Compagnie Financiere Sucres Et Denrees v. Commissioner of Internal Revenue

THIRD DIVISION [CA-G.R. SP No. 39501. October 27, 1997.] COMPAGNIE FINANCIERE SUCRES ET DENREES , petitioner , vs . THE COMMISSIONER OF INTERNAL REVENUE and the COURT OF TAX APPEALS , respondents . D E C I S I O N PARAS , J p : The subject of the instant "PETITION FOR REVIEW" is the October 6, 1995 decision in CTA case No. 5042, entitled "Compagnie Financiere Sucres et Denrees v. Commissioner of Internal Revenue", of the respondent Court of Tax Appeals which denied for lack of merit the petitioner's claim for tax credit or refund of excess Documentary Stamp Tax (DST) and Capital Gains Tax (CGT) in the respective amounts of P107,869.00 and P951,830.00 paid by the petitioner during the taxable year 1991. The facts of the case are as follows: On October 21, 1991, the petitioner, by virtue of a Deed of Sale and Assignment of Subscription and Right of Subscription, transferred its 8% equity interest in Makati Shangri-La Hotel and Resort, Inc., (Shangri-La) to Kerry Holdings Ltd. (formerly Sligo Holdings Ltd.). The interest transferred consisted of 107, 929 issued shares and 152,031 newly subscribed shares. In addition, the petitioner also assigned its deposits on stock subscriptions for 431, 476 Shangri-La shares in favor of Kerry. The Documentary Stamp Tax (DST) and Capital Gains Tax (CGT) thereon were paid on November 29, 1991. On October 21, 1993, the petitioner filed its claim for refund of overpaid CGT in the amount of P107,869 and DST in the amount of P951,830, or a total amount of P1,059,699.00. It stated in its letter that "we respectfully submit that [petitioner] CFSD's transfer of deposits on stock subscriptions is not a sale/assignment of shares of stock. As such, the transfer of CFSD's deposits on stock subscription should not have been subjected to DST and CGT." Said claim for refund being unacted upon by respondent Commissioner, the petitioner filed, on November 19, 1993, a petition for review before the respondent Court of Tax Appeals. On October 6, 1995, the said court rendered the herein questioned decision. The petitioner's motion for reconsideration of the aforesaid decision was denied in the said court's resolution dated December 26, 1995. Thus, the instant Petition was filed, the petitioner claiming that the respondent Court of Tax Appeals erred in its appreciation of the facts and the application of law in holding that the assignment of "deposits on stocks subscription" is subject to Capital Gains Tax (CGT) and Documentary Stamp Tax (DST) under Section 176 of the Tax Code. The petitioner contends that its deposits on stock subscription should not be subject to DST and CGT since these are neither assignments of stocks nor of "future stocks"; these are not sales of future things contemplated under Article 1461 of the Civil Code; and that an assignment of deposits on stock subscriptions is not a transaction covered by any of the enumerations under Section 176 of the Tax Code. On their part, the respondents counter that the petitioner's assignment of its deposits on stock subscriptions in favor of Kerry Holdings, Ltd. represented payment for 431,476 Shangri-La shares of stock to be reserved for the petitioner; that by assigning the deposits for said shares to Kerry, the petitioner, in effect, transferred said shares to be issued in the future and that under Section 176 of the Tax Code, this would be considered as a sale of future transfer of stock subject to documentary stamp tax and also as sale of "future things" subject to capital gains tax. In the case at bench, there is no dispute with regard to the transactions which gave rise to this action. What is at issue is whether or not the assignment of deposits on stock subscriptions is considered a sale of future transfer of stock subject to documentary stamp tax and capital gains tax. In the case of Commissioner of Internal Revenue v. Philippine American Life Insurance Co. (244 SCRA 446, 453), the Supreme Court has said that since the petitioner had also raised the issue of whether or not private respondent had satisfactorily shown by competent evidence that it was entitled to the amount sought to be refunded, the same being a question of fact, the said Court was bound by the findings of the Court of Tax Appeals. Moreover, in the case of " Misamis Oriental Association of Coco Traders , Inc . v . Department of Finance Secretary (238 SCRA 63) , the Supreme Court has stated that as the government agency charged with the enforcement of the law, the finding of the Commissioner of Internal Revenue, in the absence of any showing that it is plainly wrong, is entitled to great weight." Again, the Highest Tribunal of the land in the case of " Commissioner of Internal Revenue v . Court of Appeals (242 SCRA 289 , 304) , similarly held that as a matter of practice and principles, the Supreme Court will not set aside the conclusion reached by an agency such as the Court of Tax Appeals, which is, by the very nature of its function, dedicated exclusively to the study and consideration of tax problems and has necessarily developed an expertise on the subject, unless there has been an abuse or improvident exercise of authority on its part." An examination of the findings of the respondent court as expressed in its decision in the case at bench, shows no such abuse or improvident exercise of discretion on its part. Indeed, the respondent court properly reached its conclusion as it made the following observations: "In the Deed of Sale and Assignment of Subscription and Right of Subscription (see Exh. A) executed by and between the Petitioner and Sligo Holdings Limited (now known as Kerry Holdings, Ltd.) it clearly appears that the 'Vendor-Assignor (herein Petitioner) hereby sells, transfers, cedes, assigns and conveys his Issued Shares, subscribed shares, Deposits on Stock Subscription and Right of Subscription to the Vendee-Assignee free and clear of any liens and encumbrances whatsoever . . .' (Emphasis Ours). And because of such sale, petitioner bound itself to ' pay the capital gains tax due on the sale of Issued Shares and Subscribed Shares and assignment of Deposits on Stock Subscription . "From the foregoing, it is undeniably clear that there was indeed a valid sale even as they are considered 'future things' (such as Deposits on Stock Subscription) as contemplated under Article 1461 of the Civil Code.. . xxx xxx xxx "On this score, We believe and so hold that the Deposits on Stock Subscription is included as taxable 'shares of stocks' under Section 24 (e)(2) of the Tax Code inasmuch as the 'efficacy of (said) sale . . . is deemed subject to the condition that the thing will come into existence.' Otherwise, said sale will be rendered void, which is not true in this particular case. Hence, there was a valid sale and for purposes of taxation falls under the term 'shares of stocks' under Section 24 (e)(2) of the Tax Code liable for capital gains tax. "Moreover, herein Petitioner declared that it PROFITED from the sale by as much as P11.03 (selling price was P111.03 and the acquisition cost was only P100.00). Such profit should therefore be liable for Capital Gains Tax. A tax on the profit of sale on 'net capital gain' is the very essence of the net capital gains tax law. To hold otherwise will ineluctably deprive the government of its due and unduly set free from tax liability persons who profited from said transactions. "We cannot allow that." It should be reiterated that a taxpayer has the burden of proving entitlement to a claimed deduction or refund ( Paper Industries Corporation of the Philippines v . Court of Appeals, 250 SCRA 434 ). This is consistent with the rule that tax exemptions must be strictly construed against the taxpayer and liberally in favor of the state ( Misamis Oriental Association of Coco Traders Inc . , v . Department of Finance Secretary, Supra .). In the instant case, the petitioner's evidence is insufficient to entitle it to such refund. The questioned decision is found in order. WHEREFORE, THE PRESENT PETITION IS HEREBY DISMISSED FOR LACK OF MERIT. SO ORDERED. Tayao-Jaguros and Valdez, Jr . , JJ . , concur.