Security Bank & Trust Co. v. Court of Tax Appeals

FOURTH DIVISION [CA-G.R. SP No. 40872. August 29, 1997.] SECURITY BANK AND TRUST COMPANY , petitioner , vs . HON. COURT OF TAX APPEALS, JOSE ONG, as Commissioner of Internal Revenue , respondents . D E C I S I O N TAYAO-JAGUROS , J p : Before this Court is a petition for review filed by Security Bank and Trust Company from the decision of the Court of Tax Appeals in C.T.A. Case No. 4784 entitled "Security Bank and Trust Company v. Commissioner of Internal Revenue." The decretal portion of said decision reads: "WHEREFORE, in view of all the foregoing, instant petition for review is found to be without merit and the same is hereby DISMISSED. ACCORDINGLY, petitioner is hereby ORDERED to PAY to respondent the amount of P3,287,399.32, without any surcharge and interest thereon, as deficiency documentary stamp tax due on petitioner's sale of securities under repurchase agreement for the year 1983. SO ORDERED." (p. 15, Dec.; p. 61, Rollo ) The Court of Tax Appeals has summarized the facts of this case as follows: "This is a review of the 1983 deficiency documentary stamps tax (DST) assessment on sale of securities in the amount of P3,287,399.20 issued by the Bureau of Internal Revenue (BIR) against Security Bank and Trust Company (SBTC). Petitioner is a duly registered domestic corporation engaged in commercial banking. It is a member of the Bankers Association of the Philippines (BAP). It received from the B.I.R., sometime before March 19, 1987, a Pre-Assessment Notice, dated March 6, 1987, containing the following details, to wit: 1983 Deficiency Documentary Stamps Tax A. On Promissory Notes Issued Promissory notes issued during the year P926,385,255.00 Documentary stamp tax due thereon: P926,386,255.00 * P.065 P3,010,752.08 P200 B. On Sale of Securities under Repurchase Agreement Securities sold during the year P3,022,803,857.63 Documentary stamp tax due thereon: P3,022,803,857.63 * P0.25 3,778,504.82 P200 Total P6,789,256.90 Add: Compromise penalty 600.00 TOTAL AMOUNT DUE AND COLLECTIBLE P6,789,856.90 ============= In a letter, dated March 19, 1987, petitioner disputed the above-quoted assessment on the grounds that: (1) promissory notes issued by SBTC prior to October 15, 1984 or specifically in 1983, were non-negotiable and, therefore, not subject to documentary stamp tax; and (2) sale of securities under Repurchase Agreement is not subject to DST. Instead of answering this written protest, respondent sent petitioner an assessment letter, dated May 29, 1987, which was received by the latter on June 11, 1987. The assessment was a reiteration of the pre-assessment previously received by petitioner. On June 23, 1987, as a reply to the assessment letter, petitioner clarified that his answer was already contained in his previous letter of March 19, 1987. Pursuant to the Compromise Agreement entered into on April 8, 1988, by and between B.A.P. and the former Commissioner of Internal Revenue Bienvenido A. Tan, Jr., petitioner compromise on August 15, 1988 (p. 30, BIR records) the aforementioned assessments by paying the amount of P641,743.23 as full settlement of said assessments (Exh. '4', Respondent' p. 21, Ibid .) cdll The amount of P641,743.23 was computed (p. 146, BIR records) by adding the total amount of promissory notes issued during the year 1983, and the total amount of securities sold during the same year. The resulting sum constituted the compromise base, which if divided by 200, and then multiplied by P0.0325 would give the aforesaid compromise amount. Thus: Promissory notes issued during the year 1983 P926,385,255.00 Add: Securities sold under repurchase agreement 3,022,803,857.63 Compromise Base 200 x P0.0325 = P3,949,189,112.63 200 x P0.0325 = P641,743.23 - compromised amount paid under P.O. No. C3252171 and C.R. No. B14457384 both dated March 31, 1988. "Despite petitioner's availment of the compromise agreement, it still received from respondent a letter demanding payment of the amount of P3,287,399.20 as documentary stamp tax on securities sold under a repurchase agreement in 1983. Details of this amount are shown hereunder (Exh. '7', Resp., p. 51, BIR records): 1983 Deficiency Documentary Stamp Tax On Sale of Securities Under Repurchase Agreement Securities Sold During the Year P3,022,803,857.63 Documentary Stamp Tax Due Thereon - P3,022,803,857.63 P200.00 x P0.25 P3,778,604.82 Less: Partial Payment - P3,022,803,857.63 P200.00 x P0.0325 491,205.62 TOTAL AMOUNT STILL DUE AND COLLECTIBLE P3,287,399.20 =========== Through a letter, dated August 23, 1989, petitioner informed respondent that the assessment sought to be collected was already the subject of a compromise. As the case was referred to respondent's Appellate Division, petitioner filed with this office on June 17, 1991, a letter disputing the reassessment of documentary stamp tax on the latter's sale of securities. Protest to the reassessment was denied by respondent in a letter, dated January 29, 1992, which was received by petitioner on March 11, 1992. Then on March 16, 1992, a request for reconsideration was filed by petitioner. However, although this letter, as borne by the records, came into the hands of the B.I.R., no action or answer has been received by petitioner up to the time the instant petition for review was filed with this Court on April 10, 1992. Respondent's answer was filed on June 19, 1992 alleging as special and affirmative defenses the following: 1. The 1988 BIR-BAP DST Compromise Agreement covers only tax assessments involving documentary stamp tax on all types of promissory