FIRST DIVISION

[G.R. No. 120721. February 23, 2005]

MANUEL G. ABELLO, JOSE C. CONCEPCION, TEODORO D. REGALA, AVELINO V.

CRUZ, petitioners, vs. COMMISSIONER OF INTERNAL REVENUE and COURT OF
APPEALS, respondents.
DECISION
AZCUNA, J.:
This is a petition for review on certiorari under Rule 45 of the Rules of Civil Procedure,
assailing the decision of the Court of Appeals in CA G.R. SP No. 27134, entitled Comissioner of
Internal Revenue v. Manuel G. Abello, Jose C. Concepcion, Teodoro D. Regala, Avelino V. Cruz
and Court of Tax Appeals, which reversed and set aside the decision of the Court of Tax Appeals
(CTA), ordering the Commissioner of Internal Revenue (Commissioner) to withdraw his letters
dated April 21, 1988 and August 4, 1988 assessing donors taxes and to desist from collecting
donors taxes from petitioners.
During the 1987 national elections, petitioners, who are partners in the Angara, Abello,
Concepcion, Regala and Cruz (ACCRA) law firm, contributed P882,661.31 each to the
campaign funds of Senator Edgardo Angara, then running for the Senate. In letters dated April
21, 1988, the Bureau of Internal Revenue (BIR) assessed each of the petitioners P263,032.66
for their contributions. On August 2, 1988, petitioners questioned the assessment through a
letter to the BIR. They claimed that political or electoral contributions are not considered gifts
under the National Internal Revenue Code (NIRC), and that, therefore, they are not liable for
donors tax. The claim for exemption was denied by the Commissioner.[1]
On September 12, 1988, petitioners filed a petition for review with the CTA, which was
decided on October 7, 1991 in favor of the petitioners. As aforestated, the CTA ordered the
Commissioner to desist from collecting donors taxes from the petitioners.[2]
On appeal, the Court of Appeals reversed and set aside the CTA decision on April 20, 1994.
The appellate Court ordered the petitioners to pay donors tax amounting to P263,032.66
each, reasoning as follows:
[3]

The National Internal Revenue Code, as amended, provides:

Sec. 91. Imposition of Tax. (a) There shall be levied, assessed, collected, and paid upon the transfer by
any person, resident, or non-resident, of the property by gift, a tax, computed as provided in Section 92.
(b) The tax shall apply whether the transfer is in trust or otherwise, whether the gift is direct or indirect,
and whether the property is real or personal, tangible or intangible.
Pursuant to the above-quoted provisions of law, the transfer of property by gift, whether the transfer is in
trust or otherwise, whether the gift is direct or indirect, and whether the property is real or personal,
tangible or intangible, is subject to donors or gift tax.

A gift is generally defined as a voluntary transfer of property by one to another without any consideration
or compensation therefor (28 C.J. 620; Santos vs. Robledo, 28 Phil. 250).
In the instant case, the contributions are voluntary transfers of property in the form of money from private
respondents to Sen. Angara, without considerations therefor. Hence, they squarely fall under the definition
of donation or gift.
As correctly pointed out by the Solicitor General:
The fact that the contributions were given to be used as campaign funds of Sen. Angara does not affect the
character of the fund transfers as donation or gift. There was thereby no retention of control over the
disposition of the contributions. There was simply an indication of the purpose for which they were to be
used. For as long as the contributions were used for the purpose for which they were intended, Sen.
Angara had complete and absolute power to dispose of the contributions. He was fully entitled to the
economic benefits of the contributions.
Section 91 of the Tax Code is very clear. A donors or gift tax is imposed on the transfer of property by
gift.
The Bureau of Internal Revenue issued Ruling No. 344 on July 20, 1988, which reads:
Political Contributions. For internal revenue purposes, political contributions in the Philippines are
considered taxable gift rather than taxable income. This is so, because a political contribution is
indubitably not intended by the giver or contributor as a return of value or made because of any intent to
repay another what is his due, but bestowed only because of motives of philanthropy or charity. His
purpose is to give and to bolster the morals, the winning chance of the candidate and/or his party, and not
to employ or buy. On the other hand, the recipient-donee does not regard himself as exchanging his
services or his product for the money contributed. But more importantly he receives financial advantages
gratuitously.
When the U.S. gift tax law was adopted in the Philippines (before May 7, 1974), the taxability of political
contributions was, admittedly, an unsettled issue; hence, it cannot be presumed that the Philippine
Congress then had intended to consider or treat political contributions as non-taxable gifts when it
adopted the said gift tax law. Moreover, well-settled is the rule that the Philippines need not necessarily
adopt the present rule or construction in the United States on the matter. Generally, statutes of different
states relating to the same class of persons or things or having the same purposes are not considered to be
in pari materia because it cannot be justifiably presumed that the legislature had them in mind when
enacting the provision being construed. (5206, Sutherland, Statutory Construction, p. 546.)Accordingly,
in the absence of an express exempting provision of law, political contributions in the Philippines are
subject to the donors gift tax. (cited in National Internal Revenue Code Annotated by Hector S. de Leon,
1991 ed., p. 290).
In the light of the above BIR Ruling, it is clear that the political contributions of the private respondents
to Sen. Edgardo Angara are taxable gifts. The vagueness of the law as to what comprise the gift subject to
tax was made concrete by the above-quoted BIR ruling. Hence, there is no doubt that political
contributions are taxable gifts.[4]
Petitioners filed a motion for reconsideration, which the Court of Appeals denied in its
resolution of June 16, 1995.[5]

