EUFEMIA EVANGELISTA, MANUELA EVANGELISTA, and FRANCISCA EVANGELISTA, petitioners,

vs.THE COLLECTOR OF INTERNAL REVENUE and THE COURT OFTAX APPEALS,respondents.

FACTS: Petitioners borrowed sum of money from their father and together with their own personal funds they
used said money to buy several real properties. They then appointed their brother (Simeon) as manager of the
said real properties with powers and authority to sell, lease or rent out said properties to third persons. They
realized rental income from the said properties for the period 1945-1949.On September 24, 1954 respondent
Collector of Internal Revenue demanded the payment of income tax on corporations, real estate dealer's fixed
tax and corporation residence tax for the years 1945-1949. The letter of demand and corresponding
assessments were delivered to petitioners on December 3, 1954, whereupon they instituted the present case in
the Court of Tax Appeals, with a prayer that "the decision of the respondent contained in his letter of demand
dated September 24, 1954" be reversed, and that they be absolved from the payment of the taxes in question.
CTA denied their petition and subsequent MR and New Trials were denied. Hence this petition.
ISSUE: Whether or not petitioners have formed a partnership and consequently, are subject to the tax on
corporations provided for in section 24 of Commonwealth Act. No. 466, otherwise known as the National
Internal Revenue Code, as well as to the residence tax for corporations and the real estate dealers fixed tax.

HELD: YES.

The essential elements of a partnership are two, namely:

(a) an agreement to contribute money, property or industry to a common fund; and

(b)intent to divide the profits among the contracting parties.

The first element is undoubtedly present in the case at bar, for, admittedly, petitioners have agreed to, and did,
contribute money and property to a common fund. Upon consideration of all the facts and circumstances
surrounding the case, we are fully satisfied that their purpose was to engage in real estate transactions for
monetary gain and then divide the same among themselves, because of the following observations, among
others:

(1) Said common fund was not something they found already in existence;

(2)They invested the same, not merely in one transaction, but in a series of transactions;

(3) The aforesaid lots were not devoted to residential purposes, or to other personal uses, of petitioners herein.
Although, taken singly, they might not suffice to establish the intent necessary to constitute a partnership, the
collective effect of these circumstances is such as to leave no room for doubt on the existence of said intent in
petitionersherein. For purposes of the tax on corporations, our National Internal Revenue Code, includes these
partnerships:

- with the exception only of duly registered general co-partnerships

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.
G.R. No. L-9996           October 15, 1957
EUFEMIA EVANGELISTA, MANUELA EVANGELISTA, and FRANCISCA EVANGELISTA, petitioners,
vs.
THE COLLECTOR OF INTERNAL REVENUE and THE COURT OF TAX APPEALS, respondents.
Santiago F. Alidio and Angel S. Dakila, Jr., for petitioner.
Office of the Solicitor General Ambrosio Padilla, Assistant Solicitor General Esmeraldo Umali and Solicitor Felicisimo R. Rosete
for Respondents.

CONCEPCION, J.:

This is a petition filed by Eufemia Evangelista, Manuela Evangelista and Francisca Evangelista, for review of a decision of
the Court of Tax Appeals, the dispositive part of which reads:

FOR ALL THE FOREGOING, we hold that the petitioners are liable for the income tax, real estate dealer's tax and
the residence tax for the years 1945 to 1949, inclusive, in accordance with the respondent's assessment for the
same in the total amount of P6,878.34, which is hereby affirmed and the petition for review filed by petitioner is
hereby dismissed with costs against petitioners.

It appears from the stipulation submitted by the parties:

1. That the petitioners borrowed from their father the sum of P59,1400.00 which amount together with their
personal monies was used by them for the purpose of buying real properties,.

2. That on February 2, 1943, they bought from Mrs. Josefina Florentino a lot with an area of 3,713.40 sq. m.
including improvements thereon from the sum of P100,000.00; this property has an assessed value of P57,517.00
as of 1948;

3. That on April 3, 1944 they purchased from Mrs. Josefa Oppus 21 parcels of land with an aggregate area of
3,718.40 sq. m. including improvements thereon for P130,000.00; this property has an assessed value of
P82,255.00 as of 1948;

4. That on April 28, 1944 they purchased from the Insular Investments Inc., a lot of 4,353 sq. m. including
improvements thereon for P108,825.00. This property has an assessed value of P4,983.00 as of 1948;

5. That on April 28, 1944 they bought form Mrs. Valentina Afable a lot of 8,371 sq. m. including improvements
thereon for P237,234.34. This property has an assessed value of P59,140.00 as of 1948;

