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21639
MALCOLM, J.:
This action relates to the legal right of Albert F.
Kiel to secure from the estate of P. S. Sabert the
sum of P20,000, on a claim first presented to the
commissioners and disallowed, then on appeal to
the Court of First Instance allowed, and ultimately
the subject-matter of the appeal taken to this
court.
A skeletonized statement of the case and the
facts based on the complaint, the findings of the
trial judge, and the record, may be made in the
following manner:
In 1907, Albert F. Kiel along with William Milfeil
commenced to work on certain public lands
situated in the municipality of Parang, Province of
Cotabato, known as Parang Plantation Company.
Kiel subsequently took over the interest of Milfeil.
In 1910, Kiel and P. S. Sabert entered into an
agreement to develop the Parang Plantation
Company. Sabert was to furnish the capital to run
the plantation and Kiel was to manage it. They
were to share and share alike in the property. It
seems that this partnership was formed so that
the land could be acquired in the name of Sabert,
Kiel being a German citizen and not deemed
eligible to acquire public lands in the Philippines.
By virtue of the agreement, from 1910 to 1917,
Kiel worked upon and developed the plantation.
During the World War, he was deported from the
Philippines.
On August 16, 1919, five persons, including P. S.
Sabert, organized the Nituan Plantation Company,
with a subscribed capital of P40,000. On April 10,
1922, P. S. Sabert transferred all of his rights in
two parcels of land situated in the municipality of
Parang, Province of Cotabato, embraced within his
homestead application No. 21045 and his
purchase application No. 1048, in consideration of
the sum of P1, to the Nituan Plantation Company.
In this same period, Kiel appears to have tried to
secure a settlement from Sabert. At least in a
letter dated June 6, 1918, Sabert wrote Kiel that
he had offered "to sell all property that I have for
P40,000 or take in a partner who is willing to
develop the plantation, to take up the K. & S. debt
no matter which way I will straiten out with you."
But Sabert's death came before any amicable
arrangement could be reached and before an
action by Kiel against Sabert could be decided. So
these proceedings against the estate of Sabert.
In this court, the defendant-appellant assigns the
following errors:
November 9, 1903
February 28,
Commissioner's
appeal
GANCAYCO, J.:
The distinction between co-ownership and an
unregistered partnership or joint venture for income tax
purposes is the issue in this petition.
On June 22, 1965, petitioners bought two (2) parcels of
land from Santiago Bernardino, et al. and on May 28,
1966, they bought another three (3) parcels of land
from Juan Roque. The first two parcels of land were sold
by petitioners in 1968 toMarenir Development
Corporation, while the three parcels of land were sold
The project of partition (Exhibit K; see also pp. 7770, BIR rec.) shows that the heirs have undivided
one-half (1/2) interest in ten parcels of land with a
total assessed value of P87,860.00, six houses
with a total assessed value of P17,590.00 and an
undetermined amount to be collected from the
War Damage Commission. Later, they received
from said Commission the amount of P50,000.00,
Investment
Land
Building
Account
Account
Account
1949
P87,860.0
0
P17,590.00
1950
P24,657.6
5
128,566.7
2
96,076.26
1951
51,301.31
120,349.2
8
110,605.1
1
1952
67,927.52
87,065.28
152,674.3
9
1953
61,258.27
84,925.68
161,463.8
3
1954
1955
63,623.37
100,786.0
0
99,001.20
120,249.7
8
167,962.0
4
169,262.5
2
1956
175,028.6
8
135,714.6
8
169,262.5
2
P69,245.23
Income tax due thereon ...............................
13,849.00
25% surcharge ..............................................
3,462.25
Compromise for non-filing .......................... 50.00
Total .............................................................
P17,361.25
(See Exhibit 13, page 50, BIR records)
Upon further consideration of the case, the 25%
surcharge was eliminated in line with the ruling of
the Supreme Court in Collector v. Batangas
Transportation Co., G.R. No. L-9692, Jan. 6, 1958,
so that the questioned assessment refers solely to
the income tax proper for the years 1955 and
1956 and the "Compromise for non-filing," the
latter item obviously referring to the compromise
in lieu of the criminal liability for failure of
petitioners to file the corporate income tax
returns for said years. (See Exh. 17, page 86, BIR
records). (Pp. 1-3, Annex C to Petition)
Petitioners have assigned the following as alleged
errors of the Tax Court:
I.
THE COURT OF TAX APPEALS ERRED IN HOLDING
THAT
THE
PETITIONERS
FORMED
AN
UNREGISTERED PARTNERSHIP;
II.
THE COURT OF TAX APPEALS ERRED IN NOT
HOLDING THAT THE PETITIONERS WERE COOWNERS OF THE PROPERTIES INHERITED AND
(THE) PROFITS DERIVED FROM TRANSACTIONS
THEREFROM (sic);
III.
