15. Collector of Internal Revenue v.

Batangas Transport Company and Laguna-Tayabas

Bus Company (1958) Joint Emergency Operation;
Caveat: I’m not 100% sure if I got the right case, in the sense that this is an OG case … and I got mine off
lawphil.net. Rest assured nag-match naman ang title and doctrine involved, so most likely tama naman.

Doctrines: • A joint venture need not be undertaken in any of the standard form, or in conformity with the
usual requirements of the law on partnerships, in order that one could be deemed constituted for the
purposes of the tax on corporations.
• Although no legal personality may have been created by the Joint Emergency Operation, nevertheless,
said Joint Emergency Operation joint venture, or joint management operated the business affairs of the
two companies as though they constituted a single entity, company or partnership, thereby obtaining
substantial economy and profits in the operation.

Facts: This case is an appeal of the CTA decision which reversed the assessment and decision of
the Collector of Internal Revenue (CIR) assessing and demanding from respondents Batangas
Transpo and Laguna Bus the amount of Php54,143.54 which represent deficiency income tax
and compromise for the year 1946- 1949. Pending then appeal to the CTA, the assessment was
increased to P148,890.14 Respondent bus companies are 2 distinct and separate corporations,
engaged in the business of land transportation by means of motor busses and operating distinct
and separate lines.
Batangas Transpo Laguna Bus
Incorporation 1918 1928
Paid up capital (each) Php 1M Php 1M
Pre – war Head Office Batangas Laguna
Manager Joseph Benedict Martin Olsen
Connection & Close relation: Max Blouse
President and Owner of 30%
stock of each corpo

During the war, the two companies lost their respective businesses. Post-war, they were able to
acquire 56 auto busses from the US Army which they divided equally.
Two years later, Martin Olsen resigned as manager and Joseph Benedict was appointed as
Manager of both companies by their respective Board of Directors. According to Benedict, the
purpose of the joint management called “Joint Emergency Operation” was to economize in
overhead expenses. At the end of each calendar year, all gross receipts and expenses of both
companies are determined and the net profit were divided 50-50 then transferred to the book of
accounts of each company, and each company prepares its own income tax return from their 50%
share.
The CIR theorizes that the 2 companies pooled their resources in the establishment of the Joint
Emergency Operation thereby forming a joint venture. He believes that a corporation exists,
distinct from the 2 respondent companies.
The CTA held that the Joint Emergency Operation is not a corporation within the contemplation
of the NIRC, much less a partnership, association or insurance company, and therefore was not
subject to income tax separately and independently of respondent companies.
Issues: W/N the 2 transportation companies involved are liable to the payment of income tax as
a corporation on the theory that the joint emergency operation organized and operated by them is
a corporation within the meaning of Sec 84 of the Revised Internal Revenue Code.
Held: YES, although no legal personality may have been created by the Joint Emergency
Operation, nevertheless said joint venture or joint management operated the business affairs of
the 2 companies as though they constituted a single entity, company or partnership, thereby
obtaining substantial economy and profits in the operation.
The Court ruled on this issue by citing the case of Eufemia Evangelista, et. al v. CIR – agency
case. This involved the 3 sisters who borrowed from their father money which they invested in
land and then improved upon and later sold. The sisters also hired their brother to oversee the
buy-and-sell of land. Contrary to their claim that said operation was merely a co-ownership, the
Court ruled that considering the facts and circumstances surrounding the said case, the 3 sisters
had purpose to engage in real estate transactions for monetary gain and then divide the profits
among themselves, making them co-partners. When the Tax Code included “partnerships”
among the entities subject to the tax on corporations, it must refer to organizations which are not
necessarily partnerships in the technical sense of the term, and that furthermore, said law defined
the term "corporation" as including partnerships no matter how created or organized.
Further, from the standpoint of income tax law, the procedure and practice of the 2 bus
companies in determining the net income of each was arbitrary and unwarranted. After all, the 2
companies operates in 2 different lines, in different provinces or territories, with different
equipment and personnel it cannot possibly be true and correct to say that the end of each year,
the gross receipts and income in the gross expenses of two companies are exactly the same for
purposes of the payment of income tax.
Thus, the Court held that the Joint Emergency Operation or sole management or joint venture in
this case falls under the provisions of section 84 (b) of the Internal Revenue Code, and
consequently, it is liable to income tax provided for in section 24 of the same code.
* But they were exempted from paying 25% surcharge for failure to file a tax return, because of
their honest belief (based on advice of their attorneys and accountants) that they are not required
to do so.