Petitioners thereupon filed the instant petition on July 26, 1995. Raised are the following
issues:
1. DID THE HONORABLE COURT OF APPEALS ERR WHEN IT FAILED TO
CONSIDER IN ITS DECISION THE PURPOSE BEHIND THE ENACTMENT OF
OUR GIFT TAX LAW?
2. DID THE HONORABLE COURT OF APPEALS ERR IN NOT CONSIDERING THE
INTENTION OF THE GIVERS IN DETERMINING WHETHER OR NOT THE
PETITIONERS POLITICAL CONTRIBUTIONS WERE GIFTS SUBJECT TO
DONORS TAX?
3. DID THE HONORABLE COURT OF APPEALS ERR WHEN IT FAILED TO
CONSIDER THE DEFINITION OF AN ELECTORAL CONTRIBUTION UNDER
THE OMNIBUS ELECTION CODE IN DETERMINING WHETHER OR NOT
POLITICAL CONTRIBUTIONS ARE TAXABLE?
4. DID THE HONORABLE COURT OF APPEALS ERR IN NOT CONSIDERING THE
ADMINISTRATIVE PRACTICE OF CLOSE TO HALF A CENTURY OF NOT
SUBJECTING POLITICAL CONTRIBUTIONS TO DONORS TAX?
5. DID THE HONORABLE COURT OF APPEALS ERR IN NOT CONSIDERING THE
AMERICAN JURISPRUDENCE RELIED UPON BY THE COURT OF TAX
APPEALS AND BY THE PETITIONERS TO THE EFFECT THAT POLITICAL
CONTRIBUTIONS ARE NOT TAXABLE GIFTS?
6. DID THE HONORABLE COURT OF APPEALS ERR IN NOT APPLYING AMERICAN
JURISPRUDENCE ON THE GROUND THAT THIS WAS NOT KNOWN AT THE
TIME THE PHILIPPINES GIFT TAX LAW WAS ADOPTED IN 1939?
7. DID THE HONORABLE COURT OF APPEALS ERR IN RESOLVING THE CASE
MAINLY ON THE BASIS OF A RULING ISSUED BY THE RESPONDENT ONLY
AFTER THE ASSESSMENTS HAD ALREADY BEEN MADE?
8. DID THE HONORABLE COURT OF APPEALS ERR WHEN IT DID NOT
CONSTRUE THE GIFT TAX LAW LIBERALLY IN FAVOR OF THE TAXPAYER
AND STRICLTY AGAINST THE GOVERNMENT IN ACCORDANCE WITH
APPLICABLE PRINCIPLES OF STATUTORY CONSTRUCTION?[6]

First, Fifth and Sixth Issues

Section 91 of the National Internal Revenue Code (NIRC) reads:
(A) There shall be levied, assessed, collected and paid upon the transfer by any person, resident
or nonresident, of the property by gift, a tax, computed as provided in Section 92
(B) The tax shall apply whether the transfer is in trust or otherwise, whether the gift is direct or
indirect, and whether the property is real or personal, tangible or intangible.
The NIRC does not define transfer of property by gift. However, Article 18 of the Civil Code,
states:

