THIRDDIVISION

PHILEXMININGG.R.No.148187
CORPORATION,
Petitioner,Present:
YnaresSantiago,J.(Chairperson),
versusCarpioMorales,*
ChicoNazario,
Nachura,and,
Reyes,JJ.
COMMISSIONEROF
INTERNALREVENUE,Promulgated:
Respondent.
April16,2008
xx

DECISION

YNARESSANTIAGO,J.:

[1]
ThisisapetitionforreviewoncertiorarioftheJune30,2000Decision oftheCourtofAppeals
[2]
inCAG.R.SPNo.49385,whichaffirmedtheDecision oftheCourtofTaxAppealsinC.T.A.
[3]
Case No. 5200. Also assailed is the April 3, 2001 Resolution denying the motion for
reconsideration.

Thefactsofthecaseareasfollows:

On April 16, 1971, petitioner Philex Mining Corporation (Philex Mining), entered into an
[4]
agreement with Baguio Gold Mining Company (Baguio Gold) for the former to manage and
operatethelattersminingclaim,knownastheSto.Ninomine,locatedinAtokandTublay,Benguet
Province. The parties agreement was denominated as Power of Attorney and provided for the
followingterms:
followingterms:

4.Withinthree(3)yearsfromdatethereof,thePRINCIPAL(BaguioGold)shallmakeavailableto
the MANAGERS (Philex Mining) up to ELEVEN MILLION PESOS (P11,000,000.00), in such
amountsasfromtimetotimemayberequiredbytheMANAGERSwithinthesaid3yearperiod,for
use in the MANAGEMENT of the STO. NINO MINE. The said ELEVEN MILLION PESOS
(P11,000,000.00)shallbedeemed,forinternalauditpurposes,astheownersaccountintheSto.Nino
PROJECT. Any part of any income of the PRINCIPAL from the STO. NINO MINE, which is left
withtheSto.NinoPROJECT,shallbeaddedtosuchownersaccount.

5. Whenever the MANAGERS shall deem it necessary and convenient in connection with the
MANAGEMENToftheSTO.NINOMINE,theymaytransfertheirownfundsorpropertytotheSto.
NinoPROJECT,inaccordancewiththefollowingarrangements:

(a)The properties shall be appraised and, together with the cash, shall be carried by the Sto. Nino
PROJECTasaspecialfundtobeknownastheMANAGERSaccount.

(b) The total of the MANAGERS account shall not exceed P11,000,000.00, except with prior
approval of the PRINCIPAL provided, however, that if the compensation of the MANAGERS as
hereinprovidedcannotbepaidincashfromtheSto.NinoPROJECT,theamountnotsopaidincash
shallbeaddedtotheMANAGERSaccount.

(c) The cash and property shall not thereafter be withdrawn from the Sto. Nino PROJECT until
terminationofthisAgency.

(d)The MANAGERSaccount shall not accrue interest. Since it is the desire of thePRINCIPALto
extend to the MANAGERS the benefit of subsequent appreciation of property, upon a projected
terminationofthisAgency,theratiowhichtheMANAGERSaccounthastotheownersaccountwill
be determined, and the corresponding proportion of the entire assets of the STO. NINO MINE,
excluding the claims, shall be transferred to the MANAGERS, except that such transferred assets
shallnotincludeminedevelopment,roads,buildings,andsimilarpropertywhichwillbevalueless,or
ofslightvalue,totheMANAGERS.TheMANAGERScan,ontheotherhand,requireattheiroption
that property originally transferred by them to the Sto. Nino PROJECT be retransferred to them.
UntilsuchassetsaretransferredtotheMANAGERS,thisAgencyshallremainsubsisting.

xxxx

12.The compensation of the MANAGER shall be fifty per cent (50%) of the net profit of the Sto.
NinoPROJECTbeforeincometax.ItisunderstoodthattheMANAGERSshallpayincometaxon
their compensation, while the PRINCIPAL shall pay income tax on the net profit of the Sto. Nino
PROJECTafterdeductiontherefromoftheMANAGERScompensation.

xxxx

16.ThePRINCIPALhascurrentpecuniaryobligationinfavoroftheMANAGERSand,inthefuture,
mayincurotherobligationsinfavoroftheMANAGERS.ThisPowerofAttorneyhasbeenexecuted
assecurityforthepaymentandsatisfactionofallsuchobligationsofthePRINCIPALinfavorofthe
MANAGERSandasameanstofulfillthesame.Therefore,thisAgencyshallbeirrevocablewhile
any obligation of the PRINCIPAL in favor of the MANAGERS is outstanding, inclusive of the
MANAGERS account. After all obligations of the PRINCIPAL in favor of the MANAGERS have
been paid and satisfied in full, this Agency shall be revocable by the PRINCIPAL upon 36month
noticetotheMANAGERS.

