THIRD DIVISION
G.R. No. 148187 April 16, 2008PHILEX MINING CORPORATION, petitioner,
vs.
COMMISSIONER OF INTERNAL REVENUE, respondent.
D E C I S I O N
YNARES-SANTIAGO, J.:
This is a petition for review on certiorari of the June 30, 2000 Decision1 of the Court of Appeals in CA-G.R. SP No. 49385, which affirmed the Decision2 of the Court of Tax Appeals in C.T.A. Case No. 5200. Also assailed is the April 3, 2001 Resolution3 denying the motion for reconsideration.
The facts of the case are as follows:
On April 16, 1971, petitioner Philex Mining Corporation (Philex Mining), entered into an agreement4
with Baguio Gold Mining Company ("Baguio Gold") for the former to
manage and operate the latter’s mining claim, known as the Sto. Nino
mine, located in Atok and Tublay, Benguet Province. The parties’
agreement was denominated as "Power of Attorney" and provided for the
following terms:
4. Within three (3) years from date thereof, the
PRINCIPAL (Baguio Gold) shall make available to the MANAGERS (Philex
Mining) up to ELEVEN MILLION PESOS (P11,000,000.00), in such amounts as
from time to time may be required by the MANAGERS within the said 3-year
period, for use in the MANAGEMENT of the STO. NINO MINE. The said
ELEVEN MILLION PESOS (P11,000,000.00) shall be deemed, for internal
audit purposes, as the owner’s account in the Sto. Nino PROJECT. Any
part of any income of the PRINCIPAL from the STO. NINO MINE, which is
left with the Sto. Nino PROJECT, shall be added to such owner’s account.
5. Whenever the MANAGERS shall deem it necessary and
convenient in connection with the MANAGEMENT of the STO. NINO MINE, they
may transfer their own funds or property to the Sto. Nino PROJECT, in
accordance with the following arrangements:
(a) The properties shall be appraised and, together
with the cash, shall be carried by the 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 herein
provided cannot be paid in cash from the Sto. Nino PROJECT, the amount
not so paid in cash shall be added to the MANAGERS’ account.
(c) The cash and property shall not thereafter be withdrawn from the Sto. Nino PROJECT until termination of this Agency.
(d) The MANAGERS’ account shall not accrue interest.
Since it is the desire of the PRINCIPAL to extend to the MANAGERS the
benefit of subsequent appreciation of property, upon a projected
termination of this Agency, the ratio which the MANAGERS’ account has to
the owner’s account will 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 shall not include mine development, roads, buildings,
and similar property which will be valueless, or of slight value, to
the MANAGERS. The MANAGERS can, on the other hand, require at their
option that property originally transferred by them to the Sto. Nino
PROJECT be re-transferred to them. Until such assets are transferred to
the MANAGERS, this Agency shall remain subsisting.
x x x x
12. 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 their
compensation, while the PRINCIPAL shall pay income tax on the net profit
of the Sto. Nino PROJECT after deduction therefrom of the MANAGERS’
compensation.
x x x x
16. The PRINCIPAL has current pecuniary obligation in
favor of the MANAGERS and, in the future, may incur other obligations
in favor of the MANAGERS. This Power of Attorney has been executed as
security for the payment and satisfaction of all such obligations of the
PRINCIPAL in favor of the MANAGERS and as a means to fulfill the same.
Therefore, this Agency shall be irrevocable while 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 36-month notice to the MANAGERS.
17. Notwithstanding any agreement or understanding
between the PRINCIPAL and the MANAGERS to the contrary, the MANAGERS may
withdraw from this Agency by giving 6-month notice to the PRINCIPAL.
The MANAGERS shall not in any manner be held liable to the PRINCIPAL by
reason alone of such withdrawal. Paragraph 5(d) hereof shall be
operative in case of the MANAGERS’ withdrawal.
x x x x5
In the course of managing and operating the project,
Philex Mining made advances of cash and property in accordance with
paragraph 5 of the agreement. However, the mine suffered continuing
losses over the years which resulted to petitioner’s withdrawal as
manager of the mine on January 28, 1982 and in the eventual cessation of
mine operations on February 20, 1982.6
Thereafter, on September 27, 1982, the parties executed a "Compromise with Dation in Payment"7
wherein Baguio Gold admitted an indebtedness to petitioner in the
amount of P179,394,000.00 and agreed to pay the same in three segments
by first assigning Baguio Gold’s tangible assets to petitioner,
transferring to the latter Baguio Gold’s equitable title in its
Philodrill assets and finally settling the remaining liability through
properties that Baguio Gold may acquire in the future.
