COLLECTOR of INTERNAL REVENUE v MANILA LODGE 761

KEYWORD: SOCIAL CLUB | TOPIC: ORDINARY SENSE

FACTS
Respondent Manila Lodge No. 761, run by the Manila Elks Club, is a non-profit organization. It owns and
operates a clubhouse located at Dewey Boulevard, Manila where it sells at retail, liquor, fermented
liquor, cigar and cigarettes but only to its members and their guests

However, the Collector of Internal Revenue still assessed the Club and demanded from them fixed taxes
contending that they are a dealer liquor, fermented liquor, and tobacco (P1,203.50 and P332.00)

The basis of the Collector (i), (k) and (n) of section 193 of the Tax Code, in relation to 178 of the same
Code.

Sec. 178. Payment of privilege taxes.—A privilege tax must be paid before any businessor
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.

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.
(n) Wholesale tobacco dealers, sixty pesos; retail tobacco dealers, sixteen pesos.

Respondent Manila Elks requested that the assessment be reviewed by BIR because the petitioners are
claiming that it was exempted from paying privilege taxes in question.

Manila Elks based its claim for exemption on the grounds that it is not engaged in the business of
selling at retail liquor, fermented liquor, and tobacco because while they sell these items on a
very limited scale, to members and their guests' only. After all, they are a fraternal social club.

Collector however countered that persons selling articles subject to specific tax are subject to the fixed
taxes

BIR upheld the assessment made by the Collector. Hence this petition.

ISSUE
Whether or not the Manila Elks Club is engaged in the "business" of selling liquor and tobacco.

RULING
NO.
Initially, defined “business” using multiple sources and jurisprudence but the common thread is that it is an
employment or occupation to produce a living or an enterprise conducted as a means of livelihood or for profit.
The tax code however does not have an exact definition of business.

So what definition will the Court use?

The court said that since there is no exact definition provided by the tax code, term "business" in the earlier
stated provisions should be understood in its plain and ordinary meaning, which is an activity where profit is the
motive.

NO PROFIT
SC held that Manila Elks Club’s selling of liquor and tobacco on a very limited scale and providing just enough
margin to cover operational expenses without intention to obtain profit 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.--V. Tidewater Coal Exch

ON SOCIAL CLUBS
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.

1921 ruling: SC does not agree

Any such administrative construction must be consistent with, the Revised Administrative Code and the Tax Code.

Appellant: emphasis should be placed not on the term "business", but on the phrases "retail liquor dealers",
in fermented liquors" and "retail tobacco dealers"

!!!
SC: the phrases in question should be construed in the light of the context of the whole Tax Code, of which they
are integral parts
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"