In matters which are governed by the Code of Commerce and special laws, their deficiency shall be
supplied by the provisions of this Code.
Thus, reference may be made to the definition of a donation in the Civil Code. Article 725 of said
Code defines donation as:
. . . an act of liberality whereby a person disposes gratuitously of a thing or right in favor of another, who
accepts it.
Donation has the following elements: (a) the reduction of the patrimony of the donor; (b) the
increase in the patrimony of the donee; and, (c) the intent to do an act of liberality or animus
donandi.[7]
The present case falls squarely within the definition of a donation. Petitioners, the late
Manuel G. Abello[8], Jose C. Concepcion, Teodoro D. Regala and Avelino V. Cruz, each
gaveP882,661.31 to the campaign funds of Senator Edgardo Angara, without any material
consideration. All three elements of a donation are present. The patrimony of the four petitioners
were reduced by P882,661.31 each. Senator Edgardo Angaras patrimony correspondingly
increased by P3,530,645.24[9]. There was intent to do an act of liberality or animus donandi was
present since each of the petitioners gave their contributions without any consideration.
Taken together with the Civil Code definition of donation, Section 91 of the NIRC is clear
and unambiguous, thereby leaving no room for construction. In Rizal Commercial Banking
Corporation v. Intermediate Appellate Court[10] the Court enunciated:
It bears stressing that the first and fundamental duty of the Court is to apply the law. When the law is clear
and free from any doubt or ambiguity, there is no room for construction or interpretation. As has been our
consistent ruling, where the law speaks in clear and categorical language, there is no occasion for
interpretation; there is only room for application (Cebu Portland Cement Co. v. Municipality of Naga, 24
SCRA 708 [1968])
Where the law is clear and unambiguous, it must be taken to mean exactly what it says and the court has
no choice but to see to it that its mandate is obeyed (Chartered Bank Employees Association v. Ople,138
SCRA 273 [1985]; Luzon Surety Co., Inc. v. De Garcia, 30 SCRA 111 [1969]; Quijano v. Development
Bank of the Philippines, 35 SCRA 270 [1970]).
Only when the law is ambiguous or of doubtful meaning may the court interpret or construe its true intent.
Ambiguity is a condition of admitting two or more meanings, of being understood in more than one way,
or of referring to two or more things at the same time. A statute is ambiguous if it is admissible of two or
more possible meanings, in which case, the Court is called upon to exercise one of its judicial functions,
which is to interpret the law according to its true intent.

Second Issue
Since animus donandi or the intention to do an act of liberality is an essential element of a
donation, petitioners argue that it is important to look into the intention of the giver to determine
if a political contribution is a gift. Petitioners argument is not tenable. First of all, donative intent
is a creature of the mind. It cannot be perceived except by the material and tangible acts which
manifest its presence. This being the case, donative intent is presumed present when one gives

a part of ones patrimony to another without consideration. Second, donative intent is not
negated when the person donating has other intentions, motives or purposes which do not
contradict donative intent. This Court is not convinced that since the purpose of the contribution
was to help elect a candidate, there was no donative intent. Petitioners contribution of money
without any material consideration evinces animus donandi. The fact that their purpose for
donating was to aid in the election of the donee does not negate the presence of donative
intent.

Third Issue
Petitioners maintain that the definition of an electoral contribution under the Omnibus
Election Code is essential to appreciate how a political contribution differs from a taxable gift.
[11]
Section 94(a) of the said Code defines electoral contribution as follows:
The term "contribution" includes a gift, donation, subscription, loan, advance or deposit of money or
anything of value, or a contract, promise or agreement to contribute, whether or not legally enforceable,
made for the purpose of influencing the results of the elections but shall not include services rendered
without compensation by individuals volunteering a portion or all of their time in behalf of a candidate or
political party. It shall also include the use of facilities voluntarily donated by other persons, the money
value of which can be assessed based on the rates prevailing in the area.
Since the purpose of an electoral contribution is to influence the results of the election,
petitioners again claim that donative intent is not present. Petitioners attempt to place the barrier
of mutual exclusivity between donative intent and the purpose of political contributions. This
Court reiterates that donative intent is not negated by the presence of other intentions, motives
or purposes which do not contradict donative intent.
Petitioners would distinguish a gift from a political donation by saying that the consideration
for a gift is the liberality of the donor, while the consideration for a political contribution is the
desire of the giver to influence the result of an election by supporting candidates who, in the
perception of the giver, would influence the shaping of government policies that would promote
the general welfare and economic well-being of the electorate, including the giver himself.
Petitioners attempt is strained. The fact that petitioners will somehow in the future benefit
from the election of the candidate to whom they contribute, in no way amounts to a valuable
material consideration so as to remove political contributions from the purview of a donation.
Senator Angara was under no obligation to benefit the petitioners. The proper performance of
his duties as a legislator is his obligation as an elected public servant of the Filipino people and
not a consideration for the political contributions he received. In fact, as a public servant, he
may even be called to enact laws that are contrary to the interests of his benefactors, for the
benefit of the greater good.
In fine, the purpose for which the sums of money were given, which was to fund the
campaign of Senator Angara in his bid for a senatorial seat, cannot be considered as a material
consideration so as to negate a donation.

