Yutivo Sons Hardware vs. CA

Corporations; Piercing the veil of corporate fiction. —A corporation is an entity separate and distinct from its stockholders and from other corporations to which it may be connected. However, when the notion of legal entity is used to defeat public convenience, justify wrong, protect fraud, or defend crime, the law will regard the corporation as an association of persons, or, in the case of two corporations, merge them into one. When the corporation is the mere alter ego or business conduit of a person, it may be disregarded.

Taxation; Sales tax; Tax evasion. —A corporation cannot be said to have been organized as a tax evasion device when there was no tax to evade.

Evidence; Fraudulent tax evasion. —The intention to minimize taxes, when used in the context of fraud, must be proven by clear and convincing evidence amounting to more than mere preponderance. It cannot be justified by mere speculation. This is because fraud is never lightly to be presumed.

Concept of tax evasion. —Tax evasion connotes fraud through the use of pretenses and forbidden devices to lessen or defeat taxes.

Tax avoidance. —A taxpayer has the legal right to decrease the amount of what otherwise would be his taxes or altogether avoid them by means which the law permits. Any legal means used by the taxpayer to reduce taxes are all right. Therefore, a man may perform an act that he honestly believes to be sufficient to exempt him from taxes. He does not incur fraud thereby even if the act is thereafter found to be insufficient.

Where two corporations were treated as one for tax purposes. —Where it appears that SM was a mere subsidiary, instrumentality or department of Yutivo, the Tax Court correctly disregarded the alleged separate corporate personality of SM in order to arrive at the true tax liability of Yutivo.

When the taxpayer is estopped to invoke prescription. — Estoppel has been employed to prevent the application of the statute of limitations against the government in certain instances in which the taxpayer has taken some affirmative action to prevent the collection of the tax within the statutory period. It is generally held that a taxpayer is estopped to repudiate waivers of the statute of limitations upon which the government relied. Where the taxpayer made several requests for reinvestigation of a tax assessment, it may be considered to have waived the defense of prescription.

Gross selling price does not include the sales tax billed as a separate item. — lf a manufacturer, producer, or importer, infixing the gross selling price of an article sold by him, has included an amount intended to cover the sales tax in the gross selling price of the articles, the sales tax should be based on the gross selling price less the amount intended to cover the tax, if the same is billed as a separate item. Unless billed to the purchaser as a separate item in the invoice, the amounts intended to cover the sales tax shall be considered as part of the gross selling price of the articles sold, and deduction thereof will not be allowed