17.NotwithstandinganyagreementorunderstandingbetweenthePRINCIPALandtheMANAGERS
tothecontrary,theMANAGERSmaywithdrawfromthisAgencybygiving6monthnoticetothe
PRINCIPAL.TheMANAGERSshallnotinanymannerbeheldliabletothePRINCIPALbyreason
alone of such withdrawal. Paragraph 5(d) hereof shall be operative in case of the MANAGERS
withdrawal.
 withdrawal.

[5]
xxxx

In the course of managing and operating the project, Philex Mining made advances of cash and
propertyinaccordancewithparagraph5oftheagreement.However,theminesufferedcontinuing
lossesovertheyearswhichresultedtopetitionerswithdrawalasmanagerofthemineonJanuary
[6]
28,1982andintheeventualcessationofmineoperationsonFebruary20,1982.

[7]
Thereafter,onSeptember27,1982,thepartiesexecutedaCompromisewithDationinPayment
whereinBaguioGoldadmittedanindebtednesstopetitionerintheamountofP179,394,000.00and
agreed to pay the same in three segments by first assigning Baguio Golds tangible assets to
petitioner, transferring to the latter Baguio Golds equitable title in its Philodrill assets and finally
settlingtheremainingliabilitythroughpropertiesthatBaguioGoldmayacquireinthefuture.

On December 31, 1982, the parties executed an Amendment to Compromise with Dation in
[8]
Payment where the parties determined that Baguio Golds indebtedness to petitioner actually
amountedtoP259,137,245.00,whichsumincludedliabilitiesofBaguioGoldtoothercreditorsthat
petitioner had assumed as guarantor. These liabilities pertained to longterm loans amounting to
US$11,000,000.00contractedbyBaguioGoldfromtheBankofAmericaNT&SAandCitibank
N.A. This time, Baguio Gold undertook to pay petitioner in two segments by first assigning its
tangibleassetsforP127,838,051.00andthentransferringitsequitabletitleinitsPhilodrillassetsfor
P16,302,426.00. The parties then ascertained that Baguio Gold had a remaining outstanding
indebtednesstopetitionerintheamountofP114,996,768.00.

Subsequently, petitioner wrote off in its 1982 books of account the remaining outstanding
indebtednessofBaguioGoldbychargingP112,136,000.00toallowancesandreservesthatwereset
upin1981andP2,860,768.00tothe1982operations.

In its 1982 annual income tax return, petitioner deducted from its gross income the amount of
P112,136,000.00 as loss on settlement of receivables from Baguio Gold against reserves and

[9]
allowances. However,theBureauofInternalRevenue(BIR)disallowedtheamountasdeduction
forbaddebtandassessedpetitioneradeficiencyincometaxofP62,811,161.39.

PetitionerprotestedbeforetheBIRarguingthatthedeductionmustbeallowedsinceallrequisites
PetitionerprotestedbeforetheBIRarguingthatthedeductionmustbeallowedsinceallrequisites
forabaddebtdeductionweresatisfied,towit:(a)therewasavalidandexistingdebt(b)thedebt
was ascertained to be worthless and (c) it was charged off within the taxable year when it was
determinedtobeworthless.

Petitioner emphasized that the debt arose out of a valid management contract it entered into with
BaguioGold.Thebaddebtdeductionrepresentedadvancesmadebypetitionerwhich,pursuantto
themanagementcontract,formedpartofBaguioGoldspecuniaryobligationstopetitioner.Italso
includedpaymentsmadebypetitionerasguarantorofBaguioGoldslongtermloanswhichlegally
entitledpetitionertobesubrogatedtotherightsoftheoriginalcreditor.

