BPI Family Bank v. Commissioner of Internal Revenue

[CA-G.R. SP No. 29853. September 19, 1994.] (C.T.A. Case No. 4256) BPI FAMILY BANK , petitioner , vs . COMMISSIONER OF INTERNAL REVENUE and COURT OF TAX APPEALS , respondents . D E C I S I O N GARCIA , J p : Thru this petition for review, herein petitioner BPI Family Bank seeks to nullify and set aside the decision dated August 7, 1992 of the respondent Court of Tax Appeals in C.T.A. Case No. 4256, denying the claim for refund of documentary stamp taxes in the amount of P1,116,612.00 paid by petitioner on confirmations of sale of Treasury Bills (T-Bills) and Central Band Bills (CB-Bills); and the resolution of the same court, dated December 10, 1992, denying petitioner's motion for reconsideration. The antecedent facts are not in dispute. For the period from April 28, 1986 to December 19, 1986, petitioner affixed and paid the aforestated amount of documentary stamp tax. On April 6, 1987, the Bureau of Internal Revenue (BIR) Issued Revenue Circular No. 13-87 which states, among others, that no documentary stamp tax shall be imposed on documents of conveyance of instruments enumerated in Section 229, presently Section 180, of the National Internal Revenue. (NIRC). On October 6, 1987, petitioner filed with the BIR the aforementioned claim for refund, alleging, among others, that T-Bills and CB-Bills fall within the purview of the instruments enumerated in the then Section 229 of the NIRC and therefore confirmations of sales thereof are no subject to documentary stamp tax. On April 15, 1988, in an attempt to forestall the expiration of the prescriptive period for refund of said documentary stamp taxes, petitioner filed with the respondent court a petition for review, docketed as C.T.A. Case No. 4256. Therein, petitioner prayed that judgment be rendered ordering the BIR to refund the aforementioned amount representing the documentary stamp taxes it affixed and paid. On August 7, 1992, the respondent court rendered the challenged decision which dispositively reads: "WHEREFORE, this Court finds the payment of documentary stamps tax by petitioner in order and consequently the claim for refund is denied. Accordingly, the instant petition for review is hereby dismissed without pronouncement as to costs. SO ORDERED." Its motion for reconsideration having been denied by the respondent court in its subsequent resolution of December 10, 1992, petitioner filed the present petition. As correctly formulated in the decision under review, the issue is whether or not confirmations of sale of T-Bills and CB-Bills are subject to documentary stamp tax. We dismiss the petition on both procedural and substantive grounds. Procedurally, the petition falls to comply with the requirements prescribed by Sections 2 and 3 of Supreme Court Circular No. 1-88 in that it failed, respectively, to attach to the petition proof of service in accordance with Section 10 of Rule 13, and to attach to the petition a duplicate original or certified true copy of the challenged decision of the respondent court. Moreover, the instant petition does not state any cause of action since it failed to specify the specific dates (not just a general statement of the period) when the documentary stamp taxes were allegedly paid (Manufacturers Bank and Trust Co. vs. Commissioner of Internal Revenue, CTA Case no. 1659 December 29, 1965). But even if the foregoing technical defects are brushed aside, still the petition must have to fall. Petitioner contends that T-Bills and CB-Bills are promissory notes or included in the definition of deposit substitute under Section 180 of the NIRC and therefore not subject to documentary stamp tax. We do not agree. To determine the true nature of T-Bills and CB-Bills, it is necessary to take a look at the laws authorizing the creation of such types of credit operations by the government. Section 1 of Republic Act (RA) No. 245, as amended by Presidential Decree No. 142, specifically outlines the fiscal objectives for the creation of T-Bills, viz: "Section 1. In order to meet public expenditures authorized by law, or to provide for the purchase. redemption, or refunding of any obligation, either direct or guaranteed, of the Philippine government, the Secretary of Finance, with the approval of the President of the Philippines, after the consultation of the Monetary Board, is authorized to borrow from time to time on the credit of the Republic of the Philippines such sum or sums necessary, and to issue therefor evidence of indebtedness of the Philippine government . Such evidence of indebtedness may be of the following types: a. Treasury Bills issued on a discount basis or at par and payable at maturity. b. Certificate of indebtedness having maturities not exceeding 18 months from date of issue. c. Treasury bonds, notes, securities or other evidences of indebtedness having maturities of one year or more but not exceeding 25 years from the date of issue . . ." (Emphasis supplied). As evidence of indebtedness, T-Bills can be negotiated at auctions on competitive or non-competitive basis and at a fixed