113. Collector of Internal Revenue v. Isasi (G.R. No.

L-9186, 29 April 1957)

Full Title: Collector of Internal Revenue vs. Juan Isasi, M. Salustiana Aldecoa, Claudio Zuloaga, Miren
Zuloaga, Hugo P. Rodriguez, And The Court Of Tax Appeals
Topic: LIMITED PARTNERSHIP
Ponente: Felix, J.
Nature: Petition for Review
Doctrine: A limited partnership that has not complied with the law of its creation is not considered a
limited partnership at all, but a general partnership in which all the members are liable.
Facts: Juan Isasi, M. Salustiana Aldecoa, Claudio Zuloaga, Jr., and Miren Zuloaga formed a partnership
known as "Aldecoa, Zuloaga e Isasi" for the exploitation of Haciendas Manucao and Conchita, located in
Negros, Occidental. The partnership agreement was styled Escritura de Constitucion de la Sociedad
Agricola Limitada Aldecoa, Zuloaga e Isasi,
During its life, the firm paid P26,873.66 corporate income tax. The partners also filed and paid their
individual ITRs. The partnership later filed a claim for income tax refund for the P26,873.66, which was
not acted upon, so a complaint was filed with the CFI Negros Occidental.
Argument of the Partners: The partnership was a duly registered general co-partnership (sociedad
colectiva) and therefore not subject to income tax. It had the form and style of a general co-partnership.
They also argued that a partnership, whether civil or commercial, would be entitled to the exemption as
long as it is a general partnership, because the Tax Code makes qualification to this effect. [Note: This
case is governed by the old Civil Code (Art. 2253, new Civil Code) and the Code of Commerce, where
there was a distinction between civil and commercial partnership. There are no such distinctions in the
New Civil Code. This matter is, therefore, irrelevant to class discussion.]
Argument of BIR: Aldecoa, Zuloaga e Isasi is not a general or regular collective partnership, but a limited
partnership and as such cannot be exempt from income tax. Being a civil partnership that adopted the
form of compaias colectivas, whether registered or not, Aldecoa, Zuloaga e Isasi could be taxed as a
corporation.
CTA: the partnership was general and is not liable for income tax as a juridical person. Refund justified.
Issue: Was Aldecoa, Zuloaga e Isasi a limited partnership, which is subject to corporate income tax?
Held: No.
Ratio: The terms of the partnership agreement show that it is a general partnership. They have a firm
name Aldecoa, Zuloaga e Isasi composed of all the surnames of the partners - to which the
words "and company" (to indicate the limited partnership Art. 146 of the Code of Commerce) is
not added; the management of the firm was entrusted to a partner, Don Juan Isasi; there is no person
contributing a specific amount of capital to a common fund to become liable for the business
transactions of the firm executed exclusively by others under a collective name, as is the case in
limited partnerships; the duration of the partnership was made to last until June 30, 1952; and it allowed
its manager, Don Juan Isasi to engage in the same kind of undertaking. It is unmistakable,
notwithstanding the title of the partnership agreement (Escritura de Constitucion de la Sociedad

Agricola Limitada Aldecoa, Zuloaga e Isasi), that the partners intended to organize a general
partnership.
A limited partnership that has not complied with the law of its creation is not considered a limited
partnership at all, but a general partnership in which all the members are liable. Moreover, a limited
partner in a limited partnership cannot perform any act in the management of the partner interests and
cannot even examine the condition and state of partnership administration except at stated times (Articles
122(2), 148 and 150, Code of Commerce), unlike the partnership Aldecoa, Zuloaga e Isasi, wherein all
the partners exercised powers of management and administration.
SC We, therefore, declare that the Partnership "Aldecoa, Zuloaga e Isasi" was a duly registered general
co-partnership (sociedad colectiva) within the meaning and contemplation of sections 24 and 26 of the
National Internal Revenue Code.
REYES, J.B.L., J., concurring: (Theres no way to abridge this without taking away important concepts)
In laying emphasis on the terms "sociedad agricola limitada" used in the partnership articles, the Solicitor
General overlooks that in the Spanish legal terminology, the word "limitada" has no significance whatever.
The partnership, sociedad or compaia, had to be either colectiva or comanditaria (en comandita) or
anonima. Legally, there is no such entity as a sociedad limitada under the Code of Commerce. The
English law speaks of limited copartnerships; but the correlative Spanish term is sociedad en comandita
or sociedad comanditaria, not "sociedad limitada."
If the firm "Aldecoa, Zuloaga e Isasi" was not a "sociedad en comandita," it had necessarily to be a
"sociedad colectiva." It could not be a sociedad anonima, because these could not be organized after
1906, when the corporation law was enacted (Benguet Consolidated v. Pineda, 52 Off. Gaz. (No. 4)
1961).