SECOND DIVISION
WHEREFORE, in view of all the foregoing, judgment is hereby rendered:chanrob1es virtual 1aw
[G.R. No. 126881. October 3, 2000.]
HEIRS OF TAN ENG KEE, Petitioners, v. COURT OF APPEALS and BENGUET LUMBER
COMPANY, represented by its President TAN ENG LAY, Respondents.
DECISION
DE LEON, JR., J.:
In this petition for review on certiorari, petitioners pray for the reversal of the Decision 1 dated
March 13, 1996 of the former Fifth Division 2 of the Court of Appeals in CA-G.R. CV No. 47937,
the dispositive portion of which states:chanrob1es virtua1 1aw 1ibrary
THE FOREGOING CONSIDERED, the appealed decision is hereby set aside, and the complaint
dismissed.
The facts are:chanrob1es virtua1 1aw 1ibrary
Following the death of Tan Eng Kee on September 13, 1984, Matilde Abubo, the common-law
spouse of the decedent, joined by their children Teresita, Nena, Clarita, Carlos, Corazon and
Elpidio, collectively known as herein petitioners HEIRS OF TAN ENG KEE, filed suit against the
decedents brother TAN ENG LAY on February 19, 1990. The complaint, 3 docketed as Civil Case
No. 1983-R in the Regional Trial Court of Baguio City was for accounting, liquidation and winding
up of the alleged partnership formed after World War II between Tan Eng Kee and Tan Eng Lay.
On March 18, 1991, the petitioners filed an amended complaint 4 impleading private respondent
herein BENGUET LUMBER COMPANY, as represented by Tan Eng Lay. The amended complaint
was admitted by the trial court in its Order dated May 3, 1991. 5
The amended complaint principally alleged that after the second World War, Tan Eng Kee and
Tan Eng Lay, pooling their resources and industry together, entered into a partnership engaged
in the business of selling lumber and hardware and construction supplies. They named their
enterprise "Benguet Lumber" which they jointly managed until Tan Eng Kees death. Petitioners
herein averred that the business prospered due to the hard work and thrift of the alleged
partners. However, they claimed that in 1981, Tan Eng Lay and his children caused the
conversion of the partnership "Benguet Lumber" into a corporation called "Benguet Lumber
Company." The incorporation was purportedly a ruse to deprive Tan Eng Kee and his heirs of
their rightful participation in the profits of the business. Petitioners prayed for accounting of the
partnership assets, and the dissolution, winding up and liquidation thereof, and the equal
division of the net assets of Benguet Lumber.
After trial, Regional Trial Court of Baguio City, Branch 7 rendered judgment 6 on April 12, 1995,
to wit:chanrob1es virtual 1aw library
library
a) Declaring that Benguet Lumber is a joint venture which is akin to a particular partnership;
b) Declaring that the deceased Tan Eng Kee and Tan Eng Lay are joint adventurers and/or
partners in a business venture and/or particular partnership called Benguet Lumber and as such
should share in the profits and/or losses of the business venture or particular partnership;
c) Declaring that the assets of Benguet Lumber are the same assets turned over to Benguet
Lumber Co. Inc. and as such the heirs or legal representatives of the deceased Tan Eng Kee have a
legal right to share in said assets;
d) Declaring that all the rights and obligations of Tan Eng Kee as joint adventurer and/or as
partner in a particular partnership have descended to the plaintiffs who are his legal heirs.
e) Ordering the defendant Tan Eng Lay and/or the President and/or General Manager of Benguet
Lumber Company Inc. to render an accounting of all the assets of Benguet Lumber Company, Inc.
so the plaintiffs know their proper share in the business;
f) Ordering the appointment of a receiver to preserve and/or administer the assets of Benguet
Lumber Company, Inc. until such time that said corporation is finally liquidated are directed to
submit the name of any person they want to be appointed as receiver failing in which this Court
will appoint the Branch Clerk of Court or another one who is qualified to act as such.
g) Denying the award of damages to the plaintiffs for lack of proof except the expenses in filing
the instant case.
h) Dismissing the counter-claim of the defendant for lack of merit.
SO ORDERED.chanrob1es virtua1 1aw 1ibrary
Private respondent sought relief before the Court of Appeals which, on March 13, 1996, rendered
the assailed decision reversing the judgment of the trial court. Petitioners motion for
reconsideration 7 was denied by the Court of Appeals in a Resolution 8 dated October 11, 1996.
Hence, the present petition.chanrob1es virtua1 1aw 1ibrary
As a side-bar to the proceedings, petitioners filed Criminal Case No. 78856 against Tan Eng Lay
and Wilborn Tan for the use of allegedly falsified documents in a judicial proceeding. Petitioners
complained that Exhibits "4" to "4-U" offered by the defendants before the trial court, consisting
of payrolls indicating that Tan Eng Kee was a mere employee of Benguet Lumber, were fake,
based on the discrepancy in the signatures of Tan Eng Kee. They also filed Criminal Cases Nos.
78857-78870 against Gloria, Julia, Juliano, Willie, Wilfredo, Jean, Mary and Willy, all surnamed
Tan, for alleged falsification of commercial documents by a private individual. On March 20,
1999, the Municipal Trial Court of Baguio City, Branch 1, wherein the charges were filed,
rendered judgment 9 dismissing the cases for insufficiency of evidence.
In their assignment of errors, petitioners claim that:chanrob1es virtual 1aw library
I VERONICA CHOI, TOGETHER WITH THEIR WITNESS BEATRIZ TANDOC, ADMITTED THAT THEY
THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT THERE WAS NO
PARTNERSHIP BETWEEN THE LATE TAN ENG KEE AND HIS BROTHER TAN ENG LAY BECAUSE:
(A) THERE WAS NO FIRM ACCOUNT; (B) THERE WAS NO FIRM LETTERHEADS SUBMITTED AS
EVIDENCE; (C) THERE WAS NO CERTIFICATE OF PARTNERSHIP; (D) THERE WAS NO
AGREEMENT AS TO PROFITS AND LOSSES; AND (E) THERE WAS NO TIME FIXED FOR THE
DURATION OF THE PARTNERSHIP (PAGE 13, DECISION).
II
THE HONORABLE COURT OF APPEALS ERRED IN RELYING SOLELY ON THE SELF-SERVING
TESTIMONY OF RESPONDENT TAN ENG LAY THAT BENGUET LUMBER WAS A SOLE
PROPRIETORSHIP AND THAT TAN ENG KEE WAS ONLY AN EMPLOYEE THEREOF.
III
THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT THE FOLLOWING FACTS
WHICH WERE DULY SUPPORTED BY EVIDENCE OF BOTH PARTIES DO NOT SUPPORT THE
EXISTENCE OF A PARTNERSHIP JUST BECAUSE THERE WAS NO ARTICLES OF PARTNERSHIP
DULY RECORDED BEFORE THE SECURITIES AND EXCHANGE COMMISSION:chanrob1es virtual
1aw library
a. THAT THE FAMILIES OF TAN ENG KEE AND TAN ENG LAY WERE ALL LIVING AT THE
BENGUET LUMBER COMPOUND;
b. THAT BOTH TAN ENG LAY AND TAN ENG KEE WERE COMMANDING THE EMPLOYEES OF
BENGUET LUMBER;
c. THAT BOTH TAN ENG KEE AND TAN ENG LAY WERE SUPERVISING THE EMPLOYEES
THEREIN;
d. THAT TAN ENG KEE AND TAN ENG LAY WERE THE ONES DETERMINING THE PRICES OF
STOCKS TO BE SOLD TO THE PUBLIC; AND
e. THAT TAN ENG LAY AND TAN ENG KEE WERE THE ONES MAKING ORDERS TO THE
SUPPLIERS (PAGE 18, DECISION).
IV
THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT THERE WAS NO
PARTNERSHIP JUST BECAUSE THE CHILDREN OF THE LATE TAN ENG KEE: ELPIDIO TAN AND
DO NOT KNOW WHEN THE ESTABLISHMENT KNOWN IN BAGUIO CITY AS BENGUET LUMBER
WAS STARTED AS A PARTNERSHIP (PAGE 16-17, DECISION).
V
THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT THERE WAS NO
PARTNERSHIP BETWEEN THE LATE TAN ENG KEE AND HIS BROTHER TAN ENG LAY BECAUSE
THE PRESENT CAPITAL OR ASSETS OF BENGUET LUMBER IS DEFINITELY MORE THAN
P3,000.00 AND AS SUCH THE EXECUTION OF A PUBLIC INSTRUMENT CREATING A
PARTNERSHIP SHOULD HAVE BEEN MADE AND NO SUCH PUBLIC INSTRUMENT ESTABLISHED
BY THE APPELLEES (PAGE 17, DECISION).
As a premise, we reiterate the oft-repeated rule that findings of facts of the Court of Appeals will
not be disturbed on appeal if such are supported by the evidence. 10 Our jurisdiction, it must be
emphasized, does not include review of factual issues. Thus:chanrob1es virtual 1aw library
Filing of petition with Supreme Court. A party desiring to appeal by certiorari from a judgment
or final order or resolution of the Court of Appeals, the Sandiganbayan, the Regional Trial Court
or other courts whenever authorized by law, may file with the Supreme Court a verified petition
for review on certiorari. The petition shall raise only questions of law which must be distinctly
set forth. 11 [Emphasis supplied]
Admitted exceptions have been recognized, though, and when present, may compel us to analyze
the evidentiary basis on which the lower court rendered judgment. Review of factual issues is
therefore warranted:chanrob1es virtual 1aw library
(1) when the factual findings of the Court of Appeals and the trial court are contradictory;
(2) when the findings are grounded entirely on speculation, surmises, or conjectures;
(3) when the inference made by the Court of Appeals from its findings of fact is manifestly
mistaken, absurd, or impossible;
(4) when there is grave abuse of discretion in the appreciation of facts;
(5) when the appellate court, in making its findings, goes beyond the issues of the case, and such
findings are contrary to the admissions of both appellant and appellee;
(6) when the judgment of the Court of Appeals is premised on a misapprehension of facts;

