Philippine Home Assurance Corp. v. Court of Tax Appeals

[CA-G.R. SP No. 32531. April 27, 1994.] PHILIPPINE HOME ASSURANCE CORPORATION, PHILIPPINE AMERICAN ACCIDENT INSURANCE COMPANY, PHILIPPINE AMERICAN GENERAL INSURANCE COMPANY and AMERICAN INTERNATIONAL UNDERWRITERS (PHILS.), INC. , petitioners , vs . COURT OF TAX APPEALS and COMMISSIONER OF INTERNAL REVENUE , respondents . D E C I S I O N MARTINEZ , J p : This is a petition for review of the decision of the Court of Tax Appeals dated 26 April 1993 denying the petitioners' claim for refund of documentary stamp taxes paid on insurance policies issued by them. Petitioners claimed that for the period of January to June 1986, they have paid a total amount of P10,456,067.83 in documentary stamp taxes on various insurance policies issued by them and their agents and brokers. These insurance policies, however, did not become effective because the required premiums were not paid. On 4 August 1987, they filed their respective claim for refund with the Bureau of Internal Revenue. On 29 December 1987, they filed a petition for review with the respondent Court of Tax Appeals, even before the Bureau acted on their claims. These were docketed as CTA Case Nos. 4208, 4209, 4210 and 4211. As previously stated the respondent court, in a consolidated decision, denied their claims and dismissed their petitions for review for lack of merit. Their motion for reconsideration was likewise denied. The respondent court held that: In the case of insurance, as in this case, the documentary stamp tax must be affixed to the insurance policy, which is a contract in itself, . . . on the date it is issued even if no premium has been paid . This is because the stamp tax accrues the moment such policy is issued . The payment or non-payment of the premiums by the insurants is immaterial since the documentary stamp taxes are in the nature of an "exercise upon the facilities used in the transaction of the business separate and distinct from the business itself. Such being the case, there is wisdom in the BIR Ruling No. 433 by which this Court agree fully that "the subsequent cancellation of insurance policies issued will not exempt the issuer from the corresponding documentary stamp tax." And thus "no refund can be allowed of the documentary stamp tax paid on insurance policies which for some reason or another have been cancelled or for that matter, the premiums were unpaid. (CTA Decision, pp. 4-6; Rollo, pp. 13-15; citations omitted, emphasis in original). In this petition, petitioners rely on a construction of Section 184 of the National Internal Revenue Code in relation to Section 77 of the Insurance Code. Petitioners quote Section 184 of the NIRC are stating that documentary stamp taxes are collectible on "all policies of insurance by which insurance is made or renewed. They argue that the key words are " by which insurance is made or renewed " so that if no insurance is made or renewed, there is no documentary stamp tax that is collectible. Meanwhile, Section 77 of the Insurance code states that "notwithstanding any agreement of the parties to the contrary, no policy of insurance is valid and binding unless and until the premium thereof is paid." Construing these two provisions together, petitioners argue that (a) no insurance is made or renewed under a policy if the premium is not paid, and (b) the insurance does not become effective, by operation of law, not by virtue of any cancellation as erroneously ruled by the respondent court. Petitioners condition the accrual of the tax on the effectivity of the insurance contract, which under the Insurance Code is upon the payment of the first premium, except in cases of life and industrial life insurance where the grace period applies. The phrase "by which insurance is made or renewed" should be understood in its proper context. The complete phrase in Section 184 is as follows: On all policies of insurance or other instrument by whatever name the same may be called, by which insurance shall be made or renewed upon property of any description, including rents, or profits, against peril by sea or on inland waters, or by fire or lightning, . . . (Section 184, NIRC). The phrase referred to by the petitioners merely describes the type of policies of insurance on which the documentary stamp tax is to be imposed. These are those which embody a contract or a renewal of a contract of insurance upon property against peril by sea . . . In other words, the terms "made or renewed" refers to the fact that the taxable policies are those which makes or renews insurance on property against the specified risks. It does not mean that the insurance policies should have become valid and binding before any documentary stamp tax is due and payable. It merely means that for the policy to be taxable under the said provision, it should be one embodying a contract of insurance upon property against the specified risks. The law does not make the qualification that the insurance should have become binding before the policy covering it is imposed the requisite documentary stamp tax. When should not then make such qualification. The respondent court correctly characterized a documentary stamp tax as in the nature of an excise tax. As such, it is imposed on the privilege of conducting a particular business or transaction and not on the business or transaction itself. Thus, the documentary stamp tax on insurance policies is, in effect, imposed on the privilege to conduct insurance business and not on the insurance business itself or on the premiums paid under the policies of insurance. This means then that the documentary stamp tax accrues when the privilege is exercised. As the respondent court stated, while it is true that a documentary stamp tax is levied on the document and not on the property which it described, the documentary stamp tax is not intended to be a tax on the document alone. The law taxes the document because of the transaction so that the tax becomes due and payable at the time the transaction is had or accomplished, in this case, at the time of the issuance of the document. This is the reason that the documentary stamp tax will not be refunded upon subsequent cancellation of the insurance policy. Likewise, when a policy already issued becomes ineffective because of the non-payment of the first premium, the stamp tax cannot be refunded. Whether or not the policy has, in fact, become effective, the privilege subject of the tax has already been exercised. WHEREFORE, this petition is hereby DISMISSED. SO ORDERED. Abad Santos, Jr . and Jacinto, JJ ., concur.