Consolidated Bank & Trust Co. v. Commissioner of Internal Revenue

NINTH DIVISION [CA-G.R. SP No. 35050. March 31, 1995.] (CTA Case No. 4647) CONSOLIDATED BANK & TRUST CO. , petitioner , vs . THE COMMISSIONER OF INTERNAL REVENUE AND THE COURT OF TAX APPEALS , respondents . D E C I S I O N CAIZARES-NYE , J p : Appeal by petition for review from the decision of the Court of Tax Appeals, the dispositive portion of which reads as follows, to wit: "WHEREFORE, premises considered, petitioner is hereby ORDERED to pay respondent Commissioner of Internal Revenue, the amount of P638,238.38 as deficiency documentary stamp tax for the year 1986 plus 20% annual interest from 1986 until fully paid pursuant to Section 283 of the 1986 Tax Code as amended by P.D. 1994, effective January 11, 1986, which provides in part, thus: 'Section 283. Interest (a) In General there shall be assessed and collected on any unpaid amount of tax, interest at the rate of twenty percent (20%) per annum, or such higher rate as may be prescribed by regulations, from the date prescribed for payment until the amount is fully paid. SO ORDERED. S/ERNESTO D. ACOSTA T/ERNESTO D. ACOSTA Presiding Judge WE CONCUR: S/MANUEL K. GRUBA T. MANUEL K. GRUBA Associate Judge S/RAMON O. DE VEYGA T/RAMON O. DE VEYGA Associate Judge" (pp. 6-7. op cit.; pp. 9-10, rollo.) The facts are not disputed. "xxx xxx xxx Respondent, in a letter dated September 30, 1988, assessed the petitioner for its tax liability in the amount of P638,238.38 representing deficiency documentary stamp tax on the foreign bills of exchange it sold to Central Bank in 1986, computed as follows: Foreign Exchange Sold to Central Bank P340,233,800.00 Documentary Stamp Tax Due Thereon P340,233,800.00 P200.00 x 0.30 P510,350.70 Add. 25% Surcharge 127,587.88 T o t a l P637,938.38 ========= Less Payment Total Documentary Stamp Tax And Surcharge Due P637,938.38 Add: Compromise Penalty 300.00 TOTAL AMOUNT DUE COLLECTIBLE P638,238.38 ========= In accordance with the procedure outlined in the Tax Code, petitioner duly relayed its protest to the aforementioned assessment in a letter dated October 14, 1988 anchored on two (2) main assertions, to wit: 1) Such transactions should not give rise to the imposition of documentary stamp tax or other taxes as the exercise thereof is mandated under the Central Bank Act; 2) Granting, without conceding, that the transactions require payment of stamp taxes, the liability must be that of the Central Bank not only because it is the real party transferring the funds but also because, as purchaser, it is obligated by the established market convention to shoulder all cost of remittances. Respondent did not give credence to the foregoing arguments and subsequently denied the protest embodied in a letter received by the petitioner on September 5, 1991. Petitioner then sought the protection of this Court from what is perceives as an erroneous assessment issued by the respondent without factual and legal bases. Meanwhile, a warrant of Garnishment was issued by the respondent against petitioner to enforce the collection of the alleged deficiency documentary stamp tax but this was eventually lifted with the filing of a surety bond by petitioner. xxx xxx xxx" (Pp. 1-Decision' pp. 4-6, rollo .) On appeal, it is contended: "1. Respondent Court erred in finding that petitioner is liable for the 1986 deficiency documentary stamp tax assessment amounting to P638,238.38 and 2. Respondent Court erred in finding petitioner liable for the 20% interest per annum from 1986 until full payment of the deficiency documentary stamp tax assessment". (P. 4. Petition for Review.) Petitioner argues that "(T)he sale and subsequent remittance of foreign currency by petitioner to CBP's US deposit account is not subject to DST." (P. 5, supra .) In support of its argument petitioner cites Section 173 of the Tax Code which provides: "Sec. 173. Stamp taxes upon documents, instruments and paper . Upon documents, instruments, 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, 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. (As amended by P.D. No. 1914). " (Pp. 5-6, id .) However, petitioner glosses over the provision that states: . . . "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 . (As amended by P. D. No. 1914.)" (P. 6, Petition for Review; Emphasis supplied) Indeed, in its Comment, the respondent stresses: "xxx xxx xxx Inasmuch as the Central Bank of the Philippines at the time of the sale of foreign exchange by petitioner, was exempt from payment of any tax effective June 11, 1994 to March 1987, pursuant to Fiscal Incentive Review Board (FIRB) Resolution No. 33-85, petitioner, on the basis thereof, and by virtue of the provisions of Section 32 of P.D. 1994, becomes the party directly liable for the payment of DST tax in the amount of P638,238.38." xxx xxx xxx" (P. 7, op. ci t.; p. 54 rollo .) Pertinent to the issue raise is the ponencia in the case of China Banking Corporation vs. Commissioner of Internal Revenue (CA-G.R. SP No. 33651, prom. September 23, 1994, pp. 7-10) on the very same matter raised in the case at bar: "xxx xxx xxx 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 . 