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a partnership agreement with Jacinto L Sunga, father of petitioner, in the distribution of Shellane Liquefied Petroleum Gas (LPG) in Manila. For business convenience, respondent and Jacinto allegedly agreed to register the business name of their partnership, SHELLITE GAS APPLIANCE CENTER, under the name of Jacinto as a sole proprietorship. Respondent allegedly delivered his initial capital contribution of P100, 000.00 to Jacinto while the latter in turn produced P100, 000.00 as his counterpart contribution, with the intention that the profits would be equally divided between them. Upon Jacinto's death in the later part of 1989, his surviving wife, petitioner Cecilia and particularly his daughter, petitioner Lilibeth, took over the operations, control, custody, disposition and management of Shellite without respondent's consent. Despite respondent's repeated demands upon petitioners for accounting, inventory, appraisal, winding up and restitution of his net shares in the partnership, petitioners failed to comply. Petitioner Lilibeth allegedly continued the operations of Shellite, converting to her own use and advantage its properties. On March 31, 1991, respondent claimed that after petitioner Lilibeth ran out the alibis and reasons to evade respondent's demands, she disbursed out of the partnership funds the amount of P200,000.00 and partially paid the same to respondent. Petitioner Lilibeth allegedly informed respondent that the P200,000.00 represented partial payment of the latter's share in the partnership, with a promise that the former would make the complete inventory and winding up of the properties of the business establishment. Despite such commitment, petitioners allegedly failed to comply with their duty to account, and continued to benefit from the assets and income of Shellite to the damage and prejudice of respondent. Trial court directed petitioner to render an accounting, to restitute to the partnership all properties, assets, income and profits they misapplied and converted to their own use and advantage, to pay the plaintiff earned but unreceived income and profits from the partnership from 1988 to May 30, 1992, ORDERING them to wind up the affairs of the partnership and terminate its business activities pursuant to law. CA affirmed the decision. ISSUES: Whether or not there does partnership exist HELD: Decision is affirmed. A partnership may be constituted in any form, except where immovable property of real rights are contributed thereto, in which case a public instrument shall necessary.6 Hence, based on the intention of the parties, as gathered from the FACTS and ascertained from their language and conduct, a verbal contract of partnership may arise.7 The essential profits that must be proven to that a partnership was agreed upon are (1) mutual contribution to a common stock, and (2) a joint interest in the profits.
owners and paid their capital gains taxes on their net profits and availed of the tax amnesty thereby. And even assuming for the sake of argument that such unregistered partnership appears to have been formed. while the three parcels of land were sold by petitioners to Erlinda Reyes and Maria Samson on March 19. Respondent Commissioner informed petitioners that in the years 1968 and 1970. Commissioner of Internal Revenue FACTS: On June 22. then petitioners can be held individually liable as partners for this unpaid obligation of the partnership. petitioners bought two (2) parcels of land from Santiago Bernardino. provides:(2) Co-ownership or co-possession does not itself establish a partnership. that the unregistered partnership was subject to corporate income tax as distinguished from profits derived from the partnership by them which is subject to individual income tax. They shared in the gross profits as co. The corresponding capital gains taxes were paid by petitioners in 1973 and 1974 . while they realized a net profit of P60. there is clear evidence of co-ownership between the petitioners. 224. In the present case. and on May 28. whether such co-owners or co-possessors do or do not share any profits made by the use of the property. The two isolated transactions whereby they purchased properties and sold the same a few years thereafter did not thereby make them partners. (3) The sharing of gross returns does not of itself establish a partnership. and the freedom of each party to transfer or assign the whole property. 1970. . since there is no such existing unregistered partnership with a distinct personality nor with assets that can be held liable for said deficiency corporate income tax. petitioners as co-owners in the real estate transactions formed an unregistered partnership or joint venture taxable as a corporation under Section 20 (b) and its income was subject to the taxes prescribed under Section 24. ISSUE: Whether petitioners formed an unregistered partnership subject to corporate income tax(partnership vs. they bought another three (3) parcels of land from Juan Roque. whether or not the persons sharing them have a joint or common right or interest in any property from which the returns are derived.Partnership Digested Cases PASCUAL v. Said article paragraphs 2 and 3. There must be a clear intent to form a partnership. Under the circumstances. both of the National Internal Revenue Code.000 in the sale made in 1970.70. 1965. Petitioner realized a net profit in the sale made in 1968 in the amount of P165. as the respondent commissioner proposes. the existence of a juridical personality different from the individual partners. 1966. coownership) RULING: Article 1769 of the new Civil Code lays down the rule for determining when a transaction should be deemed a partnership or a co-ownership. The first two parcels of land were sold by petitioners in 1968 to Marenir Development Corporation. There is no adequate basis to support the proposition that they thereby formed an unregistered partnership. The sharing of returns does not in itself establish a partnership whether or not the persons sharing therein have a joint or common right or interest in the property. et al. they cannot be considered to have formed an unregistered partnership which is thereby liable for corporate income tax.
