EN BANC

G.R. No. L-15778             April 23, 1962

TAN TIONG BIO, ET AL., petitioners, 

vs.
COMMISSIONER OF INTERNAL REVENUE, respondent.

Sycip, Salazar and Associates for petitioners.

Office of the Solicitor General for respondent.

BAUTISTA ANGELO, J.:

On October 19, 1946, the Central Syndicate, a corporation organized under the laws of the
Philippines, thru its General Manager, David Sycip, sent a letter to the Collector of Internal
Revenue advising the latter that it purchased from Dee Hong Lue the entire stock of surplus
properties which the said Dee Hong Lue had bought from the Foreign Liquidation Commission
and that as it assumed Dee Hong Lue's obligation to pay the 3-1/2% sales tax on said surplus
goods, it was remitting the sum of P43,750.00 in his behalf as deposit to answer for the payment
of said sales tax with the understanding that it would later be adjusted after the determination of
the exact consideration of the sale.

On January 31, 1948, the syndicate again wrote the Collector requesting the refund of P1,103.28
representing alleged excess payment of sales tax due to the adjustment and reduction of the
purchase price in the amount of P31,522.18. Said letter was referred to an agent for verification
and report. On September 18, 1951, after a thorough investigation of the facts and
circumstances surrounding the transaction, the agent reported (1) that Dee Hong Lue purchased
the surplus goods as trustee for the Central Syndicate which was in the process of organization
at the time of the bidding; (2) that it was the representatives of the Central Syndicate that
removed the surplus goods from their base at Leyte on February 21, 1947; (3) that the syndicate
must have realized a gross profit of 18.8% from its sales thereof; and (4) that if the sales tax
were to be assessed on its gross sales it would still be liable for the amount of P33,797.88 as
deficiency sales tax and surcharge in addition to the amount of P43,750.00 which the corporation
had deposited in the name of Dee Hong Lue as estimated sales tax due from the latter.

Based on the above findings of the agent in charge of the investigation, the Collector decided
that the Central Syndicate was the importer and original seller of the surplus goods in question
and, therefore, the one liable to pay the sales tax. Accordingly, on January 4, 1952, the Collector
assessed against the syndicate the amount of P33,797.88 and P300.00 as deficiency sales tax,
inclusive of the 25% surcharge and compromise penalty, respectively, and on the same date, in
a separate letter, he denied the request of the syndicate for the refund of the sum of P1,103.28.

On September 8, 1954, the Central Syndicate elevated the case to the Court of Tax Appeals
questioning the ruling of the Collector which denies its claim for refund as well as the assessment
made against it of the sum of P33,797.88, plus the sum of P300.00 as compromise penalty, as
stated above. The Collector filed his answer thereto wherein he reiterated his ruling and prayed
that the Central Syndicate be ordered to pay the deficiency sales tax and surcharge as
demanded in his letters dated January 4, 1952 and August 5, 1954. On October 28, 1954, the
syndicate filed a motion requesting that the issue of prescription it has raised against the
collection of the tax be first determined as a preliminary question, but action thereon was
deferred by the Court of Tax Appeals until after the trial of the case on the merits.

On November 5, 1954, the Collector filed a motion requiring the syndicate to file a bond to
guarantee the payment of the tax assessed against it which motion was denied by the Court of
Tax Appeals 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. In view of this development,
the Collector filed a motion to dismiss the appeal on the ground of lack of personality on the part
of the syndicate, which met an opposition on the part of the latter, but on January 25, 1955, the
Court of Tax Appeals issued a resolution dismissing the 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, to wit: Tan Tiong
Bio, Yu Khe Thai, Alfonso Sycip, Dee Hong Lue, Lim Shui Ty, Sy Seng Tong, Sy En, Co Giap
and David Sycip. And taking cue from this suggestion, this Court ruled against the dismissal and
held: "The resolution appealed from is set aside and the respondent court is ordered to permit
the substitution of the officers and directors of the defunct Central Syndicate as appellants, and
to proceed with the hearing of the appeal upon its merits." In permitting the substitution, this
Court labored under the premise that said officers and directors "may be held personally liable
for the unpaid deficiency assessments made by the Collector of Internal Revenue against the
defunct syndicate."

