BIR Ruling No. 093-62

August 20, 1962 BIR RULING NO. 093-62 MEMORANDUM FOR The Revenue Operations Head (Assessments) B.I.R., Manila This refers to the income tax case against ENRIQUETA K. VDA. DE CASTILLO and the heirs of YSIDRO CASTILLO, for the years 1954 and 1956 involving the sums of P13,923.00 and P13,377.00 respectively. FACTS. For purposes of resolving intelligently the issue posed by this case, the facts established and enumerated in the decision rendered by the Court of First Instance of Manila in Civil Case No. 42496, dated January 12, 1961, have been relied upon. The facts gathered in the investigation conducted by an examiner of this Office are rather insufficient to be of any help to the resolution of the question involved. It appears that Enriqueta K. Vda. de Castillo is the surviving spouse of Ysidro Castillo, who died on October 15, 1947, leaving a sizeable estate consisting mostly of agricultural and residential lands. The deceased died without leaving a will and immediately thereafter, proceedings for the settlement of the estate were instituted in the Court of First Instance of Manila and docketed as Case No. 4211. The estate was adjudicated to the heirs as follows (a) 38 parcels of land brought into the marriage by the husband were allocated to the nine children (four (4) parcels of them minors at the time of death of the father) as co-owners; four (4) parcels of the nineteen (19) comprising the conjugal estate were allocated to the children; (b) seven (7) parcels were given to the wife in usufruct and (a) eight (8) parcels were adjudicated to the wife as her share in the conjugal properties. A project of partition was allegedly submitted to the Court for approval but the properties were not distributed to the heirs but remained in the possession of the wife, as administratrix. During the period of (what the court termed a "de facto") administration, the wife acquired certain properties which were registered and purchased in her name, which were valued roughly in the amount of P466,760.00. Of this amount, the sum of P153,591.69 was considered by the court as the separate income from the properties of the wife and the balance, as the income from the properties of the children administered by their mother. From those facts, which incidentally have been established in Civil Case No. 42496, the investigating examiner would like to have us believe that a partnership similar to that contemplated in section 84(b) of the Tax Code has been created, thus the assessments for corporate income tax mentioned in the first part of this discussion. The only issue involve, therefore, is to determine whether or not a partnership identical to that established in the case of "EUFEMIA EVANGELISTA ET AL., vs. THE COLLECTOR OF INTERNAL REVENUE", G.R. No. L-9996, pre. October 15, 1957 has been created, in order to justify the assessments in question. cd OPINION As enunciated in the Evangelista case, to consider that a partnership has been created certain requisites must be present, and one of them being that there must be a contribution to a common fund or an agreement to contribute to a common fund with the intention of dividing the profits or with profit as the motive. In the instant case, this agreement or intention is manifestly wanting. In fact, the heirs wanted the properties partitioned the strongest argument of the lack of agreement is the action filed by one of the heirs for partition and accounting. Another argument that may be advance is the act of the mother in purchasing properties and registering them in her name as an individual and not as an administratrix. In the Evangelista case, there had been an agreement to place the properties acquired under the management of one person with power to lease, collect rents, issue receipts, bring suits, sign letters and contracts and to indorse and deposit notes and checks in a manner like a corporation or business enterprise operated for profit. In this case, except for the fact that the mother administered the estate despite the approval of the project of partition, no evidence exists that as administrator she was given any power like those obtaining in the Evangelista case. In brief, the elements mentioned and existing in the Evangelista case are definitely not manifest in this case. If the heirs did not immediately demand the actual distribution of the properties it must obviously have been due to the natural and filial deference and respect of children to their progenitor. In view of the foregoing, this Office concurs with recommendation contained in the last paragraph of the 1st indorsement of the Legal & Litigation Branch of Regional District No. 5, San Pablo City. JOSE B. LINGAD Acting Commissioner of Internal Revenue