to cover for All Risk Insurance Policies over machinery erection. CIR. on the basis of which. the petitioners contend that the five-year prescriptive period then provided in the NIRC had already lapsed. 1976. the prescriptive period was totalled under the Section 333 of the NIRC. as it would result to taxing the same premium income twice in the hands of the same taxpayer. The treaties required petitioners to form a pool. petitioners argue that the government’s right to assess and collect the subject Information Return was filed by the pool on April 14. (d) the executive board of the pool did not exercise control and management of its funds. there is no double taxation. a non-resident foreign insurance corporation. because (a) the reinsurance policies were written by them individually and separately. the pool is a taxable entity distinct from the individual corporate entities of the ceding companies. because the taxpayer cannot be located at the address given in the information return filed and for which reason there was delay in sending the assessment. Finally. They further contend that remittances to Munich are not dividends and to subject it to tax would be tantamount to an illegal double taxation. breakdown and boiler explosion. (c) there was no common fund. the existence of executive board and the fact that while the pool is not in itself. which had no legal personalities apart from individual members. the law clearly states that the prescriptive period will be suspended only if the taxpayer informs the CIR of any change in the address. unlike the board of a corporation. Further. and that the internal revenue commissioner was already barred by prescription from making an assessment.Partnership Digested Cases AFISCO INSURANCE CORP. the court held that Sec. Thus. Further. 24 of the NIRC covered these unregistered partnerships and even associations or joint accounts. Clearly. (e) the pool or clearing house was not and could not possibly have engaged in the business of reinsurance from which it could have derived income for itself. A protest was filed but denied by the CIR. because without it they would not have received their premiums. On April 14. the BIR telephoned petitioners on November 11. V CA Facts: AFISCO and 40 other non-life insurance companies entered into a Quota Share Reinsurance Treaties with Munich. its work is indispensable. the pool is a partnership as evidence by a common fund. a reinsurer and does not issue any insurance policy. 1976. As to the argument on prescription. 1981. (b) their liability was limited to the extent of their allocated share in the original risks insured and not solidary. Petitioners contend that they cannot be taxed as a corporation. On the basis of this return. As to the claim of double taxation. Citing the case of Evangelista v. . the pool of machinery insurers submitted a financial statement and filed an “Information Return of Organization Exempt from Income Tax” for the year ending 1975. The tax on its income is obviously different from the tax on the dividends received by the said companies. Held: A pool is considered a corporation for taxation purposes. beneficial and economically useful to the business of the ceding companies and Munich. to which AFISCO and the others complied. it was assessed by the commissioner of Internal Revenue deficiency corporate taxes. 1981 to give them notice of its letter of assessment dated March 27.
profit was earned. there was no common fund. In the present case. In Pascual. profit must have been the object as indeed. as in the case before us. but merely a co-ownership which took up only 2 isolated transactions. Should the pool’s remittances to member companies and to Munich be taxable as dividends? Ruling: The pool is taxable as a corporation. a. Petitioners' reliance on Pascual v. the ceding companies entered into a Pool Agreement or an association that would handle all the insurance businesses covered under their quota-sharing reinsurance treaty and surplus reinsurance treaty with Munich. consisting of money and other valuables that are deposited in the name and credit of the pool.Partnership Digested Cases AFISCO INSURANCE CORP. because the facts obtaining therein are not on all fours with the present case. The CIR assessed the insurance pool deficiency corporate taxes and withholding taxes on dividends paid on Munich and to the petitioners respectively. . Though the profit was apportioned among the members. there was no unregistered partnership. c. The fact that the pool does not retain any profit or income does not obliterate an antecedent fact that of the pool is being used in the transaction of business for profit. a non-resident foreign insurance corporation. The reinsurance treaties required them to form an “insurance pool” or “clearing house” in order to facilitate the handling of the business they contracted with Munich. b. Profit motive or business is therefore the primordial reason for the pool’s formation. The CA did not err in applying Evangelista. according to them. the reinsurers did not share the same risk or solidary liability. The pool functions through an executive board which resembles the BOD of a corporation. Though the pool itself is not a reinsurer. Commissioner is misplaced. There are unmistakable indicators that it is a partnership or an association covered by NIRC. It is apparent. If together they have conducted business. the executive board of the pool did not exercise control and management of its funds and the pool was not engaged in business of reinsurance from which it could have derived income for itself. The pool has a common fund. its work is indispensable. May the insurance pool be deemed a partnership or an association that is taxable as a corporation? b. beneficial and economically useful to the business of the ceding companies and Munich because without it they would not have received their premiums. The assessments were protested by the petitioners. this is one a matter of consequence as it implies that profit actually resulted. and petitioners admit that their association or co-action was indispensable to the transaction of the business. Issues: a. The CA ruled that the insurance pool was a partnership taxable as a corporation and that the latter’s collection of premiums on behalf of its members was taxable income. The petitioners belie the existence of a partnership because. which involved a partnership that engaged in a series of transactions spanning more than 10 years. V CA Facts: The petitioners are 41 local insurance firms which entered into Reinsurance Treaties with Munich.
