United Coconut Planters Bank v. Commissioner of Internal Revenue

[C.T.A. CASE NO. 5419. January 22, 1998.] UNITED COCONUT PLANTERS BANK , petitioner , vs . THE COMMISSIONER OF INTERNAL REVENUE , respondent . D E C I S I O N The main issue which is presented for our consideration is whether or not petitioner's 1985 sales of foreign currencies or foreign bills of exchange to the Central Bank are subject to documentary stamp tax. Petitioner is a commercial banking corporation duly organized and existing under the laws of the Republic of the Philippines. As part of its banking activities, it engages in the buy and sell of foreign exchange either with the Central Bank of the Philippines or with other commercial banks. On June 1, 1989, respondent issued Assessment Notice No. 1-85-89-000958 and demand letter to herein petitioner, informing the latter that it has a deficiency documentary stamps tax (DST) for the year 1985 in the amount of P1,043,880.00, inclusive of the suggested compromise penalty of P300.00 and that payment of the same is thereby requested within thirty (30) days from receipt thereof. Both the assessment notice and demand letter were received by petitioner on June 15, 1989. (Exhibits A & A-1). On July 4, 1989, petitioner filed with respondent its protest against the subject assessment. It anchored its protest on the ground that for the year 1985, the liability to DST rests with the Central Bank of the Philippines, not to the issuing or selling party, or petitioner in the instant case. It stressed that by market convention, the cost of DST is for the account of the buyer. Thus, when the commercial banks sold their foreign bills of exchange to the Central Bank, the latter assumed the payment of DST. Since the Central Bank is exempt from all taxes, no DST is due or collectible on the 1985 sale of foreign currencies by petitioner to the Central Bank under Section 231 of the Tax code (now 182) in relation to Section 222 (now 173), ibid . (Exh. D). Further, it said that prior to the amendment of Sec. 222 (now Sec. 173) of the Tax Code by P.D. No. 1994, which took effect January 1, 1986, the BIR has consistently ruled in interpreting the said provision of law that the documentary stamp tax is paid indifferently by either party and accordingly if the party assuming payment is tax exempt, the document becomes exempt from stamp tax. On May 29, 1992, respondent issued a Writ of Garnishment against the demand deposit account of the petitioner with the Central Bank which the latter implemented by debiting petitioner's account and held the amount of P1,043,880.00 in trust for the respondent. (Exhibits F & F-1). On July 10, 1996, petitioner received from respondent a letter dated June 7, 1996, informing the former the denial of its protest and request for reconsideration of the aforesaid assessment. (Exhibits G & G-1). Hence, on August 7, 1996, petitioner filed with this Court the instant petition for review. During the initial stage of the trial, petitioner questioned the validity of the assessment and raised the issue of: WHETHER OR NOT PETITIONER'S 1985 SALES OF FOREIGN CURRENCIES OR FOREIGN BILLS OF EXCHANGE TO THE CENTRAL BANK ARE SUBJECT TO DOCUMENTARY STAMP TAX. prcd Upon amendment however of petitioner's petition for review with leave of Court on April 7, 1997, another issue cropped up and that is: WHETHER OR NOT THE RIGHT OF THE RESPONDENT TO ASSESS THE PETITIONER'S DEFICIENCY DOCUMENTARY STAMP TAX FOR 1985 HAS PRESCRIBED. Thus, it behooves us to tackle the prejudicial issue on prescription first, before delving into the other issues of the case. Petitioner reasoned out that the assessment notice No. FAS-1-85-89-000908 is bereft of any legal basis for having been issued beyond the prescribed period for assessment as provided for in Section 203 of the Tax Code, which reads, as follows: SEC. 203. Period of limitation upon assessment and collection . Except as provided in the succeeding section, internal revenue taxes shall be assessed within three years after the last day prescribed by law for the filing of the return, and no proceeding in court without assessment for the collection of such taxes shall be begun after the expiration of such period: Provided, That in a case where a return is filed beyond the period prescribed by law, the three-year period shall be counted from the day the return was filed. For the purposes of this section, a return filed before the last day prescribed by law for the filing thereof shall be considered as filed on such last day. Petitioner said that it filed its final return on May 2, 1986, thus, applying the aforementioned provision of law, respondent has until May 2, 1989 to validly issue the disputed assessment. It stressed that since the disputed assessment in the case at bar was issued only on June 1, 1989, the assessment becomes invalid. The above argument of petitioner is devoid of merit, as there is no law which prescribes the last day of the filing of the documentary stamp tax return. The final corporate annual income tax return , which was the basis of petitioners theory that in the case at bar it is from the date of the filing of the final corporate income tax return that the three (3) year period mentioned in Sec. 203 commenced to run, is different from the documentary stamp tax return . Section 203 of the Tax Code, supra , applies in the cases wherein the law prescribes a specific period for the filing of a certain return, such as the annual corporate income tax return. As earlier adverted there is no law which prescribes the last day of the filing of a documentary stamp tax return, hence, the grounds of prescription claimed herein by petitioner, should not lie. In the case of TMBC Investment Corporation