notes issued prior to October 15, 1984; 2. Petitioner's sale of securities under a Repurchase Agreement is not included or placed within the scope of the Compromise Agreement. The law is specific that the subject of a compromise comprises only those matters which are definitely stated therein (Article 2036, New Civil Code); 3. Petitioner, knowing fully well that documentary stamp taxes on sales of securities under Repurchase Agreement were not within the scope of the BIR-BAP DST Compromise Agreement, induced the respondent to enter into a compromise settlement thereof. A compromise in which there is a mistake, fraud, violence, intimidation, undue influence or falsity of documents may be rescinded or invalidated (Article 2038 in relation to Article 1330 of the New Civil Code); and 4. The assessment is in accordance with law and regulation. Issues having been joined, petitioner presented documentary and testimonial evidence to prove and/or support its case. After petitioner rested its case, respondent presented and offered only documentary evidence which were part of the BIR records. No testimonial evidence was offered by respondent." (pp. 1-6 Dec.; pp. 47-52, Rollo ) Thereafter, the Court of Tax Appeals rendered the above decision. Hence, this petition for review. We agree with the Solicitor General that this petition for review should be dismissed. Petitioner raises the following issues: (1) the legality of the imposition/collection of the subject deficiency documentary stamp tax (DST) in the amount of P3,287,399.20 due on sale of securities under repurchase agreement for the year 1983, (2) the coverage of the Compromise Agreement of April 8, 1988 as to the documentary stamp tax, and (3) the difference between securities and promissory notes. As to the first issue, We cannot agree with petitioner that only conveyances of instruments mentioned in Sections 223 and 224 (now Sections 174 and 175) of the Tax Code are subject to documentary stamp tax imposed by Section 225 (now Section 176) of the same Code, and that said Section 225 does not cover conveyances of instruments under Section 229 of the same Code. Section 225 (now Section 176) of the Tax Code expressly provides: "Sec. 225. Stamp Tax on Sales , Agreement to Sell , Memoranda Bonds , Due Bills , Certificate of Obligation , or Shares or Certificates of Stocks . On all sales or agreement to sell, or transfer of bonds, due bills, certificates of obligation or shares or certificates of stock in any association, company or corporation, or transfer of such securities by assignment in blank, or by delivery, or by any paper or agreement, or memorandum or other evidences of transfer or sale whether entitling the holder in any manner to the benefit of such bonds, due bills, certificates of obligation or stock, or to secure the future payment of money, or for the future transfer of any bond, due-bill, certificate of obligation or stock, there shall be collected a documentary stamp tax of twenty-five centavos on each two hundred pesos, or fractional part thereof, of the par value of such bond, due bill, certificates of stocks or obligation or stock. . . ." Corollarily, Section 222 (now Section 173) of the Tax Code expressly provides: "Sec. 173. 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 the person making, signing, issuing, accepting, or transferring the same, and at the 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 directly liable for the tax." Under the above provisions of law, transfer of securities is subject to documentary stamp tax, and the person transferring the securities is liable for the payment of the documentary stamp tax. Thus, the Court of Tax Appeals validly observed: ". . . A careful review of the computation of subject reassessment reveals, that the figure of P3,022,803,857.63 denominated as 'securities sold during the year', was the same figure supplied or given by petitioner to respondent during the Compromise Agreement. This amount of sale of securities under a repurchase agreement, was properly subjected to DST at the rate of P0.25 on each P200.00 or fractional part thereof, pursuant to Section 225 of the Tax Code. The result was P3,778,604.82 which represents the amount of DST due on the aforesaid sale of securities. However, as the same amount of sale of securities was erroneously included in the Compromise Agreement, at the compromised rate of P0.325 on each P200.00 or fractional part thereof, the resulting amount of P491,205.62 was considered as partial payment, and the same was deducted from P3,778,604.82 leaving the net figure of P3,287,399 . 20 as the amount of DST still due and collectible from petitioner. Finally, the Court considers respondent's revised assessment as correct, following the time-honored principle that: Assessment are prima facie presumed correct and made in good faith. The taxpayer has the duty of proving otherwise. In the absence of proof of any irregularities in the performance of official duties an assessment will not be disturbed. All presumptions are in favor of tax assessments (Interprovincial Autobus Co., Inc. v. Collector, 98 Phil. 290; Cecilia Teodoro Dayrit v. Hon. Fernando Cruz and Commissioner, L-39910, Sept. 26, 1988; Bonifacia Sy Po v. CTA and Commissioner, G.R. No. 81446, Aug. 18, 1988). Failure to present proof of error in the assessment will justify judicial affirmance of said assessment (Delta Motors Co. v. Commissioner, CTA Case No. 3782, May 21, 1986)." (pp. 14-15, Dec.; pp. 60-61, Rollo) Neither can We agree with petitioner on the second issue that the assessment of the documentary