PetitioneralsoassertedthatduetoBaguioGoldsirreversiblelosses,itbecameevidentthatit
wouldnotbeabletorecovertheadvancesandpaymentsithadmadeinbehalfofBaguioGold.For
a debt to be considered worthless, petitioner claimed that it was neither required to institute a
judicial action for collection against the debtor nor to sell or dispose of collateral assets in
satisfactionofthedebt.Itisenoughthatataxpayerexerteddiligenteffortstoenforcecollectionand
exhaustedallreasonablemeanstocollect.

OnOctober28,1994,theBIRdeniedpetitionersprotestforlackoflegalandfactualbasis.It
heldthattheallegeddebtwasnotascertainedtobeworthlesssinceBaguioGoldremainedexisting
and had not filed a petition for bankruptcy and that the deduction did not consist of a valid and
subsisting debt considering that, under the management contract, petitioner was to be paid fifty
[10]
percent(50%)oftheprojectsnetprofit.

Petitioner appealed before the Court of Tax Appeals (CTA) which rendered judgment, as
follows:

WHEREFORE,inviewoftheforegoing,theinstantPetitionforReviewisherebyDENIED
forlackofmerit.Theassessmentinquestion,viz:FAS18288003067fordeficiencyincometaxin
theamountofP62,811,161.39isherebyAFFIRMED.

ACCORDINGLY, petitioner Philex Mining Corporation is hereby ORDERED to PAY
respondentCommissionerofInternalRevenuetheamountofP62,811,161.39,plus,20%delinquency
interestduecomputedfromFebruary10,1995,whichisthedateafterthe20daygraceperiodgiven

bytherespondentwithinwhichpetitionerhastopaythedeficiencyamountxxxuptoactualdateof
payment.

[11]
SOORDERED.

TheCTArejectedpetitionersassertionthattheadvancesitmadefortheSto.Ninominewere
in the nature of a loan. It instead characterized the advances as petitioners investment in a
in the nature of a loan. It instead characterized the advances as petitioners investment in a
partnershipwithBaguioGoldforthedevelopmentandexploitationoftheSto.Ninomine.TheCTA
heldthatthePowerofAttorneyexecutedbypetitionerandBaguioGoldwasactuallyapartnership
agreement. Since the advanced amount partook of the nature of an investment, it could not be
deductedasabaddebtfrompetitionersgrossincome.

TheCTAlikewiseheldthattheamountpaidbypetitionerforthelongtermloanobligations
ofBaguioGoldcouldnotbeallowedasabaddebtdeduction.Atthetimethepaymentsweremade,
BaguioGoldwasnotindefaultsinceitsloanswerenotyetdueanddemandable.What petitioner
didwastoprepaytheloansasevidencedbythenoticesentbyBankofAmericashowingthatit
wasmerelydemandingpaymentoftheinstallmentandinterestsdue.Moreover, Citibank imposed
andcollectedapreterminationpenaltyfortheprepayment.

[12]
TheCourtofAppealsaffirmedthedecisionoftheCTA. Hence,upondenialofitsmotion
[13]
forreconsideration, petitionertookthisrecourseunderRule45oftheRulesofCourt,alleging
that:

I.
TheCourtofAppealserredinconstruingthattheadvancesmadebyPhilexinthemanagementofthe
Sto.NinoMinepursuanttothePowerofAttorneypartookofthenatureofaninvestmentratherthana
loan.

II.
The Court of Appeals erred in ruling that the 50%50% sharing in the net profits of the Sto. Nino
Mine indicates that Philex is a partner of Baguio Gold in the development of the Sto. Nino Mine
notwithstanding the clear absence of any intent on the part of Philex and Baguio Gold to form a
partnership.

III.
TheCourtofAppealserredinrelyingonlyonthePowerofAttorneyandincompletelydisregarding
theCompromiseAgreementandtheAmendedCompromiseAgreementwhenitconstruedthenature
oftheadvancesmadebyPhilex.

IV.

TheCourtofAppealserredinrefusingtodelveupontheissueoftheproprietyofthebaddebtswrite
[14]
off.

PetitionerinsiststhatindeterminingthenatureofitsbusinessrelationshipwithBaguioGold,
we should not only rely on the Power of Attorney, but also on the subsequent Compromise with
DationinPaymentandAmendedCompromisewithDationinPaymentthatthepartiesexecutedin
1982.Thesedocuments,allegedlyevincedthepartiesintenttotreattheadvancesandpaymentsasa
loanandestablishacreditordebtorrelationshipbetweenthem.

Thepetitionlacksmerit.

