China Banking Corp. v. Commissioner of Internal Revenue

SEVENTEENTH DIVISION [CA-G.R. SP No. 33651. September 23, 1994.] (C.T.A. Case No. 4361) CHINA BANKING CORPORATION , petitioner , vs . COMMISSIONER OF INTERNAL REVENUE , respondent . D E C I S I O N FRANCISCO , J p : Appeal by petition for review filed by China Banking Corporation which seeks, inter-alia , to set aside the Decision dated 22 December 1993 (Records, pp. 113-126) issued by the Court of Tax Appeals ("CTA", hereafter) in CTA Case No. 4361, the dispositive portion of which reads: "WHEREFORE, premises considered, petitioner is hereby ordered to pay respondent, Commissioner of Internal Revenue, the amount of P523,581.53 as deficiency documentary stamp tax for 1986 plus 20% annual interest from November 28, 1988 until fully paid pursuant to Sec. 283 of the Tax Code as amended by PD 1994, effective January 11, 1986, with costs. "SO ORDERED." The facts, culled from the evidence on record, are as follows. Petitioner China Banking Corporation is a commercial banking corporation duly organized existing under Philippine laws. On 19 February 1987, respondent issued Letter of Authority No. 0012260 (Exh. 1) authorizing Revenue Enforcement Officer Sarah B. Mopia, to investigate and examine petitioner's "books of accounts and other accounting records for documentary stamp tax on Foreign bill of exchange Sec. 195 (NIRC) for the calendar/fiscal year ending 1985-1986." Upon investigation, petitioner was found liable for deficiency documentary stamp tax on its 1986 sales of foreign bill of exchange to the Central Bank in the total amount of P523,851.53, including surcharge. On or about 26 July 1988, petitioner received a Pre-Assessment Notice dated 7 July 1988 (Exh. 6), together with the report of investigation (Exh. 3), apprising petitioner of its deficiency documentary stamp tax liability for its 1986 sales of foreign bills of exchange to the Central Bank. In its letter-reply dated 3 August 1988 (BIR Records, p. 27) to respondent, petitioner claimed that the Central Bank, not petitioner, is the one directly liable for the said deficiency tax assessment. On 28 November 1988, petitioner received from respondent a letter-assessment (Exh. B) and the corresponding notice of assessment bearing AN No. FAS 1-86-88 (Exh. A) both dated 28 November 1988, requiring petitioner to pay the total amount of P532,851.53 which represents its deficiency documentary stamps tax liability, including surcharge, for its 1986 sales of foreign bill of exchange to the Central Bank. In its letter of protest dated 7 December 1988 (Exh. 9), petitioner disputed the above assessment against it and at the same time, requested respondent to conduct a reinvestigation or reconsideration thereof. On 31 March 1989, petitioner received from respondent a letter dated 10 March 1989 (Exh. D), denying petitioner's protest and reiterating its (respondent's) demand upon petitioner to pay the amount assessed as its deficiency documentary stamp tax for 1986. On 28 April 1989, petitioner filed a petition for review (Records, pp. 1-7) with the CTA seeking to enjoin respondent from collecting the amount representing the deficiency documentary stamp tax assessment against petitioner, and to annul said deficiency tax assessment. On 22 December 1994, the CTA rendered its Decision ( Ibid .) against petitioner, the dispositive portion of which has been heretofore quoted. Petitioner's subsequent motion for reconsideration ( Ibid .) of the aforesaid decision was denied by the CTA in its resolution dated 7 March 1994 ( Ibid .). The grounds relied upon by petitioner for review are as follows: "1. THE COURT OF TAX APPEALS ERRED WHEN IT RENDERED A DECISION THAT HAS NO FACTUAL BASIS AND IS NOT SUPPORTED BY EVIDENCE. "2. THE COURT OF TAX APPEALS ERRED WHEN IN DECIDING THE CASE IT DISREGARDED THE ISSUE OF THE DUE PROCESS VIS-A-VIS THE ISSUANCE BY THE RESPONDENT OF THE LETTER OF ASSESSMENT AND ASSESSMENT NOTICE. "3. THE COURT OF TAX APPEALS ERRED WHEN IT FAILED TO FILE RULE THAT CENTRAL BANK IS DIRECTLY LIABLE FOR DST BY EXPRESS AGREEMENT PURSUANT TO PRACTICE IN THE BANKING INDUSTRY. "4. THE COURT OF TAX APPEALS ERRED WHEN IT FAILED TO RULE THAT TELEGRAPHIC ORDERS DO NOT MEET THE CONDITIONS