SECURITY BANK CORPORATION (formerly SECURITY BANK AND TRUST COMPANY), petitioner, vs.

THE COMMISSIONER OF INTERNAL REVENUE, respondent. [G.R. No. 130838. August 22, 2006.]

Facts: Petitioner Security Bank Corporation (SBC) received a Pre-Assessment Notice from the Bureau of Internal Revenue (BIR) for deficiency documentary stamp tax (DST) on its issued promissory notes and on sale of securities under Repurchase Agreement in 1983. SBC protested the same on the grounds that (1) promissory notes issued were non-negotiable and, therefore, not subject to documentary stamp tax; and (2) sale of securities under Repurchase Agreement is not subject to DST.

Pursuant to a general compromise agreement entered by the BIR and the BAP, SBC signed its own compromise agreement with the BIR by paying the amount of P641,743.23 as full settlement of its 1983 deficiency DST. However, despite its availment of the compromise agreement, SBC still received a letter from the BIR demanding payment of the amount of P3,287,399.20 as DST on securities sold under the subject repurchase agreements.

SBC protested with the BIR's Appellate Division, but BIR Commissioner denied said protest.

Eventually, SBC filed a petition for review with the Court of Tax Appeals (CTA) questioning the reassessment.

The CTA rendered its decision adjudging SBC liable for deficiency DST on its 1983 sales of securities under repurchase agreements, which decision was affirmed by the Court of Appeals.

On appeal, SBC claimed that the sales of securities with repurchase agreements are instruments covered under Section 229 (now Section 180) of the National Internal Revenue Code (NIRC) that are not subject to DST imposed by Section 225 (now 176) of the NIRC.

Issue:

Whether SBC is correct in claiming that its sales of securities with repurchase agreements are not subject to DST as imposed under Section 176 of the NIRC.

Held: SC answered in the negative.

The NIRC levies DST upon documents, instruments and papers as follows: SEC. 173. Stamp taxes upon documents, instruments, and papers Upon documents, instruments, and papers, and upon acceptances, assignments, sales, and transfers of the obligation, right, or property incident thereto, there shall be levied, collected and paid for, and in respect of the transaction so had or accomplished, the corresponding documentary stamp taxes prescribed in the following sections of this Title, by the person making, signing, issuing, accepting, or transferring the same, and at the same time such act is done or transaction had: Provided, That whenever one party to the taxable document enjoys exemption from the tax herein imposed, the other party to thereto who is not exempt shall be the one directly liable for the tax. (Emphasis supplied.)

Particularly covering sales of securities, which SBC has been assessed by the BIR in this case, and the corresponding DST rates due thereon at the time the said tax accrued, the former Section 225 (now Section 176) of the NIRC applies.

It is clear from the plain language of Section 176 that all sales of securities, without making any distinction as to the nature or type of the sale, i.e., whether it be with a repurchase agreement or not, are taxable. On the other hand, all securities consisting of bonds, due-bills, certificates of obligation, or shares or certificates of stock in any association, company or corporation, of whatever type or nature are within the scope of this section.

CIR vs Lincoln Insurance, 329 scra 423

Facts:

Respondent Lincoln Philippine Life Insurance Co. issued life insurance policies with a clause allowing an automatic increase in the amount of life insurance coverage upon attainment of a certain age by the insured without the need of issuing a new policy. Documentary stamp taxes due on the policy were paid by petitioner only on the initial sum assured. Respondent also issued 50,000 shares of stock dividends with a par value of P100.00 per share or a total par value of P5,000,000.00.

The actual value of said shares, represented by its book value, was P19,307,500.00. Documentary stamp taxes were paid based only on the par value of P5,000,000.00 and not on the book value. Petitioner issued deficiency documentary stamps tax assessment for the year 1984 in the amounts of (a) P464,898.75, corresponding to the amount of automatic increase of the sum assured on the policy issued by respondent, and (b) P78,991.25 corresponding to the book value in excess of the par value of the stock dividends.

