Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-11176 June 29, 1959
THE COLLECTOR OF INTERNAL REVENUE, petitioner,
vs.
MANILA LODGE NO. 761 OF THE BENEVOLENT & PROTECTIVE ORDER OF ELKS and THE COURT OF TAX APPEALS, respondents.
Office of the Solicitor General Ambrosio Padilla and Solicitor Frine C. Zaballero for petitioner.
Manuel O. Chan for respondent Lodge.
CONCEPCION, J.:
This is an appeal taken by the Collector of Internal Revenue from a decision of the Court of Tax Appeals holding that the Manila Lodge No. 761 of the Benevolent & Protective Order of Elks "is not liable for privilege taxes on its sale by retail of liquor and tobacco exclusively to its members and their guests," and reversing and setting aside a decision of said appellant to the contrary, dated November 19, 1953 without special pronouncement as to costs.
The uncontested facts are set forth in the decision of said Court, from which we quote:
This is an appeal from two decisions of the respondent Collector of Internal Revenue assessing and demanding from the petitioner herein the sums of P1,203.50 and P332.00, respectively representing fixed taxes as retail dealer in liquor, fermented liquor, and tobacco, allegedly due from the petitioner for the period from the 4th quarter of 1946 to 1953 and the period from 1954-1955, pursuant to subsections (i), (k) and (n) of section 193 of the Tax Code, in relation to 178 of the same Code.
The petitioner, Manila Lodge No. 761 is admittedly a fraternal, civic, non-stock, non-profit organization duly incorporated under Philippine laws. It owns and operates a clubhouse located at Dewey Boulevard, Manila, wherein it sells at retail, liquor, fermented liquor, cigar and cigarettes only to its members and their guests. B.I.R. agents discovered that the Manila Elks Club had not paid for the period in question the privilege tax for retail liquor dealer (B-4), retail dealer in fermented liquor (B-7), and retail tobacco dealer (B-9-a) prescribed in section 193 of the Tax Code.
On November 19, 1953, the Collector of Internal Revenue assessed against and demanded from the petitioner the payment of the sum of P1,203.50 representing fixed taxes, as retail dealer, for the period from its 4th quarter of 1946 to 1953, exclusive of the suggested compromise penalty of P80.00. The petitioner, claiming that it was exempted from the payment of the privilege taxes in question, requested that the said assessment be reviewed by the Conference Staff of the Bureau of Internal Revenue. The Conference Staff, after due hearing, upheld and reiterated the assessment made by the respondent Collector of Internal Revenue. Forthwith, the petitioner appealed to this Court on June 1, 1955.
During the pendency of the original petition for review in the above-entitled case, respondent issued another assessment covering fixed taxes for the years 1954 to 1955 in the amount of P332.00, exclusive of the suggested compromise penalty of P50.00. Consequently, petitioner with leave of Court filed a supplemental petition for review which included the latter assessment.
Petitioner bases its claim for exemption from the payment of the privilege taxes in question on the grounds that it is not engaged in the business of selling at retail liquor, fermented liquor, and tobacco because the sale of these aforementioned specific goods is made only to members of the club and their guests' on a very limited scale in pursuance only of its general purpose as a fraternal social club, to provide comfort, recreation, and convenience to such members, and merely to provide enough margin to cover operational expenses. (Petitioner's Memo p. 3).
Respondent, on the other hand, maintains that persons selling articles subject to specific tax, such as cigars, tobacco, liquor and the like, are subject to the fixed taxes imposed by section 193 of the Tax Code, irrespective of whether or not they made profit, and whether or not they are civic or fraternal clubs selling only to their members and their guests. This contention is based on a ruling promulgated by the Bureau of Internal Revenue made in 1921.
Petitioner herein maintains that:
1. The respondent Court of Tax Appeals erred in reversing the decision of the petitioner-appellant which held the respondent club liable for fixed taxes.
2. The respondent Court of Tax Appeals erred in holding that before respondent club's liability for the privilege taxes imposed by section 193 of the Tax Code attaches it is necessary that it be engaged in the "business" of selling liquor and tobacco.
3. The respondent Court of Tax of Appeals erred in holding that a fraternal, civic, non-stock, non-profit organization like the respondent club selling at retail liquor and tobacco only to its members and their guests with just enough margin to cover operational expenses should not be held liable for the fixed taxes incident to the business of selling at retail, liquor and tobacco.
