Manila Banker's Life Insurance Corp. v. Commissioner of Internal Revenue

SPECIAL SECOND DIVISION [C.T.A. CASE NOS. 7266, 7378 and 7324. April 6, 2010.] MANILA BANKER'S LIFE INSURANCE CORPORATION , petitioner , vs . COMMISSIONER OF INTERNAL REVENUE , respondent . RESOLUTION UY , J p : For resolution are petitioner's "PARTIAL MOTION FOR RECONSIDERATION (Re: Decision dated 6 November 2009)" filed on November 27, 2009 and respondent's "MOTION FOR PARTIAL RECONSIDERATION" filed on December 4, 2009, both seeking the partial reconsideration of this Court's Decision promulgated on November 6, 2009, the dispositive portion of which reads: " WHEREFORE , in view of the foregoing considerations, the consolidated Petitions for Review seeking the cancellation of respondent's assessments for: deficiency Minimum Corporate Income Tax (MCIT) and deficiency Documentary Stamp Tax (DST) and increments for taxable year 2001 in CTA Case No. 7266 ; deficiency DST and increments for taxable year 2002 in CTA Case No. 7324 ; and deficiency DST and increments for taxable year 2003 in CTA Case No. 7378 are DENIED . The Formal Assessment Notices issued by respondent against petitioner covering deficiency MCIT for taxable year 2001 and deficiency DST for taxable years 2001, 2002 and 2003 are hereby AFFIRMED WITH MODIFICATIONS . The compromise penalties are CANCELLED. However, a twenty-five percent (25%) surcharge is imposed, pursuant to Section 248(A) of the NIRC of 1997. Accordingly, petitioner is hereby ORDERED TO PAY respondent the amount of FOURTEEN MILLION SIXTY-THREE THOUSAND SIX HUNDRED SEVEN PESOS AND 51/100 (P14,063,607.51) , representing its deficiency MCIT for taxable year 2001 and deficiency DST for taxable years 2001, 2002, and 2003, inclusive of increments, computed as follows: 2001 2002 2003 Grand Total MCIT Basic MCIT Due P30,162.56 25% Surcharge- 7,540.64 20% Interest 14,076.86 P51,780.06 P51,780.06 DST Basic DST Due P4,841,002.50 P1,764,579.41 P1,689,709.49 25% Surcharge 1,210,250.63 441,144.85 422,427.37 20% Interest 2,485,370.68 763,848.53 393,493.99 P8,536,623.81 P2,969,572.79 P2,505,630.85 14,011,827.45 Total Amount Due P8,588,403.87 P2,969,572.79 P2,505,630.85 P14,063,607.51 =========== =========== =========== ============ In addition, petitioner is hereby ORDERED TO PAY twenty percent (20%) delinquency interest on the P8,588,403.87, representing the total amount due for taxable year 2001, computed from August 11, 2004; as well as on the P2,969,572.79 and P2,505,630.85 total amounts due for taxable years 2002 and 2003, respectively, computed from March 5, 2005 until full payment thereof, pursuant to Section 249(C)(3) of the NIRC of 1997. cHCIEA SO ORDERED. " In its Motion, petitioner argues as follows: 1. respondent's right to assess beyond the prescriptive period can be raised even for the first time on appeal; 2. the documentary stamp tax (DST) included in the premiums charged to petitioner's clients is direct cost or expense necessary to provide the insurance service and thus, is deductible from gross revenues for purposes of computing the minimum corporate income tax (MCIT); and 3. increase in the coverage or sum assured by an insurance policy is not subject to DST, where no new policy for such an increase is issued. On the other hand, respondent, in his Motion, contends that: 1. the premium tax factored in the premium charged to petitioner's customers are additional cost to its customers which they have to pay in order to obtain the service; and 2. failure to file and pay the tax due merits the sanction of a compromise penalty in lieu of instituting a criminal action. On December 18, 2009, petitioner filed its "OPPOSITION (To: Respondent's Motion for Partial Reconsideration dated 27 November 2009)" to respondent's Motion. Both motions are without merit. Petitioner cannot raise the issue or question of prescription for the first time on appeal. Petitioner maintains that the ruling in Dino vs. Court of Appeals, et al. 1 is the applicable doctrine, and not that which was enunciated in the case of Aguinaldo Industries Corporation vs. Commissioner of Internal Revenue, et al. , 2 in resolving whether petitioner can raise, for the first time on appeal, the issue of prescription of the period within which the assessment for the documentary stamp tax (DST) for taxable year 2001 should be issued. To bolster its stance, petitioner also invokes Section 1, Rule 9 of the Rules of Court. To reiterate, the Dino case is not in all-fours with the instant case. In the