NS

EW

Obillos et al vs.

CIR

FACTS

ISSUE

COURT

RULING

In 1973, Jose Obillos completed payment on two lots

located at Greenhills, San Juan. The next day he

transferred his rights to his four children for them to build

their own residences. The Torrens title would show that

they were co-owners of the two lots.

However, the petitioners resold them to Walled City

Securities Corporation and Olga Cruz Canda for P313k.

From this sale, they derived a total profit of P131k or

P33k for each of them. They treated the profit as

capital gain and paid an income tax of P16,792.

The CIR required the petitioners to pay corporate

income tax on the total profit of P134,336 in addition to

the individual income tax of their shares. In total, he

assessed the (1) corporate income taxes, (2) fraud

surcharge and (3) accumulated interest for a total of

P71,074.66. He also considered the share of profits

as taxable in full, hence required them to pay (4)

deficiency income tax, which also includes the (5)

fraud surcharge and (6) accumulated interest.

In total, it amounted to P121k, in addition to capital

gains already paid by them.

This whole assessment was based on petitioners

allegedly forming a partnership under 1767 of the Civil

Code simply because they contributed each to buy the

lots, resold them and divided the profits among them.

But as testified by Obillos, they have no intention to

form the partnership and that it was merely incidental

since they sold the said lots due to the high demand of

construction. Naturally when they sell them as co-

partners, it will result to the share of profits. Further,

their intention was to divide the lots for residential

purposes.

Was there a partnershiphence, they are subject to

corporate income tax et al?

Not necessarilyas Art. 1769 [3] of the Civil Code provides that the sharing of

gross returns does not in itself establish a

partnership, whether or not the persons

sharing them have a joint or common right

or interest in any property from which the

returns are derived. There must be an

unmistakeable intention to form a

partnership or joint venture.

In this case, the Commissioner should

have investigated if the father paid

donors tax to establish the fact that there was really no partnership.

Obillos vs. CIR.vsdPage-1