Security Bank Corp. v. Commissioner of Internal Revenue

SIXTH DIVISION [CA-G.R. SP No. 36998. January 6, 1998.] SECURITY BANK CORPORATION , petitioner , vs . COMMISSIONER OF INTERNAL REVENUE and COURT OF TAX APPEALS , respondents . D E C I S I O N ELBINIAS , J p : PETITION for Review over the Decision dated January 6, 1995 (Annex A, Rollo, pp. 15-25) rendered by public respondent Court of Tax Appeals, the dispositive portion thereof reading as follows: "WHEREFORE, finding the petition for review unmeritorious, petitioner is hereby ordered to pay the sum of P480,249.38, inclusive of the increments thereon, plus 20% interest pursuant to Sec. 283 of the Tax Code, as amended. The respondent Commissioner of Internal Revenue is hereby ordered to enforce collection pursuant to Sec. 3 of the same code. Cost against petitioner. SO ORDERED." The motion for reconsideration filed subsequently was denied by said respondent Court although modifying the aforequoted dispositive portion of the Decision, this wise: "WHEREFORE, finding the petition for review unmeritorious, petitioner is hereby ordered to pay the sum of P230,105.60, inclusive of 25% surcharge, representing deficiency documentary stamp tax starting July 1986, plus 20% interest per annum pursuant to Sec. 283 of the Tax Code, as amended. The respondent is hereby ordered to enforce collection pursuant to Sec. 3 of the same Code. Cost against petitioner. SO ORDERED." (Rollo, p. 30) The facts are: During the period April 28, 1986 to September 26, 1986, petitioner Security Bank Corp. sold foreign bills of exchange (US dollars) to the Central Bank of the Philippines with total peso value of P255,973,000.00. No documentary stamp tax was paid on the transaction. Thus on September 30, 1988, respondent Commissioner of Internal Revenue issued Assessment Notice No. FAS-5-86-88-003061 for deficiency documentary stamp tax in the amount of P480,249.38. This was sent through registered mail. On December 5, 1990, petitioner was personally served with a warrant of distraint and/or levy covering the subject documentary stamp tax assessment. Whereupon, petitioner filed with respondent Commissioner a letter-protest alleging lack of due process in the absence of a notice of assessment and opportunity to be heard thereon. cdll On October 3, 1991, petitioner received a letter from the BIR informing it that, inasmuch as the assessment was not subject of a seasonable administrative protest, the questioned assessment had become final and unappealable. The petitioner subsequently filed a letter-appeal with the Bureau of Internal Revenue to no avail. On October 31, 1991, petitioner appealed her case to respondent Court, which subsequently rendered the aforesaid decision and resolution unfavorable to petitioner. By way of the instant Petition for Review before Us, petitioner raises the following issues, to wit: "I. Petitioner's constitutional right to due process was violated when respondent Commissioner directed Petitioner to pay deficiency documentary tax in the absence of a notice of assessment and absolute lack of opportunity to be heard on said assessed tax deficiency. II. Sales of foreign exchange through spot cash transactions as done by Petitioner, as distinguished from sales of foreign bills of exchange, are not subject to documentary stamp tax. III. When a deficiency documentary stamp tax assessment is reduced by the Court of Tax Appeals because the original assessment was erroneous, no delinquency interest (of 20%) can be imposed on such "new assessment" as declared by the CTA." (Rollo, pp. 5-6) As regards the first issue, although petitioner did not receive the notice of assessment sent by respondent Commissioner, it may not complain of lack of due process. In fact petitioner was given the opportunity to be heard and to present, as it did, its side of the controversy by respondent Court acting on petitioner's motion for reconsideration and modifying the decision to reduce petitioner's tax liability. Absence of previous notice is not itself a substantial defect; what the law abhors is the lack of opportunity to be heard. (Artex Development Co., Inc. vs. NLRC, G.R. No. 65045, 187 SCRA 611 [1990]; Manuel vs. Villalena et al., L-28218, 37 SCRA 745 [1970]) The petitioner contends, as the second issue raised here, that it is not liable to pay documentary stamp tax because what was sold to the Central Bank were not foreign bills of exchange nor letters of credit but were foreign exchanges in what is known in the banking industry as "spot cash transactions." (Rollo, p. 9) The respondent Court ruled otherwise. It found that what petitioner sold were foreign bills of exchange to the Central Bank during the period April 28, 1986 to September 26, 1986. There is no compelling reason for Us to set aside this factual finding. Findings of fact of the Court of Tax Appeals are received with respect and are binding even on the Supreme Court. (Commissioner of Internal Revenue vs. Philippine American Life Assurance Co., G.R. No. 1055208, 244 SCRA 446 [1995]) With regard to the third issue, respondent Court, in its Resolution dated March 24, 1995 modifying its Decision, reduced petitioner's tax liability from P480,249.38 to P230,105.60 not because its original assessment was erroneous. Under Sec. 222 (now Sec. 173) of the Tax Code as amended by P.D. 1994, it is the buyer and not the seller, on this case petitioner, who is liable to pay documentary stamp tax. This section provides: "Sec. 222. Stamp taxes upon documents , instruments , and papers . 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 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 PD No . 1994) " Clearly then, the Central Bank, being a tax-exempt entity (pursuant to Resolution No. 35-85 dated 3 May 1985 of the Fiscal Incentive Review Board), cannot be held liable for the documentary stamp tax on its purchase of foreign bills of exchange. It is petitioner, being the party who is not exempt, which should be the one directly liable for the same. Thus, the assessment was not in error. However, inasmuch as P.D. 1994, the legal basis in assessing petitioner for deficiency documentary stamp tax, took effect only on June 18, 1986 (not January 1, 1986 as previously held) respondent Court had to reduce petitioner's tax liability to P230,105.60. The computation of deficiency documentary stamp tax included ONLY those foreign bills of exchange sold by petitioner to the Central Bank after the effectivity of P.D. 1994 or starting from July 3, 1986 to September 26, 1986. Nevertheless, a delinquency interest (of 20%) should be imposed on the new assessment as declared by respondent Court. Pursuant to Sec. 283 of the Tax Code as amended, for failure to pay the documentary stamp tax as it falls due, petitioner is also liable to pay "a delinquency interest at the rate of twenty percent (20%) per annum from the date prescribed for its payment until the amount is fully paid, which interest shall form part of the tax." But, as stated, said interest should be based on the reduced assessment applicable only to the period July 3, 1986 to September 26, 1986. WHEREFORE, the appealed Decision, as modified, is hereby AFFIRMED in toto. Costs against petitioner. SO ORDERED. Hofilea and Amin JJ . , concur.