Business Relationship Established under the "Memorandum of Agreement"

January 26, 1959 BIR RULING NO. 050-59 MEMORANDUM FOR: The Chief, Investigation Division B.I.R., Manila This is connection with the pending income tax case of Antonio Tuason, Jr., Angela I. Tuason and Gregorio Araneta, Inc. The question involved in this case is whether or not the business relationship established under the "Memorandum of Agreement" dated June 30, 1941 entered into by the abovenamed taxpayers is a partnership taxable under Section 24 of the National Internal Revenue Code. In the letter of counsel for the taxpayers dated December 18, 1957 it was alleged that no partnership was created by the said Agreement for the reason that the parties thereto did not contribute to a common fund with the intention of dividing the profits among themselves. The Supreme Court in the case entitled "Angela I. Tuason vs. Antonio Tuason, Jr., and Gregorio Araneta, Inc." said: prcd "By virtue of the document Exhibit 6, the parties thereto practically and substantially entered into a contract of partnership as to the best and most expedient means of eventually dissolving the co-ownership, the life of said partnership to end when the object of its creation shall have been attained." "This aspect of the contract is very similar to and was perhaps based on the other agreement or contract (Exh. "L") referred to by appellant, where the parties thereto in express terms entered into a partnership, although this object is not expressed in so many words in Exh. 6." While it is true that the main issue in the abovementioned case is not whether or not the business relationship established under the "Memorandum of Agreement" is a partnership, yet the Supreme Court after analyzing the terms and conditions of the same "Memorandum of Agreement" categorically declared that the parties thereto practically and substantially entered into a contract of partnership . After such declaration there can be no question that the aforesaid taxpayers are subject to the tax prescribed under Section 24 of the National Internal Revenue Code. Moreover, Section 24 of the Tax Code taxes not only unregistered partnership but also joint-stock companies and association. In view of the foregoing, you are hereby instructed to investigate this case further to ascertain definitely the tax due from the abovenamed taxpayers. LLpr (SGD.) MELECIO R. DOMINGO Acting Commissioner of Internal Revenue