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RepublicofthePhilippines
SUPREMECOURT
Manila
SECONDDIVISION
G.R.No.L68118October29,1985
JOSEP.OBILLOS,JR.,SARAHP.OBILLOS,ROMEOP.OBILLOSandREMEDIOSP.OBILLOS,brothersand
sisters,petitioners
vs.
COMMISSIONEROFINTERNALREVENUEandCOURTOFTAXAPPEALS,respondents.
DemosthenesB.Gadiomaforpetitioners.

AQUINO,J.:
Thiscaseisabouttheincometaxliabilityoffourbrothersandsisterswhosoldtwoparcelsoflandwhichtheyhad
acquiredfromtheirfather.
OnMarch2,1973JoseObillos,Sr.completedpaymenttoOrtigas&Co.,Ltd.ontwolotswithareasof1,124and
963squaremeterslocatedatGreenhills,SanJuan,Rizal.Thenextdayhetransferredhisrightstohisfourchildren,
the petitioners, to enable them to build their residences. The company sold the two lots to petitioners for
P178,708.12onMarch13(Exh.AandB,p.44,Rollo).Presumably,theTorrenstitlesissuedtothemwouldshow
thattheywerecoownersofthetwolots.
In 1974, or after having held the two lots for more than a year, the petitioners resold them to the Walled City
SecuritiesCorporationandOlgaCruzCandaforthetotalsumofP313,050(Exh.CandD).Theyderivedfromthe
saleatotalprofitofP134,341.88orP33,584foreachofthem.Theytreatedtheprofitasacapitalgainandpaidan
incometaxononehalfthereoforofP16,792.
In April, 1980, or one day before the expiration of the fiveyear prescriptive period, the Commissioner of Internal
Revenue required the four petitioners to pay corporate income tax on the total profit of P134,336 in addition to
individualincometaxontheirsharesthereofHeassessedP37,018ascorporateincometax,P18,509as50%fraud
surchargeandP15,547.56as42%accumulatedinterest,oratotalofP71,074.56.
Notonlythat.HeconsideredtheshareoftheprofitsofeachpetitionerinthesumofP33,584asa"taxableinfull
(not a mere capital gain of which is taxable) and required them to pay deficiency income taxes aggregating
P56,707.20includingthe50%fraudsurchargeandtheaccumulatedinterest.
Thus,thepetitionersarebeingheldliablefordeficiencyincometaxesandpenaltiestotallingP127,781.76ontheir
profitofP134,336,inadditiontothetaxoncapitalgainsalreadypaidbythem.
The Commissioner acted on the theory that the four petitioners had formed an unregistered partnership or joint
venturewithinthemeaningofsections24(a)and84(b)oftheTaxCode(CollectorofInternalRevenuevs.Batangas
Trans.Co.,102Phil.822).
The petitioners contested the assessments. Two Judges of the Tax Court sustained the same. Judge Roaquin
dissented.Hence,theinstantappeal.
We hold that it is error to consider the petitioners as having formed a partnership under article 1767 of the Civil
CodesimplybecausetheyallegedlycontributedP178,708.12tobuythetwolots,resoldthesameanddividedthe
profitamongthemselves.
To regard the petitioners as having formed a taxable unregistered partnership would result in oppressive taxation
andconfirmthedictumthatthepowertotaxinvolvesthepowertodestroy.Thateventualityshouldbeobviated.

