Johanna Marie B.

Bermudo Tax Cases

Republic of the Philippines SUPREME COURT Manila EN BANC G.R. No. L-4060 August 29, 1952 DR. ESTEBAN MEDINA, DR. JOSE DE LA ROSA, MR. ENRIQUE SANTAMARIA, and BENGUET DEVELOPMENT CO., INC., plaintiffs-appellants, vs. CITY OF BAGUIO, defendant-appellee. Francisco A. Reyes for appellants. Acting City Atty. Santiago C. Gregorio for appellee. BAUTISTA ANGELO, J.: Plaintiffs brought this action in the Court of First Instance of Baguio seeking to nullify Ordinances Nos. 62, 99 and 100 of the City Council of Baguio on the ground that they were enacted without authority or power, and are oppressive, unjust and unreasonable, and to recover the taxes and fees they had paid as itemized in the complaint. Esteban Medina is the owner and operator of Pines Theater, a duly licensed movie houses in the City of Baguio. Jose Y. de la Rosa is the owner and operator of Plaza Theater, another duly licensed movie house in the city. Enrique Santamaria is the owner and operator under a contract of lease of Session Theater, also a duly licensed movie houses in said city, while Benguet Development Co., Inc., is an operator of a gasoline station engaged in selling gasoline, petroleum and imported oil products within the city. Under Ordinance No. 99, Esteban Medina paid under protest a municipal license for 1949 for two quarters in the amount of P1,200, and Jose Y. de la Rosa paid under protest a municipal license for the same year in the amount of P1,800 for three quarters. Under Ordinance No. 62, Esteban Medina paid an additional tax of P4,896.60 during the months of July, August, September and November, 1949. Enrique Santamaria also paid an additional tax of P1,855.05 during the months of July and August of the same year. The Benguet Development Co., Inc., on the other hand, paid under Ordinance No. 100 the amount of P3,554.44 as specific tax for gasoline and oil sold from September 20, 1948, to November 17, 1949. After trial, the court rendered decision declaring Ordinances Nos. 99 and 100 valid and legal but rendering Ordinance No. 62 null and void while denying the claim of the plaintiffs for reimbursement of the different amounts paid by them under protest to the City of Baguio, without special pronouncement as to costs. From this decision only the plaintiffs appealed assigning from errors as committed by the lower court. The first question to be determined refers to the validity of Ordinance No. 99 which fixes the license fees to be paid by persons, entities or corporations which may engage in business within the city of Baguio. This ordinance fixes a license fee of P120 a year for every gasoline station installed in the city, and a fee of P2,400 for theaters which come under class "A", P1,800 for those coming under class "B", and P1,200 for those coming under class "C". Plaintiffs paid the fees required by this Ordinance, but now dispute the power of the city to enact it, contending that it only has the power to impose a license fee but not to levy a tax upon theaters and gasoline stations which are operated within its limits. They contend that, while this ordinance expressly recites that its purpose is to fix ore impose a license fee on the business or trade therein specified, in fact its purpose is to levy a tax for purposes of revenue under the guise of a license fee. This, they contend, defendants cannot do. This contention has no merit. Appellants apparently have in mind section 2553, paragraph (c) of the revised Administrative Code, which empowers the city of Baguio merely to impose a license fee for purpose of regulating the business that may be established in the city. The power as thus conferred is indeed limited, as it does not include the power to levy a tax. But on July 15, 1948, Republic Act No. 329 was enacted amending the charter of said city and adding to its power to license the power to tax and to regulate. And it is precisely having in view this amendment that Ordinance No. 99 was approved in order to increase the revenues of the city. In our opinion, the amendment above adverted to empowers the city council not only to impose a license fee but also to levy a tax for purposes of revenue, more on when in amending section 2553(b), the phrase "as provided by law" has been removed by section 2 of Republic Act No. 329. The city council of Baguio therefore, has now the power to tax, to license and to regulate provided that the subjects affected be one of those included in the charter, In this sense, the ordinance under consideration cannot be considered ultra vires whether its purpose to be levy a tax or impose a license fee. The terminology used as if no consequence. Coming now to Ordinance No. 100, we find that its validity is assailed not only because of lack of power to enact it but also because of lack of power to enact it but also because it impose a specific tax on some articles which, it is claimed, is not contemplated by law. We have already stated that under its charter, as amended, the city of Baguio has now the power not only to levy it also a specific tax on items or articles covered by the business of the taxpayer? After an examination of section 2553 of the revised Administrative Code, as amended by Republic Act No. 329, we are inclined to uphold the negative view. It is settled that a municipal corporation, unlike a sovereign state, is clothed with no inherent power of taxation. The charter or statue must plainly show an intent to confer that power or the municipality cannot assume it. And the power when granted is to be construed strictissimi juris. Any doubt or ambiguity arising out of the term used in granting that power must be resolved against the municipality. Inferences, implications, deductions all these have no place in the interpretation of the taxing power of a municipal corporation (Joseph Icard vs. City Council of Baguio and the City of Baguio, 83 Phil., 870). An examination of section 2553 (c), of the revised Administrative Code, as amended, will reveal that the power given to the city of Baguio to tax, to license and to regulate only refers to the business of the taxpayer and not to the articles used in said business. This is clearly inferred from a reading of said section and from the concluding sentence appearing therein, to wit, "and such other businesses, trade and occupations as may be established or practised in the city". One reason for this undoubtedly is the fact that under section 142 of the Internal Revenue Code (Commonwealth Act No. 466, as amended by Republic Act No. 39), most of the products mentioned in the charter, particularly gasoline and oil, are already specifically taxed, and under section 361 of said code, the city of Baguio gets a share of 20 per cent of the amount of specific tax collected. At any rate, the charter of the city of Baguio does not show plainly an intent to confer that power upon the city of Baguio and, following the rule already adverted to, this doubt or ambiguity must be resolved against the city. An indication of the legislative intent on this matter is Commonwealth Act No. 472 which confers general authority upon municipal councils to levy taxes, subjects to certain limitations, wherein it was specifically provided that the general authority so conferred shall not include "percentage taxes and taxes on specified articles". In other words, the power to levy a percentage tax or a specific tax has been expressly withheld. It is, therefore, our considered opinion that Ordinance No. 100 is ultra vires and has no force and effect. With respect to Ordinance No. 62, the lower court declared it null and void and from this part of the decision no appeal has been taken. That finding should be left undisturbed. As to whether appellants can collect the additional amounts they charged the public under the ordinance, the lower court said: "The amount collected from the theater goers as additional price of admission tickets is not the property of plaintiffs or any of them. It is paid by the public. If anybody has the right to claim it, it is those who paid it. Only owners of property has the right to claim said property. The cine owners acted as mere against agent of the city in collecting the additional price charged in the sale of admission tickets." Consequently, the court denied the claim of appellants for reimbursement. We find no error in this respect. Wherefore, the decision appealed from is hereby affirmed, with the only modification as to Ordinance No. 100, which is hereby declared null and void. Defendant is hereby ordered to return to the Benguet Development Co., Inc., the amount of P3,544.44 it has paid as specific tax. No pronouncement as to costs. Pablo, Bengzon, Padilla, Jugo and Labrador, JJ., concur. RESOLUTION November 28, 1952 BAUTISTA ANGELO, J.: This concerns the motion reconsideration filed by the City of Baguio in which it seeks to modify the decision rendered in this case on August 29, 1952. It is reiterated that Ordinance No. 100 is valid under the provisions of section 2553(c), as amended by Republic Act No. 329, of the Revised Administrative Code, and that, granting arguendo that it is invalid, there is no point to order the City of Baguio to return the taxes paid under said ordinance to appellant Benguet Development Co., Inc., for the reason that said taxes were not paid by said company but by the car owners who bought the gasoline and oil subject of the tax.

