G.R. No. L-78133 October 18, 1988
MARIANO P. PASCUAL and RENATO P. DRAGON, petitioners, vs. THE COMMISSIONER OF INTERNAL REVENUE and COURT OF TAX APPEALS, respondents.

FACTS

Petitioners Mariano P. Pascual and Renato P. Dragon jointly purchased two parcels of land in 1965 and three more parcels in 1966. They subsequently sold the first two parcels in 1968 and the remaining three in 1970, realizing net profits. They paid the corresponding capital gains taxes by availing of tax amnesties in 1973 and 1974. In 1979, the Commissioner of Internal Revenue assessed them for deficiency corporate income taxes for 1968 and 1970, totaling P107,101.70. The Commissioner contended that their joint transactions constituted an unregistered partnership taxable as a corporation, distinct from their individual tax liabilities.
The petitioners protested, asserting their availment of the tax amnesty. The Court of Tax Appeals affirmed the Commissioner’s decision, ruling that the petitioners formed an unregistered partnership based on the principle in Evangelista v. Collector, making it subject to corporate income tax. The tax amnesty, it held, relieved them only of individual income tax liabilities, not the partnership’s corporate tax obligation. One judge dissented, finding no adequate basis to conclude an unregistered partnership existed.

ISSUE

Whether the petitioners’ joint purchase and subsequent sale of real properties constituted a taxable unregistered partnership or a mere co-ownership.

RULING

The Supreme Court granted the petition, reversing the Court of Tax Appeals. The legal logic centers on distinguishing a co-ownership from a partnership for tax purposes. The Court clarified that while Evangelista established that a partnership exists when there is an agreement to contribute to a common fund and an intent to divide profits, not every co-ownership implies a partnership. The critical element is the intent to engage in business with a continuity of commercial transactions.
Here, the petitioners’ transactions were isolated; they jointly bought properties and sold them years later without evidence of a sustained business enterprise or a separate juridical personality. The sharing of profits arose from their status as co-owners, not from an underlying partnership agreement. Consequently, they were not engaged in an unregistered partnership taxable as a corporation. Their payment of capital gains taxes and availment of the tax amnesty were proper for individuals in a co-ownership. Even assuming an unregistered partnership existed, the petitioners, having availed of the tax amnesty as individual taxpayers, were relieved of any further tax liability arising from these transactions. The assessment for deficiency corporate income tax was therefore invalid.