Fourth Issue

Petitioners raise the fact that since 1939 when the first Tax Code was enacted, up to 1988
the BIR never attempted to subject political contributions to donors tax. They argue that:
. . . It is a familiar principle of law that prolonged practice by the government agency charged with the
execution of a statute, acquiesced in and relied upon by all concerned over an appreciable period of time,
is an authoritative interpretation thereof, entitled to great weight and the highest respect. . . . [12]
This Court holds that the BIR is not precluded from making a new interpretation of the law,
especially when the old interpretation was flawed. It is a well-entrenched rule that
. . . erroneous application and enforcement of the law by public officers do not block subsequent correct
application of the statute (PLDT v. Collector of Internal Revenue, 90 Phil. 676), and that the Government
is never estopped by mistake or error on the part of its agents (Pineda v. Court of First Instance of
Tayabas, 52 Phil. 803, 807; Benguet Consolidated Mining Co. v. Pineda, 98 Phil. 711, 724). [13]

Seventh Issue
Petitioners question the fact that the Court of Appeals decision is based on a BIR ruling,
namely BIR Ruling No. 88-344, which was issued after the petitioners were assessed for donors
tax. This Court does not need to delve into this issue. It is immaterial whether or not the Court of
Appeals based its decision on the BIR ruling because it is not pivotal in deciding this case. As
discussed above, Section 91 (now Section 98) of the NIRC as supplemented by the definition of
a donation found in Article 725 of the Civil Code, is clear and unambiguous, and needs no
further elucidation.

Eighth Issue
Petitioners next contend that tax laws are construed liberally in favor of the taxpayer and
strictly against the government. This rule of construction, however, does not benefit petitioners
because, as stated, there is here no room for construction since the law is clear and
unambiguous.
Finally, this Court takes note of the fact that subsequent to the donations involved in this
case, Congress approved Republic Act No. 7166 on November 25, 1991, providing in Section
13 thereof that political/electoral contributions, duly reported to the Commission on Elections,
are not subject to the payment of any gift tax. This all the more shows that the political
contributions herein made are subject to the payment of gift taxes, since the same were made
prior to the exempting legislation, and Republic Act No. 7166 provides no retroactive effect on
this point.
WHEREFORE, the petition is DENIED and the assailed Decision and Resolution of the
Court of Appeals are AFFIRMED.
No costs.
SO ORDERED.
[2]

Abello v. CIRG.R. No. 120721February 23, 2005Top i c s :

gift not defined in the Tax Code Civil Code definition on donation applies; election contributions are
subject togift tax they are not exempt even if such transfers are with intentions, motives or purpose
Facts:
During the 1987 national elections, petitioners, who are partners in the Angara, Abello, Concepcion,
Regala and Cruz (ACCRA) law firm, contributed P882,661.31 each to the campaign funds of Senator
Edgardo Angara, then running for the Senate. BIR assessed each of the petitioners P263,032.66 for their
contributions. Petitioners questioned the assessment to the BIR, claiming that political or electoral
contributions are not considered gifts under the NIRC so they are not liable for donors tax. The claim for
exemption was denied by the Commissioner. The CTA ruled in favor of the petitioners, but such ruling
was overturned by the CA, thus this petition for review.
Issue:
Whether or not electoral contributions are subject to donors tax.
Held:
Yes, they are. The NIRC does not define transfer of property by gift. However, Article 18 of the Civil Code,
states: In matters which are governed by the Code of Commerce and special laws, their deficiency shall
be supplied by the provisions of this Code. Thus, reference may be made to the definition of a donation
in the Civil Code. Article 725 of said Code defines donation as: . . . an act of liberality whereby a person
disposes gratuitously of a thing or right in favor of another, who accepts it. Donation has the following
elements: (a) the reduction of the patrimony of the donor; (b) the increase in the patrimony of the donee;
and, (c) the intent to do an act of liberality or
Animus donandi
.The present case falls squarely within the definition of a donation. Petitioners each gave P

882,661.31 to the campaign funds of Senator Edgardo Angara, without any material consideration. All
three elements of a donation are present. The patrimony of the four petitioners were reduced by P

882,661.31 each. Senator Angaras patrimony correspondingly increased by P3,530,645.24. There was
intent to do an act of liberality or
animus donandi
was present since each of the petitioners gave their contributions without any consideration. Taken
together with the Civil Code definition of donation ,Section 91 of the NIRC is clear and unambiguous,
thereby leaving no room for construction. Since
animus donandi
or the intention to do an act of liberality is an essential element of a donation, petitioners argue that it is
important to look into the intention of the giver to determine if a political contribution is a gift.
Petitioners argument is not tenable. First of all, donative intent is a creature of the mind. It cannot be
perceived except by the material and tangible acts which manifest its presence. This being the

case, donative intent is presumed present when one gives a part of ones patrimony to another without
consideration. Second, donative intent is not negated when the person donating has other intentions,

