G.R. No.

L-9996           October 15, 1957

Evangelista, et al. v. CIR, GR No. L-9996, October 15, 1957

Facts:
            Herein petitioners seek a review of CTA’s decision holding them liable for income tax, real estate
dealer’s tax and residence tax. As stipulated, petitioners borrowed from their father a certain sum for
the purpose of buying real properties. Within February 1943 to April 1994, they have bought parcels of
land from different persons, the management of said properties was charged to their brother Simeon
evidenced by a document. These properties were then leased or rented to various tenants.
            On September 1954, CIR demanded the payment of income tax on corporations, real estate
dealer’s fixed tax, and corporation residence tax to which the petitioners seek to be absolved from such
payment.
 
Issue: Whether petitioners are subject to the tax on corporations.
 
Ruling:
            The Court ruled that with respect to the tax on corporations, the issue hinges on the meaning of
the terms “corporation” and “partnership” as used in Section 24 (provides that a tax shall be levied on
every corporation no matter how created or organized except general co-partnerships) and 84 (provides
that the term corporation includes among others, partnership) of the NIRC. Pursuant to Article 1767,
NCC (provides for the concept of partnership), its essential elements are: (a) an agreement to contribute
money, property or industry to a common fund; and (b) intent to divide the profits among the
contracting parties.
It is of the opinion of the Court that the first element is undoubtedly present for petitioners have agreed
to, and did, contribute money and property to a common fund. As to the second element, the Court
fully satisfied that their purpose was to engage in real estate transactions for monetary gain and then
divide the same among themselves as indicated by the following circumstances:
1.       The common fund was not something they found already in existence nor a property
inherited by them pro indiviso. It was created purposely, jointly borrowing a substantial portion thereof
in order to establish said common fund;
2.       They invested the same not merely in one transaction, but in a series of transactions. The
number of lots acquired and transactions undertake is strongly indicative of a pattern or
common design that was not limited to the conservation and preservation of the
aforementioned common fund or even of the property acquired. In other words, one cannot but
perceive a character of habitually peculiar to business transactions engaged in the purpose of
gain;
3.       Said properties were not devoted to residential purposes, or to other personal uses, of
petitioners but were leased separately to several persons;
4.       They were under the management of one person where the affairs relative to said
properties have been handled as if the same belonged to a corporation or business and
enterprise operated for profit;
5.       Existed for more than ten years, or, to be exact, over fifteen years, since the first property
was acquired, and over twelve years, since Simeon Evangelista became the manager;
6.       Petitioners have not testified or introduced any evidence, either on their purpose in
creating the set up already adverted to, or on the causes for its continued existence.
The collective effect of these circumstances is such as to leave no room for doubt on the existence of
said intent in petitioners herein.
            Also, petitioners’ argument that their being mere co-owners did not create a separate legal entity
was rejected because, according to the Court, the tax in question is one imposed upon "corporations",
which, strictly speaking, are distinct and different from "partnerships". When the NIRC includes
"partnerships" among the entities subject to the tax on "corporations", said Code must allude,
therefore, to organizations which are not necessarily "partnerships", in the technical sense of the term.
The qualifying expression found in Section 24 and 84(b) clearly indicates that a joint venture need not be
undertaken in any of the standard forms, or in conformity with the usual requirements of the law on
partnerships, in order that one could be deemed constituted for purposes of the tax on corporations.
Accordingly, the lawmaker could not have regarded that personality as a condition essential to the
existence of the partnerships therein referred to. For purposes of the tax on corporations, NIRC includes
these partnerships - with the exception only of duly registered general co partnerships - within the
purview of the term "corporation." It is, therefore, clear that petitioners herein constitute a partnership,
insofar as said Code is concerned and are subject to the income tax for corporations.
As regards the residence of tax for corporations (Section 2 of CA No. 465), it is analogous to that
of section 24 and 84 (b) of the NIRC. It is apparent that the terms "corporation" and "partnership" are
used in both statutes with substantially the same meaning. Consequently, petitioners are subject, also,
to the residence tax for corporations.
Finally, on the issues of being liable for real estate dealer’s tax, they are also liable for the same
because the records show that they have habitually engaged in leasing said properties whose yearly
gross rentals exceeds P3,000.00 a year.

Lastly, the records show that petitioners have habitually engaged in leasing the properties above
mentioned for a period of over twelve years, and that the yearly gross rentals of said properties from
June 1945 to 1948 ranged from P9,599 to P17,453. Thus, they are subject to the tax provided in section
193 (q) of our National Internal Revenue Code, for "real estate dealers," inasmuch as, pursuant to
section 194 (s) thereof:

'Real estate dealer' includes any person engaged in the business of buying, selling,
exchanging, leasing, or renting property or his own account as principal and holding himself out
as a full or part time dealer in real estate or as an owner of rental property or properties rented
or offered to rent for an aggregate amount of three thousand pesos or more a year. . .
(emphasis supplied.)

Wherefore, the appealed decision of the Court of Tax appeals is hereby affirmed with costs against the
petitioners herein. It is so ordered.