THE COURT OF TAX APPEALS ERRED IN HOLDING
THAT PETITIONERS WERE LIABLE FOR CORPORATE
INCOME TAXES FOR 1955 AND 1956 AS AN
UNREGISTERED PARTNERSHIP;
IV.
ON THE ASSUMPTION THAT THE PETITIONERS
CONSTITUTED AN UNREGISTERED PARTNERSHIP,
THE COURT OF TAX APPEALS ERRED IN NOT
HOLDING THAT THE PETITIONERS WERE AN
UNREGISTERED PARTNERSHIP TO THE EXTENT
ONLY THAT THEY INVESTED THE PROFITS FROM
THE PROPERTIES OWNED IN COMMON AND THE
LOANS
RECEIVED
USING
THE
INHERITED
PROPERTIES AS COLLATERALS;
V.
ON THE ASSUMPTION THAT THERE WAS AN
UNREGISTERED PARTNERSHIP, THE COURT OF TAX
APPEALS ERRED IN NOT DEDUCTING THE
FERNANDO, J.:
Petitioners in this case were assessed by respondent
Commissioner of Internal Revenue the sum of
P46,647.00 as income tax,
surcharge and
compromise for the years 1951 to 1954, an
assessment subsequently reduced to P37,528.00.
This assessment sought to be reconsidered
unsuccessfully was the subject of an appeal to
respondent Court of Tax Appeals. Thereafter, another
assessment was made against petitioners, this time
for back income taxes plus surcharge and
compromise in the total sum of P25,973.75, covering
the years 1955 and 1956. There being a failure on
their part to have such assessments reconsidered,
the matter was likewise taken to the respondent
Court of Tax Appeals. The two cases1 involving as
they did identical issues and ultimately traceable to
facts similar in character were heard jointly with only
one decision being rendered.
In that joint decision of respondent Court of Tax
Appeals, the tax liability for the years 1951 to 1954
was reduced to P37,128.00 and for the years 1955
and 1956, to P20,619.00 as income tax due "from
the partnership formed" by petitioners. 2 The
reduction was due to the elimination of surcharge,
the failure to file the income tax return being
accepted as due to petitioners honest belief that no
such liability was incurred as well as the compromise
penalties for such failure to file.3 A reconsideration of
the aforesaid decision was sought and denied by
respondent Court of Tax Appeals. Hence this petition
for review.
The facts as found by respondent Court of Tax
Appeals, which being supported by substantial
evidence, must be respected4 follow: "On October
31, 1950, petitioners, father and son, purchased a
lot and building, known as the Gibbs Building,
situated at 671 Dasmarias Street, Manila, for
P835,000.00, of which they paid the sum of
P375,000.00, leaving a balance of P460,000.00,
representing the mortgage obligation of the vendors
with the China Banking Corporation, which mortgage
obligations were assumed by the vendees. The initial
payment of P375,000.00 was shared equally by
petitioners. At the time of the purchase, the building
was leased to various tenants, whose rights under
the lease contracts with the original owners, the
purchasers, petitioners herein, agreed to respect.
The administration of the building was entrusted to
an administrator who collected the rents; kept its
books and records and rendered statements of
accounts to the owners; negotiated leases; made
necessary
repairs
and
disbursed
payments,
whenever necessary, after approval by the owners;
and performed such other functions necessary for
the conservation and preservation of the building.
Petitioners divided equally the income of operation
and maintenance. The gross income from rentals of
the building amounted to about P90,000.00
annually."5
From the above facts, the respondent Court of Tax
Appeals applying the appropriate provisions of the
Member's shares.
September 7, 1929
97,263.70
Credits paid
6,196.55
Interest received
4,569.45
Miscellaneous
1,891.00
P109,620.7
0
Expenses:
Premiums to members
68,146.25
Loans on real-estate
9,827.00
Loans on promissory
notes
4,258.55
Salaries
1,095.00
Miscellaneous
1,686.10
85,012.90
Cash on hand
24,607.80
The
defendants
objected
to
the
commissioner's report, but the trial court,
having examined the reasons for the
objection, found the same sufficiently
explained in the report and the evidence, and
accepting it, rendered judgment, holding that
the association "Turnuhan Polistico & Co." is
unlawful, and sentencing the defendants
jointly and severally to return the amount of
P24,607.80, as well as the documents
showing the uncollected credits of the
association, to the plaintiffs in this case, and
to the rest of the members of the said
association represented by said plaintiffs,
with costs against the defendants.
The defendants assigned several errors as
grounds for their appeal, but we believe they
can all be reduced to two points, to wit: (1)
That not all persons having an interest in this
association are included as plaintiffs or
unlawful
shall be
domicile
such, to
Separate Opinions
ARELLANO, C. J., dissenting:
I consider that the judgment appealed from is
entirely in accordance with the law.lawphil.net
The question set up in the majority decision, "In a
regular collective commercial company, is an
industrial partner liable as to third persons by
reason of the debts and obligations contracted by
the copartnership?" I decide in a negative sense;
he is not; by express provision of the law he can
not be held to be liable, save, of course, and
agreement to the contrary, which in such case
would be a special law, and would set aside the
general law.
