Garrison vs. CA
Facts:
● Petitioners are US citizens employed at the US Naval Base in Olongapo City,
Philippines, under the Philippine Immigration Act of 1940.
● They received notices from the BIR stating they didn't file their Income Tax
Returns (ITR) for 1969, claiming they were resident aliens.
● Petitioners argued they were special temporary visitors, not resident aliens,
and cited exemption under the RP-US Military Bases Agreement.
Issue:
● Whether Petitioners can be considered resident aliens, as claimed by the BIR.
Ruling:
● The Court ruled that Petitioners are indeed resident aliens based on Revenue
Regulations No. 2 Section 5.
● This section defines a resident alien as someone actually present in the
Philippines, not a mere transient or sojourner.
● An alien's status is determined by their intentions and the nature of their stay.
● If an extended stay is necessary for the purpose of their presence, they are
considered residents, even if they intend to return to their domicile abroad
afterward.
Soriano vs. Secretary of Finance
Facts:
● In June 2008, Republic Act (RA) 9504 was enacted, amending sections of the
National Internal Revenue Code (NIRC) of 1997.
● Following this, in September 2008, the Bureau of Internal Revenue (BIR)
issued Revenue Regulations No. 10-2008 to implement RA 9504.
● Multiple petitions were filed challenging the validity of these regulations,
contesting their alignment with the legislative intent of RA 9504.
● Petitioners specifically disputed the prorated application of new personal and
additional exemptions for taxable year 2008 and the condition imposed on
Minimum Wage Earners (MWEs) regarding other benefits exceeding P30,000.
Issue: Whether the increased personal and additional exemptions provided by RA
9504 should apply to the entire taxable year 2008. Ruling:
● The Court ruled in favor of the petitioners, emphasizing that RA 9504 aimed to
provide immediate tax relief, particularly for low-income compensation
earners.
● The test applied was the availability of new exemptions at the time of filing
income tax returns.
● Since RA 9504 came into effect well before the filing deadline for 2008
returns, taxpayers were entitled to claim the increased exemptions for the
entire year.
● Certain provisions of Revenue Regulations No. 10-2008 were declared null
and void, and the authorities were directed to grant refunds or adjustments to
affected taxpayers.
CIR vs. ST Lukes
Facts:
● St. Luke's Medical Center, Inc. (St. Luke's) is a non-stock and non-profit
hospital.
● The Bureau of Internal Revenue (BIR) assessed St. Luke's with deficiency
taxes totaling ₱76,063,116.06 for 1998.
● BIR argued that Section 27(B) of the NIRC, which imposes a 10% tax rate on
proprietary non-profit hospitals, should apply to St. Luke's.
● St. Luke's contested, claiming tax exemption under Section 30(E) and (G) as
a charitable institution promoting social welfare.
Issue: Whether St. Luke's qualifies as a charitable institution and is therefore exempt
from tax liability.
Ruling:
● The Court holds that Section 27(B) does not remove the income tax
exemption of proprietary non-profit hospitals under Section 30(E) and (G).
● Section 27(B) subjects the taxable income of proprietary non-profit hospitals
to a 10% preferential rate, instead of the ordinary 30% corporate rate.
● "Non-profit" does not necessarily mean "charitable," and charitable institutions
are not automatically tax-exempt.
● To qualify for tax exemption under Section 30(E) and (G), St. Luke's must be
organized and operated exclusively for charitable purposes.
● St. Luke's meets the organizational criteria as a non-stock and non-profit
charitable institution but must also operate exclusively for charitable purposes
to qualify for tax exemption.
● St. Luke's is ordered to pay the deficiency income tax based on the 10%
preferential rate under Section 27(B) but is not liable for surcharges and
interest.
Dumaguete Cathedral Credit Cooperative vs CIR
Facts:
● Dumaguete Cathedral Credit Cooperative (DCCCO) is a duly registered
cooperative aimed at increasing the income and purchasing power of its
members through savings and loans.
● In 2001, the Bureau of Internal Revenue (BIR) found deficiency withholding
taxes in DCCCO's records for taxable years 1999 to 2000, including taxes on
interest from savings and time deposits of its members.
● DCCCO paid taxes for certain items but refused to pay deficiency withholding
taxes on interest from savings and time deposits, citing a preferential tax
treatment for cooperatives.
Issue: Whether cooperatives are liable to pay deficiency withholding taxes on
interest from savings and time deposits of its members.