On December 31, 1982, the parties executed an "Amendment to Compromise with Dation in Payment"8
where the parties determined that Baguio Gold’s indebtedness to
petitioner actually amounted to P259,137,245.00, which sum included
liabilities of Baguio Gold to other creditors that petitioner had
assumed as 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 Gold undertook
to pay petitioner in two segments by first assigning its tangible assets
for P127,838,051.00 and then transferring its equitable title in its
Philodrill assets for P16,302,426.00. The parties then ascertained that
Baguio Gold had a remaining outstanding indebtedness to petitioner in
the amount of P114,996,768.00.
Subsequently, petitioner wrote off in its 1982 books
of account the remaining outstanding indebtedness of Baguio Gold by
charging P112,136,000.00 to allowances and reserves that were set up in
1981 and P2,860,768.00 to the 1982 operations.
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
allowances."9
However, the Bureau of Internal Revenue (BIR) disallowed the amount as
deduction for bad debt and assessed petitioner a deficiency income tax
of P62,811,161.39.
Petitioner protested before the BIR arguing that the
deduction must be allowed since all requisites for a bad debt deduction
were satisfied, to wit: (a) there was a valid and existing debt; (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.
Petitioner emphasized that the debt arose out of a
valid management contract it entered into with Baguio Gold. The bad debt
deduction represented advances made by petitioner which, pursuant to
the management contract, formed part of Baguio Gold’s "pecuniary
obligations" to petitioner. It also included payments made by petitioner
as guarantor of Baguio Gold’s long-term loans which legally entitled
petitioner to be subrogated to the rights of the original creditor.
Petitioner also asserted that due to Baguio Gold’s
irreversible losses, it became evident that it would not be able to
recover the advances and payments it had made in behalf of Baguio Gold.
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 satisfaction
of the debt. It is enough that a taxpayer exerted diligent efforts to
enforce collection and exhausted all reasonable means to collect.
On October 28, 1994, the BIR denied petitioner’s
protest for lack of legal and factual basis. 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; 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
percent (50%) of the project’s net profit.10
Petitioner appealed before the Court of Tax Appeals (CTA) which rendered judgment, as follows:
WHEREFORE, in view of the foregoing, the instant
Petition for Review is hereby DENIED for lack of merit. The assessment
in question, viz: FAS-1-82-88-003067 for deficiency income tax in the
amount of P62,811,161.39 is hereby AFFIRMED.
ACCORDINGLY, petitioner Philex Mining Corporation is
hereby ORDERED to PAY respondent Commissioner of Internal Revenue the
amount of P62,811,161.39, plus, 20% delinquency interest due computed
from February 10, 1995, which is the date after the 20-day grace period
given by the respondent within which petitioner has to pay the
deficiency amount x x x up to actual date of payment.
SO ORDERED.11
The CTA rejected petitioner’s assertion that the
advances it made for the Sto. Nino mine were in the nature of a loan. It
instead characterized the advances as petitioner’s investment in a
partnership with Baguio Gold for the development and exploitation of the
Sto. Nino mine. The CTA held that the "Power of Attorney" executed by
petitioner and Baguio Gold was actually a partnership agreement. Since
the advanced amount partook of the nature of an investment, it could not
be deducted as a bad debt from petitioner’s gross income.
The CTA likewise held that the amount paid by
petitioner for the long-term loan obligations of Baguio Gold could not
be allowed as a bad debt deduction. At the time the payments were made,
Baguio Gold was not in default since its loans were not yet due and
demandable. What petitioner did was to pre-pay the loans as evidenced by
the notice sent by Bank of America showing that it was merely demanding
payment of the installment and interests due. Moreover, Citibank
imposed and collected a "pre-termination penalty" for the pre-payment.
The Court of Appeals affirmed the decision of the CTA.12 Hence, upon denial of its motion for reconsideration,13 petitioner took this recourse under Rule 45 of the Rules of Court, alleging that:
I.
The Court of Appeals erred in construing that the
advances made by Philex in the management of the Sto. Nino Mine pursuant
to the Power of Attorney partook of the nature of an investment rather
than a 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.