CTA cancelled both assessments for lack of merit. The CA reversed the decision with regard to the stock dividends. Both petitioner and respondent appealed the decision of the Court of Appeals.

Issue:

Whether or not the 'automatic increase clause' is a separate agreement from the main insurance contract.

Ruling:

Negative. It was written into the policy at the time of its issuance. The amount fixed in the policy is the figure written on its face and whatever increases will take effect in the future by reason of the 'automatic increase clause' embodied in the policy without the need for another contract.

Issue:

Whether or not the CA erred in affirming the CTA decision to remove the deficiency of documentary stamp tax assessment.

Ruling:

Affirmative. The SC reversed the decision because the deficiency of documentary stamp tax imposed on private respondent is not on the amount of the original insurance coverage, but on the increase of the amount insured upon the effectivity of the automatic increase clause.

To claim that the increase in the amount insured, by incorporating the automatic increase clause into the policy at the time of issuance, should not be included in the computation of the documentary stamp taxes would be an evasion of the law that requires the tax to be computed on the basis of the amount insured by the policy.

See original:

http://sc.judiciary.gov.ph/jurisprudence/2002/mar2002/119176.htm

BPI vs CIR G.R. No. 137002. July 27, 2006.

FACTS:

From 28 February 1986 to 8 October 1986, petitioner Bank of the Philippine Islands (BPI) sold to the Central Bank of the Philippines (now Bangko Sentral ng Pilipinas) U.S. dollars for P1,608,541,900.00. BPI instructed by cable its correspondent bank in New York to transfer U.S. dollars deposited in BPI's account therein to the Federal Reserve Bank in New York for credit to the Central Bank's account therein. In 1988, respondent CIR ordered an investigation to be made on BPI's sale of foreign currency. As a result thereof, the CIR issued a pre-assessment notice informing BPI that in accordance with Section 195 (now Section 182) of the NIRC, BPI was liable for documentary stamp tax at the rate

of P0.30 per P200.00 on all foreign exchange sold to the Central Bank. Total tax liability was assessed at P3,016,316.06, which consists of a documentary stamp tax liability of P2,412,812.85, a 25% surcharge of P603,203.21, and a compromise penalty of P300.00. BPI disputed the findings contained in the pre-assessment notice and filed a petition for review with the CTA. On 31 May 1994, the CTA rendered the Decision holding BPI liable for documentary stamp tax in connection with the sale of foreign exchange to the Central Bank. CTA reduced the assessment from P 3,013,316.06 to P 690,030.00 plus 20% annual interest until full paid pursuant to Section 249 (c) of the NIRC. On appeal, the Court of Appeals affirmed the Decision of the CTA. The Court of Appeals ruled that the documentary stamp tax imposed under Section 195 (now Section 182) is not limited only to foreign bills of exchange and letters of credit but also includes the orders made by telegraph or by any other means for the payment of money made by any person drawn in but payable out of the Philippines. The Court of Appeals also maintained that telegraphic transfers, such as the one BPI sent to its correspondent bank in the U.S., are proper subjects for the imposition of documentary stamp tax under Section 195 (now Section 182) and Section 51 of Revenue Regulation No. 26.

ISSUE:

1. Whether or not the Court of Appeals erred in holding that sales of foreign exchange (spot cash) as distinguished from sales of foreign bills of exchange are subject to documentary stamp tax under Section 182 of the Tax Code.

HELD:

Section 182 of the NIRC provides: On all foreign bills of exchange and letters of credit (including orders, by telegraph or otherwise, for the payment of money issued by express or steamship companies or by any person or persons) drawn in but payable out of the Philippines in a set of three or more according to the custom of merchants and bankers, there shall be collected a documentary stamp tax of thirty centavos on each two hundred pesos, or fractional part thereof, of the face value of such bill of exchange or letter of credit, or the Philippine equivalent of such face value, if expressed in foreign country.

