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Fisher vs. Trinidad [G.R. No. L-17518 October 30, 1922]Post undercase digests,Commercial LawatWednesday, March 21, 2012Posted by Schizophrenic Mind

Facts:Philippine American Drug Company was a corporation duly organized and existing under the laws of the

Philippine Islands, doing business in the City of Manila. Fisher was a stockholder in said corporation. Said corporation, as

result of the business for that year, declared a "stock dividend" and that the proportionate share of said stock divided

of Fisher was P24,800. Said the stock dividend for that amount was issued to Fisher. For this reason, Trinidad demanded

payment of income tax for the stock dividend received byFisher. Fisher paid under protest the sum of P889.91 as income

tax on said stock dividend. Fisher filed an action for the recovery of P889.91. Trinidad demurred to the petition upon the

ground that it did not state facts sufficient to constitute cause of action. The demurrer was sustained and Fisher appealed.

Issue:Whether or not the stock dividend was an income and therefore taxable.

Held:No. Generally speaking, stock dividends representundistributed increase in the capital of corporations or firms,

 jointstock companies, etc., etc., for a particular period. The inventory ofthe property of the corporation for particular

period shows an increase in its capital, so that the stock theretofore issued does not show the real value of the

stockholder's interest, and additional stockis issued showing the increase in the actual capital, or property, or assets of

the corporation.

In the case of Gray vs. Darlington (82 U.S., 653), the US Supreme Court held that mere advance in value does not

constitute the "income" specified in the revenue law as "income" of the owner for the year in which the sale of the

property was made. Such advance constitutes and can be treated merely as an increase of capital.

In the case of Towne vs. Eisner, income was defined in an income tax law to mean cash or its equivalent, unless it is

otherwise specified. It does not mean unrealized increments in the value of the property. A stock dividend really takes

nothing from the property of the corporation, and adds nothing to the interests of the shareholders. Its property is not

diminished and their interest are not increased. The proportional interest of each shareholder remains the same. In short,

the corporation is no poorer and the stockholder is no richer then they were before.

In the case of Doyle vs. Mitchell Bros. Co. (247 U.S., 179), Mr. Justice Pitney, said that the term "income" in its natural and

obvious sense, imports something distinct from principal or capital and conveying the idea of gain or increase arising

from corporate activity.

In the case of Eisner vs. Macomber (252 U.S., 189), income was defined as the gain derived from capital, from labor, or

from both combined, provided it be understood to include profit gained through a sale or conversion of capital assets.

When a corporation or company issues "stock dividends" it shows that the company's accumulated profits have been

capitalized, instead of distributed to the stockholders or retained as surplus available for distribution, in money or in kind,

should opportunity offer. The essential and controlling fact is that the stockholder has received nothing out of the

company's assets for his separate use and benefit; on the contrary, every dollar of his original investment, together with

whatever accretions and accumulations resulting from employment of his money and that of the other stockholders in the

 business of the company, still remains the property of the company, and subject to business risks which may result in

wiping out of the entire investment. The stockholder by virtue of the stock dividend has in fact received nothingthat answers the definition of an "income."

The stockholder who receives a stock dividend has received nothing but a representation of his increased interest in the

capital of the corporation. There has been no separation or segregation of his interest. All the property or capital of

the corporation still belongs to the corporation. There has been no separation of the interest of the stockholder from the

general capital of the corporation. The stockholder, by virtue of the stock dividend, has no separate or individual control

over the interest represented thereby, further than he had before the stock dividend was issued. He cannot use it for the

reason that it is still the property of the corporation and not the property of the individual holder of stock dividend.

A certificate of stock represented by the stock dividend is simply a statement of his proportional interest or participation

in the capital of the corporation. The receipt of a stock dividend in no way increases the money received of a stockholder

nor his cash account at the close of the year. It simply shows that there has been an increase in the amount of the capital ofthe corporation during the particular period, which may be due to an increased business or to a natural increase of the

value of the capital due to business, economic, or other reasons. We believe that the Legislature, when it provided for an

"income tax," intended to tax only the "income" of corporations, firms or individuals, as that term is generally used in its

common acceptation; that is that the income means money received, coming to a person orcorporation for services,

interest, or profit from investments. We do not believe that the Legislature intended that a mere increase in the value of

the capital or assets of a corporation, firm, or individual, should be taxed as "income."

A stock dividend, still being the property of the corporation and not the stockholder, may be reached by an execution

against the corporation, and sold as a part of the property of the corporation. In such a case, if all the property of

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the corporation is sold, then the stockholder certainly could not be charged with having received an income by virtue of

the issuance of the stock dividend. Until the dividend is declared and paid, the corporate profits still belong to the

corporation, not to the stockholders, and are liable for corporate indebtedness. The rule is well established that cash

dividend, whether large or small, are regarded as "income" and all stockdividends, as capital or assets

If the ownership of the property represented by a stock dividend is still in the corporation and not in the holder of

such stock, then it is difficult to understand how it can be regarded as income to the stockholder and not as a part of the

capital or assets of thecorporation. If the holder of the stock dividend is required to pay an income tax on the same, the

result would be that he has paid a tax upon an income which he never received. Such a conclusion is absolutelycontradictory to the idea of an income.

As stock dividends are not "income," the same cannot be considered taxes under that provision of Act No. 2833. For all of

the foregoing reasons, SC held that the judgment of the lower court should be REVOKED.

CIR v Japan Airlines (JAL)(Situs of Taxation)

 

Facts:

 JAL is a foreign corporation engaged in the business of International air carriage. Since mid-July of 1957, JAL

hadmaintained an office at the Filipinas Hotel, Roxas BoulevardManila. The said office did not sell tickets but was merely

for the promotion of the company. On July 17 1957, JALconstituted PAL as its agent in the Philippines. PAL sold ticketsfor

and in behalf of JAL.On June 1972, JAL then received deficiency income taxassessments notices and a demand letter from

petitioner for years 1959 through 1963. JAL protested against saidassessments alleging that as a non-resident

foreigncorporation, it as taxable only on income from Philippinessources as determined by section 37 of the Tax Code,

therebeing no income on said years, JAL is not liable for taxes.

Issue: WON proceeds from sales of JAL tickets sold in thePhilippines are taxable as income from sources within

thePhilippines.Held: The ticket sales are taxable.

