GR 42115; (March, 1935) (Digest)
G.R. No. 42115 ; March 30, 1935
TEC BI & COMPANY, INC., plaintiff-appellant, vs. THE COLLECTOR OF INTERNAL REVENUE, defendant-appellant.
FACTS
The case involves a claim for refund of income taxes paid under protest by Yu Yiong & Co., a general commercial partnership and the predecessor of Tec Bi & Company, Inc., for the years 1921, 1923, 1924, 1926, and 1927. The partnership was originally registered on November 12, 1920. In 1921, two transfers of partnership interests were made (to Heng Shiu Nian and Tee Huan), but these transfers were only formally recognized and admitted by the partnership in a notarial document in February 1924. This document, along with the assignees’ conformity, was not registered in the Mercantile Register until July 11, 1927. The Collector of Internal Revenue assessed income taxes on the partnership for the years in question, arguing it lost its status as a tax-exempt registered general copartnership due to the failure to register the changes in membership promptly.
ISSUE
Whether the partnership Yu Yiong & Co. ceased to be a registered general copartnership exempt from income tax under the law ( Act No. 2833 ) for the years 1921-1927 due to its failure to register the transfers of partnership interests in the Mercantile Register until 1927.
RULING
No, the partnership did not lose its exempt status. The Supreme Court affirmed the lower court’s judgment ordering a refund of taxes for 1921, 1923, and 1924, but modified it to also include a refund for 1926 and 1927. The Court held that the partnership remained a registered general copartnership. The transfers in 1921 were merely assignments of interest which did not automatically make the assignees partners; they only became partners upon their formal admission by the partnership in 1924. The failure to register this 1924 change until 1927 did not retroactively convert the partnership into an unregistered one for the prior years. The purpose of the registration requirement is to give notice to the public, and the partnership’s original registration in 1920 remained effective. The law exempting registered partnerships from the entity-level income tax is designed to encourage registration, and this policy is not defeated by a delay in registering subsequent changes in membership.
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