Far East Bank & Trust Co. v. Commissioner of Internal Revenue

THIRTEENTH DIVISION [CA-G.R. SP No. 43157. March 19, 1999.] FAR EAST BANK & TRUST COMPANY , petitioner , vs . COMMISSIONER OF INTERNAL REVENUE , respondent . D E C I S I O N MABUTAC , JR. , J p : Before us is a petition for review assailing the decision (promulgated of January 2, 1997) of the Court of Tax appeals in CTA Case No. 5074. The dispositive portion of the assailed decision is worded as follows: "WHEREFORE, in view of the foregoing, the instant petition for review is DISMISSED and the claim for refund in the amount of P2,150,000.00 representing payment of documentary stamp tax is hereby DENIED." (page 10 of the Assailed Decision; page 178 of the Record). The antecedent facts of the case were portrayed by the court a quo as follows: "On June 28, 1990, Ma'ao Sugar Central Co., Inc. (MSCI) mortgaged to petitioner bank, 30 parcels of land as security for a loan obligation obtained by the former from the latter in the amount of P135,178,050.00. This real estate mortgage was later amended to include an additional seven (7) parcels of land all of which are located in Negros Occidental. prcd "The mortgagor, MSCI, failed to pay its loan obligation on the agreed date which prompted the petitioner to file for the extrajudicial foreclosure of the subject properties. Shortly, thereafter, an auction sale was held and petitioner, being the highest and sole bidder, was awarded said properties. The petitioner then alleges that it consequently paid the capital gains tax and the DST in the total amount of P12,900,003.00, the details of which are as follows: Certification Fee P 3.00 Documentary Stamp Tax 2,150,000.00 Withholding tax 10,750,000.00 TOTAL 12,900,003.00 =========== "Transfer Certificates of Title covering the subject properties were soon issued in the name of petitioner (Exhibit's 'H'' and 'I'), but the Court of Appeals reversed the decision of the lower court and nullified the sale of the subject properties. The decision of the court of Appeals was finally affirmed by the Supreme Court even after several motions for reconsideration filed by the petitioner, in a resolution dated September 27, 1993. "The nullification of the auction sale and the consequent cancellation of titles now a stark reality, petitioner then filed a claim for refund in a letter dated December 2, 1993 and received by the respondent on December 10, 1993. Apparently, this letter did not elicit any response from the respondent, so petitioner filed a petition for review with this Court of March 10, 1994." (pages 1-3 of the Assailed Decision). After considering the disputants; submissions, the Court of Tax Appeals made the following findings after adverting to Section 173 of the National Internal Revenue Code: "In the instant case, the transfer of title was consummated as shown by the Transfer Certificate of Title presented as exhibits 'H' and 'I' issued in the name of herein petitioner. The transaction involves transfer of property. And since the transaction was affected by the actual transfer of the property in the name of petitioner as evidenced by exhibits 'H' and 'I', the DST was rightfully and legally paid at the time 'such act is done or transaction had'. Normally, the DST and Capital Gains Tax are paid before the property can be transferred in the name of the buyer. With the actual transfer or with the 'transaction (auction sale) had' the payment of the DST in advance actually affected the transfer. Otherwise, the property cannot be processed to effect the transfer without the payment of the DST and the Capital Gains Tax. "The subsequent cancellation of the auction sale by court decree is of no consequence because there was an actual transfer of property in the name of petitioner. xxx xxx xxx "A Documentary Stamp Tax is an excise tax. It is tax on the privilege to enter into a transaction. The tax is designed to raise revenues and not to render the document void. (NOLLEDO, Bar Reviewer in Taxation, 1990 Tenth and Rev. Ed., p. 597; see also the recent case of Commissioner of Internal Revenue v. Firemen's Fund Insurance Co., et al., L-30644, March 9, 1987). Similarly, the DST on the sale or transfer of real property is imposed on the privilege of transferring real property (by auction sale). Thus, the 'transaction had' is the sale of real property effected by the transfer of property in the name of petitioner. Whatever documentary stamp tax is due, is due at the time. The annulment of the sale happened after the transfer of title. A subsequent event, that is, the declaration of nullity of the sale, will not affect the payment of the DST because the privilege was actually used and effected at the time that the title to the property was transferred in petitioner's name. "In the consolidated cases entitled American International Underwriters (Phils.), Inc. v. Commissioner of Internal Revenue, CTA Case No. 4208; Philippine American General Insurance Company v. Commissioner of Internal Revenue, CTA Case No. 4209, Philippine American Accident Insurance Company v. Commissioner of Internal Revenue, CTA Case No. 4210; Philippine Home Assurance Corporation v. Commissioner of Internal Revenue, CTA Case No. 4211, all dated April 26, 1993, this Court ruled that the subsequent cancellation of the transaction from where the DST liability attaches, does not have the effect of cancelling such liability. . . ." (pages 7-9, id .) Not satisfied with the decision of the Court of Tax Appeals, the petitioner elevated the matter to this Court and the petition was received on February 21, 1997 (pages 11-23 of the Rollo ). In its petition, the petitioner raised the following issue: WHETHER OR NOT PETITIONER SHOULD BE GRANTED A REFUND/TAX CREDIT FOR THE AMOUNT REPRESENTING THE DOCUMENTARY STAMP TAX IT PAID ON AN EXTRAJUDICIAL FORECLOSURE SALE WHICH WAS NULLIFIED AND SET ASIDE BY THE COURT OF APPEALS AND THE SUPREME COURT." (page 4 of the Petition) The petitioner naturally adopted an affirmative posture relative to the issue it raised, but its pretensions were whittled down by the public respondent (through the Office of the Solicitor General) thus: "A documentary stamp tax is in the nature of an excise tax because it is levied upon the privilege, the opportunity and the facilities offered at exchanges for the transaction of a business. It is a tax on the facilities used, separate and apart from the business