Citing the case of CIR v BOAC, the court reiterated that thesource of an income is the property, activity or service

thatproduced the income. For the source of income to beconsidered as coming from the Philippines, it is sufficient thatthe

income is derived from activity within the Philippines.The absence of flight operations to and from the Philippines isnot

determinative of the source of income or the situs of income taxation. The test of taxability is the source, and thesource of

the income is that activity which produced theincome. In this case, as JAL constitutes PAL as its agent, thesales of JAL

tickets made by PAL is taxable.

CIR vs. British Overseas Airways Corporation (BOAC)Post undercase digests,Taxation atSunday, February 26, 2012Posted by Schizophrenic Mind

Facts: British Overseas Airways Corp (BOAC) is a 100% BritishGovernment-owned corporation engaged in international

airline business and is a member of the Interline Air Transport Association, and thus, it operates air transportation

services and sells transportation tickets over the routes of the other airline members.

From 1959 to 1972, BOAC had no landing rights for traffic purposes in the Philippines and thus, did not

carry passengers and/or cargo to or from the Philippines but maintained a general sales agent in the Philippines - Warner

Barnes & Co. Ltd. and later, Qantas Airways - which was responsible for selling BOAC tickets covering passengersand

cargoes. The Commissioner of Internal Revenue assessed deficiency income taxes against BOAC.

Issue: Whether the revenue derived by BOAC from ticket sales in the Philippines, constitute income of BOAC from

Philippine sources, and accordingly taxable.

Held: The source of an income is the property, activity, or service that produced the income. For the source of income to

 be considered as coming from the Philippines, it is sufficient that the income is derived from activity within the

Philippines. Herein, the sale of tickets in the Philippines is the activity that produced the income. The tickets exchanged

hands here and payment for fares were also made here in the Philippine currency.

The situs of the source of payments is the Philippines. The flow of wealth proceeded from, and occurred within Philippine

territory, enjoying the protection accorded by the Philippine government. In consideration of such protection, the flow of

wealth should share the burden of supporting the government. PD 68, in relation to PD 1355, ensures that international

airlines are taxed on their income from Philippine sources. The 2 1/2% tax on gross billings is an income tax. If it had been

intended as an excise tax or percentage tax, it would have been placed under Title V of the Tax Code covering taxes on

 business.

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Atlas Consolidated vs. CIRATLAS CONSOLIDATED MINING DEVT CORP vs. CIR

524 SCRA 73, 103

GR Nos. 141104 & 148763, June 8, 2007

"The taxpayer must justify his claim for tax exemption or refund by the clearest grant of organic or statute law and should

not be permitted to stand on vague implications."

"Export processing zones (EPZA) are effectively considered as foreign territory for tax purposes."

FACTS: Petitioner corporation, a VAT-registered taxpayer engaged in mining, production, and sale of various mineral

products, filed claims with the BIR for refund/credit of input VAT on its purchases of capital goods and on its zero-rated

sales in the taxable quarters of the years 1990 and 1992. BIR did not immediately act on the matter prompting the

petitioner to file a petition for review before the CTA. The latter denied the claims on the grounds that for zero-rating to

apply, 70% of the company's sales must consists of exports, that the same were not filed within the 2-year prescriptive

period (the claim for 1992 quarterly returns were judicially filed only on April 20, 1994), and that petitioner failed to

submit substantial evidence to support its claim for refund/credit.

The petitioner, on the other hand, contends that CTA failed to consider the following: sales to PASAR and PHILPOS

within the EPZA as zero-rated export sales; the 2-year prescriptive period should be counted from the date of filing of the

last adjustment return which was April 15, 1993, and not on every end of the applicable quarters; and that the certificationof the independent CPA attesting to the correctness of the contents of the summary of suppliers’ invoices or receipts

examined, evaluated and audited by said CPA should substantiate its claims.

ISSUE: Did the petitioner corporation sufficiently establish the factual bases for its applications for refund/credit of input

VAT?

HELD: No. Although the Court agreed with the petitioner corporation that the two-year prescriptive period for the filing

of claims for refund/credit of input VAT must be counted from the date of filing of the quarterly VAT return, and that

sales to PASAR and PHILPOS inside the EPZA are taxed as exports because these export processing zones are to be

managed as a separate customs territory from the rest of the Philippines, and thus, for tax purposes, are effectively

considered as foreign territory, it still denies the claims of petitioner corporation for refund of its input VAT on itspurchases of capital goods and effectively zero-rated sales during the period claimed for not being established and

substantiated by appropriate and sufficient evidence.

Tax refunds are in the nature of tax exemptions. It is regarded as in derogation of the sovereign authority, and should be

construed in strictissimi juris against the person or entity claiming the exemption. The taxpayer who claims for exemption

must justify his claim by the clearest grant of organic or statute law and should not be permitted to stand on vague

implications.

TUASON vs. LINGAD[July 31, 1974; G.R. No. L-24248]

CASTRO, J

TOPIC:Ordinary gain, capital asset, NIRC Sec. 39 A (1)

DOCTRINE:

Captial Assets; definition: The term "capital assets" includes all the properties of a taxpayer whether or not connected with

his trade or business, except: (1) stock in trade or other property included in the taxpayer's inventory; (2) property

primarily for sale to customers in the ordinary course of his trade or business; (3) property used in the trade or business of

the taxpayer and subject to depreciation allowance; and (4) real property used in trade or business. If the taxpayer sells or

exchanges any of the properties above-enumerated, any gain or loss relative thereto is an ordinary gain or an ordinary

loss; the gain or loss from the sale or exchange of all other properties of the taxpayer is a capital gain or a capital loss.

In the case at bar, Taxpayer operated a substantial rental business of several properties, not only those subject in this case,

such that the Taxpayer had to a real estate dealer's tax. Taxpayer's sales of the several lots forming part of his rental

 business cannot be characterized as other than sales of non-capital assets.

FACTS:

The mother of Taxpayer (Petitioner Antonio Tuason) owned a 7 hectare parcel of land located in the City of Manila. She

subdivided the land into twenty-nine (29) lots.Possession of the land was eventually inherited by Taxpayer in 1948.

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Taxpayer instructed his attorney-in-fact to sell the lots. Twenty-eight (28) out of the twenty-nine parcels were all sold

easily. The attorney-in-fact was not able to sell the twenty-ninth lot (hereinafter Lot 29) immediately because it was located

at a low elevation.

