CIR v.

LEDESMA (1970, ZALDIVAR, J) FACTS: Respondents Carlos, Julieta and the spouses Amparo and Vicente Gustilo, Jr., purchased from their parents, Julio and Florentina de Ledesma, the sugar plantation known as " acienda Fortuna.! "ach of them ac#uired the $%& undi'ided portion of the plantation. (rior to the purchase, the sugar #uota piculs was registered in the names of the 'endors, Julio and Florentina. )* 'irtue of the purchase, the original plantation audit was cancelled, and during the sugar crop *ear $+,-.$+,+ the said sugar #uota was transferred to, apportioned among, and separatel* registered in the names of, the respondents. After their purchase of the plantation, respondents took o'er the sugar cane farming on the plantation /eginning with the crop *ear $+,-.$+,+. 0he respondents shared e#uall* the e1penses of production. 0he 2an Carlos 3illing Co., Ltd. issued to respondents separate #uedans for the sugar produced, /ased on the #uota under the plantation audits respecti'el* issued to them. 4n their indi'idual 40R for the *ear $+,+ the respondents included as part of their income their respecti'e net profits deri'ed from their indi'idual sugar production from the " acienda Fortuna." 5n Jul* $$, $+,+, the respondents organi6ed themsel'es into a general co. partnership under the firm name " acienda Fortuna." 0he articles of general co. partnership were registered in the commercial register of the office of the Register of 7eeds on Jul* $,, $+,+. (aragraph $, of the articles of general partnership pro'ides that the agreement shall ha'e retroacti'e effect as of Januar* $, $+,+. 4n $+8+, the Commissioner assessed against the partnership " acienda Fortuna" corporate income ta1 for the calendar *ear $+,+. 0he respondents contested the assessment upon the ground that the " acienda Fortuna" was a registered general co.partnership and re#uested for the cancellation of the assessment. 4n a letter, the Commissioner ad'ised respondents that inasmuch as the articles of general co.partnership of the " acienda Fortuna" were registered on Jul* $,, $+,+, the income reali6ed /* the partnership prior to the registration cannot /e, e1empt from the pa*ment of corporate income ta1. 4n another letter, the Commissioner instructed the pro'incial re'enue agent of 9egros 5ccidental to in'estigate the income of " acienda Fortuna" for the period from Januar* $, $+8+ to Jul* $&, $+,+, /eing the portion of the *ear $+,+ which was prior to Jul* $,, $+,+, the date of the registration of the articles of general co.partnership of " acienda Fortuna." Respondents accepted the correctness of the figures contained in the report of the pro'incial re'enue agent, /ut denied their lia/ilit* to pa* the corporate income ta1. Respondents wrote a letter to the Commissioner asking for the reconsideration of his ruling of 3arch $:, $+88, upon the ground that during the period from Januar* $ to Jul* $&, $+,+ the respondents were operating merel* as co.owners of the plantation known as " acienda Fortuna", so that the case of the " acienda Fortuna" was reall*

one of co.ownership and not that of an unregistered co.partnership which was su/;ect to corporate ta1. 0he (ro'incial Fiscal, upon the re#uest of the Commissioner, filed a complaint against respondents for the collection of the alleged income ta1 assessed against the " acienda Fortuna" in the CF4. owe'er, the CF4 dismissed the case. 4n a petition for re'iew, the C0A rendered a decision, declaring that the right of the Go'ernment to collect the income ta1 in #uestion had not prescri/ed, /ut holding that the assessment of the corporate income ta1 against the " acienda Fortuna" is not in accordance with law. 0he C0A, therefore, re'ersed the rulings of the C4R as to the assessment. ence, this appeal.

ISSUE: <59 the partnership known as " acienda Fortuna" which was organi6ed /* respondents on Jul* $$, $+,+, whose articles of general partnership pro'ided that the partnership agreement should retroact as of Januar* $, $+,+, and which articles of general co.partnership were registered on Jul* $,, $+,+, should pa* corporate income ta1 as an unregistered partnership on its net income recei'ed during the period from Januar* $, $+,+ to Jul* $&, $+,+, the period in the *ear $+,+ prior to the date of said registration Petitioner= 4t is onl* from the date of the registration of the articles of general co. partnership in the mercantile register when a co.partnership is e1empt from the pa*ment of corporate income ta1 under 2ection :, of the 0a1 Code. 0he partnership is e1empt from the pa*ment of corporate income ta1 due onl* on income recei'ed from Jul* $,, $+,+, the date of the registration of its articles of general co.partnership. Re !on"ent : (rior to Jul* $,, $+,+ the* were operating the sugar plantation under a s*stem of co.ownership, and not as a partnership, so that the* were not under o/ligation to pa* the corporate income ta1 assessed /* the Commissioner on the alleged income of the partnership " acienda Fortuna" from Januar* $ to Jul* $&, $+,+. 0he respondents further contend that the registration of the articles of general co.partnership had operated to e1empt said partnership from corporate income ta1 on its net income during the entire ta1a/le *ear, from Januar* $ to 7ecem/er &$, $+,+. #ELD$RATI%: 0he C0A has pointed out that as earl* as $+:, the )4R had applied the "status.at.the. end.of.the.ta1a/le.*ear" rule in determining the income ta1 lia/ilit* of a partnership, such that a partnership is considered a registered partnership for the entire ta1a/le *ear e'en if its articles of co.partnership are registered onl* at the middle of the ta1a/le *ear, or in the last month of the ta1a/le *ear. 0he ruling is a sound one, and it is in consonance with the purpose of the law in re#uiring the registration of partnerships. 0he polic* of the law is to encourage persons doing /usiness under a partnership agreement to ha'e the partnership agreement, or the articles of partnership, registered in the mercantile registr*, so that the pu/lic ma* know who the real partners are, the capital stock of the partnership, the interest or contri/ution of each partner in the capital stock, the proportionate share of each partner in the profits, and the earnings or salaries of the partner or partners who render ser'ice for the partnership. o 4t is in the share of the profits and the salaries or wages that the partners would recei'e that the go'ernment is interested in, /ecause it is on these incomes that the assessment of the income ta1 is /ased. 0he go'ernment ma* not /e a/le to trace e1actl* to whom the profits of an unregistered

