Case Digest Not Mine

PASCUAL v. Commissioner of InternalRevenue #10 BUSORG

G.R. No. 78133 October 18, 1988

GANCAYCO, J.:

FACTS:
On June 22, 1965, petitioners bought two (2)parcels of land from Santiago Bernardino, et al.and on May 28, 1966,
they bought anotherthree (3) parcels of land from Juan Roque. Thefirst two parcels of land were sold by petitionersin
1968 to Marenir Development Corporation,while the three parcels of land were sold bypetitioners to Erlinda Reyes and
Maria Samsonon March 19,1970. Petitioner realized a netprofit in the sale made in 1968 in the amount of P165, 224.70,
while they realized a net profit of P60,000 in the sale made in 1970. Thecorresponding capital gains taxes were paid
bypetitioners in 1973 and 1974 .Respondent Commissioner informed petitionersthat in the years 1968 and 1970,
petitioners asco-owners in the real estate transactions formedan unregistered partnership or joint venturetaxable as a
corporation under Section 20(b)and its income was subject to the taxesprescribed under Section 24, both of theNational
Internal Revenue Code; that theunregistered partnership was subject tocorporate income tax as distinguished
fromprofits derived from the partnership by themwhich is subject to individual income tax.
ISSUE:
Whether petitioners formed an unregisteredpartnership subject to corporate income tax(partnership vs. co-ownership)
RULING:
Article 1769 of the new Civil Code lays down therule for determining when a transaction shouldbe deemed a
partnership or a co-ownership.Said article paragraphs 2 and 3, provides:(2) Co-ownership or co-possession does not
itself establish a partnership, whether such co-ownersor co-possessors do or do not share any profitsmade by the use
of the property; (3) Thesharing of gross returns does not of itself establish a partnership, whether or not thepersons
sharing them have a joint or commonright or interest in any property from which thereturns are derived;The sharing
of returns does not in itself establish a partnership whether or not thepersons sharing therein have a joint or
commonright or interest in the property. There must bea clear intent to form a partnership, theexistence of a juridical
personality different fromthe individual partners, and the freedom of eachparty to transfer or assign the whole
property.In the present case, there is clear evidence of co-ownership between the petitioners. There isno adequate
basis to support the propositionthat they thereby formed an unregisteredpartnership. The two isolated
transactionswhereby they purchased properties and sold thesame a few years thereafter did not therebymake them
partners. They shared in the grossprofits as co- owners and paid their capital gainstaxes on their net profits and availed
of the taxamnesty thereby. Under the circumstances, theycannot be considered to have formed anunregistered
partnership which is thereby liablefor corporate income tax, as the respondentcommissioner
proposes. And even assuming for the sake of argumentthat such unregistered partnership appears tohave been
formed, since there is no suchexisting unregistered partnership with a distinctpersonality nor with assets that can be
heldliable for said deficiency corporate income tax,then petitioners can be held individually liable aspartners for this
unpaid obligation of thepartnership

Philex vs cir

Facts: Petitioner Philex entered into an agreement with Baguio Gold Mining Corporation for the former to manage the
latter’s mining claim know as the Sto. Mine. The parties’ agreement was denominated as “Power of Attorney”. The
mine suffered continuing losses over the years, which resulted in petitioners’ withdrawal as manager of the mine. The
parties executed a “Compromise Dation in Payment”, wherein the debt of Baguio amounted to Php. 112,136,000.00.
Petitioner deducted said amount from its gross income in its annual tax income return as “loss on the settlement of
receivables from Baguio Gold against reserves and allowances”. BIR disallowed the amount as deduction for bad debt.
Petitioner claims that it entered a contract of agency evidenced by the “power of attorney” executed by them and the
advances made by petitioners is in the nature of a loan and thus can be deducted from its gross income. Court of Tax
Appeals (CTA) rejected the claim and held that it is a partnership rather than an agency. CA affirmed CTA

Issue: Whether or not it is an agency.

Held: No. The lower courts correctly held that the “Power of Attorney” (PA) is the instrument material that is material
in determining the true nature of the business relationship between petitioner and Baguio. An examination of the said
PA reveals that a partnership or joint venture was indeed intended by the parties. While a corporation like the petitioner
cannot generally enter into a contract of partnership unless authorized by law or its charter, it has been held that it
may enter into a joint venture, which is akin to a particular partnership. The PA indicates that the parties had intended
to create a PAT and establish a common fund for the purpose. They also had a joint interest in the profits of the
business as shown by the 50-50 sharing of income of the mine.

Moreover, in an agency coupled with interest, it is the agency that cannot be revoked or withdrawn by the principal
due to an interest of a third party that depends upon it or the mutual interest of both principal and agent. In this case
the non-revocation or non-withdrawal under the PA applies to the advances made by the petitioner who is the agent
and not the principal under the contract. Thus, it cannot be inferred from the stipulation that it is an agency.