Gatchalian vs.

Collector of Internal Revenue

GR L-45425

FACTS:
Jose Gatchalian along with 14 others bonded together to purchase a sweeptakes
ticket in the amount of Ps 2.00 and registered the same as Jose Gatchalian and Co.
This ticket has eventually won 3rd prize amounting to Ps 50,000.00 which they
divided in accordance with their aliquot share in the cost of the ticket. Gatchalian
receiving Ps 4425 for his Ps .18 cost.

A month after winning the ticket they were assessed by the Collector of Internal
Revenue for the payment of Income Tax of their unregistered partnership requesting
them to pay Ps 1,499.94. They replied that that they merely formed a co-ownership
not Partnership and requested the CIR that they be exempted from paying such
assessed income tax. They also submitted evidence of payment of income tax by
each of them for their corresponding individual taxable pertaining to their share in
the winnings. However it was denied by the CIR.
Demand letter ensued until it resulted to the issuance of Warrant of distraint and
levy on the property of the petitioner. Through the the 2 co-owner of Gatchalian
they paid a portion of the tax assessed amounting to Ps 602.51 to avoid the
embargo of the property and promised to pay the balance in installments
guaranteed by 2 solvent persons as required by the CIR. The payment was made
under protest and petitioner filed for request for refund at the same time. The
protest was overruled and the demand for refund was denied.
Another warrant for distraint and levy on the property was issued for failure to pay
the monthly installments. Finally the balance was paid Ps 1,260.93 which includes
legal interest and penalties. Again a formal protest and request for refund was filed
and was denied.
Petitioners elevated the matter to SC requesting refund of amount of Ps 1,863.44
and legal interest hereon.
ISSUE:
Whether or not Petitioners formed Co-Ownership or Unregistered Partnership when
they purchased the winning sweepstakes ticket?
RULING:
SC ruled that when they bonded together and contributed to the cost of the ticket
they formed an Unregistered Partnership. For they contributed money or property

into a common fund which they invest in the ticket and when it won, they divided
the profit among themselves.