After trial, the Court of Tax Appeals rendered decision the dispositive part of which reads as
follows:

WHEREFORE, in view of the foregoing considerations, the decision of the Collector of

Internal Revenue appealed from is hereby affirmed, except with regard to the imposition
of the compromise penalty of P300.00 the collection of which is unauthorized and illegal
in the absence of a compromise agreement between the parties. (Collector of Internal
Revenue vs. University of Sto. Tomas, G. R. No. L-11274, November 28, 1958; Collector
of Internal Revenue vs. Bautista & Tan, G.R. No. L-12250, May 27, 1959.) .

The petitioners Tan Tiong Bio, Yu Khe Thai, Lim Shui Ty, Alfonso Sycip, Sy En alias Sy
Seng Sui, Dee Hong Lue, and Sy Seng Tong, who appear in the Articles of Incorporation
of the Central Syndicate Annex A (pp. 60-66, CTA rec.) as incorporators and directors of
the corporation, the second named being in addition its President and the seventh its
Treasurer, are hereby ordered to pay jointly and severally, to the Collector of Internal
Revenue, the sum of P33,797.88 as deficiency sales tax and surcharge on the surplus
goods purchased by them from the Foreign Liquidation Commission on July 5, 1946,
from which they realized an estimated gross sales of P1,447,551.65, with costs. ..

Petitioners interposed the present appeal.

The important issues to be determined in this appeal are: (1) whether the importer of the surplus
goods in question the sale of which is subject to the present tax liability is Dee Hong Lue or the
Central Syndicate who has been substituted by the present petitioners; (2) whether the
deficiency sales tax which is now sought to be collected has already prescribed; and (3) the
Central Syndicate having already been dissolved because of the expiration of its corporate
existence, whether the sales tax in question can be enforced against its successors-in-interest
who are the present petitioners.

1. Petitioners contend that the Central Syndicate cannot be held liable for the deficiency sales tax
in question because it is not the importer of the surplus goods purchased from the Foreign
Liquidation Commission for the reason that said surplus goods were purchased by Dee Hong
Lue as shown by the contract executed between him and the Foreign Liquidation Commission
and the fact that the Central Syndicate only purchased the same from Dee Hong Lue and not
from the Foreign Liquidation Commission as shown by Exhibit 13.

This contention cannot be sustained. As correctly observed by the Court of Tax Appeals, the
overwhelming evidence presented by the Collector points to the conclusion that Dee Hong Lue
purchased the surplus goods in question not for himself but for the Central Syndicate which was
then in the process of incorporation such that the deed of sale Exhibit 13 which purports to show
that Dee Hong Lue sold said goods to the syndicate for a consideration of P1,250,000.00 (the
same amount paid by Dee Hong Lue to the Foreign Liquidation Commission) "is but a ruse to
evade payment of a greater amount of percentage tax." The aforesaid conclusion of the lower
court was arrived at after a thorough analysis of the evidence on record, pertinent portion of
which we quote hereunder with approval:

Exhibit "38-A" for the respondent (p. 178, BIR rec.) shows that as early as July 23, 1946,
or before the organization and incorporation of Central Syndicate, Mr. David Sycip, who
was subsequently appointed General Manager of the corporation, together with Messrs.
Sy En alias Sy Seng Sui (one of the incorporators of Central Syndicate), Serge Gordeof
and Chin Siu Bun (an employee of the same corporation), for and in the name of Central
Syndicate then in the process of organization, went to Leyte to take over the surplus
properties sold by the FLC to Dee Hong Lue, which the latter held in trust for the
corporation. Exhibit 38-A, which is a certificate issued by no less than David Sycip
himself who was subsequently appointed General Manager of the corporation admits in
express terms the following "... the surplus property sold by the Foreign Liquidation
Commission to Dee Hong Lue (and held in trust by the latter for the Syndicate ...."
(Emphasis ours.) We give full weight and credence to the adverse admissions made by
David Sycip against the petitioners as appearing in his certificate Exhibit 38-A (p. 178,
BIR rec.) considering that at the time he made them, he was a person jointly interested
with the petitioners in the transaction over which there was yet no controversy over any
sales tax liability. (Secs. 11 and 33, Rule 123, Rules of Court; Clem vs. Forbeso, Tex. Cir
App. 10 S.W. 2d 223; Street vs. Masterson, Tex. Cir. App. 277 S.W. 407.) .

