THE COLLECTOR OF INTERNAL REVENUE, petitioner, vs. THE CLUB FILIPINO, INC. DE CEBU, respondent. PAREDES, J.:

 FACTS:
Respondent Club operates a clubhouse, a bowling alley, a golf course and a bar restaurant where it sells wines, liquors, soft-drinks, meals and short orders to its members and their guests. The bar and restaurant were a necessary incident to the operation of the Club and its golf course is operated mainly with funds derived from membership fees and dues. Whatever profits it had were used to defray its overhead expenses and to improve its golf course. In 1951, as a result of capital surplus arising from the revaluation of its real properties, the Club declared stock dividends. In 1952, the BIR assessed percentage taxes on the gross receipt of the Club’s bar and restaurant pursuant to Sec. 182 of the Tax Code: “unless otherwise provided, every person engaging in a business on which the percentage tax is imposed shall pay in full a fixed annual tax of P10 for each calendar year or a fraction thereof” and under Sec. 191: “keepers of restaurant, refreshment parlors and other eating places shall pay a tax of 3% of their gross receipts”

ISSUE 1: WON the Club is liable for the assessment.
​HELD: NO. It has been held that the liability for fixed and percentage taxes does not ipso facto attach by mere reason of the operation of a bar and restaurant. For the liability to attach, the operator thereof must be engaged in the business as a bar keeper and restauranteur. Business, in the ordinary sense, is restricted to activities or affairs where profit is the purpose or livelihood is the motive, and the term business when used without qualification, should be construed in its plain and ordinary meaning; restricted to activities for profit or livelihood. The fact that the Club derived profits from the operation of its bar and restaurant does not necessarily convert it into a profit-making enterprise. The bar and restaurant are necessary adjunct of the Club to foster its purpose and the profits derived therefrom are necessarily incidental to the primary object of developing and cultivating sports for the healthful recreation and entertainment of the stockholders and members. That a club makes profit does not make it a profit-making club.

ISSUE 2:
WON the Club is a stock corporation. HELD: NO. The fact that the capital of the Club is divided into shares does not detract from the finding of the trial court that it is not engaged in the business of operator of bar and restaurant. What is determinative of whether or not the Club is engaged in such business is its object or purpose as stated in its articles and by-laws. Moreover, for a stock corporation to exists, two requisites must be complied with: (1) a capital stock divided into shares; and (2) an authority to distribute to the holders of such shares, dividends or allotments of surplus profits on the basis of the shares held. In the case at bar, nowhere it its AOI or by-laws could be found an authority for the distribution of its dividends or surplus profits. Strictly speaking, it cannot therefore, be considered as stock corporation, within the contemplation of the Corporation Code.