N BANC

G.R. No. L-11176 June 29, 1959

THE COLLECTOR OF INTERNAL REVENUE, petitioner,
vs.
MANILA LODGE NO. 761 OF THE ENEVOLENT ! "ROTECTIVE ORDER OF EL#$
%n& THE COURT OF TA' A""EAL$, respondents.
Office of the Solicitor General Ambrosio Padilla and Solicitor Frine C. Zaballero for
petitioner.
Manuel O. Chan for respondent Lodge.
CONCE"CION, J.(
This is an appeal taken by the Collector of Internal Revenue from a decision of the Court of
Tax Appeals holdin that the !anila "ode No. #$% of the Benevolent & 'rotective (rder of
)lks *is not liable for privilee taxes on its sale by retail of li+uor and tobacco exclusively to
its members and their uests,* and reversin and settin aside a decision of said appellant
to the contrary, dated November %,, %,-. /ithout special pronouncement as to costs.
The uncontested facts are set forth in the decision of said Court, from /hich /e +uote0
This is an appeal from t/o decisions of the respondent Collector of Internal Revenue
assessin and demandin from the petitioner herein the sums of '%,12..-2 and
'..1.22, respectively representin fixed taxes as retail dealer in li+uor, fermented
li+uor, and tobacco, alleedly due from the petitioner for the period from the 3th
+uarter of %,3$ to %,-. and the period from %,-34%,--, pursuant to subsections 5i6,
5k6 and 5n6 of section %,. of the Tax Code, in relation to %#7 of the same Code.
The petitioner, !anila "ode No. #$% is admittedly a fraternal, civic, non4stock, non4
profit orani8ation duly incorporated under 'hilippine la/s. It o/ns and operates a
clubhouse located at 9e/ey Boulevard, !anila, /herein it sells at retail, li+uor,
fermented li+uor, ciar and ciarettes only to its members and their uests. B.I.R.
aents discovered that the !anila )lks Club had not paid for the period in +uestion
the privilee tax for retail li+uor dealer 5B436, retail dealer in fermented li+uor 5B4#6,
and retail tobacco dealer 5B4,4a6 prescribed in section %,. of the Tax Code.
(n November %,, %,-., the Collector of Internal Revenue assessed aainst and
demanded from the petitioner the payment of the sum of '%,12..-2 representin
fixed taxes, as retail dealer, for the period from its 3th +uarter of %,3$ to %,-.,
exclusive of the suested compromise penalty of '72.22. The petitioner, claimin
that it /as exempted from the payment of the privilee taxes in +uestion, re+uested
that the said assessment be revie/ed by the Conference :taff of the Bureau of
Internal Revenue. The Conference :taff, after due hearin, upheld and reiterated the
assessment made by the respondent Collector of Internal Revenue. ;orth/ith, the
petitioner appealed to this Court on <une %, %,--.
9urin the pendency of the oriinal petition for revie/ in the above4entitled case,
respondent issued another assessment coverin fixed taxes for the years %,-3 to
%,-- in the amount of '..1.22, exclusive of the suested compromise penalty of
'-2.22. Conse+uently, petitioner /ith leave of Court filed a supplemental petition for
revie/ /hich included the latter assessment.
'etitioner bases its claim for exemption from the payment of the privilee taxes in
+uestion on the rounds that it is not enaed in the business of sellin at retail
li+uor, fermented li+uor, and tobacco because the sale of these aforementioned
specific oods is made only to members of the club and their uests= on a very
limited scale in pursuance only of its eneral purpose as a fraternal social club, to
provide comfort, recreation, and convenience to such members, and merely to
provide enouh marin to cover operational expenses. 5'etitioner=s !emo p. .6.
Respondent, on the other hand, maintains that persons sellin articles sub>ect to
specific tax, such as ciars, tobacco, li+uor and the like, are sub>ect to the fixed
taxes imposed by section %,. of the Tax Code, irrespective of /hether or not they
made profit, and /hether or not they are civic or fraternal clubs sellin only to their
members and their uests. This contention is based on a rulin promulated by the
Bureau of Internal Revenue made in %,1%. 4 I::?)@
'etitioner herein maintains that0
%. The respondent Court of Tax Appeals erred in reversin the decision of the
petitioner4appellant /hich held the respondent club liable for fixed taxes.