In 1952, Lot 29 was filled, subdivided and gravel roads were constructed. The small lots were then sold over the years on a

uniform 10-year annual amortization basis. The attorney-in-fact, did not employ any broker nor did he put up

advertisements in the matter of the sale thereof.

In 1953 and 1954 the Taxpayer reported his income from the sale of the small lots (P102,050.79 and P103,468.56,respectively) as long-term capital gains. The CIR upheld Taxpayer's treatment of this tax.

In his 1957 tax return the Taxpayer as before treated his income from the sale of the small lots (P119,072.18) as capital

gains. This treatment was initially approved by the CIR, but by 1963, the CIR reversed itself and considered the Taxpayer's

profits from the sales of the lots as ordinary gainsc

The CIR assesed a deficiency of P31,095.36 from the Taxpayer.

Contention of Taxpayer: As he was engaged in the business of leasing the lots he inherited from his mother as well other real

properties, his subsequent sales of the mentioned lots cannot be recognized as sales of capital assets but of “real property

used in trade or business of the taxpayer.”

ISSUE/S:

Whether or not the properties in question which the Taxpayer had inherited and subsequently sold in small lots to other

persons should be regarded as capital assets.

HELD:

No. It is Ordinary Income

As thus defined by law, CAPITAL ASSETS include all properties of a taxpayer whether or not connected with his trade or business, except:

1. stock in trade or other property included in the taxpayer's inventory;

2. property primarily for sale to customers in the ordinary course of his trade or business;

3. property used in the trade or business of the taxpayer and subject to depreciation allowance; and

4. real property used in trade or business.

If the taxpayer sells or exchanges any of the properties above, any gain or loss relative thereto is an ordinary gain or an

ordinary loss; the loss or gain from the sale or exchange of all other properties of the taxpayer is a capital gain or a capital

loss.

Under Section 34(b)(2) of the old Tax Code, if a gain is realized by a taxpayer (other than a corporation) from the sale or

exchange of capital assets held for more than 12 months, only 50% of the net capital gain shall be taken into account in

computing the net income.

The Tax Code's provisions on so-called long-term capital gains constitutes a statute of partial exemption. In view of the

familiar and settled rule that tax exemptions are construed in strictissimi juris against the taxpayer and liberally in favor of

the taxing authority, it is the taxpayer's burden to bring himself clearly and squarely within the terms of a tax-exempting

statutory provision, otherwise, all fair doubts will be resolved against him.

In the case at bar, after a thoroughgoing study of all the circumstances, this Court is of the view and so holds that

Petitioner-Taxpayer's thesis is bereft of merit. Under the circumstances, Taxpayer's sales of the several lots forming part ofhis rental business cannot be characterized as other than sales of non-capital assets. the sales concluded on installment

 basis of the subdivided lots do not deserve a different characterization for tax purposes.

This Court finds no error in the holding that the income of the Taxpayer from the sales of the lots in question should be

considered as ordinary income.

Tomas Calasanz vs CIR

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Inheritance ng asawa na sinubdivide into lots at pinabenta into smaller portions. Assessed by the CIR ng

deficiency tax and real estate dealers tax. The theory advanced by the petitioners is that inherited land is a capital asset

within the meaning of Section 34[a] [1] of the Tax Code and that an heir who liquidated his inheritance cannot be said to

have engaged in the real estate business and may not be denied the preferential tax treatment given to gains from sale of

capital assets, merely because he disposed of it in the only possible and advantageous way.

1] Capital assets.-The term 'capital assets' means property held by the taxpayer [whether or not connected

with his trade or business], but does not include, stock in trade of the taxpayer or other property of a kind

which would properly be included, in the inventory of the taxpayer if on hand at the close of the taxableyear, or property held by the taxpayer primarily for sale to customers in the ordinary course of his trade

or business, or property used in the trade or business of a character which is subject to the allowance for

depreciation provided in subsection [f] of section thirty; or real property used in the trade or business of

the taxpayer.

Ruling: One may, of course, liquidate a capital asset. To do so, it is necessary to sell. The sale may be

conducted in the most advantageous manner to the seller and he will not lose the benefits of the capital

gain provision of the statute unless he enters the real estate business and carries on the sale in the manner

in which such a business is ordinarily conducted. In that event, the liquidation constitutes a business and

a sale in the ordinary course of such a business and the preferred tax status is lost.

One strong factor against petitioners' contention is the business element of development which is very much in evidence.

Petitioners did not sell the land in the condition in which they acquired it. While the land was originally devoted to rice

and fruit trees,10 it was subdivided into small lots and in the process converted into a residential subdivision and given

the name Don Mariano Subdivision. Extensive improvements like the laying out of streets, construction of concrete

gutters and installation of lighting system and drainage facilities, among others, were undertaken to enhance the value of

the lots and make them more attractive to prospective buyers. The audited financial statements11 submitted together with

the tax return in question disclosed that a considerable amount was expended to cover the cost of improvements. As a

matter of fact, the estimated improvements of the lots sold reached P170,028.60 whereas the cost of the land is only P

4,742.66. There is authority that a property ceases to be a capital asset if the amount expended to improve it is double its

original cost, for the extensive improvement indicates that the seller held the property primarily for sale to customers in

the ordinary course of his business.12

Another distinctive feature of the real estate business discernible from the records is the existence of contracts receivables,

which stood at P395,693.35 as of the year ended December 31, 1957. The sizable amount of receivables in comparison with

the sales volume of P446,407.00 during the same period signifies that the lots were sold on installment basis and suggests

the number, continuity and frequency of the sales. Also of significance is the circumstance that the lots were

advertised13 for sale to the public and that sales and collection commissions were paid out during the period in question.

CALASANZ v CIR

Facts: Petitioner Ursula Calasanz inherited from her father de Torres an agricultural land located in Rizal with an area of

1.6M sqm. In order to liquidate her inheritance, Ursula Calasanz had the land surveyed and subdivided into lots.

Improvements, such as good roads, concrete gutters, drainage and lighting system, were introduced to make the lots

saleable. Soon after, the lots were sold to the public at a profit.

In their joint income tax return for the year 1957 filed with the Bureau of Internal Revenue on March 31, 1958, petitioners

disclosed a profit of P31,060.06 realized from the sale of the subdivided lots, and reported fifty per centum thereof or

P15,530.03 as taxable capital gains.

