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SUPREMECOURTREPORTSANNOTATEDVOLUME045
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11
LORENZO
T.
OA,and
HEIRS
OF
JULIA
BUNALES,namely: RODOLFO B. OA,MARIANO B.
OA,LUZ B. OA,VIRGINIA B. OA,and LORENZO B.
OA,JR., petitioners, vs. THE COMMISSIONER OF
INTERNAL REVENUE,respondent.
Taxation Partnership When coownership converted to co
partnership.For tax purposes, the coownership of inherited
properties is automatically converted into an unregistered
partnership the moment the said common properties and/or the
incomes derived therefrom are used as a common fund with intent
to produce profits for the heirs in proportion to their respective
shares in the inheritance as determined in a project partition
either duly executed in an extrajudicial settlement or approved
by the court in the corresponding testate or intestate proceeding.
The reason is simple. From the moment of such partition, the
heirs are entitled already to their respective definite shares of the
estate and the incomes thereof, for each of them to manage and
dispose of as exclusively his own without the intervention of the
other heirs, and, accordingly, he becomes liable individually for all
taxes in connection therewith. If after such partition, he allows
his share to be held in common with his coheirs under a single
management to be used with the intent of making profit thereby
in proportion to his share, there can be no doubt that, even if no
document or instrument were executed for the purpose, for tax
purposes, at least, an unregistered partnership is formed.
Same
Same
Corporation
Partnerships
considered
corporation for tax purposes.For purposes of the tax on
corporations, the National Internal Revenue Code, includes
partnershipswith the exception only of duly registered general
copartnershipswithin the purview of the term corporation.
Same Same When income derived from inherited properties
deemed part of partnership income.The income derived from
inherited properties may be considered as individual income of
the respective heirs only so long as the inheritance or estate is not
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individual
income
tax
paid.The partnership profits
distributable to the partners should be reduced by the amounts of
income tax assessed against the partnership. Consequently, each
of the petioners in his individual capacity overpaid his income tax
for the years in question. But as the individual income tax
liabilities of petitioners are not in issue in the instant proceeding,
it is not proper for the Court to pass upon the same.
Same Same Where right to refund of overpaid individual
income tax has prescribed.A taxpayer who did not pay the tax
due on the income from an unregistered partnership, of which he
is a partner, due to an erroneous belief that no partnership, but
only a coownership, existed between him and his coheirs, and
who due to the payment of the individual income tax
corresponding to his share in the unregistered partnership profits,
on the balance, overpaid his income tax has the right to be
reimbursed what he has erroneously paid. However, the law is
very clear that the claim and action for such reimbursement are
subject to the bar of prescription.
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In other words, the assessment was affirmed except for the sum of
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77
Year
1949
P87,860
P 17,590.00
1950 P 24,657.65
128,566.72
96,076.26
1951 51,301.31
120,349.28
110,605.11
1952 67,927.52
87,065.28
152,674.39
1953 61,258.27
84,925.68
161.46b.83
1954 63,623.37
99,001.20
167,962.04
1955 100,786.00
120,249.78
169,262.52
1956 175,028.68
135,714.68
169,262.52
(See Exhibits 3 & K t.s.n., pp. 22, 2526, 40, 50, 102104)
From said investments and properties petitioners derived such
incomes as profits from installment sales of subdivided lots,
profits from sales of stocks, dividends, rentals and interests (see
p. 3 of Exhibit 3 p. 32, BIR rec t.s.n., pp. 3738). The said
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1955
N et incom e as p er i nves ti gati on
...............................
P40.209.89
8,042.00
25% surcharge
.................................................................
2,010.50
50.00
Total
P10,102.50
..................................................................................
1956
N et incom e as p er i nves ti gati on
...............................
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P69,245.23
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13,849.00
25% surcharge
.................................................................
3,462.25
50.00
Total
~P17,361.25
..................................................................................
(Sec Exhibit 13, page 50, BIR records)
Upon further consideration of the case, the 25% surcharge was
eliminated in line with the ruling of the Supreme Court in
Collector v. Batangas Transportation Co., G.R. No. L9692, Jan. 6,
1958, so that the questioned assessment refers solely to the
income tax proper for the years 1955 and 1956 and the
Compromise for nonfiling, the latter item obviously referring to
the compromise in lieu of the criminal liability for failure of
petitioners to file the corporate income tax returns for said years.
(See Exh. 17, page 86, BIR records). (Pp. 15, Annex C to Petition)
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Code.
It is but logical that in cases of inheritance, there should
be a period when the heirs can be considered as coowners
rather than unregistered copartners within the
contemplation of our corporate tax laws aforementioned.
Before the partition and distribution of the estate of the
deceased, all the income thereof does belong commonly to
all the heirs, obviously, without them becoming thereby
unregistered copartners, but it does not necessarily follow
that such status as coowners continues until the
inheritance is actually and physically distributed among
the heirs, for it is easily conceivable that after knowing
their respective shares in the partition, they might decide
to continue holding said shares under the common
management of the administrator or executor or of anyone
chosen by them and engage in business on that basis.
Withal, if this were to be allowed, it would be the easiest
thing for heirs in any inheritance to circumvent and render
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fair and equitable that the various amounts paid by the individual
petitioners as income tax on their respective shares of the
unregistered partnership should be deducted from the deficiency
income tax found by this Honorable Court against the
unregistered partnership. (page 7, Memorandum for the
Petitioner in Support of Their Motion for Reconsideration, Oct. 28,
1961.)
In other words, it is the position of petitioners that the taxable
income of the partnership must be reduced by the amounts of
income tax paid by each petitioner on his share of partnership
profits. This is not correct rather, it should be the other way
around. The partnership profits distributable to the partners
(petitioners herein) should be reduced by the amounts of income
tax assessed against the partnership. Consequently, each of the
petitioners in his individual capacity overpaid his income tax for
the years in question, but the income tax due from the
partnership has been correctly assessed. Since the individual
income tax liabilities of petitioners are not in issue in this
proceeding, it is not proper for the Court to pass upon the same.
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