Ruling:
● BIR rulings No. 551-888 and [DA-591-2006] exempt cooperatives from
withholding tax on interest from savings and time deposits of their members,
aligning with the Constitution and laws.
● Section 24(B)(1) of the NIRC must be read with RA 6938, which promotes
cooperatives as vehicles for economic development and social justice.
● Articles 61 and 62 of RA 6938 provide tax exemptions for cooperatives,
extending to their members, as cooperatives exist for their members' benefit.
● The Constitution protects cooperatives as instruments for social justice and
economic development, supporting an interpretation exempting members
from withholding tax on interest.
● Thus, DCCCO is not liable to pay the assessed deficiency withholding taxes
on interest from the savings and time deposits of its members, including the
delinquency interest.
PAGCOR vs. BIR 2011
Facts:
● PAGCOR, established by Presidential Decree (P.D.) No. 1067-A in 1977,
initially enjoyed tax exemption, except for a 5% franchise tax.
● Subsequent laws modified PAGCOR's tax status, including exemptions and
liabilities.
● R.A. No. 9337, enacted in 2005, excluded PAGCOR from the list of
government-owned and controlled corporations (GOCCs) exempt from
corporate income tax.
● BIR issued Revenue Regulations (RR) No. 16-2005, subjecting PAGCOR to a
10% value-added tax (VAT) under Section 108 of the National Internal
Revenue Code of 1997, as amended by R.A. No. 9337.
Issue: Whether PAGCOR is still exempt from corporate income tax and whether it
can be subjected to a 10% VAT under R.A. No. 9337 and RR No. 16-2005,
respectively.
Ruling:
● PAGCOR's exemption from corporate income tax was effectively removed by
R.A. No. 9337, which omitted PAGCOR from the list of exempt GOCCs.
● The legislative intent was clear to subject PAGCOR to corporate income tax,
as evidenced by discussions during the Bicameral Conference Meeting.
● PAGCOR's request for exemption did not meet the criteria for a valid
classification under the equal protection clause.
● PAGCOR's franchise is subject to amendment or repeal by Congress, as
stated in Section 11, Article XII of the Constitution, thus not violating the
non-impairment clause.
● RR No. 16-2005's provision subjecting PAGCOR to 10% VAT goes beyond
the provisions of R.A. No. 9337, which does not provide for such taxation.
Therefore, RR No. 16-2005 is nullified.
PAGCOR vs. BIR 2014
Facts:
● PAGCOR sought clarification from the BIR regarding the tax treatment of its
income from gaming operations and related services under RMC No.
33-2013.
● The BIR denied PAGCOR's request for reconsideration.
● PAGCOR filed a Motion for Clarification, questioning the interpretation of RMC
No. 33-2013.
● The Supreme Court had previously ruled on PAGCOR's income tax liability
but did not specify which income is subject to corporate income tax.
Issue: Whether PAGCOR's income from gaming operations is subject only to a 5%
franchise tax, and whether its income from related services is subject to corporate
income tax and franchise tax.
Ruling:
● PAGCOR's income is classified into income from gaming operations and
income from related services.
● Income from gaming operations is subject only to a 5% franchise tax, as
provided by P.D. 1869, as amended.
● The exemption of PAGCOR's gaming income from corporate income tax
existed independently from R.A. No. 8424, as it was already exempted under
P.D. 1869.
● P.D. 1869 prevails over R.A. No. 9337, as it specifically provides the tax
treatment of PAGCOR's income.
● PAGCOR's franchise extension without revoking its tax exemption reaffirmed
its tax exempt status.
● There is no conflict between P.D. 1869 and R.A. No. 9337, as they
complement each other in defining tax impositions.
● RMC No. 33-2013, imposing corporate income tax on PAGCOR's gaming
income and franchise tax on related services, unduly expands the Court's
previous ruling and constitutes an overreach by the BIR.
● The Court orders the BIR to cease the implementation of RMC No. 33-2013
with regard to imposing corporate income tax on gaming income and
franchise tax on related services.
BLOOMBERRY RESORTS AND HOTELS vs. BIR
Facts:
● PAGCOR granted petitioner a provisional license to establish and operate an
integrated resort and casino complex at the Entertainment City project site.
● Petitioner, as one of PAGCOR's licensees, pays only PAGCOR license fees in
lieu of all taxes, as stipulated in its provisional license and consistent with PD
No. 1869.