4. The respondent Court of Tax Appeals erred in holding that the Administrative construction of the Bureau of Internal Revenue on the matter in question is outside the ambit of, and is inconsistent with, the Revised Administrative Code and Tax Code.
This appeal is untenable. In the language of the Court of Tax Appeals:
The bone of contention between the two parties herein . . ., lies in the proper interpretation and application of the pertinent provisions of the Tax Code, namely, subsections (i), (k) and (n) of section 193 in relation to section 178 of the Tax Code, which we quote hereunder:
Sec. 178. Payment of privilege taxes. — A privilege tax must be paid before any business or occupation hereinafter specified can be lawfully begun or pursued. The tax on business is payable for every separate or distinct establishment or place where the business subject to the tax is conducted; and one occupation or line of business does not become exempt by being conducted with some other occupation or business for which such tax has been paid.
The occupation tax must be paid by each individual engaged in a calling subject thereto; the tax on a business by the person, firm, or company conducting the same. (Emphasis supplied.)
SEC. 193. Amount of tax on business. — Fixed taxes on business shall be collected as follows, the amount stated being for the whole year when not otherwise specified:
(i) Retail liquor dealers, one hundred pesos.
(k) Retail dealers in fermented liquors, fifty pesos.
x x x x x x x x x
(n) Wholesale tobacco dealers, sixty pesos; retail tobacco dealers, sixteen pesos.
The aforequoted provisions of the Tax Code are clear and precise. The privilege taxes prescribed in section 193 of the Tax Code in relation to section 178 of the same, are to be imposed or classified therein for "business" purposes. This evident intention of the law becomes more palpable when we take into consideration the facts that the drafters of our Tax Code had grouped the aforequoted provisions of law under one general division of the Tax Code headed as "Title V, Privilege Taxes on Business and occupation.
It is not therefore entirely correct to maintain as respondent does, that all person selling articles subject to specific taxes, like liquor and tobacco, should likewise be subject to the fixed taxes imposed by section 193 of the Tax Code. We believe, that in order that these persons should be subjected to the privilege taxes imposed by the aforementioned section of the Tax Code, it is necessary that they be engaged in the "business" of selling liquor and tobacco, otherwise the privilege taxes as a dealer of liquor and tobacco can not attach.
At this juncture a definition of the word "business" is in order and we have the following:.
The word "business" in its ordinary and common use is employed to designate human efforts which have for their and living or reward; it is not commonly used as descriptive of charitable, religious, educational or social agencies. (Ballantine's Law Dictionary, 1948 Ed. P. 179)
Business — "that which busies or engages time, attention or labor as a principal serious concern or interest; any particular occupation or employment habitually engaged in specially for livelihood or gain." (Vol. 1, 1949 Merriam-Webster's New International Dictionary, 2nd Ed. p. 362.)
Other definitions of the term "business" as given by judicial pronouncement are found in Volume V, Words and Phrases, page 999 as follows:
Business is a word of large signification, and denotes the employment or occupation in which a person is engaged to produce a living. (Citing: Goddard v. Chaffee, 84 Mass (Allen) 395; 79 Am Dec. 769).
Business in common speech means habitual or regular occupation that a party is engaged in with a view to winning a livelihood or some gain. (Citing: In re Lemont, 41 p. 2D, 497, 502)
An enterprise not conducted as a means of livelihood or for profit does not come within the ordinary meaning of the terms, "business, trade or industry." (Citing City of Rochester vs. Rochester Girl's Home, 194 N.Y.S. 236, 237).
The term "business" as used in law imposing a license tax on business, trades, etc. ordinarily means business in the trade or commercial sense only, carried on with a view to profit or livelihood. (Citing: Cuzner vs. California Club 100 p. 868, 867, 155, Cal. 303, 20 L.R.A. N.S. 1095).
From the foregoing definitions, it is evident that the plain ordinary meaning of "business" is restricted to activities or affairs where profit is the purpose, or livelihood is the motive. The term "business" being used without any qualification in section 193 of the Tax Code in relation to section 178 of the same, should therefore be construed in its plain and ordinary meaning, restricted to activities for profit or livelihood.
With these considerations in mind, we now come to the question of whether or not the Manila Elks Club is engaged in the "business" of selling liquor and tobacco.