Upon an audit and review of the return thus filed, the Revenue Examiner adjudged petitioners engaged in business as real

estate dealers, as defined in the NIRC, and required them to pay the real estate dealer's tax and assessed a deficiencyincome tax on profits derived from the sale of the lots based on the rates for ordinary income.

Tax court upheld the finding of the CIR, hence, the present appeal.

Issues:

a. Whether or not petitioners are real estate dealers liable for real estate dealer's fixed tax. YES

 b. Whether the gains realized from the sale of the lots are taxable in full as ordinary income or capital gains taxable at

capital gain rates. ORDINARY INCOME

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Ratio:

The assets of a taxpayer are classified for income tax purposes into ordinary assets and capital assets. Section 34[a] [1] of

the National Internal Revenue Code broadly defines capital assets as follows:

[1] Capital assets.-The term 'capital assets' means property held by the taxpayer [whether or not

connected with his trade or business], but does not include, stock in trade of the taxpayer or other

property of a kind which would properly be included, in the inventory of the taxpayer if on hand at theclose of the taxable year, or property held by the taxpayer primarily for sale to customers in the ordinary

course of his trade or business, or property used in the trade or business of a character which is subject to

the allowance for depreciation provided in subsection [f] of section thirty; or real property used in the

trade or business of the taxpayer.

The statutory definition of capital assets is negative in nature. If the asset is not among the exceptions, it is a capital asset;

conversely, assets falling within the exceptions are ordinary assets. And necessarily, any gain resulting from the sale or

exchange of an asset is a capital gain or an ordinary gain depending on the kind of asset involved in the transaction.

However, there is no rigid rule or fixed formula by which it can be determined with finality whether property sold by a

taxpayer was held primarily for sale to customers in the ordinary course of his trade or business or whether it was sold asa capital asset. Although several factors or indices have been recognized as helpful guides in making a determination,

none of these is decisive; neither is the presence nor the absence of these factors conclusive. Each case must in the last

analysis rest upon its own peculiar facts and circumstances.

Also a property initially classified as a capital asset may thereafter be treated as an ordinary asset if a combination of the

factors indubitably tend to show that the activity was in furtherance of or in the course of the taxpayer's trade or business.

Thus, a sale of inherited real property usually gives capital gain or loss even though the property has to be subdivided or

improved or both to make it salable. However, if the inherited property is substantially improved or very actively sold or

 both it may be treated as held primarily for sale to customers in the ordinary course of the heir's business.

In this case, the subject land is considered as an ordinary asset. Petitioners did not sell the land in the condition in whichthey acquired it. While the land was originally devoted to rice and fruit trees, it was subdivided into small lots and in the

process converted into a residential subdivision and given the name Don Mariano Subdivision. Extensive improvements

like the laying out of streets, construction of concrete gutters and installation of lighting system and drainage facilities,

among others, were undertaken to enhance the value of the lots and make them more attractive to prospective buyers. The

audited financial statements submitted together with the tax return in question disclosed that a considerable amount was

expended to cover the cost of improvements. There is authority that a property ceases to be a capital asset if the amount

expended to improve it is double its original cost, for the extensive improvement indicates that the seller held the property

primarily for sale to customers in the ordinary course of his business.

 

Another distinctive feature of the real estate business discernible from the records is the existence of contracts receivables,

which stood at P395,693.35. The sizable amount of receivables in comparison with the sales volume of P446,407.00 duringthe same period signifies that the lots were sold on installment basis and suggests the number, continuity and frequency

of the sales. Also of significance is the circumstance that the lots were advertised for sale to the public and that sales and

collection commissions were paid out during the period in question.

Petitioners argument that they are merely liquidating the land must also fail. InEhrman vs. Commissioner, the American

court in clear and categorical terms rejected the liquidation test in determining whether or not a taxpayer is carrying on a

trade or business The court observed that the fact that property is sold for purposes of liquidation does not foreclose a

determination that a "trade or business" is being conducted by the seller.

One may, of course, liquidate a capital asset. To do so, it is necessary to sell. The sale may be conducted in the most

advantageous manner to the seller and he will not lose the benefits of the capital gain provision of the statute unless heenters the real estate business and carries on the sale in the manner in which such a business is ordinarily conducted. In

that event, the liquidation constitutes a business and a sale in the ordinary course of such a business and the preferred tax

status is lost.

Gonzales vs CTA (same lang ke Calasanz)

FERNANDEZ HERMANOS v CIR

Facts:

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Fernandez Hermanos is an investment company. The CIR assessed it for alleged deficiency income taxes. It claimed as

deduction, among others, losses in or bad debts of Palawan Manganese Mines Inc. which the CIR disallowed and was

sustained by the CTA.

Issue: W/N disallowance is correct

Held: YES

It was shown that Palawan Manganese Mines sought financial help from Fernandez to resume its mining operations hence

a Memorandum of Agreement (MOA) was executed where Fernandez would give yearly advances to Palawan. But it stillcontinued to suffer loses and Fernandez realized it could no longer recover the advances hence claimed it as worthless.

Looking at the MOA, Fernandez did not expect to be repaid. The consideration for the advances was 15% of the net

profits. If there were no earnings or profits there was no obligation to repay. Voluntary advances without expectation of

repayment do not result in deductible losses. Fernandez cannot even sue for recovery as the obligation to repay will only

arise if there was net profits. No bad debt could arise where there is no valid and subsisting debt.

Even assuming that there was valid or subsisting debt, the debt was not deductible in 1951 as a worthless debt as Palawan

was still in operation in 1951 and 1952 as Fernandez continued to give advances in those years. It has been held that if the

debtor corporation although losing money or insolvent was still operating at the end of the taxable year, the debt is not

considered worthless and therefore not deductible.

Fernandos Hermanos vs. CommissionerFERNANDOS HERMANOS, INC. vs. COMMISSIONER

29 SCRA 552

GR No. No. L-21551, September 30, 1969

"The filing of an answer to taxpayer's petition for review is considered as institution of judicial action."

FACTS: The Commissioner of Internal Revenue assessed the petitioner investment corporation of deficiency income taxes

for the years 1950 to 1954 and for 1957. There were two conflicting dates of assessment, which are vital to the compliance

with the statute of limitations, based on each claim of the petitioner and the respondent; the Commisioner's record of date

of assesment is February 27, 1956 while the petitioner believes the demand was made on December 27, 1955 so that, as the

petitioner corporation claims, the Commissioner's action to recover its tax liability should be deemed to have prescribedfor failure on the part of the Commissioner to file a complaint for collection against it in an appropriate civil action.