Exhibit '39' for the respondent (pp. 184-187, BIR rec.) which is a letter of Mr. Yu Khe Thai
President, Director and biggest stockholder of Central Syndicate (Exhibit A, pp. 60-65,
CTA rec.) dated September 17, 1946 and addressed to the Commanding General
AFWESPAC, Manila, contains the following categorical admissions which corroborate the
admissions made by David Sycip; that the so-called Leyte 'Mystery Pile' surplus
properties were owned by Central Syndicate by virtue of a purchase from the
FLC, effected in the name of Dee Hong Lue on July 5, 1946, inasmuch as Central
Syndicate was then still in the process of organization; that Dee Hong Lue held the said
surplus properties in trust until the mere formal turnover to the corporation on August 20,
1946, when the corporation had already been organized and incorporated under the laws
of the Philippines; and that on July 23, 1946 viz., twenty-two (22) days before the
incorporation of Central Syndicate on August 15, 1946 'our General Manager, Mr. David
Sycip accompanied by one of our directors, Mr. Sy En, arrived in Leyte to take over the
properties.'

Before passing on to the rest of the evidence supporting the finding of respondent, we
would like to call attention to this significant detail. It is stated in the letter, Exhibit 39 (pp.
184-187, BIR rec.) of Mr. Yu Khe Thai that 'on July 23, 1946, our General Manager, Mr.
David Sycip, accompanied by one of our directors, Mr. Sy En, arrived in Leyte to take
over the properties,' We ask: Why was there such a hurry on the part of the promoters of
Central Syndicate in taking over the surplus properties when the formal agreement,
Exhibit 13 (p. 66, BIR rec.), purporting to be a contract of sale of the 'Mystery Pile'
between Dee Hong Lue as vendor, and the Central Syndicate, as vendee, for the amount
of P1,250,000.00, was effected twenty-eight (28) days later viz., on August 20, 1946? Is
this not another clear and unmistakable indication that from the very start, as is the
theory of the respondent, the real purchasers of the 'Mystery Pile' from the FLC and as
such the 'importers' of the goods, were the Central Syndicate and/or the group of big
financiers composing it before said corporation was incorporated on August 15, 1946;
and, that Dee Hong Lue acted merely as agent of these persons when he purchased the
pile from the FLC? As a general rule, one does not exercise all the acts of ownership
over a property especially if it involves a big amount until after the documents evidencing
such ownership are fully accomplished.
Moreover, it appears that on October 3, 1946, Dee Hong Lue was investigated by Major
Primitivo San Agustin, Jr., G-2 of the Philippine Army, because of the discovery of some
gun parts found in his shipment of surplus material from Palo, Leyte.

In his sworn statement, Exhibit 16 (pp. 133-139, BIR rec.) before said officer, Dee Hong
Lue admitted the following: That he paid the FLC the amount of P1,250,000.00 "with the
checks of Yu Khe Thai, maybe also Alfonso Sycip and my checks with many others"; that
"at the beginning I was trying to buy the pile for myself without telling other people and
other friends of mine." "Watkins came to me and he bid for me for P600,000 or P700,000,
but later on when the price went up to P1,250,000, I talked to my friends who said I could
get money." "So, I bought it with their checks and mine" (Exhibit 16-B, p. 138, BIR rec.)
and, that after buying the "Mystery Pile", he (Dee Hong Lue) never inspected the same
personally. (p. 141, BIR rec.)

