CIR Vs Suter Digest

G.R. No.
L-25532
February 28, 1969 petitioner, vs.
COMMISSIONER OF INTERNAL REVENUE, WILLIAM J. SUTER and THE COURT OF TAX APPEALS, respondents.
A limited partnership, named "William J. Suter 'Morcoin' Co., Ltd.," was formed in 1947 by William J. Suter as the general partner, and Julia Spirig and Gustav Carlson, as the limited partners. The partners contributed, respectively, P20,000.00, P18,000.00 and P2,000.00 to the partnership. The firm engaged, among other activities, in the importation, marketing, distribution and operation of automatic phonographs, radios, television sets and amusement machines, their parts and accessories. In 1948, however, general partner Suter and limited partner Spirig got married and, thereafter, limited partner Carlson sold his share in the partnership to Suter and his wife. The limited partnership had been filing its income tax returns as a corporation. In 1959, the Commissioner, in an assessment, consolidated the income of the firm and the individual incomes of the partners-spouses Suter and Spirig resulting in a determination of a deficiency income tax against respondent Suter. ISSUES: (a) Whether or not the corporate personality of the William J. Suter "Morcoin" Co., Ltd. should be disregarded for income tax purposes, considering that respondent William J. Suter and his wife, Julia Spirig Suter actually formed a single taxable unit; and (b) Whether or not the partnership was dissolved after the marriage of the partners, respondent William J. Suter and Julia Spirig Suter and the subsequent sale to them by the remaining partner, Gustav Carlson, of his participation of P2,000.00 in the partnership for a nominal amount of P1.00. SC: (a) CIR has evidently failed to observe the fact that the partnership was not a universal partnership, but a particular one. A universal partnership requires either that the object of the association be all the present property of the partners, as contributed by them to the common fund, or else "all that the partners may acquire by their industry or work during the existence of the partnership". William J. Suter "Morcoin" Co., Ltd. was not such a universal partnership, since the contributions of the partners were fixed sums of money, P20,000.00 by William Suter and P18,000.00 by Julia Spirig and neither one of them was an industrial partner. It follows that William J. Suter "Morcoin" Co., Ltd. was not a partnership that spouses were forbidden to enter by Article 1677 of the Civil Code of 1889. The appellant's view, that by the marriage of both partners the company became a single proprietorship, is equally erroneous. The capital contributions of partners William J. Suter and Julia Spirig were separately owned and contributed by them before their marriage; and after they were joined in wedlock, such contributions remained their respective separate property under the Spanish Civil Code (Article 1396): The following shall be the exclusive property of each spouse: (a) That which is brought to the marriage as his or her own; .... Thus, the individual interest of each consort in the partnership did not become common property of both after their marriage in 1948. The change in its membership, brought about by the marriage of the partners and their subsequent acquisition of all interest therein, is no ground for withdrawing the partnership from the coverage of Section 24 of the tax code, requiring it to pay income tax. The code (NIRC) taxes a limited partnership on its income, but not a general copartnership (compaia colectiva), because it is in the case of compaias colectivas that the members, and not the firm, are taxable in their individual capacities for any dividend or share of the profit derived from the duly registered general partnership. (b) The fi rm was not a universal partnership, but a particular one. It follows that the partnership was not one that A and B were forbidden to enter under Article 1677. (now Art. 1782.) Nor could the subsequent marriage of the partners operate to dissolve it, such marriage not being one of the causes provided for that purpose by law.

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G.R. No.

February 28, 1969 petitioner, vs.

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