ISSUE: Has the action for collection prescribed?

HELD: No. It has been held that "a judicial action for the collection of a tax is begun by the filing of a complaint with the

proper court of first instance, or where the assessment is appealed to the Court of Tax Appeals, by filing an answer to the

taxpayer's petition for review wherein payment of the tax is prayed for." This is but logical for where the taxpayer avails of

the right to appeal the tax assessment to the Court of Tax Appeals, the said Court is vested with the authority to

pronounce judgment as to the taxpayer's liability to the exclusion of any other court. In the present case, regardless of

whether the assessments were made on February 24 and 27, 1956, as claimed by the Commissioner, or on December 27,

1955 as claimed by the taxpayer, the government's right to collect the taxes due has clearly not prescribed, as the taxpayer'sappeal or petition for review was filed with the Tax Court on May 4, 1960, with the Commissioner filing on May 20, 1960

his Answer with a prayer for payment of the taxes due, long before the expiration of the five-year period to effect

collection by judicial action counted from the date of assessment.

CIR VS CA AND ANSCOR(A SORIANO CORP)

GENERAL RULE: A stock dividend representing the transfer of surplus to capital account shall not be subject to tax.

EXCEPTION: The redemption or cancellation of stock dividends, depending on the "time" and "manner" it was made, is essentially

equivalent to a distribution of taxable dividends," making the proceeds thereof "taxable income" "to the extent it represents profits".

FACTS: -- reversal of the decision of the CA

• Don Andres Soriano, a citizen and resident of the United States, formed the corporation "A. Soriano Y Cia", predecessor

of ANSCOR, with a P1,000,000.00 capitalization divided into 10,000 common shares at a par value of P100/share.

ANSCOR is wholly owned and controlled by the family of Don Andres, who are all nonresident aliens.

 

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• In 1937, Don Andres subscribed to 4,963 shares of the 5,000 shares originally issued. In 1945, ANSCOR's authorized

capital stock was increased to P2,500,000.00 divided into 25,000 common shares with the same par value. Don Andres'

increased his subscription to 14,963 common shares. A month later, Don Andres transferred 1,250 shares each to his two

sons, Jose and Andres, Jr., as their initial investments in ANSCOR. Both sons are foreigners.

• From 1947-1963, ANSCOR declared stock dividends. On December 30, 1964 Don Andres died. As of that date, the

records revealed that he has a total shareholdings of 185,154 shares. Correspondingly, one-half of that shareholdings or

92,577 shares were transferred to his wife, Doña Carmen Soriano, as her conjugal share. The other half formed part of hisestate.

 

• A day after Don Andres died, ANSCOR increased its capital stock to P20M and in 1966 further increased it to P30M.

Stock dividends worth 46,290 and 46,287 shares were respectively received by the Don Andres estate and Doña Carmen

from ANSCOR. Hence, increasing their accumulated shareholdings to 138,867 and 138,864 common shares each.

 

• On June 30, 1968, pursuant to a Board Resolution, ANSCOR redeemed 28,000 common shares from the Don Andres'

estate. By November 1968, the Board further increased ANSCOR's capital stock to P75M. About a year later, ANSCOR

again redeemed 80,000 common shares from the Don Andres' estate. As stated in the Board Resolutions, ANSCOR's

 business purpose for both redemptions of stocks is to partially retire said stocks as treasury shares in order to reduce the

company's foreign exchange remittances in case cash dividends are declared.

 

• In 1973, after examining ANSCOR's books of account and records, Revenue examiners issued a report proposing that

ANSCOR be assessed for deficiency withholding tax-at-source, pursuant to Sections 53 and 54 of the 1939 Revenue Code

for the year 1968 and the second quarter of 1969 based on the transactions of exchange and redemption of stocks.

 

ISSUE:

• Whether or not ANSCOR's redemption of stocks from its stockholder as well as the exchange of common with preferred

shares can be considered as "essentially equivalent to the distribution of taxable dividend" making the proceeds thereof

taxable.

 

HELD:

• YES. The bone of contention is the interpretation and application of Section 83(b) of the 1939 Revenue Act 38 which

provides:

• Sec. 83. Distribution of dividends or assets by corporations. — (b) Stock dividends — A stock dividend representing the

transfer of surplus to capital account shall not be subject to tax. However, if a corporation cancels or redeems stock issued

as a dividend at such time and in such manner as to make the distribution and cancellation or redemption, in whole or in

part, essentially equivalent to the distribution of a taxable dividend, the amount so distributed in redemption or

cancellation of the stock shall be considered as taxable income to the extent it represents a distribution of earnings or

profits accumulated after March first, nineteen hundred and thirteen.

• Sec. 83(b) of the 1939 NIRC was taken from the Section 115(g)(1) of the U.S. Revenue Code of 1928. It laid down the

general rule known as the proportionate test wherein stock dividends once issued form part of the capital and, thus,

subject to income tax. Specifically, the general rule states that: A stock dividend representing the transfer of surplus tocapital account shall not be subject to tax.

• Stock dividends, strictly speaking, represent capital and do not constitute income to its recipient. So that the mere

issuance thereof is not yet subject to income tax as they are nothing but an "enrichment through increase in value of

capital investment."

 

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• The exception provides that the redemption or cancellation of stock dividends, depending on the "time" and "manner" it

was made, is essentially equivalent to a distribution of taxable dividends," making the proceeds thereof "taxable income"

"to the extent it represents profits". The exception was designed to prevent the issuance and cancellation or redemption of

stock dividends, which is fundamentally not taxable, from being made use of as a device for the actual distribution of cash

dividends, which is taxable.

• Simply put, depending on the circumstances, the proceeds of redemption of stock dividends are essentially distribution

of cash dividends, which when paid becomes the absolute property of the stockholder. Thereafter, the latter becomes theexclusive owner thereof and can exercise the freedom of choice. Having realized gain from that redemption, the income

earner cannot escape income tax. For the exempting clause of Section, 83(b) to apply, it is indispensable that: (a) there is

redemption or cancellation; (b) the transaction involves stock dividends and (c) the "time and manner" of the transaction

makes it "essentially equivalent to a distribution of taxable dividends."