said case, the Supreme Court held that: ". . . . In Gicano v. Gegato , 3 we held: '. . . (T)rial courts have authority and discretion to dismiss an action on the ground of prescription when the parties' pleadings or other facts on record show it to be indeed time-barred; . . .; and it may do so on the basis of a motion to dismiss (Sec. 1, f, Rules of Court), or an answer which sets up such ground as an affirmative defense (Sec. 5, Rule 16), or even if the ground is alleged after judgment on the merits, as in a motion for reconsideration . . .; or even if the defense has not been asserted at all, as where no statement thereof is found in the pleadings . . .; or where a defendant has been declared in default . . . . What is essential only, to repeat, is that the facts demonstrating the lapse of the prescriptive period be otherwise sufficiently and satisfactorily apparent on the record; either in the averments of the plaintiff's complaint, or otherwise established by the evidence.' (emphasis supplied) 4 In Aldovino, et al. v. Alunan, et al. , 5 the Court en banc reiterated the Garcia v. Mathis doctrine cited in the Gicano case that when the plaintiff's own complaint shows clearly that the action has prescribed, the action may be dismissed even if the defense of prescription was not invoked by the defendant. xxx xxx xxx Following the Gicano doctrine that allows dismissal of an action on the ground of prescription even after judgment on the merits, or even if the defense was not raised at all so long as the relevant dates are clear on the record, we rule that the action filed by the petitioners has prescribed. The dates of delivery and institution of the action are undisputed. There are no new issues of fact arising in connection with the question of prescription, thus carving out the case at bar as an exception from the general rule that prescription if not impleaded in the answer is deemed waived." (Emphases and underscoring supplied) HIESTA While Section 1, Rule 9 of the Rules of Court provides as follows: "Section 1. Defense and objections not pleaded. Defenses and objections not pleaded whether in a motion to dismiss or in the answer are deemed waived. However, when it appears from the pleadings or the evidence on record that the court has no jurisdiction over the subject matter, that there is another action pending between the same parties for the same cause, or that the action is barred by a prior judgment or by statute of limitations, the court shall dismiss the claim. " (Emphases and underscoring supplied) It must be noted that the foregoing jurisprudence and rule speak of the prescription of a civil action and the authority of the court to dismiss the same on such ground. A civil action is defined as that "by which a party sues another for the enforcement or protection of a right, or the prevention or redress of a wrong." 6 Such being the case, the Dino case and Section 1, Rule 9 of the Rules of Court, cannot be said to contemplate the prescription of the period for the issuance of a tax assessment which is not at all a civil action as defined above. Surely, the issuance of a tax assessment does not involve a party suing another for the enforcement or protection of a right, neither does it involve a prevention or redress of a wrong. It is merely a process by which the Bureau of Internal Revenue (BIR) demands from the taxpayer the settlement of a due tax liability, which is definitely set and fixed. 7 Thus, We cannot apply the Dino case and Section 1, Rule 9 of the Rules of Court, as legal bases, in the case at bar. As We have held in the assailed Decision, the applicable doctrine is that which was enunciated in the Aguinaldo case, where the BIR initially examined the record of a certain taxpayer and then assessed the pertinent tax. Subsequently, the same taxpayer protested the assessment, without raising a particular question/issue at the administrative level, which question/issue was only raised at the judicial forum. In that case, the Supreme Court held that the BIR "had no occasion to pass upon the issue" , and accordingly ruled: "To allow a litigant to assume a different posture when he comes before the court and challenge the position he had accepted at the administrative level , would be to sanction a procedure whereby the court which is supposed to review administrative determinations would not review, but determine and decide for the first time, a question not raised at the administrative forum. This cannot be permitted, for the same reason