As testified by Jose Obillos, Jr., they had no such intention. They were coowners pure and simple. To consider
themaspartnerswouldobliteratethedistinctionbetweenacoownershipandapartnership.Thepetitionerswere
notengagedinanyjointventurebyreasonofthatisolatedtransaction.
Their original purpose was to divide the lots for residential purposes. If later on they found it not feasible to build
theirresidencesonthelotsbecauseofthehighcostofconstruction,thentheyhadnochoicebuttoresellthesame
todissolvethecoownership.Thedivisionoftheprofitwasmerelyincidentaltothedissolutionofthecoownership
whichwasinthenatureofthingsatemporarystate.Ithadtobeterminatedsoonerorlater.CastanTobeassays:
Comoestablecereldeslindeentrelacomunidadordinariaocopropiedadylasociedad?
El criterio diferencialsegun la doctrina mas generalizadaesta: por razon del origen, en que la
sociedadpresuponenecesariamentelaconvencion,mentrasquelacomunidadpuedeexistiryexiste
ordinariamentesinelayporrazondelfinobjecto,enqueelobjetodelasociedadesobtenerlucro,
mientras que el de la indivision es solo mantener en su integridad la cosa comun y favorecer su
conservacion.
Reflejodeestecriterioeslasentenciade15deOctubrede1940,enlaquesedicequesiennuestro
Derechopositiveseofrecenavecesdificultadesaltratardefijarlalineadivisoriaentrecomunidadde
bienes y contrato de sociedad, la moderna orientacion de la doctrina cientifica seala como nota
fundamental de diferenciacion aparte del origen de fuente de que surgen, no siempre uniforme, la
finalidadperseguidaporlosinteresados:lucrocomunpartibleenlasociedad,ymeraconservacion y
aprovechamientoenlacomunidad.(DerechoCivilEspanol,Vol.2,Part1,10Ed.,1971,328329).
Article1769(3)oftheCivilCodeprovidesthat"thesharingofgrossreturnsdoesnotofitselfestablishapartnership,
whether or not the persons sharing them have a joint or common right or interest in any property from which the
returnsarederived".Theremustbeanunmistakableintentiontoformapartnershiporjointventure.*
SuchintentwaspresentinGatchalianvs.CollectorofInternalRevenue,67Phil.666,where15personscontributed
smallamountstopurchaseatwopesosweepstakesticketwiththeagreementthattheywoulddividetheprizeThe
ticketwonthethirdprizeofP50,000.The15personswereheldliableforincometaxasanunregisteredpartnership.
The instant case is distinguishable from the cases where the parties engaged in joint ventures for profit. Thus, in
Oavs.
**ThisviewissupportedbythefollowingrulingsofrespondentCommissioner:
Coowershipdistinguishedfrompartnership.Wefindthatthecaseatbarisfundamentallysimilarto
the De Leon case. Thus, like the De Leon heirs, the Longa heirs inherited the 'hacienda' in question
proindivisofromtheirdeceasedparentstheydidnotcontributeorinvestadditional'capitaltoincrease
orexpandtheinheritedpropertiestheymerelycontinueddedicatingthepropertytotheusetowhichit
had been put by their forebears they individually reported in their tax returns their corresponding
sharesintheincomeandexpensesofthe'hacienda',andtheycontinuedformanyyearsthestatusof
coownership in order, as conceded by respondent, 'to preserve its (the 'hacienda') value and to
continue the existing contractual relations with the Central Azucarera de Bais for milling purposes.
Longavs.Aranas,CTACaseNo.653,July31,1963).
Allcoownershipsarenotdeemedunregisteredpratnership.CoOwnershipwhoownpropertieswhich
produceincomeshouldnotautomaticallybeconsideredpartnersofanunregisteredpartnership,ora
corporation, within the purview of the income tax law. To hold otherwise, would be to subject the
incomeofall
coownerships of inherited properties to the tax on corporations, inasmuch as if a property does not
produce an income at all, it is not subject to any kind of income tax, whether the income tax on
individuals or the income tax on corporation. (De Leon vs. CI R, CTA Case No. 738, September 11,
1961,citedinAraas,1977TaxCodeAnnotated,Vol.1,1979Ed.,pp.7778).
CommissionerofInternalRevenue,L19342,May25,1972,45SCRA74,whereafteranextrajudicialsettlementthe
coheirsusedtheinheritanceortheincomesderivedtherefromasacommonfundtoproduceprofitsforthemselves,
itwasheldthattheyweretaxableasanunregisteredpartnership.
It is likewise different from Reyes vs. Commissioner of Internal Revenue, 24 SCRA 198, where father and son
purchasedalotandbuilding,entrustedtheadministrationofthebuildingtoanadministratoranddividedequallythe
net income, and from Evangelista vs. Collector of Internal Revenue, 102 Phil. 140, where the three Evangelista
sisters bought four pieces of real property which they leased to various tenants and derived rentals therefrom.
Clearly,thepetitionersinthesetwocaseshadformedanunregisteredpartnership.

Intheinstantcase,whattheCommissionershouldhaveinvestigatedwaswhetherthefatherdonatedthetwolotsto
thepetitionersandwhetherhepaidthedonor'stax(SeeArt.1448,CivilCode).Wearenotprejudgingthismatter.It
mighthavealreadyprescribed.
WHEREFORE,thejudgmentoftheTaxCourtisreversedandsetaside.Theassessmentsarecancelled.Nocosts.
SOORDERED.
AbadSantos,Escolin,CuevasandAlampay,JJ.,concur.
Concepcion,Jr.,isonleave.
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