NINO MINE. for use in the MANAGEMENT of the STO. NINO MINE.Nino PROJECT. It is understood that the managers shall pay income tax on their compensation. the PRINCIPAL (Baguio Gold) shall make available to the MANAGERS (Philex Mining) up to ELEVEN MILLION PESOS (P11. this Agency shall remain subsisting. Commissioner of Internal Revenue FACTS: Philex Mining Corp. transferring to the latter . that if the compensation of the managers as herein provided cannot be paid in cash from the Sto.Nino PROJECT as a special fund to be known as the managers’ account. and similar property which will be valueless.(d) The managers’ account shall not accrue interest. for the former to manage and operate the latter’s mining claim. (b) The total of the managers’ account shall not exceed P11. Nino PROJECT until termination of this Agency.000.Nino project.00). Until such assets are transferred to the managers.000. The compensation of the manager shall be fifty per cent (50%) of the net profit of the Sto. on the other hand.00. to the managers. they may transfer their own funds or property to the Sto. Nino Mine. Any part of any income of the principal from the Sto. in accordance with the following arrangements: (a) the properties shall be appraised and.00) shall be deemed. The parties’ agreement was denominated as “Power of Attorney” which provides inter alia: Within three (3) years from date thereof. the amount not so paid in cash shall be added to the managers’ account.Nino project shall be added to such owner’s account. shall be carried by the Sto. NINO MINE. excluding the claims.000. upon a projected termination of this Agency. except that such transferred assets shall not include mine development. shall be transferred to the managers. Nino project. in such amounts as from time to time may be required by the MANAGERS within the said 3-year period. together with the cash. entered into an agreement with Baguio Gold Mining Co. the mine suffered continuing losses over the years which resulted to Philex Mining’s withdrawal as manager of the mine and in the eventual cessation of mine operations. roads. However. Philex Mining made advances of cash and property in accordance with paragraph 5 of the agreement. known as the Sto. v. Nino project is re-transferred to them. the ratio which the managers’ account has to the owner’s account will be determined. require at their option that property originally transferred by them to the Sto. except with prior approval of the PRINCIPAL.00 and agreed to pay the same in three segments by first assigning Baguio Gold’s tangible assets to Philex Mining.000. and the corresponding proportion of the entire assets of the STO. The parties executed a “Compromise with Dation in Payment” wherein Baguio Gold admitted an indebtedness to petitioner in the amount of P179. for internal audit purposes. however.000.394. The said ELEVEN MILLION PESOS (P11. Since it is the desire of the principal to extend to the managers the benefit of subsequent appreciation of property. as the owner’s account in the Sto. or of slight value. buildings. The managers can.000. provided.000. while the principal shall pay income tax on the net profit of the Sto.Nino PROJECT after deduction there from of the managers’ compensation.Nino Mine which is left with the Sto. Whenever the managers shall deem it necessary and convenient in connection with the management of the STO.Partnership Digested Cases Philex Mining Corp.(c) The cash and property shall not thereafter be withdrawn from the Sto.Nino project before income tax.