Johanna Marie B. Bermudo Tax Cases

The first claim is not well taken. We already held that section 2553(c), as amended by Republic Act No. 329, merely empowers the City of Baguio to impose a tax on business and not on the articles used therein. This is clear in said section and in the other authorities we cited in the main opinion. The case of Eastern Theatrical Co., Inc., et al. vs. Victor Alfonso, et al .1 (46 Off. Gaz., [Supp. 11] p. 303), can not be cited as a precedent in this case because the tax therein imposed by the City of Manila is amusement tax. this is not a specific tax but a tax on business. A municipal corporation, unlike a sovereign state, is clothed with no inherent power of taxation. The intent to confer such power must be resolved against the corporation (Icard vs. City Council of Baguio and the City of Baguio, 2 (46 Off. Gaz., [Supp. 11] p. 320). The second claim is disputed. It involves a question of fact. It does not appear in the record that the appellant corporation has collected the tax from the car owners as agent of the City of Baguio. Counsel for the city of Baguio sustains the affirmative and pleads that the ruling applied in the case of the theater-owners wherein it was declared that the tax should be returned to the persons from whom it was collected, should also guide the determination of this case. But counsel for the appellant corporation maintains the contrary and attempted to show that the tax was collected directly from said corporation and not from the car owners. The view of the Court on this point is to leave it pending and remand the case to the lower court in order that it may be clarified with the presentation of the necessary evidence considering the precedent already set on this matter. Wherefore, the Court holds in abeyance that portion of the decision relative to the return of the specific tax paid by the Benguet Development Co., Inc., pending determination of the question of fact pointed out above, and orders the remand of this case to the lower court for the presentation of necessary evidence. After the presentation of evidence, the lower court may render judgment in line with the decision of this Court relative to the theater-owners. The decision of this Court is maintained in all other respects. Paras, C.J., Pablo, Bengzon, Padilla, Montemayor, Jugo and Labrador, JJ., concur. G.R. No. L-52019 August 19, 1988 ILOILO BOTTLERS, INC., plaintiff-appellee, vs. CITY OF ILOILO, defendant-appellant. Efrain B. Trenas for plaintiff-appellee. Diosdado Garingalao for defendant-appellant. CORTES, J.: The fundamental issue in this appeal is whether the Iloilo Bottlers, Inc. which had its bottling plant in Pavia, Iloilo, but which sold softdrinks in Iloilo City, is liable under Iloilo City tax Ordinance No. 5, series of 1960, as amended, which imposes a municipal license tax on distributors of soft-drinks. On July 12,1972, Iloilo Bottlers, Inc. filed a complaint docketed as Civil Case No. 9046 with the Court of First Instance of Iloilo praying for the recovery of the sum of P3,329.20, which amount allegedly constituted payments of municipal license taxes under Ordinance No. 5 series of 1960, as amended, that the company paid under protest. On November 15,1972, the parties submitted a partial stipulation of facts, the material portions of which state xxx xxx xxx 2. That plaintiff is engaged in the business of bottling softdrinks under the trade name of Pepsi Cola And 7-up and selling the same to its customers, with a bottling plant situated at Barrio Ungca Municipality of Pavia, Iloilo, Philippines and which is outside the jurisdiction of defendant; 3. That defendant enacted an ordinance on January 11, 1960 known as Ordinance No. 5, Series of 1960 which ordinance was successively amended by Ordinance No. 28, Series of 1960; Ordinance No. 15, Series of 1964; and Ordinance No. 45, Series of 1964; which provides as follows: Section l. Any person, firm or corporation engaged in the distribution, manufacture or bottling of coca-cola, pepsi cola, tru-orange, seven-up and other soft drinks within the jurisdiction of the City of Iloilo, shall pay a municipal license tax of ten (P0.10) centavos for every case of twenty-four bottles; PROVIDED, HOWEVER, that softdrinks sold to the public at not more than five (P0.05) centavos per bottle shall pay a tax of one and one half (P0.015) (centavos) per case of twenty four bottles. Section 1-AFor purposes of this Ordinance, all deliveries and/or dispatches emanating or made at the plant and all goods or stocks taken out of the plant for distribution, sale or exchange irrespective (of) where it would take place shall be covered by the operation of this Ordinance. 4. That prior to September, 1966, Santiago Syjuco Inc., owned and operated a bottling plant at Muelle Loney Street, Iloilo City, which was doing business under the name of Seven-up Bottling Company of the Philippines and bottled the soft-drinks Pepsi-Cola and 7-up; however sometime on September 14,1966, Santiago Syjuco, Inc., informed all its employees that it (was) closing its Iloilo Plant due to financial losses and in fact closed the same and later sold the plant to the plaintiff Iloilo Bottlers, Inc. 5. That thereafter, plaintiff operated the said plant by bottling the soft drinks Pepsi-Cola and 7-up; however, sometime in July 1968, plaintiff closed said bottling plant at Muelle Loney, Iloilo City, and transferred its bottling operations to its new plant in Barrio Ungca, Municipality of Pavia, Province of Iloilo, and which is outside the jurisdiction of the City of Iloilo; 6. That from the time of (the) enactment (of the ordinance), the Seven Up Bottling Company of the Philippines under Santiago Syjuco Inc., had been religiously paying the defendant City of Iloilo the above- mentioned municipal license tax due therefrom for bottler because its bottling plant was then still situated at Muelle Loney St., Iloilo City; but the plaintiff stopped paying the municipal license tax (after) October 21, 1968 (when) it transferred its plant to Barrio Ungca Municipality of Pavia, Iloilo which is outside the jurisdiction of the City of Iloilo; 7. That sometime on July 31, 1969, the defendant demanded from the plaintiff the payment of the municipal license tax under the above-mentioned ordinance, a xerox copy of the said letter is attached to the complaint as Annex "A" and made an integral part hereof by reference. 8. That plaintiff explained in a letter to the defendant that it could not anymore be liable to pay the municipal license fee because its bottling plant (was) not anymore inside the City of Iloilo, and that moreover, since it itself (sold) its own products to its (customers) directly, it could not be considered as a distributor in line with the doctrines enunciated by the Supreme Court in the cases of City of Manila vs. Bugsuk Lumber Co., L- 8255, July 11, 1957; Manila Trading & Supply Co., Inc. vs. City of Manila L-1 2156, April 29, 1959; Central Azucarera de Don Pedro vs. City of Manila et al., G.R. No. L7679, September 29,1955; Cebu Portland Cement vs. City of Manila and City Treasurer of Manila, L-1 4229,July 26,1960. A xerox copy of the said letter is attached as Annex "B" to the complaint and made an integral part hereof by reference. As a result of the said letter of the plaintiff, the defendant did not anymore press the plaintiff to pay the said municipal license tax; 9. That sometime on January 25, 1972, the defendant demanded from the plaintiff compliance with the said ordinance for 1972 in view of the fact that it was engaged in distribution of the softdrinks in the City of Iloilo, and it further demanded from the plaintiff payment of back taxes from the time it transferred its bottling plant to the Municipality of Pavia, Iloilo; 10. That the plaintiff demurred to the said demand of the defendant raising as its jurisdiction the reason that its bottling plant is situated outside the City of Iloilo and as bottler could not be considered as distributor under the said ordinance although it sells its product directly to the consumer, in line with the jurisprudence enunciated by the Supreme Court but due to insistence of the defendant, the plaintiff paid on April 20, 1972, the first quarter payment of the municipal licence tax in the sum of P3,329.20, under protest, and thereafter has been paying defendant every quarter under protest; 11. That on June l5, 1972,the defendant informed the plaintiff that it must pay all the taxes due since July, 1968 up to the last quarter of 1971, otherwise it shall be constrained to cancel the operation of the business of the plaintiff, and because of this threat, and so as not to occasion disruption of its business operation, the plaintiff under protest agreed to the payment of the back taxes, on staggered basis, which was acceded to by the defendant; 12. That as computed by the plaintiff the following are its softdrinks sold in Iloilo City since it transferred its bottling plant from the City of Iloilo to Barrio Ungca Pavia, Iloilo in July 1968, to wit: No. of Cases sold

