G.R. L-68118 Obillos v.

CIR
Facts: 

In 1973, Jose Obillos completed payment on two lots located in Greenhills, San
Juan. The next day, he transferred his rights to his four children for them to build
their own residences. The Torrens title would show that they were co-owners of
the two lots. However, the petitioners resold them to Walled City Securities
Corporation and Olga Cruz Canda for P313k or P33k for each of them. They
treated the profit as capital gains and paid an income tax of P16,792.00 

The CIR requested the petitioners to pay the corporate income tax of their
shares, as this entire assessment is based on the alleged partnership under
Article 1767 of the Civil Code; simply because they contributed each to buy the
lots, resold them and divided the profits among them.

But as testified by Obillos, they have no intention to form the partnership and that
it was merely incidental since they sold the said lots due to high demand of
construction. Naturally, when they sell them as co-partners, it will result to the
share of profits. Further, their intention was to divide the lots for residential
purposes.

Issue: 

Was there a partnership, hence, they are subject to corporate income taxes?

Court Ruling: 

Not necessarily. As Article 1769 (3) of the Civil Code provides: the sharing of
gross returns does not in 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. 

In this case, the Commissioner should have investigated if the father paid
donor's tax to establish the fact that there was really no partnership.