Scribd Logo
Upload

Welcome to Scribd!

  • 30 views

    Case No. 6 (Obillos, Jr. v. Commissioner of Internal Revenue)

    Uploaded by

    Ambassador Wanted
    This case involves four siblings who were assessed additional income tax by the Commissioner of Internal Revenue after selling two parcels of land they had acquired from their father. The Supreme Court held that (1) the siblings were not operating as an unregistered partnership simply by acquiring and then selling the land and dividing the profits, as they did not intend to form a partnership; and (2) their actions constituted a simple dissolution of their co-ownership of the property, not a taxable business activity. The Court therefore reversed the tax assessments against the siblings.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd

    Case No. 6 (Obillos, Jr. v. Commissioner of Internal Revenue)

    Uploaded by

    Ambassador Wanted
    30 views4 pages
    This case involves four siblings who were assessed additional income tax by the Commissioner of Internal Revenue after selling two parcels of land they had acquired from their father. The Supreme Court held that (1) the siblings were not operating as an unregistered partnership simply by acquiring and then selling the land and dividing the profits, as they did not intend to form a partnership; and (2) their actions constituted a simple dissolution of their co-ownership of the property, not a taxable business activity. The Court therefore reversed the tax assessments against the siblings.

    Copyright

    © © All Rights Reserved

    Available Formats

    DOCX, PDF, TXT or read online from Scribd

    Did you find this document useful?

    Is this content inappropriate?

    This case involves four siblings who were assessed additional income tax by the Commissioner of Internal Revenue after selling two parcels of land they had acquired from their father. The Supreme Court held that (1) the siblings were not operating as an unregistered partnership simply by acquiring and then selling the land and dividing the profits, as they did not intend to form a partnership; and (2) their actions constituted a simple dissolution of their co-ownership of the property, not a taxable business activity. The Court therefore reversed the tax assessments against the siblings.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    30 views4 pages

    Case No. 6 (Obillos, Jr. v. Commissioner of Internal Revenue)

    Uploaded by

    Ambassador Wanted
    This case involves four siblings who were assessed additional income tax by the Commissioner of Internal Revenue after selling two parcels of land they had acquired from their father. The Supreme Court held that (1) the siblings were not operating as an unregistered partnership simply by acquiring and then selling the land and dividing the profits, as they did not intend to form a partnership; and (2) their actions constituted a simple dissolution of their co-ownership of the property, not a taxable business activity. The Court therefore reversed the tax assessments against the siblings.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    You are on page 1of 4

    SECOND DIVISION

    [G.R. No. L-68118. October 29, 1985.]

    JOSE P. OBILLOS, JR., SARAH P. OBILLOS, ROMEO P.


    OBILLOS and REMEDIOS P. OBILLOS, brothers and
    sisters, petitioners, vs. COMMISSIONER OF INTERNAL
    REVENUE and COURT OF TAX APPEALS, respondents.

    Demosthenes B. Gadioma for petitioners.

    DECISION

    AQUINO, J  :p

    This case is about the income tax liability of four brothers and sisters
    who sold two parcels of land which they had acquired from their father.

    On March 2, 1973 Jose Obillos, Sr. completed payment to Ortigas &


    Co., Ltd. on two lots with areas of 1,124 and 963 square meters located at
    Greenhills, San Juan, Rizal. The next day he transferred his rights to his four
    children, the petitioners, to enable them to build their residences. The
    company sold the two lots to petitioners for P178,708.12 on March 13 (Exh. A
    and B, p. 44, Rollo). Presumably, the Torrens titles issued to them would
    show that they were co-owners of the two lots. LexLib

    In 1974, or after having held the two lots for more than a year, the
    petitioners resold them to the Walled City Securities Corporation and Olga
    Cruz Canda for the total sum of P313,050 (Exh. C and D). They derived from
    the sale a total profit of P134,341.88 or P33,584 for each of them. They
    treated the profit as a capital gain and paid an income tax on one-half thereof
    or on P16,792.

    In April, 1980, or one day before the expiration of the five year
    prescriptive period, the Commissioner of Internal Revenue required the four
    petitioners to pay corporate income tax on the total profit of P134,336 in
    addition to individual income tax on their shares thereof. He assessed
    P37,018 as corporate income tax, P18,509 as 50% fraud surcharge and
    P15,547.56 as 42% accumulated interest, or a total of P71,074 56.  LexLib

    Not only that. He considered the share of the profits of each petitioner
    in the sum of P33,584 as a "distributive dividend" taxable in full (not a mere
    capital gain of which 1/2 is taxable) and required them to pay deficiency
    income taxes aggregating P56,707.20 including the 50% fraud surcharge and
    the accumulated interest.