13. That the plaintiff does not maintain any store or commercial establishment in the City of Iloilo from which it distributes its products, but by means of a fleet of delivery trucks, plaintiff distributes its products from its bottling plant at Barrio Ungca Municipality of Pavia, Iloilo, directly to its customers in the different towns of the Province of Iloilo as well as the City of Iloilo;

Johanna Marie B. Bermudo Tax Cases

14. That the plaintiff is already paying the National Government a percentage Tax of 71/t, as manufacturer's sales tax on all the softdrinks it manufactures as follows: O.R. No. 4683995 - January, 1972 Sales P17,222.90 O.R. No. 5614767 - February " " 17,024.81 O.R. No. .5614870 - March " " 17,589.19 O.R. No. 5614891 - April " " 18,726.77 O.R. No. 5614897 - May " " 16,710.99 O.R. No. 5614935 - June " " 14,791.20 O.R. No. 5614967 - July " " 13,952.00 O.R. No. 5614973 - August " " 15,726.16 O.R. No. 56'L4999 - September " " 19,159.54 and is also paying the municipal license tax to the municipality of Pavia, Iloilo in the amount of P l0,000.00 every year, plus a municipal license tax for engaging in its business to the municipality of Pavia in its amount of P2,000.00 every year. xxx xxx xxx [Rollo, P. 10 (Record on Appeal, pp. 25-31)] On the basis of the above stipulations, the court a quo rendered on January 26, 1973 a decision in favor of Iloilo Bottlers, Inc. declaring the Corporation not liable under the ordinance and directing the City of Iloilo to pay the sum of' P3,329.20. The decision was amended in an Order dated March 15, 1973, so as to include the amounts paid by the company after the filing of the complaint. The City of Iloilo appealed to the Court of Appeals which certified the case to this Court. The tax ordinance imposes a tax on persons, firms, and corporations engaged in the business of: 1. distribution of soft-drinks 2. manufacture of soft-drinks, and 3. bottling of softdrinks within the territorial jurisdiction of the City of Iloilo. There is no question that after it transferred its plant to Pavia, Iloilo province, Iloilo Bottlers, Inc. no longer manufactured/bottled its softdrinks within Iloilo City. Thus, it cannot be taxed as one falling under the second or the third type of business. The resolution of this case therefore hinges on whether the company may be considered engaged in the distribution of softdrinks in Iloilo City, even after it had transferred its bottling plant to Pavia, so as to be within the purview of the ordinance. Iloilo Bottlers, Inc. disclaims liability on two grounds: First, it contends that since it is not engaged in the independent business of distributing soft-drinks, but that its activity of selling is merely an incident to, or is a necessary consequence of its main or principal business of bottling, then it is NOT liable under the city tax ordinance. Second, it claims that only manufacturers or bottlers having their plants inside the territorial jurisdiction of the city are covered by the ordinance. The second ground is manifestly devoid of merit. It is clear from the ordinance that three types of activities are covered: (1) distribution, (2) manufacture and (3) bottling of softdrinks. A person engaged in any or all of these activities is subject to the tax. The first ground, however, merits serious consideration. This Court has always recognized that the right to manufacture implies the right to sell/distribute the manufactured products [See Central Azucarera de Don Pedro v. City of Manila and Sarmiento, 97 Phil. 627 (1955); Caltex (Philippines), Inc. v. City of Manila and Cudiamat, G.R. No. L-22764, July 28, 1969, 28 SCRA 840, 843.] Hence, for tax purposes, a manufacturer does not necessarily become engaged in the separate business of selling simply because it sells the products it manufactures. In certain cases, however, a manufacturer may also be considered as engaged in the separate business of selling its products. To determine whether an entity engaged in the principal business of manufacturing, is likewise engaged in the separate business of selling, its marketing system or sales operations must be looked into. In several cases [See Central Azucarera de Don Pedro v. City of Manila and Sarmiento, supra; Cebu Portland Cement Co. v. City of Manila and the City Treasurer, 108 Phil. 1063 (1960); Caltex (Philippines), Inc. v. City of Manila and Cudiamat, supra], this Court had occasion to distinguish two marketing systems: Under the first system, the manufacturer enters into sales transactions and invoices the sales at its main office where purchase orders are received and approved before delivery orders are sent to the company's warehouses, where in turn actual deliveries are made. No warehouse sales are made; nor are separate stores maintained where products may be sold independently from the main office. The warehouses only serve as storage sites and delivery points of the products earlier sold at the main office. Under the second system, sales transactions are entered into and perfected at stores or warehouses maintained by the company. Any one who desires to purchase the product may go to the store or warehouse and there purchase the merchandise. The stores and warehouses serve as selling centers. Entities operating under the first system are NOT considered engaged in the separate business of selling or dealing in their products, independent of their manufacturing business. Entities operating under the second system are considered engaged in the separate business of selling. In the case at bar, the company distributed its softdrinks by means of a fleet of delivery trucks which went directly to customers in the different places in lloilo province. Sales transactions with customers were entered into and sales were perfected and consummated by route salesmen. Truck sales were made independently of transactions in the main office. The delivery trucks were not used solely for the purpose of delivering softdrinks previously sold at Pavia. They served as selling units. They were what were called, until recently, "rolling stores". The delivery trucks were therefore much the same as the stores and warehouses under the second marketing system. Iloilo Bottlers, Inc. thus falls under the second category above. That is, the corporation was engaged in the separate business of selling or distributing soft-drinks, independently of its business of bottling them. The tax imposed under Ordinance No. 5 is an excise tax. It is a tax on the privilege of distributing, manufacturing or bottling softdrinks. Being an excise tax, it can be levied by the taxing authority only when the acts, privileges or businesses are done or performed within the jurisdiction of said authority [Commissioner of Internal Revenue v. British Overseas Airways Corp. and Court of Appeals, G.R. Nos. 65773-74, April 30, 1987, 149 SCRA 395, 410.] Specifically, the situs of the act of distributing, bottling or manufacturing softdrinks must be within city limits, before an entity engaged in any of the activities may be taxed in Iloilo City. As stated above, sales were made by Iloilo Bottlers, Inc. in Iloilo City. Thus, We have no option but to declare the company liable under the tax ordinance. With the foregoing discussion, it becomes unnecessary to discuss the other issues raised by the parties. WHEREFORE, the appealed decision is hereby REVERSED. The complaint in Civil Case No. 9046 is ordered DISMISSED. No Costs. SO ORDERED. TITLE : Iloilo Bottlers v City of Iloilo 164 SCRA 607Topic: Situs of Taxation and Double Taxation Part III of the outlineDigest by: Andrew Velasco Seat number: 31 Law 124 Section: A FACTS: I l o il o B o t tl e rs I nc . , a c o mp a ny i n th e b us in e s s o f b o t tl in g a n d s e l l i n g s o f t d ri n k s , wa s demanded by the City of Iloilo to pay an amount of 59,505 in the form of an license tax the cityc l a i m s w e r e d u e t o i t u n d e r a n o r d i n a n c e w h i c h w a s e n a c t e d o n J a n u a r y 1 1 , 1 9 6 0 k n o w n a s Ordinance No. 5, Series of 1960; which provides that manufacturers, bottlers, and distributers of s o f t d r i nk s in I l o il o a re s u b je c t to a m u n ic i p a l l ic e ns e ta x o f 1 0 c e n ta v o s p e r c a s e o f 2 4 b o t tl e s . I l o il o Bo t tl i ng I nc a s s e r te d ho we v e r t ha t s i nc e t he ir p l a n t b a s e ha s m o v e d t o m un ic ip a l i ty o f Pavia shortly after the aforementioned ordinance was enacted, they are not liable for any taxes.The city however, still demanded taxes and also demanded back taxes under the claim that IloiloB o t t l e r s i s s t i l l d i s t r i b u t i n g i n t h e c i t y o f I l o i l o s i n c e i t s t r a n s f e r . I l o i l o B o t t l e r s p a i d t h e d e ma n d e d l ic e ns e ta x a nd b a c k ta x e s u nd e r p r o te s t. Af t e r b r i ng i ng t he c a s e to c o u r t, t h e c o u r ts ruled in favor of Iloilo Bottlers and declared that Iloilo Bottlers is free from liability. The city of Iloilo then appealed this ruling, hence this case. ISSUE: Wh e t he r o r no t t he c o u r ts we r e c o r re c t i n t he i r i n i t ia l r ul i ng t ha t I l o il o Bo t tl e rs I nc . is free from liability and directing the city of Iloilo to refund the tax money. HELD: N o , t he c o u r ts we re n o t c o rr e c t. T he r ul i ng wa s re v e rs e d in fa v o r o f t he C i ty o f I l o il o and Iloilo Bottlers is deemed liable for the aforementioned taxes. RATIO: Situs of taxation (place of taxation) depends on various factors including the nature of the tax and subject matter thereof both of which must be scrutinized to reach a fair decision. Thetax ordinance enacted by the City of Iloilo imposes a tax on persons, firms, and corporationsengaged in the business of distribution of soft-drinks, manufacture of soft-drinks, and bottling of soft drinks within the