vs. Commissioner of Internal Revenue, CTA Case No. 3994, April 15, 1991, this Court resolved the same issue, in the following manner: "As regards the first issue involving prescription, we believe that the right of respondent to assess petitioner on December 28, 1981 has not prescribed although issued beyond the five-year period prescribed for in Section 318 of the Tax Code. Also, said Section has no application in the deficiency documentary stamp and science taxes for the reason that there is no law which provides for the period of filing the documentary and science tax return." As earlier adverted to at the outset, the main issue to be resolved by this Court is whether or not petitioner's 1985 sales of foreign currencies or foreign bills of exchange to the Central Bank are subject to documentary stamp tax. The same should be ruled in the negative. On all fours with the case at bar on this issue, by reason of the close similarity of factual circumstances and the provisions of law involved, is the case of Consolidated Bank & Trust Co . vs . The Commissioner of Internal Revenue , CTA Case No . 4647 , November 21 , 1994 , wherein this Court resolved the same issue now brought before us in this proceeding in the following wise: "Petitioner further argues that even if these transactions were taxable for DST it could still not be held liable because established banking practice dictates that it is the buyer of foreign currency who pays the documentary stamp tax. The above-cited arguments of petitioner negating its liability for the payment of the documentary stamp tax have no merit and this was clearly enunciated by the Court of Appeals in its decision in the case entitled " China Banking Corporation vs . Commissioner of Internal Revenue "; CA-G.R. SP No. 33651; September 23, 1994, wherein it categorically ruled that in a situation where the Central Bank is the buyer, it is the seller of foreign currency who is liable for the payment of the documentary stamp tax. In its decision, the Court of Appeals ruled that the Central Bank from the period of June 11, 1984 until March 9, 1987 had been granted tax exemption privileges by virtue of Resolution No. 35-85 of the Fiscal Incentive Review Board dated March 3, 1985, such that in 1986, the year covered by the assessment in the China Banking case, the Central Bank could not be held liable for its payment. In this situation where the other party is exempt, the liability then automatically falls upon the petitioner bank as seller pursuant to PD 1994 which took effect on January 1, 1986 and brought about an amendment to Section 222 (now Section 173 of the NIRC) which reads, thus: "Whenever one party to the taxable document enjoys exemption from the tax herein imposed, the other party thereto who is not exempt shall be the one directly liable for the tax." cdll Furthermore, the decision of the Court of Appeals in the China Banking case threw out the argument of petitioner that such transactions are not taxable for documentary stamp tax and instead upheld this Court's ruling that the taxability of such sale of foreign exchange finds legal support in Section 51 of Revenue Regulations No. 26 (supra)." From the abovementioned decision of this Court, it can be gleaned that the Central Bank during the period June 11, 1984 to March 9, 1987 enjoyed tax exemption privilege, including the payment of documentary stamp tax (DST) pursuant to Resolution No. 35-85 dated May 3, 1985 of the Fiscal Incentive Review Board. As such the Central Bank, as buyer of the foreign currency, is exempt from paying the documentary stamp tax, for the period above-mentioned. This Court further expounded that said tax exemption of the Central Bank was modified beginning January 1, 1986 when Presidential Decree (P.D.) 1994 took effect. Under this decree, the liability for DST on sales of foreign currency to the Central Bank is shifted to seller. Applying the above decision to the case at bar, petitioner cannot be held liable for DST on its 1985 sales of foreign currencies or foreign bills of exchange to the Central Bank, as the latter who is the purchaser of the subject currencies is the one liable thereof. However, since the Central Bank is exempt from all taxes during 1985 by virtue of Resolution No. 35-85 of the Fiscal Incentive Review Board dated March 3, 1985, neither the petitioner nor the Central Bank is liable for the payment of the documentary stamp tax for the former's 1985 sales of foreign currencies to the latter. This aforecited case of Consolidated Bank vs. Commissioner of Internal Revenue was affirmed by the Court of Appeals in its decision dated March 31, 1995, CA-GR SP No. 35950. Said decision was in turn affirmed by the Supreme Court in its resolution denying the petition filed by Consolidated Bank dated November 20, 1995 with Supreme Court under Entry of Judgment dated March 1, 1996. Petitioner cannot be held liable for DST for transactions held in 1985 because the Central Bank which is the purchaser of the subject foreign currency thereof is tax exempt ( Philippine Commercial International Bank vs . The Commissioner of Internal Revenue , CTA Case No . 4883 , April 11 , 1996 with Entry of Judgment dated May 8, 1996). IN THE LIGHT OF ALL THE FOREGOING, finding the petition meritorious, respondent is hereby ORDERED to CANCEL Assessment Notice No. 1-85-89-000908 and the Writ of Garnishment issued on May 29, 1992, and ADVICE the Central Bank (now Bangko Sentral ng Pilipinas) to credit back the account of the petitioner for the amount of P1,043,880.00. Without pronouncement as to costs. SO ORDERED. (SGD.) ERNESTO D. ACOSTA Presiding Judge WE CONCUR: (SGD.) RAMON O. DE VEYRA Associate Judge (SGD.) AMANCIO Q. SAGA Associate Judge