FLORENCIO REYES AND ANGEL REYES, PETITIONERS, VS. COMMISSIONER OF INTERNAL REVENUE AND HON. COURT OF TAX APPEALS, RESPONDENTS.

Petitioners in this case were assessed by respondent Com­missioner
of Internal Revenue the sum of
P46,647.00 as income tax, surcharge and compromise for the years 1951 to 1954,
an assessment subsequently reduced to P37, 528. 00.  This assessment sought to be reconsidered
successfully was the subject of an appeal to respondent Court of Tax
Appeals.  Thereafter, another assessment
was made against petitioners, this time for back income taxes plus surcharge
and compromise in the total sum of P25,973.75,
covering the years 1955 and 1956. 
There being a failure on their part to have such assessments
reconsidered, the matter was like­wise taken to the respondent Court of Tax
Appeals.  The two cases^[1] involving as they did identical issues
and ultimately traceable to facts
similar in character were heard jointly with only one decision being rendered.

In that joint decision of respondent Court of Tax Appeals, the tax liability for the years 1951 to
1954 was reduced to P37,128. 00 and for the years 1955 and 1956, to P20,619.00
as income tax due “from the partnership formed” by petitioners.^[2]
The reduction was due to the elimination of surcharge, the failure to file the
income tax return being accepted as due to petitioners honest belief that no
such liability was incurred as well as the compromise penalties for such
failure to file.^[3]
A reconsideration of the aforesaid decision was sought and denied by respondent
Court of Tax Appeals.  Hence this
petition for review.

The facts as found by respondent Court of Tax Appeals, which
being supported by substantial evidence, must be respected^[4]
follow: “On October 31, 1950, petitioners, father and son, purchased a lot
and building, known as the Gibbs Building, situated at 671 Dasmariñas
Street, Manila, for P835, C00.00, of which they paid the sum of P375, 000.00,
leaving a balance of P460, 000. 00, repre­senting the mortgage obligation of
the vendors with the China Banking Corporation, which mortgage obligations was
assumed by the vendees.  The initial
payment of P375,000.00 was shared equally by petitioners At the time of the
purchase, the building was leased to various tenant whose rights under the
lease contracts with the original owners the purchasers, petitioners herein,
agreed to respect.  The administra­tion
of the building was entrusted to an administrator who collected the rents; kept
its books and records and rendered statements of accounts to the owners;
negotiated leases; made necessary repairs and disbursed payments, whenever
necessary, after approval by the owners; and performed such other functions
necessary for the conservation and preservation of the building.  Petitioners divided equally the income
derived from the building after deducting the expenses of operation and
maintenance.  The gross income from
rentals of the building amounted to about P90, 000. 00 annually.”^[5]

From the above facts, the respondent Court of Tax Appeals
applying the appropriate provisions of the National Internal Revenue Code, the
first of which imposes an income tax on corporations “organized in, or
existing under the laws of the Philippines, no matter how created or organized
but net including duly registered general co-partnerships (compañias
colectivas), * * *, “^[6]
a term, which according to the second provision cited, includes partnerships
“no matter how created or organized, * * *, “^[7]
and applying the leading case of Evangelista v. Collector of Internal Revenue,^[8]
sustained the action of respondent Commissioner of Internal Revenue but reduced
the tax liability of petitioners, as previously noted.

Petitioners maintain the view that the Evangelista ruling does
not apply; for them, the situation is dissimilar.  Consequently, they allege that the
reliance by respondent Court of Tax Appeals was un­warranted and the decision
should be, set aside.  If their
interpretation of the authoritative doctrine therein se forth commands assent,
then clearly what respondent Court of Tax Appeals did fails to find shelter in
the law.  That is the crux of the matter.  A perusal of the Evange­lista decision is
therefore unavoidable.