motives or purposes which do not contradict donative intent. This Court is notconvinced that since the
purpose of the contribution was to help elect a candidate, there was no donative intent.Petitioners
contribution of money without any material consideration evinces
animus donandi
.Petitioners claim that since the purpose of electoral contributions is to influence the results of
the elections, donativeintent is not present. They claim that the purpose of electoral contributions is
brought on by the desire of the giver toinfluence the result of an election by supporting candidates who
would influence the shaping of government policies that would promote the general welfare and economic
well-being of the electorate, including the giver himself. Petitionersattempt to place the barrier of
mutual exclusivity between donative intent and the purpose of political contributions. ThisCourt reiterates
that donative intent is not negated by the presence of other intentions, motives or purposes which do
notcontradict donative intent. Petitioners attempt is strained. The fact that petitioners will somehow in the
future benefitfrom the election of the candidate to whom they contribute, in no way amounts to a valuable
material consideration so asto remove political contributions from the purview of a donation. Senator
Angara was under no obligation to benefit thepetitioners. The proper performance of his duties as a
legislator is his obligation as an elected public servant of theFilipino people and not a consideration for the
political contributions he received. In fact, as a public servant, he may evenbe called to enact laws that
are contrary to the interests of his benefactors, for the benefit of the greater good

Evangelista vs. Collector of Internal Revenue

Post under case digests, Taxation at Friday, March 02, 2012 Posted by Schizophrenic Mind
Facts: Petitioners borrowed money from their father and purchased several lands. For several
years, these lands were leased to tenants by the petitioners. In 1954, respondent Collector of
Internal Revenue demanded from petitioners the payment of income tax on corporations, real
estate dealer's fixed tax and corporation residence tax for the years 1945-1949. A letter of
demand and corresponding assessments were delivered to petitioners. Petitioners claim that
they should be absolved from paying said taxes since they are not a corporation.
Issue: Whether petitioners are subject to the tax on corporations provided for in section 24 of
Commonwealth Act. No. 466, otherwise known as the National Internal Revenue Code, as well
as to the residence tax for corporations and the real estate dealers fixed tax.
Held: Yes. Petitioners are subject to the income tax and residence tax for corporation.
As defined in section 84 (b) of the Internal Revenue 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 corporations. Partnership, as has been defined in the civil
code refers to two or more persons who bind themselves to contribute money, properly, or
industry to a common fund, with the intention of dividing the profits among themselves. Thus,
petitioners, being engaged in the real estate transactions for monetary gain and dividing the
same among themselves constitute a partnership so far as the Code is concerned and are
subject to income tax for corporation.
Since Sec 2 of the Code in defining corporations also includes joint-stock company, partnership,
joint account, association or insurancecompany, no matter how created or organized, it follows
that petitioners, regardless of how their partnership was created is also subject to the residence
tax for corporations.

Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. L-9996

October 15, 1957

EUFEMIA EVANGELISTA, MANUELA EVANGELISTA, and FRANCISCA EVANGELISTA,

petitioners,
vs.
THE COLLECTOR OF INTERNAL REVENUE and THE COURT OF TAX APPEALS, respondents.
Santiago F. Alidio and Angel S. Dakila, Jr., for petitioner.
Office of the Solicitor General Ambrosio Padilla, Assistant Solicitor General Esmeraldo Umali and
Solicitor Felicisimo R. Rosete for Respondents.
CONCEPCION, J.:
This is a petition filed by Eufemia Evangelista, Manuela Evangelista and Francisca Evangelista, for
review of a decision of the Court of Tax Appeals, the dispositive part of which reads:
FOR ALL THE FOREGOING, we hold that the petitioners are liable for the income tax, real
estate dealer's tax and the residence tax for the years 1945 to 1949, inclusive, in accordance
with the respondent's assessment for the same in the total amount of P6,878.34, which is
hereby affirmed and the petition for review filed by petitioner is hereby dismissed with costs
against petitioners.
It appears from the stipulation submitted by the parties:
1. That the petitioners borrowed from their father the sum of P59,1400.00 which amount
together with their personal monies was used by them for the purpose of buying real
properties,.
2. That on February 2, 1943, they bought from Mrs. Josefina Florentino a lot with an area of
3,713.40 sq. m. including improvements thereon from the sum of P100,000.00; this property
has an assessed value of P57,517.00 as of 1948;
3. That on April 3, 1944 they purchased from Mrs. Josefa Oppus 21 parcels of land with an
aggregate area of 3,718.40 sq. m. including improvements thereon for P130,000.00; this
property has an assessed value of P82,255.00 as of 1948;
4. That on April 28, 1944 they purchased from the Insular Investments Inc., a lot of 4,353 sq.
m. including improvements thereon for P108,825.00. This property has an assessed value of
P4,983.00 as of 1948;

