PASCUAL v.

Commissioner of InternalRevenue #10 BUSORG

G.R. No. 78133 October 18, 1988
GANCAYCO, J.:
FACTS:
On June 22, 1965, petitioners bought two (2)parcels of land from Santiago Bernardino, et al.and on May 28,
1966, they bought anotherthree (3) parcels of land from Juan Roque. Thefirst two parcels of land were sold by
petitionersin 1968 to Marenir Development Corporation,while the three parcels of land were sold bypetitioners
to Erlinda Reyes and Maria Samsonon March 19,1970. Petitioner realized a netprofit in the sale made in 1968 in
the amount of P165, 224.70, while they realized a net profit of P60,000 in the sale made in 1970.
Thecorresponding capital gains taxes were paid bypetitioners in 1973 and 1974 .Respondent Commissioner
informed petitionersthat in the years 1968 and 1970, petitioners asco-owners in the real estate transactions
formedan unregistered partnership or joint venturetaxable as a corporation under Section 20(b)and its income
was subject to the taxesprescribed under Section 24, both of theNational Internal Revenue Code; that
theunregistered partnership was subject tocorporate income tax as distinguished fromprofits derived from the
partnership by themwhich is subject to individual income tax.
ISSUE:
Whether petitioners formed an unregisteredpartnership subject to corporate income tax(partnership vs. coownership)
RULING:
Article 1769 of the new Civil Code lays down therule for determining when a transaction shouldbe deemed a
partnership or a co-ownership.Said article paragraphs 2 and 3, provides:(2) Co-ownership or co-possession does
not itself establish a partnership, whether such co-ownersor co-possessors do or do not share any profitsmade by
the use of the property; (3) Thesharing of gross returns does not of itself establish a partnership, whether or not
thepersons sharing them have a joint or commonright or interest in any property from which thereturns are
derived;The sharing of returns does not in itself establish a partnership whether or not thepersons sharing
therein have a joint or commonright or interest in the property. There must bea clear intent to form a
partnership, theexistence of a juridical personality different fromthe individual partners, and the freedom of
eachparty to transfer or assign the whole property.In the present case, there is clear evidence of co-ownership
between the petitioners. There isno adequate basis to support the propositionthat they thereby formed an
unregisteredpartnership. The two isolated transactionswhereby they purchased properties and sold thesame a
few years thereafter did not therebymake them partners. They shared in the grossprofits as co- owners and paid
their capital gainstaxes on their net profits and availed of the taxamnesty thereby. Under the circumstances,
theycannot be considered to have formed anunregistered partnership which is thereby liablefor corporate
income tax, as the respondentcommissioner proposes. And even assuming for the sake of argumentthat such
unregistered partnership appears tohave been formed, since there is no suchexisting unregistered partnership
with a distinctpersonality nor with assets that can be heldliable for said deficiency corporate income tax,then
petitioners can be held individually liable aspartners for this unpaid obligation of thepartnership