6. That in a document dated August 16, 1945, they appointed their brother Simeon Evangelista to 'manage their
properties with full power to lease; to collect and receive rents; to issue receipts therefor; in default of such
payment, to bring suits against the defaulting tenants; to sign all letters, contracts, etc., for and in their behalf, and
to endorse and deposit all notes and checks for them;

7. That after having bought the above-mentioned real properties the petitioners had the same rented or leases to
various tenants;

8. That from the month of March, 1945 up to an including December, 1945, the total amount collected as rents on
their real properties was P9,599.00 while the expenses amounted to P3,650.00 thereby leaving them a net rental
income of P5,948.33;

9. That on 1946, they realized a gross rental income of in the sum of P24,786.30, out of which amount was
deducted in the sum of P16,288.27 for expenses thereby leaving them a net rental income of P7,498.13;

10. That in 1948, they realized a gross rental income of P17,453.00 out of the which amount was deducted the sum
of P4,837.65 as expenses, thereby leaving them a net rental income of P12,615.35.

It further appears that on September 24, 1954 respondent Collector of Internal Revenue demanded the payment of income
tax on corporations, real estate dealer's fixed tax and corporation residence tax for the years 1945-1949, computed,
according to assessment made by said officer, as follows:

INCOME TAXES
 1945 14.84

1946 1,144.71

1947 10.34

1948 1,912.30

1949 1,575.90

Total including surcharge and compromise P6,157.09

REAL ESTATE DEALER'S FIXED TAX

1946 P37.50

1947 150.00

1948 150.00

1949 150.00

Total including penalty P527.00

RESIDENCE TAXES OF CORPORATION

1945 P38.75

1946 38.75

1947 38.75

1948 38.75

1949 38.75

Total including surcharge P193.75

TOTAL TAXES DUE P6,878.34.

Said letter of demand and corresponding assessments were delivered to petitioners on December 3, 1954, whereupon they
instituted the present case in the Court of Tax Appeals, with a prayer that "the decision of the respondent contained in his
letter of demand dated September 24, 1954" be reversed, and that they be absolved from the payment of the taxes in
question, with costs against the respondent.

After appropriate proceedings, the Court of Tax Appeals the above-mentioned decision for the respondent, and a petition
for reconsideration and new trial having been subsequently denied, the case is now before Us for review at the instance of
the petitioners.

The issue in this case whether petitioners are subject to the tax on corporations provided for in section 24 of
Commonwealth Act. No. 466, otherwise known as the National Internal Revenue Code, as well as to the residence tax for
corporations and the real estate dealers fixed tax. With respect to the tax on corporations, the issue hinges on the meaning
of the terms "corporation" and "partnership," as used in section 24 and 84 of said Code, the pertinent parts of which read:

SEC. 24. Rate of tax on corporations.—There shall be levied, assessed, collected, and paid annually upon the total
net income received in the preceding taxable year from all sources by every corporation organized in, or existing
under the laws of the Philippines, no matter how created or organized but not including duly registered general co-
partnerships (compañias colectivas), a tax upon such income equal to the sum of the following: . . .

SEC. 84 (b). The term 'corporation' includes partnerships, no matter how created or organized, joint-stock
companies, joint accounts (cuentas en participacion), associations or insurance companies, but does not include
duly registered general copartnerships. (compañias colectivas).

Article 1767 of the Civil Code of the Philippines provides:

By the contract of partnership two or more persons bind themselves to contribute money, properly, or industry to
a common fund, with the intention of dividing the profits among themselves.
Pursuant to the article, the essential elements of a partnership are two, namely: (a) an agreement to contribute money,
property or industry to a common fund; and (b) intent to divide the profits among the contracting parties. The first element
is undoubtedly present in the case at bar, for, admittedly, petitioners have agreed to, and did, contribute money and
property to a common fund. Hence, the issue narrows down to their intent in acting as they did. Upon consideration of all
the facts and circumstances surrounding the case, we are fully satisfied that their purpose was to engage in real estate
transactions for monetary gain and then divide the same among themselves, because:

1. Said common fund was not something they found already in existence. It was not property inherited by them pro
indiviso. They created it purposely. What is more they jointly borrowed a substantial portion thereof in order to
establish said common fund.

2. They invested the same, not merely not merely in one transaction, but in a series of transactions. On February 2,
1943, they bought a lot for P100,000.00. On April 3, 1944, they purchased 21 lots for P18,000.00. This was soon
followed on April 23, 1944, by the acquisition of another real estate for P108,825.00. Five (5) days later (April 28,
1944), they got a fourth lot for P237,234.14. The number of lots (24) acquired and transactions undertaken, as
well as the brief interregnum between each, particularly the last three purchases, 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 by the petitioners in February, 1943. In other words, one cannot but perceive a
character of habitually peculiar to business transactions engaged in the purpose of gain.