that underlies the requirement of prior exhaustion of administrative remedies to give administrative authorities the prior opportunity to decide controversies within its competence, and in much the same way that, on the judicial level, issues not raised in the lower court cannot be raised for the first time on appeal. " (Emphases supplied) What is involved in the present case is a question or issue which was not raised at the administrative level. Again, it must be pointed out that in all of the protest letters 8 of petitioner, there is no indication that it is questioning the authority of respondent in assessing the subject DST on the ground of prescription. Thus, it can be easily discerned that there is an implied admission on the part of petitioner that the subject assessment is not time-barred. As succinctly put by the High Court, to rule otherwise would be to sanction a procedure whereby this Court would not review, but to determine and decide for the first time a question not raised at the administrative forum. Thus, petitioner cannot raise the issue or question of prescription for the first time on appeal before this Court. Premium Tax deemed part of the cost of service for purposes of the MCIT, but not the DST. Respondent is of the view that the premium tax factored in the premium charged to petitioner's customers are additional cost to them which they have to pay in order to obtain the service. We do not agree. cEaCTS Insofar as the said customers or the insured are concerned, how the premium was determined is immaterial. An insurance premium is simply the consideration paid an insurer for undertaking to indemnify the insured against a specified peril. 9 The fact that customers of petitioner supposedly shouldered the payment of the premium tax does not take away the notion that petitioner "incurred" the same, since the payment thereof is imposed directly by law 10 upon petitioner, not the insured. To repeat, in the issuance of a policy or contract of insurance, its validity and binding effect depends upon the payment of the premium, 11 which is closely intertwined with the payment of the premium tax that is accruing thereto. On the other hand, petitioner is of the view that it is merely an agent of respondent in collecting the DST with the obligation to remit the same, pursuant to Section 3 of Revenue Regulations No. (RR) 9-2000. 12 Petitioner is mistaken. Said Section 3 provides as follows: "SEC. 3. Mode of Payment and Remittance of Tax. (a) In General. Unless otherwise provided in these Regulations, any of the aforesaid parties to the taxable transaction shall pay and remit the full amount of the tax in accordance with the provisions of Section 200 of the Code. (b) Exception. (1) If one of the parties to the taxable transaction is exempt from the tax, the other party who is not exempt shall be the one directly liable for the tax, in which case, the tax shall be paid and remitted by the said non-exempt party, unless otherwise provided in these Regulations. (2) If the said tax-exempt party is one of the persons enumerated in Section 3(c)(4) hereof, he shall be constituted as agent of the Commissioner for the collection of the tax , in which case, he shall remit the tax so collected in the same manner and in accordance with the provisions of Section 200 of the Code: Provided, however, that if he fails to collect and remit the same as herein required, he shall be treated as personally liable for the tax, in addition to the penalties prescribed under Title X of the Code for failure to pay the tax on time. xxx xxx xxx (c) Person liable to remit the DST. In general, the full amount of the tax imposed under Title VII of the Code may be remitted by any of the party or parties to the taxable transaction, except in the following cases: xxx xxx xxx (4) When one of the parties to the taxable document or transaction is included in any of the entities enumerated below, such entity shall be responsible for the remittance of the stamp tax prescribed under Title VII of the Code: Provided, however, that if such entity is exempt from the tax herein imposed, it shall remit the tax as a collecting agent, pursuant to the preceding paragraph 3(b)(2) hereof, any provision of these Regulations to the contrary notwithstanding: (a) A bank, a quasi-bank or non-bank financial intermediary, a finance company, or an insurance , a surety, a fidelity, or annuity company; xxx xxx xxx" (Emphases and underscoring supplied) A more careful reading of the foregoing provision