5. That on April 28, 1944 they bought form Mrs. Valentina Afable a lot of 8,371 sq. m.
including improvements thereon for P237,234.34. This property has an assessed value of
P59,140.00 as of 1948;
6. That in a document dated August 16, 1945, they appointed their brother Simeon
Evangelista to 'manage their properties with full power to lease; to collect and receive rents;
to issue receipts therefor; in default of such payment, to bring suits against the defaulting
tenants; to sign all letters, contracts, etc., for and in their behalf, and to endorse and deposit
all notes and checks for them;
7. That after having bought the above-mentioned real properties the petitioners had the
same rented or leases to various tenants;
8. That from the month of March, 1945 up to an including December, 1945, the total amount
collected as rents on their real properties was P9,599.00 while the expenses amounted to
P3,650.00 thereby leaving them a net rental income of P5,948.33;
9. That on 1946, they realized a gross rental income of in the sum of P24,786.30, out of
which amount was deducted in the sum of P16,288.27 for expenses thereby leaving them a
net rental income of P7,498.13;
10. That in 1948, they realized a gross rental income of P17,453.00 out of the which amount
was deducted the sum of P4,837.65 as expenses, thereby leaving them a net rental income
of P12,615.35.
It further appears that on September 24, 1954 respondent Collector of Internal Revenue demanded
the payment of income tax on corporations, real estate dealer's fixed tax and corporation residence
tax for the years 1945-1949, computed, according to assessment made by said officer, as follows:

INCOME TAXES

1945

14.84

1946

1,144.71

1947

10.34

1948

1,912.30

1949

1,575.90

Total including surcharge and

compromise

P6,157.09

REAL ESTATE DEALER'S FIXED TAX

1946

P37.50

1947

150.00

1948

150.00

1949

150.00

Total including penalty

P527.00

RESIDENCE TAXES OF CORPORATION

1945

P38.75

1946

38.75

1947

38.75

1948

38.75

1949

38.75

Total including surcharge

P193.75

TOTAL TAXES DUE

P6,878.34.

Said letter of demand and corresponding assessments were delivered to petitioners on December 3,
1954, whereupon they instituted the present case in the Court of Tax Appeals, with a prayer that "the
decision of the respondent contained in his letter of demand dated September 24, 1954" be
reversed, and that they be absolved from the payment of the taxes in question, with costs against
the respondent.
After appropriate proceedings, the Court of Tax Appeals the above-mentioned decision for the
respondent, and a petition for reconsideration and new trial having been subsequently denied, the
case is now before Us for review at the instance of the petitioners.
The issue in this case whether petitioners are subject to the tax on corporations provided for in
section 24 of Commonwealth Act. No. 466, otherwise known as the National Internal Revenue Code,
as well as to the residence tax for corporations and the real estate dealers fixed tax. With respect to
the tax on corporations, the issue hinges on the meaning of the terms "corporation" and
"partnership," as used in section 24 and 84 of said Code, the pertinent parts of which read:
SEC. 24. Rate of tax on corporations.There shall be levied, assessed, collected, and paid
annually upon the total net income received in the preceding taxable year from all sources by
every corporation organized in, or existing under the laws of the Philippines, no matter how
created or organized but not including duly registered general co-partnerships (compaias
colectivas), a tax upon such income equal to the sum of the following: . . .
SEC. 84 (b). The term 'corporation' includes partnerships, no matter how created or
organized, joint-stock companies, joint accounts (cuentas en participacion), associations or
insurance companies, but does not include duly registered general copartnerships.
(compaias colectivas).
Article 1767 of the Civil Code of the Philippines provides:
By the contract of partnership two or more persons bind themselves to contribute money,
properly, or industry to a common fund, with the intention of dividing the profits among
themselves.

