Collector v.

Batangas Facts: Respondent companies are two distinct and separate corporations engaged in the business of land transportation by means of motor buses, and operating distinct and separate lines. To show the connection and close relation between the two companies, it should be stated that Max Blouse was the President of both corporations and owned about 30 per cent of the stock in each company. During the war,said companies ceased operations. After Liberation, sometime in April 1945, the two companies were able to acquire 56 auto buses from the United States Army, and divided said equipment equally between themselves, registering the same separately in their respective names. Martin Olson resigned as Manager of the Laguna Bus and Joseph Benedict, who was then managing the Batangas Transportation, was appointed Manager of both companies by their respective Board of Directors. The head office of the Laguna Bus in San Pablo City was made the main office of both corporations. The two companies contributed money to a common fund to pay the sole general manager, the accounts and office personnel attached to the office of said manager, as well as for the maintenance and operation of a common maintenance and repair shop. Said common fund was also used to buy spare parts, and equipment for both companies, including tires. Said common fund was also used to pay all the salaries of the personnel of both companies, such as drivers, conductors, helpers and mechanics. At the end of each calendar year, all gross receipts and expenses of both companies were determined and the net profits were divided fifty-fifty, and transferred to the book of accounts of each company, and each company "then prepared its own income tax return from this fifty per centum of the gross receipts and expenditures, assets and liabilities thus transferred to it from the `Joint Emergency Operation' and paid the corresponding income taxes thereon separately" disregarding the expenses incurred in the maintenance and operation of each company and of the individual income of said companies. The Collector wrote the bus companies that there was due from them the deficiency income tax and compromise for the years 1946 to 1949, inclusive. The respondent companies appealed the assessment to the CTA. Collector: The Joint Emergency Operation was a corporation distinct from the two respondent companies, as defined in section 84 (b), and so liable to income tax under section 24.. After hearing, the C.T.A. found and held, citing authorities, that the Joint Emergency Operation or joint management of the two companies "is not a corporation within the contemplation of section 84 (b) of the National Internal Revenue Code much less a partnership, association or insurance company", and therefore was not subject to the income tax under the provisions of section 24 of the same Code, separately and independently of respondent companies; so, it reversed the decision of the Collector. Issue: Whether or not the Joint Emergency Operation organized and operated by the 2 companies is a corporation within the meaning of Sec. 84 of the Revised Internal Revenue Code Held: Yes. The SC held that the tax code defines the term corporation as including partnership no matter how created or organized, thereby indicating 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 corporations. In this case, while the 2 companies were registered and operating separately, they were placed under one sole management called the Joint Emergency Operation for the purpose of economizing in overhead expenses. Although no legal personality may have been created by the Joint Emergency Operation, nevertheless, said joint management operated the business affairs of the 2 companies as though they constituted a single entity, company or partnership, thereby obtaining substantial economy and profits in the operation. The joint venture, therefore, falls under the provisions of sec.84(b) of the Internal Revenue Code, and consequently it is liable to income tax provided for corporations.