Johanna Marie B. Bermudo Tax Cases

territorial jurisdiction of the City of Iloilo. There is no question that IloiloBottlers has moved out of Iloilo Citys jurisdiction and into the municipality of Pavia where its plant now stands therefore, the latter two conditions for taxation are no longer applicable. Theruling now depends upon whether or not Iloilo Bottlers can be considered as distributing its products within Iloilo city. Iloilo Bottlers disclaims liability, saying that it does notindependently distribute but rather actively sells directly to its consumers. Distribution istherefore only incidental to its business. However, the courts find that Iloilo Bottlers is indeedconsidered as distributing since while the manufacturing and bottling occurs outside of Iloilocity, the drinks are sold in Iloilo city to consumers in a moving store fashion. The transactionsare considered to occur within the city. The tax imposed under Ordinance No. 5 is an excise tax.By its nature, the power to levy an excise tax depends upon the place where the business is done,or the occupation is engaged in, or where the transaction took place. In this case, it is a tax on the privilege of distributing, manufacturing or bottling soft drinks. Even though the base of operations is at Pavia, the areas of transactions where it conducts its business are within Iloilocity limits. The Situs for excise tax is the area of transaction, not necessarily base of operation.Since Iloilo Bottlers does distribute within city limits, it is therefore subject to the ordinance andtherefore should pay the pertinent amounts to the city of Iloilo Republic of the Philippines SUPREME COURT Manila EN BANC G.R. No. L-18994 June 29, 1963 MELECIO R. DOMINGO, as Commissioner of Internal Revenue, petitioner, vs. HON. LORENZO C. GARLITOS, in his capacity as Judge of the Court of First Instance of Leyte, and SIMEONA K. PRICE, as Administratrix of the Intestate Estate of the late Walter Scott Price,respondents. Office of the Solicitor General and Atty. G. H. Mantolino for petitioner. Benedicto and Martinez for respondents. LABRADOR, J.: This is a petition for certiorari and mandamus against the Judge of the Court of First Instance of Leyte, Ron. Lorenzo C. Garlitos, presiding, seeking to annul certain orders of the court and for an order in this Court directing the respondent court below to execute the judgment in favor of the Government against the estate of Walter Scott Price for internal revenue taxes. It appears that in Melecio R. Domingo vs. Hon. Judge S. C. Moscoso, G.R. No. L-14674, January 30, 1960, this Court declared as final and executory the order for the payment by the estate of the estate and inheritance taxes, charges and penalties, amounting to P40,058.55, issued by the Court of First Instance of Leyte in, special proceedings No. 14 entitled "In the matter of the Intestate Estate of the Late Walter Scott Price." In order to enforce the claims against the estate the fiscal presented a petition dated June 21, 1961, to the court below for the execution of the judgment. The petition was, however, denied by the court which held that the execution is not justifiable as the Government is indebted to the estate under administration in the amount of P262,200. The orders of the court below dated August 20, 1960 and September 28, 1960, respectively, are as follows: Atty. Benedicto submitted a copy of the contract between Mrs. Simeona K. Price, Administratrix of the estate of her late husband Walter Scott Price and Director Zoilo Castrillo of the Bureau of Lands dated September 19, 1956 and acknowledged before Notary Public Salvador V. Esguerra, legal adviser in Malacaang to Executive Secretary De Leon dated December 14, 1956, the note of His Excellency, Pres. Carlos P. Garcia, to Director Castrillo dated August 2, 1958, directing the latter to pay to Mrs. Price the sum ofP368,140.00, and an extract of page 765 of Republic Act No. 2700 appropriating the sum of P262.200.00 for the payment to the Leyte Cadastral Survey, Inc., represented by the administratrix Simeona K. Price, as directed in the above note of the President. Considering these facts, the Court orders that the payment of inheritance taxes in the sum of P40,058.55 due the Collector of Internal Revenue as ordered paid by this Court on July 5, 1960 in accordance with the order of the Supreme Court promulgated July 30, 1960 in G.R. No. L-14674, be deducted from the amount of P262,200.00 due and payable to the Administratrix Simeona K. Price, in this estate, the balance to be paid by the Government to her without further delay. (Order of August 20, 1960) The Court has nothing further to add to its order dated August 20, 1960 and it orders that the payment of the claim of the Collector of Internal Revenue be deferred until the Government shall have paid its accounts to the administratrix herein amounting to P262,200.00. It may not be amiss to repeat that it is only fair for the Government, as a debtor, to its accounts to its citizens-creditors before it can insist in the prompt payment of the latter's account to it, specially taking into consideration that the amount due to the Government draws interests while the credit due to the present state does not accrue any interest. (Order of September 28, 1960) The petition to set aside the above orders of the court below and for the execution of the claim of the Government against the estate must be denied for lack of merit. The ordinary procedure by which to settle claims of indebtedness against the estate of a deceased person, as an inheritance tax, is for the claimant to present a claim before the probate court so that said court may order the administrator to pay the amount thereof. To such effect is the decision of this Court in Aldamiz vs. Judge of the Court of First Instance of Mindoro , G.R. No. L-2360, Dec. 29, 1949, thus: . . . a writ of execution is not the proper procedure allowed by the Rules of Court for the payment of debts and expenses of administration. The proper procedure is for the court to order the sale of personal estate or the sale or mortgage of real property of the deceased and all debts or expenses of administrator and with the written notice to all the heirs legatees and devisees residing in the Philippines, according to Rule 89, section 3, and Rule 90, section 2. And when sale or mortgage of real estate is to be made, the regulations contained in Rule 90, section 7, should be complied with.1wph1.t Execution may issue only where the devisees, legatees or heirs have entered into possession of their respective portions in the estate prior to settlement and payment of the debts and expenses of administration and it is later ascertained that there are such debts and expenses to be paid, in which case "the court having jurisdiction of the estate may, by order for that purpose, after hearing, settle the amount of their several liabilities, and order how much and in what manner each person shall contribute, and mayissue execution if circumstances require" (Rule 89, section 6; see also Rule 74, Section 4; Emphasis supplied.) And this is not the instant case. The legal basis for such a procedure is the fact that in the testate or intestate proceedings to settle the estate of a deceased person, the properties belonging to the estate are under the jurisdiction of the court and such jurisdiction continues until said properties have been distributed among the heirs entitled thereto. During the pendency of the proceedings all the estate is in custodia legis and the proper procedure is not to