[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.

1. 1.TAXATION; TAX ON CORPORATIONS INCLUDES ORGANIZATIONS

WHICH ARE NOT NECESSARILY PARTNERSHIP.—"Corporations"
strictly speaking are distinct and different from "partnerships." When our
Internal Revenue Code includes "partnerships" among the entities subject to
the tax on "corporations", it must allude to organizations which are not
necessarily "partnerships" in the technical sense of the term.

1. 2.ID.; DULY REGISTERED GENERAL PARTNERSHIPS ARE EXEMPTED

FROM TAX UPON CORPORATIONS.—Section 24 of the Internal Revenue
Code exempts from the tax imposed upon corporations "duly registered
general partnerships", which constitute precisely one of the most typical
forms of partnerships in this jurisdiction.

1. 3.ID. ; CORPORATION INCLUDES PARTNERSHIPS NO MATTER HOW

ORGANIZED.—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.

1. 4.ID.; CORPORATION INCLUDES "JOINT ACCOUNT" AND

ASSOCIATIONS WITHOUT LEGAL PERSONALITY.—Pursuant to Section
84 (b) of the Internal Revenue Code, the term "corporation" includes, among
others, "joint accounts (cuenta en participación)" and "associations", none of
which has a legal personality of its own independent of that of its
members. For purposes of the tax on corporations, our National Internal
Revenue Code includes these partnerships.—with the exception only of duly
registered general partnerships—within the purview of the term
"corporation." Held: That the petitioners in the case at bar, who are engaged
in real estate transactions for monetary gain and divide the same among
themselves, constitute a partnership, so far as the said Code is concerned,
and are subject to the income tax for corporation.

1. 5.ID.; CORPORATION; PARTNERSHIP WITHOUT LEGAL PERSONALITY

SUBJECT TO RESIDENCE TAX ON CORPORATION.—The pertinent part
of the provision of Section 2 of Commonwealth Act No. 465 which says: "The
term corporation as used in this Act includes joint-stock company,
partnership, joint account (cuentas en participación), association or
insurance company, no matter how created or organized" is analogous to
that of Sections 24 and 84 (b) of our National Internal Revenue Code, which
was approved the day immediately after the approval of said
Commonwealth Act No. 465. Apparently, the terms "cor'poration" and
"Partnership" are used in both statutes with substantially the same
meaning, Held:That the petitioners are subject also to the residence tax for
corporations.

PETITION for review by certiorari of a decision of the Court of Tax Appeals.

The facts are stated in the opinion of the Court.

Santiago F. Alidio and Angel S. Dakila, Jr., for petitioner.
Solicitor General Ambrosio Padilla, Assistant Solicitor General Esmeraldo
Umali and Solicitor Felicísimo R. Rosete for the respondents.

CONCEPCIÓN, 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
petitioners is hereby dismissed with costs against petitioners."

It apears from the stipulation submitted by the parties:

1. "1.That the petitioners borrowed from their father the sum of

P59,140.00 which amount together with their personal monies was
used by them for the purpose of buying real properties,
2. "2.That on February 2, 1943 they bought from Mrs. Josefina Florentino
a lot with an area of 8,718.40 sq. m. including improvements thereon
for the sum of P100,000.00; this property has an assessed value of
P57,517.00 as of 1948;
3. "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 P18,000.00; this property has an assessed
value of P8,255.00 as of 1948;
4. "4.That on April 23, 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. "5.That on April 28, 1944 they bought from Mrs. Valentin Afable a lot
of 8,371 sq. m. including improvements thereon for P237,234.14. This
property has an assessed value of P59,140.00 as of 1948;
6. "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
tenant; to sign all letters, contracts, etc., for and in their behalf, and
to endorse and deposit all notes and checks for them;
7. "7.That after having bought the above-mentioned real properties, the
petitioners had the same rented or leased to various tenants;
8. "8.That from the month of March, 1945 up to and 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. "9.That in 1946, they realized a gross rental income in the sum of
P24,786.30, out of which amount was deducted the sum of P16,288.27
for expenses thereby leaving them a net rental income of P7,498.13;
10. "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 the assessments made by said officer, as
follows:
INCOME TAXES
1945 ........................................................... P614.84
1946 ........................................................... 1,144.71
1947 .............................................................. 910.34
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 ........................................ P527.50
RESIDENCE TAXES OF CORPORATION
1945 ............................................................. P38.75
1946 ............................................................. 38.75
1947 ............................................................. 38.75
1948 ............................................................. 38.75
1949 ............................................................. 38.75
Total including surchage ........................................ P193.75
TOTAL TAXES DUE ........................................ P6,878.34
Said letter of demand and the 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 rendered 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 is 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 sections 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. (compañias colectivas), a tax upon such income equal to the
sum of the following: * * *."
"SEC. 84(6). The term 'corporation' includes partnerships, no matter how created
or organized, joint-stock companies, joint accounts (cuentas en
participación), associations or insurance companies, but does not include duly
registered general copartnerships (companias 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, property, or industry to a common fund, with the intention of dividing the
profits among themselves."
Pursuant to this 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 a 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 in one transaction, but in a series of
transactions. On February 2, 1943, they bought a lot for ?100,000.00. On
April 3, 1944, they purchased 21 lots for P18,000.000. 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 petitioners in February, 1943. In other words, one
cannot but perceive a character of habituality peculiar
to business transactions engaged in for purposes 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 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 coowners, 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
participación)" 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 of 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 provision of said laws, such
"corporations" include "associations, joint-stock 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 designated 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
interinsurance 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
Merten's Law of Federal Income Taxation, p. 788; italics ours.)
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 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 Merten's Law of Federal Income
Taxation, p. 789; italics 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 Merten's Law of Federal Income
Taxation, p. 562 Note 63; italics ours.)
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 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 participación),association or
insurance company, no matter how created or organized." (italics ours.)
Considering that the pertinent part of this provision is analogous to that of
sections 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 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 parttime 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. * * *." (Italics ours.)
Wherefore, the appealed decision of the Court of Tax Appeals is hereby
affirmed with costs against the petitioners herein. It is so ordered.
Parás, C. J., Bengzon, 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 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 purchased 21 lots for P18,000. This was soon followed on April 23, 1944, by the
acquisition of another real estate 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 afore-
mentioned common fund or even of the property acquired by petitioner in February,
1943. In other words, one cannot but perceive a character of habituality peculiar
to businesstransactions engaged in for purposes of gain."
I wish however 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 a partnership,
whether or not the persons sharing them have a joint or common interest in any
property from which the
From the above it appears that the fact that those who agree to form a co-
ownership share or do not share any profits made by the use of the 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.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 juridical 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 purchase of land, by two, does not constitute a copartnership in respect
thereto; nor does an agreement to share the profits and losses 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 realty, 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 three parties, whatever their relation may have
been as to third parties." (Magee vs. Magee, 123 N. E. 673, 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, 50 111. 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."
Decision affirmed.

_______________

© Copyright 2017 Central Book Supply, Inc. All rights reserved.