Philex Mining Corp vs CIR

G.R. No. 148187 April 16, 2008

YNARES-SANTIAGO, J.:

FACTS:

Philex entered into an agreement with Baguio Gold Mining Corp for the former to manage the
latter’s mining claim known as the Sto. Nino Mine and executed an agreement denominated
as “Power of Attorney”. The mine suffered continuing losses over the years, which resulted in
petitioners’ withdrawal as manager of the mine and afterwards, executed a “Compromise Dation
in Payment”, where in the debt of Baguio amounted to Php. 112,136,000.00. Philex 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 but the petitioner claims that it entered a contract of agency evidenced
by the “power of attorney” executed by them and the advances made by Philexis 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.

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 the50-50 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Moreover, in an agency coupled with interest, it is the agency that cannot be revoked or withdrawn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.