Obillos v.

Commissioner
139 SCRA 436
October 29, 1985

By: Angelica Iris D. Gundran

PONENTE: AQUINO, J.:

FACTS:

Obillos Sr. bought two (2) lots at Greenhills, Sanm Juan, Rizal from Ortigas and
Company Ltd. He transferred his rights to his four children for them to build their
residences. The titles issued showed the siblings as co-owners of the lots.

After more than a year, the children sold the lots to Walled City Securities Corp., and
Olga Canda. They earned a profit which they treated it as capital gain, so they paid income
tax.

The Commission on Internal Revenue (CIR) assessed the siblings for corporate
income tax on total profit, in addition to the individual income tax on their shares. The CIR
claimed that the siblings had formed an unregistered partnership or joint venture within
the meaning of the Tax Code.

ISSUE: Whether the siblings are liable for corporate income tax as unregistered
partnership.

RULING:

No, they are not liable for corporate income tax. The siblings are co-owners and not
partners, because they had no intention of forming the partnership. An element of a
partnership is not present in this case which is the intention of the parties to enter into a
contract of partnership. The original purpose was to divide the lots for residential
purposes and not into forming a partnership. The division of the profit was merely
incidental to the dissolution of the co-ownership.