ThelowercourtscorrectlyheldthatthePowerofAttorneyistheinstrumentthatismaterialin
determiningthetruenatureofthebusinessrelationshipbetweenpetitionerandBaguioGold.Before
resort may be had to the two compromise agreements, the parties contractual intent must first be
discovered from the expressed language of the primary contract under which the parties business
relations were founded. It should be noted that the compromise agreements were mere collateral
documentsexecutedbythepartiespursuanttotheterminationoftheirbusinessrelationshipcreated
under the Power of Attorney. On the other hand, it is the latter which established the juridical
relationofthepartiesanddefinedtheparametersoftheirdealingswithoneanother.

Theexecutionofthetwocompromiseagreementscanhardlybeconsideredasasubsequent
or contemporaneous act that is reflective of the parties true intent. The compromise agreements
wereexecutedelevenyearsafterthePowerofAttorneyandmerelylaidoutaplanorprocedureby
which petitioner could recover the advances and payments it made under the Power of Attorney.
The parties entered into the compromise agreements as a consequence of the dissolution of their
businessrelationship.Itdidnotdefinethatrelationshiporindicateitsrealcharacter.

An examination of the Power of Attorney reveals that a partnership or joint venture was
indeed intended by the parties. Under a contract of partnership, two or more persons bind
themselves to contribute money, property, or industry to a common fund, with the intention of
[15]
dividing the profits among themselves. While a corporation, like petitioner, cannot generally
enterintoacontractofpartnershipunlessauthorizedbylaworitscharter,ithasbeenheldthatit
mayenterintoajointventurewhichisakintoaparticularpartnership:

Thelegalconceptofajointventureisofcommonlaworigin.Ithasnopreciselegaldefinition,
butithasbeengenerallyunderstoodtomeananorganizationformedforsometemporarypurpose.xx
xItisinfacthardlydistinguishablefromthepartnership,sincetheirelementsaresimilarcommunity
ofinterestinthebusiness,sharingofprofitsandlosses,andamutualrightofcontrol.xxxThemain
distinctioncitedbymostopinionsincommonlawjurisdictionsisthatthepartnershipcontemplatesa
generalbusinesswithsomedegreeofcontinuity,whilethejointventureisformedfortheexecutionof
asingletransaction,andisthusofatemporarynature.xxxThisobservationisnotentirelyaccurate
in this jurisdiction, since under the Civil Code, a partnership may be particular or universal, and a
particularpartnershipmayhaveforitsobjectaspecificundertaking.xxxItwouldseemtherefore
thatunderPhilippinelaw,ajointventureisaformofpartnershipandshouldbegovernedbythelaw
ofpartnerships.TheSupremeCourthashoweverrecognizedadistinctionbetweenthesetwobusiness
forms, and has held that although a corporation cannot enter into a partnership contract, it may
[16]
howeverengageinajointventurewithothers.xxx(Citationsomitted)

 PerusaloftheagreementdenominatedasthePowerofAttorneyindicatesthatthepartieshad
intendedtocreateapartnershipandestablishacommonfundforthepurpose.Theyalsohadajoint
interestintheprofitsofthebusinessasshownbya5050sharingintheincomeofthemine.

Under the Power of Attorney, petitioner and Baguio Gold undertook to contribute money,
[17]
propertyandindustrytothecommonfundknownastheSto.Niomine. Inthisregard,wenote
that there is a substantive equivalence in the respective contributions of the parties to the
developmentandoperationofthemine.Pursuanttoparagraphs4and5oftheagreement,petitioner
and Baguio Gold were to contribute equally to the joint venture assets under their respective
accounts.BaguioGoldwouldcontributeP11Munderitsownersaccountplusanyofitsincomethat
is left in the project, in addition to its actual mining claim. Meanwhile, petitioners contribution
wouldconsistofitsexpertiseinthemanagementandoperationofmines,aswellasthemanagers
account which is comprised of P11M in funds and property and petitioners compensation as
managerthatcannotbepaidincash.

However,petitionerassertsthatitcouldnothaveenteredintoapartnershipagreementwith
BaguioGoldbecauseitdidnotbinditselftocontributemoneyorpropertytotheprojectthatunder
paragraph5oftheagreement,itwasonlyoptionalforpetitionertotransferfundsorpropertytothe
Sto.Nioproject(w)henevertheMANAGERSshalldeemitnecessaryandconvenientinconnection
[18]
withtheMANAGEMENToftheSTO.NIOMINE.