In his affidavit, Exhibit 15 (p. 144, BIR rec.) Dee Hong Lue admitted that of the amount of
P1,250,000.00 which he paid in two installments sometime in July, 1946, to the FLC,
P1,181,250.00 (should be P1,181,000.00) of the amount came from the following: Yu
Khe Thai who advanced to him P250,000.00; Sy Seng Tong — P375,000.00; Alfonso Z.
Sycip - P375,000.00; Tan Tiong Bio - P125,000.00; Robert Dee Se Wee — P25,000.00;
and, Jose S. Lim — P31,000.00 that his understanding with these persons was that
should they eventually join him in Central Syndicate, such advances would be adjusted to
constitute their investments; and, that soon after the "Mystery Pile" was purchased from
the FLC, all the above-named persons with the exception of Robert Dee Se Wee and
Jose S. Lim, formed the Central Syndicate and a re-allocation of shares was made
corresponding to the amounts advanced by them.

Added to these, we have before us other documentary evidence for the respondent
consisting of Exhibits 18, 19, 20, 21, 23, 24, 25, 26, 27, 28 and 29 (pp. 85, 88, 92-96, 99-
103, 117-128, 119-120, 121-128, BIR rec.) all tending to prove the same thing - that the
Central Syndicate and/or the group of big financiers composing it and not Dee Hong Lue
was the real purchaser (importer) of the "Mystery Pile" from the FLC; that in the contract
of sale between Dee Hong Lue and the FLC the former acted principally as agent (Article
1930, New Civil Code) of the petitioners Yu Khe Thai, Sy Seng Tong, Alfonso Z. Sycip
and Tan Tiong Bio who advanced the purchased price of P1,125,000.00 out of the
P1,250,000.00 paid to the FLC, Dee Hong Lue being the purchaser in his own right only
with respect to the amount of P69,000.00; and, that the deed, Exhibit 13 (p. 77, BIR rec.)
purporting to show that Dee Hong Lue sold the "Mystery Pile" to the Central Syndicate for
consideration of P1,250.000.00 is but a ruse to evade payment of a greater amount of
percentage tax.  1äwphï1.ñët

To our mind, the deed of sale, Exhibit 13 (p. 66, BIR rec.) as well as the circumstances
surrounding the incorporation of the Central Syndicate, are shrouded with as much
mystery as the so-called "Mystery Pile" subject of the transaction. But, as oil is to water,
the truth and underlying motives behind these transactions have to surface in the end.
Petitioners would want us to believe that Dee Hong Lue bought in his own right and for
himself the surplus goods in question for P1,250,000.00 from the FLC and then, by virtue
of a valid contract of sale, Exhibit 13 (p. 66, BIR rec.) transferred and conveyed the same
to the Central Syndicate at cost. If this be so, what need was there for Dee Hong Lue to
agree in the immediate organization and incorporation of the Central Syndicate with six
other capitalists when he could very well have disposed of the surplus goods to the public
in his individual capacity and keep all the profits to himself without sharing 9/10th of it to
the other six incorporators and stockholders of the newly incorporated Syndicate.

It appears that Dee Hong Lue "sold" the pile to the Central Syndicate for exactly the
same price barely forty-six (46) days after acquiring it from FLC and exactly five (5) days
after the Syndicate was registered with the Securities and Exchange Commission on
August 19, 1946. This is indeed most unusual for a businessman like Dee Hong Lue
who, it is to be presumed, was out to make a killing when he acquired the surplus goods
from the FLC for the staggering amount of P1,750,000.00 in cash.

