#53

An equity investment is a capital, not ordinary, asset of the investor the

sale or exchange of which results in either a capital gain or a capital loss.
The gain or the loss is ordinary when the property sold or exchanged
is not a capital asset.

In the hands, however, of another who holds the shares of stock by way of
an investment, the shares to him would be capital assets. When
the shares held by such investor become worthless, the loss is
deemed to be a loss from the sale or exchange of capital assets.

When securities become worthless, there is strictly no sale or exchange

but the law deems the loss anyway to be "a loss from the sale or exchange
of capital assets."

Capital losses are allowed to be deducted only to the extent of capital

gains, i.e., gains derived from the sale or exchange of capital assets,
and not from any other income of the taxpayer.

#54

for tax purposes, the co-ownership of inherited properties is automatically

converted into an unregistered partnership the moment the said common
properties and/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 duly executed in an extrajudicial settlement or approved by the court
in the corresponding testate or intestate proceeding. The reason for this is
simple. 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 thereby 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.

#55

The sharing of returns does not in itself establish a partnership whether or

not the persons sharing therein have a joint or common right or interest in
the property. There must be a clear intent to form a partnership, the
existence of a juridical personality different from the individual partners,
and the freedom of each party to transfer or assign the whole property.

#56
To regard the petitioners as having formed a taxable unregistered
partnership would result in oppressive taxation and confirm the dictum that
the power to tax involves the power to destroy. That eventuality should be
obviated.

As testified by Jose Obillos, Jr., they had no such intention. They were co-
owners pure and simple. To consider them as partners would obliterate the
distinction between a co-ownership and a partnership. The petitioners
were not engaged in any joint venture by reason of that isolated
transaction.

Their original purpose was to divide the lots for residential purposes. If
later on they found it not feasible to build their residences on the lots
because of the high cost of construction, then they had no choice but to
resell the same to dissolve the co-ownership. The division of the profit was
merely incidental to the dissolution of the co-ownership which was in the
nature of things a temporary state.