Professional Documents
Culture Documents
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. L-68118 October 29, 1985
JOSE P. OBILLOS, JR., SARAH P. OBILLOS, ROMEO P. OBILLOS
and REMEDIOS P. OBILLOS, brothers and sisters, petitioners
vs.
COMMISSIONER OF INTERNAL REVENUE and COURT OF TAX
APPEALS, respondents.
This case is about the income tax liability of four brothers and
sisters who sold two parcels of land which they had acquired from
their father.
On March 2, 1973 Jose Obillos, Sr. completed payment to Ortigas &
Co., Ltd. on two lots with areas of 1,124 and 963 square meters
located at Greenhills, San Juan, Rizal. The next day he transferred
his rights to his four children, the petitioners, to enable them to
build their residences. The company sold the two lots to petitioners
for P178,708.12 on March 13 (Exh. A and B, p. 44, Rollo).
Presumably, the Torrens titles issued to them would show that they
were co-owners of the two lots.
In 1974, or after having held the two lots for more than a year, the
petitioners resold them to the Walled City Securities Corporation
and Olga Cruz Canda for the total sum of P313,050 (Exh. C and D).
They derived from the sale a total profit of P134,341.88 or P33,584
for each of them. They treated the profit as a capital gain and paid
an income tax on one-half thereof or of P16,792.
In April, 1980, or one day before the expiration of the five-year
prescriptive period, the Commissioner of Internal Revenue required
the four petitioners to pay corporate income tax on the total profit
of P134,336 in addition to individual income tax on their shares
thereof He assessed P37,018 as corporate income tax, P18,509 as
any property from which the returns are derived". There must be an
unmistakable intention to form a partnership or joint venture.*
Such intent was present in Gatchalian vs. Collector of Internal
Revenue, 67 Phil. 666, where 15 persons contributed small
amounts to purchase a two-peso sweepstakes ticket with the
agreement that they would divide the prize The ticket won the third
prize of P50,000. The 15 persons were held liable for income tax as
an unregistered partnership.
The instant case is distinguishable from the cases where the parties
engaged in joint ventures for profit. Thus, in Oa vs.
** This view is supported by the following rulings of respondent
Commissioner:
Co-owership distinguished from partnership.We
find that the case at bar is fundamentally similar to
the De Leon case. Thus, like the De Leon heirs, the
Longa heirs inherited the 'hacienda' in questionproindiviso from their deceased parents; they did not
contribute or invest additional ' capital to increase or
expand the inherited properties; they merely
continued dedicating the property to the use to
which it had been put by their forebears; they
individually reported in their tax returns their
corresponding shares in the income and expenses of
the 'hacienda', and they continued for many years
the status of co-ownership in order, as conceded by
respondent, 'to preserve its (the 'hacienda') value
and to continue the existing contractual relations
with the Central Azucarera de Bais for milling
purposes. Longa vs. Aranas, CTA Case No. 653, July
31, 1963).
All co-ownerships are not deemed unregistered
pratnership.Co-Ownership who own properties
which produce income should not automatically be
considered partners of an unregistered partnership,
or a corporation, within the purview of the income
themselves to determine who the six (6) nominees will be, with
cumulative voting to be allowed but without interference from ASI.
The antecedent facts can be summarized as follows:
In 1961, Saniwares, a domestic corporation was incorporated for
the primary purpose of manufacturing and marketing sanitary
wares. One of the incorporators, Mr. Baldwin Young went abroad to
look for foreign partners, European or American who could help in
its expansion plans. On August 15, 1962, ASI, a foreign corporation
domiciled in Delaware, United States entered into an Agreement
with Saniwares and some Filipino investors whereby ASI and the
Filipino investors agreed to participate in the ownership of an
enterprise which would engage primarily in the business of
manufacturing in the Philippines and selling here and abroad
vitreous china and sanitary wares. The parties agreed that the
business operations in the Philippines shall be carried on by an
incorporated enterprise and that the name of the corporation shall
initially be "Sanitary Wares Manufacturing Corporation."
The Agreement has the following provisions relevant to the issues
in these cases on the nomination and election of the directors of
the corporation:
3. Articles of Incorporation
(a) The Articles of Incorporation of the Corporation
shall be substantially in the form annexed hereto as
Exhibit A and, insofar as permitted under Philippine
law, shall specifically provide for
(1) Cumulative voting for directors:
xxx xxx xxx
5. Management
(a) The management of the Corporation shall be
vested in a Board of Directors, which shall consist of
nine individuals. As long as American-Standard shall
Section 5 (a) of the agreement uses the word "designated" and not
"nominated" or "elected" in the selection of the nine directors on a
six to three ratio. Each group is assured of a fixed number of
directors in the board.
