peti tioner , - versus - C . T~A. CASE NO. 3238 COMM I SS IONER OF I NTERNAL REVENUE, Respondent . X- - - - ------X DEC I S I 0 N The c ase is o ne of a defici e ncy corporate income and delinquency percen tage taxes assessment against petitioner which all eges to be a general profes sional partnershi p c o ntemplated i n Section 24 (a) .of the National Interna l Revenue Code, as amended , t o wit: "A tax is he reby imposed upon the taxa ble net inc ome rece ived dur ing each taxable year from all s ources by every corporation organized in , o r existing under t he laws of the Philippines, and .partner ships , no matte r how created or organized, bu t not i ncluding gener al professiona l par t nerships , in acco dan c e with t he follo wing: xxx . " (Underscori ng suppl i ed) . Petitioner do ing business under the firm name of Asia n Planners Ama lgamated, Inc. with pri nc ipal office i n Cebu City , is a domestic corpora t ion organized and existing unde r the l aws of t he Philipp ines. By t he 206

DEC I SION - CTA CAS E NO . 3238 - 2- artic l e s of i ncorporati on it has for its pr i mary pur poses the f o llowi ng: " a ) To develop and i mpr ove subdivision s , l ands , and estates and to engage the services of c ompe tent professiona ls, artisans, skill ed workers , and ot her pe rsons that may be neces sa r y to accomplish this purposeJ except to engage in s ubdivi s ion busineSSJ " b ) To ma ke and ente r i n to al l kinds of l awfu l contracts and agreements with any per son , firm , par tnersh ip, corpo- ra tion , associat i on , es~ablishrnent , i nstitu t ion , or entity f or the deve- lopmen t and impr ovemen t of subd ivi- sions , l ands , and estates and the constr uct i on , reconstruction, re- mode lli ng , or a lte rat ion thereon of buildings , or other structures: as well as all kinds of lawful contracts and agreements f or the purpose of purchas i ng, acquiring , sell i ng , ex- changing or disposing of all kinds of lawful goods, wares , merchandise, or products of every class , kind , and description s uch as but not limited to, hardware and constructionma te rials ;" Sometime on Januar y 28, 1980 the Bureau of Internal Revenu e Regiona l Office No . VII (C ebu Ci ty ) .advised t he petitioner corporation of the ver if icat i on of its i ncome and business tax li abilities f or the years 1 974 , 1975 and 1976 and the proposed assessment f or deficiency i ncome t ax ari sing f r om d i s al lowances/add itional i ncome as we ll as delinquency percentage tax on the unr eported gross r eceipt s der i ved from contractual services 1 res- pectively p r ovided unde r Sec t ions 24 (a) .and 205 of t he Nationa l I nte r na l Reve nu e Code as amended . Petitione r 207

DECI SION - CTA CASE NO. 3238 - 3- had i ts obj ection on the val i di ty in a l ette dated April 18 , 198 0 . Notwi t hs l anding , the responde nt Com- missioner of Internal Revenue proceeded with t he issuance of the forma l a ssessmen t and demand un de r notices on Febru a ry 23 , 1981 (Deficiency Income Tax f o r ~227 ,7 33.92 ) .and on April 6 , 1 98 1 (Del inquenc y Percentage Tax a moun t ing to ~68 , 91 7. 74) , c ompu ted as follo ws : Deficiency I nrome Tax ACR No. 60-6-07-000231-74/81 Net i ncome per return ----------- -~ 4, 127 . 43 Add : Disallo�. ~~nce/add itional inccrne - Undeclared ino:::me - - - - ~ 9, 390 .83 Professional fees - - - - 30,846 . 74 40 , 237 .57 Net ino::me per i nvestigation - - - - - - - - P 44,-365.00 Incane tax due thereon - - - - - - -. - - - -. ~ 11,091 . 00 Less: Amount already assessed - - - - - - ~ - 1,032.Q.Q. B a 1 a n c e - - - - - - - - - - - - - - - P 10 , 059.00 Add: 14% int. fr.2-23-76 to 2-23- 79 - ~-- ~ 4,224.78 'IDI'AL AHOUNT OOE & COLLECTIBLE - - - - - - - ~ 14 , 2~3. 78 V VVVVVI./VVV V ACR No. 60-6-07-00075-75/81 Net income per return ------------ ~ 13, 787 . 12 Add: Disal l owances/ additional i ncome - Professional fees - - - - ~ 77,975. 50 Drafting expenses - - - - 5,337 . 25 Miscellaneous expenses - - 1, 735.28 Project expense - - - - 1, 541 . 39 Wedding gifts - - - - - - 500.00 87,089.42 Net i ncane per i nvestigation - - - - - - - - Pl00-;876:54 Income tax due tl1ereon - - - - - - - - - - - ~:25, 307 . 00 Less: Arrount paid - - - - - - - - - - - - - - B a 1 an c e - - - - - - - - - - - - - - - ~ ~ 25,307. 00 Add: 14% i nt. f r.4-19-76 to 4-19- 79 - - - - - 10,628 . 9! 'IOTAL AMOUNT DUE & COLLECTIBLE - - - - - - - ~ 35,935.94 vvvwvvvw 208

