G.R. No. 215955 - Metropolitan Waterworks and Sewerage System vs. Central Board of Assessment Appeals

The petitioner is Manila Lodge No. 761 of the Benevolent & Protective Order of Elks, a fraternal, civic, non-stock, non-profit organization duly incorporated under Philippine laws.
The respondent is the Collector of Internal Revenue, representing the government’s tax authority.

The Collector of Internal Revenue assessed fixed taxes for two distinct periods:

From the 4th quarter of 1946 to 1953, with an assessment of P1,203.50 (exclusive of a compromise penalty of P80.00).
For the years 1954 to 1955, with an assessment of P332.00 (exclusive of a compromise penalty of P50.00).

These assessments were made under subsections (i), (k), and (n) of section 193 of the Tax Code, which impose fixed taxes on:

The Manila Lodge operates a clubhouse located on Dewey Boulevard, Manila, where it retails liquor, fermented liquor, cigars, cigarettes, and other related articles.
Sales are made exclusively to its members and their guests, on a very limited scale.
The pricing is set merely to cover operational expenses, rather than to generate profit, reflecting its social purpose.

The petitioner contended that it is not engaged in the “business” of selling liquor and tobacco since such sales are incidental to its primary purpose as a social club.
It argued that the limited and non-commercial nature of its transactions exempts it from the imposition of privilege taxes.

BIR agents discovered that the club had not paid the privilege taxes for the periods in question.
The petitioner sought a review of the assessment by the Conference Staff of the Bureau of Internal Revenue, which, after due hearing, upheld the assessment.
Subsequently, petitioner appealed to the Court of Tax Appeals, which reversed the initial finding that the club was liable for the fixed taxes.
During the pendency of the review, a supplemental assessment covering the 1954–1955 period was issued, and the petitioner later filed a supplemental petition including this assessment.

The petitioner maintained that, as a bona fide social club selling at retail only to its members and their guests, it is not “engaged in the business” of selling liquor and tobacco subjected to the fixed tax rates.
The respondent argued that any person or entity selling articles subject to specific tax should be liable for the prescribed fixed taxes, regardless of the profit motive or the scale of sales.
The dispute largely turned on the proper interpretation of “business” under sections 178 and 193 of the Tax Code, supported by definitions and previous administrative rulings.

Whether the Manila Lodge No. 761, by virtue of its limited and non-profit retail sales of liquor, fermented liquors, and tobacco exclusively to its members and their guests, is engaged in the “business” of selling these articles within the meaning of section 193 of the Tax Code.

Whether the exemption claimed by the petitioner, based on its characterization as a fraternal, civic, non-stock, non-profit organization operating a social club, precludes the imposition of privilege taxes on its retail sales activities.

Whether the administrative construction and the longstanding practice (e.g., the 1921 BIR ruling) that taxed clubs selling such articles are consistent with and supported by the provisions of the Revised Administrative Code and the current Tax Code.

Whether the definitions provided in section 194 of the National Internal Revenue Code, which elaborate on “retail liquor dealer”, “retail dealer in fermented liquors”, and “tobacco dealer”, should be interpreted narrowly in light of the context and overall purpose of the Tax Code.