● R.A. No. 9337 amended the NIRC of 1997, removing PAGCOR's exemption
from corporate income tax, leading to a legal challenge by PAGCOR.
● RMC No. 33-2013 was issued to implement the amendments, subjecting
PAGCOR and its contractees and licensees to corporate income tax and
income tax, respectively.
Issue: Whether contractees and licensees of PAGCOR are subject to income tax.
Ruling:
● Under PD No. 1869, PAGCOR is subject to income tax only for its operation
of related services, not for gaming operations.
● PAGCOR's exemption from income tax on gaming operations existed
independently from R.A. No. 8424.
● There is no conflict between PD No. 1869 and R.A. No. 9337; the former
specifies tax impositions, while the latter withdrew income tax exemption.
● PD No. 1869 prevails over R.A. No. 9337, as it provides the specific tax
treatment of PAGCOR's income.
● PAGCOR's franchise extension without revoking its tax exemption reaffirmed
its tax-exempt status.
● Income from gaming operations is subject only to the 5% franchise tax, as
provided by PD No. 1869.
● The implementation of RMC No. 33-2013, subjecting both gaming operations
and related services to corporate income tax and franchise tax, expands
previous rulings without due process and constitutes an overreach by the BIR.
● Payment of the 5% franchise tax by PAGCOR and its contractees and
licensees exempts them from corporate income tax, as stipulated in PD No.
1869.
Chamber of Real Estate and Builders’ Associations Inc. vs.
Romulo
Facts:
● The Bureau of Internal Revenue (BIR) sent Philex a letter to settle its tax
liabilities for several quarters.
● The Chamber of Real Estate and Builders’ Associations Inc. (CREBA)
questions the constitutionality of the Minimum Corporate Income Tax (MCIT)
and creditable withholding taxes (CWT) on sales of real properties classified
as ordinary assets.
● CREBA argues that the MCIT is unconstitutional because it is oppressive,
arbitrary, and confiscatory, as it levies income tax even if there is no realized
gain.
● CREBA also challenges the CWT on sales of real properties, stating various
inconsistencies
and
claiming
unequal
treatment
compared
to other
enterprises.
Issue: Whether the imposition of the MCIT on domestic corporations is
unconstitutional.
Ruling:
● The MCIT on domestic corporations, introduced by R.A. No. 8424, aims to
ensure a minimum contribution to public expenses and improve revenue
collection.
● Domestic corporations benefit from government efforts and owe their
existence and business privileges to the government, justifying their
contribution to public expenses.
● Tax legislation, including the MCIT, carries a presumption of constitutionality,
and the power to tax is plenary, limited only by constitutional constraints.
● Income tax is distinct from capital tax; income is subject to taxation, while
capital is not.
● The MCIT is not a tax on capital but on gross income, which is distinct from
capital.
● The MCIT is imposed in lieu of the normal net income tax, pegging the rate at
a reduced 2% and using gross income as the base.
● The assignment of gross income as the tax base for the MCIT, along with the
reduced tax rate, is not constitutionally objectionable.
● CREBA fails to provide concrete evidence supporting its claim that the MCIT
is arbitrary and confiscatory, thus failing to demonstrate the supposed
violations convincingly.
● Taxation is inherently burdensome, and the party alleging unconstitutionality
bears the burden of proof, which CREBA failed to fulfill.
● The Court cannot strike down a law as unconstitutional solely based on
allegations without substantial evidence.
COMPANIA GENERAL DE TABACOS DE FILIPINAS V. CIR
Facts:
● Petitioner, A foreign corporation sought a refund for alleged overpayment of
branch profit remittance taxes from 1980 to 1985.
● The corporation applied for a refund in 1986 and 1987 after the Commissioner
of Internal Revenue (CIR) did not act on their request.
● The CIR argued that the right to a refund had expired under a two-year
prescriptive period.
● The dispute centered on whether the taxable base for branch profit remittance
tax should follow a BIR ruling or an RMC.
● The Court of Tax Appeals (CTA) ruled in favor of the CIR, stating that the
taxable base should adhere to the RMC, not the BIR ruling.
Whether the petitioner is entitled to the refund.
Ruling: No, the petitioner is not entitled to the refund.
● The CTA ruled that since the payment and application for refund were made
after the issuance of RMC No. 8-82, this regulation should be followed.
● According to the RMC, the taxable base for computing the 15% branch profit
remittance tax is the amount applied for with the Central Bank as profit to be
remitted abroad, not only the actual amount remitted.