DECI SION - CTA CASE NO. 3238 - 4- ACR No . 60-6~07-000 10 3-76/8 1 Net i ncome per r eturn - - - - - - - - - :- :--- ~ 6.9,996 . 44 Add: Disal l owances/addi tional i ncome - Profess i onal f eo-. es - - - - - P350, 857. 94 Draf ting expenses - - - - - 8,013. 90 Of fice & t ravelling eA-penses . 4, 709.01 Legal & audi t fees - - - - - 2,162.00 36 5, 92~~ Net i ncome per investigati on - - - - - - :--- P 435,7 9. 29 Income taK due ther eon - - - - - :- - :- :- :- - - ~ 142, 509 .00 Les s : Arrount pai d - - - - :- - - - - - - - :- ..J-l.t.~ .~ 9. 00 B a 1 a n c e - - - - - - - - - - - ~ - - :- P 125 010 . 00 Add: 14% int . fr . 4-15-77 to 4-15-80 - - - :- - - 5~04.20 ~ AMOU~T DUE & COLLECTIBLE - :-- :--- :- :- P 177 , 514 . 20 vvvvvwvvv Delinquency Pe rcentage Tax -1 -9 -7 -4 Gross receipts - 4th quarter � � � � P 90,348. 70 3% tax due therecn � � � � � � � P"i,710. 46 25% taK due thereon � � v � � � � � 677.61 T o t a 1 � � � � � , � � � � � �� P 3, 388. 07 14% i nt . f r . 1/ 20/75 - 7/ 31/80. � � 2, 621.15 20 ~ i nt. fr . 8/1/80 - 4/20/81 � � � 488.25 TOTAL AMOUNT DUE � � � � � � � � � � � � � � � ~ 6, 497. 47 -1 -9 -7 -5 . . . Gross r ecei pts - 1s t quarter .� � ~ 29, 348.50 3% tax due thereon � � � � � 88~6 . 46 25% s urcharge � � � � � � � � � � � 220. 11 T o t a 1 � � � � � � � � � � � � � ~ 1 100 . 59 14% int . fr . 4/ 20/75 - 7/31/ 80. � � 813. 47 20% i nt. fr . 8/1/80 - 4/20/81 � � � _ ___..1=5.8;..;..;6...;;.0 'l'OTAL AMOUNT DUE � � � � � � � � � � � � � � � ~ 2, 072. 66 Gross r ecei pts - 2nd quarter � � � � ~154 , 0 49. 0 0 3% t ax due thereon � � � � � � � � ~ 4, 621~ 47 25% surchar ge � � � � � � � � � � � 1 ,155.37 T o t a 1 � � � � � � � � � � � � � 'r="~--=s~,;776 . 8 4 14% i nt. f r . 7/20/75 - 7/31/ 80 . � � 4,068 .16 20% int. fr . 8/1/80 - 4/20/81 � � � 832. 49 . TOTAL AMOUNT DUE � � � � � � � � � � � � � � � ~ 10, 677. 9 209

