BIR Ruling

August 9, 1968 MEMORANDUM FOR: The Revenue Operations Head (Assessment) Returned herewith is the entire docket bearing on the internal revenue tax case of Belzunce Hermanas, c/o Sycip, Gorres, Velayo & Co., Ayala Avenue, Makati, Rizal for the years 1957 to 1961. The records of this case disclose that Don Roman Belzunce was a partner of Lizarraga Hermanas a partnership organized on July 13, 1895. Upon his death his wife Doa Benita Fernandez vda. de Belzunce was admitted into the partnership. On February 8, 1929 she withdraw from the partnership, and was given as the equivalent of her 26 and 1/8% interest in the partnership, the Hacienda Socorro, San Carlos City, Hacienda San Miguel, La Carlota, Negros Occidental and 292 shares of stocks of Kabankalan Sugar Company. The properties were managed and administered by Doa Benita Fernandez vda. de Belzunce and her children under the name of Belzunce Hermanas. The Belzunce Hermanas are presently composed of the following, namely: Isabel Belzunce, Julia Belzunce, Ursina Belzunce, Amparo Menendez vda. de Belzunce, Alicia Belzunce, Arturo Belzunce, Maria Perez de la Via, Mena Perez de la Via, Sabino Gomez de Segura. All the co-owners are citizens and residents of Spain. The property is presently managed and administered by Mr. Arturo Ankerman, Hacienda Socorro, San Carlos City. The income derived from the property as well as the expenses of administration are borne equally by the co-owners. The co-owners contributed additional capital into the common fund by investing their share in the income of the property in the co-ownership. No demand for partition has as yet been made by the co-owners up to the present. The question at issue in this case is whether or not the co-ownership of the Belzunce Hermanas can be considered as an unregistered partnership subject to tax under Section 24(a) and 84(b) of the Tax Code. Sections 24(a) and 84(b) of the Tax Code reads as follows: "Sec. 24. Rate of tax on corporation . (a) Tax on domestic corporation. 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 (companies 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: . . ." "Sec. 84(b). The term "corporation" includes partnership, no matter how created or organized, joint stock companies, associations or insurance companies, but does not include duly registered general co-partnerships (companies colectivas)." Article 1767 of the N.C.C. provides: "By the contract of partnership two or more persons bind themselves to contribute money, property or industry to a common fund with the intention of dividing the profits among themselves." While the common fund was already in existence when the Belzunce Hermanas became the co-owners of the same nevertheless they contributed additional capital into the common fund for purposes of expansion; the income derived from the property as well as the expenses of administration are borne equally by the co-owners; the property has been managed and administered by a third person as if the same belonged to a corporation or business enterprise operated for profit; and the co-ownership has existed for 39 years. Under the abovementioned circumstances, the Belzunce Hermanas cannot be considered otherwise than a partnership either by intention or de facto. In view of the foregoing, that Office is hereby instructed to issue immediately assessment notice for corporate income tax for the years 1957 to 1961 against Belzunce Hermanas, c/o Sycip, Gorres, Velayo & Co., Ayala Avenue, Makati, Rizal. iatdc (SGD.) MISAEL P. VERA Commissioner of Internal Revenue