Again, why did Dee Hong Lue waste all his time and effort not to say his good
connections with the FLC by acquiring the goods from that agency only to sell it for the
same amount to the Central Syndicate? This would have been understandable if Dee
Hong Lue were the biggest and controlling stockholder of the Syndicate. He could
perhaps reason out to himself, "the profits which I am sacrificing now in this sale to the
Syndicate, I will get it anyway in the form of dividends from it after it shall have disposed
of all the "Mystery Pile" to the public.' But then, how could this be possible when Dee
Hong Lue was the smallest subscriber to the capital stock of the Syndicate? It appears
from the Articles of Incorporation that of the authorized capital stock of the corporation in
the amount of P500,000.00, Dee Hong Lue subscribes to only P20,000.00 or 1/25th of
the capital stock authorized and of this amount only P5,000.00 was paid by him at the
time of incorporation. So here is an experienced businessman like Dee Hong Lue who,
following the theory of petitioners' counsel, bought the "'Mystery Pile" for himself for
P1,250,000.00 in cash, and after a few days sold the same at cost to a corporation
wherein he owned only 1/25th of the authorized capital stock and wherein he was not
even an officer, thus doling out to the other six incorporators and stockholders net profits
in the sum conservatively estimated by the respondent to be P206,116.45 out of a total of
P229,073.83 which normally could all go to him. We take judicial notice of the fact that as
a result of our immense losses in property throughout the archipelago the during the
Japanese occupation, either through destruction or systematic commandering by the
enemy and our forces, surplus properties commanded a very good price in the open
market after the liberation and that quite a number of surplus dealers made immense
fortunes out of it. We believe the respondent was quite charitable if not more than fair to
the Central Syndicate in computing the profits realized by it in the resale of the "Mystery
Pile" to the public at only 18.8% of the acquisition price.

Now, from the side of the Central Syndicate. This corporation, as its articles of
incorporation, Exhibit A (pp. 60-66, CTA rec.) will show, was incorporated on August 15,
1946 with an authorized capital stock of P500,000.00 of which P200,000.00 worth was
subscribed by seven (7) persons and P50,000.00 paid-up in cash at the time of
incorporation. Five (5) days after its incorporation, as the Deed of Sale, Exhibit 13 (p. 66,
BIR rec.) purports to show, the said corporation bought from Dee Hong Lue the "Mystery
Pile" for P1,250,000.00 in cash. This is indeed quite phenomenal and fantastic not to say
the utmost degree of finance considering that the corporation had a subscribed capital
stock of only P200,000.00 of which only P50,000.00 was paid-up at the time of
incorporation and with not the least proof showing that it never borrowed money in its
own name from outside source to raise the enormous amount allegedly paid to Dee Hong
Lue nor evidence to show that it had by then in so short a time is five (5) days
accumulated a substantial reserve to meet Dee Hong Lue's selling price.

Furthermore, at first blush it would seem quite difficult to understand why the seven (7)
incorporators and stockholders of the Central Syndicate formed a corporation with a
subscribed capital stock of only P200,000.00, and with cash on hand of only P50,000.00
knowing fully well that there was a transaction awaiting the newly registered corporation
involving an outlay of P1,250,000.00 in cash. We believe this was done after mature
deliberation and for some ulterior motive. As we see it, the only logical answer is that the
incorporator wanted to limit whatever civil liability that might arise in favor of third
persons, as the present tax liability has now arisen, up to the amount of their
subscriptions, although the surplus deal they transacted and which we believe was the
only purpose in the incorporation of the Central Syndicate, was very much over and
above their authorized capital. Moreover, by limiting its capital, the corporation was also
able to save on incidental expenses, such as attorney's fee and the filing fee paid to the
 Securities and Exchange Commission, which were based on the amount of the
authorized capital stock.

Another mystery worth unravelling is what happened to the P1,181,240.00 (should be

P1,181,000.00) which Dee Hong Lue in his affidavit, Exhibit 15 (p. 144, BIR rec.) claims
to have received from Messrs. Uy Khe Thai, Sy Seng Tong, Alfonso Z. Sycip, Tan Tiong
Bio (all incorporators of the Syndicate) and two others as 'advances' with which to pay
the FLC. There is no evidence on record to show that Dee Hong Lue ever returned this
amount to those six (6) persons after he supposedly received P1,250,000.00 from the
newly incorporated Syndicate by virtue of the Deed of Sale, Exhibit 13. This is the
explanation that Dee Hong Lue gave in this regard as appearing in his affidavit, Exhibit
15: "That soon after the above-mentioned property was purchased, the above parties,
with the exception of Robert Dee Se Wee and Jose S. Lim decided to join the proposed
Central Syndicate and a re-allocation of shares was made for the reason that some of the
above parties in turn had to get advances from third parties." If this were true, why was it
that Messrs. Yu Khe Thai, Sy Seng Tong, Alfonso Z. Sycip and Tan Tiong Bio who
advanced P250,000.00; P375,000.00 and P125,000.00 to Dee Hong Lue were made to
appear in the Articles of incorporation of the Central Syndicate as having subscribed to
shares worth only P40,000.00; P30,000.00; P30,000.00 and P20,000.00 and of having
paid only P10,000.00, P7,500.00, P7,500.00, and P5,000.00 on their subscriptions,
respectively? Would it not be more in keeping with corporate practice, following the
explanation of Dee Hong Lue, to just credit those four (4) persons in the corporation with
shares worth the amount advanced by them to Dee Hong Lue?