Evangelista, et al. v. CIR, GR No. L-9996, October 15, 1957 Facts: Petitioners borrowed from their father a certain sum for the purpose of buying real properties. From February 1943 to April 1954, they bought parcels of land from different persons, the management of said properties was charged to their brother Simeon. These properties were then leased or rented to various tenants. On September 1954, CIR demanded the payment of income tax on corporations, real estate dealers fixed tax, and corporation residence tax to which the petitioners seek to be absolved from such payment. Issue: Whether petitioners are subject to the tax on corporations. Ruling: The Court ruled that with respect to the tax on corporations, the issue hinges on the meaning of the terms corporation and partnership as used in Sec. 24 (provides that a tax shall be levied on every corporation no matter how created or organized except general co-partnerships) and 84 (provides that the term corporation includes among others, partnership) of the NIRC. Pursuant to Article 1767, NCC (provides for the concept of partnership), its essential elements are: (a) an agreement to contribute money, property or industry to a common fund; and (b) intent to divide the profits among the contracting parties. It is of the opinion of the Court that the first element is undoubtedly present for petitioners have agreed to, and did, contribute money and property to a common fund. As to the second element, the Court fully satisfied that their purpose was to engage in real estate transactions for monetary gain and then divide the same among themselves as indicated by the following circumstances: 1. The common fund was not something they found already in existence nor a property inherited by them pro indiviso. It was created purposely, jointly borrowing a substantial portion thereof in order to establish said common fund; 2. Series of transactions: The number of lots acquired and transactions undertake is strongly indicative of a pattern or common design that was not limited to the conservation and preservation of the aforementioned common fund or even of the property acquired. 3. Said properties were not devoted to residential purposes, or to other personal uses, of petitioners but were leased separately to several persons; 4. They were under the management of one person where the affairs relative to said properties have been handled as if the same belonged to a corporation or business and enterprise operated for profit; 5. Existed for more than ten years, or, to be exact, over fifteen years, since the first property was acquired, and over twelve years, since Simeon Evangelista became the manager; 6. Petitioners have not testified or introduced any evidence, either on their purpose in creating the set up already adverted to, or on the causes for its continued existence. The collective effect of these circumstances is such as to leave no room for doubt on the existence of said intent in petitioners herein. Also, petitioners argument that their being mere co-owners did not create a separate legal entity was rejected because, according to the Court, the tax in question is one imposed upon "corporations", which, strictly speaking, are distinct and different from "partnerships". When the NIRC 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. The qualifying expression found in Section 24 and 84(b) 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 corporations. Accordingly, the lawmaker could not have regarded that personality as a condition essential to the existence of the partnerships therein referred to. For purposes of the tax on corporations, NIRC includes these partnerships - with the exception only of duly registered general co partnerships within the purview of the term "corporation." It is, therefore, clear that petitioners herein constitute a partnership, insofar as said Code is concerned and are subject to the income tax for corporations.s regards the residence of tax for corporations (Section 2 of CA No. 465), it is analogous to that of section 24 and 84 (b) of the NIRC. It is apparent that the terms "corporation" and "partnership" are used in both statutes with substantially the same meaning. Consequently, petitioners are subject, also, to the residence tax for corporations. Finally, on the issues of being liable for real estate dealers tax, they are also liable for the same because the records show that they have habitually engaged in leasing said properties whose yearly gross rentals exceeds P3,000.00 a year.

Reyes v. Commisioner Facts: Petitioners in this case were assessed by respondent Commissioner of Internal Revenue the sum of P46,647.00 as income tax, surcharge and compromise for the years 1951 to 1954, an assessment subsequently reduced to P37,528.00. On October 31, 1950, petitioners, father and son, purchased the Gibbs Building, for P835,000.00, of which they paid the sum of P375,000.00, leaving a balance of P460,000.00, representing the mortgage obligation of the vendors with the China Banking Corporation, which mortgage obligations were assumed by the vendees. The initial payment of P375,000.00 was shared equally by petitioners. At the time of the purchase, the building was leased to various tenants. Divided equally the income of operation and maintenance. The gross income from rentals of the building amounted to about P90,000.00 annually. "For purposes of the tax on corporations, our National Internal Revenue Code, include 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. It cannot be said that the CTA decided the matter incorrectly. There is no warrant for the assertion that it failed to apply the settled law to uncontroverted facts. Its decision cannot be successfully assailed WHEREFORE, the decision of the respondent Court of Tax Appeals ordering petitioners "to pay the sums of P37,128.00 as income tax due from the partnership formed by herein petitioners for the years 1951 to 1954 and P20,619.00 for the years 1955 and 1956 within thirty days from the date this decision becomes final, plus the corresponding surcharge and interest in case of delinquency," is affirmed. ONA VS. COMMISION OF INTRNAL REVENUE 45 SCRA 74 FACTS: Bunales died on March 23, 1944 leaving as heirs her surviving spouse Lorenzo T. Oa and her five children. A civil case was instituted in the CFI of Manila for the settlement of her estate. Lorenzo was appointed administrator of he deceaseds estate. A project of partition shows that the heirs have undivided interest in 10 parcels of land, 6 houses and an undetermined amount to be collected from the War Damage Commission. Although the court approved the project of partition, no attempt was made to divide the properties listed therein. Instead, the properties remained under the management of Lorenzo who used the said properties in business by leasing or telling 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 investment gradually increased from P 105,405.00 in 1949 to P 480,0005.20 in 1956. CIR 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. Petitioners protested against the assessment and asked for reconsideration of the ruling that they have formed an unregistered partnership.Respondent denied the motion for reconsideration. ISSUE: Did petitioners constitute an unregistered partnership, and are, therefore, subject to the payment of the deficiency corporate income taxes assessed against them by respondent CIR. HELD: 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 proportionately, 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.