In an agency coupled with interest.39.161. Baguio Gold undertook to pay petitioner in two segments by first assigning its tangible assets forP127. under the management contract. .426. Thus. the BIR disallowed the amount as deduction for bad debt and assessed petitioner a deficiency income tax of P62.00. The parties then ascertained that Baguio Gold had a remaining outstanding indebtedness to petitioner in the amount of P114.00 as “loss on settlement of receivables from Baguio Gold against reserves and allowances.00 to the 1982 operations. the non-revocation or non-withdrawal under paragraph 5(c) applies to the advances made by petitioner who is supposedly the agent and not the principal under the contract.302.00 to allowances and reserves that were set up in 1981 andP2.Partnership Digested Cases Baguio Gold’s equitable title in its Philo drill assets and finally settling the remaining liability through properties that Baguio Gold may acquire in the future. it cannot be inferred from the stipulation that the parties’ relation under the agreement is one of agency coupled with an interest and not a partnership. to wit: (a) there was a valid and existing debt. 811.768.000. or the mutual interest of both principal and agent.A. Philex Mining protested before the BIR arguing that the deduction must be allowed since all requisites for a bad debt deduction were satisfied.136.00. ISSUE: WON the parties entered into a contract of agency coupled with an interest which is not revocable at will HELD: No. (b) the debt was ascertained to be worthless. and (c) it was charged off within the taxable year when it was determined to be worthless.00 contracted by Baguio Gold from the Bank of America NT & SA and Citibank N. In its 1982 annual income tax return.136. BIR denied petitioner’s protest.051.996.” However. and that the deduction did not consist of a valid and subsisting debt considering that.which sum included liabilities of Baguio Gold to other creditors that petitioner had assumed as guarantor. The parties executed an “Amendment to Compromise with Dation in Payment” where the parties determined that Baguio Gold’s indebtedness to petitioner actually amounted to P259.00 and then transferring its equitable title in its Philo drill assets for P16.838.245. 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.000. It held that the alleged debt was not ascertained to be worthless since Baguio Gold remained existing and had not filed a petition for bankruptcy. petitioner was to be paid 50% of the project’s net profit. This time. These liabilities pertained to long-term loans amounting to US$11. In this case.000. Philex Mining wrote off in its 1982 books of account the remaining outstanding indebtedness of Baguio Gold by charging P112.137. Philex Mining deducted from its gross income the amount of P112. An examination of the “Power of Attorney” reveals that a partnership or joint venture was indeed intended by the parties.000.00.860.768.
in which the former was to manage and operate the latter’s mine through the parties’ mutual contribution of material resources and industry.” . Article 1769 (4) of the Civil Code explicitly provides that the “receipt by a person of a share i n the profits of a business is prima facie evidence that he is a partner in the business. The strongest indication that petitioner was a partner in the Sto. inclusive of the managers’ account. The main object of the “Power of Attorney” was not to confer a power in favor of petitioner to contract with third persons on behalf of Baguio Gold but to create a business relationship between petitioner and Baguio Gold. even one that is coupled with interest. is the agent’s ability to represent his principal and bring about business relations between the latter and third persons. The entirety of the parties’ contractual stipulations simply leads to no other conclusion than that petitioner’s “compensation” is actually its share in the income of the joint venture. The essence of an agency.” it does not necessarily follow that the parties entered into an agency contract coupled with an interest that cannot be withdrawn by Baguio Gold.Partnership Digested Cases Neither can paragraph 16 of the agreement be taken as an indication that the relationship of the parties was one of agency and not a partnership. Although the said provision states that “this Agency shall be irrevocable while any obligation of the principal in favor of the managers is outstanding.Nino Mine is the fact that it would receive 50% of the net profits as “compensation” under paragraph 12 of the agreement.
The parties executed a “Compromise Dation in Payment”. it cannot be inferred from the stipulation that it is an agency. 112. Moreover. which resulted in petitioners’ withdrawal as manager of the mine. Thus. The PA indicates that the parties had intended to create a PAT and establish a common fund for the purpose. Court of Tax Appeals (CTA) rejected the claim and held that it is a partnership rather than an agency. 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. which is akin to a particular partnership. wherein the debt of Baguio amounted to Php. BIR disallowed the amount as deduction for bad debt. While a corporation like the petitioner cannot generally enter into a contract of partnership unless authorized by law or its charter. .Partnership Digested Cases Philex Mining Corporation vs. The parties’ agreement was denominated as “Power of Attorney”. The mine suffered continuing losses over the years. 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. They also had a joint interest in the profits of the business as shown by the 50-50 sharing of income of the mine. 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.000. in an agency coupled with interest. Mine. it has been held that it may enter into a joint venture. Petitioner deducted said amount from its gross income in its annualtax income return as “loss on the settlement of receivables from Baguio Gold against reserves and allowances”. 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. Held: No.136.00. An examination of the said PA reveals that a partnership or joint venture was indeed intended by the parties. 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. CA affirmed CTA Issue: Whether or not it is an agency.
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