This section imposes a documentary stamp tax on (1) foreign bills of exchange, (2) letters of credit, and (3) orders, by telegraph or otherwise, for the payment of money issued by express or steamship companies or by any person or persons. This enumeration is further limited by the qualification that they should be drawn in the Philippines and payable outside of the Philippines. The phrase "orders, by telegraph or otherwise, for the payment of money" used in reference to documentary stamp taxes may be found in an earlier documentary tax provision, Section 1449(i) of the Administrative Code of 1917, which was substantially reproduced in Section 195 (now Section 182) of the NIRC. Regulations No. 26, which provided the rules and guidelines for the documentary stamp tax imposed under the Administrative Code of 1917, contains an explanation for the phrase "orders, by telegraph or otherwise, for the payment of money": What may be regarded as telegraphic transfer. a local bank cables to a certain bank in a foreign country with which bank said local bank has a credit, and directs that foreign bank to pay to another bank or person in the same locality a certain sum of money, the document for and in respect such transaction will be regarded as a telegraphic transfer, taxable under the provisions of Section 1449(i) of the Administrative Code. BPI alleges that the assailed decision must be reversed since the sale between BPI and the Central Bank of foreign exchange, as distinguished from foreign bills of exchange, is not subject to the documentary stamp taxes prescribed in Section 195 (now Section 182) of the NIRC. This argument leaves much to be desired. In this case, it is not the sale of foreign exchange per se that is being taxed under Section 195 of the NIRC. This section refers to a documentary stamp tax, which is an excise upon the facilities used in the transaction of the business separate and apart from the business itself. It is not a tax upon the business itself which is so transacted, but it is a duty upon the facilities made use of and actually employed in the transaction of the business, and separate and apart from the business itself. Section 195 (now Section 182) of the NIRC covers foreign bills of exchange, letters of credit, and orders of payment for money, drawn in Philippines, but payable outside the Philippines. From this enumeration, two common elements need to be present: (1) drawing the instrument or ordering a drawee, within the Philippines; and (2) ordering that drawee to pay another person a specified amount of money outside the Philippines. What is being taxed is the facility that allows a party to draw the draft or make the order to pay within the Philippines and have the payment made in another country. A perusal of the facts contained in the record in this case shows that BPI, while in the Philippines, ordered its correspondent bank by cable to make a payment, and that payment is to be made to the Federal Reserve Bank in New York. Thus, BPI made use of the aforementioned facility. As a result, BPI need not have sent a representative to New York, nor did the Federal Reserve Bank have to go to the Philippines to collect the funds which were to be credited to the Central Bank's account with them. The transaction was made at the shortest time possible and at the greatest convenience to the parties. The tax was laid upon this privilege or facility used by the parties in

their transactions, transactions which they may effect through our courts, and which are regulated and protected by our government. Petition denied

FILIPINAS TEXTILE MILLS, INC. and BERNARDINO VILLANUEVA, petitioners, vs. COURT OF APPEALS and STATE INVESTMENT HOUSE, INC. respondents. [G.R. No. 119800. November 12, 2003]

Facts: On December 6, 1985, respondent State Investment House, Inc. (SIHI) instituted a Complaint for the collection of the sum of P3,118,949.75 against herein petitioners Filipinas Textile Mills, Inc. (Filtex) and Bernardino Villanueva (Villanueva). The said complaint stemmed from the alleged failure of Filtex to pay its outstanding obligation to SIHI despite the latters demand. Respondent Villanueva on the other hand executed a comprehensive surety agreement, whereby he guaranteed, jointly and severally with Filtex, the full and punctual payment at maturity to SIHI of all the indebtedness of Filtex. Hence, he was also included in the complaint In their Answer with Counterclaim, petitioners interposed special and affirmative defenses. However, they failed to specifically deny under oath the genuineness and due execution of the actionable documents upon which the Complaint was based. On July 23, 1990, the Regional Trial Court of Manila rendered judgment holding Filtex and Villanueva jointly and severally liable to SIHI. Dissatisfied, Filtex and Villanueva filed an Appeal, asserting among others that the letters of credit, sight drafts, trust receipts and comprehensive surety agreement upon which the Complaint is based are inadmissible in evidence supposedly because of non-payment of documentary stamp taxes as required by the Internal Revenue Code. The CA denied petitioners appeal as well as their Motion for Reconsideration. Issue: Whether or not the letters of credit, sight drafts, trust receipts and comprehensive surety agreement are admissible in evidence despite the absence of documentary stamps thereon as required by the Internal Revenue Code Held: We rule in the affirmative. As correctly noted by the respondent, the Answer with Counterclaim and Answer, of Filtex and Villanueva, respectively, did not contain any specific denial under oath of the

