G.R. No. L-45425; April 29, 1939
JOSE GATCHALIAN, ET AL., plaintiffs-appellants, vs. THE COLLECTOR OF INTERNAL REVENUE, defendant-appellee.

FACTS

Fifteen individuals contributed specific amounts totaling P2.00 to jointly purchase a single sweepstakes ticket, registered in the name of “Jose Gatchalian and Company.” The ticket won a third prize of P50,000, which was collected by Jose Gatchalian on behalf of the group. The Collector of Internal Revenue assessed and collected an income tax on the prize, treating the group as a taxable partnership. The plaintiffs paid the tax under protest and filed an action for recovery, arguing that they merely formed a co-ownership or community of property, not a taxable partnership, and that individually, their shares of the winnings were below the taxable income threshold.

ISSUE

Whether the association formed by the fifteen individuals for the purpose of purchasing a sweepstakes ticket and sharing the prize constitutes a taxable partnership subject to income tax under the law.

RULING

Yes. The Supreme Court affirmed the lower court’s decision, holding that the plaintiffs formed a partnership of a civil nature. Each contributed money to a common fund with the sole purpose of dividing the prize won. Their actions—registering the ticket in a collective name, collecting the prize through a representative, and the check being issued to “Jose Gatchalian and Company”—demonstrated the existence of a partnership, not a mere co-ownership. Under Section 10(a) of Act No. 2833 , as amended, such a partnership is a taxable entity distinct from its members. The partnership itself was liable for the income tax on the entire prize, not the individual members on their respective shares. The tax assessment was therefore proper.

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