3. The aforesaid lots were not devoted to residential purposes, or to other personal uses, of petitioners herein. The
properties were leased separately to several persons, who, from 1945 to 1948 inclusive, paid the total sum of
P70,068.30 by way of rentals. Seemingly, the lots are still being so let, for petitioners do not even suggest that there
has been any change in the utilization thereof.

4. Since August, 1945, the properties have been under the management of one person, namely Simeon Evangelista,
with full power to lease, to collect rents, to issue receipts, to bring suits, to sign letters and contracts, and to
indorse and deposit notes and checks. Thus, 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. The foregoing conditions have existed for more than ten (10) years, or, to be exact, over fifteen (15) years, since
the first property was acquired, and over twelve (12) 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. They did not even try to offer an explanation therefor.

Although, taken singly, they might not suffice to establish the intent necessary to constitute a partnership, the collective
effect of these circumstances is such as to leave no room for doubt on the existence of said intent in petitioners herein. Only
one or two of the aforementioned circumstances were present in the cases cited by petitioners herein, and, hence, those
cases are not in point.

Petitioners insist, however, that they are mere co-owners, not copartners, for, in consequence of the acts performed by
them, a legal entity, with a personality independent of that of its members, did not come into existence, and some of the
characteristics of partnerships are lacking in the case at bar. This pretense was correctly rejected by the Court of Tax
Appeals.

To begin with, the tax in question is one imposed upon "corporations", which, strictly speaking, are distinct and different
from "partnerships". When our Internal Revenue Code 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. Thus, for instance, section 24 of said Code exempts from the aforementioned tax "duly registered general
partnerships which constitute precisely one of the most typical forms of partnerships in this jurisdiction. Likewise, as
defined in section 84(b) of said Code, "the term corporation includes partnerships, no matter how created or organized."
This qualifying expression 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. Again, pursuant to said section 84(b), the term "corporation" includes, among other,
joint accounts, (cuentas en participation)" and "associations," none of which has a legal personality of its own, independent of
that of its members. Accordingly, the lawmaker could not have regarded that personality as a condition essential to the
existence of the partnerships therein referred to. In fact, as above stated, "duly registered general copartnerships" — which
are possessed of the aforementioned personality — have been expressly excluded by law (sections 24 and 84 [b] from the
connotation of the term "corporation" It may not be amiss to add that petitioners' allegation to the effect that their liability
in connection with the leasing of the lots above referred to, under the management of one person — even if true, on which
we express no opinion — tends to increase the similarity between the nature of their venture and that corporations, and is,
therefore, an additional argument in favor of the imposition of said tax on corporations.
Under the Internal Revenue Laws of the United States, "corporations" are taxed differently from "partnerships". By specific
provisions of said laws, such "corporations" include "associations, joint-stock companies and insurance companies."
However, the term "association" is not used in the aforementioned laws.

. . . in any narrow or technical sense. It includes any organization, created for the transaction of designed affairs, or
the attainment of some object, which like a corporation, continues notwithstanding that its members or
participants change, and the affairs of which, like corporate affairs, are conducted by a single individual, a
committee, a board, or some other group, acting in a representative capacity. It is immaterial whether such
organization is created by an agreement, a declaration of trust, a statute, or otherwise. It includes a voluntary
association, a joint-stock corporation or company, a 'business' trusts a 'Massachusetts' trust, a 'common law' trust,
and 'investment' trust (whether of the fixed or the management type), an interinsuarance exchange operating
through an attorney in fact, a partnership association, and any other type of organization (by whatever name
known) which is not, within the meaning of the Code, a trust or an estate, or a partnership. (7A Mertens Law of
Federal Income Taxation, p. 788; emphasis supplied.).

Similarly, the American Law.

. . . provides its own concept of a partnership, under the term 'partnership 'it includes not only a partnership as
known at common law but, as well, a syndicate, group, pool, joint venture or other unincorporated organizations
which carries on any business financial operation, or venture, and which is not, within the meaning of the Code, a
trust, estate, or a corporation. . . (7A Merten's Law of Federal Income taxation, p. 789; emphasis supplied.)

The term 'partnership' includes a syndicate, group, pool, joint venture or other unincorporated organization,
through or by means of which any business, financial operation, or venture is carried on, . . .. ( 8 Merten's Law of
Federal Income Taxation, p. 562 Note 63; emphasis supplied.) .

For purposes of the tax on corporations, our National Internal Revenue Code, includes these partnerships — with the
exception only of duly registered general copartnerships — within the purview of the term "corporation." It is, therefore,
clear to our mind 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 Commonwealth Act No. 465 provides in part:

Entities liable to residence tax.-Every corporation, no matter how created or organized, whether domestic or
resident foreign, engaged in or doing business in the Philippines shall pay an annual residence tax of five pesos and
an annual additional tax which in no case, shall exceed one thousand pesos, in accordance with the following
schedule: . . .