Respondent, in paragraph 1 of his answer, admits that the petitioner herein, Manila Elks Club is a fraternal, civic, non-stock, non-profit organization. It has been established without contradiction that the Manila Elks Club, in pursuance of its purpose as a fraternal social club, sells on retail at its clubhouse on Dewey Boulevard, liquor, cigars and cigarettes, on a very limited scale, only to its members and their guests, providing just enough margin to cover operational expenses without intention to obtain profit. Such being the case then, the Manila Elks Club cannot be considered as engaged in the "business" of selling liquor and tobacco.
Where the corporation handled no money except such as was necessary to cover operational expenses, conducted no business for itself, and engaged in no transactions that contemplated a profit for itself — such corporation is considered not organized for profit under the General Corporation Law. (Read V. Tidewater Coal Exch., 116 A 898, 904, cited in Vol. 34 Words & Phrases, p. 220, defining "profits"; underscoring provided.).
The petitioner herein, Manila elks Club, not being engaged in the business of selling at retail liquor and tobacco, cannot therefore be held liable for the privilege taxes required by section 193, subsections (1), (k) and (n). The weight of American authorities enhances the strength of our findings that a fraternal, civic, non-stock, non-profit organization, like the Elks Club, selling at retail liquor and tobacco only to its members and their guests in pursuance with its general purpose as a fraternal social club with just enough margin to cover operational expenses, should not be held liable for the fixed taxes incident to the business of selling at retail, liquor and tobacco.
A bonafide social club, which disposes of liquors at its clubhouse to members and their guests at a fixed charge as incident to the general purposes of the organizational is not required to take out a license by Rev. Laws No. 3777-3785, approved March 15, 1905, which provides for a license upon the business of disposing intoxicating liquors; the term business in such statute meaning business in the trade or commercial sense. (State v. university Club, 130 p. 468, 470; 35 Nev. 475; 44 L.R.A., N. S. 1026).
A social club, not organized for the purpose of evading the liquor laws, but which furnishes its members with liquors and refreshments without profit to itself, is not a retail liquor dealer, within the statute imposing a license tax on all persons dealing in, selling or disposing of intoxicating liquors by retail. (Barden v. Montan Club, 25 P. 1042, 10 Mont. 330, II L.R.A. 593).
Acts 1881, C. 149, authorizing taxation of liquors dealers, does not include a social club maintaining a library, giving musical entertainments, and furnishing meals for its members, which keeps a small stock of liquor; the members paying for its drink as it is taken, but no profit being made on such sales. (Tennessee Club of Memphis v. Dwyer, 79 Tenn. (11 Lea) 452, 461, 47 Am. Rep. 298.).
A social club composed of members who have no proprietary interest in the assets which provides a reading room, restaurant, bar room, library, billiard rooms and sitting rooms for its members, the expenses of which are defrayed by annual dues from each member, and by payments made by the members for food and drinks, is not engaged in the business of a retail liquor dealer, within section 11 of the Louisiana License Tax Laws. (La Ann. 585, 20 L.R.A. 185). Respondent however, insists that the petitioner should pay the privilege tax on the sale at retail of liquor and tobacco because this has been allegedly the practice consistently followed by the Bureau of Internal Revenue since 1921, and because section 1464 of the Revised Administrative Code under which said ruling was then based had been reenacted by the legislature as section 193 of the National Internal Revenue Code. Thus, respondent contends, that the policy of the Bureau of Internal Revenue has therefore gained "approval by legislative reenactments."
The alleged administrative practice is founded upon the following ruling rendered in 1921.
Clubs selling exclusively to members thereof liquors and other products on which the specific tax is imposed should pay the privilege tax corresponding to the business engaged in. The fact that such products are sold at cost to the members of the club does not affect the club's liability to tax. (Ruling, Oct. 13, 1921, B.I.R. 105.02; Exh. 3, pp. 66-69. BIR records.)
We do not agree with the contention of the respondent. While there is admittedly a ruling on this point in 1921, there is no showing that such has been a long-continued practice. Be that as it may, any such administrative construction must be within the ambit of, and must be consistent with, the Revised Administrative Code and the Tax Code. It is likewise the rule that where the statute is unambiguous, an administrative construction is unwarranted (U.S. vs. Missouri P.R. Co. 278 U. S. 269, 73 L. Ed. 322) and no construction may be made to restrict or enlarge the meaning of an Act. (Blatt vs. U.S.., 305 U.S. 267, 83 L. Ed. 167).