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 in 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 1984 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 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 1, 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) xxx xxx xxx Petitioner further claims that: Respondent has based her deficiency DST assessment on the ground that the advice issued by the Petitioner to its correspondent bank was considered as telegraphic transfer subject to DST under (now) Section 182 of the Tax Code. Please note that the aforesaid provision provides that: 'Sec. 182. Stamp tax on foreign bills of exchange and letter of credit . On all foreign bills of exchange and letters of credit (including orders, by telegraphic 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 in foreign country.' A perusal of the aforesaid statutory provision reveals that what is being taxed are foreign bills of exchange and letters of credit (including order, by telegraph or otherwise, for the payment of money issued by express or steamship companies or by any person or persons.) We submit that the advice issued by petitioner does not fall under any of the aforesaid instruments subject to DST. xxx xxx xxx" (P. B., Petition for Review.) Again, we quote the ruling in the case of China Banking Corporation ( supra , pp. 10-11) to refute petitioner's theory: "xxx xxx xxx 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 transaction will be regarded as a 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. Heals Lumber Co., 10 SCRA 372) In other words, the tax herein is imposed not on business transactions but on the privilege to enter into such transactions. xxx xxx xxx" Neither can this Court subscribe to the view expressed by petitioner that the respondent erred in imposing against it interest of 20% per annum until full payment of the DST tax assessment. As observed by the respondent, the imposition is sanctioned by Section 249 of the Tax Code, as amended, thus: "Section 249. Interest . (a) In general There shall be assessed and collected on any unpaid amount of tax, interest at the rate of twenty percent (20%) per annum, or such higher rate as may be prescribed by regulations, from the date prescribed for the payment until the amount is fully paid. xxx xxx xxx (b) Deficiency interest . Any deficiency in the tax due, as the term is defined in this Code, shall be subject to the interest prescribed in paragraph (20) hereof, which interest shall be assessed and collected from the date prescribed for its payment until the full payment thereof. (c) Delinquency interest . In case of failure to pay: (3) A deficiency tax, or any surcharge or interest thereon, on the due date appearing in the notice and demand of the Commissioner, there shall be assessed and collected, on the unpaid amount, interest at the, rate prescribed in paragraph (a) hereof until the amount is fully paid, which interest shall form part of the tax." (P. 8, Comment; p. 55 rollo .) Finally, We call attention to the rule as enunciated in the case of Province of Tarlac vs. Hon. Fernando S. Alcantara, et al . (216 SCRA 790, 797-798): "xxx xxx xxx It has always been the rule that 'exemptions from taxation are construed in strictissimi juris against the taxpayer and liberally in favor of the taxing authority' (Philippine Petroleum Corp. v. Municipality of Pililia, Rizal, G.R. No. 90776, June 3, 1991, 198 SCRA 82, 90 citing Esso Standard Eastern, Inc. v. Acting Commissioner of Customs, L-21841, October 28, 1966, 18 SCRA 488, 490) primarily because 'taxes are the lifeblood of government and their prompt and certain availability is an imperious need.' (Commissioner of Internal Revenue v. Pineda, L-22734, September 15, 1967, 21 SCRA 105, 110.) Thus, to be exempted from payment of taxes, it is the taxpayer's duty to justify the exemption 'by words too plain to be mistaken and too categorical to be misinterpreted.' (Commissioner of Internal Revenue v. P.J. Kiener Co., Ltd., L-24754, July 18, 1975, 65 SCRA 142, 153 citing Reagan v. Commissioner of Internal Revenue, L-26379, December 27, 1969, 30 SCRA 968.) Private respondent has utterly failed to discharge this duty. xxx xxx xxx" WHEREFORE, in view of the foregoing, the assailed decision is hereby AFFIRMED in toto and the instant Petition For Review ordered DISMISSED for lack of merit. SO ORDERED. Imperial and Callejo , Sr ., JJ ., concur.