On the basis of the above figures, the re-allocation of shares in favor of the four (4)
incorporators who advanced enormous sums for the Syndicate seems at first glance to
be totally disproportionate and unfair to them. However, in the final analysis it is not so as
we will now show. Immediately after the incorporation of the Syndicate, as the evidence
shows, Dee Hong Lue was made to execute a deed of transfer under the guise of a
contract of sale, conveying full and complete ownership of the "Mystery Pile" to the newly
organized corporation. So we have, on the face of the Articles of Incorporation and
Exhibit 13, a corporation with assets worth only P50,000.00 cash owning properties worth
over a million pesos. Obviously, the incorporators of the Syndicate, particularly those four
who advanced enormous sums to Dee Hong Lue, are not ordinary businessmen who
could easily be taken for a ride. With the precipitated execution of the "Deed of Sale" by
Dee Hong Lue in favor of the Syndicate, transferring and conveying ownership over the
entire pile to the latter, the recoupment of their advances from the newly acquired assets
of the corporation was sufficiently secured, and at the same time, by making the
document appear to be a deed of sale instead of a deed of transfer as it should be under
Article 1891 of the New Civil Code, they have reduced (at least attempted to) their sales
tax liability with the argument that Dee Hong Lue was the original "purchaser" or
"importer" of the goods and therefore the taxable sale was that one made by him to the
Syndicate and not the sales made by the latter to the public. After going over the Articles
of Incorporation of the Central Syndicate and the other circumstances of this case, we
draw the conclusion that it was organized just for this particular transaction that its life
span was expressly limited to two (2) years from and after the date of incorporation just
to give it time to dispose of the "Mystery Pile" to the public and then liquidate all its assets
among the seven incorporators-stockholders as in fact it was done on August 15, 1948;
that from the very start, the seven (7) incorporators had intended it to be a closed
corporation without the least intention of ever selling to other persons the remaining
authorized capital stock of P300,000.00 still unsubscribed; and, that upon its liquidation,
the seven (7) incorporators composing it got much more than their investments including
those who advanced P1,181,000.00 to the FLC for the corporation.

Petitioners would dispute the finding that Dee Hong Lue merely acted as a trustee of the Central
Syndicate when he purchased the surplus goods in question from the Foreign Liquidation
Commission on July 5, 1946 considering that on that date the syndicate has not yet been
incorporated on the theory that no legal relation may exist between parties one of whom has yet
no legal existence. Technically this may be true, but the fact remains that it cannot be denied that
Dee Hong Lue purchased the goods on behalf of those who advanced the money for the
purchase thereof who later became the incorporators and only stockholders of the syndicate with
the understanding that the amounts they had respectively advanced would be their investment
and would represent their interest in the corporation. And this is further evidenced by the fact that
this purchase made by Dee Hong Lue was later approved and adopted as the act of the Central
Syndicate itself as can be gleaned from the certificate executed by David Sycip, general
manager of said syndicate, on September 16, 1946, wherein he emphasized that the persons
named therein (from whom Dee Hong Lue obtained the money) merely acted on behalf of the
syndicate and in fact were the ones who went to Leyte to take over the aforesaid surplus goods.
In any event, even if Dee Hong Lue may be deemed as the purchaser of the surplus goods in his
own right, nevertheless, the corporation still may be regarded as the importer of the same goods
for the reason that Dee Hong Lue transferred to it all his rights and interests in the contract with
the Foreign Liquidation Commission, and it was said corporation that took delivery thereof from
the place where they were stored in Leyte as may be seen from the letter of Dee Hong Lue to the
Foreign Liquidation Commission dated September 2, 1946 and the letter of the Central Syndicate
to the said Commission bearing the same date. Under these facts, it is clear that the Central
Syndicate is the importer of the surplus goods as correctly observed by Judge Umali in his
concurring opinion, from which we quote: .

