Oña et al. v.

Commissioner
G.R. No. L-19342 May 25, 1972
BARREDO, J.

Doctrine: If after partition, an heir allows his share to be held in common with his co-heirs under a single
management to be used with the intent of making profit in proportion to his share, for tax purposes, an
unregistered partnership is formed which is subject to a corporate income tax.
Facts: Julia Buñales died leaving her surviving spouse, Lorenzo Oña and her five children as heirs. A civil
case was instituted for the settlement of her state, and Oña was appointed administrator and later on the
guardian of the three heirs who were still minors when the partition was approved. This shows that the heirs
have undivided ½ interest in 10 parcels of land, six houses and money from the War Damage Commission.
The partition was approved by the Court, but no attempt was made to divide the properties and they
remained under the management of Oña who used said properties in business by leasing or selling 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 investments gradually increased. Petitioners included in
their returns for income tax purposes their shares in the net income but they did not actually receive their
shares because Oña invested them.
CIR decided that petitioners formed an unregistered partnership and therefore, subject to the corporate
income tax, particularly for years 1955 and 1956. Petitioners asked for reconsideration, which was denied
hence this petition for review from CTA’s decision.
Issue:   Whether the petitioners are liable for the deficiency corporate income tax.
Ruling: Yes. 
For tax purposes, the co-ownership of inherited properties is automatically converted into an unregistered
partnership the moment the said common properties or the incomes derived therefrom are used as a
common fund with intent to produce profits for the heirs in proportion to their respective shares in the
inheritance as determined in a project partition either. This is because from the moment of such partition,
the heirs are entitled already to their respective definite shares of the estate and the incomes thereof, for
each of them to manage and dispose of as exclusively his own without the intervention of the other heirs,
and, accordingly, he becomes liable individually for all taxes in connection therewith. If after such partition,
he allows his share to be held in common with his co-heirs under a single management to be used with the
intent of making profit in proportion to his share, there can be no doubt that, even if no document or
instrument were executed, for the purpose, for tax purposes, at least, an unregistered partnership is
formed.