TAN TIONG BIO v.
CIR CS was later substituted by its officers and directors (petitioners
G.R. No. L-15778/APR 23,1962 / BAUTISTA-ANGELO, J./CORPO/ECPPOTIAN
NATURE Appeal from CTA decision
PETITIONERS Tan Tiong Bio, Yu Khe Thai [pres], Alfonso Sycip, Dee Hong
Lue, Lim Shui Ty, Sy Seng Tong [treas] , Sy En, Co Giap and David Sycip
RESPONDENTS CIR
SUMMARY. The corporation was assessed payment of deficiency sales
taxes and surcharge. Its defense was that the petitioners as successors-in-
interest could not be held liable for the same because the corporation was
dissolved already. The court applied American jurisprudence particularly
the trust fund doctrine. The creditor of a dissolved corporation may follow
its assets once they passed into the hands of the stockholders. Its
dissolution does not extinguish the debts due or owing to it.
DOCTRINE. The creditor of a dissolved corporation may follow its assets
once they passed into the hands of the stockholders.
FACTS
THE CORPORATION: Central Syndicate (!!!) aka CS was
incorporated on Aug. 15, 1946 with ACS of 500k, 200k of which
was subscribed. Its General Manager is David Sycip
THE MYSTERIOUS TRANSACTION: Dee Hong Lue (DHL)
bought from Foreign Liquidation Commission (FLC) surplus goods
which the court called as mysterious pile for P1.25M. Five days
after the incorporation of CS, it bought the pile from DHL for the
same amount.
Allegedly as part of the consideration of the sale, CS assumed
DHLs obligation to pay the sales tax. It remitted to CIR P43,750 as
payment for the sales tax.
After two years from its incorporation, the corporation was
liquidated with its assets distributed to its stockholders.
CS sent a letter to the Collector of Internal Revenue advising the
latter that (1) it purchased from Dee Hong Lue the surplus
properties which the said Dee Hong Lue had bought from the
Foreign Liquidation Commission (2) that it assumed Dee Hong
Lue's obligation and would pay a portion of the sales tax on said
surplus goods (3) it was paying P43,750.00 in behalf of Dee Hong
Lue as deposit to answer for the payment of said sales tax
CS again wrote the Collector requesting a refund of P1,103.28
representing excess payment of sales tax due to reduction of the
purchase price. (A/N: Kaya mysterious pile kasi along the course of
investigation may nahanap pa daw na mga guns sa pile of goods).
CIR: CS was the importer and original seller of the surplus goods in
question and, therefore, the one liable to pay the deficiency sales
tax (P33,797.88). The Collector denied the request of the syndicate
for the refund. Upon its investigation, it was found that DHL
purchased the goods as trustee of CS which was in the process of
incorporation at the time the sale was made. It was the general
manager of CS and its officers who picked up the goods from its
delivery point in Leyte.
herein).
CTA: (1)Denied Collectors motion. On the ground that cannot be
legally done it appearing that the syndicate is already a non-
existing entity due to the expiration of its corporate existence (2)
dismissed syndicates appeal primarily on the ground that the
Central Syndicate has no personality to maintain the action then
pending before it.
From this order the syndicate appealed to the Supreme Court
wherein it intimated that the appeal should not be dismissed
because it could be substituted by its successors-in-interest.
Petitioners appealed but CTA dismissed the appeal because
of lack of personality of CS (it was liquidated at that time) but
then it was petitioners who intimated that the appeal
should not be dismissed because as successors-in-interest,
they validly substituted CS. CTA held them solidarily liable.
ISSUES & RATIO.
1. WON CS is the importer of the goods? YES, with DHL acting as
its agent
The scheme was done to minimize incidental expenses and taxes
Defense of CS: It was DHL who imported the products and who sold the
same to them. It was merely assuming its tax liability as part of the
consideration of the sale.
However the court held that DHL purchased the same as an agent of the
corporation which was being organized at that time. The transaction was
devised that way to evade payment of greater percentage tax. The court
used the following observations by the lower court in arriving at this
conclusion:
1. It was admitted that the general manager and other officers of CS
who picked up the goods from the delivery point.
2. There was a letter from the president of the company and its
biggest stockholder admitting that DHL acted as a mere agent and
held on to the surplus goods in trust until the formal turnover to
the corporation when the same was organized and incorporated.
3. The pile was paid from pooled money of the petitioners, with DHL
only contributing P69,000 of the purchase price. However there
was no proof that DHL ever returned the loan from the petitioners.
4. The corporation only had ACS of P500k, only P200k was
subscribed. How can it buy the surplus products? There was no
evidence of other financial indebtedness. Note that the purchase
price was P1.25M! Also the corporation was newly incorporated,
how can it raise such an amount in 5 days??
5. DHL was the smallest stockholder of the corporation,
owning only 1/25 of the shares. If he paid the purchase price of
P1.25M why such a small share? He can technically own the entire
company by transferring the goods to the corporation in exchange
of share so why only 1/25?
 6. General Manager executed a certificate adopting the purchase of
DHL as purchase of the corporation.
Considering all these circumstances, it was the corporation who is the
importer of such goods, and is therefore liable to pay the sales tax.

2. [MAIN] WON the sales tax of CS as having been dissolved already,

can be passed on to the petitioners? YES. Trust fund doctrine
also applies for the benefits received by the stockholders
as payment of taxes due to the government.

Petitioners: We cant be held liable because the corporation was already

defunct. There is no statutory provision allowing the govt to proceed
against the stockholders as transferees of the corporate asset upon
liquidation. And even assuming that they are liable, it is not solidary but is
limited only to the benefits derived by them.

SC: Nope. Eh kayo na nga yung humingi in the first place na ma-substitute
para hindi madismiss yung appeal niyo sa CTA. Ang kapal niyo. Estopped
kayo.

More importantly, the court applied American jurisprudence (kasi of

American origin ang corporation code natin) and ruled that the creditor
of a dissolved corporation may follow its assets once they passed
into the hands of the stockholders. Its dissolution does not
extinguish the debts due or owing to it. This is in the nature of a
TRUST FUND.

As to the government, it cant collect from a defunct corporation but it

does not lose its right to collect taxes by mere dissolution of the
corporation. The court applied the same and likened it to the right of govt
to collect taxes from the estate of the deceased from his administrator.

As applied, the syndicate realized a net profit of almost P230k. Its

transaction was the only transaction undertaken. There being no evidence
to the contrary, the conclusion is that the said net profit remained intact
and was distributed among the stockholders when the corp was liquidated.
As beneficiaries of the same, petitioners are liable to pay the taxes.

DECISION. CTA affirmed