G.R. No. 36994; March 30, 1933
EMILIO BOADA, plaintiff-appellee, vs. JUAN POSADAS, Collector of Internal Revenue, defendant-appellant.

FACTS

Emilio Boada was a partner in the unregistered partnership “Los Catalanes de Pedro Boada.” Upon the dissolution of this partnership on February 1, 1927, its assets were merged into the newly formed corporation “Boada, Castro & Peñafiel.” Emilio Boada’s interest, valued at P57,112.51, was transferred to the corporation in exchange for a guaranteed payment from a corporate reserve fund. The partnership had operated for fifteen years and paid the corresponding internal revenue taxes as a de facto entity. The Collector of Internal Revenue assessed a merchant’s tax against Emilio Boada for the transfer of his partnership interest, treating it as a taxable sale.

ISSUE

Whether Emilio Boada, by virtue of the single act of transferring his partnership interest to a corporation, is considered a “merchant” subject to the internal revenue merchant’s tax.

RULING

No. The Supreme Court affirmed the lower court’s decision, holding that Emilio Boada was not liable for the merchant’s tax. A “merchant,” under the applicable law, is one habitually engaged in commercial acts. A single act of sale, such as transferring a partnership interest upon dissolution and incorporation, does not constitute being “engaged in commerce.” Furthermore, the Bureau of Internal Revenue had consistently treated the unregistered partnership as a de facto corporation for tax purposes, collecting taxes from it as an entity. The government was thus estopped from denying the partnership’s separate personality to then tax the individual partner on the transfer. The transfer was an isolated transaction incidental to the cessation of business and reorganization, not an act of commerce performed by Boada as a merchant.

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