allow the sheriff, in case of the court judgment, to seize the properties but to ask the court for an order to require the administrator to pay the amount due from the estate and required to be paid. Another ground for denying the petition of the provincial fiscal is the fact that the court having jurisdiction of the estate had found that the claim of the estate against the Government has been recognized and an amount of P262,200 has already been appropriated for the purpose by a corresponding law (Rep. Act No. 2700). Under the above circumstances, both the claim of the Government for inheritance taxes and the claim of the intestate for services rendered have already become overdue and demandable is well as fully liquidated. Compensation, therefore, takes place by operation of law, in accordance with the provisions of Articles 1279 and 1290 of the Civil Code, and both debts are extinguished to the concurrent amount, thus: ART. 1200. When all the requisites mentioned in article 1279 are present, compensation takes effect by operation of law, and extinguished both debts to the concurrent amount, eventhough the creditors and debtors are not aware of the compensation. It is clear, therefore, that the petitioner has no clear right to execute the judgment for taxes against the estate of the deceased Walter Scott Price. Furthermore, the petition for certiorari and mandamus is not the proper remedy for the petitioner. Appeal is the remedy. The petition is, therefore, dismissed, without costs. Padilla, Bautista Angelo, Concepcion, Barrera, Paredes, Dizon, Regala and Makalintal, JJ., concur. Bengzon, C.J., took no part. Domingo vs. Garlitos Posted by she lamsen Labels: Case Digest, Taxation Law,Taxation Law Digests GR L-18993 29 June 1963

FACTS: In Domingo vs. Moscoso (106 PHIL 1138), the Supreme Court declared as final and executory the order of the Court of First Instance of Leyte for the payment of estate and inheritance taxes, charges

Johanna Marie B. Bermudo Tax Cases

and penalties amounting to P40,058.55 by the Estate of the late Walter Scott Price. The petition for execution filed by the fiscal, however, was denied by the lower court. The Court held that the execution is unjustified as the Government itself is indebted to the Estate for 262,200; and ordered the amount of inheritance taxes be deducted from the Governments indebtedness to the Estate. ISSUE: Whether a tax and a debt may be compensated. HELD: The court having jurisdiction of the Estate had found that the claim of the Estate against the Government has been recognized and an amount of P262,200 has already been appropriated by a corresponding law (RA 2700). Under the circumstances, both the claim of the Government for inheritance taxes and the claim of the intestate for services rendered have already become overdue and demandable as well as fully liquidated. Compensation, therefore, takes place by operation of law, in accordance with Article 1279 and 1290 of the Civil Code, and both debts are extinguished to the concurrent amount. Despite the reduction of its tax liabilities, the CTA still ordered Philex to pay the remaining balance of P110,677,688.52 plus interest, elucidating its reason, to wit: Thus, for legal compensation to take place, both obligations must be liquidated and demandable. Liquidated debts are those where the exact amount has already been determined (PARAS, Civil Code of the Philippines, Annotated, Vol. IV, Ninth Edition, p. 259). In the instant case, the claims of the Petitioner for VAT refund is still pending litigation, and still has to be determined by this Court (C.T.A. Case No. 4707). A fortiori, the liquidated debt of the Petitioner to the government cannot, therefore, be set-off against the unliquidated claim which Petitioner conceived to exist in its favor (see Compaia General de Tabacos vs. French and Unson, No. 14027, November 8, 1918, 39 Phil. 34).[8] Moreover, the Court of Tax Appeals ruled that tax es cannot be subject to set-off on compensation since claim for taxes is not a debt or contract. [9] The dispositive portion of the CTA decision[10] provides: In all the foregoing, this Petition for Review is hereby DENIED for lack of merit and Petitioner is hereby ORDERED to PAY the Respondent the amount of P110,677,668.52 representing excise tax liability for the period from the 2nd quarter of 1991 to the 2nd quarter of 1992 plus 20% annual interest from August 6, 1994 until fully paid pursuant to Section 248 and 249 of the Tax Code, as amended. Aggrieved with the decision, Philex appealed the case before the Court of Appeals docketed as CA-G.R. CV No. 36975.[11] Nonetheless, on April 8, 1996, the Court of Appeals affirmed the Court of Tax Appeals observation. The pertinent portion of which reads:[12] WHEREFORE, the appeal by way of petition for review is hereby DISMISSED and the decision dated March 16, 1995 is AFFIRMED. Philex filed a motion for reconsideration which was, nevertheless, denied in a Resolution dated July 11, 1996.[13] However, a few days after the denial of its motion for reconsideration, Philex was able to obtain its VAT input credit/refund not only for the taxable year 1989 to 1991 but also for 1992 and 1994, computed as follows:[14] Period Covered By Tax Credit Certificate Date Of Issue Amount Claims For Vat Number refund/credit 1994 (2nd Quarter) 007730 11 July 1996 P25,317,534.01 1994 (4th Quarter) 007731 11 July 1996 P21,791,020.61 1989 007732 11 July 1996 P37,322,799.19 1990-1991 007751 16 July 1996 P84,662,787.46 1992 (1st-3rd Quarter) 007755 23 July 1996 P36,501,147.95 In view of the grant of its VAT input credit/refund, Philex now contends that the same should, ipso jure, off-set its excise tax liabilities[15] since both had already become due and demandable, as well as fully liquidated;[16] hence, legal compensation can properly take place. We see no merit in this contention. In several instances prior to the instant case, we have already made the pronouncement that taxes cannot be subject to compensation for the simple reason that the government and the taxpayer are not creditors and debtors of each other.[17] There is a material distinction between a tax and debt. Debts are due to the Government in its corporate capacity, while taxes are due to the Government in its sovereign capacity.[18] We find no cogent reason to deviate from the aforementioned distinction. Prescinding from this premise, in Francia v. Intermediate Appellate Court,[19] we categorically held that taxes cannot be subject to set-off or compensation, thus: We have consistently ruled that there can be no off -setting of taxes against the claims that the taxpayer may have against the government. A person cannot refuse to pay a tax on the ground that the government owes him an amount equal to or greater than the tax being collected. The collection of tax cannot await the results of a lawsuit against the government. The ruling in Francia has been applied to the subsequent case of Caltex Philippines, Inc. v. Commission on Audit ,[20] which reiterated that: x x x a taxpayer may not offset taxes due from the claims that he may have against the government. Taxes cannot be the subject of compensation because the government and taxpayer are not mutually creditors and debtors of each other and a claim for taxes is not such a debt, demand, contract or judgment as is allowed to be set-off. Further, Philexs reliance on our holding in Commissioner of Internal Revenue v. Itogon-Suyoc Mines, Inc., wherein we ruled that a pending refund may be set off against an existing tax liability