N.V. Reederij vs. CIR
Facts:
● Petitioner N.V. Reederij "AMSTERDAM," a foreign corporation, made two
calls at Philippine ports in 1963 and 1964 to load cargoes for foreign
destinations.
● The freight fees were paid abroad, and no income tax was paid by the
petitioner on these receipts.
● The Commissioner of Internal Revenue (CIR) assessed petitioner for
deficiency income tax for 1963 and 1964, considering it a non-resident foreign
corporation not engaged in trade or business in the Philippines.
● Petitioner Royal Interocean Lines, acting as the husbanding agent, filed for
income tax returns on behalf of the vessels but protested the assessment.
Issue: Whether N.V. Reederij "AMSTERDAM" is a non-resident foreign corporation.
Yes. The Supreme Court ruled affirmatively that N.V. Reederij "AMSTERDAM"
qualifies as a non-resident foreign corporation, based on its limited engagement in
business activities within the Philippines. As per the Tax Code's classification, a
non-resident foreign corporation is one that conducts no trade or business in the
Philippines and maintains no office or place of business within its jurisdiction. This
distinction is critical for tax purposes, as non-resident foreign corporations are
subject to a 35% tax rate on income derived from all sources within the Philippines.
Therefore, given N.V. Reederij "AMSTERDAM"'s status as a non-resident foreign
corporation without any substantial business operations in the Philippines, it falls
under this tax category.
Air Canada vs. CIR
● FACTS:
● Air Canada, a Canadian corporation operating as an offline carrier
without flights to or from the Philippines, engaged Aerotel Ltd., Corp. to
sell passage documents in the country.
● Air Canada paid income tax on Gross Philippine Billings totaling
₱5,185,676.77 for the period from 2000 to 2002.
● It filed a claim for refund, which was denied by the Court of Tax
Appeals, leading to a Petition for Review.
● ISSUE:
● Whether Air Canada is subject to the 2½ % tax on Gross Philippine
Billings under Section 28(A)(3) of the Tax Code.
● RULING:
● The Court held that Air Canada qualifies as a resident foreign
corporation doing business within the Philippines.
● Therefore, Air Canada is taxable under Section 28(A)(1) of the Tax
Code, not Section 28(A)(3), subject to any applicable tax treaty.
● Pursuant to Article 8 of the Republic of the Philippines-Canada Tax
Treaty, the maximum tax imposed on Air Canada's gross revenues
earned from ticket sales in the Philippines is 1 ½ %.
● Air Canada's engagement of Aerotel constitutes doing business in the
Philippines, making it taxable on income derived from Philippine
sources.
● While international air carriers with flights to and from the Philippines
are taxed at a rate of 2 ½ % on Gross Philippine Billings, those without
such flights but earning income from activities in the country are taxed
at the regular income tax rate.
● Considering the tax treaty between the Philippines and Canada, Air
Canada's taxable income from the sale of airline tickets in the
Philippines cannot exceed 1 ½ % of gross revenues.
● As the tax amount already paid by Air Canada exceeded this maximum
ceiling, no refund is warranted.
CIR vs BOAC
Facts:
● British Overseas Airways Corp. (BOAC), a British government-owned entity,
had no landing rights in the Philippines from 1959 to 1972 but maintained a
sales agent in the country.
● The Commissioner of Internal Revenue (CIR) assessed BOAC for deficiency
income taxes during this period.
Issue:
● Whether BOAC qualifies as a Resident Foreign Corporation doing business in
the Philippines.
Ruling:
● Yes, BOAC is taxable for deficiency income tax as a Resident Foreign
Corporation.
● According to Section 20 of the 1977 Tax Code, a resident foreign corporation
is one engaged in trade or business within the Philippines or having an office
or place of business therein.
● Jurisprudence defines "engaged in trade or business with the Philippines" as
having continuity of conduct and intention to establish a continuous business,
such as appointing a local agent.
● BOAC's maintenance of a sales agent in the Philippines, tasked with selling
tickets and performing functions essential to an airline's operation, constitutes
engagement in business in the country.
● The sales agent's activities were integral to BOAC's objective, making BOAC
liable for income tax as a resident foreign corporation.
South African Airways vs CIR
Facts:
● South African Airways, a foreign corporation from the Republic of South
Africa, operates as an internal air carrier in the Philippines without landing
rights.
● The company utilizes a general sales agent, Aerotel Limited Corporation, to
sell passage documents for its off-line flights within the Philippines.