The Court of Appeals erred in relying only on the
Power of Attorney and in completely disregarding the Compromise
Agreement and the Amended Compromise Agreement when it construed the
nature of the advances made by Philex.
IV.
The Court of Appeals erred in refusing to delve upon the issue of the propriety of the bad debts write-off.14
Petitioner insists that in determining the nature of
its business relationship with Baguio Gold, we should not only rely on
the "Power of Attorney", but also on the subsequent "Compromise with
Dation in Payment" and "Amended Compromise with Dation in Payment" that
the parties executed in 1982. These documents, allegedly evinced the
parties’ intent to treat the advances and payments as a loan and
establish a creditor-debtor relationship between them.
The petition lacks merit.
The lower courts correctly held that the "Power of
Attorney" is the instrument that is material in determining the true
nature of the business relationship between petitioner and Baguio Gold.
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 documents executed by the parties pursuant to the termination
of their business relationship created under the "Power of Attorney".
On the other hand, it is the latter which established the juridical
relation of the parties and defined the parameters of their dealings
with one another.
The execution of the two compromise agreements can
hardly be considered as a subsequent or contemporaneous act that is
reflective of the parties’ true intent. The compromise agreements were
executed eleven years after the "Power of Attorney" and merely laid out a
plan or procedure by 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
business relationship. It did not define that relationship or indicate
its real character.
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 dividing the profits among themselves.15
While a corporation, like 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 legal concept of a joint venture is of common law
origin. It has no precise legal definition, but it has been generally
understood to mean an organization formed for some temporary purpose. x x
x It is in fact hardly distinguishable from the partnership, since
their elements are similar – community of interest in the business,
sharing of profits and losses, and a mutual right of control. x x x The
main distinction cited by most opinions in common law jurisdictions is
that the partnership contemplates a general business with some degree of
continuity, while the joint venture is formed for the execution of a
single transaction, and is thus of a temporary nature. x x x This
observation is not entirely accurate in this jurisdiction, since under
the Civil Code, a partnership may be particular or universal, and a
particular partnership may have for its object a specific undertaking. x
x x It would seem therefore that under Philippine law, a joint venture
is a form of partnership and should be governed by the law of
partnerships. The Supreme Court has however recognized a distinction
between these two business forms, and has held that although a
corporation cannot enter into a partnership contract, it may however
engage in a joint venture with others. x x x (Citations omitted) 16
Perusal of the agreement denominated as the "Power of
Attorney" indicates that the parties had intended to create a
partnership and establish a common fund for the purpose. They also had a
joint interest in the profits of the business as shown by a 50-50
sharing in the income of the mine.
Under the "Power of Attorney", petitioner and Baguio
Gold undertook to contribute money, property and industry to the common
fund known as the Sto. Niño mine.17
In this regard, we note that there is a substantive equivalence in the
respective contributions of the parties to the development and operation
of the mine. Pursuant to paragraphs 4 and 5 of the agreement,
petitioner and Baguio Gold were to contribute equally to the joint
venture assets under their respective accounts. Baguio Gold would
contribute P11M under its owner’s account plus any of its income that is left in the project, in addition to its actual mining claim. Meanwhile, petitioner’s contribution would consist of its expertise in the management and operation of mines, as well as the manager’s account which is comprised of P11M in funds and property and petitioner’s "compensation" as manager that cannot be paid in cash.
However, petitioner asserts that it could not have
entered into a partnership agreement with Baguio Gold because it did not
"bind" itself to contribute money or property to the project; that
under paragraph 5 of the agreement, it was only optional for petitioner
to transfer funds or property to the Sto. Niño project "(w)henever the
MANAGERS shall deem it necessary and convenient in connection with the
MANAGEMENT of the STO. NIÑO MINE."18
The wording of the parties’ agreement as to
petitioner’s contribution to the common fund does not detract from the
fact that petitioner transferred its funds and property to the project
as specified in paragraph 5, thus rendering effective the other
stipulations of the contract, particularly paragraph 5(c) which
prohibits petitioner from withdrawing the advances until termination of
the parties’ business relations. As can be seen, petitioner became bound
by its contributions once the transfers were made. The contributions
acquired an obligatory nature as soon as petitioner had chosen to
exercise its option under paragraph 5.