It is now well settled that a person who bought surplus goods from the Foreign
Liquidation Commission and who removed the goods bought from the U.S. military bases
in the Philippines is considered an importer of such goods and is subject to the sales tax
or compensating tax, as the case may be. (Go Cheng Tee v. Meer, 47 O.G. 269; Saura
Import and Export v. Meer, G.R. No. L-2927, Jan. 26, 1951; P.M.P. Navigation v. Meer,
G.R. No. L-4621, March 24, 1953; Soriano y Cia v. Coll. of Int. Rev., 51 O.G. 4548.) In
this case it appearing that the Central Syndicate was the owner of the 'Mystery Pile'
before its removal from Base K and that it was the one which actually took delivery
thereof and removed the same from the U.S. military base, it is the importer within the
meaning of Section 186 of the Revenue Code, as it stood before the enactment of
Republic Act No. 594, and its sales of the surplus goods are the original sales taxable
under said section and not the sale to it by Dee Hong Lue.

2. Since the Central Syndicate, as we have already pointed out, was the importer of the surplus
goods in question, it was its duty under Section 183 of the Internal Revenue Code to file a return
of its gross sales within 20 days after the end of each quarter in order that the office of the
internal revenue may assess the sales tax that may be due thereon, but, as the record shows,
the Central Syndicate failed to file any return of its quarterly sales on the pretext that it was Dee
Hong Lue who imported the surplus goods and it merely purchased them from said importer.
This is in fact what the syndicate intended to impress upon the Collector when it wrote to him its
letter of October 19, 1946 informing him that it purchased from Dee Hong Lue the entire stock of
the surplus goods which the latter had bought from the Foreign Liquidation Commission and was
therefore depositing in his name the sum of P43,750.00 to answer for his sales tax liability, but
this letter certainly cannot be considered as a return that may set in operation the application of
the prescriptive period provided for in Section 331 of the Tax Code, for, evidently, said letter if at
all could only be considered as such in behalf of Dee Hong Lue and not in behalf of the Central
Syndicate because such is the only nature and import of the letter. Besides, how can such letter
be considered as a return of the sales of the Central Syndicate when it was only on February 21,
1947 when it removed the surplus goods in question from their base at Leyte? How can such
return inure to the benefit of the syndicate when the same surplus goods which were removed on
said date could not have been sold by the corporation earlier than the aforesaid date? It is
obvious that the letter of October 19, 1946 cannot possibly be considered as a return filed by the
syndicate and so cannot serve as basis for the computation of the prescriptive period of five
years prescribed by law.
Nor can the fact that the Collector did not include in the assessment a surcharge of 50% serve as
an argument that a return had already been filed, for such failure can only mean that an
oversight had been committed in the non-inclusion of said surcharge. The syndicate having failed
to file its quarterly returns as required by Section 183 of the Tax Code, the period that has to be
reckoned with is that embodied in Section 332 of the same Code which provides that in case of
failure to file the return the tax may be assessed within 10 years after discovery of the falsity,
fraud or omission of the payment of the proper tax. Since it appears that the Collector discovered
the failure of the syndicate to file the return only on September 12, 1951 he has therefore up to
September 18, 1961 within which to assess or collect the deficiency tax in question.
Consequently the assessment made on January 4, 1952 was made within the prescribed period.