DECISION - CTA CASE NO . 3238 - 5- Gross r eceipts - 3rd quar t er ��� II 37 ,454.00 3% tax due thereon � � � � � � � P 1 , 123.62 25% sur charge � � � � � � � � � � 280.91 To t a 1 �� � �� � � � � � P 1,404 . 53 14% int . fr . 10/20/75 - 7/31/80 � 939 . 53 20% int. fr. 8/ 1/ 80 - 4/20/81 � � 160 . 24 'IOTAL AMJUNT DUE� � � � �� � � � � � � � � � � P 2,504.30 Gross receipts - 4th quarter ��� II 30 , 000.00 3% tax due tl1ereon � � � � � � � P 900.00 25% surcharge � � � � � � � � � � 225.00 T o t a 1 ������� �� � P 1,125.00 14% int. f r . 1/20/ 76 - 7/31/ 80. � 712. 84 20% int . f r. 8/1/80 - 4/ 20/81 162 .12 TOlAL AMOUNT DUE� � � � � � � � � � � � � � � P 1 999.96 !22.2 Gross r eceipts - 1s t quarter ��� 11242,189 .22 3~ tax due thereon � � � � � � � P 7, 265.61 25% surcharge � � � � � � � � � � 1,81:6.42 T o t a 1 � � � � � � � � � � P 9 082 . 10 14% int. fr. 1/20/76 - 7/31/80 . � 5, 754 . 81 20% i nt. fr . 8/1/80- 4/20/81 � � 1,308.81 TOTAL AMOUNT DUE � � � � � � � � � � � � � � � 1116,145. 72 Gross r eceipts - 2nd quarter . � � Non e Gross receipts - 3rd quar ter ��� ?150,328.09 3% tax due thereon � � � � � � � P 4, 509 . 84 25% surchar ge � � � � � � � � � � 1,127.46 T o t a 1 � � � � � � � ��� P 5, 637 . 30 14~ int. fr. 10/20/76 - 7/31/ 80 � 2, 981 . 74 . . . 20% int . fr. 8/1/80 - 4/20/81 � � 812. 38 TOTAL AI:-WNT DUE . � � � � � � � � � � � p 9 , ~31.42 Gross r ece i pts - 4th quarter ��� !.<318 ,952.88 3% tax due thereon � � � � � � � P 9, 568.59 25% surcharge � � � � � � � � � � 2, 392.15 Tot a 1 � � � � � � � � � � P 11, 960 . 74 14% int . f r. 1/20/77 - 7/31/ 80. � 5,904. 33 20% i nt. fr. 8/1/80 - 4./20/81. � 1, 723 . 65 ~AMOUNT DUE � � � � � � � � � � � � � � � P19, 5G8 .72 TOTAL � � � � � � � � � � � � � � � � P6~917. 74 vvvvwvvvv 210

DECISION - CTA CASE NO. 32 38 - 6- By a nd large, petitioner contends that "It is , at most, a pa rtne rs h i p; an aggrupat i on of s even (7 ) .l icen sed pr act isi ng arch itects (name s deleted )~ as 'i ncorpo r a t ors ' but who , i n tr u t h and in fact, assoc i ated themse l ves together, each contributing money and indus try to a common fund fo r the pursuit of a c ommon profess ion, and with the intention and agreemen t to divide the profits of their common l a bor among th emselves , as they did" co r r espondingly dec l ared in their i ndiv i dua l income tax returns a nd pai d ta xes due t herefr om. Respondent poses the r ub wrapped up this wi s e : petitione is a body corporate engaged in trade and business t ha t clear ly disqualifies it as a general pro fes si onal partnership wher ein "no par t of the i ncome of wh ich i s deri ved fr om e ngag in g i n trade or bus iness " (Sec. 20 (b) .of the Tax Code as amende d ) .and wou l d thu s let go t he chips to fall where they may on t he taxab l e corporate activities , so to speak . The case was submitted for decision on t he basis of the pl ead ings and r eco rd wh ich revolves into t he quest ion of whe ther under the given facts pe titione r is a general profess ional partnership fo r all intent and purpose of the Tax Code . We may say a t the ou t se t t ha t we f ai l to find for , t he peti tioner. The record makes it clear tha t the petitioner is a stock corporation organized under t he 211

