BPI Securities, Inc. v. Commissioner of Internal Revenue

[C.T.A. CASE NO. 5716. February 16, 2001.] BPI SECURITIES, INC. , petitioner , vs . COMMISSIONER OF INTERNAL REVENUE , respondent . D E C I S I O N This is a judicial claim for refund filed by the Petitioner on January 14, 1999, involving the amount of P180,537.50 representing alleged erroneously paid stock transaction tax for fiscal year 1997. The facts of the case are simple. Petitioner is a corporation duly organized and existing under and by virtue of the laws of the Philippines. Records show that on January 14, 1997, Petitioner allegedly sold 288,860 shares of the Bank of the Philippine Islands through its stock broker, ING Baring Securities, Inc. By reason of the said sale, Petitioner allegedly paid of 1% stock transaction tax under Section 124-A of the 1997 National Internal Revenue Code in the amount of P180,537.50. Petitioner alleged that its stock broker, ING Baring Securities, Inc., remitted the aforesaid amount to the Bureau of Internal Revenue when the said broker filed its quarterly percentage tax return on January 26, 1997. Petitioner opines that the sale of the P288,860 BPI shares is not subject to of 1% stock transaction tax inasmuch as it is part of its ordinary dealership transaction, hence, subject to the ordinary corporate income tax of 35%. Believing as it does that it erroneously paid the stock transaction tax, Petitioner, through its broker/agent ING Baring Securities, Inc. filed with the Bureau of Internal Revenue on November 4, 1997, an administrative claim for refund of the amount of P180,137.50, allegedly representing of 1% stock transaction tax (Exhibit "H"). Failing to obtain an affirmative relief from the Respondent Bureau, Petitioner elevated its grievance to this Court on January 14, 1999, via Petition for Review. In an Amended Answer filed on June 28, 1999, Respondent denied Petitioner's assertions and advances the following Special and Affirmative Defenses, to wit: 4. Petitioner's alleged claim for refund if at all thru ING BARINGS is defective for want of authority of the latter to do so; 5. In an action for tax refund, Petitioner must show that taxes were paid erroneously or collected illegally. Failure to sustain this burden is fatal to the action for refund; 6. Claims for refund are construed strictly against the claimants since they are in the nature of exemptions from taxation. (Manila Electric Co. vs. Commissioner of Internal Revenue, 67 SCRA 351); 7. Taxes are presumed to have been paid and collected in accordance with law. In its Memorandum filed on July 17, 2000, Petitioner argues that it has sufficiently proved the fact that it has erroneously paid the stock transaction tax as a dealer in securities through its witness and We quote, thus: "Atty. Interior (Question) Do you know the petitioner, BPI Securities, Inc., in this case? Answer: Yes, ma'am. Q. How did you come to know about the petitioner, BPI Securities, Inc.? A. BPI Securities, Inc. is one of the clients of ING Baring, ING Baring as broker for BPI Securities, receives instructions from BPI Securities to sell shares of stocks, particularly BPI shares. Q. You stated that ING Baring Securities acted as broker for petitioner, BPI Securities, and that ING Baring Securities receives orders from BPI Securities to sell shares of stocks particularly the shares of BPI. With reference to the year 1997, particularly January 14, 1997, would you recall if ING Baring Securities received instructions from BPI Securities, Inc., to sell shares of stocks particularly BPI shares? A. Yes, ma'am. On January 14, 1997, ING Barings sold BPI shares for BPI Securities. Q. How much is that share? A. On January 14, 1997. ING Barings sold 288,860 shares of BPI. xxx xxx xxx Q. Madame witness, you stated that the nature of business of ING Baring Securities, is to act as broker of BPI Securities and other institution, would you know, if ING Baring Securities charged other dealer in securities of stock transaction tax? A. As our practice and as provided by law, we do not charge dealer securities as (sic) stock transaction tax on the sell (sic) of their shares. However, in this particular case BPI Securities was charged a stock transaction tax of P180,537.50 on the selling of 288,860 BPI shares. Q. On the basis of this statement, could you have charged BPI Securities a stock transaction tax in the first place? A. No, ma'am. Q. Do you have evidence to prove that the ING Baring as broker and agent of BPI Securities, Inc. paid the said tax to the Bureau of Internal Revenue? A. Yes, ma'am. Q. Where is that, Madame witness? A. I have with me a certified true copy of the Quarterly Percentage Tax Return. (TSN dated October 13, 1999, pages 8, 9, 14 & 15). Upon the other hand, Respondent asserts that Petitioner's Petition for Review states no cause of action since it failed to allege the legal basis of its petition other than the assertion that of 1% stock