As noted in the opinion of the Court, penned by the present Chief
Justice, the issue was whether petitioners are subject to the tax on
corporations provided for in section 24 of Commonwealth Act No. 466, otherwise
known as the National Internal Revenue Code, * * *.^[9]
After referring to another section of the National Internal Revenue Code, which
explicitly provides that the term corporation “includes partnerships”
and then to Article 1767 of the Civil Code of the Philip­pines, defining what a
Contract of partnership is, the opinion goes on to state that “the essential elements
of partnership are two, namely (a) an agreement to contribute money, property
or industry to a common fund; and (b) intent to divide the profits among the
contract­ing parties.  The first element
is undoubtedly present in the case at bar, for, admittedly, petitioners have
agreed to, and did, contribute money and property to a common fund.  Hence, the issue narrows down to their intent
in acting as they did.  Upon consideration
of all the facts and circumstances surrounding the case, we are fully satisfied
that their purpose was to engage in real estate transactions for monetary gain
and then divide the same among themselves, * * *. “^[10]

In support of the above conclusion, reference was made to the
following circumstances, namely, the common fund being created purposely not
something already found in existence, the’ investment of the same not merely in
one transaction but in a series of transactions; the lots thus acquired not being
devoted to residential purposes or to other personal uses of petitioners in
that case; such properties having been under the management of one person with
full power to lease, to collect rents, to issue receipts, to bring suits, to
sign letters and contracts and to endorse notes and checks; the above
conditions having existed for more than 10 years since the acquisition of the
above properties; and no testimony having been introduced as to the purpose
“in creating the set up already adverted to, or on the causes for its
continued existence.”.^[11]  The conclusion that emerged had all the
imprint of inevitability.  Thus:
“Although, taken singly, they might not suffice to establish the intent
necessary to constitute a partnership, the Collective effect of these
circumstances is such as to leave no room for doubt on the existence of said
intent in petitioners herein.”^[12]

It may be said that there could be a differentiation made between
the circumstances above detailed ‘and those existing in the present case.  It does not suffice though to preclude the
applicability of the Evangelista decision. 
Petitioners could harp on these being only one transaction.  They could stress that an affidavit of one of
them found in the Bureau of Internal Revenue records would indicate that their
intention was to house in the building acquired by them the respective
enterprises, coupled with a plan of effecting a division in 10 years.  It is a little surprising then that while the
purchase was made on October 31, 1950 and their brief as petitioners filed on
October 20, 1965, almost 15 years later, there was no allegation that such
division as between them was in fact made Moreover, the facts as found and as
submitted in the brief made clear that the building in question continued to be
leased by other parties with petitioners dividing “equally the income 4′ * * after deducting the expenses of
operation and maintenance * *.”^[13]
Differences of such slight significance do not call for a different ruling.

It is obvious that
petitioners’ effort to avoid the controlling force of the Evangelista ruling
cannot be deemed successful.  Respondent
Court of Tax Appeals acted correctly.  It
yielded to the command of an authoritative decision; it recognized its bind­ing character.  There is clearly no merit to the second error assigned by
petitioners, who would deny its applicability to their situation.

The first alleged error committed by respondent Court of Tax Appeals in holding that
petitioners, in acquiring the Gibbs Building,
established a partnership subject to income tax as a corporation under the
National Internal Revenue Code is likewise untenable.  In their discussion in their brief of this
alleged error, stress is laid on their being co-owners and not partners.  Such an allegation was likewise, made in the
Evangelista case.

