ERLANGER & GALINGER, INC., PLAINTIFF AND APPELLEE, VS. JUAN POSADAS, JR., COLLECTOR OF INTERNAL REVENUE, DEFENDANT AND APPELLANT.

This action was commenced in the Court of First Instance of the City
of Manila on October 8, 1926. Its purpose was to recover the sum of
P5,213.54, representing internal-revenue taxes paid in Manila, under
protest, by plaintiff as merchant, on its goods sold in Cebu during the
years, 1922, 1923, 1924 and up to June 30, 1925. There was included in
said amount a surcharge of 25 per cent for plaintiff’s alleged failure
to pay said taxes when they became due.

The plaintiff alleged that the internal-revenue taxes on said
merchandise had already been paid by it in Cebu as and when they became
due and payable, and prayed that a judgment be rendered in its favor
and against the defendant, ordering the latter to return to the
plaintiff said sum of P5,213.54, with legal interest and costs.

The defendant answered denying each and all of the allegations of
the complaint. As a special defense he alleged that plaintiff’s goods
were sold in Cebu by Wm. H. Anderson & Co., acting as a commission
merchant for the plaintiff; and that the sum of P5,213.54 was legally
due as internal-revenue tax from the plaintiff in its capacity of
principal merchant. The defendant prayed that the complaint be
dismissed, with costs against the plaintiff.

On October 3, 1927, the parties agreed upon the following:

“STATEMENT OF FACTS

“Now
come the plaintiff, Erlanger & Galinger, Inc., and the defendant,
Juan Posadas, jr., as Collector of Internal Revenue, through their
respective undersigned attorneys, and hereby submit to this Honorable
Court the following agreed statement of facts, with the understanding
that any of the said parties may present additional evidence at the
trial of this cause in support of their respective pleadings, to wit:

“1.
That plaintiff is a corporation duly organized and existing under and
by virtue of the laws of the Philippine Islands and having its
principal office therein in the City of Manila, and that the defendant
was at all times hereinafter mentioned and at the time of the inception
of these proceedings, and still is, the duly appointed, qualified, and
Acting Collector of Internal Revenue of the Philippine Islands.

“2.
That William H. Anderson & Co. is also a corporation organized
under the laws of the Philippine Islands, having its principal office
therein in the City of Manila and maintaining a branch establishment in
Cebu, Cebu.

“3. That the transactions involved in this case
consisted of sales of plaintiff’s goods, wares, and merchandise
effected in Cebu, Cebu, during the years 1922, 1923, 1924, and up to
June 30, 1925, the aggregate sales value of which goods, wares, and
merchandise amounted to P304,462.

“4. That on November 21,
1925, and under the authority of sections 1458 and 1459 of the
Administrative Code, the first section as amended by section 2 of Act
No. 2892 and section 1 of Act No. 3074, and the second section in
relation to Acts Nos. 3065 and 3183, the defendant demanded of
plaintiff the payment of the merchant’s sales tax of one per cent on
such portion of the sales in question as was effected during the period
from the year 1922 up to and including February 26, 1923, and the
merchants’ sales tax of one and one-half per cent on such portion of
the sales in question as was effected during the period from February
26, 1923, up to and including June 30, 1925, plus a surcharge of 25 per
centum of the total taxes demanded, or a total of P5,213.54.

“5.
That on the 15th day of April, 1925, the plaintiff did pay under
protest the said sum of P5,213.54, and that plaintiff’s protest against
the payment has been overruled by the defendant.”

After trial, during which both parties presented evidence on points
not covered by the agreed statement of facts, the Honorable Simplicio
del Rosario, judge, in a very carefully prepared opinion containing a
brief analysis of the evidence, arrived at the conclusion that the
plaintiff had paid in Cebu, through Win. H. Anderson & Co., the
internal-revenue taxes, as and when they became due, on its merchandise
sold in Cebu during the years 1922, 1923, 1924 and up to June 30, 1925,
the sales value of which amounted to P304,462, and that the sum of
P5,213.54 paid in Manila by plaintiff under protest represented double
payment of said internal-revenue taxes; and rendered a judgment in
favor of the plaintiff and against the defendant, ordering the latter
to return to the plaintiff said sum of P5,213.54, From said judgment
the defendant appealed and now makes the following assignments of error:

“I. The court below erred in not holding that
William H. Anderson & Co., Inc., effected the sales mentioned in
the complaint in this case, as a commission merchant for the plaintiff
Erlanger & Galinger, Inc., as principal.

“II. The court
below erred in not holding that the sum of P5,213.54, mentioned in the
complaint, which plaintiff seeks to recover in this case, was legally
due, as internal-revenue tax, from the plaintiff in its above-mentioned
capacity of principal merchant.

“III. The court below erred in condemning the defendant to return to the plaintiff the sum of P5,213.54.”

In addition to the facts agreed upon by the parties, a careful examination of the evidence discloses the following facts:

1. Wm. H. Anderson was the majority stockholder of the
   corporation known as Wm. H. Anderson & Co., Inc., and also of the
   plaintiff corporation, Erlanger & Galinger Inc.

2. Prior to the year 1922 Anderson & Co., Inc., had been acting in Cebu
   as agent for the plaintiff, selling the tatter’s merchandise on
   commission.

3. In January, 1922, the demand
   in Cebu for merchandise of Erlanger & Galinger had so increased
   that said company had to open and did open a branch or office in Cebu
   in said month and year, with its own personnel. However, the
   management, supervision and control of said office was entrusted to
   Anderson & Co., Inc. Said branch or office was located in the same
   building with Anderson & Co., Inc., though both companies occupied
   separate quarters. Each company kept separate records or accounts of
   its transactions.