transaction tax were erroneously paid to the government. Respondent alleged that Petitioner did not even cite explicitly or by implication the pertinent statute and jurisprudence applicable to its cause of action. Moreover, Respondent advances the view that Petitioner's evidence are wanting in probative value since all its evidence were all certified as true copy of the original by the Petitioner's witness, Elynor Naing, who happens to be the broker/agent of the Petitioner and who is also the one who filed with the Bureau of Internal Revenue the latter claim for refund for and in behalf of the Petitioner, hence, self-serving. The sole issue in this case is whether or not Petitioner was able to prove, through testimonial and documentary evidence, its entitlement to the refund of alleged erroneously paid stock transaction tax. After considering the arguments of the parties, evidence at hand and applicable laws on the matter, this Court finds for the Respondent. As expressly provided under Section 127(A) of the new Tax Code, dealers in securities are not subject to the of 1% stock transaction tax imposed on every sale, barter or exchange of shares of stock listed and traded through the local stock exchange, to wit: "Section 127. Tax on Sale, Barter or Exchange of Shares of Stock Listed and Traded through the Local Stock Exchange or through Initial Public Offering . (A) Tax on sale, barter or exchange of shares of stock listed and traded through the local stock exchange . There shall be levied, assessed, and collected on every sale, barter, exchange, or other disposition of shares of stock listed and traded through the local stock exchange other than the sale by a dealer in securities , a tax at the rate of one-half of one percent ( of 1%) of the gross selling price or gross value in money of the shares of stock sold, bartered, exchanged, or otherwise disposed which shall be paid by the seller or transferor." (emphasis supplied) Likewise, Sections 2, 4 & 5 of Revenue Regulations No. 3-95 as amended by Revenue Regulations No. 5-95, implementing the above provision of the Tax Code clearly state, thus: "Section 2. Definition of Terms . For purposes of these Regulations, the following definitions of words and phrases are hereby adopted: (a) "Act" refers to RepublicAct No.7717. (b) "Closely-held corporation" means corporation at least fifty percent (50%) in value of the outstanding capital stock or at least fifty percent (50%) of the total combined voting power of all classes of stock entitled to vote is owned directly or indirectly by or for not more than twenty (20) individuals. (c) " Dealer in securities " means a merchant of stocks or securities, whether an individual, partnership or corporation, with an established place of business, regularly engaged in the business of buying and selling securities for his own account, through a broker or otherwise but does not include any person insofar as he buys or sells securities for his own account, either individually or in some fiduciary capacity, but not as a part of a regular business . xxx xxx xxx Section 4. Persons Not Liable to the Tax . The taxes imposed herein shall not apply to the following: (a) Dealers in securities ; and (b) All other persons, whether natural or juridical, who are specifically exempt from percentage taxes under existing investment incentives and other special laws. xxx xxx xxx Section 5. Imposition of Tax . (a) On sales of shares of stock listed and traded through the local stock exchange. A tax at the rate of: (1) three-eighths of one percent (3/8 of 1%) for a period of (1) year from May 28, 1994; and (2) one-half of one percent ( of 1%) thereafter shall be imposed on the gross selling price or gross value in money of the shares of stock sold, bartered, exchanged or otherwise disposed through the facilities of a local stock exchange." (Emphasis supplied) Apparently, in order to be entitled to a refund of erroneously paid stock transaction tax, the Petitioner must sufficiently prove the following: a.) it actually paid and remitted to the BIR the stock transaction tax of P180,537.50; b.) it is regularly engaged as dealer in securities (as defined in Section 2 of Revenue Regulations No. 3-95); and c.) that the income from the sale of the 288,860 BPI shares formed part of its ordinary income from dealership transactions subjected to the 35% corporate income tax. While it is true that Petitioner was able to establish the fact that it actually paid P180,537.50 stock transaction tax at of 1% based on the gross sales amount of P36,107,800.00 of the 288,860 BPI shares sold by ING Baring Securities (Phils.), Inc. on its behalf as shown in the Contract Note No. 0010280 (Exhs. A to A-5, inclusive) and as testified to by Petitioner's witness, and that the amount of P180,537.50 stock transaction tax was part of P10,681,446.05 total stock transaction tax remitted to the BIR by ING Baring Securities (Phils.), Inc. on January 