Thewordingofthepartiesagreementastopetitionerscontributiontothecommonfunddoes
notdetractfromthefactthatpetitionertransferreditsfundsandpropertytotheprojectasspecified
inparagraph5,thusrenderingeffectivetheotherstipulationsofthecontract,particularlyparagraph
5(c) which prohibits petitioner from withdrawing the advances until termination of the parties
businessrelations.Ascanbeseen,petitionerbecameboundbyitscontributionsoncethetransfers

were made. The contributions acquired an obligatory nature as soon as petitioner had chosen to
exerciseitsoptionunderparagraph5.

There is no merit to petitioners claim that the prohibition in paragraph 5(c) against
withdrawalofadvancesshouldnotbetakenasanindicationthatithadenteredintoapartnership
withBaguioGoldthatthestipulationonlyshowedthatwhatthepartiesenteredintowasactuallya
contractofagencycoupledwithaninterestwhichisnotrevocableatwillandnotapartnership.

Inanagencycoupledwithinterest,itistheagencythatcannotberevokedorwithdrawnby
theprincipalduetoaninterestofathirdpartythatdependsuponit,orthemutualinterestofboth
theprincipalduetoaninterestofathirdpartythatdependsuponit,orthemutualinterestofboth
[19]
principal and agent. In this case, the nonrevocation or nonwithdrawal under paragraph 5(c)
appliestotheadvancesmadebypetitionerwhoissupposedlytheagentandnottheprincipalunder
the contract. Thus, it cannot be inferred from the stipulation that the parties relation under the
agreementisoneofagencycoupledwithaninterestandnotapartnership.

Neithercanparagraph16oftheagreementbetakenasanindicationthattherelationshipof
the parties was one of agency and not a partnership. Although the said provision states that this
AgencyshallbeirrevocablewhileanyobligationofthePRINCIPALinfavoroftheMANAGERS
isoutstanding,inclusiveoftheMANAGERSaccount,itdoesnotnecessarilyfollowthattheparties
enteredintoanagencycontractcoupledwithaninterestthatcannotbewithdrawnbyBaguioGold.

ItshouldbestressedthatthemainobjectofthePowerofAttorneywasnottoconferapower
in favor of petitioner to contract with third persons on behalf of Baguio Gold but to create a
businessrelationshipbetweenpetitionerandBaguioGold,inwhichtheformerwastomanageand
operatethelattersminethroughthepartiesmutualcontributionofmaterialresourcesandindustry.
Theessenceofanagency,evenonethatiscoupledwithinterest,istheagentsabilitytorepresenthis
[20]
principal and bring about business relations between the latter and third persons. Where
representation for and in behalf of the principal is merely incidental or necessary for the proper
discharge of ones paramount undertaking under a contract, the latter may not necessarily be a
contractofagency,butsomeotheragreementdependingontheultimateundertakingoftheparties.
[21]

In this case, the totality of the circumstances and the stipulations in the parties agreement
indubitably lead to the conclusion that a partnership was formed between petitioner and Baguio
Gold.

First, it does not appear that Baguio Gold was unconditionally obligated to return the
advances made by petitioner under the agreement. Paragraph 5 (d) thereof provides that upon
termination of the parties business relations, the ratio which the MANAGERS account has to the
owners account will be determined, and the corresponding proportion of the entire assets of the
[22]
STO.NINOMINE,excludingtheclaimsshallbetransferredtopetitioner. Aspointedoutbythe
CourtofTaxAppeals,petitionerwasmerelyentitledtoaproportionatereturnoftheminesassets
upondissolutionofthepartiesbusinessrelations.There was nothing in the agreement that would
requireBaguioGoldtomakepaymentsoftheadvancestopetitioneraswouldberecognizedasan
itemofobligationoraccountspayableforBaguioGold.

Thus, the tax court correctly concluded that the agreement provided for a distribution of
assetsoftheSto.Niomineupontermination,aprovisionthatismoreconsistentwithapartnership
thanacreditordebtorrelationship.Itshouldbepointedoutthatinacontractofloan,apersonwho
receivesaloanormoneyoranyfungiblethingacquiresownershipthereofandisboundtopaythe
[23]
creditor an equal amount of the same kind and quality. In this case, however, there was no
stipulationforBaguioGoldtoactuallyrepaypetitionerthecashandpropertythatithadadvanced,
butonlythereturnofanamountpeggedataratiowhichthemanagersaccounthadtotheowners
account.