1. The respondent Court of Tax Appeals erred in holdin that before respondent
club=s liability for the privilee taxes imposed by section %,. of the Tax Code
attaches it is necessary that it be enaed in the *business* of sellin li+uor and
tobacco.
.. The respondent Court of Tax of Appeals erred in holdin that a fraternal, civic,
non4stock, non4profit orani8ation like the respondent club sellin at retail li+uor and
tobacco only to its members and their uests /ith >ust enouh marin to cover
operational expenses should not be held liable for the fixed taxes incident to the
business of sellin at retail, li+uor and tobacco.
3. The respondent Court of Tax Appeals erred in holdin that the Administrative
construction of the Bureau of Internal Revenue on the matter in +uestion is outside
the ambit of, and is inconsistent /ith, the Revised Administrative Code and Tax
Code.
This appeal is untenable. In the lanuae of the Court of Tax Appeals0
The bone of contention bet/een the t/o parties herein . . ., lies in the proper
interpretation and application of the pertinent provisions of the Tax Code, namely,
subsections 5i6, 5k6 and 5n6 of section %,. in relation to section %#7 of the Tax Code,
/hich /e +uote hereunder0
:ec. %#7. Payment of priilege ta!es. A A privilee tax must be paid before any
business or occupation hereinafter specified can be la/fully beun or pursued. "he
ta! on business is payable for every separate or distinct establishment or
place #here the business sub>ect to the tax is conductedB and one occupation or line
of business does not become exempt by bein conducted /ith some other
occupation or business for /hich such tax has been paid.
The occupation tax must be paid by each individual enaed in a callin sub>ect
theretoB the tax on a business by the person, firm, or company conductin the same.
5)mphasis supplied.6
:)C. %,.. Amount of ta! on business. A ;ixed taxes on business shall be collected
as follo/s, the amount stated bein for the /hole year /hen not other/ise specified0
5i6 Retail li+uor dealers, one hundred pesos.
5k6 Retail dealers in fermented li+uors, fifty pesos.
x x x x x x x x x
5n6 Cholesale tobacco dealers, sixty pesosB retail tobacco dealers, sixteen pesos.
The afore+uoted provisions of the Tax Code are clear and precise. The privilee
taxes prescribed in section %,. of the Tax Code in relation to section %#7 of the
same, are to be imposed or classified therein for *business* purposes. This evident
intention of the la/ becomes more palpable /hen /e take into consideration the
facts that the drafters of our Tax Code had rouped the afore+uoted provisions of
la/ under one eneral division of the Tax Code headed as *Title D, 'rivilee Taxes
on $usiness and occupation. C(N:TR?INE TF) 'R(DI:I(N:
It is not therefore entirely correct to maintain as respondent does, that all person
sellin articles sub>ect to specific taxes, like li+uor and tobacco, should like/ise be
sub>ect to the fixed taxes imposed by section %,. of the Tax Code. Ce believe, that
in order that these persons should be sub>ected to the privilee taxes imposed by the
aforementioned section of the Tax Code, it is necessary that they be enaed in the
*business* of sellin li+uor and tobacco, other/ise the privilee taxes as a dealer of
li+uor and tobacco can not attach.
At this >uncture a definition of the /ord *business* is in order and /e have the
follo/in0.
The /ord *business* in its ordinary and common use is employed to desinate
human efforts /hich have for their and livin or re/ardB it is not commonly used as
descriptive of charitable, reliious, educational or social aencies. 5Ballantine=s "a/
9ictionary, %,37 )d. '. %#,6
Business A *that /hich busies or enaes time, attention or labor as a principal
serious concern or interestB any particular occupation or employment habitually
enaed in specially for livelihood or ain.* 5Dol. %, %,3, !erriam4Cebster=s Ne/
International 9ictionary, 1nd )d. p. .$1.6
(ther definitions of the term *business* as iven by >udicial pronouncement are
found in Dolume D, Cords and 'hrases, pae ,,, as follo/s0
$usiness is a /ord of lare sinification, and denotes the employment or occupation
in /hich a person is enaed to produce a livin. 5Citin0 Eoddard v. Chaffee, 73
!ass 5Allen6 .,-B #, Am 9ec. #$,6.