• Redemption is repurchase, a reacquisition of stock by a corporation which issued the stock 89 in exchange for property,

whether or not the acquired stock is cancelled, retired or held in the treasury. 90 Essentially, the corporation gets back

some of its stock, distributes cash or property to the shareholder in payment for the stock, and continues in business as

 before. In the case, ANSCOR redeemed shares twice. But where did the shares redeemed come from? If its source is the

original capital subscriptions upon establishment of the corporation or from initial capital investment in an existing

enterprise, its redemption to the concurrent value of acquisition may not invite the application of Sec. 83(b) under the 1939Tax Code, as it is not income but a mere return of capital. On the contrary, if the redeemed shares are from stock dividend

declarations other than as initial capital investment, the proceeds of the redemption is additional wealth, for it is not

merely a return of capital but a gain thereon.

• It is not the stock dividends but the proceeds of its redemption that may be deemed as taxable dividends. At the time of

the last redemption, the original common shares owned by the estate were only 25,247.5 91 This means that from the total

of 108,000 shares redeemed from the estate, the balance of 82,752.5 (108,000 less 25,247.5) must have come from stock

dividends. In the absence of evidence to the contrary, the Tax Code presumes that every distribution of corporate

property, in whole or in part, is made out of corporate profits such as stock dividends. The capital cannot be distributed in

the form of redemption of stock dividends without violating the trust fund doctrine.

 

• With respect to the third requisite, ANSCOR redeemed stock dividends issued just 2 to 3 years earlier. The time alone

that lapsed from the issuance to the redemption is not a sufficient indicator to determine taxability. It is a must to consider

the factual circumstances as to the manner of both the issuance and the redemption. The issuance of stock dividends and

its subsequent redemption must be separate, distinct, and not related, for the redemption to be considered a legitimate tax

scheme. Redemption cannot be used as a cloak to distribute corporate earnings.

 

• ANSCOR invoked two reasons to justify the redemptions — (1) the alleged "filipinization" program and (2) the

reduction of foreign exchange remittances in case cash dividends are declared. The Court is not concerned with the

wisdom of these purposes but on their relevance to the whole transaction which can be inferred from the outcome

thereof. It is the "net effect rather than the motives and plans of the taxpayer or his corporation". The test of taxability

under the exempting clause, when it provides "such time and manner" as would make the redemption "essentially

equivalent to the distribution of a taxable dividend", is whether the redemption resulted into a flow of wealth. If no

wealth is realized from the redemption, there may not be a dividend equivalence treatment.

• The test of taxability under the exempting clause of Section 83(b) is, whether income was realized through the

redemption of stock dividends. The redemption converts into money the stock dividends which become a realized profit

or gain and consequently, the stockholder's separate property. Profits derived from the capital invested cannot escape

income tax. As realized income, the proceeds of the redeemed stock dividends can be reached by income taxation

regardless of the existence of any business purpose for the redemption. Otherwise, to rule that the said proceeds areexempt from income tax when the redemption is supported by legitimate business reasons would defeat the very purpose

of imposing tax on income.

• The issuance and the redemption of stocks are two different transactions. Although the existence of legitimate corporate

purposes may justify a corporation's acquisition of its own shares under Section 41 of the Corporation Code, such

purposes cannot excuse the stockholder from the effects of taxation arising from the redemption.

• Even if the said purposes support the redemption and justify the issuance of stock dividends, the same has no bearing

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whatsoever on the imposition of the tax herein assessed because the proceeds of the redemption are deemed taxable

dividends since it was shown that income was generated therefrom.

• The proceeds thereof are essentially considered equivalent to a distribution of taxable dividends. As "taxable dividend"

under Section 83(b), it is part of the "entire income" subject to tax under Section 22 in relation to Section 21 120 of the 1939

Code. Moreover, under Section 29(a) of said Code, dividends are included in "gross income". As income, it is subject to

income tax which is required to be withheld at source.

CIR vs Melchor Javier Jr

199 SCRA 825 – Taxation Law – NIRC Remedies – 50% Penalty for Fraudulent Returns

In 1977, Victoria Javier received a $1 Million remittance in her bank account from her sister abroad, Dolores Ventosa.

Melchor Javier, Jr., the husband of Victoria immediately withdrew the said amount and then appropriated it for himself.

Later, the Mellon Bank, a foreign bank in the U.S.A. filed a complaint against the Javiers for estafa. Apparently, Ventosa

only sent $1,000.00 to her sister Victoria but due to a clerical error in Mellon Bank, what was sent was the $1 Million.

Meanwhile, Javier filed his income tax return. In his return, he place a footnote which states:

Taxpayer was recipient of some money received from abroad which he presumed to be a gift but turned out to be an error and is now

subject of litigation.

The Commissioner of Internal Revenue (CIR) then assessed Javier a tax liability amounting to P4.8 Million. The CIR also

imposed a 50% penalty against Javier as the CIR deemed Javier’s return as a fraudulent return.

ISSUE:Whether or not Javier is liable to pay the 50% penalty.

HELD:No. It is true that a fraudulent return shall cause the imposition of a 50% penalty upon a taxpayer filing such

fraudulent return. However, in this case, although Javier may be guilty of estafa due to misappropriating money that does

not belong to him, as far as his tax return is concerned, there can be no fraud. There is no fraud in the filing of the

return. Javier’s notation on his income tax return can be considered as a mere mistake of fact or law but not fraud. Such

notation was practically an invitation for investigation and that Javier had literally “laid his cards on the table.” The

government was never defrauded because by such notation, Javier opened himself for investigation.

It must be noted that the fraud contemplated by law is actual and not constructive. It must be intentional fraud, consisting

of deception willfully and deliberately done or resorted to in order to induce another to give up some legal right.

LIMPAN INVESTMENT v CIR

FACTS:

BIR assessed deficiency taxes on Limpan Corp, a companythat leases real property, for underdeclaring its rental incomefor

years 1956-57 by around P20K and P81K respectively.Petitioner appeals on the ground that portions of

theseunderdeclared rents are yet to be collected by the previousowners and turned over or received by the

corporation.Petitioner cited that some rents were deposited with the court,such that the corporation does not have actual

nor constructivecontrol over them.The sole witness for the petitioner, Solis (Corporate Secretary-Treasurer) admitted to

some undeclared rents in 1956 and1957, and that some balances were not collected by thecorporation in 1956 because the

lessees refused to recognizeand pay rent to the new owners and that the corp’s presidentIsabelo Lim collected some rent

and reported it in his personalincome statement, but did not turn over the rent to thecorporation. He also cites lack of

actual or constructive controlover rents deposited with the court.