stamp tax in question was already covered by the Compromise Agreement dated April 8, 1988 between the petitioner and the Bureau of Internal Revenue. The documentary stamp tax in question covers the sale/transfer of securities under repurchase agreement in 1983 while the said April 8, 1988 Compromise Agreement covers only promissory notes. The pertinent provisions of the said Compromise Agreement is hereby reproduced: "SECURITY BANK AND TRUST COMPANY, hereinafter referred to as 'the Bank' a member of the Bankers Association of the Philippines, through its duly authorized representative. MR. ARCATOMY S. GUARIN, Senior Vice president, hereby offer[s] to compromise its Documentary Stamp Tax (DST) assessment relating to Non-negotiable Promissory Notes issued prior to October 15, 1984, under the following terms and conditions: I. COMPROMISE RATE: xxx xxx xxx II. SCORE: The above-mentioned Documentary Stamp Tax compromise contemplates and includes: A. All years with assessment and pre-assessment notices; B. Years where documentary stamp tax on non-negotiable promissory notes issued prior to October 15, 1984 were paid under protest; C. Years where a case presently with the Court of Tax Appeals; and D. All open years, up to October 14, 1984, at the option of the Bank. III. COMPROMISE BASE; xxx xxx xxx IV. COMPROMISE COMPUTATION: xxx xxx xxx V. MODE OF PAYMENT: xxx xxx xxx VI. EXCLUSIVES: Other issues raised in the tax assessments or which may be raised for open and assessed/pre-assessed years respectively, not involving documentary stamp tax on all types of promissory notes issued prior to Oct . 15 , 1984 are not included in nor affected by this compromise ." (pp. 31-32, Rollo) Emphasis supplied Clearly, the above Compromise Agreement covers only promissory notes prior to October 15, 1984, and not securities. These securities of 1983 are now the subject of documentary stamp tax in the instant case since they are not covered by the said Compromise Agreement. llcd As to the final issue raised by petitioner that securities are the same as promissory notes, We agree with the Court of Tax Appeals that they are not the same. As validly observed by the Court of Tax Appeals: "The Court brushes aside petitioner's interpretation and/or definition of the term 'securities'. The aforequoted provision of the Revised Securities Act did not properly define or describe the term 'securities'. . . . The proper and more acceptable definitions are those quoted hereinbelow, stating that: ' Securities are generally defined as written assurances form the return or repayment of money or evidences of indebtedness.' (Jaffe v. Goldner, 251 III, App. 188; Words and Phrases , Vol. 38, p. 469). The term security has no exactly defined legal definition. Generically, the word has reference to written instruments, usually for the payment of money or evidences of a debt, and being more than a mere promise of the debtor of a general liability on his part , but having as collateral to it a pledge of properly or some additional obligation . Webster defines it as anything given or deposited to secure the payment of a debt or the performance of a contract , as a bond with surety, a mortgage, the indorsement of a responsible man, or a pledge. It is that which renders a matter sure; an instrument which renders certain the performance of a contract.' (Storm v. Wandell, N.Y., 2 Sandf. Ch. 494, 507, citing 2 Bouv. Law Dict. 493; Words and Phrases . Vol. 38, p. 471).' It is manifestly clear from all the definition given , that ' securities ' are not synonymous with promissory notes . For while a 'promissory note is a written promise by one person to pay another person therein named or order a fixed sum of money at all events and at a time specified therein or at a time which must certainly arise' (Clarke v. Hunter, 83 III. App. 100; Words and Phrases , Vol. 34, p. 303), a security is more than mere promise to pay, as it has collateral to such promise, a pledge of property or some additional obligation. Hence , if the subject Compromise Agreement specifically provided , that it would cover only DST assessments on all types of promissory notes , definitely , it would not cover DST assessments on securities sold under a repurchase agreement . It is a well-settled rule that: 'A compromise agreement must be strictly interpreted and must be understood as including only matters specifically determined therein on which, by necessary inference from its wording must be deemed included.' (Ferrer v. Ignacio, 39 Phil. 446)." (pp. 9-10, Dec.; pp. 53-56, Rollo) Emphasis supplied Thus, securities are different from promissory notes as aptly explained above. Petitioner cannot insist that securities and promissory notes are just the same for the purpose of having said securities covered by the Compromise Agreement of April 8, 1988 and avoid the payment of the required documentary stamp tax. Finally, in resolving this petition for review We are guided by the rule that the appellate court is bound by the findings of fact and conclusions of the Court of Tax Appeals which has the expertise on the matter, absent the showing of grave abuse of discretion of the latter (Commissioner of Internal Revenue v. Court of Tax Appeals, 242 SCRA 389; Commissioner of Internal Revenue v. Philippine American Life Insurance Co., 244 SCRA 446). WHEREFORE, the instant petition for review is hereby DISMISSED by this Court for lack of merit. The appealed decision of the Court of Tax Appeals in C.T.A. Case No. 4784 is Affirmed . Costs against petitioner. SO ORDERED. Martinez and Valdez, Jr . , JJ . , concur.