There is no merit to petitioner’s claim that the
prohibition in paragraph 5(c) against withdrawal of advances should not
be taken as an indication that it had entered into a partnership with
Baguio Gold; that the stipulation only showed that what the parties
entered into was actually a contract of agency coupled with an interest
which is not revocable at will and not a partnership.
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.19 In this case, 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. Thus, 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.
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, inclusive of the MANAGERS’
account," it does not necessarily follow that the parties entered into
an agency contract coupled with an interest that cannot be withdrawn by
Baguio Gold.
It should be stressed that 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, in which the
former was to manage and operate the latter’s mine through the parties’
mutual contribution of material resources and industry. The essence of
an agency, 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.20
Where representation for and in behalf of the principal is merely
incidental or necessary for the proper discharge of one’s paramount
undertaking under a contract, the latter may not necessarily be a
contract of agency, but some other agreement depending on the ultimate
undertaking of the parties.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
MANAGER’S account has to the owner’s account will be determined, and the
corresponding proportion of the entire assets of the STO. NINO MINE,
excluding the claims" shall be transferred to petitioner.22
As pointed out by the Court of Tax Appeals, petitioner was merely
entitled to a proportionate return of the mine’s assets upon dissolution
of the parties’ business relations. There was nothing in the agreement
that would require Baguio Gold to make payments of the advances to
petitioner as would be recognized as an item of obligation or "accounts
payable" for Baguio Gold.
Thus, the tax court correctly concluded that the
agreement provided for a distribution of assets of the Sto. Niño mine
upon termination, a provision that is more consistent with a partnership
than a creditor-debtor relationship. It should be pointed out that in a
contract of loan, a person who receives a loan or money or any fungible
thing acquires ownership thereof and is bound to pay the creditor an equal amount of the same kind and quality.23
In this case, however, there was no stipulation for Baguio Gold to
actually repay petitioner the cash and property that it had advanced,
but only the return of an amount pegged at a ratio which the manager’s
account had to the owner’s account.
In this connection, we find no contractual basis for
the execution of the two compromise agreements in which Baguio Gold
recognized a debt in favor of petitioner, which supposedly arose from
the termination of their business relations over the Sto. Nino mine. The
"Power of Attorney" clearly provides that petitioner would only be
entitled to the return of a proportionate share of the mine assets to be
computed at a ratio that the manager’s account had to the owner’s
account. Except to provide a basis for claiming the advances as a bad
debt deduction, there is no reason for Baguio Gold to hold itself liable
to petitioner under the compromise agreements, for any amount over and
above the proportion agreed upon in the "Power of Attorney".
Next, the tax court correctly observed that it was
unlikely for a business corporation to lend hundreds of millions of
pesos to another corporation with neither security, or collateral, nor a
specific deed evidencing the terms and conditions of such loans. The
parties also did not provide a specific maturity date for the advances
to become due and demandable, and the manner of payment was unclear. All
these point to the inevitable conclusion that the advances were not
loans but capital contributions to a partnership.
The strongest indication that petitioner was a
partner in the Sto Niño 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 petitioner’s "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 business is prima facie
evidence that he is a partner in the business." Petitioner asserts,
however, that no such inference can be drawn against it since its share
in the profits of the Sto Niño project was in the nature of compensation
or "wages of an employee", under the exception provided in Article 1769
(4) (b).24
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 employer-employee relationship. To begin with, petitioner
was the manager of the project and had put substantial sums into the
venture in order to ensure its viability and profitability. By pegging
its compensation to profits, petitioner also stood not to be remunerated
in case the mine had no income. It is hard to believe that petitioner
would take the risk of not being paid at all for its services, if it
were truly just an ordinary employee.
Consequently, we find that petitioner’s
"compensation" under paragraph 12 of the agreement actually constitutes
its share in the net profits of the partnership. Indeed, petitioner
would not be entitled to an equal share in the income of the mine if it
were just an employee of Baguio Gold.25
It is not surprising that petitioner was to receive a 50% share in the
net profits, considering that the "Power of Attorney" also provided for
an almost equal contribution of the parties to the St. Nino mine. The
"compensation" agreed upon only serves to reinforce the notion that the
parties’ relations were indeed of partners and not employer-employee.
All told, the lower courts did not err in treating
petitioner’s advances as investments in a partnership known as the Sto.
