Oña v. Revenue

BARREDO, J.:

Petition for review of the decision of the Court of Tax Appeals in CTA Case No. 617, similarly entitled as above, holding that petitioners have constituted an unregistered partnership and are, therefore, subject to the payment of the deficiency corporate income taxes assessed against them by respondent Commissioner of Internal Revenue for the years 1955 and 1956 in the total sum of P21,891.00, plus 5% surcharge and 1% monthly interest from December 15, 1958, subject to the provisions of Section 51 (e) (2) of the Internal Revenue Code, as amended by Section 8 of Republic Act No. 2343 and the costs of the suit,1 as well as the resolution of said court denying petitioners' motion for reconsideration of said decision. The facts are stated in the decision of the Tax Court as follows: Julia Buñales died on March 23, 1944, leaving as heirs her surviving spouse, Lorenzo T. Oña and her five children.

In 1948, Civil Case No. 4519 was instituted in the Court of First Instance of Manila for the settlement of her estate. Later, Lorenzo T. Oña the surviving spouse was appointed administrator of the estate of said deceased (Exhibit 3, pp. 34-41, BIR rec.). On April 14, 1949, the administrator submitted the project of partition, which was approved by the Court on May 16, 1949 (See Exhibit K).

Because three of the heirs, namely Luz, Virginia and Lorenzo, Jr., all surnamed Oña, were still minors when the project of partition was approved, Lorenzo T. Oña, their father and administrator of the estate, filed a petition in Civil Case No. 9637 of the Court of First Instance of Manila for appointment as guardian of said minors. On November 14, 1949, the Court appointed him guardian of the persons and property of the aforenamed minors (See p. 3, BIR rec.).

The project of partition (Exhibit K; see also pp. 77-70, 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, more or less. This amount was not divided among them but was used in the rehabilitation of properties owned by them in common (t.s.n., p.

46). Of the ten parcels of land aforementioned, two were acquired after the death of the decedent with money borrowed from the Philippine Trust Company in the amount of P72,173.00 (t.s.n., p. 24; Exhibit 3, pp. 31-34 BIR rec.).

The project of partition also shows that the estate shares equally with Lorenzo T. Oña, the administrator thereof, in the obligation of P94,973.00, consisting of loans contracted by the latter with the approval of the Court (see p. 3 of Exhibit K; or see p. 74, BIR rec.).

Although the project of partition was approved by the Court on May 16, 1949, no attempt was made to divide the properties therein listed. Instead, the properties remained under the management of Lorenzo T. Oña who used said properties in business by leasing or selling them and investing the income derived therefrom and the proceeds from the sales thereof in real properties and securities. As a result, petitioners' properties and investments gradually increased from P105,450.00 in 1949 to P480,005.20 in 1956 as can be gleaned from the following year-end balances: Year Investment Account Land Account Building Account 1949 - P87,860.00 P17,590.00 1950 P24,657.65 128,566.72 96,076.26 1951 51,301.31 120,349.28 110,605.11 1952 67,927.52 87,065.28 152,674.39 1953 61,258.27 84,925.68 161,463.83 1954 63,623.37 99,001.20 167,962.04 1955 100,786.00 120,249.78 169,262.52 1956 175,028.68 135,714.68 169,262.52 (See Exhibits 3 & K t.s.n., pp. 22, 25-26, 40, 50, 102-104) From said investments and properties petitioners derived such incomes as profits from installment sales of subdivided lots, profits from sales of stocks, dividends, rentals and interests (see p.

3 of Exhibit 3; p. 32, BIR rec.; t.s.n., pp. 37-38). The said incomes are recorded in the books of account kept by Lorenzo T. Oña where the corresponding shares of the petitioners in the net income for the year are also known.

Every year, petitioners returned for income tax purposes their shares in the net income derived from said properties and securities and/or from transactions involving them (Exhibit 3, supra ; t.s.n., pp. 25-26). However, petitioners did not actually receive their shares in the yearly income. (t.s.n., pp. 25-26, 40, 98, 100).

The income was always left in the hands of Lorenzo T. Oña who, as heretofore pointed out, invested them in real properties and securities. (See Exhibit 3, t.s.n., pp. 50, 102-104). On the basis of the foregoing facts, respondent (Commissioner of Internal Revenue) decided that petitioners formed an unregistered partnership and therefore, subject to the corporate income tax, pursuant to Section 24, in relation to Section 84(b), of the Tax Code.

Accordingly, he assessed against the petitioners the amounts of P8,092.00 and P13,899.00 as corporate income taxes for 1955 and 1956, respectively. (See Exhibit 5, amended by Exhibit 17, pp. 50 and 86, BIR rec.). Petitioners protested against the assessment and asked for reconsideration of the ruling of respondent that they have formed an unregistered partnership.

Finding no merit in petitioners' request, respondent denied it (See Exhibit 17, p. 86, BIR rec.). (See pp. 1-4, Memorandum for Respondent, June 12, 1961).

The original assessment was as follows: 1955 Net income as per investigation ................ P40,209.89