Pursuant to the article, the essential elements of a partnership are two, namely: (a) an agreement to
contribute money, property or industry to a common fund; and (b) intent to divide the profits among
the contracting parties. The first element is undoubtedly present in the case at bar, for, admittedly,
petitioners have agreed to, and did, contribute money and property to a common fund. Hence, the
issue narrows down to their intent in acting as they did. Upon consideration of all the facts and
circumstances surrounding the case, we are fully satisfied that their purpose was to engage in real
estate transactions for monetary gain and then divide the same among themselves, because:
1. Said common fund was not something they found already in existence. It was not property
inherited by them pro indiviso. They created it purposely. What is more they jointly
borrowed a substantial portion thereof in order to establish said common fund.
2. They invested the same, not merely not merely in one transaction, but in a series of
transactions. On February 2, 1943, they bought a lot for P100,000.00. On April 3, 1944, they
purchased 21 lots for P18,000.00. This was soon followed on April 23, 1944, by the
acquisition of another real estate for P108,825.00. Five (5) days later (April 28, 1944), they
got a fourth lot for P237,234.14. The number of lots (24) acquired and transactions
undertaken, as well as the brief interregnum between each, particularly the last three
purchases, 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 by the petitioners in February, 1943. In other words, one cannot but perceive a
character of habitually peculiar to business transactions engaged in the purpose of gain.
3. The aforesaid lots were not devoted to residential purposes, or to other personal uses, of
petitioners herein. The properties were leased separately to several persons, who, from 1945
to 1948 inclusive, paid the total sum of P70,068.30 by way of rentals. Seemingly, the lots are
still being so let, for petitioners do not even suggest that there has been any change in the
utilization thereof.
4. Since August, 1945, the properties have been under the management of one person,
namely Simeon Evangelista, with full power to lease, to collect rents, to issue receipts, to
bring suits, to sign letters and contracts, and to indorse and deposit notes and checks. Thus,
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. The foregoing conditions have existed for more than ten (10) years, or, to be exact, over
fifteen (15) years, since the first property was acquired, and over twelve (12) 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. They
did not even try to offer an explanation therefor.
Although, taken singly, they might not suffice to establish the intent necessary to constitute a
partnership, the collective effect of these circumstances is such as to leave no room for doubt on the
existence of said intent in petitioners herein. Only one or two of the aforementioned circumstances
were present in the cases cited by petitioners herein, and, hence, those cases are not in point.
Petitioners insist, however, that they are mere co-owners, not copartners, for, in consequence of the
acts performed by them, a legal entity, with a personality independent of that of its members, did not
come into existence, and some of the characteristics of partnerships are lacking in the case at bar.
This pretense was correctly rejected by the Court of Tax Appeals.

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 corporations. Again, pursuant to said section 84(b), the term "corporation" includes,
among other, joint accounts, (cuentas en participation)" 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 copartnerships" 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" It may not be amiss to add that petitioners'
allegation to the effect that their liability in connection with the leasing of the lots above referred to,
under the management of one person even if true, on which we express no opinion tends
to increase the similarity between the nature of their venture and that corporations, and is, therefore,
an additional argument in favor of the imposition of said tax on corporations.
Under the Internal Revenue Laws of the United States, "corporations" are taxed differently from
"partnerships". By specific provisions of said laws, such "corporations" include "associations, jointstock companies and insurance companies." However, the term "association" is not used in the
aforementioned laws.
. . . in any narrow or technical sense. It includes any organization, created for the transaction
of designed affairs, or the attainment of some object, which like a corporation, continues
notwithstanding that its members or participants change, and the affairs of which, like
corporate affairs, are conducted by a single individual, a committee, a board, or some other
group, acting in a representative capacity. It is immaterial whether such organization is
created by an agreement, a declaration of trust, a statute, or otherwise. It includes a
voluntary association, a joint-stock corporation or company, a 'business' trusts a
'Massachusetts' trust, a 'common law' trust, and 'investment' trust (whether of the fixed or the
management type), an interinsuarance exchange operating through an attorney in fact, a
partnership association, and any other type of organization (by whatever name known) which
is not, within the meaning of the Code, a trust or an estate, or a partnership. (7A Mertens
Law of Federal Income Taxation, p. 788; emphasis supplied.).
Similarly, the American Law.
. . . provides its own concept of a partnership, under the term 'partnership 'it includes not only
a partnership as known at common law but, as well, a syndicate, group, pool, joint venture or
other unincorporated organizations 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 Merten's Law of Federal Income taxation, p. 789; emphasis supplied.)
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 Merten's Law of Federal Income Taxation, p. 562
Note 63; emphasis supplied.) .

For purposes of the tax on corporations, our National Internal Revenue Code, includes these
partnerships with the exception only of duly registered general copartnerships 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.
As regards the residence of tax for corporations, section 2 of Commonwealth Act No. 465 provides in
part:
Entities liable to residence tax.-Every corporation, no matter how created or organized,
whether domestic or resident foreign, engaged in or doing business in the Philippines shall
pay an annual residence tax of five pesos and an annual additional tax which in no case,
shall exceed one thousand pesos, in accordance with the following schedule: . . .
The term 'corporation' as used in this Act includes joint-stock company, partnership, joint
account (cuentas en participacion), association or insurance company, no matter how
created or organized. (emphasis supplied.)
Considering that the pertinent part of this provision is analogous to that of section 24 and 84 (b) of
our National Internal Revenue Code (commonwealth Act No. 466), and that the latter was approved
on June 15, 1939, the day immediately after the approval of said Commonwealth Act No. 465 (June
14, 1939), 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.
Lastly, the records show that petitioners have habitually engaged in leasing the properties above
mentioned for a period of over twelve years, and that the yearly gross rentals of said properties from
June 1945 to 1948 ranged from P9,599 to P17,453. Thus, they are subject to the tax provided in
section 193 (q) of our National Internal Revenue Code, for "real estate dealers," inasmuch as,
pursuant to section 194 (s) thereof:
'Real estate dealer' includes any person engaged in the business of buying, selling,
exchanging, leasing, or renting property or his own account as principal and holding himself
out as a full or part time dealer in real estate or as an owner of rental property or properties
rented or offered to rent for an aggregate amount of three thousand pesos or more a year. . .
(emphasis supplied.)
Wherefore, the appealed decision of the Court of Tax appeals is hereby affirmed with costs against
the petitioners herein. It is so ordered.
Bengzon, Paras, C.J., Padilla, Reyes, A., Reyes, J.B.L., Endencia and Felix, JJ., concur.

