OBILLOS V. CIR (TAX)

The Commissioner acted on the theory that the 4 petitioners had formed an unregistered partnership or joint venture within the meaning of Sections 24(a) and 84(b) of the Tax Code.

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 money to buy 2 lots, resold the same and divided the profit among themselves.

To regard 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.

They were co-owners pure and simple. To consider them as partners would obliterate the distinction between co-ownership and partnership. The petitioners were not engaged in any joint venture by reason of that isolated transaction.

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 a unmistakable intention to form a partnership or joint venture.

Such intent was present in Gatchalian v. Collector of Internal Revenue, 67 Phil. 666, where 15 persons contributed small amounts to purchase a 2-peso sweepstakes ticket with the agreement that they would divide the prize. The ticket won the 3rd prize of P50,000. The 15 persons were held liable for income tax as an unregistered partnership.