(7) when the Court of Appeals fails to notice certain relevant facts which, if properly considered,
will justify a different conclusion;
(8) when the findings of fact are themselves conflicting;
(9) when the findings of fact are conclusions without citation of the specific evidence on which
they are based; and
(10) when the findings of fact of the Court of Appeals are premised on the absence of evidence
but such findings are contradicted by the evidence on record. 12
In reversing the trial court, the Court of Appeals ruled, to wit:chanrob1es virtual 1aw library
We note that the Court a quo over extended the issue because while the plaintiffs mentioned only
the existence of a partnership, the Court in turn went beyond that by justifying the existence of a
joint venture.
When mention is made of a joint venture, it would presuppose parity of standing between the
parties, equal proprietary interest and the exercise by the parties equally of the conduct of the
business, thus:chanrob1es virtual 1aw library
x x x compound. The execution of a public instrument, on the other hand, was never established by the
We have the admission that the father of the plaintiffs was not a partner of the Benguet Lumber
before the war. The appellees however argued that (Rollo, p. 104; Brief, p. 6) this is because
during the war, the entire stocks of the pre-war Benguet Lumber were confiscated if not burned
by the Japanese. After the war, because of the absence of capital to start a lumber and hardware
business, Lay and Kee pooled the proceeds of their individual businesses earned from buying and
selling military supplies, so that the common fund would be enough to form a partnership, both
in the lumber and hardware business. That Lay and Kee actually established the Benguet Lumber
in Baguio City, was even testified to by witnesses. Because of the pooling of resources, the post-
war Benguet Lumber was eventually established. That the father of the plaintiffs and Lay were
partners, is obvious from the fact that: (1) they conducted the affairs of the business during Kees
lifetime, jointly, (2) they were the ones giving orders to the employees, (3) they were the ones
preparing orders from the suppliers, (4) their families stayed together at the Benguet Lumber
compound, and (5) all their children were employed in the business in different capacities.
x x x the 80 pieces of the G.I. sheets were added to the business.chanrob1es virtua1 1aw 1ibrary
It is obvious that there was no partnership whatsoever. Except for a firm name, there was no
firm account, no firm letterheads submitted as evidence, no certificate of partnership, no
agreement as to profits and losses, and no time fixed for the duration of the partnership. There
was even no attempt to submit an accounting corresponding to the period after the war until
Kees death in 1984. It had no business book, no written account nor any memorandum for that
matter and no license mentioning the existence of a partnership [Citation omitted].
Also, the exhibits support the establishment of only a proprietorship. The certification dated
March 4, 1971, Exhibit "2", mentioned co-defendant Lay as the only registered owner of the
Benguet Lumber and Hardware. His application for registration, effective 1954, in fact mentioned
that his business started in 1945 until 1985 (thereafter, the incorporation). The deceased, Kee,
on the other hand, was merely an employee of the Benguet Lumber Company, on the basis of his
SSS coverage effective 1958, Exhibit "3." In the Payrolls, Exhibits "4" to "4-U", inclusive, for the
years 1982 to 1983, Kee was similarly listed only as an employee; precisely, he was on the
payroll listing. In the Termination Notice, Exhibit "5", Lay was mentioned also as the proprietor.
x x x
We would like to refer to Arts. 771 and 772, NCC, that a partner [sic] may be constituted in any
form, but when an immovable is constituted, the execution of a public instrument becomes
necessary. This is equally true if the capitalization exceeds P3,000.00, in which case a public
instrument is also necessary, and which is to be recorded with the Securities and Exchange
Commission. In this case at bar, we can easily assume that the business establishment, which
from the language of the appellees, prospered (pars. 5 & 9, Complaint), definitely exceeded
P3,000.00, in addition to the accumulation of real properties and to the fact that it is now a
appellees.
And then in 1981, the business was incorporated and the incorporators were only Lay and the
members of his family. There is no proof either that the capital assets of the partnership,
assuming them to be in existence, were maliciously assigned or transferred by Lay, supposedly to
the corporation and since then have been treated as a part of the latters capital assets, contrary
to the allegations in pars. 6, 7 and 8 of the complaint.chanrob1es virtua1 1aw 1ibrary
These are not evidences supporting the existence of a partnership:chanrob1es virtual 1aw
library
1) That Kee was living in a bunk house just across the lumber store, and then in a room in the
bunk house in Trinidad, but within the compound of the lumber establishment, as testified to by
Tandoc; 2) that both Lay and Kee were seated on a table and were "commanding people" as
testified to by the son, Elpidio Tan; 3) that both were supervising the laborers, as testified to by
Victoria Choi; and 4) that Dionisio Peralta was supposedly being told by Kee that the proceeds of
Partnership presupposes the following elements [Citation omitted]: 1) a contract, either oral or
written. However, if it involves real property or where the capital is P3,000.00 or more, the
execution of a contract is necessary; 2) the capacity of the parties to execute the contract; 3)
money property or industry contribution; 4) community of funds and interest, mentioning
equality of the partners or one having a proportionate share in the benefits; and 5) intention to
divide the profits, being the true test of the partnership. The intention to join in the business
venture for the purpose of obtaining profits thereafter to be divided, must be established. We
cannot see these elements from the testimonial evidence of the appellees.
As can be seen, the appellate court disputed and differed from the trial court which had adjudged
that TAN ENG KEE and TAN ENG LAY had allegedly entered into a joint venture. In this
connection, we have held that whether a partnership exists is a factual matter; consequently,
since the appeal is brought to us under Rule 45, we cannot entertain inquiries relative to the
correctness of the assessment of the evidence by the court a quo. 13 Inasmuch as the Court of
Appeals and the trial court had reached conflicting conclusions, perforce we must examine the
record to determine if the reversal was justified.
The primordial issue here is whether Tan Eng Kee and Tan Eng Lay were partners in Benguet
Lumber. A contract of partnership is defined by law as one where:chanrob1es virtual 1aw library
. . . 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.
Two or more persons may also form a partnership for the exercise of a profession. 14
Thus, in order to constitute a partnership, it must be established that (1) two or more persons
bound themselves to contribute money, property, or industry to a common fund, and (2) they
intend to divide the profits among themselves. 15 The agreement need not be formally reduced
into writing, since statute allows the oral constitution of a partnership, save in two instances: (1)
when immovable property or real rights are contributed, 16 and (2) when the partnership has a
capital of three thousand pesos or more. 17 In both cases, a public instrument is required. 18 An
inventory to be signed by the parties and attached to the public instrument is also indispensable
to the validity of the partnership whenever immovable property is contributed to the
partnership. 19
The trial court determined that Tan Eng Kee and Tan Eng Lay had entered into a joint venture,
which it said is akin to a particular partnership. 20 A particular partnership is distinguished from
a joint adventure, to wit:chanrob1es virtual 1aw library
(a) A joint adventure (an American concept similar to our joint accounts) is a sort of informal
partnership, with no firm name and no legal personality. In a joint account, the participating
merchants can transact business under their own name, and can be individually liable therefor.
(b) Usually, but not necessarily a joint adventure is limited to a SINGLE TRANSACTION, although
the business of pursuing to a successful termination may continue for a number of years; a
partnership generally relates to a continuing business of various transactions of a certain kind.
21
A joint venture "presupposes generally a parity of standing between the joint co-ventures or
partners, in which each party has an equal proprietary interest in the capital or property
contributed, and where each party exercises equal rights in the conduct of the business." 22
Nonetheless, in Aurbach, et. al. v. Sanitary Wares Manufacturing Corporation, et. al., 23 we
expressed the view that a joint venture may be likened to a particular partnership,
thus:chanrob1es virtual 1aw library
The legal concept of a joint venture is of common law origin. It has no precise legal definition, but
it has been generally understood to mean an organization formed for some temporary purpose.