PHILEX MINING CORPORATION, petitioner, vs. COMMISSIONER OF INTERNAL REVENUE, COURT OF APPEALS, and THE COURT OF TAX APPEALS, respondents. DECISION ROMERO, J.: Petitioner Philex Mining Corp. assails the decision of the Court of Appeals promulgated on April 8, 1996 in CA-G.R. SP No. 36975[1]affirming the Court of Tax Appeals decision in CTA Case No. 4872 dated March 16, 1995[2] ordering it to pay the amount of P110,677,668.52 as excise tax liability for the period from the 2nd quarter of 1991 to the 2nd quarter of 1992 plus 20% annual interest from August 6, 1994 until fully paid pursuant to Sections 248 and 249 of the Tax Code of 1977. The facts show that on August 5, 1992, the BIR sent a letter to Philex asking it to settle its tax liabilities for the 2nd, 3rd and 4th quarter of 1991 as well as the 1st and 2nd quarter of 1992 in the total amount of P123,821,982.52 computed as follows: PERIOD COVERED BASIC TAX 25% SURCHARGE INTEREST TOTAL EXCISEUE 2nd Qtr., 1991 12,911,124.60 3,227,781.15 3,378,116.16 19,517,021.91 3rd Qtr., 1991 14,994,749.21 3,748,687.30 2,978,409.09 21,721,845.60 4th Qtr., 1991 19,406,480.13 4,851,620.03 2,631,837.72 26,889,937.88 ----------------------------------- ----------------- --------------------47,312,353.94 11,828,088.48 8,988,362.97 68,128,805.39 1st Qtr., 1992 23,341,849.94 5,835,462.49 1,710,669.82 30,887,982.25 2nd Qtr., 1992 19,671,691.76 4,917,922.94 215,580.18 24,805,194.88 43,013,541.70 10,753,385.43 1,926,250.00 55,693,177.13 90,325,895.64 22,581,473.91 10,914,612.97 123,821,982.52 ========== ========== =========== ===========[3] In a letter dated August 20, 1992, [4] Philex protested the demand for payment of the tax liabilities stating that it has pending claims for VAT input credit/refund for the taxes it paid for the years 1989 to 1991 in the amount of P119,977,037.02 plus interest. Therefore, these claims for tax credit/refund should be applied against the tax liabilities, citing our ruling in Commissioner of Internal Revenue v. Itogon-Suyoc Mines, Inc.[5] In reply, the BIR, in a letter dated September 7, 1992,[6] found no merit in Philexs position. Since these pending claims have not yet been established or determined with certainty, it follows that no legal compensation can take place. Hence, he BIR reiterated its demand that Philex settle the amount plus interest within 30 days from the receipt of the letter. In view of the BIRs denial of the offsetting of Philexs claim for VAT input credit/refund against its exercise tax obligation, Philex raised the issue to the Court of Tax Appeals on November 6, 1992.[7] In the course of the proceedings, the BIR issued a Tax Credit Certificate SN 001795 in the amount of P13,144,313.88 which, applied to the total tax liabilities of Philex of P123,821,982.52; effectively lowered the latters tax obligation of P110,677,688.52.