DECISION - CTA CASE NO . 323S - 7- pe rti nent provisions of Act 1459 as amended (Cor poration Code ) .having been register ed with t he Securities and Exchange Comm i ssion on J anu ar y 21 , 197 1. The r egis- t rati on of t he corpo r at ion i& no i dle ceremony and t he real ity the reof had emptied petiti oner 's claim to a general profess i onal partnership of l egal signi f icance. I t is suf fic ient f or the purpos e of the I ncome Tax law that t he corporati on be regist ered and organ ized and it cannot be denied t ha t t he peti tione r i s such. We thu s find il logic s uch sprout i ng i mp res si ons pr ecip i - tately broached by the peti tioner tha t 1) .i t has no t been le ga lly for med or organized as a cor porat ion pur - suant to the p ro visions of the Corpora tion Law; 2) .i ts registration as a corporation did not validate ipso facto an otherwise illegal act, i.e. , cor poration c annot be organized for the exercise of a profession ; and 3) .i ts being r egistered with the Securi t ies and Exchange Commission is no sufficient proof that it is i ndeed a corporation . In shor t, petitioner would write requiem to i ts own corporate bei ng . A f l apdood le of a now-you- have-now-you-don ' t mi lieu and an expedient wishful pif fle indeed ! We cannot bring oursel ve s to believe that the petitioner cor poration could emasculate into a �~ere shell without rea l ity". But far be it from a comedy o f error s, t he re is no reason appar en t fr om the reco rd why petitioner's 21 2

DECISION - CTA CASE NO. 3238 - 8- corporate existence could be ignored . First, petitioner s . charter goes back to the year 1971 and thru the inter - ve n ing years it has preserved and ma intained its corpo- r ate organization . Second, it functi ons and transacts business in its corporate c apaci t y continuously and actively and there is no evidence that i t had ceased nor a suggestion that it was dismantled into a partne r- ship. Third , it holds itself to the general public as a c o rpo ra ti on and has consi stently fil ed i ts income t a x r eturns as a corporation. These are the compelling indicia of the s eparate life and operat i on consiste nt with the bu s iness purpose f or which petit ioner corpor a ti on was created and upon wh ich the tax a ssessmen t sought by the responden t Commissi one r of Internal Re ve nu e are essentially addressed and d irectly brought t o bear. The quibbl e on the much a do-ed al l pro fe s sional practising architects composition of the incorporating directors as would l end color to a professional partnersh i p can hardly be a r eassuring prospect t hat can easily be reconc iled with tne rule . Such a postu re would s tretch too far the effective r ange o f exped iency and grave ly impair t he end for wh i ch th e statute was intended . It is non sequi t ur a nd broo ks no in stant exempt i on ~rom the tax obligat i ons incurred by the petitioner's under- � t aking as a corporat e enti ty under the provisions of S e~tion 24 (a ) _on corporate i ncome tax and Secti on 205 on percentage t ax both o f t he Tax Code. 213

.. � DECISION - CTA CASE NO. 3238 - 9- FOR ALL THE FOREGOING , we hold th e pe t iti oner corpora tion l iable for the defi c iency corporate i nc'ome t ax and delinquency percentage tax for the years in question in accordance with the respondent ' s a ssessment wh ic h payment i s hereby ordered with c osts against t he petitioner . SO ORDERED. Quezon City, Metro Manila, August 31, 1984. _~//~'~{RQEYtE;~/.& Associa t e Ju~~ HE CONCUR: '� ROAQU IN Judge 214