(Gates v. Megargel, 266 Fed. 811 [1920]) It is hardly distinguishable from the partnership, since
their elements are similar community of interest in the business, sharing of profits and losses,
and a mutual right of control. (Blackner v. McDermott, 176 F. 2d. 498, [1949]; Carboneau v.
Peterson, 95 P.2d., 1043 [1939]; Buckley v. Chadwick, 45 Cal. 2d. 183, 288 P.2d. 12 289 P.2d. 242
[1955]). The main distinction cited by most opinions in common law jurisdiction is that the
partnership contemplates a general business with some degree of continuity, while the joint
venture is formed for the execution of a single transaction, and is thus of a temporary nature.
(Tufts v. Mann. 116 Cal. App. 170, 2 P. 2d. 500 [1931]; Harmon v. Martin, 395 Ill. 595, 71 NE 2d.
74 [1947]; Gates v. Megargel 266 Fed. 811 [1920]). This observation is not entirely accurate in
this jurisdiction, since under the Civil Code, a partnership may be particular or universal, and a
particular partnership may have for its object a specific undertaking. (Art. 1783, Civil Code). It
would seem therefore that under Philippine law, a joint venture is a form of partnership and
should thus be governed by the law of partnerships. The Supreme Court has however recognized
a distinction between these two business forms, and has held that although a corporation cannot
enter into a partnership contract, it may however engage in a joint venture with others. (At p. 12,
Tuazon v. Bolaos, 95 Phil. 906 [1954]) (Campos and Lopez-Campos Comments, Notes and
Selected Cases, Corporation Code 1981).
Undoubtedly, the best evidence would have been the contract of partnership itself, or the articles
of partnership but there is none. The alleged partnership, though, was never formally organized.
In addition, petitioners point out that the New Civil Code was not yet in effect when the
partnership was allegedly formed sometime in 1945, although the contrary may well be argued
that nothing prevented the parties from complying with the provisions of the New Civil Code
when it took effect on August 30, 1950. But all that is in the past. The net effect, however, is that
we are asked to determine whether a partnership existed based purely on circumstantial
evidence. A review of the record persuades us that the Court of Appeals correctly reversed the
decision of the trial court. The evidence presented by petitioners falls short of the quantum of
proof required to establish a partnership.
Unfortunately for petitioners, Tan Eng Kee has passed away. Only he, aside from Tan Eng Lay,
could have expounded on the precise nature of the business relationship between them. In the
absence of evidence, we cannot accept as an established fact that Tan Eng Kee allegedly
contributed his resources to a common fund for the purpose of establishing a partnership. The
testimonies to that effect of petitioners witnesses is directly controverted by Tan Eng Lay. It
should be noted that it is not with the number of witnesses wherein preponderance lies; 24 the
quality of their testimonies is to be considered. None of petitioners witnesses could suitably
account for the beginnings of Benguet Lumber Company, except perhaps for Dionisio Peralta
whose deceased wife was related to Matilde Abubo. 25 He stated that when he met Tan Eng Kee
after the liberation, the latter asked the former to accompany him to get 80 pieces of G.I. sheets
supposedly owned by both brothers. 26 Tan Eng Lay, however, denied knowledge of this meeting
or of the conversation between Peralta and his brother. 27 Tan Eng Lay consistently testified that
he had his business and his brother had his, that it was only later on that his said brother, Tan
Eng Kee, came to work for him. Be that as it may, co-ownership or co-possession (specifically
here, of the G.I. sheets) is not an indicium of the existence of a partnership. 28
Besides, it is indeed odd, if not unnatural, that despite the forty years the partnership was
allegedly in existence, Tan Eng Kee never asked for an accounting. The essence of a partnership is
that the partners share in the profits and losses. 29 Each has the right to demand an accounting
as long as the partnership exists. 30 We have allowed a scenario wherein" [i]f excellent relations
exist among the partners at the start of the business and all the partners are more interested in
seeing the firm grow rather than get immediate returns, a deferment of sharing in the profits is
perfectly plausible." 31 But in the situation in the case at bar, the deferment, if any, had gone on
too long to be plausible. A person is presumed to take ordinary care of his concerns. 32 As we
explained in another case:chanrob1es virtual 1aw library
In the first place, plaintiff did not furnish the supposed P20,000.00 capital. In the second place,
she did not furnish any help or intervention in the management of the theatre. In the third place,
it does not appear that she has even demanded from defendant any accounting of the expenses
and earnings of the business. Were she really a partner, her first concern should have been to
find out how the business was progressing, whether the expenses were legitimate, whether the
earnings were correct, etc. She was absolutely silent with respect to any of the acts that a partner
should have done; all that she did was to receive her share of P3,000.00 a month, which cannot
be interpreted in any manner than a payment for the use of the premises which she had leased
from the owners. Clearly, plaintiff had always acted in accordance with the original letter of
defendant of June 17, 1945 (Exh. "A"), which shows that both parties considered this offer as the
real contract between them. 33 [Emphasis supplied]
A demand for periodic accounting is evidence of a partnership. 34 During his lifetime, Tan Eng
Kee appeared never to have made any such demand for accounting from his brother, Tang Eng
Lay.
This brings us to the matter of Exhibits "4" to "4-U" for private respondents, consisting of
payrolls purporting to show that Tan Eng Kee was an ordinary employee of Benguet Lumber, as
it was then called. The authenticity of these documents was questioned by petitioners, to the
extent that they filed criminal charges against Tan Eng Lay and his wife and children. As
aforesaid, the criminal cases were dismissed for insufficiency of evidence. Exhibits "4" to "4-U" in
fact shows that Tan Eng Kee received sums as wages of an employee. In connection therewith,
Article 1769 of the Civil Code provides:chanrob1es virtua1 1aw 1ibrary
In determining whether a partnership exists, these rules shall apply:chanrob1es virtual 1aw
library
(1) Except as provided by Article 1825, persons who are not partners as to each other are not
partners as to third persons;
(2) Co-ownership or co-possession does not of itself establish a partnership, whether such co-
owners or co-possessors do or do not share any profits made by the use of the property;
(3) 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 which the returns
are derived;
(4) The receipt by a person of a share of the profits of a business is a prima facie evidence that he
is a partner in the business, but no such inference shall be drawn if such profits were received in
payment:chanrob1es virtual 1aw library
(a) As a debt by installment or otherwise;
(b) As wages of an employee or rent to a landlord;
(c) As an annuity to a widow or representative of a deceased partner;
(d) As interest on a loan, though the amount of payment vary with the profits of the business;
(e) As the consideration for the sale of a goodwill of a business or other property by installments
or otherwise.
In the light of the aforequoted legal provision, we conclude that Tan Eng Kee was only an
employee, not a partner. Even if the payrolls as evidence were discarded, petitioners would still
be back to square one, so to speak, since they did not present and offer evidence that would show
that Tan Eng Kee received amounts of money allegedly representing his share in the profits of
the enterprise. Petitioners failed to show how much their father, Tan Eng Kee, received, if any, as
his share in the profits of Benguet Lumber Company for any particular period. Hence, they failed
to prove that Tan Eng Kee and Tan Eng Lay intended to divide the profits of the business
between themselves, which is one of the essential features of a partnership.
Nevertheless, petitioners would still want us to infer or believe the alleged existence of a
partnership from this set of circumstances: that Tan Eng Lay and Tan Eng Kee were commanding
the employees; that both were supervising the employees; that both were the ones who
determined the price at which the stocks were to be sold; and that both placed orders to the
suppliers of the Benguet Lumber Company. They also point out that the families of the brothers
Tan Eng Kee and Tan Eng Lay lived at the Benguet Lumber Company compound, a privilege not
extended to its ordinary employees.
However, private respondent counters that:chanrob1es virtua1 1aw 1ibrary
Petitioners seem to have missed the point in asserting that the above enumerated powers and
privileges granted in favor of Tan Eng Kee, were indicative of his being a partner in Benguet
Lumber for the following reasons:chanrob1es virtual 1aw library
(i) even a mere supervisor in a company, factory or store gives orders and directions to his
subordinates. So long, therefore, that an employees position is higher in rank, it is not unusual
that he orders around those lower in rank.

