KER & CO., LTD.
, petitioner,
vs.
JOSE B. LINGAD, as Acting Commissioner of Internal Revenue, respondent.
Ponte: Fernando, J:
Doctrine:
The decisive test, as therein set forth, is the retention of the ownership of the goods
delivered to the possession of the dealer, like herein petitioner, for resale to customers,
the price and terms remaining subject to the control of the firm consigning such goods.
The facts, as found by respondent Court, to which we defer, unmistakably indicate that
such a situation does exist. The juridical consequences must inevitably follow
Facts:
petitioner was assessed by the then Commissioner of Internal Revenue Melecio
R. Domingo the sum of P20,272.33 as the commercial broker's percentage tax,
surcharge, and compromise penalty for the period from July 1, 1949 to December
31, 1953. There was a request on the part of petitioner for the cancellation of such
assessment which was turned down and so it filed a petition for review with the
Court of Tax Appeals.
In its answer, the then Commissioner Domingo maintained his stand that
petitioner should be taxed in such amount as a commercial broker.
the Court of Tax Appeals held petitioner taxable except as to the compromise
penalty of P500.00, the amount due from it being fixed at P19,772.33
Such liability arose from a contract with the United States Rubber International
to apply to transactions between the former and petitioner.
The shipments would cover products "for consumption in Cebu, Bohol, Leyte,
Samar, Jolo, Negros Oriental, and Mindanao except [the] province of Davao",
petitioner, as Distributor, being precluded from disposing such products
elsewhere than in the above places unless written consent would first be
obtained from the Company.
Petitioner, as Distributor, is required to exert every effort to have the shipment of
the products in the maximum quantity and to promote in every way the sale
thereof.4 The prices, discounts, terms of payment, terms of delivery and other
conditions of sale were subject to change in the discretion of the Company
Then came this crucial stipulation: "The Company shall from time to time consign to the
Distributor and the Distributor will receive, accept and/or hold upon consignment the
products specified under the terms of this agreement in such quantities as in the
judgment of the Company may be necessary for the successful solicitation and
maintenance of business in the territory, and the Distributor agrees that responsibility
for the final sole of all goods delivered shall rest with him. All goods on consignment
shall remain the property of the Company until sold by the Distributor to the purchaser
or purchasers, but all sales made by the Distributor shall be in his name, in which the
sale price of all goods sold less the discount given to the Distributor by the Company in
accordance with the provision of paragraph 13 of this agreement, whether or not such
sale price shall have been collected by the Distributor from the purchaser or purchasers,
shall immediately be paid and remitted by the Distributor to the Company. It is further
agreed that this agreement does not constitute Distributor the agent or legal
representative 4 of the Company for any purpose whatsoever. Distributor is not granted
any right or authority to assume or to create any obligation or responsibility, express or
implied, in behalf of or in the name of the Company, or to bind the Company in any
manner or thing whatsoever."
All specifications for the goods ordered were subject to acceptance by the
Company with petitioner, as Distributor, required to accept such goods shipped
as well as to clear the same through customs and to arrange for delivery in its
warehouse in Cebu City.
There was furthermore this equally tell-tale covenant: "Upon the termination or
any cancellation of this agreement all goods held on consignment shall be held
by the Distributor for the account of the Company, without expense to the
Company, until such time as provision can be made by the Company for
disposition."
Issue: whether the relationship thus created is one of vendor and vendee or of broker
and principal
Ruling:
According to the National Internal Revenue Code, a commercial broker "includes all
persons, other than importers, manufacturers, producers, or bona fide employees, who,
for compensation or profit, sell or bring about sales or purchases of merchandise for
other persons or bring proposed buyers and sellers together, or negotiate freights or
other business for owners of vessels or other means of transportation, or for the
shippers, or consignors or consignees of freight carried by vessels or other means of
transportation. The term includes commission merchants.
Equally relevant is this portion of the Salisbury opinion: "It is difficult to understand or
appreciate the necessity or presence of these mutual requirements and obligations on
any theory other than that of a contract of agency. Salisbury was to furnish the mill and
put the timber owned by him into a marketable condition in the form of lumber; Brooks
was to furnish the funds necessary for that purpose, sell the manufactured product, and
account therefor to Salisbury upon the specific terms of the agreement, less the
compensation fixed by the parties in lieu of interest on the money advanced and for
services as agent. These requirements and stipulations are in tent with any other
conception of the contract. If it constitutes an agreement to sell, they are meaningless.
But they cannot be ignored. They were placed there for some purpose, doubtless as the
result of definite antecedent negotiations therefore, consummated by the final written
expression of the agreement." Hence the Constantino opinion could categorically affirm
that the mere disclaimer in a contract that an entity like petitioner is not "the agent or
legal representative for any purpose whatsoever" does not suffice to yield the
conclusion that it is an independent merchant if the control over the goods for resale of
the goods consigned is pervasive in character. The Court of Tax Appeals decision now
under review pays fealty to such an applicable doctrine.
The stipulations were so worded as to lead to no other conclusion than that the control
by the United States Rubber International over the goods in question is, in the language
of the Constantino opinion, "pervasive". The insistence on a relationship opposed to
that apparent from the language employed might even yield the impression that such a
mode of construction was resorted to in order that the applicability of a taxing statute
might be rendered nugatory. Certainly, such a result is to be avoided.
