BIR Ruling

January 24, 1967 5th Indorsement Returned to the Revenue Operations Head (Assessment), B.I.R., Manila, the entire docket bearing on the internal revenue tax case of the Citizens Bank and Trust Company 411 Rosario St., Manila, in the amount of P12,375.09 as deficiency documentary stamp tax and compromise for the fiscal period October 1, 1962 to September 30, 1963. cdll It is settled that the Bank is liable to the deficiency documentary stamp tax on the letters of credit. However, an overdraft agreement is not subject to tax. The overdraft agreement is not any of the instruments covered by the documentary stamps tax law. It is 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 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 documentary stamp tax had been paid on the mortgage contract, no tax is further collectible on the overdraft agreement. In this connection attention is invited to the fact that the form of the Overdraft Agreement being used by the Citizens Bank & Trust Company requires notarization by a notary public before the agreement is considered perfected. This notarization of the acknowledgment of each Overdraft Agreement is subject to a thirty (P0.30) centavos documentary stamp tax. LibLex He is advised to modify the assessment accordingly. (SGD.) MISAEL P. VERA Commissioner of Internal Revenue