Johanna Marie B. Bermudo Tax Cases

even though the refund has not yet been approved by the Commissioner,[21] is no longer without any support in statutory law. It is important to note that the premise of our ruling in the aforementioned case was anchored on Section 51(d) of the National Revenue Code of 1939. However, when the National Internal Revenue Code of 1977 was enacted, the same provision upon which the ItogonSuyocpronouncement was based was omitted.[22] Accordingly, the doctrine enunciated in ItogonSuyoc cannot be invoked by Philex. Despite the foregoing rulings clearly adverse to Philexs position, it asserts that the imposition of surcharge and interest for the non-payment of the excise taxes within the time prescribed was unjustified. Philex posits the theory that it had no obligation to pay the excise liabilities within the prescribed period since, after all, it still has pending claims for VAT input credit/refund with BIR. [23] We fail to see the logic of Philexs claim for this is an outright disregard of the basic principle in tax law that taxes are the lifeblood of the government and so should be collected without unnecessary hindrance.[24] Evidently, to countenance Philexs whimsical reason would render ineffective our tax collection system. Too simplistic, it finds no support in law or in jurisprudence. To be sure, we cannot allow Philex to refuse the payment of its tax liabilities on the ground that it has a pending tax claim for refund or credit against the government which has not yet been granted. It must be noted that a distinguishing feature of a tax is that it is compulsory rather than a matter of bargain.[25] Hence, a tax does not depend upon the consent of the taxpayer.[26] If any payer can defer the payment of taxes by raising the defense that it still has a pending claim for refund or credit, this would adversely affect the government revenue system. A taxpayer cannot refuse to pay his taxes when they fall due simply because he has a claim against the government or that the collection of the tax is contingent on the result of the lawsuit it filed against the government.[27] Moreover, Philex's theory that would automatically apply its VAT input credit/refund against its tax liabilities can easily give rise to confusion and abuse, depriving the government of authority over the manner by which taxpayers credit and offset their tax liabilities. Corollarily, the fact that Philex has pending claims for VAT input claim/refund with the government is immaterial for the imposition of charges and penalties prescribed under Section 248 and 249 of the Tax Code of 1977. The payment of the surcharge is mandatory and the BIR is not vested with any authority to waive the collection thereof. [28] The same cannot be condoned for flimsy reasons,[29] similar to the one advanced by Philex in justifying its non-payment of its tax liabilities. Finally, Philex asserts that the BIR violated Section 106(e)[30] of the National Internal Revenue Code of 1977, which requires the refund of input taxes within 60 days,[31] when it took five years for the latter to grant its tax claim for VAT input credit/refund.[32] In this regard, we agree with Philex. While there is no dispute that a claimant has the burden of proof to establish the factual basis of his or her claim for tax credit or refund, [33] however, once the claimant has submitted all the required documents, it is the function of the BIR to assess these documents with purposeful dispatch. After all, since taxpayers owe honesty to government it is but just that government render fair service to the taxpayers. [34] In the instant case, the VAT input taxes were paid between 1989 to 1991 but the refund of these erroneously paid taxes was only granted in 1996. Obviously, had the BIR been more diligent and judicious with their duty, it could have granted the refund earlier. We need not remind the BIR that simple justice requires the speedy refund of wrongly-held taxes.[35] Fair dealing and nothing less, is expected by the taxpayer from the BIR in the latter's discharge of its function. As aptly held in Roxas v. Court of Tax Appeals:[36] "The power of taxation is sometimes called also the power to destroy. Therefore it should be exercised with caution to minimize injury to the proprietary rights of a taxpayer. It must be exercised fairly, equally and uniformly, lest the tax collectot kill the 'hen that lays the golden egg.' And, in the order to maintain the general public's trust and confidence in the Government this power must be used justly and not treacherously." Despite our concern with the lethargic manner by which the BIR handled Philex's tax claim, it is a settled rule that in the performance of governmental function, the State is not bound by the neglect of its agents and officers. Nowhere is this more true than in the field of taxation. [37]Again, while we understand Philex's predicament, it must be stressed that the same is not valid reason for the non- payment of its tax liabilities. To be sure, this is not state that the taxpayer is devoid of remedy against public servants or employees especially BIR examiners who, in investigating tax claims are seen to drag their feet needlessly. First, if the BIR takes time in acting upon the taxpayer's claims for refund, the latter can seek judicial remedy before the Court of Tax Appeals in the manner prescribed by law. [38] Second, if the inaction can be characterized as willful neglect of duty, then recourse under the Civil Code and the Tax Code can also be availed of. Article 27 of the Civil Code provides: "Art. 27. Any person suffering material or moral loss because a public servant or employee refuses or neglects, without just cause, to perform his official duty may file an action for damages and other relief against the latter, without prejudice to any disciplinary action that may be taken." More importantly, Section 269 (c) of the National Internal Revenue Act of 1997 states: "xxx xxx xxx (c) wilfully neglecting to give receipts, as by law required for any sum collected in the performance of duty or wilfully neglecting to perform, any other duties enjoined by law." Simply put, both provisions abhor official inaction, willful neglect and unreasonable delay in the performance of official duties.[39] In no uncertain terms must we stress that every public employee or servant must strive to render service to the people with utmost diligence and efficiency. Insolence and delay have no place in government service. The BIR, being the government collecting arm, must and should do no less. It simply cannot be apathetic and laggard in rendering service to the taxpayer if it wishes to remain true to its mission of hastening the country's development. We take judicial notice of the taxpayer's generally negative perception towards the BIR; hence, it is up to the latter to prove its detractors wrong. In sum, while we can never condone the BIR's apparent callousness in performing its duties, still, the same cannot justify Philex's non-payment of its tax liabilities. The adage "no one should take the law into his own hands" should have guided Philex's action. WHEREFORE, in view of the foregoing, the instant petition is hereby DISMISSED. The assailed decision of the Court of Appeals dated April 8, 1996 is hereby AFFIRMED. SO ORDERED. Narvasa, C.J., (Chairman), Kapunan and Purisima, JJ., concur

Philex Mining Corp. v. Commissioner of Internal Revenue G.R. No. 148187 April 16, 2008 Ynares-Santiago, J. FACTS: Philex Mining Corp. entered into an agreement with Baguio Gold Mining Co. for the former to managea nd o p e ra te t he l a t t e r s m i n i ng c l a i m , k no w n a s t he S to . N i n o M i ne . Th e p a r t ie s a g r e e me n t wa s denominated as Power of Attorney which provides inter alia:4. Within three (3) years from date thereof, the PRINCIPAL (Baguio Gold) shall make available tot he MANAGERS (Philex Mining) up to ELEVEN MILLION PESOS (P11,000,000.00), in such amounts asf ro m t i me t o t i me ma y b e re q u i re d b y t he M AN AG E RS w i th i n th e s a id 3 -y e a r p e r io d , fo r us e i n t he MANAGEMENT of the STO. NINO MINE. The said ELEVEN MILLION PESOS (P11,000,000.00) shall bedeemed, for internal audit purposes, as the owners account in the Sto. Nino PROJECT. Any part of a ny inc o me o f t he P RI N C I P AL f r o m t he S T O. N I N O M I N E , w h ic h is l e f t w i t h t he S t o . N i no P R OJ E C T, shall be added to such owners account.5. Whenever the MANAGERS shall deem it necessary and convenient in connection with th eMANAGEMENT of the STO. NINO MINE, they may transfer their own funds or property to the Sto. NinoPROJECT, in accordance with the following arrangements:(a) The properties shall be appraised and, together with the cash, shall be carried by t he Sto.Nino PROJECT as a special fund to be known as the MANAGERS account.(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 hereinprovided cannot be paid in cash from the Sto. Nino PROJECT, the amount not so paid in cash shall beadded to the MANAGERS account.(c) The cash and property shall not thereafter be withdrawn from the Sto. Nino PROJECT unt iltermination of this Agency.(d) The MANAGERS account shall not accrue interest. Since it is the desire of the PRINCIPAL toe x t e n d to t he M AN AG E RS t h e b e ne f i t o f s ub s e q ue n t a p p r e c ia t i o n o f p r o p e r ty , up o n a p ro j e c te d termination of this Agency, the ratio which the MANAGERS account has to the owners account willb e d e t e r m i ne d , a nd t he

