BIR Ruling

December 29, 1966 1st Indorsement Returned to the Revenue Operations Head (Assessment), B.I.R. Manila, the entire docket bearing on the internal revenue tax case of the Manufacturers' Bank and Trust Co., Plaza Sta. Cruz, Manila, involving the sum of P76.13 and P13,200.70, as deficiency bank and documentary stamp taxes, respectively, for the year 1963. There is no question that the Bank is liable to the deficiency documentary stamp tax on the letters of credit. However, this Office finds merit on the contention of the Bank that the overdraft agreement is not subject to tax. The overdraft agreement is not any of the instruments covered by the documentary stamps tax law. Its a loan agreement in the form of credit in current account secured by mortgage. The last paragraph of Section 236 of the Tax Code provides, viz: "When any bond, note, or other obligation is secured by a mortgage, pledge, deed of trust, or by the assignment or transfer of any documentary security, one tax only shall be collected upon such papers, such tax to be at the highest rate imposed on such mortgage, bond, note, obligation, or other documents, as the case may be. (As amended by Sec. 24, Republic Act No. 40)." Therefore, even assuming that the overdraft agreement is a taxable document, nevertheless, no tax can be imposed thereon independently of the mortgage. If the tax had been paid on the mortgage, no tax is further collectible on the overdraft agreement. LLphil He is advised to modify the assessment accordingly. (SGD.) MISAEL P. VERA Commissioner of Internal Revenue