G.R. 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.

Santiago F. Alidio and Angel S. Dakila, Jr., for petitioner.

Office of the Solicitor General Ambrosio Padilla, Assistant Solicitor General Esmeraldo Umali and Solicitor
Felicisimo R. Rosete for Respondents.

CONCEPCION, J.:

FACTS:

Petitioners borrowed a sum of money from their father and together with their own personal
monies was used by them for the purpose of buying real properties. They then appointed their brother
(Simeon) as manager of the said real 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 tenants; to sign all
letters, contracts, etc., for and in their behalf, and to endorse and deposit all notes and checks for them.
They realized rental income from the said properties for the period 1945-1949.

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. The letter of demand and 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. CTA denied their petition and
subsequent MR and New Trials were denied. Hence this petition.

ISSUE:

Whether or not petitioners have formed a partnership and are subject to the tax on corporations,
as well as to the residence tax and the real estate dealers fixed tax.

HELD:

Yes.

RATIO:

The Court ruled that with respect to the tax on corporations, the issue hinges on the meaning of
the terms "corporation" and "partnership," as used in section 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 (b). The term 'corporation' includes partnerships, no matter how created or organized,
joint-stock companies, joint accounts (cuentas en participacion), associations or insurance
companies, but does not include duly registered general copartnerships. (compañias 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,
properly, or industry to a common fund, with the intention of dividing the profits among
themselves.

Pursuant to the 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.

It is the opinion of the Court that the first element is undoubtedly present for petitioners have
agreed to, and did, contribute money and property to a common fund. As to the second element, the
Court was fully satisfied that their purpose was to engage in real estate transactions for monetary gain
and then divide the same among themselves as indicated by the following circumstances:

1. Said common fund was not something they found already in existence. It was not 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. 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 the petitioners in February, 1943. In other words, one
cannot but perceive a character of habitually peculiar to business transactions engaged in the
purpose 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.

4. 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 and 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.
 The collective effect of these circumstances is such as to leave no room for doubt on the existence
of said intent of petitioners.

            Also, petitioners’ argument that their being mere co-owners did not create a separate legal entity
was rejected because, according to the Court, the tax in question is one imposed upon "corporations",
which, strictly speaking, are distinct and different from "partnerships". When the NIRC 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. The qualifying
expression found in Section 24 and 84(b) 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. Accordingly, the
lawmaker could not have regarded that personality as a condition essential to the existence of the
partnerships therein referred to. For purposes of the tax on corporations, NIRC includes these
partnerships - with the exception only of duly registered general co partnerships - within the purview of
the term "corporation." It is, therefore, clear 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 of tax for corporations (Section 2 of CA No. 465), it is analogous to that
of section 24 and 84 (b) of the NIRC. 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.

Finally, on the issues of being liable for real estate dealer’s tax, they are also liable for the same
because the records show that they have habitually engaged in leasing said properties whose yearly gross
rentals exceed P3,000.00 a year.