Case Digest - Gatchalian vs. CIR GR 45425

Gatchalian vs.Collector of Internal Revenue GR L-45425

FACTS: Jose Gatchalian along with 14 others bonded together to purchase a sweeptakes ticket in the amount of Ps 2.00 and registered the same as Jose Gatchalian and Co. This ticket has eventually won 3rd prize amounting to Ps 50,000.00 which they divided in accordance with their aliquot share in the cost of the ticket. Gatchalian receiving Ps 4425 for his Ps .18 cost.

A month after winning the ticket they were assessed by the Collector of Internal Revenue for the payment of Income Tax of their unregistered partnership requesting them to pay Ps 1,499.94. They replied that that they merely formed a co-ownership not Partnership and requested the CIR that they be exempted from paying such assessed income tax. They also submitted evidence of payment of income tax by each of them for their corresponding individual taxable pertaining to their share in the winnings. However it was denied by the CIR. Demand letter ensued until it resulted to the issuance of Warrant of distraint and levy on the property of the petitioner. Through the the 2 co-owner of Gatchalian they paid a portion of the tax assessed amounting to Ps 602.51 to avoid the embargo of the property and promised to pay the balance in installments guaranteed by 2 solvent persons as required by the CIR. The payment was made under protest and petitioner filed for request for refund at the same time. The protest was overruled and the demand for refund was denied. Another warrant for distraint and levy on the property was issued for failure to pay the monthly installments. Finally the balance was paid Ps 1,260.93 which includes legal interest and penalties. Again a formal protest and request for refund was filed and was denied. Petitioners elevated the matter to SC requesting refund of amount of Ps 1,863.44 and legal interest hereon. ISSUE: Whether or not Petitioners formed Co-Ownership or Unregistered Partnership when they purchased the winning sweepstakes ticket? RULING: SC ruled that when they bonded together and contributed to the cost of the ticket they formed an Unregistered Partnership. For they contributed money or property

into a common fund which they invest in the ticket and when it won, they divided the profit among themselves.