FOR TAXABILITY UNDER SECTION 182 (FORMERLY SECTION 193) OF THE TAX CODE. "5. THE COURT OF TAX APPEALS ERRED WHEN IT FAILED TO CONSIDER THE WITHDRAWAL OF CENTRAL BANK'S TAX EXEMPTION PRIVILEGE." Petitioner contends "that respondent's evidence failed to prove that [the] alleged [1986] sales of foreign bills of exchange by petitioner actually took place", and for this reason, petitioner concluded that the assessment of deficiency documentary stamp tax against petitioner, has no factual basis. We disagree. The records show that from the time petitioner received respondent's Pre-Assessment Notice (Exh. 6) up to the time the CTA rendered its assailed decision, petitioner had always implicitly admitted that it had actually engaged in the sale of foreign bill of exchange to the Central Bank in 1986. In its letters to respondent, such as the letter of protest dated 7 December 1988 (Exh. 9), petitioner ascribed to the Central Bank the responsibility for the payment of the deficiency tax assessment but the sale transactions of foreign bill of exchange between petitioner and the Central Bank, are not disputed nor denied by petitioner. Thus: "We hereby formally protest against the aforesaid deficiency tax assessment. By and large, our protest is anchored on the following grounds: "1. As the buyer of the foreign bills of exchange, it is the Central Bank of the Philippines and no other which is directly liable for the documentary stamp tax pursuant to Section 173 (formerly Section 186) in relation to Section 182 (formerly Section 195) of the Tax Code; "2. The tax and duty exemption privilege enjoyed the Central Bank had expressly been withdrawn and revoked under Presidential Decrees No. 1177 (7-30-77) and 1931 (June 11, 1984) for which reason it is directly liable for documentary stamp tax on the sales of foreign bills exchange in 1986; "3. Unless it can be shown and properly invoked that the exemption privilege of the Central Bank has otherwise been restored subsequently upon the recommendation of the Fiscal Incentives Review Board (FIRB), our Bank has no responsibility whatsoever for the alleged documentary stamp tax on the sales of foreign bills of exchange in 1986." And in par. 5 of the petition for review. (Records, pp. 1-7) it filed with the CTA, petitioner alleged that it "has duly paid the proper documentary stamp taxes required by law on all its transactions involving sales of foreign bills of exchange to the Central Bank of the Philippines, for which it should not be taxed again." Petitioner cannot now be permitted to contradict or dispute its original stand before the BIR. The well-nigh rule is that issues not raised in the administrative level cannot be raised for the first time on appeal before a judicial forum. In Aguinaldo Industries Corporation vs. Commissioner of Internal Revenue and the Court of Tax Appeals , 112 SCRA 136, at p, 140, it was held: "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 determination 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 the 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." Petitioner also claims that it was denied of its right to due process, i that the subject deficiency tax assessment was issued by respondent without conducting the appropriate investigation, and that respondent failed to inform petitioner of the result of the investigation concerning the sale of foreign bills of exchange. This claim deserves the scantiest consideration. The records of this case show that the subject deficiency tax assessment was issued by respondent after conducting a thorough investigation and examination of petitioner's corporate books and account records of its sale of foreign bills of exchange, and that petitioner was not only duly notified of the results thereof but was also granted the opportunity to dispute the same. The real issue to be resolved is whether or not petitioner is liable for the deficiency documentary stamp tax assessment in the amount of P523,850.23 on its 1986 sales of foreign bill of exchange to the Central Bank. Section 195 (now Section 182) of the National Internal Revenue Code (NIRC), as amended, provides that: "SEC. 195. Stamp tax on foreign bills of exchange and letters of credit . On all foreign bills of