Lorenzo Oa, et al vs.

Commissioner of Internal Revenue

GR No. L-19342. May 25, 1972
Barredo, J.:
FACTS: Julia Buales died having as heirs, her surviving spouse, Lorenzo Oa and 5 children. Oa was instituted as administrator
and guardian of the 3 heirs who are still minors when project partition was approved. The heirs have 1/2 interest in the 10 parcels
of land, 6 houses, and uncollected money from the War Damage Commission. Although the project partition was approved by the
court, the properties remained under the managementof Oa who used the properties in business and the proceeds of sale thereof
to buy real property and securities. As a result, the properties and investment increased. Petitioner returned for income tax
purposes their shares in the net income but are not actually received by them. CIR assessed the petitioner on the ground that they
have formed an unregistered partnership and therefore, subject to corporate income tax, particularly in the year 1955 abd 1956.
The petitioner's motion for reconsideration was denied. Hence, this petition for review from the decision of CTA.
ISSUE: Whether or not the petitioner formed an unregistered partnership, hence, liable to corporate income tax.
HELD: Supreme court ruled in affirmative.
RATIO: For the purpose of taxation, the co-ownership of inherited property is automatically converted into an unregistered
partnership the moment the common properties and/or incomes derived therefrom are used as common fund with intent to produce
profits for the heirs in proportion to their respective shares in the inheritance as determined in the project partition either executed
in extrajudicial settlement or approved by the court in the corresponding testate or intestate proceedings. The reason is simple.
From the moment of such partition, the heir is entitled already to their respective definite shares of the estate and the income
thereof. Each of them may manage and dispose as exclusive owner without the intervention of the other heirs and accordingly
becomes liable individually for taxes in connection therewith. If after partition, he allowed his share to be used with intent of
making profits thereby in proportion of his share, there can be no doubt that even if no document or instrument were executed, for
the purpose of taxation, at least an unregistered partnership is formed.