BAUTISTA ANGELO, J., concurring:

I agree with the opinion that petitioners have actually contributed money to a common fund with
express purpose of engaging in real estate business for profit. The series of transactions which they
had undertaken attest to this. This appears in the following portion of the decision:

2. They invested the same, not merely in one transaction, but in a series of transactions. On
February 2, 1943, they bought a lot for P100,000. On April 3, 1944, they purchase 21 lots for
P18,000. This was soon followed on April 23, 1944, by the acquisition of another real state
for P108,825. Five (5) days later (April 28, 1944), they got a fourth lot for P237,234.14. The
number of lots (24) acquired and transactions undertaken, as well as the brief interregnum
between each, particularly the last three purchases, 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 by the petitioner in February,
1943, In other words, we cannot but perceive a character of habitually peculiar
to business transactions engaged in for purposes of gain.
I wish however to make to make the following observation:
Article 1769 of the new Civil Code lays down the rule for determining when a transaction should be
deemed a partnership or a co-ownership. Said article paragraphs 2 and 3, provides:
(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 partnership, whether or not the
person sharing them have a joint or common right or interest in any property from which the
returns are derived;
From the above it appears that the fact that those who agree to form a co-ownership shared or do
not share any profits made by the use of property held in common does not convert their venture into
a partnership. Or the sharing of the gross returns does not of itself establish a partnership whether or
not the persons sharing therein have a joint or common right or interest in the property. This only
means that, aside from the circumstance of profit, the presence of other elements constituting
partnership is necessary, such as the clear intent to form a partnership, the existence of a judicial
personality different from that of the individual partners, and the freedom to transfer or assign any
interest in the property by one with the consent of the others (Padilla, Civil Code of the Philippines
Annotated, Vol. I, 1953 ed., pp. 635- 636).
It is evident that an isolated transaction whereby two or more persons contribute funds to buy certain
real estate for profit in the absence of other circumstances showing a contrary intention cannot be
considered a partnership.
Persons who contribute property or funds for a common enterprise and agree to share the
gross returns of that enterprise in proportion to their contribution, but who severally retain the
title to their respective contribution, are not thereby rendered partners. They have no
common stock or capital, and no community of interest as principal proprietors in the
business itself which the proceeds derived. (Elements of the law of Partnership by Floyd R.
Mechem, 2n Ed., section 83, p. 74.)
A joint venture purchase of land, by two, does not constitute a copartnership in respect
thereto; nor does not agreement to share the profits and loses on the sale of land create a
partnership; the parties are only tenants in common. (Clark vs. Sideway, 142 U.S. 682, 12 S
Ct. 327, 35 L. Ed., 1157.)
Where plaintiff, his brother, and another agreed to become owners of a single tract of reality,
holding as tenants in common, and to divide the profits of disposing of it, the brother and the
other not being entitled to share in plaintiff's commissions, no partnership existed as between

the parties, whatever relation may have been as to third parties. (Magee vs. Magee, 123 N.
E. 6763, 233 Mass. 341.)
In order to constitute a partnership inter sese there must be: (a) An intent to form the same;
(b) generally a participating in both profits and losses; (c) and such a community of interest,
as far as third persons are concerned as enables each party to make contract, manage the
business, and dispose of the whole property. (Municipal Paving Co. vs Herring, 150 P. 1067,
50 Ill. 470.)
The common ownership of property does not itself create a partnership between the owners,
though they may use it for purpose of making gains; and they may, without becoming
partners, agree among themselves as to the management and use of such property and the
application of the proceeds therefrom. (Spurlock vs. Wilson, 142 S. W. 363, 160 No. App.
14.)
This is impliedly recognized in the following portion of the decision: "Although, taken singly, they
might not suffice to establish the intent necessary to constitute a partnership, the collective effect of
these circumstances (referring to the series of transactions) such as to leave no room for doubt on
the existence of said intent in petitioners herein."

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