An examination of section 1464 of the Revised Administrative Code taken in connection with section 1453 of the same, discloses the fact that aside from the change in rates of taxes to be paid and the arrangement of the classification of business enumerated therein, section 193 of the present Tax Code is a verbatim copy of the aforementioned provisions of the Revised Administrative Code. The policy or principle followed by the said code regarding privileges taxes, i.e. that the privilege taxes are payable only by those persons or entities engaged in the business enumerated in section 1464 of the said Code, has not suffered any change, and the same still obtains under our present Tax Code. In the absence of a showing that the legislative body had been apprised of the aforesaid ruling, what has gained legislative approval thru reenactment is, we believe, the policy behind the above-mentioned provision of the Revised Administrative Code of taxing persons engaged in business and not the alleged practice following the administrative ruling of 1921. We believe that no amount of trenchant adherence to an established practice may justify its continued application where it is clear and manifest that the same is not in consonance with the policy of the legislature as defined by law.
It is urged by appellant that emphasis should be placed not on the term "business", but on the phrases "retail liquor dealers", in fermented liquors" and "retail tobacco dealers", appearing in section 193 of the National Internal Revenue Code, which are defined in section 194 thereof as follows:
SEC. 194. Words and phrases defined. — In applying the provisions of the preceding section, words and phrases shall be taken in the sense and extension indicated below:
x x x x x x x x x
(i) "Retail liquor dealer" includes every person, except a retail vino dealer, who for himself or on commission sells or offers for sale wine or distilled spirits (other than denatured alcohol) in quantities of five liters or less at any one time and not for sale.
x x x x x x x x x
(k) "Retail dealer in fermented liquors" includes every person, except dealers in tuba, basi, and tapuy, who for himself or on commission sells or offers for sale fermented liquors and quantities of five liters or less at any one time and not for resale.
x x x x x x x x x
(o) "Tobacco dealer" comprehends every person who himself or on commission sells or offers for sale cigars, cigarettes, or manufactured tobacco.
Undoubtedly, these definitions must be given all the weight due thereto, in the interpretation of section 193 of the Tax Code. As used therein, the phrases above referred to are, however, part and parcel of the provisions contained, not only in said section 193, but, also, in section 178 and other parts of the Tax Code, all of which must be given effect in their entirety as a harmonious, coordinated and integrated unit, not as a mass of heterogeneous and unrelated if not incongruous terms, clauses and sentences. In other words, the phrases in question should be construed in the light of the context of the whole Tax Code, of which they are integral parts. And when this is done — when we consider that section 193 requires "retail liquor dealers", "retail dealers in fermented liquors" and "retail tobacco dealers" to pay the taxes on business" therein specified; that said section 193 is entitled "Amount of tax on business", that said section 193 merely implements the general provision in section 178, to the effect that "a privilege tax must be paid in before any business or occupation hereinafter specified can be lawfully begun and pursued"; that the term "business" is used in said section 178, six (6) times; and that the aforementioned sections 178, 193 and 194 are part of Title V of the Tax Code, entitled "Privilege taxes on business and occupation" — it becomes crystal clear that the "retail liquor dealers", "retail dealers in fermented liquors" and "retail tobacco dealers" alluded to in said section 193 are those engaged in "business", not fraternal, civic, non-stock, non-profit organizations, like herein respondent, which sells wines, distilled spirits, fermented liquors and tobacco, exclusively to its members and their guests, at such prices as are merely sufficient to cover operational expenses.
Petitioner assails the applicability of the decisions relied upon by the Court of Tax Appeals, upon the ground that said decisions refer to the authority to license, and, hence, to the exercise to the police power, not that of taxation which is involved in the case at bar. However, the distinction made enhances — instead of detracting from — the weight of said decisions as precedents, insofar as the issue herein is concerned. Indeed, the police power is, in general broader and subject to less restrictions than the power to tax. It is not difficult to conceive the advisability, if not, necessity, of requiring a license for some activities undertaken by so-called "clubs", owing to the possibility, if not probability, of use of said name, appellation or denomination, in order to avoid or evade some laws or to camouflage certain ventures, pursuits or enterprises which otherwise would clearly be illegal, immoral or contrary to public policy. Upon the other hand, a tax is a burden and, as such, it will not be deemed imposed upon fraternal, civic, non-profit, non-stock organizations, unless the intent to the contrary is manifest and patent.
Wherefore, the appealed decision of the Court of Tax Appeals is hereby affirmed, without special pronouncement as to costs. It is so ordered.
Paras, C.J., Bengzon, Padilla, Montemayor, Bautista Angelo, Endencia and Barrera, JJ., concur.
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