1. Jose
Gatchalian ............................................................................ P0.18
........................
2. Gregoria
Cristobal ...............................................................................
................
.18
3. Saturnina
Silva .....................................................................................
...............
.08
4. Guillermo
Tapia ....................................................................................
...............
.13
5. Jesus
Legaspi ................................................................................
......................
.15
6. Jose
Silva .....................................................................................
........................
.07
7. Tomasa
Mercado ...............................................................................
.................
.08
8. Julio
Gatchalian ............................................................................
.......................
.13
9. Emiliana
Santiago ...............................................................................
.................
.13
10. Maria C.
Legaspi ................................................................................
...............
.16
11. Francisco
Cabral ..................................................................................
.............
.13
12. Gonzalo
Javier ....................................................................................
................
.14
13. Maria
Santiago ...............................................................................
....................
.17
14. Buenaventura
Guzman ...............................................................................
.......
.13
15. Mariano
Santos ..................................................................................
...............
.14
Total .....................................................................................
...................
2.00
Amoun
t
Address
P0.14
Pulilan,
Bulacan.
2. Buenaventura
Guzman ...............................
.13
- Do -
3. Maria
Santiago ............................................
.17
- Do -
4. Gonzalo
Javier ..............................................
.14
- Do -
5. Francisco
Cabral ..........................................
.13
- Do -
6. Maria C.
Legaspi ..........................................
.16
- Do -
7. Emiliana
Santiago .........................................
.13
8. Julio
Gatchalian ............................................
.13
- Do -
9. Jose
Silva ......................................................
.07
- Do -
10. Tomasa
Mercado .......................................
.08
- Do -
11. Jesus
Legaspi .............................................
.15
12. Guillermo
Tapia ...........................................
.13
13. Saturnina
Silva ............................................
14. Gregoria
Cristobal .......................................
15. Jose
Gatchalian ............................................
.18
- Do -
Total cost of
2.00 said
ticket; and that, therefore, the persons named above are
entitled to the parts of whatever prize that might be won by
said ticket.
Pulilan, Bulacan, P.I.
(Sgd.) JOSE GATCHALIAN
And a summary of Exhibits D-1 to D-15 is inserted in the bill of
exceptions as follows:
RECAPITULATIONS OF 15 INDIVIDUAL INCOME TAX RETURNS
FOR 1934 ALL DATED JANUARY 19, 1935 SUBMITTED TO THE
COLLECTOR OF INTERNAL REVENUE.
Name
- Do -
Exhibi
t
No.
1. Jose
Gatchalian ....................
......................
D-1
2. Gregoria
Cristobal .......................
...............
Purcha
se
Price
Price
Won
Expenses
Net
priz
e
P4,42
5
P 480
3,94
5
D-2
.18 4,575
2,000
2,57
5
3. Saturnina
Silva .............................. D-3
...............
.08 1,875
360
1,51
5
- Do -
4. Guillermo
Tapia .............................
.............
D-4
.13 3,325
360
2,96
5
.08
- Do -
5. Jesus Legaspi by
Maria Cristobal .........
D-5
.15 3,825
720
3,10
5
.18
- Do -
6. Jose
D-6
Silva ..............................
.08 1,875
360 1,51
5
- Do -
P0.18
......................
7. Tomasa
Mercado ........................ D-7
...............
.07 1,875
360
1,51
5
8. Julio Gatchalian by
Beatriz Guzman .......
D-8
.13 3,150
240
2,91
0
9. Emiliana
Santiago .......................
...............
D-9
.13 3,325
360
2,96
5
10. Maria C.
Legaspi .........................
.............
D-10
.16 4,100
960
3,14
0
11. Francisco
Cabral ........................... D-11
...........
.13 3,325
360
2,96
5
12. Gonzalo
Javier ............................. D-12
.............
.14 3,325
360
2,96
5
13. Maria
Santiago .......................
...................
D-13
.17 4,350
360
3,99
0
14. Buenaventura
Guzman ........................
...
D-14
.13 3,325
360
2,96
5
15. Mariano
Santos ........................... D-15
.............
