CIR V. WILLIAM SUTER, – G.R. NO. L-25532, FEBRUARY 28, 1969

A limited partnership was formed by Suter as the general partner, and Spirig and Carlson, as the limited partners. In 1948, however, Suter and 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, without objection by the Commissioner of Internal Revenue, until in 1959 when the latter, in an assessment, consolidated the income of the firm and the individual incomes of the partners resulting in a determination of a deficiency income tax against respondent Suter. Suter protested the assessment, and requested its cancellation and withdrawal, but his request was denied.

1. Whether the corporate personality of the partnership should be disregarded for income tax purposes

2. Whether the partnership was dissolved after the marriage of the partners and the subsequent sale to them by the remaining partner of his participation in the partnership

1. No. The petitioner-appellant has evidently failed to observe the fact that partnership was not a universal partnership, but a particular one. As appears from Articles 1674 and 1675 of the Spanish Civil Code, of 1889 (which was the law in force when the subject firm was organized in 1947), 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”. The partnership was not such a universal partnership, since the contributions of the partners were fixed sums of money, and neither one of them was an industrial partner. It follows that the partnership was not a partnership that spouses were forbidden to enter by Article 1677 of the Civil Code of 1889. The capital contributions of respondents-partners 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. The basic tenet of the Spanish and Philippine law is that the partnership has a juridical personality of its own, distinct and separate from that of its partners, the bypassing of the existence of the limited partnership as a taxpayer can only be done by ignoring or disregarding clear statutory mandates and basic principles of our law. The limited partnership’s separate individuality makes it impossible to equate its income with that of the component members. True, section 24 of the Internal Revenue Code merges registered general co-partnerships with the personality of the individual partners for income tax purposes. But this rule is exceptional in its disregard of a cardinal tenet of our partnership laws, and cannot be extended by mere implication to limited partnerships.

2. No. the subsequent marriage of the partners does not operate to dissolve it, such marriage not being one of the causes provided for that purpose either by the Spanish Civil Code or the Code of Commerce.


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