CIR Vs Batangas Transpo Company

JOINT VENTURE/TAX on CORPORATIONS
CIR V. BATANGAS TRANSPORT COMPANY AND LAGUNA- overhead expenses. At the end of each calendar year, all gross
TAYABAS BUS COMPANY (1958) receipts and expenses of both companies are determined and the
net profit were divided 50-50 then transferred to the book of
Doctrines: accounts of each company, and each company prepares its own
•A joint venture need not be undertaken in any of the standard form, or income tax return from their 50% share. The CIR theorizes that the 2
in conformity with the usual requirements of the law on partnerships, companies pooled their resources in the establishment of the
in order that one could be deemed constituted for the purposes of the tax Joint Emergency Operation thereby forming a joint venture. He
on corporations believes that a corporation exists, distinct from the 2 respondent
companies. The CTA held that the Joint Emergency Operation is
•Although no legal personality may have been created by the not a corporation within the contemplation of the NIRC, much less
Joint Emergency Operation, nevertheless, said Joint Emergency Operation a partnership, association or insurance company, and therefore was not
joint venture, or joint management operated the business affairs of the two subject to income tax separately and independently of respondent
companies as though they constituted a single entity, company or companies.
partnership, thereby obtaining substantial economy and profits in the
operation. ISSUE: W/N the 2 transportation companies involved are liable
to the payment of income tax as a corporation on the theory that
FACTS the joint emergency operation organized and operated by them
is a corporation within the meaning of Sec 84 of the Revised
This case is an appeal of the CTA decision which reversed the Internal Revenue Code.
assessment and decision of the Collector of Internal Revenue
(CIR) assessing and demanding from respondents Batangas
Transpo and Laguna Bus the amount of Php54,143.54 which RULING: YES, although no legal personality may have been created
represent deficiency income tax and compromise for the year by the Joint Emergency Operation, nevertheless said joint venture or
1946-1949. Pending then appeal to the CTA, the assessment was joint management operated the business affairs of the 2 companies as
increased to P148,890.14. Respondent bus companies are though they constituted a single entity, company or partnership,
2 distinct and separate corporations, engaged in the business of thereby obtaining substantial economy and profits in the operation.
land transportation by means of motor busses and operating
distinct and separate lines.
The Court ruled on this issue by citing the case of
During the war, the two companies lost their respective Eufemia Evangelista, et. al v. CIR– agencycase.
businesses. Post-war, they were able to acquire 56 auto busses
from the US Army which they divided equally. Two years later, This involved the 3 sisters who borrowed from their father
Martin Olsen resigned as manager and Joseph Benedict was money which they invested in land and then improved upon and
appointed as Manager of both companies by their respective Board of later sold. The sisters also hired their brother to oversee the buy-
Directors. According to Benedict, the purpose of the joint management and-sell of land. Contrary to their claim that said operation was merely a
called “Joint Emergency Operation” was to economize in co-ownership, the Court ruled that considering the facts and
JOINT VENTURE/TAX on CORPORATIONS
circumstances surrounding the said case, the 3 sisters had

purpose to engage in real estate transactions for monetary gain
and then divide the profits among themselves, making them co-
partners. When the Tax Code included “partnerships” among the
entities subject to the tax on corporations, it must refer to
organizations which are not necessarily partnerships in the technical
sense of the term, and that furthermore, said law defined the term
"corporation" as including partnerships no matter how created or
organized.
Further, from the standpoint of income tax law, the procedure

and practice of the 2 bus companies in determining the net
income of each was arbitrary and unwarranted. After all, the 2
companies operated in 2 different lines, in different provinces
or territories, with different equipment and personnel, it cannot
possibly be true and correct to say that the end of each year, the
gross receipts and income in the gross expenses of two
companies are exactly the same for purposes of the payment of
income tax. Thus, the Court held that the Joint Emergency
Operation or sole management or joint venture in this case falls
under the provisions of section 84 (b) of the Internal Revenue
Code, and consequently, it is liable to income tax provided for
in section 24 of the same code.
*But they were exempted from paying 25% surcharge for failure
to file a tax return, because of their honest belief (based on
advice of their attorneys and accountants) that they are not
required to do so.

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JOINT VENTURE/TAX on CORPORATIONS

circumstances surrounding the said case, the 3 sisters had

Further, from the standpoint of income tax law, the procedure

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