(ii) even a messenger or other trusted employee, over whom confidence is reposed by the owner,
can order materials from suppliers for and in behalf of Benguet Lumber. Furthermore, even a
partner does not necessarily have to perform this particular task. It is, thus, not an indication that
Tan Eng Kee was a partner.

(iii) although Tan Eng Kee, together with his family, lived in the lumber compound and this
privilege was not accorded to other employees, the undisputed fact remains that Tan Eng Kee is
the brother of Tan Eng Lay. Naturally, close personal relations existed between them. Whatever
privileges Tan Eng Lay gave his brother, and which were not given the other employees, only
proves the kindness and generosity of Tan Eng Lay towards a blood relative.

(iv) and even if it is assumed that Tan Eng Kee was quarreling with Tan Eng Lay in connection
with the pricing of stocks, this does not adequately prove the existence of a partnership relation
between them. Even highly confidential employees and the owners of a company sometimes
argue with respect to certain matters which, in no way indicates that they are partners as to each
other. 35

In the instant case, we find private respondents arguments to be well-taken. Where

circumstances taken singly may be inadequate to prove the intent to form a partnership,
nevertheless, the collective effect of these circumstances may be such as to support a finding of
the existence of the parties intent. 36 Yet, in the case at bench, even the aforesaid circumstances
when taken together are not persuasive indicia of a partnership. They only tend to show that Tan
Eng Kee was involved in the operations of Benguet Lumber, but in what capacity is unclear. We
cannot discount the likelihood that as a member of the family, he occupied a niche above the
rank-and-file employees. He would have enjoyed liberties otherwise unavailable were he not kin,
such as his residence in the Benguet Lumber Company compound. He would have moral, if not
actual, superiority over his fellow employees, thereby entitling him to exercise powers of
supervision. It may even be that among his duties is to place orders with suppliers. Again, the
circumstances proffered by petitioners do not provide a logical nexus to the conclusion desired;
these are not inconsistent with the powers and duties of a manager, even in a business organized
and run as informally as Benguet Lumber Company.