discount or interest rate. Such securities also represent a direct, unconditional and general obligation of the Philippine government. On the other hand, CB-Bills, as an authorized type of credit operation, exhibit the same features as T-Bills but are issued by the government pursuant to RA No. 265, as amended. Section 87 (c), [6 & 7] and Section 97 thereof categorically refer to these freely negotiable securities as certificate of indebtedness or evidence of indebtedness issued directly by the government or by its political subdivisions. In other words, T-Bills and CB-Bills are documents or certificates issued by the government, by authority of the Central Bank, representing either direct or guaranteed obligation of the government as reflected on the issued certificate for such sum or sums necessary to meet government expenditures as the need arises. It is for these reasons that T-Bills and CB-Bills are naturally construes in the Tax Code as certificates of indebtedness, evidence of indebtedness, or certificates of obligation. Generally, T-Bills and CB-Bills, which are commonly traded in the open market by the Central Bank, have been referred to as securities. Section 20 (t), of the National Internal Revenue Code specifically states that "(t)he term securities means shares of stock in a corporation and rights to subscribe for or to receive such shares. The term includes bonds debentures, notes, or certificates, or other evidence of indebtedness, issued by any corporation, including those issued by a government or political subdivision thereof, with interest coupons or in registered forms." The tax treatment of such securities, including government securities, are more particularly dealt with under Section 173, Section 174 (specific documentary tax rates on the issuance) and Section 176 (tax rates on the transfer and sale) of the NIRC. It must be noted that while Section 176, as amended by PD No. 1457, of the NIRC uses the term "certificate of obligation", viz: "Section 176. Stamp tax on sales, agreements to sell, memoranda of sales, deliveries or transfer of bonds, due-bills, certificate of obligation, or shares or certificates of stock . On all sales or agreements to sell or memoranda of sales, or deliveries, or transfer of bonds, due-bills, certificate of obligation, or shares or certificate of stock . In any association, company, or corporation, or transfer of such securities by assignment in blank, or by delivery, or by any paper, or agreement, or memorandum or other evidences of transfer or sale whether entitling the holder in any manner to the benefit of such bonds, due-bills, certificates of obligation of stock, or to secure the future payment of money, or for the future transfer of any bonds, due-bill, certificate of obligation of stock, there shall be collected a documentary stamp tax of fifty centavos on each two hundred pesos, or fractional part thereof of the par value of such bond, due-bill, certificates of obligation or stock : Provided , That only one tax shall be collected on each sale or transfer of stock or securities from one person to another, regardless of whether or not a certificate of stock or obligation is issued, indorsed, or delivered in pursuance of such sale or transfer. And Provided, further , That in case of stock without par value the amount of the documentary stamp tax herein prescribed shall be equivalent to twenty-five per centum of the documentary stamp tax paid upon original of said stock." (Emphasis supplied) Section 174, as amended by PD No. 1457, of the same Code uses the term "certificate of indebtedness," thus: "Section 174. Stamp Tax on bonds, debentures, and certificates of Indebtedness . On all bonds, debentures and certificates of indebtedness issued by any association, company, or corporation, there shall be collected a documentary stamp tax of sixty-five centavos on each two hundred pesos, or fractional part thereof, of the face value of such documents " (Emphasis supplied). and, still, under Section 20 (t) of the Code, government securities are referred to as "evidence of indebtedness", to wit: "xxx xxx xxx "(t) The term securities means shares of stock in a corporation and rights to subscribe for or to receive such shares. The term includes bonds, debentures, notes, or certificates, or other evidence of indebtedness , issued by any corporation, including those issued by a government or political subdivision thereof, with interest coupons or in registered form." (Emphasis supplied). These nomenclatures, i.e., certificate of indebtedness, evidence of indebtedness and certificate of obligation, bear the same meaning and cannot but also refer to subject government securities although its various appellations are used changeably by law. Without any doubt, having the general character of investment securities, T-Bills and CB-Bills cannot be considered as mere promissory notes. In fact, the primary function of CB-Bills and T-Bills are quite different from that of instruments evidencing debts in ordinary transactions between individuals (Article 19, U.S. Reg. No. 71, Treasury