20, 1997 as evidenced by its quarterly percentage return, Petitioner, however, failed to prove, to the satisfaction of this Court, that it is habitually engaged in the business of buying and selling of securities as defined in Section 2 of Revenue Regulations No. 3-95 and that the income derived from the sale of the 288,860 BPI shares formed part of its ordinary income from dealership transactions subjected to the 35% corporate income tax. To fully substantiate its stance, Petitioner should have presented in evidence, aside from the testimony of its witness, its Articles of Incorporation, financial statements/income tax returns so that this Court would be able to decipher with accuracy that Petitioner is indeed engaged regularly in the business of buying and selling of securities. Non-submission of these documents would result in an inevitable conclusion that Petitioner sold its shares not as part of its regular business but only in an isolated basis, and therefore, not entitled to the exemption from stock transaction tax for dealers in securities provided under Section 124-A(a) of the Tax Code. WHEREFORE, in view of all the foregoing, the instant Petition for Review is hereby DENIED for lack of merit. SO ORDERED. (SGD.) AMANCIO Q. SAGA Associate Judge I CONCUR: (SGD.) ERNESTO D. ACOSTA Presiding Judge Separate Opinions The majority opinion denied the. claim for refund for the following reasons: 1) That Petitioner failed to prove that it is habitually engaged in the business of buying and selling of securities to fall within the exception found in Section 127 of the TaxCode and Section 4 of Revenue RegulationsNo.5-95; 2.) That Petitioner failed to prove that the income derived from the sale of P288,860.00 or BPI shares form part of its ordinary income for dealership transaction subjected to the 35% corporate income tax. With all due respect, I reject the reasons proposed by the majority and submit that the Petitioner has satisfactorily proven its claim for refund. Based on the records of the case and the laws applicable, I believe that the claim for refund should prosper if the Petitioner will be able to establish two things, to wit: 1) That it is a dealer in securities; and 2) That it erroneously paid the stock transaction tax. Section 127 of the 1997TaxCode declares explicitly that dealers in securities are exempt from stock transaction tax. This is further supported by Section 4 of Revenue RegulationsNo.3-95. My esteemed colleagues who comprise the majority and I am in agreement that no further interpretation of the aforesaid provisions is needed. The point of disagreement lies in the fact that the majority insists that Petitioner still has to prove that it is a dealer in securities. I firmly believe that the Petitioner's name BPI Securities, is plainly indicative that it is engaged in the buying and selling of securities as part of its regular business hence falling within the definition provided under Section 2(c) of Revenue RegulationsNo.2-95, thus: "Section 2. Definition of Terms . For purposes of these Regulations, the following definitions of words and phrases are hereby adopted: xxx xxx xxx (c) " Dealer in securities " means a merchant of stocks or securities whether an individual, partnership or corporation, with an established place of business, regularly engaged in the business of buying and selling securities for his own account, through a broker or otherwise, but does not include any person insofar as he buys or sells securities for his own account, either individually or in some fiduciary capacity, but not as a part of a regular business ." To deny the claim for refund on this basis is unfair to the Petitioner in the face of the glaring reality that the corporation exists primarily to engage in the business of buying and selling securities thus need not prove it by other supporting documents such as Articles of Incorporation, financial statements etc., required by the majority. As to the second point, the records disclose that Petitioner was able to prove that it paid the amount of P180,537.50 as stock transaction tax. The majority even acknowledged this fact by stating in their opinion, thus: ". . . it is true that Petitioner was able to establish the fact that it actually paid P180,537.50 stock transaction tax at of 1% based on the gross sales amount of P36,107,800.00 of the 288,860 BPI shares sold by ING Baring Securities (Phils.), Inc. on its behalf as shown in the Contract Note No. 0010280 (Exhs. A to A-5, inclusive) and as testified to by Petitioner's witness, and that the amount of P180,537.50 stock transaction tax was part of P10,681,446.05 total stock transaction tax remitted to the BIR by ING Baring Securities (Phils.), Inc. on January 20, 1997 as evidenced by its quarterly percentage return," In view of the foregoing, I vote to grant the claim for refund in the amount of P180,537.50 in favor of Petitioner. (SGD.) RAMON O. DE VEYRA Associate Judge