exchange and letters of credit (Including orders, by telegraph or otherwise, for the payment of money issued by express or steamship companies or by any person or persons) drawn in but payable out of the Philippines in a set of three or more according to the custom of merchants and bankers, there shall be collected a documentary stamp tax of thirty centavos on each two hundred pesos, or fractional part thereof, of the face value of such bill of exchange or letter of credit, or the Philippine equivalent of such face value, if expressed on foreign country." The tax is imposed upon the person making, signing, issuing, accepting or transferring an obligation, right or property and payable at the time the transaction is had or accomplished (See Sec. 222 now Sec. 172, NIRC). Petitioner claims that the Central Bank, as buyer of the foreign bill of exchange, is liable for the documentary stamp tax thereon, pursuant to the prevailing business practice in the banking industry which is allegedly recognized by the Central Bank. We cannot sustain the above claim of petitioner. During the period from 11 June until 9 March 1987, the Central Bank enjoyed tax exemption privilege pursuant to Resolution No. 35-85 dated 3 May 1985 of the Fiscal Incentive Review Board. As such, the documentary stamp tax on the 1986 sale transactions of foreign bill of exchange between petitioner and the Central Bank, shall be borne by petitioner in accordance with Pres. Decree No. 1994, which took effect on 1 January 1986, amending Sec. 222 (now Sec. 172) of the NIRC, 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 to the tax." The liability of commercial banks, such as petitioner herein, to pay documentary stamp tax on sales of foreign currency to the Central Bank, was expressly recognized by no less than the Bankers Association of the Philippines (BAP) in a Memorandum dated 17 March 1987 (Exh. 11) it issued to all its members, which includes petitioner herein, thus: "Based on the above cited regulation [Sec. 195, NIRC]", sales of foreign currency to the Central Bank of the Philippines (CBP) by the regular books of a commercial bank is subject to DST. Likewise, by market convention, the cost of DST is for the account of the buyer, in this instance, the CBP. Since the CBP is exempt from all taxes, per the Central Bank Act, no DST is collected. " However, Presidential Decree 1994, which took effect on (1) January 1986, the liability for the DST on sales of foreign currency to the CBP has been shifted to the seller by virtue of the amendment to the NIRC Section 222 (now Section 186) . . . (Emphasis Ours). Petitioner also contends that the sale transactions of foreign bill of exchange through telegraphic transfers or orders to the Central Bank are not subject to documentary stamp tax under Section 195 (now Section 182) of the NIRC. Petitioner's contention is untenable. As correctly pointed out by the CTA, the liability of petitioner for documentary stamp tax on the sale of foreign bill of exchange through telegraphic orders or transfers, finds support under Section 51 of Revenue Regulation No. 26, which reads: "Section 51. What May be Considered as Telegraphic Transfer If a local bank cables to a certain bank said local bank has a credit and directs that foreign bank to pay another bank or person in the same locality a certain sum of money, the documents for and in respect of such transactions will be regarded as telegraphic transfer, taxable under the provisions of subsection 144 a(i) of the administrative code (now Section 195 of the NIRC)." (Emphasis Ours). Furthermore, a "documentary stamp tax is in the nature of an excise tax imposed not on the business transacted but upon the privilege, opportunity or facility offered at exchanges for the transaction of business." (Com. of Internal Revenue vs. Heald Lumber Co., 10 SCRA 372) In other words, the tax herein is imposed not on business transaction but on the privilege to enter into such transaction. In resume', We find no cogent reason to set aside the disputed assessment. WHEREFORE, and upon all the foregoing consideration, the assailed decision of the Court of Tax Appeals is hereby AFFIRMED in toto . With costs. SO ORDERED. Guerrero and Salas, JJ., concur.