Department, cited in Aranas, Updated National Internal Revenue Code, p. 776; Revised Documentary Stamp Tax Regulation, Department of Finance, September 16, 1924; [. . . II, O.G. 112, p. 2335, Section 21). Instruments evidencing debts in ordinary transactions between individuals are more in the nature of promissory notes which are treated separately and distinctly from government securities that are issued by authority of the Central Bank. Consequently, the issuance and the subsequent transfer and sale of government securities should be subject to the payment of documentary stamp taxes pursuant to Section 173, as amended by PD No. 1994, of the NIRC which specifically states: "Section 173. Stamp Taxes Upon documents, instruments, and papers . Upon documents, instruments, and papers, and upon acceptances, assignments, sales and transfers of the obligation, right of 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, and at the same time such act is done or transaction had: Provided , That whenever one party to the taxable document enjoys exemption form the tax herein imposed, the other party thereto who is not exempt shall be the one directly liable for the tax." Nor is there any merit in the argument that T-Bills and CB-Bills fall under the definition of deposit substitutes under Section 180, of the NIRC, as amended by PD Nos. 1457 and 1959, which reads: "Section 180. Stamp tax on negotiable promissory notes, bill of exchange, drafts, certificates of deposit bearing interest and others not payable on sight or demand . On all bills of exchange (between points within the Philippines), drafts or certificates of deposit drawing interest, or orders for the payment of any sum of money otherwise than a sight or on demand, or on all negotiable promissory notes, except bank notes issued for circulation and on each renewal of any such note, there shall be collected a documentary stamp tax of twenty centavos on each two hundred pesos, or fractional part thereof, of the face value of any such bill or exchange, draft, certificate of deposit, or note." A perusal of Section 180 of the Tax Code will show that it covers the following instruments: (1) promissory notes, whether negotiable of not; (2) bills of exchange; (3) drafts; (4) certificates of deposit; and (5) debt instruments used for deposit substitute. The foregoing instruments are defined as follows: A promissory note is an unconditional promise in writing made by one person to another, signed by the maker engaging to pay on demand, or at a fix or determinable future time, a sum certain in money to order or bearer (Section 184, Act No. 2031). A bill of exchange is an unconditional order in writing addressed by one person to another, signed by the person giving it, requiring the person to whom it is addressed to pay on demand at a fixed or determinable future time, a sum certain in money to order or to bearer (Section 126, Act No. 2031). A draft is a common term for all bills of exchange and they are used synonymously (9 C.J. 40-41, cited in the book of Arguedo F. Agbayani, Commentaries and Jurisprudence on the Commercial Law of the Philippines, 1989, ed., p. 396). A certificate of deposit is a written acknowledgment by a bank of the receipt of money on deposit which the bank promises to pay to the depositor, bearer or to some other person or order (Olsons Estate 206, Iowa, 706, 219 N.W. 40, Cited in Agbayani, op cit, p. 441) Deposit substitutes are clearly defined under Section 20 (y) of the Tax Code as follows: "xxx xxx xxx "(y). Deposit substitutes shall mean an alternative form of obtaining funds from the public, other than deposits, through the issuance, indorsement, or acceptance of debt instruments for the borrowers own account, for the purpose of relending or purchasing of receivables and other obligations, or financing their own needs or the needs of their agent or dealer. These instruments may include but need not be limited to promissory notes, repurchase agreements, certificates of assignment or participation and similar instruments with recourse as may be authorized by the Central Bank of the Philippines, for banks and non-bank financial intermediaries or by the Securities and Exchange Commission of the Philippines for commercial, industrial, finance companies and other. Provided, however , That only debt instruments issued for Inter-bank call loans to cover deficiency on reserves against deposit liabilities including those between or among banks and quasi-bank shall not be considered as deposit substitute debt instruments." On the other hand, T-Bills, as illustrated by the respondent court, have the following specific and securing features: TERMS: 63, 91, 182 AND 364 days PRICE: Issued on a discount basis under competitive and non-competitive bidding and payable at maturity of face value INTEREST RATES: Determined by the results or the weekly auctions which are reflective of market rate. DENOMINATION: P10,000.00, P50,000.00 P100,000.00, P500,000.00 P1,000,000.00, P5,000,000.00 P10,000,000.00 SECURITY OF ISSUE: Direct, unconditional and general obligation of the National