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.