There being no partnership, it follows that there is no dissolution, winding up or liquidation to

speak of. Hence, the petition must fail.

WHEREFORE, the petition is hereby denied, and the appealed decision of the Court of Appeals is
hereby AFFIRMED in toto. No pronouncement as to costs.

SO ORDERED.
 SECOND DIVISION
[G.R. No. L-19342. May 25, 1972.]
LORENZO T. OA, and HEIRS OF JULIA BUNALES, namely: RODOLFO B. OA, MARIANO B.
OA, LUZ B. OA, VIRGINIA B. OA, and LORENZO B. OA, JR., Petitioners, v. THE
COMMISSIONER OF INTERNAL REVENUE, Respondent.
Orlando Velasco, for Petitioners.
Solicitor General Arturo A. Alafriz, Assistant Solicitor General Felicisimo R. Rosete and
Special Attorney Purificacion Ureta for Respondent.
SYLLABUS
1. TAXATION; INTERNAL REVENUE CODE; CORPORATE TAX; UNREGISTERED PARTNERSHIP;
FORMATION THEREOF WHERE INCOME FROM SHARES OF CO-HEIRS CONTRIBUTED TO
COMMON FUND. From the moment petitioners allowed not only the incomes from their
respective shares of the inheritance but even the inherited properties themselves to be used by
Lorenzo T. Oa (who managed the properties) as a common fund in undertaking several
transactions or in business, with the intention of deriving profit to be shared by them
proportionally, such act was tantamount to actually contributing such incomes to a common fund
and, in effect, they thereby formed an unregistered partnership within the purview of the
provisions of the Tax Code.
2. ID.; ID.; ID.; WHEN HEIRS NOT CONSIDERED AS UNREGISTERED CO-PARTNERS AND NOT
SUBJECT TO SUCH TAX. In cases of inheritance, there is a period when the heirs can be
considered as co-owners rather than unregistered co-partners within the contemplation of our
corporate tax laws. Before the partition and distribution of the estate of the deceased, all the
income thereof does belong commonly to all the heirs, obviously, without them becoming
thereby unregistered co-partners.
3. ID.; ID.; ID.; CIRCUMVENTIONS OF SECTIONS 24 AND 84(b) OF TAX CODE WHEN HEIRS
CONTINUE AS CO-OWNERS. For tax purposes, the co-ownership of inherited properties is
automatically converted into an unregistered partnership, for it is easily conceivable that after
knowing their respective shares in the partition, they (heirs) might decide to continue holding
said shares under the common management of the administrator or executor or of anyone
chosen by them and engage in business on that basis. Withal, if this were not so, it would be the
easiest thing for heirs in any inheritance to circumvent and render meaningless Sections 24 and
84(b) of the National Internal Revenue Code.
4. ID.; ID.; ID., HEIRS AS UNREGISTERED CO-PARTNERS; PARTNERSHIP CONTEMPLATED IN
CIVIL CODE NOT APPLICABLE. Petitioners reliance on Article 1769, par. (3) of the Civil Code,
providing 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," and, for that matter, on any other provision of said code on
partnerships is unavailing. In Evangelista (102 Phil. 140), this Court clearly differentiated the
concept of partnerships under the Civil Code from that of unregistered partnerships which are
considered as "corporations" under Sections 24 and 84(b) of the National Internal Revenue Code.
5. ID.; ID.; ID.; ID.; SEGREGATION OF INCOME FROM BUSINESS FROM THAT OF INHERITED
PROPERTIES, NOT PROPER. Where the inherited properties and the income derived
therefrom were used in business of buying and selling other real properties and corporate
securities, the partnership income must include not only the income derived from the purchase
and sale of other properties but also the income of the inherited properties.
6. ID.; ID.; INCOME TAX; ACTION FOR REIMBURSEMENT SUBJECT TO PRESCRIPTION. A
taxpayer who has paid the wrong tax, assuming that the failure to pay the corporate taxes in
question was not deliberate, has the right to be reimbursed what he has erroneously paid, but
the law is very clear that the claim and action for such reimbursement are subject to the bar of
prescription. And since the period for the recovery of the excess income taxes in the case of
herein petitioners has already lapsed, it would not seem right to virtually disregard prescription
merely upon the ground that the reason for the delay is precisely because the taxpayers failed to
make the proper return and payment of the corporate taxes legally due from them.
DECISION
BARREDO, J.:
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:jgc:chanrobles.com.ph
"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 one-half (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 Commission the amount of
P50,000.00, more or less. This amount was not divided among them but was used in the
rehabilitation of properties owned by them in common (t.s.n., p. 46). Of the ten parcels of land
aforementioned, two were acquired after the death of the decedent with money borrowed from
the Philippine Trust Company in the amount of P72,173.00 (t.s.n., p. 24; Exhibit 3, pp. 34-31, BIR
rec.).
"The project of partition also shows that the estate shares equally with Lorenzo T. Oa, the
administrator thereof, in the obligation of P94,973.00, consisting of loans contracted by the latter
with the approval of the Court (see p. 3 of Exhibit K; or see p. 74, BIR rec.).
"Although the project of partition was approved by the Court on May 16, 1949, no attempt was
made to divide the properties therein listed. Instead, the properties remained under the
management of Lorenzo T. Oa who used said properties in business by leasing or selling them
and investing the income derived therefrom and the proceeds from the sales thereof in real
properties and securities. As a result, petitioners properties and investments gradually
increased from P105,450.00 in 1949 to P480,005.20 in 1956 as can be gleaned from the
following year-end balances:jgc:chanrobles.com.ph
"Year Investment Land Building
Account Account Account
1949 P 87,860 P 17,590.00
1950 P 24,657.65 128,566.72 96,076.26
1951 51,301.31 120,349.28 110,605.11
1952 67,927.52 87,065.28 152,674.39
1953 61,258.27 84,925.68 161,463.83
1954 63,623.37 99,001.20 167,962.04
1955 100,786.00 120,249.78 169,262.52
1956 175,028.68 135,714.68 169,262.52
(See Exhibits 3 & K; t.s.n., pp. 22, 25-26, 40, 50, 102-104)
"From said investments and properties petitioners derived such incomes as profits from
installment sales of subdivided lots, profits from sales of stocks, dividends, rentals and interests
(see p. 3 of Exhibit 3; p. 32, BIR rec.; t.s.n., pp. 37-38). The said incomes are recorded in the books
of account kept by Lorenzo T. Oa, where the corresponding shares of the petitioners in the net
income for the year are also known. Every year, petitioners returned for income tax purposes
their shares in the net income derived from said properties and securities and/or from
transactions involving them (Exhibit 3, supra; t.s.n., pp. 25-26). However, petitioners did not
actually receive their shares in the yearly income. (t.s.n., pp. 25-26, 40, 98, 100). The income was
always left in the hands of Lorenzo T. Oa who, as heretofore pointed out, invested them in real
properties and securities. (See Exhibit 3, t.s.n., pp. 50, 102-104).
"On the basis of the foregoing facts, respondent (Commissioner of Internal Revenue) decided that
petitioners formed an unregistered partnership and therefore, subject to the corporate income
tax, pursuant to Section 24, in relation to Section 84(b), of the Tax Code. Accordingly, he assessed
against the petitioners the amounts of P8,092.00 and P13,899.00 as corporate income taxes for
1955 and 1956, respectively. (See Exhibit 5, amended by Exhibit 17, pp. 50 and 86, BIR rec.).
Petitioners protested against the assessment and asked for reconsideration of the ruling of
respondent that they have formed an unregistered partnership. Finding no merit in petitioners
request, respondent denied it (See Exhibit 17, p. 86, BIR rec.). (See Pp. 1-4, Memorandum for
Respondent, June 12, 1961).
