PASCUAL VS.

CIR
GR NO. 78133 OCTOBER 18, 1988
FACTS:
The petitioners bought 5 parcels of land. The first 2 parcels of land
were sold by the petitioners in 1968 and the 3 parcels of land were sold in
1970. Capital gains tax was paid by the petitioners in 1973 and 1974 by
availing of the tax amnesties granted in the said years. In 1979, the
respondent Commissioner informed petitioners that they have formed an
unregistered partnership and should be subject to corporate income tax. The
CTA affirmed the decision.
ISSUE:
Whether or not the petitioners created an unregistered partnership,
and should be liable for corporate income tax.
RULING:
NO. The court ruled that the petitioners have not created an
unregistered partnership because it is clear that there is co-ownership
between the two. Under art. 1796 of the CC, a co-ownership or co possession
does not itself establish a partnership whether they do or not share any
profits made by the property. Aside from the circumstance of profit, the other
elements must be present such as the clear intent to form a partnership. It is
evident that an isolated transaction whereby two or more persons contribute
funds to buy certain real estate for profit in the absence of other
circumstances showing a contrary intention cannot be considered a
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 these circumstances, they cannot be considered to have
formed an unregistered partnership which is thereby liable for corporate
income tax, as the respondent commissioner proposes. In order to constitute
a partnership there must be: (a) An intent to form the same; (b) generally
participating in both profits and losses; (c) and such a community of interest,
as far as third persons are concerned as enables each party to make
contract, manage the business, and dispose of the whole property. In this
case, 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. Hence, the petitioners are
relieved from liability.