3. Petitioners argue (1) that the Court of Tax Appeals acted in excess of its jurisdiction in holding
them liable as officers or directors of the defunct Central Syndicate for the tax liability of the
latter; (2) that petitioners cannot be held liable for said tax liability there being no statutory
provision in this jurisdiction authorizing the government to proceed against the stockholders of a
defunct corporation as transferees of the corporate assets upon liquidation; (3) that assuming
that the stockholders can be held so liable, they are only liable to the extent of the benefits
derived by them from the corporation and there is no evidence showing that petitioners had been
the beneficiaries of the defunct syndicate; (4) that considering that the Collector instituted the
present action on September 23, 1954 when he filed his answer to the appeal of petitioners, said
action was already barred by prescription pursuant to Sections 77 and 78 of the Corporation Law
which allows corporations to continue as a body corporate only for three years from its
dissolution; and (5) that assuming that petitioners are liable to pay the tax, their liability is not
solidary, but only limited to the benefits derived by them from the corporation.

It should be stated at the outset that it was petitioners themselves who caused their substitution
as parties in the present case, being the successors-in-interest of the defunct syndicate, when
they appealed this case to the Supreme Court for which reason the latter Court declared that "the
respondent Court of Tax Appeals should have allowed the substitution of its former officers and
directors is parties-appellants, since they are proper parties in interest insofar as they may be
(and in fact are) held personally liable for the unpaid deficiency assessments made by the
Collector of Internal Revenue against the defunct Syndicate." In fact, because of this directive
their substitution was effected. They cannot, therefore, be now heard to complain if they are
made responsible for the tax liability of the defunct syndicate whose representation they
assumed and whose assets were distributed among them.

In the second place, there is good authority to the effect that the creditor of a dissolved
corporation may follow its assets once they passed into the hands of the stockholders. Thus,
recognized are the following rules in American jurisprudence: The dissolution of a corporation
does not extinguish the debts due or owing to it (Bacon v. Robertson, 18 How. 480, 15 L. Ed.,
406; Curron v. State, 16 How. 304, 14 L. Ed., 705). A creditor of a dissolve corporation may
follow its assets, as in the nature of a trust fund, into the hands of its stockholders (MacWilliams
v. Excelsier Coal Co. [1924] 298 Fed. 384). An indebtedness of a corporation to the federal
government for income and excess profit taxes is not extinguished by the dissolution of the
corporation (Quinn v. McLeudon, 152 Ark. 271, 238 S.W., 32). And it has been stated, with
reference to the effect of dissolution upon taxes due from a corporation, "that the hands of the
government cannot, of course, collect taxes from a defunct corporation, it loses thereby none of
its rights to assess taxes which had been due from the corporation, and to collect them from
persons, who by reason of transactions with the corporation, hold property against which the tax
can be enforced and that the legal death of the corporation no more prevents such action than
would the physical death of an individual prevent the government from assessing taxes against
him and collecting them from his administrator, who holds the property which the decedent had
formerly possessed" (Wonder Bakeries Co. v. U.S. [1934] Ct. Cl. 6 F. Supp. 288). Bearing in
mind that our corporation law is of American origin, the foregoing authorities have persuasive
effect in considering similar cases in this jurisdiction. This must have been taken into account
when in G.R. No. L-8800 this Court said that petitioners could be held personally liable for the
taxes in question as successors-in-interest of the defunct corporation.
Considering that the Central Syndicate realized from the sale of the surplus goods a net profit of
P229,073.83, and that the sale of said goods was the only transaction undertaken by said
syndicate, there being no evidence to the contrary, the conclusion is that said net profit remained
intact and was distributed among the stockholders when the corporation liquidated and
distributed its assets on August 15, 1948, immediately after the sale of the said surplus goods.
Petitioners are therefore the beneficiaries of the defunct corporation and as such should be held
liable to pay the taxes in question. However, there being no express provision requiring the
stockholders of the corporation to be solidarily liable for its debts which liability must be express
and cannot be presumed, petitioners should be held to be liable for the tax in question only in
proportion to their shares in the distribution of the assets of the defunct corporation. The decision
of the trial court should be modified accordingly.

WHEREFORE, with the above modification, we hereby affirm the decision appealed from, with
costs against petitioners.