In this connection, we find no contractual basis for the execution of the two compromise
agreementsinwhichBaguioGoldrecognizedadebtinfavorofpetitioner,whichsupposedlyarose
from the termination of their business relations over the Sto. Nino mine. The Power of Attorney
clearlyprovidesthatpetitionerwouldonlybeentitledtothereturnofaproportionateshareofthe
mineassetstobecomputedataratiothatthemanagersaccounthadtotheownersaccount.Except
toprovideabasisforclaimingtheadvancesasabaddebtdeduction,thereisnoreasonforBaguio
Goldtoholditselfliabletopetitionerunderthecompromiseagreements,foranyamountoverand
abovetheproportionagreeduponinthePowerofAttorney.

Next,thetaxcourtcorrectlyobservedthatitwasunlikelyforabusinesscorporationtolend
hundreds of millions of pesos to another corporation with neither security, or collateral, nor a
specificdeedevidencingthetermsandconditionsofsuchloans.Thepartiesalsodidnotprovidea
specificmaturitydatefortheadvancestobecomedueanddemandable,andthemannerofpayment
wasunclear.Allthesepointtotheinevitableconclusionthattheadvanceswerenotloansbutcapital
contributionstoapartnership.

The strongest indication that petitioner was a partner in the Sto Nio mine is the fact that it
would receive 50% of the net profits as compensation under paragraph 12 of the agreement. The
entirety of the parties contractual stipulations simply leads to no other conclusion than that
petitionerscompensationisactuallyitsshareintheincomeofthejointventure.

Article1769(4)oftheCivilCodeexplicitlyprovidesthatthereceiptbyapersonofasharein
the profits of a business is prima facie evidence that he is a partner in the business. Petitioner
asserts,however,thatnosuchinferencecanbedrawnagainstitsinceitsshareintheprofitsofthe
StoNioprojectwasinthenatureofcompensationorwagesofanemployee,undertheexception
[24]
providedinArticle1769(4)(b).


On this score, the tax court correctly noted that petitioner was not an employee of Baguio
Gold who will be paid wages pursuant to an employeremployee relationship. To begin with,
petitionerwasthemanageroftheprojectandhadputsubstantialsumsintotheventureinorderto
ensureitsviabilityandprofitability.Bypeggingitscompensationtoprofits,petitioneralsostoodnot
toberemuneratedincasetheminehadnoincome.Itishardtobelievethatpetitionerwouldtake
theriskofnotbeingpaidatallforitsservices,ifitweretrulyjustanordinaryemployee.

Consequently, we find that petitioners compensation under paragraph 12 of the agreement
actually constitutes its share in the net profits of the partnership. Indeed, petitioner would not be
[25]
entitledtoanequalshareintheincomeofthemineifitwerejustanemployeeofBaguioGold.
Itisnotsurprisingthatpetitionerwastoreceivea50%shareinthenetprofits,consideringthatthe
PowerofAttorneyalsoprovidedforanalmostequalcontributionofthepartiestotheSt.Ninomine.
The compensation agreed upon only serves to reinforce the notion that the parties relations were
indeedofpartnersandnotemployeremployee.

All told, the lower courts did not err in treating petitioners advances as investments in a
partnershipknownastheSto.Ninomine.TheadvanceswerenotdebtsofBaguioGoldtopetitioner
inasmuchasthelatterwasundernounconditionalobligationtoreturnthesametotheformerunder
the Power of Attorney. As for the amounts that petitioner paid as guarantor to Baguio Golds
creditors,wefindnoreasontodepartfromthetaxcourtsfactualfindingthatBaguioGoldsdebts
were not yet due and demandable at the time that petitioner paid the same. Verily, petitioner pre

paid Baguio Golds outstanding loans to its bank creditors and this conclusion is supported by the
[26]
evidenceonrecord.

Insum,petitionercannotclaimtheadvancesasabaddebtdeductionfromitsgrossincome.
Deductions for income tax purposes partake of the nature of tax exemptions and are strictly
construed against the taxpayer, who must prove by convincing evidence that he is entitled to the
[27]
deductionclaimed. In this case, petitioner failed to substantiate its assertion that the advances
weresubsistingdebtsofBaguioGoldthatcouldbedeductedfromitsgrossincome.Consequently,it
couldnotclaimtheadvancesasavalidbaddebtdeduction.