Government FORM: Bearer REDEMPTION: Redeemable at maturity at per value OTHER UTILITIES: May be accepted as collateral in transactions with the government From their legal definitions, it can be clearly seen that bills of exchange, drafts, certificates of deposit, negotiable and non-negotiable promissory notes and debt instruments used as deposit substitutes are in the nature of promissory notes transacted by private individuals, in contrast to T-Bills and CB-Bills which are investment securities or a public character as they are issued by the Philippine government by authority of the Central Bank. Similarly, as can be gleaned from the aforequoted Section 20 (y) of the Tax Code, these deposit substitutes, as alternative modes of obtaining funds from the public, take the form of certificates of deposit representing savings or time deposits through banking as well as non-financial institutions upon prior authorization from the Central \bank. On the other hand, T-Bills and CB-Bills represent a direct and guaranteed obligation of the government. Moreover, as further enumerated by the respondent court, the following outstanding characteristics and tax treatment of the NIRC unmistakably differentiate deposit substitutes from evidence or certificates of indebtedness, of which government securities such as T-Bills and CB-Bills pertain, thus: First, Republic Act Nos. 245 and 265 categorically denominate T-Bills and CB-Bills, respectively as evidence of indebtedness or certificate of indebtedness. Second, Section 20 (y) of the NIRC, in defining deposit substitutes, does not include nor even state that such instruments cover evidence of indebtedness as issued by the National government or by the Central Bank in the form of T-Bills and CB-Bills. Third, deposit substitutes are limited to debt instruments issued by the private sector, being confined to instruments authorized by the Central Bank for banks and non-bank financial intermediates or by the SEC for commercial, industrial, finance companies and other non-financial companies while T-Bills and CB-Bills are issued by the government for its own account and not for banks and non-bank financial instrumentalities nor for the account of other companies. Fourth, if the lawmaker had intended to include certificates of indebtedness within the definition of deposit substitute, it should not have been specified and treated separately under Section 174 of the NIRC. Fifth, while interest from deposit substitutes are being taxed pursuant to Section (e) of the NIRC, interest on government securities, pursuant to Section 28(b) No. 4 of the NIRC, are in general excluded from gross income and shall be exempt from taxation but only to the extent provided in the Act authorizing the issuance of said government securities. Sixth, taxation of deposit substitute is governed by the provisions of the NIRC while taxation of government securities are governed by special laws authorizing their issuance. Hence, it is apparent that the lawmakers intended to treat separately evidence of indebtedness or securities issued by the government. Seventh, the provisions under RA Nos. 245 and 265 specifically do not provide a clear exemption from tax of any interest derived therefrom while interest derived from T-Bills and Securities intended for sale in the international market are exempted from income tax pursuant to PD No. 81. Likewise, PD No. 66 exempts income from bonds and other instruments which the Export Processing Zone Authority is authorized to issue. Petitioner tried to draw comfort from a decision of the United States Supreme Court in U.S v. Leslie Salt Co., 350 US 383, 100 L ed 441 (1056), wherein the said Court allegedly struck down an attempt of the U.S. Tax Commissioner to subject to a higher rate of documentary stamp tax short term promissory notes. Petitioner's reliance in the case cited cannot improve its cause any. Suffice it to state that such US tax jurisprudence has only a persuasive effect in our jurisdiction which cannot take the place of what has been clearly provided by our tax laws. At any rate, it bears stressing that the taxpayer has the onus of showing that the tax paid was erroneously or illegally collected, and the failure to substantiate the same, as in the case at bar, is fatal to petitioner's cause; and that a claim for tax refund is construed strictly against the claimant since the tax refund partakes of the nature of an exemption from taxation (Commissioner of Internal Revenue vs. Ledesma, 31 SCRA 95; Manila Electric Co. vs. Commissioner of internal Revenue 67 SCRA 351). The foregoing considered, we cannot see our way clear on how the respondent court could be nulled for denying petitioner's claim for refund of the value of the documentary stamp taxes it paid for confirmation of sales of T-Bills and CB-Bills. Indeed, it would had been an error on the part of the respondent court had it granted petitioner's claim for refund. WHEREFORE, the instant petition is hereby DISMISSED and the decision under review AFFIRMED. Costs against petitioner. SO ORDERED. Francisco and Jacinto, JJ ., concur.