ISSUE: WON the BIR was correct in assessing deficiency taxesagainst Limpan Corp. for undeclared rental income

HELD:

Yes. Petitioner admitted that it indeed had undeclaredincome (although only a part and not the full amount assessedby

BIR). Thus, it has become incumbent upon them to provetheir excuses by clear and convincing evidence, which it

hasfailed to do.Issue: When is there constructive receipt of rent?With regard to 1957 rents deposited with the court,

andwithdrawn only in 1958, the court viewed the corporation ashaving constructively received said rents. The non-

collectionwas the petitioner’s fault since it refused to refused to acceptthe rent, and not due to non-payment of lessees.

Hence,although the corporation did not actually receive the rent, it isdeemed to have constructively received them.

CIR vs. GCL Retirement Plan

Facts: GCL is an employees' trust maintained by the employer, GCL Inc., to provide retirement, pension, disability

and death benefits to its employees. As such, it was exempt from income tax.

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GCL made investments and earned interest income from which was withheld the fifteen per centum (15%)

final withholding tax.

GCL filed with CIR a claim for refund for the amounts withheld. GCL disagreed with the collection of the 15%

final withholding tax from the interest income as it is an entity fully exempt from income tax.

The refund requested having been denied, GCL elevated the matter to the CTA, which ruled in favor of GCL, holding

that employees' trusts are exempt from the 15% final withholding tax on interest income and ordering a refund of the taxwithheld. CA upheld the CTA Decision.

CIR seeks a reversal of the decision.

Issue: Whether or not GCL is exempt from the final withholding taxon interest income

Held:YES.

Employees' trusts or benefit plans normally provide economic assistance to employees upon the occurrence of certain

contingencies, particularly, old age retirement, death, sickness, or disability. It provides security against certain hazards to

which members of the Plan may be exposed. It is an independent and additional source of protection for the workinggroup. What is more, it is established for their exclusive benefit and for no other purpose.

The tax advantage was conceived in order to encourage the formation and establishment of such private plans for the

 benefit of laborers and employees outside of the Social Security Act.

It is evident that tax-exemption is likewise to be enjoyed by the income of the pension trust. Otherwise, taxation of those

earnings would result in a diminution accumulated income and reduce whatever the trust beneficiaries would receive out

of the trust fund. This would run afoul of the very intendment of the law.

There can be no denying either that the final withholding tax is collected from income in respect of which employees'

trusts are declared exempt. The application of the withholdings system to interest on bank deposits or yield from depositsubstitutes is essentially to maximize and expedite the collection of income taxes by requiring its payment at the source. If

an employees' trust like the GCL enjoys a tax-exempt status from income, we see no logic in withholding a certain

percentage of that income which it is not supposed to pay in the first place.

CIR VS WYETH SUACO LABORATORIES

Taxation – Prescriptive Period – Tax Collection

On December 16 and 17, 1974, the Commissioner of Internal Revenue (CIR) issued two assessment notices to Wyeth Suaco

Laboratories, Inc. (Wyeth) asking the latter to pay about P2 million in taxes. On January 17, 1975, Wyeth filed its protest. In

December 1979, Wyeth’s protest was denied. On January 18, 1980, Wyeth filed a petition for review with the Court of Tax

Appeals (CTA) asking the said court to enjoin the CIR from enforcing the assessment on the ground that the government’s

right to collect the assessed taxes has already prescribed; that the CIR has 5 years from December 1974 (issuance of

assessment) to collect but it never did and the right has already prescribed in December 1975. The CIR then issued a

warrant of distraint/levy in February 1980.

Meanwhile, the CIR filed its answer with the CTA. It averred that the running of the prescriptive period was suspended

when Wyeth filed its protest; that such protest was a request for reinvestigation and reconsideration, hence, the

suspension of the period of prescription.

Wyeth however averred that it never requested for a reconsideration or a reinvestigation but rather its protest was a

request for cancellation and withdrawal of the assessment, hence, the prescriptive period was never tolled.

ISSUE:Whether or not the prescriptive period was suspended.

HELD:Yes. What Wyeth asked was a request for a reconsideration and reinvestigation based on the letters it sent to the

CIR, to wit:xxx We submit this letter as a follow-up to our protest filed with your office, through our tax advisers, Sycip, Gorres,

Velayo & Co., on January 20 and February 10, 1975 regarding alleged deficiency on withholding tax at source of

P3,178,994.15 and on percentage tax of P60,855.21, including interest and surcharges,on which we are seeking reconsideration.

 (emphasis supplied) xxx

Further, the assessments issued in 1974 are not yet final. These assessments only became final in December 1979 when the

CIR finally denied the protest filed by Wyeth. Hence, the warrant of distraint/levy issued by the CIR in February 1980 was

issued well within the prescriptive period for the government to collect the assessed taxes.

 

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Commissioner of Internal Revenue vs. Carlos Ledesma, Julieta Ledesma, Vi-cente Gustilo. Jr. and

Amparo Ledesma de Gustilo

G.R. No. L-17509 January 30, 1970

Facts:

On July 9, 1949, Carlos Ledesma, Julieta Ledesma and the spouses Amparo Ledesma

andVicente Gustilo, Jr., purchased from their parents, the sugar plantation known as "Haciend

aFortuna," consisting of 36 parcels of land, which sugar quota was included in the sale. By virtue of the purchase,

respondents owned one-third each of the undivided portion of the plantation. After

the purchase of the plantation, herein respondents took over the sugar cane farming on the plantation beginning with

the crop year 1948-1949. For the crop year 1948- 1949 the San Carlos Milling Co.,Ltd. credited the respondents with their

shares in the gross sugar production.The respondents shared equally the expenses of production, on the basis of their

respectiveone-third undivided portions of the plantation. In their individual income tax returns for the

year 1949 the respondents included as part of their income their respective net profits derived from their individual sugar

production from the "Hacienda Fortuna," as herein-above stated.On July 11, 1949, the respondents organized themselves

into a general co-partnership under the firm name "Hacienda Fortuna", for the "production of sugar cane for

conversion into

sugar, palay and corn and such other products as may profitably be produced on said hacienda, which products shall be

sold or otherwise disposed of for the purpose of realizing profit for the partner-ship." The articles of general co-

partnership were registered in the commercial register of the officeof the Register of Deeds in Bacolod City, Negros

Occidental, on July 14, 1949. Paragraph 14 of thearticles of general partnership provides that the agreement shall have

retroactive effect as of January1, 1949.