itself ( Commissioner of the Internal Revenue v . Heald Lumber Co ., 10 SCRA 372 [1964]). The amount of documentary stamp tax imposed is determined on the face of the instrument. It is not affected by proof of facts outside of the instrument itself, nor is it affected by the validity of invalidity of the transaction (Jose Aranas, updated National Internal Revenue Code, 1988 ed., p. 773). Consequently, when the transaction is invalidated and declared void, there can no longer be a refund of the taxes already paid. In effect, the taxpayer entering into an invalid transaction runs the risk of forfeiting whatever documentary stamp tax he may have paid." (pages 4-5 of Public Respondent's Comment; pages 94-95 of the Rollo ). The public respondent also twitted the petitioner for invoking a portion of a ruling in Philippine Consolidated Coconut Industries, Inc . v . Collector of Internal Revenue (70 SCRA 30 saying it is "misplaced." "The issue in the aforecited case is whether or not the certificate of stocks held on mandatory deposit by the Securities and Exchange Commission are considered issued and therefore subject to documentary stamp tax," she equipped. "Hence, the aforementioned certificates of stocks are not subject to documentary stamp tax because they can not be considered issued, as they are mandatorily deposited with the Securities and Exchange Commission. Since, the certificate cannot be sold, transferred or traded yet, they are considered mere scraps of papers , and therefore, are not subject to documentary stamp tax," she added. The public respondent further asseverated that: "There is nothing in said Decision which supports the claim of petitioner that documentary stamp tax is to be paid only after the property (subject of the document upon which the documentary stamp tax was imposed) is transferred in favor of the petitioner. On the contrary, the Honorable Supreme Court emphatically held that documentary stamp tax is an excise tax levied upon the privilege of issuing the certificate of stock. Since the certificates of stocks were not yet issued (therefore, not yet considered documents evidencing a transaction, they were not subject to documentary stamp tax ( ibid ). "Moreover, in Commissioner of Internal Revenue vs . Construction Resources of Asia, Inc . (145 SCRA 671[1986]) the Honorable Supreme Court held that transfer of ownership or delivery of the certificates of stocks, whether actual or constructive, is not necessary (vide p. 674, ibid)." (pages 7-8 of Public Respondent's Comment; pages 97-98 of the Rollo). Branding as "erroneous" petitioner's allegation that the consolidated cases cited in the subject CTA decision are not applicable to the case at bar because they involve cancelled documents and insurance policies, the public respondent posited: "Whether or not the transaction was subsequently cancelled, voided, or nullified, does not detract from the basic principle that the imposition of the documentary stamp tax on the exercise of the privilege to enter into a transaction, is not affected by proof of facts outside the instrument. xxx xxx xxx "In sum, petitioner is not entitled to a refund/credit of the documentary stamp tax on the documents evidencing transactions which were later nullified by this Honorable Court and the Honorable Supreme Court." (pages 9-11 of Public Respondent's Comment). cdt We agree with the foregoing postulation by the Office of the Solicitor General for the public respondent as We find nothing erroneous in the assailed decision of the Court of Appeals. Under the National Internal Revenue Code (Presidential Decree No. 1158, as amended) a documentary stamp tax connotes a tax on documents, instruments and papers evidencing the acceptance, assignment, sale or transfer of an obligation, right or property incident thereto (Section 173). It is in the nature of an excise tax it is not imposed upon the business transacted but it is an excise upon the privilege, opportunity or facility offered at exchanges for the transaction of the business (Commissioner of Internal Revenue vs. Heald Lumber Co., 10 SCRA 372). It is an excise upon the facilities used in the transaction of the business, separate and apart from the business itself (Nicol vs. Ames, 173 U.S. 509; Thomas vs. U.S., 192 U.S. 363; Du Pont vs. U.S., 300 U.S. 150). As Justice Learned Hand pointed out in one case, the documentary stamp tax is levied on the document and not on the property which it described. As an excise tax, the documentary stamp tax is paid only once upon the execution of the document which is the subject of the taxable transaction. Thus, it has been held: The fact that the articles of incorporation of a proposed corporation was later on disapproved by the Securities and Exchange Commission will not give rise to the refund of the documentary stamp tax already paid, because upon execution of the document of conveyance the taxable transaction is closed and completed (BIR Ruling No. 130, July 8, 1991). A similar situation exists in the case at bench). Anyway, it is already settled that the Court of Appeals is a highly specialized body specifically created for the purpose of reviewing tax cases and, through its expertise, it is undeniably competent to determine the issue on hand (Philippine Refining Company vs. court of Appeals, 256 SCRA 667) whether or not a documentary stamp tax paid in an extrajudicial foreclosure sale (which was subsequently nullified) is refundable or be the subject of a tax credit. On this score, We wish to advert to rulings that findings of fact of administrative agencies and quasi-judicial bodies, which have acquired expertise because their jurisdiction is confined to specific matters, are generally accorded not only respect but even finality and are binding upon this Court (Sta. Fe Construction Co. vs. National Labor Relations Commission, 230 SCRA 593; Maya Farms Employees Organization vs. National Labor Relations Commission, 239 SCRA 508; Cocofed vs. Trajano, 241 SCRA 363; Militante vs. National Labor Relations Commission, 246 SCRA 366). cdlex WHEREFORE, premises considered, the petition is DISMISSED, hereby affirming the assailed decision (promulgated on January 2, 1997) of the Court of Tax Appeals in CTA Case No. 5074. Let the records be remanded back to the court a quo immediately upon the finality hereof. SO ORDERED. Aquino and Rivera * , JJ . , concur. Footnotes * Acting Junior Member .