EVANGELISTA v.

CIR and CTA

Concepcion, J. | October 15, 1957
eamtrinidad
Kinds of Income Taxpayers: Domestic Corporations

DOCTRINE: For purposes of the tax on corporations, our National Internal Revenue Code, includes these partnerships —
with the exception only of duly registered general copartnerships — within the purview of the term "corporation." It is,
therefore, clear to our mind that petitioners herein constitute a partnership, insofar as said Code is concerned and are
subject to the income tax for corporations.

FACTS:

1. Petitioner siblings Eufemia, Manuela, and Francisca Evangelista borrowed from their father the sum of
P59,140.00 and combined it with their personal money. They used the amounts to buy real properties that
totaled 24
a. Feb 2, 1943 – they bought from Mrs. Florentino a lot of ~3,000 sq. m. plus improvements for P100k
i. It had an assessed value of P57k as of 1948
b. April 3, 1944 – bought from Mrs. Oppus 21 parcels of land, aggregate area of ~3,000 sq. m. for P130K
i. It had an assessed value of P82K as of 1948
c. April 28, 1944 – bought from Insular Investments a lot with 4,000 sq. m. for P108k
i. Assessed value of P4.9k as of 1948
d. April 28, 1944 – bought from Mrs. Afable a lot 8,000 sq. m. for P108K
i. Assessed value of P59k as of 1948
2. Aug 16, 1945 – petitioners appointed their brother Simeon Evangelista to manage their properties with full
power to lease; to to collect and receive rents; to issue receipts therefor; in default of such payment, to bring suits
against the defaulting tenants; to sign all letters, contracts, etc., for and in their behalf, and to endorse and deposit
all notes and checks for them;
3. Petitioners then leased the real properties to various tenants
4. March 1945 to December 1945 – net rental income of petitioners was P5k
5. 1946 – net rental income of P7k
6. 1948 – net rental income of P12k
7. In 1954, CIR demanded payment of income tax on corporations, real estate dealer’s fixed tax, and
corporation residence tax for the years 1945-1949
a. CIR sent demand letter and assessments to petitioners
8. Petitioners then instituted a case with CTA praying that the demand be reversed and they be absolved of
payment of the said taxes
9. CTA: denied the petitioners, held them liable for the said taxes and denied the petition for reconsideration and
new trial
10. Hence this petition

ISSUE: W/N petitioners are subject to tax on corporations provided for in Sec 24 of Commonwealth Act No. 466 (NIRC)
as well as to the residence tax for corporations and real estate dealer’s fixed tax – YES

HELD:

1. Pertinent provisions of the NIRC

a. SEC. 24. Rate of tax on corporations.—There shall be levied, assessed, collected, and paid annually
upon the total net income received in the preceding taxable year from all sources by every corporation
organized in, or existing under the laws of the Philippines, no matter how created or organized but not
including duly registered general co-partnerships (compañias colectivas), a tax upon such income equal
to the sum of the following: . . .
b. SEC. 84 (b). The term 'corporation' includes partnerships, no matter how created or organized, joint-stock
companies, joint accounts (cuentas en participacion), associations or insurance companies, but does not
include duly registered general copartnerships. (compañias colectivas).
2. Article 1767 of the Civil Code:
 a. By the contract of partnership two or more persons bind themselves to contribute money, properly, or
industry to a common fund, with the intention of dividing the profits among themselves.
3. Essential elements of a partnership
a. (a) an agreement to contribute money, property or industry to a common fund; and (b) intent to divide the
profits among the contracting parties.
4. CASE AT BAR: Petitioners have created a partnership
a. Common fund of petitioners was created purposely, and they jointly borrowed money to establish said
common fund. Not inherited, not something they found already in existence
b. Invested such common funds into a series of transactions. number of lots (24) acquired and transactions
undertaken, as well as the brief interregnum between each, particularly the last three purchases, is
strongly indicative of a pattern or common design that was not limited to the conservation and
preservation of the aforementioned common fund or even of the property acquired by the petitioners in
February, 1943. In other words, one cannot but perceive a character of habitually peculiar to business
transactions engaged in the purpose of gain.
c. Lots acquired not devoted to residential purposes or to other personal uses but leased separately to
several persons. Seems like leasing is still continuing
d. Properties have een under the management of one person, Simeon Evangelista. Thus, the affairs relative
to said properties have been handled as if the same belonged to a corporation or business and enterprise
operated for profit.
e. Foregoing conditions have existed over 15 years (since first property was acquired), and over 12 yaers
since Simeon Evangelista became the manager
5. For purposes of the tax on corporations, our National Internal Revenue Code, includes these partnerships
— with the exception only of duly registered general copartnerships — within the purview of the term
"corporation." It is, therefore, clear to our mind that petitioners herein constitute a partnership, insofar as
said Code is concerned and are subject to the income tax for corporations.
6. RE: Residence tax for corporations. Commonwealth Act No. 465
a. Section 2. Entities liable to residence tax.-Every corporation, no matter how created or organized,
whether domestic or resident foreign, engaged in or doing business in the Philippines shall pay an annual
residence tax of five pesos and an annual additional tax which in no case, shall exceed one thousand
pesos, in accordance with the following schedule: . . .
b. The term 'corporation' as used in this Act includes joint-stock company, partnership, joint account
(cuentas en participacion), association or insurance company, no matter how created or organized.
(emphasis supplied.)
7. RE: Real estate dealer tax
a. Records show that petitioners have habitually engaged in leasing the properties for a period of over 12
years, thus subject to real estate dealers tax under NIRC Sec. 193 (q)
b. Definition in Sec. 194 (s)
i. 'Real estate dealer' includes any person engaged in the business of buying, selling,
exchanging, leasing, or renting property or his own account as principal and holding himself out
as a full or part time dealer in real estate or as an owner of rental property or properties rented or
offered to rent for an aggregate amount of three thousand pesos or more a year. . . (emphasis
supplied.)

Wherefore, the appealed decision of the Court of Tax appeals is hereby affirmed with costs against the petitioners herein.
It is so ordered.