Issue:

Whether or not respondent operated the “Hacienda Fortuna” as partnership prior to the exe-cution of articles of co-

partnership.

Ruling:

Yes. Respondents operated the "Hacienda Fortuna" as a partnership prior to the execution of the articles of general co-

partnership based on their intention as clearly shown in paragraph 14 of the articles of general co-

partnership which provides that the partnership agreement "shall beretroactive as of January 1, 1949

(1) The Court of Tax Appeals erred in holding that herein respondents, as partners of the general co-

partnership "Hacienda Fortuna", are not subject to corporate income tax prior to its registration or for the

period from January 1 to July 13, 1949.

Sec. 24.Rate of tax on corporation. — (a)Tax on domestic corporations. — In general, there shall be levied,

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), domestic

life insurance companies and foreign life insurance companies doing business in the Philippines, a tax

upon such income equal to the sum of the following: (Italics supplied.).

Section 24 of the Revenue Code imposes an income tax on corporations. The term "corporation" includes unregistered

general co-partnerships. (See. 84 [b]). Section 26 provides that persons carrying on business in general co-partnership duly

registered in the mercantile registry shall be liable for income tax only in their individual capacity.

ONA VS. COMMISION OF INTRNAL REVENUE45 SCRA 74

FACTS:

1. Julia Bunales died on March 23, 1944 leaving as heirs her surviving spouse Lorenzo T. Oña and her five children.

2. A civil case was instituted in the CFI of Manila for the settlement of her estate.

3. Lorenzo was appointed administrator of he deceased’s estate.

4. A project of partition shows that the heirs have undivided ½ interest in 10 parcels of land, 6 houses and an

undetermined amount to be collected from the War Damage Commission.

5. Although the court approved the project of partition, no attempt was made to divide the properties listed therein.

6. Instead, the properties remained under the management of Lorenzo who used the said properties in business by leasing

or telling them and investing the income derived therefrom and the proceeds from the sales thereof in real properties and

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securities.

7. As a result, petitioner’s properties and investment gradually increased from P 105,405.00 in 1949 to P 480,0005.20 in

1956.

8. Respondent CIR decided that petitioners formed an unregistered partnership and therefore, subject to the corporate

income tax pursuant to Section 24, in relation to Section 84(b) of the Tax Code.

9. Petitioners protested against the assessment and asked for reconsideration of the ruling that they have formed an

unregistered partnership.

10. Respondent denied the motion for reconsideration.

11. Hence this appeal.

ISSUE:

Did petitioners constitute an unregistered partnership, and are, therefore, subject to the payment of the deficiency

corporate income taxes assessed against them by respondent CIR.

HELD:

From the moment petitioners allowed not only the incomes from their respective shares of the inheritance but even the

inherited properties themselves to be used by Lorenzo T. Oña as a common fund in undertaking several transactions or in

 business, with the intention of deriving profit to be shared by them proportionately, such act was tantamount to actually

contributing such incomes to a common fund and, in effect, they thereby formed an unregistered partnership within the

purview of the provisions of the Tax Code.

Gatchalian vs. Collector of Internal Revenue [G.R. No. L-45425, April 29, 1939]

Facts: Plaintiffs purchased, in the ordinary course of business, from one of the duly authorized agents of the National

CharitySweepstakes Office one ticket for the sum of two pesos (P2), said ticket was registered in the name of Jose

Gatchalian and Company. The ticket won one of the third-prizes in the amount of P50,000.

 Jose Gatchalian was required to file the corresponding income tax return covering the prize won. Defendant-Collector

made an assessment against Jose Gatchalian and Co. requesting the payment of the sum of P1,499.94 to the deputy

provincial treasurer of Pulilan, Bulacan. Plaintiffs, however through counsel made a request for exemption. It was denied.

Plaintiffs failed to pay the amount due, hence a warrant of distraint and levy was issued. Plaintiffs paid under protest a

part of the tax and penalties to avoid the effects of the warrant. A request that the balance be paid by plaintiffs in

installments was made. This was granted on the condition that a bond be filed.

Plaintiffs failed in their installment payments. Hence a request for execution of the warrant of distraint and levy was

made. Plaintiffs paid under protest to avoid the execution.

A claim for refund was made by the plaintiffs, which was dismissed, hence the appeal.

Issue: Whether the plaintiffs formed a partnership hence liable for income tax.

Held: Yes. According to the stipulation facts the plaintiffs organized a partnership of a civil nature because each of them

put up money tobuy a sweepstakes ticket for the sole purpose of dividing equally the prize which they may win, as they

did in fact in the amount of P50,000. The partnership was not only formed, but upon the organization thereof and the

winning of the prize, Jose Gatchalian personally appeared in the office of the Philippines CharitySweepstakes, in his

capacity as co-partner, as such collection the prize, the office issued the check for P50,000 in favor of Jose Gatchalian and

company, and the said partner, in the same capacity, collected the said check. All these circumstances repel the idea that

the plaintiffs organized and formed a community of property only.

Evangelista vs. Collector of Internal Revenue

Facts: Petitioners borrowed money from their father and purchased several lands. For several years, these lands were

leased to tenants by the petitioners. In 1954, respondent Collector of Internal Revenue demanded from petitioners the

payment of income tax on corporations, real estate dealer's fixed tax and corporation residence tax for the years 1945-1949.

A letter of demand and corresponding assessments were delivered to petitioners. Petitioners claim that they should be

absolved from paying said taxes since they are not a corporation.

Issue: 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, as well as to the residence tax for corporations and the real

estate dealers fixed tax.

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Held: Yes. Petitioners are subject to the income tax and residence tax for corporation.

As defined in section 84 (b) of the Internal Revenue 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. Partnership, as has been defined in the civil code refers to two

or more persons who bind themselves to contribute money, properly, or industry to a common fund, with the intention of

dividing the profits among themselves. Thus, petitioners, being engaged in the real estate transactions for monetary gainand dividing the same among themselves constitute a partnership so far as the Code is concerned and are subject to

income tax for corporation.

Since Sec 2 of the Code in defining corporations also includes joint-stock company, partnership, joint account, association

or insurance company, no matter how created or organized, it follows that petitioners, regardless of how their partnership

was created is also subject to the residence tax for corporations.