Obillos vs. Commissioner (139 SCRA 436) FACTS: On March 2, 1973, Jose Obillos, Sr. completed payments on two lots of significant size in Greenhills. The next day, he transferred his rights to his four children, to enable them to build their residences. The lots were sold for P178,708.12 on March 13. The Torrens titles issued showed the Obillios siblings as co-owners of the properties. After having held the properties for almost a year, the siblings sold the properties to Walled City Securities and Olga Cruz Canda for P313,050.00, with each sibling earning a total profit of P33,584.00. They treated the profit as a capital gain and paid income tax amounting to half of their profits. One day before the expiration of the five-year prescriptive period, the Commissioner required the siblings to pay corporate income tax on the total profit in addition to individual income tax on their shares. He also assessed for fraud surcharge and accumulated interest. He also considered each share of the profits a distributive dividend and required that it be taxed in full. The Obillos siblings were charged taxes and penalties worth P121,781.86 on their profit of P134,336.00, in addition to the capital gains already paid by them. The case was elevated to the CTA, which affirmed the decision of the CIR. Was there an unregistered partnership between the Obillos siblings such that the income they derived from the sale of the land could be held subject to corporate income tax distinct from the income tax of the partners? NO. To hold the co-ownership as an unregistered partnership would result in oppressive taxation, confirming the overturned dictum that the power to tax is the power to destroy. There is also no de facto partnership between the siblings. The Court found Obilloss testimony persuasive in finding that the siblings were merely co-owners. To hold them as co-owners would obliterate the distinction between a co-ownership and a partnership. Just because the siblings shared profits on an isolated transaction does not make them partners. The division of the profit was merely incidental to the dissolution of the coownership. Their original purpose was to divide the lots for residential purposes. Art. 1769(3) of the Civil Code provides that the sharing of gross returns does not o 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 unmistakeable intention to form a partnership or joint venture. The Court distinguished this from the Oa case, supra, where the heirs of an estate after partition used the inheritance and the incomes derived as a common fund to produce profits for themselves. In that case the Court found there actually was an unregistered partnership that was liable for corporate income tax. The Court noted that what should have been investigated was whether or not the transfer from the senior Obillos was in fact a donation and whether the corresponding donors tax had been paid. However, the Court noted that the same may have already prescribed. Pascual vs. Commissioner of Internal Revenue FACTS: Pascual and Dragon bought 2 parcels of land from Santiago Bernardino, et al. They also bought another three parcels of land from Juan Roque. The Bernardino properties were sold in 1968 to Marenir Development Corporation, for a net profit of P165,224.70. The Roque properties were sold to Erlinda Reyes and Maria Samson in 1970 for a net profit of P60,000.00. Pascual and Dragon paid the capital gains taxes in 1973 and 1974, availing of the tax amnesties granted in those years. However, in March 31, 1979, the Acting Commissioner wrote to Pascual and Dragon, demanding the amount of P107,101.70 representing their deficiency income taxes for the years 1968 and 1970. They contested this assessment, contending that they availed of the tax amnesties of 1973 and 1974 and should no longer have to pay their deficiency income taxes. The Commissioner replied saying that because they derived profits from the sale of properties that they co-owned, their co-ownership was actually an unregistered partnership taxable for corporate income tax separate and distinct from that of the partners under 20[b], NIRC and the profit that this corporation obtained was subject to taxes prescribed under 24, NIRC. Although they did pay taxes in 1973 and 1974, what was paid was the tax due on their personal income from the transaction, and not the tax due on the income derived from their de facto partnership. Filed a Petition for Review with the CTA, which affirmed the decision of the CIR. The CTA based its ruling on Evangelista where an unregistered partnership was formed and was subjected to corporate income tax distinct