$usiness in common speech means habitual or reular occupation that a party is
enaed in /ith a vie/ to /innin a livelihood or some ain. 5Citin0 %n re "emont, 3%
p. 19, 3,#, -216
An enterprise not conducted as a means of livelihood or for profit does not come
/ithin the ordinary meanin of the terms, *business, trade or industry.* 5Citin City of
Rochester vs. Rochester Eirl=s Fome, %,3 N.G.:. 1.$, 1.#6.
The term *business* as used in la/ imposin a license tax on business, trades, etc.
ordinarily means business in the trade or commercial sense only, carried on /ith a
vie/ to profit or livelihood. 5Citin0 Cu8ner vs. California Club %22 p. 7$7, 7$#, %--,
Cal. .2., 12 ".R.A. N.:. %2,-6.
;rom the foreoin definitions, it is evident that the plain ordinary meanin of
*business* is restricted to activities or affairs /here profit is the purpose, or livelihood
is the motive. The term *business* bein used /ithout any +ualification in section
%,. of the Tax Code in relation to section %#7 of the same, should therefore be
construed in its plain and ordinary meanin, restricted to activities for profit or
livelihood.
Cith these considerations in mind, /e no/ come to the +uestion of /hether or not
the !anila )lks Club is enaed in the *business* of sellin li+uor and tobacco.
Respondent, in pararaph % of his ans/er, admits that the petitioner herein, !anila
)lks Club is a fraternal, civic, non4stock, non4profit orani8ation. It has been
established /ithout contradiction that the !anila )lks Club, in pursuance of its
purpose as a fraternal social club, sells on retail at its clubhouse on 9e/ey
Boulevard, li+uor, ciars and ciarettes, on a very limited scale, only to its members
and their uests, providin >ust enouh marin to cover operational expenses /ithout
intention to obtain profit. :uch bein the case then, the !anila )lks Club cannot be
considered as enaed in the *business* of sellin li+uor and tobacco.
Chere the corporation handled no money except such as /as necessary to
cover operational e!penses, conducted no business for itself, and enaed in no
transactions that contemplated a profit for itself A such corporation is considered not
orani8ed for profit under the Eeneral Corporation "a/. 5Read D. Tide/ater Coal
)xch., %%$ A 7,7, ,23, cited in Dol. .3 Cords & 'hrases, p. 112, definin *profits*B
underscorin provided.6.
The petitioner herein, !anila elks Club, not bein enaed in the business of sellin
at retail li+uor and tobacco, cannot therefore be held liable for the privilee taxes
re+uired by section %,., subsections 5%6, 5k6 and 5n6. The /eiht of American
authorities enhances the strenth of our findins that a fraternal, civic, non4stock,
non4profit orani8ation, like the )lks Club, sellin at retail li+uor and tobacco only to
its members and their uests in pursuance /ith its eneral purpose as a fraternal
social club /ith >ust enouh marin to cover operational expenses, should not be
held liable for the fixed taxes incident to the business of sellin at retail, li+uor and
tobacco.
A bonafide social club, /hich disposes of li+uors at its clubhouse to members and
their uests at a fixed chare as incident to the eneral purposes of the
orani8ational is not re+uired to take out a license by Rev. "a/s No. .###4.#7-,
approved !arch %-, %,2-, /hich provides for a license upon the business of
disposin intoxicatin li+uorsB the term business in such statute meanin business in
the trade or commercial sense. 5:tate v. university Club, %.2 p. 3$7, 3#2B .- Nev.
3#-B 33 ".R.A., N. :. %21$6.