The term 'corporation' as used in this Act includes joint-stock company, partnership, joint account (cuentas en
participacion), association or insurance company, no matter how created or organized. (emphasis supplied.)

Considering that the pertinent part of this provision is analogous to that of section 24 and 84 (b) of our National Internal
Revenue Code (commonwealth Act No. 466), and that the latter was approved on June 15, 1939, the day immediately after
the approval of said Commonwealth Act No. 465 (June 14, 1939), 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.

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.

Bengzon, Paras, C.J., Padilla, Reyes, A., Reyes, J.B.L., Endencia and Felix, JJ., concur.
BAUTISTA ANGELO, J., concurring:

I agree with the opinion that petitioners have actually contributed money to a common fund with express purpose of
engaging in real estate business for profit. The series of transactions which they had undertaken attest to this. This appears
in the following portion of the decision:

2. They invested the same, not merely in one transaction, but in a series of transactions. On February 2, 1943, they
bought a lot for P100,000. On April 3, 1944, they purchase 21 lots for P18,000. This was soon followed on April 23,
1944, by the acquisition of another real state for P108,825. Five (5) days later (April 28, 1944), they got a fourth lot
for P237,234.14. The number of lots (24) acquired and transactions undertaken, as well as the brief interregnum
between each, particularly the last three purchases, 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 by the petitioner in February, 1943, In other words, we cannot but perceive a character
of habitually peculiar to business transactions engaged in for purposes of gain.

I wish however to make to make the following observation:

Article 1769 of the new Civil Code lays down the rule for determining when a transaction should be deemed a partnership
or a co-ownership. Said article paragraphs 2 and 3, provides:

(2) Co-ownership or co-possession does not of itself establish a partnership, whether such co-owners or co-
possessors do or do not share any profits made by the use of the property;

(3) The sharing of gross returns does not of itself establish partnership, whether or not the person sharing them
have a joint or common right or interest in any property from which the returns are derived;

From the above it appears that the fact that those who agree to form a co-ownership shared or do not share any profits
made by the use of property held in common does not convert their venture into a partnership. Or the sharing of the gross
returns does not of itself establish a partnership whether or not the persons sharing therein have a joint or common right
or interest in the property. This only means that, aside from the circumstance of profit, the presence of other elements
constituting partnership is necessary, such as the clear intent to form a partnership, the existence of a judicial personality
different from that of the individual partners, and the freedom to transfer or assign any interest in the property by one with
the consent of the others (Padilla, Civil Code of the Philippines Annotated, Vol. I, 1953 ed., pp. 635- 636).

It is evident that an isolated transaction whereby two or more persons contribute funds to buy certain real estate for profit
in the absence of other circumstances showing a contrary intention cannot be considered a partnership.

Persons who contribute property or funds for a common enterprise and agree to share the gross returns of that
enterprise in proportion to their contribution, but who severally retain the title to their respective contribution,
are not thereby rendered partners. They have no common stock or capital, and no community of interest as
principal proprietors in the business itself which the proceeds derived. (Elements of the law of Partnership by
Floyd R. Mechem, 2n Ed., section 83, p. 74.)

A joint venture purchase of land, by two, does not constitute a copartnership in respect thereto; nor does not
agreement to share the profits and loses on the sale of land create a partnership; the parties are only tenants in
common. (Clark vs. Sideway, 142 U.S. 682, 12 S Ct. 327, 35 L. Ed., 1157.)

Where plaintiff, his brother, and another agreed to become owners of a single tract of reality, holding as tenants in
common, and to divide the profits of disposing of it, the brother and the other not being entitled to share in
plaintiff's commissions, no partnership existed as between the parties, whatever relation may have been as to third
parties. (Magee vs. Magee, 123 N. E. 6763, 233 Mass. 341.)

In order to constitute a partnership inter sese there must be: (a) An intent to form the same; (b) generally a
participating in both profits and losses; (c) and such a community of interest, as far as third persons are concerned
as enables each party to make contract, manage the business, and dispose of the whole property. (Municipal Paving
Co. vs Herring, 150 P. 1067, 50 Ill. 470.)

The common ownership of property does not itself create a partnership between the owners, though they may use
it for purpose of making gains; and they may, without becoming partners, agree among themselves as to the
management and use of such property and the application of the proceeds therefrom. (Spurlock vs. Wilson, 142 S.
W. 363, 160 No. App. 14.)

This is impliedly recognized in the following portion of the decision: "Although, taken singly, they might not suffice to
establish the intent necessary to constitute a partnership, the collective effect of these circumstances (referring to the series
of transactions) such as to leave no room for doubt on the existence of said intent in petitioners herein."