PASCUAL V. CIR (TAX)

There is no evidence that petitioners entered into an agreement to contribute money, property, or industry to a common fund, and that they intended to divide the profits among themselves. Respondent commissioner and/or his representative just assumed these conditions to be present on the basis of the fact that petitioners purchased certain parcels of land and became co-owners thereof.

In Evangelista, there was a series of transactions where petitioners purchased 24 lots showing that the purpose was not limited to the conservation or preservation of the common funds or even the properties acquired by them. The character of habituality peculiar to business transactions engaged in for the purpose of gain was present here.

The sharing of returns does not of 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.

In the present case, there is clear evidence of co-ownership between the petitioners. There is no adequate basis to support the proposition that they thereby formed a unregistered partnership. The two isolated transactions whereby they purchased properties and sold the same a few years thereafter did not thereby make them partners. They shared in the gross profits as co-owners and paid their capital gains taxes on their net profits and availed of the tax amnesty thereby. Under the circumstances, they cannot be considered to have formed an unregistered partnership which is thereby liable for corporate income tax, as the respondent commissioner proposes.

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.

COMMISSIONER V. ESTATE OF TODA (TAX)

Tax avoidance and tax evasion are the 2 most common ways used by taxpayers in escaping from taxation.

TAX AVOIDANCE is the tax-saving device within the means sanctioned by law. This method should be used by the taxpayer in good faith and at arms length.

TAX EVASION, on the other hand, is a scheme used outside of those lawful means and when availed of, it usually subjects the taxpayer to further or additional civil or criminal liabilities.

Tax evasion connotes the integration of 3 factors:

1. the end to be achieved, i.e., the payment of less than that known by the taxpayer to be legally due or the non-payment of tax when it is shown that s tax is due;
2. an accompanying state of mind which is described as being evil, in bad faith, willful, or deliberate, and not accidental; and
3. and a course of action which is unlawful.

All these factors are present in the instant case. Here, it is obvious that the objective of the sale of Altonaga was to reduce the amount of tax to be paid especially that the transfer from him to RMI would then subject the income to only 5% individual capital gains tax, and not 35% corporate income tax. Altonaga's sole purpose of acquiring and transferring title of the subject properties on the same day was to create a TAX SHELTER.

Altonaga never controlled the property and did not enjoy the normal benefits and burdens of ownership. The sale to him was merely a tax ploy, a sham, and without business purpose and economic substance. Doubtless, the execution of the 2 sales was calculated to mislead the BIP with the end in view of reducing the consequent income tax liability.

In a nutshell, the intermediary transaction, i.e., the sale of Altonaga, which was prompted more on the mitigation of tax liabilities than for legitimate business purposes constitutes one of tax evasion.

To allow a taxpayer to deny tax liability on the ground that the sale was made through another and distinct entity when it is proved that the latter was merely a conduit is to sanction a circumvention of our tax laws. Hence, the sale of Altonaga should be disregarded for income tax purposes. The 2 sale transactions should be treated as a single direct sale by CIC to RMI.

Has the period of assessment prescribed?

NO. Section 222 of the Tax Reform Act reads:

Sec. 222. Exceptions as to period of limitation of assessment and collection of taxes: (a) In the case of a false or fraudulent return with intent to evade tax or pf failure to file a return, the tax may be assessed, or a proceeding in court after the collection of such tax may be begun without assessment, at any time within 10 years after the discovery of the falsity, fraud or omission: Provided that in fraud assessment which has become final and executory, the fact of fraud shall be judicially taken cognizance of in the civil or criminal action for collection thereof.

Put differently, in cases of

1. fraudulent returns;
2. false returns with intent to evade tax; and
3. failure to file a return, the period within which to assess tax is 10 years from discovery of the fraud, falsification, or omission as the case may be.

As stated above, the prescriptive period to assess the correct taxes in case of false returns is 10 years from the discovery of the falsity. The false return was filed on t15 April 1990 and the falsity thereof was claimed to have been discovered only on 8 March 1991. The assessment for the 1989 deficiency income tax of CIC was issued 9 January 1995. clearly, the issuance of the correct assessment for deficiency income tax was well within the prescriptive period.

Is respondent Estate liable for the 1989 deficiency income tax of CIS?

A corporation has a juridical personality distinct and separate from the persons owning or composing it. Thus, the owners or stockholders of a corporation may not generally be made to answer for the liabilities of a corporation and vice versa. There are however, certain instances in which personal liability may arise. It has been held in a number of cases that personal liability of a corporate director, trustee or officer along albeit not necessarily, with the corporation may validly attach when:

1. He assents to the (a) patently unlawful act of the corporation; (b) bad faith or gross negligence in directing its affairs; or (c) conflict of interest, resulting in damages to the corporation, its stockholders, or other persons;
2. He consents to the issuance of watered down stocks, or having knowledge therof, does not forthwith file with the corporate secretary his written objection thereto;
3. He agrees to hold himself personally and solidarily liable with the corporation; or
4. He is made, by specific provision of law, to personally answer for his corporate action.

It is worth noting that when the late Toda sold his shares of stock to Choa, he knowingly and voluntarily held himself personally liable for all tax liabilities of CIC and the buyer for the years 1987, 1988, and 1989.