"The original assessment was as follows:jgc:chanrobles.com.ph
"1955
"Net income as per investigation P40,209.89
Income tax due thereon 8,042.00
25% surcharge 2,010.50
Compromise for non-filing 50.00
Total P10,102.50
==========
"1956
"Net income as per investigation P69,245.23
 "ON THE ASSUMPTION THAT THE PETITIONERS CONSTITUTED AN UNREGISTERED
PARTNERSHIP, THE COURT OF TAX APPEALS ERRED IN NOT HOLDING THAT THE
PETITIONERS WERE AN UNREGISTERED PARTNERSHIP TO THE EXTENT ONLY THAT THEY IN
Income tax due thereon 13,849.00 VESTED THE PROFITS FROM THE PROPERTIES OWNED IN COMMON AND THE LOANS
RECEIVED USING THE INHERITED PROPERTIES AS COLLATERALS;.
25% surcharge 3,462.25
"V
Compromise for non-filing 50.00
"ON THE ASSUMPTION THAT THERE WAS AN UNREGISTERED PARTNERSHIP, THE COURT OF
TAX APPEALS ERRED IN NOT DEDUCTING THE VARIOUS AMOUNTS PAID BY THE PETITIONERS
AS INDIVIDUAL INCOME TAX ON THEIR RESPECTIVE SHARES OF THE PROFITS ACCRUING
Total 17,361.25 FROM THE PROPERTIES OWNED IN COMMON, FROM THE DEFICIENCY TAX OF THE
UNREGISTERED PARTNERSHIP."cralaw virtua1aw library
==========
In other words, petitioners pose for our resolution the following questions: (1) Under the facts
(See Exhibit 13, page 50, BIR records) found by the Court of Tax Appeals, should petitioners be considered as co-owners of the
properties inherited by them from the deceased Julia Buales and the profits derived from
"Upon further consideration of the case, the 25% surcharge was eliminated in line with the transactions involving the same, or, must they be deemed to have formed an unregistered
ruling of the Supreme Court in Collector v. Batangas Transportation Co., G.R. No. L-9692, Jan. 6, partnership subject to tax under Sections 24 and 84(b) of the National Internal Revenue Code?
1958, so that the questioned assessment refers solely to the income tax proper for the years (2) Assuming they have formed an unregistered partnership, should this not be only in the sense
1955 and 1956 and the Compromise for non-filing, the latter item obviously referring to the that they invested as a common fund the profits earned by the properties owned by them in
compromise in lieu of the criminal liability for failure of petitioners to file the corporate income common and the loans granted to them upon the security of the said properties, with the result
tax returns for said years. (See Exh. 17, page 86, BIR records)." (Pp. 1-3, Annex C to Petition). that as far as their respective shares in the inheritance are concerned, the total income thereof
should be considered as that of co-owners and not of the unregistered partnership? And (3)
Petitioners have assigned the following as alleged errors of the Tax Court:chanrob1es virtual assuming again that they are taxable as an unregistered partnership, should not the various
1aw library amounts already paid by them for the same years 1955 and 1956 as individual income taxes on
their respective shares of the profits accruing from the properties they owned in common be
"I deducted from the deficiency corporate taxes, herein involved, assessed against such
unregistered partnership by the respondent Commissioner?
"THE COURT OF TAX APPEALS ERRED IN HOLDING THAT THE PETITIONERS FORMED AN
UNREGISTERED PARTNERSHIP; Pondering on these questions, the first thing that has struck the Court is that whereas
petitioners predecessor in interest died way back on March 23, 1944 and the project of partition
"II of her estate was judicially approved as early as May 16, 1949, and presumably petitioners have
been holding their respective shares in their inheritance since those dates admittedly under the
"THE COURT OF TAX APPEALS ERRED IN NOT HOLDING THAT THE PETITIONERS WERE CO- administration or management of the head of the family, the widower and father Lorenzo T. Oa,
OWNERS OF THE PROPERTIES INHERITED AND (THE) PROFITS DERIVED FROM the assessment in question refers to the later years 1955 and 1956. We believe this point to be
TRANSACTIONS THEREFROM (sic); important because, apparently, at the start, or in the years 1944 to 1954, the respondent
"III Commissioner of Internal Revenue did treat petitioners as co-owners, not liable to corporate tax,
and it was only from 1955 that he considered them as having formed an unregistered
"THE COURT OF TAX APPEALS ERRED IN HOLDING THAT PETITIONERS WERE LIABLE FOR partnership. At least, there is nothing in the record indicating that an earlier assessment had
CORPORATE INCOME TAXES FOR 1955 AND 1956 AS AN UNREGISTERED PARTNERSHIP; already been made. Such being the case, and We see no reason how it could be otherwise, it is
easily understandable why petitioners position that they are co-owners and not unregistered co-
"IV partners, for the purposes of the impugned assessment, cannot be upheld. Truth to tell,
petitioners should find comfort in the fact that they were not similarly assessed earlier by the
Bureau of Internal Revenue.
The Tax Court found that instead of actually distributing the estate of the deceased among
themselves pursuant to the project of partition approved in 1949, "the properties remained
under the management of Lorenzo T. Oa who used said properties in business by leasing or
selling them and investing the income derived therefrom and the proceeds from the sales thereof
in real properties and securities," as a result of which said properties and investments steadily
increased yearly from P87,860.00 in "land account" and P17,590.00 in "building account" in
1949 to P175,028.68 in "investment account," P135.714.68 in "land account" and P169,262.52 in
"building account" in 1956 And all these became possible because, admittedly, petitioners never
actually received any share of the income or profits from Lorenzo T. Oa, and instead, they
allowed him to continue using said shares as part of the common fund for their ventures, even as
they paid the corresponding income taxes on the basis of their respective shares of the profits of
their common business as reported by the said Lorenzo T. Oa.
It is thus incontrovertible that petitioners did not, contrary to their contention, merely limit
themselves to holding the properties inherited by them. Indeed, it is admitted that during the
material years herein involved, some of the said properties were sold at considerable profit, and
that with said profit, petitioners engaged, thru Lorenzo T. Oa, in the purchase and sale of
corporate securities. It is likewise admitted that all the profits from these ventures were divided
among petitioners proportionately in accordance with their respective shares in the inheritance.
In these circumstances, it is Our considered view that from the moment petitioners allowed not
only the incomes from their respective shares of the inheritance but even the inherited
properties themselves to be used by Lorenzo T. Oa as a common fund in undertaking several
transactions or in business, with the intention of deriving profit to be shared by them
proportionally, such act was tantamount to actually contributing such incomes to a common fund
and, in effect, they thereby formed an unregistered partnership within the purview of the above-
mentioned provisions of the Tax Code.
It is but logical that in cases of inheritance, there should be a period when the heirs can be
considered as co-owners rather than unregistered co-partners within the contemplation of our
corporate tax laws aforementioned. Before the partition and distribution of the estate of the
deceased, all the income thereof does belong commonly to all the heirs, obviously, without them
becoming thereby unregistered co-partners, but it does not necessarily follow that such status as
co-owners continues until the inheritance is actually and physically distributed among the heirs,
for it is easily conceivable that after knowing their respective shares in the partition, they might
decide to continue holding said shares under the common management of the administrator or