Johanna Marie B. Bermudo Tax Cases

c o r re s p o n d in g p r o p o r t io n o f t he e n t i re a s s e ts o f t h e S T O . N I N O M I N E , e x c l u d in g t he c l a i ms , s ha l l b e t ra ns fe r re d t o t he M AN AG E R S , e x c e p t t ha t s uc h t ra ns fe r re d a s s e ts shall not include mine development, roads, buildings, and similar property which will be valueless, oro f s l i g h t va l u e , t o t he M AN AG E RS . T he M AN AG E R S c a n, o n t he o t he r ha nd , re q u i re a t t he i r o p t io n that property originally transferred by them to the Sto. Nino PROJECT be re-transferred to them. Untilsuch assets are transferred to the MANAGERS, this Agency shall remain subsisting.x x x x12. The compensation of the MANAGER shall be fifty per cent (50%) of the net profit of the Sto.Nino PROJECT before income tax. It is understood that the MANAGERS shall pay income tax on theircompensation, while the PRINCIPAL shall pay income tax on the net profit of the Sto. Nino PROJECTafter deduction therefrom of the MANAGERS compensation. Philex Mining made advances of cash and property in accordance with paragraph 5 o f t h e agreement. However, the mine suffered continuing losses over the years which resulted to PhilexMinings withdrawal as manager of the mine and in the eventual cessation of mine operations. T he p a r t ie s e x e c u te d a Co mp ro m is e w i t h Da t i o n i n Pa y me n t wh e r e i n B a g u io G o l d a d m i t t e d a n indebtedness to petitioner in the amount of P179,394,000.00 and agreed to pay the same in threesegments by first assigning Baguio Golds tangible assets to Philex Mining, transferring to the latterBaguio Golds equitable title in its Philodrill assets and finally settling the remaining liability throughproperties that Baguio Gold may acquire in the future. T he p a r t ie s e x e c u te d a n Am e nd me n t to C o mp r o m is e w i t h D a t i o n i n Pa y me n t w he re t he p a r t i e s determined that Baguio Golds indebtedness to petitioner actually amounted to P259,137,245.00,wh ic h s u m inc l ud e d l i a b il i t i e s o f Ba g u i o G o l d to o t he r c re d i t o rs t ha t p e t i ti o ne r ha d a s s u me d a s guarantor. These liabilities pertained to long-term loans amounting to US$11,000,000.00 contracted by Baguio Gold from the Bank of America NT & SA and Citibank N.A. This time, Baguio Goldu n d e r t o o k t o p a y p e t i t i o n e r i n t w o s e g m e n t s b y f i r s t a s s i g n i n g i t s t a n g i b l e a s s e t s f o r P127,838,051.00 and then transferring its equitable title in its Philodrill assets for P16,302,426.00. T h e p a r t i e s t h e n a s c e r t a i n e d t h a t B a g u i o G o l d h a d a r e m a i n i n g o u t s t a n d i n g i n d e b t e d n e s s t o petitioner in the amount of P114,996,768.00. P h il e x M i n i ng w r o te o f f i n i ts 1 98 2 b o o ks o f a c c o un t t he re ma i n i ng o u ts ta nd in g i nd e b te d n e s s o f Baguio Gold by charging P112,136,000.00 to allowances and reserves that were set up in 1981 andP2,860,768.00 to the 1982 operations. In its 1982 annual income tax return, Philex Mining deducted from its gross income the amount of P 1 12 , 1 36 , 0 00 . 0 0 a s l o s s o n s e t tl e me n t o f re c e i va b l e s f ro m Ba g u i o G o l d a g a i ns t re s e rv e s a nd a l l o wa nc e s . H o we v e r , t he BI R d is a l l o we d t he a m o un t a s d e d uc t io n fo r b a d d e b t a nd a s s e s s e d petitioner a deficiency income tax of P62,811,161.39. Philex Mining protested before the BIR arguingthat the deduction must be allowed since all requisites for a bad debt deduction were satisfied, towit: (a) there was a valid and existing debt; (b) the debt was ascertained to be worthless; and (c) itw a s c h a r g e d o f f within the taxable year when it was determined to be worthless. BIR d e n i e d petitioners protest. It held that the alleged debt was not ascertained to be worthless since BaguioGold remained existing and had not filed a petition for bankruptcy; and that the deduction did notconsist of a valid and subsisting debt considering that, under the management contract, petitionerwas to be paid 50% of the projects net profit. ISSUE: WO N t he p a r t ie s e n te re d i n t o a c o n t ra c t o f a g e nc y c o up l e d w i t h a n i n te re s t w h ic h is n o trevocable at will HELD: No. An examination of the Power of Attorney reveals that a partnership or joint venture wasindeed intended by the parties. I n a n a g e nc y c o up l e d w i t h i n te re s t, i t is t he a g e nc y t ha t c a n no t b e re v o k e d o r w i t hd ra w n b y th e p r i nc ip a l d u e to a n i n te re s t o f a t h ir d p a r ty t ha t d e p e nd s up o n i t, o r th e m u tu a l i n te re s t o f b o t h principal and agent. In this case, the non-revocation or nonwithdrawal under paragraph 5(c) appliesto t he a d v a nc e s ma d e b y p e t i t io ne r w h o is s up p o s e d l y t he a g e n t a nd n o t t he p r inc ip a l un d e r t he c o n t r a c t . T h u s , i t c a n n o t b e i n f e r r e d f r o m t h e s t i p u l a t i o n t h a t t h e p a r t i e s r e l a t i o n u n d e r t h e agreement is one of agency coupled with an interest and not a partnership. N e i t h e r c a n p a ra g ra p h 1 6 o f t he a g re e me n t b e ta k e n a s a n i nd ic a t i o n t ha t t he re l a t io ns h ip o f t he p a r t ie s wa s o ne o f a g e nc y a nd no t a p a r t ne rs h ip . Al t h o u g h t he s a id p r o v is i o n s ta te s t ha t t h is Ag e nc y s ha l l b e i r re v o c a b l e w hil e a ny o b l i g a t io n o f t he P RI N C I P AL in fa v o r o f t he M AN AG E R S is o u ts ta nd i ng , i nc l us iv e o f t he M AN AG E R S a c c o u n t, i t d o e s n o t ne c e s s a r il y f o l l o w t ha t t he p a r t ie s entered into an agency contract coupled with an interest that cannot be withdrawn by Baguio Gold. T he ma i n o b je c t o f t he P o w e r o f At t o r ne y wa s no t to c o nf e r a p o w e r i n fa v o r o f p e t i t i o n e r to contract with third persons on behalf of Baguio Gold but to create a business relationship betweenp e t i t io ne r a nd Ba g ui o G o l d , i n w hic h t he fo r me r wa s t o ma na g e a nd o p e ra te t he l a t te r s m i ne t h ro ug h th e p a r t ie s m u tu a l c o n t r ib u t io n o f ma te r ia l re s o u rc e s a nd i nd us t ry . Th e e s s e nc e o f a nagency, even one that is coupled with interest, is the agents ability to represent his principal andbring about business relations between the latter and third persons. The strongest indication that petitioner was a partner in the Sto. Nino Mine is the fact that it wouldre c e iv e 5 0 % o f t he ne t p ro f i ts a s c o mp e ns a t i o n u nd e r p a ra g ra p h 1 2 o f t he a g r e e me n t. Th e e n t i r e t y o f t h e p a r t i e s c o n t r a c t u a l s t i p u l a t i o n s s i m p l y l e a d s t o n o o t h e r c o n c l u s i o n t h a n t h a t petitioners compensation is actually its share in the income of the joint venture. Article 1769 (4) of the Civil Code explicitly provides that the receipt by a person of a share in the profits of a businessis prima facie evidence that he is a partner in the business.