from that imposed on the partners. Was there an unregistered partnership created by Pascual and Dragon such that its could be subject to corporate income tax distinct from the income tax of the partners? NO. The case of Evangelista, used by the CTA in resolving the issue, differed significantly from the case at bar. In Evangelista, the Supreme Court found that there was a clear intention to invest money and to create profit from a series of real estate transactions. In the case at bar, the purchase and sale of land were found to be isolated incidents that did not show the character of habituality peculiar to business transactions for the purpose of gain. Sharing of returns does not in itself establish a partnership whether or not the persons sharing have a joint or common right or interest in the property.The Court cited Justice Bautistas concurring opinion in Evangelista, which noted that the mere fact of sharing of profits from a transaction involving land held in co-ownership does not a partnership make. An isolated transaction where two or more persons contribute funds to buy certain real estate for profit in the absence of any other circumstancesshowing a contrary intention cannot be considered a partnership.

AFISCO INSURANCE CORP. V CA 302 SCRA 1 FACTS: AFISCO and 40 other non-life insurance companies entered into a Quota Share Reinsurance Treaties with Munich, a nonresident foreign insurance corporation, to cover for All Risk Insurance Policiesover machinery erection, breakdown and boiler explosion. The treaties required petitioners to form a pool, to which AFISCO and the others complied . On April 14, 1976, the pool of machinery insurers submitted a financial statement and filed an Information Return of Organization Exempt from Income Tax for the year ending 1975, on the basis of which, it was assessed by the commissioner of Internal Revenuedeficiency corporate taxes. A protest was filed but denied by the CIR. Petitioners contend that they cannot be taxed as a corporation, because : (a) the reinsurance policies were written by them individually and separately,(b) their liability was limited to the extent of their allocated share in the original risks insured and not solidary, (c) there was no common fund, (d) the executive board of the pool did not exercise control and management of its funds, unlike the board of a corporation, (e) the pool or clearing house was not and could not possibly have engaged in the business of reinsurance from which it could have derived income for itself. They further contend that remittances to Munich are not dividends and to subject it to tax would be tantamount to an illegal double taxation, as it would result to taxing the same premium income twice in the hands of the same taxpayer. Finally, petitioners argue that the governments right to assess and collect the subject Information Return was filed by the pool on April 14, 1976. On the basis of this return, the BIR telephoned petitioners on November 11, 1981 to give them notice of its letter of assessment dated March 27, 1981. Thus, the petitioners contend that the five-year prescriptive period then provided in the NIRC had already lapsed, and that the internal revenue commissioner was already barred by prescription from making an assessment. Held: A pool is considered a corporation for taxation purposes. Citing the case of Evangelista v. CIR, the court held that Sec. 24 of the NIRC covered these unregistered partnerships and even associations or joint accounts, which had no legal personalities apart from individual members. Further, the pool is a partnership as evidence by a common fund, the existence of executive board and the fact that while the pool is not in itself, a reinsurer and does not issue any insurance policy, its work is indispensable, beneficial and economically useful to the business of the ceding companies and Munich, because without it they would not have received their premiums. As to the claim of double taxation, the pool is a taxable entity distinct from the individual corporate entities of the ceding companies. The tax on its income is obviously different from the tax on the dividendsreceived by the said companies. Clearly, there is no double taxation. As to the argument on prescription, the prescriptive period was totaled under the Section 333 of the NIRC, because the taxpayer cannot be located at the address given in the information return filed and for which reason there was delay in sending the assessment. Further, the law clearly states that the prescriptive period will be suspended only if the taxpayer informs the CIR of any change in the address.