A social club, not orani8ed for the purpose of evadin the li+uor la/s, but /hich
furnishes its members /ith li+uors and refreshments /ithout profit to itself, is not a
retail li+uor dealer, /ithin the statute imposin a license tax on all persons dealin in,
sellin or disposin of intoxicatin li+uors by retail. 5Barden v. !ontan Club, 1- '.
%231, %2 !ont. ..2, II ".R.A. -,.6.
Acts %77%, C. %3,, authori8in taxation of li+uors dealers, does not include a social
club maintainin a library, ivin musical entertainments, and furnishin meals for its
members, /hich keeps a small stock of li+uorB the members payin for its drink as it
is taken, but no profit bein made on such sales. 5Tennessee Club of !emphis v.
9/yer, #, Tenn. 5%% "ea6 3-1, 3$%, 3# Am. Rep. 1,7.6.
A social club composed of members /ho have no proprietary interest in the assets
/hich provides a readin room, restaurant, bar room, library, billiard rooms and
sittin rooms for its members, the expenses of /hich are defrayed by annual dues
from each member, and by payments made by the members for food and drinks, is
not enaed in the business of a retail li+uor dealer, /ithin section %% of the
"ouisiana "icense Tax "a/s. 5"a Ann. -7-, 12 ".R.A. %7-6. Respondent ho/ever,
insists that the petitioner should pay the privilee tax on the sale at retail of li+uor
and tobacco because this has been alleedly the practice consistently follo/ed by
the Bureau of Internal Revenue since %,1%, and because section %3$3 of the
Revised Administrative Code under /hich said rulin /as then based had been
reenacted by the leislature as section %,. of the National Internal Revenue Code.
Thus, respondent contends, that the policy of the Bureau of Internal Revenue has
therefore ained *approval by leislative reenactments.*
The alleed administrative practice is founded upon the follo/in rulin rendered in
%,1%.
Clubs sellin exclusively to members thereof li+uors and other products on /hich the
specific tax is imposedshould pay the priilege ta! 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. 5Rulin, (ct. %., %,1%, B.I.R. %2-.21B )xh. .,
pp. $$4$,. BIR records.6
Ce do not aree /ith the contention of the respondent. Chile there is admittedly a
rulin on this point in %,1%, there is no sho/in that such has been a lon4continued
practice. Be that as it may, any such administrative construction must be /ithin the
ambit of, and must be consistent /ith, the Revised Administrative Code and the Tax
Code. It is like/ise the rule that /here the statute is unambiuous, an administrative
construction is un/arranted 5?.:. vs. !issouri '.R. Co. 1#7 ?. :. 1$,, #. ". )d.
.116 and no construction may be made to restrict or enlare the meanin of an Act.
5Blatt vs. ?.:.., .2- ?.:. 1$#, 7. ". )d. %$#6.
An examination of section %3$3 of the Revised Administrative Code taken in
connection /ith section %3-. of the same, discloses the fact that aside from the
chane in rates of taxes to be paid and the arranement of the classification of
business enumerated therein, section %,. of the present Tax Code is a verbatim
copy of the aforementioned provisions of the Revised Administrative Code. The
policy or principle follo/ed by the said code reardin privilees taxes, i.e. that the
privilee taxes are payable only by those persons or entities enaed in the
business enumerated in section %3$3 of the said Code, has not suffered any chane,
and the same still obtains under our present Tax Code. In the absence of a sho/in
that the leislative body had been apprised of the aforesaid rulin, /hat has ained
leislative approval thru reenactment is, /e believe, the policy behind the above4
mentioned provision of the Revised Administrative Code of taxin persons enaed
in business and not the alleed practice follo/in the administrative rulin of %,1%.
Ce believe that no amount of trenchant adherence to an established practice may
>ustify its continued application /here it is clear and manifest that the same is not in
consonance /ith the policy of the leislature as defined by la/.
