BIR Ruling No. 096-63

December 16, 1963 BIR RULING NO. 096-63 Atty. Primo B. Alvez Suite 316, Filomena Bldg. Borromeo St., Cebu City S i r : Reference is made to your letter dated July 21, 1961, requesting answers to the queries mentioned therein based on the following facts: "A, B, C, D, & E formed and operated a registered general partnership on June 30, 1956 which was to continue for a period of ten years for the business of buying and selling of general merchandise. On June 30, 1959, partners C, D, and E decided to quit from the partnership, so a deed of Dissolution was executed among all the partners and, at the same time, a new Articles of Partnership was formed and executed by the remaining partners A and B with the admission of a new partner F, in order to take over and continue the business of the dissolved partnership under the same business name and location with the understanding that the new partnership shall assume all the assets and liabilities of said dissolved partnership. Both instruments were duly registered with the Securities and Exchange Commission. . . the books of accounts of the dissolved partnership were not closed, neither inventory was taken, nor income tax return was filed for the period covering from January 1, 1959 to June 30, 1959. However, the new partnership filed its income tax return for 1959 showing all the transactions covering the period from January 1, 1959 to December 31, 1959 in accordance with the stipulated provisions of the new Articles of Partnership which took effect on January 1, 1959". In reply thereto, I have the honor to inform you as follows: 1. The old partnership was considered dissolved on June 30, 1959. (Art. 1830(1)(c), New Civil Code) "It is a well-established general rule that an existing partnership is dissolved and a new partnership is formed whenever a partner retires or a new one is admitted." (40 Am. Jr. 298) Therefore, the privilege tax-receipt secured by the said partnership for 1959 was deemed retired on the date of its dissolution pursuant to Section 181 of the National Internal Revenue Code. aisadc 2. The dissolved partnership should file its income tax return covering the period from January 1, 1959 to June 30, 1959 within 30 days after the approval of the resolution authorizing its dissolution in accordance with Section 244 of the Income Tax Regulations. The filing of the income tax returns covering the period from January 1, 1959 to December 31, 1959 by the new partnership which assumed the assets and liabilities of the old partnership was not in conformity with the aforesaid Regulations for these two partnerships have distinct and separate juridical personality. 3. The new partnership violated Section 3 of Revenue Regulations No. V-1, otherwise known as the Bookkeeping Regulations, for not adopting a new set of books of accounts. The books of accounts of the dissolved partnership cannot be used by the new partnership. The provisions of Section 22 of the aforesaid to keep books of accounts and other records who retire from business or cease to pursue their calling shall, within ten (10) days from date of such retirement, or within such period of time as may be allowed by the Commissioner of Internal Revenue submit their books of accounts and other records to the Bureau of Internal Revenue. 4. A partnership which neglects to make a return at the time or times specified by the Tax Code shall be liable to a fine of not exceeding P20,000. (Sec. 74, Tax Code; Sec. 240, Income Tax Regulations) Failure of the new partnership to provide itself with a new set of books of accounts is punishable by a fine of not more than P300.00 or by imprisonment for not more than six months, or both, (Sec. 352, Tax Code) 5. Assuming that the old partnership was dissolved on December 31, 1959, the basis of the privilege tax-receipt (C-13) to be secured by the new partnership for 1960 is not the gross annual sales realized by the former. The latter shall be liable only for P10.00 for the same year as initial graduated fixed annual tax prescribed by Section 182(A)(2) of the Tax Code. The reason being that the two partnerships are distinct juridical persons regardless of the fact that the business of the new partnership is but a continuation of the business of the old partnership. 6. Assuming again that the old partnership was dissolved on December 31, 1959, the basis of the payment of additional residence tax (C-1) for 1960 by the new partnership is not the total gross receipts or earnings of the dissolved partnership for the same reasons adduced in No. 5. Very truly yours, (SGD.) RAMON T. OBEN Acting Commissioner of Internal Revenue