partnership go, nor can the go'ernment determine the precise participation of the apparent partners in the profits of the partnership. 4t is for this reason that the go'ernment imposes a corporate income ta1 against an unregistered partnership as an entit*, and an indi'idual income ta1 against the apparent mem/ers thereof. )ut once the partnership is dul* registered, the names of all the partners are known, the proportional interest of the partners in the /usiness of the partnership is known, and the go'ernment can 'er* well assess the income ta1 on the respecti'e income of the partners whose names appear in the articles of co.partnership. o 5nce the partnership is registered its operation during the ta1a/le *ear ma* /e ascertained in all matters regarding its management, its e1penditures, its earnings, and the participation of the partners in the net profits. 4f it can /e ascertained that the profits of the partnership ha'e actuall* /een gi'en, or credited, to the partners, then there is no reason wh* the partnership should /e made to pa* a corporate income ta1 on the profits reali6ed /* the partnership, and at the same time assess an income ta1 on the income that the partners had recei'ed from the partnership.

4t ma* thus /e said that a premium is gi'en to a partnership that is registered /* e1empting it from the pa*ment of corporate income ta1, and making onl* the indi'idual partners pa* income ta1 on the /asis of their respecti'e shares in the partnership profits. 5n the other hand, the partnership that is not registered is /eing penali6ed /* making it pa* corporate income ta1 on the profits it reali6es during a ta1a/le *ear and at the same time making the partners thereof pa* their indi'idual income ta1 /ased on their respecti'e shares in the profits of the partnership. 4n other words, there is dou/le assessment of income ta1 against the partners of the unregistered partnership, /ut onl* one assessment against the partners of registered partnership. 0he e1clusion of a registered partnership from the entities su/;ect to the pa*ment of corporate income ta1 should /e made to co'er the entire ta1a/le *ear, regardless of whether the registration takes place at the middle, or towards the last da*s, of the ta1a/le *ear. 0his is so /ecause, after all, the ta1a/le status of the ta1pa*er, for the purposes of the pa*ment of income ta1, is determined as of the end of the ta1a/le *ear, and the income ta1 is collected after the end of the ta1a/le *ear. 2ince it is the polic* of the go'ernment to encourage a partnership to register its articles of co. partnership in order that the go'ernment can /etter ascertain the profits of the partnership and the distri/ution of said profits among the partner, this /enefit of e1clusion from pa*ing corporate income ta1 arising from registration should /e li/erall* e1tended to registered, or registering, partnerships in order that the purpose of the go'ernment ma* /e attained. 0he pro'ision of 2ection :, of the ta1 code e1cluding "registered general co.partnership" from the pa*ment of corporate income ta1 is not an e1emption clause /ut a classification clause which must /e construed li/erall* in fa'or of the ta1pa*er.
o A classification statute, or one which specifies the persons or propert* su/;ect and not su/;ect to a ta1, is not an e1emption statute and the general rule ... that a ta1 statute will /e construed in fa'or of the ta1pa*er applies. >-, C.J.2., 2ection :??, page ,,&@ An* dou/t as to the person or propert* intended to /e included in a ta1 statute will /e resol'ed in fa'or of the ta1pa*er. >8$ Am. Jur., 2ection ,A+, page ,&&@.

0he administrati'e construction of 2ection :, of the ta1 code made /* the )ureau of 4nternal Re'enue as earl* as $+:,, reiterated in $+,-, as pointed out /* the Court of 0a1 Appeals, /eing of long standing, not shown to /e contrar* to law, and not ha'ing /een modified up to the time when the case at /ar came up, should /e upheld.

DISP%SITIVE: De&i ion o' t(e CTA AFFIRMED.