● Despite not being registered or licensed to do business in the Philippines,
South African Airways filed tax returns for its off-line flights in the taxable year
2000.
● In 2003, South African Airways filed a claim for a refund of over Php1.5 million
in allegedly erroneously paid taxes on Gross Philippine Billings (GPB), which
was denied by the Bureau of Internal Revenue.
Issues:
​
1. Whether South African Airways, as an off-line international carrier selling
passage documents through an independent sales agent in the Philippines, is
engaged in trade or business in the Philippines subject to the 32% income tax
imposed by Section 28(A)(1) of the 1997 NIRC. (YES)
​
2. Whether the income derived by South African Airways from the sales of
passage documents covering its off-line flights is Philippine-source income
subject to Philippine income tax. (YES)
Ruling:
​
YES, South African Airways is liable for the 32% income tax imposed by
Section 28(A)(1) of the 1997 NIRC.
● The Court held that the legislative intent behind the taxation laws was
not to exclude all international carriers from taxation. The provisions of
the NIRC imply that whenever the exception rule (Sec 28(A)(3)) does
not apply, the taxpayer is liable under the general rule (Sec 28(A)(1)).
Thus, South African Airways is subject to taxation based on the general
rule.
​
YES, the income derived by South African Airways from the sale of passage
documents for its off-line flights is Philippine-source income subject to
Philippine income tax.
● The Court relied on jurisprudence to establish that off-line air carriers
with general sales agents in the Philippines are considered doing
business in the country. Therefore, income from the sale of passage
documents within the Philippines constitutes Philippine-source income
and is subject to taxation.
CIR v. Procter and Gamble Philippines Manufacturing
Facts
Procter & Gamble Philippines (P&G Phil.) declared dividends payable to its parent
company, Procter & Gamble USA (P&G-USA), for two successive taxable years. A
35% withholding tax was deducted from these dividends. P&G Phil. filed for a tax
refund, arguing that the applicable tax rate should be 15% instead of 35%.
The Court of Tax Appeals (CTA) initially allowed the tax refund, but the
Commissioner appealed, arguing that P&G-USA was the proper party to claim the
refund. The CTA Second Division reversed the decision, stating that P&G Phil. failed
to meet certain conditions necessary for the dividends received by P&G-USA to be
subject to the preferential tax rate of 15%.
Issue:
WON P&G Phil is entitled to the tax refund. -- YES
Ruling: Yes, P&G Phil. is entitled to the tax refund.
​
P&G Phil. is considered a taxpayer:
● As a withholding agent, P&G Phil. is personally liable for withholding
taxes and is thus considered a taxpayer.
● The concept of a "person subject to tax" includes those who are
required by law to deduct and withhold any tax. Therefore, P&G Phil.
has the legal standing to file a claim for refund.
​
Compliance with conditions for the 15% dividend tax rate:
● The reduced 15% dividend tax rate applies if the USA allows P&G-USA
a tax credit for taxes deemed paid in the Philippines, equivalent to 20%
of the Philippine corporate income tax.
● The US Tax Code grants P&G-USA a tax credit for the dividend tax
withheld by P&G Phil., treating the Philippine corporate income tax as
part of the cost of doing business in the Philippines.
● The computation demonstrates that the tax credit allowed by the US
Tax Code exceeds the dividend tax waived by the Philippine
government.
● Therefore, the US Tax Code complies with the requirements of the
National Internal Revenue Code (NIRC), and P&G Phil. is entitled to
the tax refund.
ONA vs CIR
● Facts:
● Julia Buñales died, leaving her spouse, Lorenzo T. Oña, and five
children as heirs.
● Lorenzo T. Oña was appointed administrator of the estate by the Court.
● A project of partition was approved by the Court outlining undivided
interests in inherited properties.
● The heirs allowed Lorenzo T. Oña to manage the properties and
reinvest profits.
● The Commissioner of Internal Revenue (CIR) assessed the heirs,
considering them an unregistered partnership subject to corporate
income tax.
● Issue:
● WON the heirs are considered co-owners of inherited properties and
profits, or have they formed an unregistered partnership subject to tax?
● Ruling:
● The heirs are considered to have formed an unregistered partnership
subject to tax.
■ The Tax Court found that by allowing Lorenzo T. Oña to manage
inherited properties as a common fund and reinvest profits, the
heirs effectively formed an unregistered partnership.
■ Despite not directly receiving income, the heirs admitted to
sharing profits from property sales and investments.