The basis for the contrary opinion and decision is
article 127 of the Code of Commerce:
All the members of the general copartnership, be
they or be they not managing partners of the
same, are personally and in solidum liable with all
their property for the results of the transactions
made in the name and for the account of the
partnership, under the signature of the latter, and
by a person authorized to ake use thereof.
Now, do the words "all the members" found in this
article include the industrial partners?
At first it would appear that they do. In order to
complete such reasoning the following premise
will be sufficient: That the industrial partners from
the collective partnership; therefore the industrial
partners are personally and jointly liable with all
their property for the results of the transactions
made in the name and for account of the
partnership.
But they form the collective partnership in the
P0.1
8
2. Gregoria Cristobal
.18
3. Saturnina Silva
.08
4. Guillermo Tapia
.13
5. Jesus Legaspi
.15
6. Jose Silva
.07
7. Tomasa Mercado
.08
8. Julio Gatchalian
.13
9. Emiliana Santiago
.13
.16
.13
.14
.17
.13
.14
2.00
1. Mariano Santos
2. Buenaventura
Guzman
Amou
nt
P0.14
.13
Address
Pulilan,
Bulacan.
- Do -
Exhi
bit
Purchas
e
No.
Price
Price
Won
Expens
es
Net
prize
1. Jose
Gatchalian
D-1
P0.18
P4,425
P 480
3,945
2. Gregoria
Cristobal
D-2
.18
4,575
2,000
2,575
3. Maria Santiago
.17
- Do -
4. Gonzalo Javier
.14
- Do -
3. Saturnina
Silva
D-3
.08
1,875
360
1,515
5. Francisco Cabral
.13
- Do -
4. Guillermo
Tapia
D-4
.13
3,325
360
2,965
6. Maria C. Legaspi
.16
- Do -
D-5
.15
3,825
720
3,105
7. Emiliana Santiago
.13
- Do -
5. Jesus
Legaspi by
Maria
Cristobal
8. Julio Gatchalian
.13
- Do -
6. Jose Silva
D-6
.08
1,875
360
1,515
9. Jose Silva
.07
- Do -
7. Tomasa
Mercado
D-7
.07
1,875
360
1,515
.08
- Do -
D-8
.13
3,150
240
2,910
.15
- Do -
8. Julio
Gatchalian
by Beatriz
Guzman
.13
- Do -
9. Emiliana
Santiago
D-9
.13
3,325
360
2,965
.08
- Do -
10. Maria C.
Legaspi
D10
.16
4,100
960
3,140
.18
- Do -
11.
Francisco
Cabral
D11
.13
3,325
360
2,965
12. Gonzalo
Javier
D12
.14
3,325
360
2,965
13. Maria
Santiago
D13
.17
4,350
360
3,990
.18
- Do -
Total cost
2.00 of said
ticket; and that, therefore, the persons
named above are entitled to the parts of
14.
Buenaventur
a Guzman
D14
.13
3,325
360
2,965
15. Mariano
Santos
D15
.14
3,325
360
2,965
2.00
50,000
The legal questions raised in plaintiffsappellants' five assigned errors may properly
be reduced to the two following: (1) Whether
the plaintiffs formed a partnership, or merely
a community of property without a
personality of its own; in the first case it is
admitted that the partnership thus formed is
liable for the payment of income tax,
whereas if there was merely a community of
property, they are exempt from such
payment; and (2) whether they should pay
the tax collectively or whether the latter
should be prorated among them and paid
individually.
The Collector of Internal Revenue collected
the tax under section 10 of Act No. 2833, as
last amended by section 2 of Act No. 3761,
reading as follows:
SEC. 10. (a) There shall be levied, assessed,
collected, and paid annually upon the total
net income received in the preceding
calendar year from all sources by every
corporation,
joint-stock
company,
partnership, joint account (cuenta en
participacion), association or insurance
company, organized in the Philippine Islands,
no matter how created or organized, but not
including
duly
registered
general
copartnership (compaias colectivas), a tax
of three per centum upon such income; and a
like tax shall be levied, assessed, collected,
and paid annually upon the total net income
received in the preceding calendar year from
all sources within the Philippine Islands by
every corporation, joint-stock company,
partnership, joint account (cuenta en
participacion), association, or insurance
company organized, authorized, or existing
under the laws of any foreign country,
including interest on bonds, notes, or other
interest-bearing obligations of residents,
corporate or otherwise: Provided, however,
That nothing in this section shall be
construed as permitting the taxation of the
income derived from dividends or net profits
February 6, 1934
the
partnership
xxx
xxx