    Thus, the petitioners are being held liable for deficiency income taxes
    and penalties totalling P127,781.76 on their profit of P134, 336, in addition to
    the tax on capital gains already paid by them.

    The Commissioner acted on the theory that the four petitioners had
    formed an unregistered partnership or joint venture within the meaning of
    sections 24(a) and 84(b) of the Tax Code (Collector of Internal Revenue vs.
    Batangas Trans. Co., 102 Phil. 822).

    The petitioners contested the assessments. Two Judges of the Tax


    Court sustained the same. Judge Roaquin dissented. Hence, the instant
    appeal.

    We hold that it is error to consider the petitioners as having formed a


    partnership under article 1767 of the Civil Code simply because they allegedly
    contributed P178,708.12 to buy the two lots, resold the same and divided the
    profit among themselves.

    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. It had to be terminated sooner or later. Castan Tobeñas
    says:

    "Como establecer el deslinde entre la comunidad ordinaria o


    copropiedad y la sociedad?

    "El criterio diferencial — seg'un la doctrina m s generalizada —


    est : por raz"n del origen, en que la sociedad presupone necesariamente
    la convencion, mientras que la comunidad puede existir y existe
    ordinariamente sin ella; y por raz"n del fin u objecto, en que el objeto de
    la sociedad es obtener lucro, mientras que el de la indivision es s'olo
    mantener en su integridad la cosa comun y favorecer su conservacion.

    "Reflejo de este criterio es la sentencia de 15 de octubre de 1940,


    en la que se dice que si en nuestro Derecho positivo se ofrecen a veces
    dificultades al tratar de fijar la linea divisoria entre comunidad de bienes
    y contrato de sociedad, la moderna orientacion de la doctrina cientifica
    señala como nota fundamental de diferenciacion, aparte del origen o
    fuente de que surgen, no siempre uniforme, la finalidad perseguida por
    los interesados: lucro comun partible en la sociedad, y mera
    conservacion y aprovechamiento en la comunidad." (Derecho Civil
    Español, Vol. 2, Part 1, 10 Ed., 1971, 328-329).

    Article 1769(3) of the Civil Code provides that "the sharing of gross


    returns does not of 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 unmistakable intention to
    form a partnership or joint venture. *

    Such intent was present in Gatchalian vs. Collector of Internal


    Revenue, 67 Phil. 666 where 15 persons contributed small amounts to
    purchase a two-peso sweepstakes ticket with the agreement that they would
    divide the prize. The ticket won the third prize of P50,000. The 15 persons
    were held liable for income tax as an unregistered partnership.  Cdpr

    The instant case is distinguishable from the cases where the parties
    engaged in joint ventures for profit. Thus, in Ona vs. Commissioner of Internal
    Revenue, L-19342, May 25, 1972, 45 SCRA 74, where after an extrajudicial
    settlement the co-heirs used the inheritance or the incomes derived therefrom
    as a common fund to produce profits for themselves, it was held that they
    were taxable as an unregistered partnership.

    It is likewise different from Reyes vs. Commissioner of Internal


    Revenue, 24 SCRA 198 where father and son purchased a lot and building,
    entrusted the administration of the building to an administrator and divided
    equally the net income, and from Evangelista vs. Collector of Internal
    Revenue, 102 Phil. 140 where the three Evangelista sisters bought four
    pieces of real property which they leased to various tenants and derived
    rentals therefrom. Clearly, the petitioners in these two cases had formed an
    unregistered partnership.

    In the instant case, what the Commissioner should have investigated


    was whether the father donated the two lots to the petitioners and whether he
    paid the donor's tax (See art. 1448, Civil Code). We are not prejudging this
    matter. It might have already prescribed.
    WHEREFORE, the judgment of the Tax Court is reversed and set
    aside. The assessments are cancelled. No costs.

    SO ORDERED.
    |||  

    (Obillos, Jr. v. Commissioner of Internal Revenue, G.R. No. L-68118, [October


    29, 1985], 223 PHIL 650-655)

    You might also like