executor or of anyone chosen by them and engage in business on that basis. Withal, if this were
to be allowed, it would be the easiest thing for heirs in any inheritance to circumvent and render
meaningless Sections 24 and 84(b) of the National Internal Revenue Code.
It is true that in Evangelista v. Collector, 102 Phil. 140, it was stated, among the reasons for
holding the appellants therein to be unregistered co-partners for tax purposes, that their
common fund "was not something they found already in existence" and that" [i]t was not a
property inherited by them pro indiviso," but it is certainly far fetched to argue therefrom, as
petitioners are doing here, that ergo, in all instances where an inheritance is not actually divided,
there can be no unregistered co-partnership. As already indicated, for tax purposes, the co-
ownership of inherited properties is automatically converted into an unregistered partnership
the moment the said common properties and/or the incomes derived therefrom are used as a
common fund with intent to produce profits for the heirs in proportion to their respective shares
in the inheritance as determined in a project partition either duly executed in an extrajudicial
settlement or approved by the court in the corresponding testate or intestate proceeding. The
reason for this is simple. From the moment of such partition, the heirs are entitled already to
their respective definite shares of the estate and the incomes thereof, for each of them to manage
and dispose of as exclusively his own without the intervention of the other heirs, and,
accordingly he becomes liable individually for all taxes in connection therewith. If after such
partition, he allows his share to be held in common with his co-heirs under a single management
to be used with the intent of making profit thereby in proportion to his share, there can be no
doubt that, even if no document or instrument were executed for the purpose, for tax purposes,
at least, an unregistered partnership is formed. This is exactly what happened to petitioners in
this case.
In this connection, petitioners reliance on Article 1769, paragraph (3), of the Civil Code,
providing 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," and, for that matter, on any other provision of said code on
partnerships is unavailing. In Evangelista, supra, this Court clearly differentiated the concept of
partnerships under the Civil Code from that of unregistered partnerships which are considered
as "corporations" under Sections 24 and 84(b) of the National Internal Revenue Code. Mr. Justice
Roberto Concepcion, now Chief Justice, elucidated on this point thus:jgc:chanrobles.com.ph
"To begin with, the tax in question is one imposed upon corporations, which, strictly speaking,
are distinct and different from partnerships. When our Internal Revenue Code includes
partnerships among the entities subject to the tax on corporations, said Code must allude,
therefore, to organizations which are not necessarily partnerships, in the technical sense of the
term. Thus, for instance, section 24 of said Code exempts from the aforementioned tax duly
registered general partnerships, which constitute precisely one of the most typical forms of
partnerships in this jurisdiction. Likewise, as defined in section 84(b) of said Code, the term
corporation includes partnerships, no matter how created or organized. This qualifying
expression clearly indicates that a joint venture need not be undertaken in any of the standard
forms, or in conformity with the usual requirements of the law on partnerships, in order that one
could be deemed constituted for purposes of the tax on corporation. Again, pursuant to said
section 84(b), the term corporation includes, among other, joint accounts, (cuentas en
participacion) and associations, none of which has a legal personality of its own, independent of
that of its members. Accordingly, the lawmaker could not have regarded that personality as a
condition essential to the existence of the partnerships therein referred to. In fact, as above
stated, duly registered general co-partnerships which are possessed of the aforementioned
personality have been expressly excluded by law (sections 24 and 84 [b]) from the
connotation of the term corporation. . . .
x x x
"Similarly, the American Law
. . . provides its own concept of a partnership. Under the term partnership it includes not only a
partnership as known as common law but, as well, a syndicate, group, pool, joint venture, or
other unincorporated organization which carries on any business, financial operation, or
venture, and which is not, within the meaning of the Code, a trust, estate, or a corporation. . . .
(7A Mertens Law of Federal Income Taxation, p. 789; Emphasis ours.).
The term "partnership" includes a syndicate, group, pool, joint venture or other unincorporated
organization, through or by means of which any business, financial operation, or venture is
carried on. . . . (8 Mertens Law of Federal Income Taxation, p. 562 Note 63; Emphasis ours.)
"For purposes of the tax on corporations, our National Internal Revenue Code, includes these
partnerships with the exception only of duly registered general co-partnerships within the
purview of the term corporation. It is, therefore, clear to our mind that petitioners herein
constitute a partnership, insofar as said Code is concerned, and are subject to the income tax for
corporations."cralaw virtua1aw library
We reiterated this view, thru Mr. Justice Fernando, in Reyes v. Commissioner of Internal
Revenue, G. R. Nos. L-24020-21, July 29, 1968, 24 SCRA 198, wherein the Court ruled against a
theory of co-ownership pursued by appellants therein.
As regards the second question raised by petitioners about the segregation, for the purposes of
the corporate taxes in question, of their inherited properties from those acquired by them
subsequently, We consider as justified the following ratiocination of the Tax Court in denying
their motion for reconsideration:jgc:chanrobles.com.ph
"In connection with the second ground, it is alleged that, if there was an unregistered
partnership, the holding should be limited to the business engaged in apart from the properties
inherited by petitioners. In other words, the taxable income of the partnership should be limited
to the income derived from the acquisition and sale of real properties and corporate securities
and should not include the income derived from the inherited properties. It is admitted that the
inherited properties and the income derived therefrom were used in the business of buying and
selling other real properties and corporate securities. Accordingly, the partnership income must
include not only the income derived from the purchase and sale of other properties but also the
income of the inherited properties."cralaw virtua1aw library
Besides, as already observed earlier, the income derived from inherited properties may be
considered as individual income of the respective heirs only so long as the inheritance or estate
is not distributed or, at least, partitioned, but the moment their respective known shares are
used as part of the common assets of the heirs to be used in making profits, it is but proper that
the income of such shares should be considered as the part of the taxable income of an
unregistered partnership. This, We hold, is the clear intent of the law.
Likewise, the third question of petitioners appears to have adequately resolved by the Tax Court
in the aforementioned resolution denying petitioners motion for reconsideration of the decision
of said court. Pertinently, the court ruled this Wise:jgc:chanrobles.com.ph
"In support of the third ground, counsel for petitioners allege:chanrob1es virtual 1aw library
Even if we were to yield to the decision of this Honorable Court that the herein petitioners have