It is ured by appellant that emphasis should be placed not on the term *business*, but on
the phrases *retail li+uor dealers*, in fermented li+uors* and *retail tobacco dealers*,
appearin in section %,. of the National Internal Revenue Code, /hich are defined in
section %,3 thereof as follo/s0
:)C. %,3. &ords and phrases defined. A In applyin the provisions of the
precedin section, /ords and phrases shall be taken in the sense and extension
indicated belo/0
x x x x x x x x x
5i6 *Retail li+uor dealer* includes every person, except a retail vino dealer, /ho for
himself or on commission sells or offers for sale /ine or distilled spirits 5other than
denatured alcohol6 in +uantities of five liters or less at any one time and not for sale.
x x x x x x x x x
5k6 *Retail dealer in fermented li+uors* includes every person, except dealers in tuba,
basi, and tapuy, /ho for himself or on commission sells or offers for sale fermented
li+uors and +uantities of five liters or less at any one time and not for resale.
x x x x x x x x x
5o6 *Tobacco dealer* comprehends every person /ho himself or on commission sells
or offers for sale ciars, ciarettes, or manufactured tobacco.
?ndoubtedly, these definitions must be iven all the /eiht due thereto, in the interpretation
of section %,. of the Tax Code. As used therein, the phrases above referred to are,
ho/ever, part and parcel of the provisions contained, not only in said section %,., but, also,
in section %#7 and other parts of the Tax Code, all of /hich must be iven effect in their
entirety as a harmonious, coordinated and interated unit, not as a mass of heteroeneous
and unrelated if not inconruous terms, clauses and sentences. In other /ords, the phrases
in +uestion should be construed in the liht of the context of the /hole Tax Code, of /hich
they are interal parts. And /hen this is done A /hen /e consider that section %,.
re+uires *retail li+uor dealers*, *retail dealers in fermented li+uors* and *retail tobacco
dealers* to pay the taxes on business* therein specifiedB that said section %,. is entitled
*Amount of tax on business*, that said section %,. merely implements the eneral provision
in section %#7, to the effect that *a privilee tax must be paid in before any business or
occupation hereinafter specified can be la/fully beun and pursued*B that the term
*business* is used in said section %#7, six 5$6 timesB and that the aforementioned sections
%#7, %,. and %,3 are part of Title D of the Tax Code, entitled *'rivilee taxes on business
and occupation* A it becomes crystal clear that the *retail li+uor dealers*, *retail dealers in
fermented li+uors* and *retail tobacco dealers* alluded to in said section %,. are those
enaed in *business*, not fraternal, civic, non4stock, non4profit orani8ations, like herein
respondent, /hich sells /ines, distilled spirits, fermented li+uors and tobacco, exclusively to
its members and their uests, at such prices as are merely sufficient to cover operational
expenses.
'etitioner assails the applicability of the decisions relied upon by the Court of Tax Appeals,
upon the round that said decisions refer to the authority to license, and, hence, to the
exercise to the police po/er, not that of taxation /hich is involved in the case at bar.
Fo/ever, the distinction made enhances A instead of detractin from A the /eiht of said
decisions as precedents, insofar as the issue herein is concerned. Indeed, the police po/er
is, in eneral broader and sub>ect to less restrictions than the po/er to tax. It is not difficult
to conceive the advisability, if not, necessity, of re+uirin a license for some activities
undertaken by so4called *clubs*, o/in to the possibility, if not probability, of use of said
name, appellation or denomination, in order to avoid or evade some la/s or to camouflae
certain ventures, pursuits or enterprises /hich other/ise /ould clearly be illeal, immoral or
contrary to public policy. ?pon the other hand, a tax is a burden and, as such, it /ill not be
deemed imposed upon fraternal, civic, non4profit, non4stock orani8ations, unless the intent
to the contrary is manifest and patent.
Cherefore, the appealed decision of the Court of Tax Appeals is hereby affirmed, /ithout
special pronouncement as to costs. It is so ordered. !ANI"A "(9E) I: N(T "IAB")
;(R TAH
Paras' C.(.' $eng)on' Padilla' Montemayor' $autista Angelo' *ndencia and $arrera'
((.' concur.