■ Co-ownership of inherited properties is converted into an
unregistered partnership when properties or incomes are used
as a common fund to generate proportional profits, as
determined in a partition.
■ This conversion occurs even without formal documentation, for
tax purposes.
■ The reliance on Civil Code provisions regarding gross returns
sharing does not exempt the heirs from partnership taxation
under the National Internal Revenue Code (NIRC).
■ The NIRC defines partnerships broadly, including unregistered
partnerships under corporate taxation.
Afisco vs CIR
● Facts:
● 41 non-life insurance corporations entered into Quota Share and
Surplus
Reinsurance
Treaties
Ruckversicherungs-Gesselschaft
(Munich),
with
a
foreign
Munchener
insurance
corporation.
● A pool was formed on August 1, 1965, as required by the reinsurance
treaties, with the petitioners as members.
● The petitioners argue that the pool was merely for allocating and
distributing risks among members and did not act as a reinsurer.
● The Court of Appeals (CA) ruled that the pool was an informal
partnership taxable as a corporation, and the government had not lost
its right to assess and collect taxes.
● Issue:
● Whether the pool is taxable as a corporation.
● Ruling:
● The pool is taxable as a corporation, and the government's right to
assess and collect taxes has not prescribed.
● The National Internal Revenue Code (NIRC) defines "corporation"
broadly,
including
partnerships
and
associations
resembling
corporations.
● The pool's characteristics, such as a common fund, an executive
board, and profit motive, indicate it functions as an association or
partnership covered by the NIRC.
● Despite not retaining profits, the pool's role in facilitating business
transactions for profit among members establishes its nature as an
association for taxable purposes.
● The CA's ruling, affirming the Court of Tax Appeals (CTA), is upheld,
and the petition is denied.
CIR vs Batangas
● Facts:
● Respondent bus companies, Batangas Transportation and Laguna
Tayabas Bus, suffered losses during the war but later acquired 56 auto
busses from the US Army, dividing them equally.
● They established a "Joint Emergency Operation," managed by Joseph
Benedict, to economize overhead expenses.
● At the end of each year, gross receipts and expenses were determined,
and net profit was divided equally between the companies for tax
purposes.
● The CIR assessed the companies for deficiency income tax and
compromise for the years 1946-1949, theorizing that the Joint
Emergency Operation formed a separate corporation.
● Issue:
● Whether the Joint Emergency Operation qualifies as a corporation
subject to income tax.
● Ruling:
● Yes, the Joint Emergency Operation is subject to income tax as a
corporation, despite lacking legal personality.
● The operation effectively merged the business affairs of the two
companies into a single entity, resulting in significant cost savings and
profits.
● The Tax Code's inclusion of "partnerships" in the definition of
corporations
encompasses
entities
formed for economic gain,
regardless of traditional partnership structures.
● The method used by the companies to determine net income was
arbitrary, considering their differing operations across lines, provinces,
and territories.
● Therefore, the operation fell under section 84(b) of the Internal
Revenue Code, rendering it liable for income tax under section 24.
● However, the companies were exempted from a 25% surcharge for
failure to file a tax return due to their honest belief, based on
professional advice, that filing was unnecessary.
Obillos vs. CIR
● Facts:
● Jose Obillos, Sr. completed payment for two lots in Greenhills, San
Juan, Rizal, transferring his rights to his four children, the petitioners,
the next day.
● In 1974, the petitioners resold the lots for a profit, treating it as a capital
gain and paying individual income tax on their shares.
● In 1980, the Commissioner of Internal Revenue required the petitioners
to pay corporate income tax on the total profit in addition to individual
income tax on their shares.
● The Commissioner claimed that the petitioners formed an unregistered
partnership or joint venture, thus liable for corporate income tax.
● Issue:
● Whether the petitioners formed a partnership liable for corporate
income tax.
● Ruling:
● No, the petitioners did not form a partnership.
● Considering them as having formed a partnership would result in
oppressive taxation and blur the distinction between co-ownership and
partnership.
● The petitioners' intention was not to form a partnership but to own the
lots jointly for residential purposes.
● The division of profit was incidental to the dissolution of the
co-ownership, which was temporary and had to be terminated sooner
or later.
● Article 1769(3) of the Civil Code stipulates that the sharing of gross
returns does not establish a partnership unless there is an
unmistakable intention to form one.
● Since there was no clear intention to form a partnership or joint
venture, the petitioners cannot be taxed as such.