.14 3,325
360
2,96
5
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The legal questions raised in plaintiffs-appellants' five assigned
errors may properly be reduced to the two following: (1) Whether
the plaintiffs formed a partnership, or merely a community of
property without a personality of its own; in the first case it is
admitted that the partnership thus formed is liable for the payment
of income tax, whereas if there was merely a community of
property, they are exempt from such payment; and (2) whether
they should pay the tax collectively or whether the latter should be
prorated among them and paid individually.
The Collector of Internal Revenue collected the tax under section
10 of Act No. 2833, as last amended by section 2 of Act No. 3761,
reading as follows:
SEC. 10. (a) There shall be levied, assessed, collected, and
paid annually upon the total net income received in the
preceding calendar year from all sources by every
corporation, joint-stock company, partnership, joint account
(cuenta en participacion), association or insurance
company, organized in the Philippine Islands, no matter how
created or organized, but not including duly registered
general copartnership (compaias colectivas), a tax of three
per centum upon such income; and a like tax shall be levied,
assessed, collected, and paid annually upon the total net
income received in the preceding calendar year from all
sources within the Philippine Islands by every corporation,
joint-stock company, partnership, joint account (cuenta en
participacion), association, or insurance company organized,
authorized, or existing under the laws of any foreign
country, including interest on bonds, notes, or other
interest-bearing obligations of residents, corporate or
otherwise: Provided, however, That nothing in this section
shall be construed as permitting the taxation of the income
derived from dividends or net profits on which the normal
tax has been paid.
The gain derived or loss sustained from the sale or other
disposition by a corporation, joint-stock company,
partnership, joint account (cuenta en participacion),
vs.
THE COMMISSIONER OF INTERNAL REVENUE, respondent.
Petition for review of the decision of the Court of Tax Appeals in
CTA Case No. 617, similarly entitled as above, holding that
petitioners have constituted an unregistered partnership and are,
therefore, subject to the payment of the deficiency corporate
income taxes assessed against them by respondent Commissioner
of Internal Revenue for the years 1955 and 1956 in the total sum of
P21,891.00, plus 5% surcharge and 1% monthly interest from
December 15, 1958, subject to the provisions of Section 51 (e) (2)
of the Internal Revenue Code, as amended by Section 8 of Republic
Act No. 2343 and the costs of the suit, 1 as well as the resolution of
said court denying petitioners' motion for reconsideration of said
decision.
The facts are stated in the decision of the Tax Court as follows:
Julia Buales died on March 23, 1944, leaving as
heirs her surviving spouse, Lorenzo T. Oa and her
five children. In 1948, Civil Case No. 4519 was
instituted in the Court of First Instance of Manila for
the settlement of her estate. Later, Lorenzo T. Oa
the surviving spouse was appointed administrator of
the estate of said deceased (Exhibit 3, pp. 34-41, BIR
rec.). On April 14, 1949, the administrator submitted
the project of partition, which was approved by the
Court on May 16, 1949 (See Exhibit K). Because three
of the heirs, namely Luz, Virginia and Lorenzo, Jr., all
surnamed Oa, were still minors when the project of
partition was approved, Lorenzo T. Oa, their father
and administrator of the estate, filed a petition in
Civil Case No. 9637 of the Court of First Instance of
Manila for appointment as guardian of said minors.
On November 14, 1949, the Court appointed him
guardian of the persons and property of the
aforenamed minors (See p. 3, BIR rec.).
The project of partition (Exhibit K; see also pp. 77-70,
BIR rec.) shows that the heirs have undivided onehalf (1/2) interest in ten parcels of land with a total
assessed value of P87,860.00, six houses with a total
assessed value of P17,590.00 and an undetermined
amount to be collected from the War Damage
Commission. Later, they received from said
Y
e
a
r
Inves
tmen
t
La
nd
Bui
ldin
g
P87,860.00
P17,590.00
P24,657.65
128,566.72
96,076.26
51,301.31
120,349.28
110,605.11
67,927.52
87,065.28
152,674.39
61,258.27
84,925.68
161,463.83
63,623.37
99,001.20
167,962.04
100,786.00
120,249.78
169,262.52
175,028.68
135,714.68
169,262.52
(See Exhibits 3 & K t.s.n., pp. 22, 25-26, 40, 50, 102104)
Acco
unt
Ac
co
unt
Acc
ou
nt
II.
1956
III.