Nino mine. The advances were not "debts" of Baguio Gold to petitioner
inasmuch as the latter was under no unconditional obligation to return
the same to the former under the "Power of Attorney". As for the amounts
that petitioner paid as guarantor to Baguio Gold’s creditors, we find
no reason to depart from the tax court’s factual finding that Baguio
Gold’s debts were not yet due and demandable at the time that petitioner
paid the same. Verily, petitioner pre-paid Baguio Gold’s outstanding
loans to its bank creditors and this conclusion is supported by the
evidence on record.26
In sum, petitioner cannot claim the advances as a bad
debt deduction from its gross income. 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 deduction claimed.27
In this case, petitioner failed to substantiate its assertion that the
advances were subsisting debts of Baguio Gold that could be deducted
from its gross income. Consequently, it could not claim the advances as a
valid bad debt deduction.
WHEREFORE, the petition is DENIED. The
decision of the Court of Appeals in CA-G.R. SP No. 49385 dated June 30,
2000, which affirmed the decision of the Court of Tax Appeals in C.T.A.
Case No. 5200 is AFFIRMED. Petitioner Philex Mining Corporation is ORDERED to PAY
the deficiency tax on its 1982 income in the amount of P62,811,161.31,
with 20% delinquency interest computed from February 10, 1995, which is
the due date given for the payment of the deficiency income tax, up to
the actual date of payment.
SO ORDERED.
CONSUELO YNARES-SANTIAGO
Associate Justice
Associate Justice
WE CONCUR:
*CONCHITA CARPIO MORALES
Associate Justice |
|
MINITA V. CHICO-NAZARIO
Associate Justice |
ANTONIO EDUARDO B. NACHURA
Associate Justice |
RUBEN T. REYES
Associate Justice |
|
A T T E S T A T I O N
I attest that the conclusions in the above Decision
had been reached in consultation before the case was assigned to the
writer of the opinion of the Court’s Division.
CONSUELO YNARES-SANTIAGO
Associate Justice
Chairperson, Third Division
Associate Justice
Chairperson, Third Division
C E R T I F I C A T I O N
Pursuant to Section 13, Article VIII of the
Constitution and the Division Chairperson’s Attestation, I certify that
the conclusions in the above Decision had been reached in consultation
before the case was assigned to the writer of the opinion of the Court’s
Division.
REYNATO S. PUNO
Chief Justice
Chief Justice
Footnotes
1 Rollo, pp. 46-57; penned by Associate Justice Portia Aliño-Hormachuelos and concurred in by Associate Justices Ma. Alicia Austria-Martinez (now an Associate Justice of the Supreme Court) and Elvi John S. Asuncion.
2 Id. at 169-196; penned by Justice Amancio Q. Saga.
3 Id. at 59.
4 Id. at 60-69.
5 Id. at 62-63, 66 & 68.
6 Id. at 124.
7 Id. at 89-97.
8 Id. at 98-106.
9 Id. at 129.
10 Id. at 148-149.
11 Id. at 195.
12 Id. at 46-57.
13 Id. at 59.
14 Id. at 18.
15 CIVIL CODE, Art. 1767.
16 Aurbach v. Sanitary Wares Manufacturing Corporation, G.R. No. 75875, December 15, 1989, 180 SCRA 130, 146-147.
17 Power of Attorney, paragraph 2(a), rollo, p. 61.
18 Rollo, p. 62.
19 CIVIL CODE, Art. 1927. An agency cannot be revoked if a bilateral contract depends upon it, or if it is the means of fulfilling an obligation already contracted, or if a partner is appointed manager of a partnership in the contract of partnership and his removal from the management is unjustifiable.
20 Partnership, Agency and Trusts, 1996 Ed., De Leon and De Leon, Jr., p. 330.
21 See Nielson & Company, Inc. v. Lepanto Consolidated Mining Company, 135 Phil. 532, 542 (1968).
22 Rollo, p. 63.
23 CIVIL CODE, Art. 1953.
24 Article 1769 (4) (b) of the Civil Code states:
x x x x
(4) The receipt by a person of a share of the profits of a business is prima facie evidence that he is a partner in the business, but no such inference shall be drawn if such profits were received in payment:
x x x x
(b) As wages of an employee or rent to a landlord;
x x x x
26 Rollo, pp. 81-88.
27 See Law of Basic Taxation in the Philippines, 2001 Revised Ed., Benjamin B. Aban, p. 119.
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