letters of credit, sight drafts, trust receipts and comprehensive surety agreement upon which SIHIs Complaint was based, thus giving rise to the implied admission of the genuineness and due execution of these documents. Under Sec. 8, Rule 8 of the Rules of Court, when an action or defense is founded upon a written instrument, copied in or attached to the corresponding pleading as provided in the preceding section, the genuineness and due execution of the instrument shall be deemed admitted unless the adverse party, under oath, specifically denies them, and sets forth what he claims to be the facts. Moreover, under Section 173 of the Internal Revenue Code the liability for payment of the stamp taxes is imposed on the person making, signing, issuing, accepting, or transferring the document. As correctly pointed out by SIHI, Filtex was the issuer and acceptor of the trust receipts and sight drafts, respectively, while the letters of credit were issued upon its application. On the other hand, Villanueva signed the comprehensive surety agreement. Thus, being among the parties obliged to pay the documentary stamp taxes, the petitioners are estopped from claiming that the documents are inadmissible in evidence for non-payment thereof.

G.R. No. 171266 April 4, 2007

INTERNATIONAL EXCHANGE BANK, Petitioner, vs. COMMISSIONER OF INTERNAL REVENUE, Respondent. Facts of the Case: On January 2000, petitioner bank was served with a Pre-Assessment Notice assessing it of deficiency on its FSD (Fixed Savings Deposit) for the taxable years 1996 and 1997. This was followed by Formal Assessment Notice and an accompanying demand letter requesting payment. Petitioner subsequently filed a protest letter on the ground that there is no law imposing Documentary Stamp Tax (DST) on its FSD. As the protest was not acted upon by the Commission, a petition for review was filed before the Court of Tax Appeals and later, to the Court of Tax Appeal En Banc. Petitioner, in both proceedings, proffered that its FSD cannot be considered a certificate of deposit subject to DST under Section 180 of the Tax Code. On January 2006, the CTA En Banc ruled against petitioner bank and held that a time deposit is a type of a certificate of deposit drawing interest, and petitioners FSD has the same nature and characteristics as those of a time deposit and are thus, subject to DST. Issue:

Whether or not petitioner FSD should be considered a certificate of deposit subject to documentary stamp tax under the Tax Code. Held: Certificate of Deposit A certificate of deposit is defined as a written acknowledgment by a bank or banker of the receipt of a sum of money on deposit which the bank or banker promises to pay to the depositor, to the order of the depositor, or to some other person or his order, whereby the relation of debtor and creditor between the bank and the depositor is created. DCS on Certificate of Deposit Orders for the payment of sum of money payable at sight or on demand, like regular savings account, are explicitly exempted from the payment of DST. On the other hand, certificates of time deposit, being a certificate of deposit drawing interest, are subject to the DST. Petitioners FSD is akin to Time Deposit The FSD, like a time deposit, provides for a higher interest rate when the deposit is not withdrawn within the required fixed period; otherwise, it earns interest pertaining to a regular savings deposit. Having a fixed term and the reduction of interest rates in case of pre-termination are essential features of a time deposit. Moreover, the deposit in both time deposit and FSD may be withdrawn anytime but the depositor gets to earn a lower rate of interest. The only difference lies on the evidence of deposit, a savings deposit-FSD is evidenced by a passbook, while a time deposit is evidenced by a certificate of time deposit. Hence, to claim that time deposits evidenced by passbooks should not be subject to DST is a clear evasion of the rule on equality and uniformity in taxation that requires the imposition of DST on documents evidencing transactions of the same kind, in this particular case, on all certificates of deposits drawing interest.