would reveal that the enumerated entities under Section 3 (c) (4) are tasked merely to remit the DST; that the said provision does not necessarily take away from the concerned entity the imposition of the same; and that the concerned entity shall be constituted as "collecting agent" only when it is exempt from the imposition of the DST. As a corollary thereto, the phrase "(p) rovided, however, that if such entity is exempt from the tax herein imposed, it shall remit the tax as a collecting agent, pursuant to the preceding paragraph 3 (b) (2) hereof" would be treated as useless surplusage if the intent was to treat the said entities merely as collecting agents in all cases. It is well settled that, whenever possible, a legal provision must not be so construed as to be a useless surplusage, and, accordingly, meaningless, in the sense of adding nothing to the law or having no effect whatsoever thereon. 13 ITECSH More importantly, to treat an insurance company merely as a "collecting agent" on the sole basis that it is so, would run counter not only to Section 173 14 of the National Internal Revenue Code (NIRC) of 1997, but also to Section 2 (a) 15 of the same RR 9-2000, both of which is to the effect that the DST is imposed upon "the person making, signing, issuing, accepting or transferring" the document or facility evidencing the transaction, which evidently covers both the insurance company and the insured. An increase in the coverage or the sum assured by an insurance policy is subject to DST, although no new policy for such an increase is issued. Petitioner vehemently insists on the applicability of the case of Commissioner of Internal Revenue vs. Heald Lumber Co . 16 ( Heald case), and the prevalence of the same, which was decided by the Supreme Court En Banc , over the case of Commissioner of Internal Revenue vs. Lincoln Philippine Life Insurance Co., Inc., et al. 17 ( Lincoln case), which was decided merely by the said Court's First Division, pursuant to the Section 4 (3), Article VIII of the 1987 Constitution, to wit: ". . . no doctrine or principle of law laid down by the court in a decision en banc or in division may be modified or reversed except by the court sitting en banc." Petitioner is already clutching at straws. As We have discussed in the assailed the Decision and hereby maintain, the Heald case finds no application in the instant case. Neither do We find it proper to apply the above-quoted constitutional provision, since the Lincoln case addresses a totally different transaction from that of the Heald case. Thus, there can be no modification or reversal of a doctrine or principle of law to speak of in the Lincoln case vis--vis the Heald case. To repeat, in the Heald case, the transaction involved is a mere transfer of surplus to capital and an increase in the stated value of the outstanding no par value shares, and the provision of the law applied in imposing the DST was Section 212 of the then Tax Code (now Section 175 of the NIRC of 1997); while in the Lincoln case, the transaction is the "automatic increase" on the amount fixed in the life insurance policy, and the provision of law applied was Section 183 of the NIRC of 1997. Simply put, the subject matter in the former case involved shares of stocks, while that in the latter case involved a life insurance policy. Moreover, in the Heald case, the subject transaction did not increase the number of shares. Neither did it alter, change or affect the outstanding certificates, and purport to create or grant stockholder any new or additional rights; nor did it create new or additional shares. Whereas, in the Lincoln case, there were increases in the amount fixed in the policy by virtue of the "automatic increase clause". Such increases necessarily altered, changed or affected the subject policies, and therefore, created or granted existing policyholders new and additional rights, as in the instant case. To reiterate, it is clear from Section 173 of the NIRC of 1997 that the payment of DST is done at the "time the act is done or transaction had" and the tax base for the computation of documentary stamp taxes on life insurance policies under Section 183 of the Code is "the amount insured" by such policies. Considering that the law does not make any distinction, "the amount insured" should not be limited to the amount of the coverage as written on the face of the policy but should also include increases thereon that will take effect after the issuance thereof, regardless of the reason for