Pascual and Dragon v. CIR, G.R. No.

78133, October 18, 1988

25MAR
[GANCAYCO, J.]
FACTS:
Petitioners bought two (2) parcels of land and a year after, they bought another three (3) parcels of land. Petitioners subsequently sold the
said lots in 1968 and 1970, and realized net profits. The corresponding capital gains taxes were paid by petitioners in 1973 and 1974 by
availing of the tax amnesties granted in the said years. However, the Acting BIR Commissioner assessed and required Petitioners to pay a
total amount of P107,101.70 as alleged deficiency corporate income taxes for the years 1968 and 1970. Petitioners protested the said
assessment asserting that they had availed of tax amnesties way back in 1974. In a reply, respondent Commissioner informed petitioners
that in the years 1968 and 1970, petitioners as co-owners in the real estate transactions formed an unregistered partnership or joint venture
taxable as a corporation under Section 20(b) and its income was subject to the taxes prescribed under Section 24, both of the National
Internal Revenue Code that the unregistered partnership was subject to corporate income tax as distinguished from profits derived from the
partnership by them which is subject to individual income tax; and that the availment of tax amnesty under P.D. No. 23, as amended, by
petitioners relieved petitioners of their individual income tax liabilities but did not relieve them from the tax liability of the unregistered
partnership. Hence, the petitioners were required to pay the deficiency income tax assessed.

ISSUE:
Whether the Petitioners should be treated as an unregistered partnership or a co-ownership for the purposes of income tax.

RULING:
The Petitioners are simply under the regime of co-ownership and not under unregistered partnership.
By the contract of partnership two or more persons bind themselves to contribute money, property, or industry to a common fund, with the
intention of dividing the profits among themselves (Art. 1767, Civil Code of the Philippines). In the present case, there is no evidence that
petitioners entered into an agreement to contribute money, property or industry to a common fund, and that they intended to divide the profits
among themselves. The sharing of returns does not in itself establish a partnership whether or not the persons sharing therein have a joint or
common right or interest in the property. There must be a clear intent to form a partnership, the existence of a juridical personality different
from the individual partners, and the freedom of each party to transfer or assign the whole property. Hence, there is no adequate basis to
support the proposition that they thereby formed an unregistered partnership. The two isolated transactions whereby they purchased
properties and sold the same a few years thereafter did not thereby make them partners. They shared in the gross profits as co- owners and
paid their capital gains taxes on their net profits and availed of the tax amnesty thereby. Under the circumstances, they cannot be considered
to have formed an unregistered partnership which is thereby liable for corporate income tax, as the respondent commissioner proposes.

0
Pascual v. CIR
GR No. 78133
October 18, 1988
FACTS:
Petitioners bought two parcels of land and another 3 parcels the following year. The 2 parcels
were sold in 1968 while the other 3 were sold in 1970. Realizing profits from the sale, petitioners
filed capital gains tax. However, they were assessed with deficiency tax for corporate income
taxes.
ISSUE:
Whether or not petitioners formed an unregistered partnership thereby assessed with
corporate income tax.
RULING:
By the contract of partnership, two or more persons bind themselves to contribute
money, industry or property to a common fund with the intention of dividing profits among
themselves. There is no evidence though, that petitioners entered into an agreement to
contribute MPI to a common fund and that they intend to divide profits among themselves. The
petitioners purchased parcels of land and became co-owners thereof. Their transactions of
selling the lots were isolated cases. The character of habituality peculiar to the business
transactions for the purpose of gain was not present.
The sharing of returns foes not in itself establish a partnership whether or not the
persons sharing therein have a joint or common right or interest in the property. There must be a
clear intent to form partnership, the existence of a juridical personality different from the
individual partners, and the freedom of each party to transfer or assign the whole property.
41
Obillos v. CIR
GR 68118, 139 SCRA 436
October 29, 1985
Facts:
On March 2, 1973 Jose Obillos, Sr. bought two lots with areas of 1,124 and 963 square meters of
located atGreenhills, San Juan, Rizal. The next day he transferred his rights to his four children, the
petitioners, to enablethem to build their residences. The Torrens titles issued to them showed that they
were co-owners of the twolots.In 1974, or after having held the two lots for more than a year, the
petitioners resold them to the Walled CitySecurities Corporation and Olga Cruz Canada for the total sum
of P313,050. They derived from the sale a totalprofit of P134, 341.88 or P33,584 for each of them. They
treated the profit as a capital gain and paid an incometax on one-half thereof or of P16,792.In April, 1980,
the Commissioner of Internal Revenue required the four petitioners to pay
corporate incometax
on the total profit of P134,336 in addition to individual income tax on their shares thereof. The
petitionersare being held liable for deficiency income taxes and penalties totalling P127,781.76 on their
profit of P134,336, in addition to the tax on capital gains already paid by them.The Commissioner acted
on the theory that the four petitioners had formed an unregistered partnership or jointventure The
petitioners contested the assessments. Two Judges of the Tax Court sustained the same. Hence,
theinstant appeal.
Issue:
Whether or not the petitioners had indeed formed a partnership or joint venture and thus liable for
corporate tax.
Held:
The Supreme Court held that the petitioners should not be considered to have formed a partnership
just becausethey allegedly contributed P178,708.12 to buy the two lots, resold the same and divided the
profit amongthemselves. To regard so would result in oppressive taxation and confirm the dictum that the
power to taxinvolves the power to destroy. That eventuality should be obviated.As testified by Jose
Obillos, Jr., they had no such intention. They were co-owners pure and simple. To considerthem as
partners would obliterate the distinction between a co-ownership and a partnership. The petitionerswere
not engaged in any joint venture by reason of that isolated transaction.
*
Article 1769(3) of the Civil Code provides that "the sharing of gross returns does not of itself establish a
partnership, whether or not the persons sharing them have a joint or common right or interest in any
property from which the returns are derived". There must be an unmistakable intention to form a
partnership or joint venture