formed an unregistered partnership and, therefore, have to be taxed as such, it might be recalled
that the petitioners in their individual income tax returns reported their shares of the profits of
the unregistered partnership. We think it only fair and equitable that the various amounts paid
by the individual petitioners as income tax on their respective shares of the unregistered
partnership should be deducted from the deficiency income tax found by this Honor able Court
against the unregistered partnership. (page 7, Memorandum for the Petitioner in Support of
Their Motion for Reconsideration, Oct. 28, 1961.)
In other words, it is the position of petitioners that the taxable income of the partnership must be
reduced by the amounts of income tax paid by each petitioner on his share of partnership profits.
This is not correct; rather, it should be the other way around. The partnership profits
distributable to the partners (petitioners herein) should be reduced by the amounts of income
tax assessed against the Partnership. Consequently, each of the petitioners in his individual
capacity overpaid his income tax for the years in question, but the income tax due from the
partnership has been correctly assessed. Since the individual income tax liabilities of petitioners
are not in issue in this proceeding, it is not proper for the Court to pass upon the same."cralaw
virtua1aw library
Petitioners insist that it was error for the Tax Court to so rule that whatever excess they might
have paid as individual income tax cannot be credited as part payment of the taxes herein in
question. It is argued that to sanction the view of the Tax Court is to oblige petitioners to pay
double income tax on the same income, and, worse, considering the time that has lapsed since
they paid their individual income taxes, they may already be barred by prescription from
recovering their overpayments in a separate action. We do not agree. As We see it, the case of
petitioners as regards the point under discussion is simply that of a taxpayer who has paid the
wrong tax, assuming that the failure to pay the corporate taxes in question was not deliberate. Of
course, such taxpayer has the right to be reimbursed what he has erroneously paid, but the law is
very clear that the claim and action for such reimbursement are subject to the bar of
prescription, And since the period for the recovery of the excess income taxes in the case of
herein petitioners has already lapsed, it would not seem right to virtually disregard prescription
merely upon the ground that the reason for the delay is precisely because the taxpayers failed to
make the proper return and payment of the corporate taxes legally due from them. In principle, it
is but proper not to allow any relaxation of the tax laws in favor of persons who are not exactly
above suspicion in their conduct vis-a-vis their tax obligation to the State.
IN VIEW OF ALL THE FOREGOING, the judgment of the Court of Tax Appeals appealed from is
affirmed, with costs against petitioners.
 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, v. COMMISSIONER OF INTERNAL REVENUE and COURT OF
TAX APPEALS, Respondents.
Demosthenes B. Gadioma for petitioners.
DECISION
AQUINO, J.:
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.cralawnad
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 on
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 50% fraud surcharge and P15,547.56 as
42% accumulated interest, or a total of P71,074 56.cralawnad
Not only that. He considered the share of the profits of each petitioner in the sum of P33,584 as a
"distributive dividend" taxable in full (not a mere capital gain of which 1/2 is taxable) and
required them to pay deficiency income taxes aggregating P56,707.20 including the 50% fraud
surcharge and the accumulated interest.
Thus, the petitioners are 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 joint venture within the meaning of sections 24(a) and 84(b) of the Tax Code
(Collector of Internal Revenue v. Batangas Trans. Co., 102 Phil. 822).
The petitioners contested the assessments. Two Judges of the Tax Court sustained the same.
Judge Roaquin dissented. Hence, the instant appeal.
We hold that it is error to consider the petitioners as having formed a partnership under article
1767 of the Civil Code simply because they allegedly contributed P178,708.12 to buy the two
lots, resold the same and divided the profit among themselves.
To regard the petitioners as having formed a taxable unregistered partnership would result in
oppressive taxation and confirm the dictum that the power to tax involves 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 consider them as partners would obliterate the distinction between a co-ownership and a
partnership. The petitioners were not engaged in any joint venture by reason of that isolated
transaction.
Their original purpose was to divide the lots for residential purposes. If later on they found it not
feasible to build their residences on the lots because of the high cost of construction, then they
had no choice but to resell the same to dissolve the co-ownership. The division of the profit was
merely incidental to the dissolution of the co-ownership which was in the nature of things a
temporary state. It had to be terminated sooner or later. Castan Tobeas
says:jgc:chanrobles.com.ph
"Como establecer el deslinde entre la comunidad ordinaria o copropiedad y la sociedad?
"El criterio diferencial segun la doctrina m s generalizada est : por raz "n del origen, en que
la sociedad presupone necesariamente la convencion, mientras que la comunidad puede existir y
existe ordinariamente sin ella; y por raz "n del fin u objecto, en que el objeto de la sociedad es
obtener lucro, mientras que el de la indivision es solo mantener en su integridad la cosa comun y
favorecer su conservacion.
"Reflejo de este criterio es la sentencia de 15 de octubre de 1940, en la que se dice que si en
nuestro Derecho positivo se ofrecen a veces dificultades al tratar de fijar la linea divisoria entre
comunidad de bienes y contrato de sociedad, la moderna orientacion de la doctrina cientifica
seala como nota fundamental de diferenciacion, aparte del origen o fuente de que surgen, no
siempre uniforme, la finalidad perseguida por los interesados: lucro comun partible en la
sociedad, y mera conservacion y aprovechamiento en la comunidad." (Derecho Civil Espaol, Vol.
2, Part 1, 10 Ed., 1971, 328-329).
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. **

Such intent was present in Gatchalian v. 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.chanrobles virtual
lawlibrary

The instant case is distinguishable from the cases where the parties engaged in joint ventures for
profit. Thus, in Ona v. Commissioner of Internal Revenue, L-19342, May 25, 1972, 45 SCRA 74,
where after an extrajudicial settlement the co-heirs used the inheritance or the incomes derived
therefrom as a common fund to produce profits for themselves, it was held that they were
taxable as an unregistered partnership.

It is likewise different from Reyes v. Commissioner of Internal Revenue, 24 SCRA 198 where
father and son purchased a lot and building, entrusted the administration of the building to an
administrator and divided equally the net income, and from Evangelista v. Collector of Internal
Revenue, 102 Phil. 140 where the three Evangelista sisters bought four pieces of real property
which they leased to various tenants and derived rentals therefrom. Clearly, the petitioners in
these two cases had formed an unregistered partnership.

In the instant case, what the Commissioner should have investigated was whether the father
donated the two lots to the petitioners and whether he paid the donors tax (See art. 1448, Civil
Code). We are not prejudging this matter. It might have already prescribed.

WHEREFORE, the judgment of the Tax Court is reversed and set aside. The assessments are
cancelled. No costs.

SO ORDERED.