This is the way it was
disposed of in the opinion of the present Chief Justice: “This pretense
was correctly rejected by the Court of Tax Appeals.”^[14] Then came the explanation why: “To begin
with, the tax in question is one imposed upon ‘corporations’, which, strictly
speaking, are distinct and different from ‘partnerships’.  When our Internal Revenue Code includes
‘partnerships’ among the entities subject to the tax on ‘corporations’, said
Code must allude, ‘therefore, to organizations which are not necessarily
‘partnerships’ in the technical sense of the term.  Thus, for instance, section 24 of said Code exempts
from the aforementioned tax ‘duly
registered general partnerships, which constitute precisely one of the most typical
forms of partnerships in this jurisdiction. 
Likewise, as defined in section 84(b) of said Code, ‘the term
corporation includes partnerships, no matter how created or
organized.’ This qualifying
expression clearly indicates that a joint venture need not be undertaken in any
of the standard forms, or in conformity with the usual, requirements of the law
on partnerships, in order that one could be deemed constituted for purposes of
the tax on corporations.  Again, pursuant
to said’ section 84(b), the term ‘corporation’ includes, among other, ‘joint
accounts, (cuentas en paticipacion)’
and ‘associations’ none of which has personality of its own, of its members.  Accordingly,
the lawmaker could not have regarded that personality as a condition essential
to the existence of the partnerships therein referred to.  In fact, as above stated, ‘duly
registered general copartnerships‘ which
are possessed of the aforementioned personality have been expressly excluded
by law (sections 24 and 84 [b]
from the connotation of the term ‘corporation’.”^[15]
The opinion went on to summarize
the matter aptly: “For purposes of the tax on corporations, our
National Internal Revenue Code, include these partnerships – with the
exception only of duly registered general co-partnerships – 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. “^[16]

In the light of the above, it cannot be said that the respondent
Court of Tax Appeals decided the matter incorrectly.  There is no warrant for the assertion that it
failed to apply the settled law to uncontroverted
facts.  Its decision cannot be
successfully assailed.  Moreover, an observation
made in Alhambra Cigar & Cigarette Manu­facturing Co. v. Commissioner of
Internal Revenue,^[17] is well-worth recalling.  Thus: “Nor as a matter of principle is
it advisable for this Court to set aside the conclusion reached by an agency
such as the Court of Tax Appeals which is, by th very
nature of its function, dedicated exclusively to the study and consideration of
tax problems and has necessarily developed an expertise on the subject, unless,
as did not happen here, there has been an abuse or improvident exer­cise of its
authority.”

WHEREFORE, the decision of the respondent Court of Tax
Appeals ordering petitioners “to pay the sums of P37,128. 00 as income tax
due from the partnership formed by herein petitioners for the years 1951 to
1954 and P20,619.00 for the years 1955 and 1956 within thirty days from the
date this decision becomes final, plus the corresponding surcharge and interest
in case of delinquency, ” is affirmed. 
With costs against petitioners.

Concepcion, C.J., Reyes, JBL, Dizon, Makalintal, Zaldivar, Sanchez, Ruiz Castro, and Angeles, JJ., concur.

^[1]
CTA Cases No. 518 and No. 519.

^[2]
Annex A, Brief for Petitioners, p. 39.

^[3]
Ibid, p. 38.

^[4]Alhambra
Cigar & Cigarette Mfg. Co. v. Commissioner of Internal Revenue,
L-23226, November 28, 1967, citing Sanchez v. Commissioner of Customs,
102 Phil. 37 (1957); Castro v. Collector of Internal Revenue, L-12174;
April 26, 1962; Commissioner of Internal Revenue v. Priscilla Estate,
Inc., L-18282, May 29, 1964; Philippine Guaranty Co., Inc. v.
Commissioner of Internal Revenue, L-22074, September 6, 1965; Yupangco & Sons v. Commissioner of Customs,
L-22259, January 19, 1966; Republic v. Razon
& Jai Alai Corp., L-17462, May 29, 1967; Balbas v.
Domingo, L-19804, October, 23, 1967.

^[5]
Annex A, Brief for Petitioners, pp. 33-34.

^[6]
Section 24, National Internal Revenue Code.

^[7]
Section 84(b), id.

^[8]
102 Phil. 140 (1957).

^[9]
Ibid, p. 144.

^[10]
Ibid, pp. 144-145.

^[11]
Ibid, pp. 145-146.

^[12]
Ibid, p. 146.

^[13]
Brief for Petitioners, p. 6.

^[14]
Evangelista v. Collector of
Internal Revenue, 102 Phil. 140, 146 (1957).

^[15]
Ibid, pp. 146-147, In support of the above view, excerpts from Merten’s Law of Federal Income Taxation, Vol. 7A, pp. 788-789 and Vol. 8, p. 562 were cited.

^[16]
Ibid, p. 148.

^[17]
L-23226, November 28, 1967.