WHEREFORE,thepetitionisDENIED.ThedecisionoftheCourtofAppealsinCAG.R.SPNo.
49385datedJune30,2000,whichaffirmedthedecisionoftheCourtofTaxAppealsinC.T.A.Case
No. 5200 is AFFIRMED. Petitioner Philex Mining Corporation is ORDERED to PAY the
No. 5200 is AFFIRMED. Petitioner Philex Mining Corporation is ORDERED to PAY the
deficiencytaxonits1982incomeintheamountofP62,811,161.31,with20%delinquencyinterest
computedfromFebruary10,1995, which is the due date given for the payment of the deficiency
incometax,uptotheactualdateofpayment.

SOORDERED.

CONSUELOYNARESSANTIAGO
AssociateJustice

WECONCUR:

CONCHITACARPIOMORALES
AssociateJustice



MINITAV.CHICONAZARIOANTONIOEDUARDOB.NACHURA
AssociateJusticeAssociateJustice

RUBENT.REYES
AssociateJustice

ATTESTATION

Iattestthattheconclusionsintheabovedecisionwerereachedinconsultationbeforethecasewas
assignedtothewriteroftheopinionoftheCourtsDivision.

CONSUELOYNARESSANTIAGO
AssociateJustice
Chairperson,ThirdDivision
 Chairperson,ThirdDivision

CERTIFICATION

PursuanttoSection13,ArticleVIIIoftheConstitutionandtheDivisionChairpersonsAttestation,it
isherebycertifiedthattheconclusionsintheaboveDecisionwerereachedinconsultationbefore
thecasewasassignedtothewriteroftheopinionoftheCourtsDivision.

REYNATOS.PUNO
ChiefJustice

*InlieuofAssociateJusticeMa.AliciaAustriaMartinez.
[1]
Rollo,pp.4657pennedbyAssociateJusticePortiaAlioHormachuelosandconcurredinbyAssociateJusticesMa.AliciaAustria
Martinez(nowanAssociateJusticeoftheSupremeCourt)andElviJohnS.Asuncion.
[2]
Id.at169196pennedbyJusticeAmancioQ.Saga.
[3]
Id.at59.
[4]
Id.at6069.
[5]
Id.at6263,66&68.
[6]
Id.at124.
[7]
Id.at8997.
[8]
Id.at98106.
[9]
Id.at129.
[10]
Id.at148149.
[11]
Id.at195.
[12]
Id.at4657.
[13]
Id.at59.
[14]
Id.at18.
[15]
CIVILCODE,Art.1767.
[16]
Aurbachv.SanitaryWaresManufacturingCorporation,G.R.No.75875,December15,1989,180SCRA130,146147.
[17]
PowerofAttorney,paragraph2(a),rollo,p.61.
[18]
Rollo,p.62.
[19]
CIVILCODE,Art.1927.Anagencycannotberevokedifabilateralcontractdependsuponit,orifitisthemeansoffulfillingan
obligationalreadycontracted,orifapartnerisappointedmanagerofapartnershipinthecontractofpartnershipandhisremovalfromthe
managementisunjustifiable.
[20]
Partnership,AgencyandTrusts,1996Ed.,DeLeonandDeLeon,Jr.,p.330.
 Partnership,AgencyandTrusts,1996Ed.,DeLeonandDeLeon,Jr.,p.330.
[21]
SeeNielson&Company,Inc.v.LepantoConsolidatedMiningCompany,135Phil.532,542(1968).
[22]
Rollo,p.63.
[23]
CIVILCODE,Art.1953.
[24]
Article1769(4)(b)oftheCivilCodestates:
Art.1769.Indeterminingwhetherapartnershipexists,theserulesshallapply:
xxxx
(4)Thereceiptbyapersonofashareoftheprofitsofabusinessisprimafacieevidencethatheisapartnerinthebusiness,butno
suchinferenceshallbedrawnifsuchprofitswerereceivedinpayment:
xxxx
(b)Aswagesofanemployeeorrenttoalandlord
xxxx
[25]
SeeTocaov.CourtofAppeals,396Phil.166,180182(2000).
[26]
Rollo,pp.8188.
[27]
SeeLawofBasicTaxationinthePhilippines,2001RevisedEd.,BenjaminB.Aban,p.119.