4. Upon the organization
   of said branch in Cebu, Erlanger ,& Galinger, Inc., and Wm. H.
   Anderson & Co., Inc., entered into an agreement relative to the
   common or overhead expenses of both, such as rents, salaries of common
   manager, messenger and bodeguero. According to said agreement
   Erlanger & Galinger, Inc., was to pay 80 per cent and Anderson
   & Co. 20 per cent of said expenses. The latter received no
   commission, nor any other form of compensation from Erlanger &
   Galinger. All of the other expenses, however, were to be borne
   separately by each company.

5. During the
   period to which this action relates, or from January, 1922, up to June
   30, 1925, the plaintiff paid the freight, transportation and other
   handling charges of its goods sent from Manila to Cebu.

6. Due, however, to plaintiff’s lack of banking facilities in Cebu and to
   the circumstance that the branch or office in Cebu was under the
   management of Anderson & Co., the latter paid, for and in the name
   of the plaintiff, the internal-revenue taxes on plaintiff’s goods sold
   by its office in Cebu, amounting to P4,170.83. Said amount was later
   refunded to Anderson & Co. by the plaintiff.

7. Upon demand of the defendant, the plaintiff had to pay and did pay in
   Manila, under protest, the internal-revenue taxes on said goods sold in
   Cebu, plus a surcharge of 25 per cent for plaintiff’s alleged failure
   to pay them on time, or a total of P5,213.54, the plaintiff having thus
   paid double taxes.

Now the theory of the defendant is (a) that Anderson & Co. acted as commission merchant for the plaintiff in Cebu; (b) that it sold plaintiff’s goods in Cebu in its capacity as commission merchant for the plaintiff; (c)
that the internal-revenue taxes paid in Cebu by Anderson & Co., was
paid in its own name as commission merchant and not in the name of
Erlanger & Galinger, Inc.; and (d) that the plaintiff, as
principal merchant did not pay taxes on its goods sold in Cebu until
required so to do by the defendant, and that the amount which plaintiff
now seeks to recover represents said taxes which are legally due and
owing to the Government by the plaintiff.

In support of his theory the defendant contends :

(1) That Anderson & Co. sold plaintiff’s goods
in Cebu and indirectly received commission on the sales, through the
arrangement that the overhead expenses in Cebu of both companies were
paid, 80 per cent by Erlanger & Galinger and 20 per cent by
Anderson & Co.; and

(2) That the internal-revenue tax
receipts for taxes paid in Cebu were issued and appear in the name of
Anderson & Co. and not in the name of Erlanger & Galinger.
(Exhibits C to F.)

The defendant’s theory cannot be sustained. The arrangement whereby
Erlanger & Galinger paid 80 per cent and Anderson & Co. 20 per
cent of their overhead expenses (rents, salaries of common manager,
messenger and bodeguero) wag made because Anderson & Co.
had to hire, for the accommodation of Erlanger & Galinger, a new
building in the heart of the business center of the City of Cebu;
Erlanger & Galinger occupied the basement floor of the building for
the greater convenience of its retail business; due to the very nature
of its business Erlanger & Galinger required more time, more room
space, more storage conveniences and more work on the part of their
common employees than Anderson & Co. Explaining this arrangement,
plaintiff’s witness testified:

“R. Tomabamos primeramente en cuenta el alquiler. Si
no hubiera sido por Erlanger & Galinger, Inc., Anderson & Co.
hubiera podido estar en cualquiera habitation, en una habitaci6n de
cualquiera clase ordinaria. El haberse tornado esta finca en una calle
central, fue unica y exclusivamente por el negocio de Erlanger &
Galinger. Inc., lo mismo hay que decir acerca de las luces, telefonos,
etc., poco mas o menos. Los gastos generales de empleados, sueldos y de
cobradores, los cuales tenian que dedicar mucho tiempo al cobro de las
cuentas de Erlanger & Galinger, Inc., que a las cuentas de Anderson
& Co., porque nuestro negocio ea mucho mas amplio y es a plazos. El
mensajero y el cargador estaban considerados en la misma clase, por que
tenian que encargarse de la tienda y, ademas, llevar mensajes.”

The fact that the tax receipts (Exhibits C to F) appear in the name
of Anderson & Co. is satisfactorily explained in the record. The
taxes were paid by Anderson & Co. for convenience. Said taxes were
later reimbursed by the plaintiff to Anderson & Co. Had there been
bad faith on the part of plaintiff, Anderson & Co. could easily
have had said receipts issued in the name of Erlanger & Galinger.

Appellant insists that the instant case is in substance similar to the case of F. E. Zuellig vs.
Collector of Internal Revenue (51 Phil., 629). We cannot accept the
appellant’s view. In the case of Zuellig, Inc., the plaintiff was held
to be a commission merchant because it received commission on the value
of the goods sold by it for the principal merchant, and because it had
a building of its own where said goods were stored and kept until
delivered to the customers. In the instant case Anderson & Co.
received no commission whatsoever, provided no facilities for the
storage of plaintiff’s goods, and paid no expenses for the freight,
transportation, handling and storage of said goods.

We are of the opinion that the judgment appealed from is in
accordance with the facts and the law, and the same should be and is
hereby affirmed, without costs. It is so ordered.

Avanceña, C. J., Street, Villamor, and Romualdez, JJ., concur.

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CONCURRING

JOHNS and VILLA-REAL, JJ.:

For want of proof to sustain the Government’s contention, we concur in the result.