Tan Tiong Bio v. Commissioner (100 Phil. 86; 1956)

 

Tan Tiong Bio v. Commissioner (100 Phil. 86; 1956)

Doctrine: 

The legal death of the corporation does not prevent the government from assessing taxes and collecting them from his administrator, who holds the property which the decedent had formerly possessed" 

The government does not lose its right to assess taxes which had been due from the corporation, and to collect them from persons, who by reason of transactions with the corporation, hold property against which the tax can be enforced.

Facts: 

On October 19, 1946, the Central Syndicate (corp.) sent a letter to the Collector of internal Revenue advising the latter that it purchased from Dee Hon Lue the entire stock of surplus properties which the said Dee Hon Lue had bought from the Foreign Liquidation Commission and that it assumes Lue’s obli to pay 3 ½% sales tax on the said surplus goods. 

On January 31, 1948, the syndicate again wrote the Collector requesting the refund of an alleged excess payment of sales tax due to the adjustment and reduction of the purchase price. After investigation, CIR found that 

1. Lue purchased the surplus goods on behalf of the Central Syndicate which was in the process of organization at the time of bidding. 

2. that it was the representatives of the Central Syndicate that received the surplus goods from their base at Leyte on February 21, 1947; 

3. that the syndicate must have realized a gross profit of 18.8% from the sales thereof; and 

4. that if the sales tax were to be assessed on its gross sales it would still be liable for the amount of P33,797.88 as deficiency sales tax. 

CIR then held that the Central Syndicate was the importer and original seller of the surplus goods in question and, therefore, the one liable to pay the sales tax.

Issue:

Since the Central Syndicate now dissolved because of the expiration of its corporate existence, whether the sales tax in question can be enforced against its successors-in-interest who are the present petitioners.

Held: Yes, the government does not lose its right to assess taxes which had been due from the corporation, and to collect them from persons, who by reason of transactions with the corporation, hold property against which the tax can be enforced.

It should be stated at the outset that it was petitioners themselves who caused their substitution as parties in the present case, being the successors-in-interest of the defunct syndicate, when they appealed this case to the Supreme Court. They cannot be now heard to complain if they are made responsible for the tax liability of the defunct syndicate whose representation they assumed and whose assets were distributed among them.

In the second place, there is good authority to the effect that the creditor of a dissolved corporation may follow its assets once they passed into the hands of the stockholders. The dissolution of a corporation does not extinguish the debts due or owing to it. A creditor of a dissolve corporation may follow its assets, as in the nature of a trust fund, into the hands of its stockholders. An indebtedness of a corporation to the federal government for income and excess profit taxes is not extinguished by the dissolution of the corporation. 

"the hands of the government cannot, of course, collect taxes from a defunct corporation, it loses thereby NONE of its rights to assess taxes which had been due from the corporation, and to collect them from persons, who by reason of transactions with the corporation, hold property against which the tax can be enforced and that the legal death of the corporation no more prevents such action than would the physical death of an individual prevent the government from assessing taxes against him and collecting them from his administrator, who holds the property which the decedent had formerly possessed"

Since the Central Syndicate realized from the sale of the surplus goods a net profit of P229,073.83, and that the sale of said goods was the only transaction undertaken by said syndicate, the conclusion is that said net profit remained intact and was distributed among the stockholders when the corporation liquidated and distributed its assets on August 15, 1948, immediately after the sale of the said surplus goods. Petitioners are therefore the beneficiaries of the defunct corporation and as such should be held liable to pay the taxes in question. However, there being no express provision requiring the stockholders of the corporation to be solidarily liable for its debts which liability must be express and cannot be presumed, petitioners should be held to be liable for the tax in question only in proportion to their shares in the distribution of the assets of the defunct corporation.