the said increase, be it the "fluctuation in the number of covered employees in the case of group insurance, and the availment by the insured of the 'guaranteed continuity' clause in the individual life insurance policies" or otherwise. To claim or to allow that the increase in "the amount insured" should not be included in the computation of the DST due on the policy would be a clear evasion of the law requiring that the said tax be computed on the basis of "the amount insured" by the policy. In the absence of an agreement between petitioner and respondent, compromise penalties may not be imposed. Respondent invokes his power to compromise tax liabilities in justifying the imposition of the compromise penalties on petitioner. Undoubtedly, he has the power to do so. 18 However, the issue involved herein is not whether respondent has the power to compromise tax liabilities, but whether the compromise penalties may be imposed on petitioner without its consent. We maintain that said compromise penalties may not be imposed without the consent of petitioner. Compromise penalties are only amounts suggested in settlement of criminal liability, and may not be imposed or exacted on the taxpayer in the event that a taxpayer refuses to pay the same. 19 This must be so because a compromise being, by its nature, mutual in essence. 20 Thus, one party cannot impose it upon the other. If an offer of compromise is rejected by the taxpayer, respondent should file a criminal action if he believes that the taxpayer is criminally liable for violation of the tax law as the only way to enforce a penalty. This is so because a penalty can be imposed only on a finding of criminal liability. 21 In fine, since there is no indication that petitioner is willing to pay the subject compromise penalties offered by respondent, the same should not be imposed. WHEREFORE , all the foregoing considered, the respective Motion of the parties are hereby DENIED for lack of merit. HSTaEC SO ORDERED. (SGD.) ERLINDA P. UY Associate Justice Juanito C. Castaeda, Jr. and Olga Palanca-Enriquez, JJ., concur. Footnotes 1. G.R. No. 113564, June 20, 2001. 2. No. L-29790, February 25, 1982. 3. 157 SCRA 140 (1988). 4. Citations of jurisprudence are omitted. 5. 230 SCRA 825 (1994). 6. Section 3 (a), Rule 1, Rules of Court. 7. See Adamson, et al. vs. Court of Appeals, et al. , G.R. Nos. 120935 and 124557, May 21, 2009. 8. Exhibits "Q", "R" and "S". 9. 29 Am. Jur. 326. 10. Section 123, NIRC of 1997. 11. Section 77 of the Insurance Code of the Philippines of 1978 (Presidential Decree No. 1460, as amended). 12. SUBJECT: Mode of Payment and/or Remittance of the Documentary Stamp Tax (DST) Under Certain Conditions. 13. Uytengsu vs. Republic of the Philippines , G.R. No. L-6379, September 29, 1954. 14. Section 173 of the NIRC of 1997 provides as follows: "SEC. 173. Stamp Taxes Upon Documents, Loan Agreements, Instruments and Papers. Upon documents, instruments, loan agreements 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 whenever the document is made, signed, issued, accepted or transferred when the obligation or right arises from Philippine sources or the property is situated in the Philippines, 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 thereto who is not exempt shall be the one directly liable for the tax." (Emphasis supplied) 15. Section 2 (a) of RR 9-2000 provides as follows: "SEC. 2. Nature of the Documentary Stamp Tax and Persons Liable for the Tax. (a) In General. The documentary stamp taxes under Title VII of the Code is a tax on certain transactions. It is imposed against "the person making, signing, issuing, accepting, or transferring" the document or facility evidencing the aforesaid transactions. Thus, in general, it may be imposed on the transaction itself or upon the document underlying such act. Any of the parties thereto shall be liable for the full amount of the tax due : Provided, however, that as between themselves, the said parties may agree on who shall be liable or how they may share on the cost of the tax." (Emphasis supplied) 16. G.R. No. L-16340, February 29, 1964. 17. G.R. No. 119176, March 19, 2002. 18. Section 204 (A), NIRC of 1997. 19. Revenue Memorandum Order No. 1-90. 20. Dr. Felisa L. Vda. De San Agustin, in substitution of Jose Y. Feria, in his capacity as Executor of the Estate of Jose San Agustin vs. Commissioner of Internal Revenue , G.R. No. 138485, September 10, 2001. 21. Commissioner of Internal Revenue vs. Abad, et al. , G.R. No. L-19627, June 27, 1968.