Commissioner of Internal Revenue v. Bank of the Philippine Islands

THIRTEENTH DIVISION [CA-G.R. SP No. 51271. August 11, 1999.] COMMISSIONER OF INTERNAL REVENUE , petitioner , vs . BANK OF THE PHILIPPINE ISLANDS , respondent . D E C I S I O N TUQUERO , J p : In a petition for review of the decision of the Commissioner or Internal Revenue requiring payment of deficiency documentary stamp tax in the amount of P28,020.00, filed by the Bank of the Philippine Islands (BPI for brevity) before the Court of Tax Appeals (CTA for brevity) and docketed as C.T.A. Case No. 5559, a decision was rendered on February 2, 1999, the decretal portion of which is as follows: IN THE LIGHT OF ALL THE FOREGOING, judgment is hereby rendered granting the herein petition. Respondent is hereby ORDERED to CANCEL Assessment Notice No. FAS-5-35-89-002054 which he issued against petitioner on the latter's alleged deficiency DST and compromise penalty for the year 1985. No pronouncement as to costs. SO ORDERED. As succinctly summarized by the CTA, the antecedent facts are as follows: Petitioner is a commercial banking corporation duly organized and existing under the laws of the Philippines with address at BPI Bldg., Ayala Ave., corner Paseo de Roxas, Makati City. On June 6, 1985, petitioner sold to the Central Bank of the Philippines (now Bangko Sentral ng Pilipinas) US$500,000.00. On June 14 of the same year, it again sold to said institution another US$500,000.00. On October 10, 1989, respondent issued Assessment Notice No. FAS-5-35-89-002054, assessing petitioner of deficiency documentary stamp taxes on the above transactions. In the amount of P27,720.00 plus P600.00 compromise penalty or a total amount of P28,020.00. The same was received by petitioner on October 20, 1989 (Exhibit "A"). On November 17, 1989, petitioner filed with respondent its protest against the subject assessment (Exhibit "B"). It anchored its protest on the premise that under established market practice in the sales of foreign exchange, it is the buyer who pays the documentary stamp tax on the transactions, hence, it is the Central Bank of the Philippines that should have paid the tax. However, it expounded that since the Central Bank at that time was exempt from taxes, then no documentary stamp taxes were due on the two transactions. Further it said that while it is true that under P.D. 1994, a proviso was added to Section 222 (now Section 173) of the Tax Code "that whenever one party to a taxable document enjoys exemption from tax herein imposed, the other party thereto who is not exempt shall be the one directly liable for the tax" the same is not applicable in the case at bar since the questioned transactions took place before January 1, 1986, the date when P.D. 1994 took effect. Seven (7) years and nine (9) months thereafter or on September 11, 1997, petitioner received a letter from respondent dated August 13, 1997, denying the protest it filed last November 17, 1989, prompting the petitioner to file with this Court the instant petition for review on October 10, 1997. dctai Petitioner repleads its stance a quo in the instant petition for review with the additional argument that the respondent's right to collect the assessment has prescribed. On the other hand, respondent in his answer rationalized that while industry practice or market convention has the force of law between members of a particular industry, it does not bind respondent's bureau which has never been party thereto, and therefore, should not prejudice the latter in its task of collecting revenues necessary and vital to the operations of the different and various agencies of the government. Further, he said that even before the amendment of Sec. 222 (now Sec. 173) of the Tax Code it was already held that the other party who is not exempt from citing BIR Unnumbered Ruling dated May 30, 1977 and BIR Ruling No. 144-84 dated September 3, 1984. Judgment having been rendered by the CTA cancelling the Assessment Notice No. FAS-5-35-89-002054, the Commissioner of Internal Revenue came to this Court through this petition for review. The petition is meritorious. In ruling in favor of respondent BPI, the CTA ratiocinated as follows: On all fours with the case at bar on the second issue, by reason of the close similarity of factual circumstances and the provisions of law involved, is the case of Consolidated Bank & Trust Co. vs. The Commissioner of Internal Revenue. CTA Case No, 4647, November 21, 1994, wherein this Court resolved the same issue now brought before us in this proceeding in the following wise: "Petitioner, further argues that even if these transactions were taxable for DST it could still not be held liable because established banking practice dictates that it is the buyer of foreign currency who pays the documentary stamp tax. The above-cited arguments of petitioner negating its liability for the payment of the documentary stamp tax have no merit and this was clearly enunciated by the Court of Appeals in its decision in the case entitled "China Banking Corporation vs. Commissioner of Internal Revenue": CA-G.R. SP No. 33651: September 23, 1994, wherein it categorically ruled that in a situation where the Central Bank is the buyer, it is the seller of currency who is liable for the payment of the documentary stamp tax. In its decision, the Court of Appeals ruled that the Central Bank from the period of June 11, 1984 until March 9, 1987 had been granted law exemption privilege by virtue of Resolution No. 35-85 of the Fiscal Incentive Review Board dated March 3, 1985, such that in 1986, the year covered by the assessment in the China Banking case, the Central Bank could not be held liable for its payment. In this situation where the other party is exempt, the liability then automatically falls upon the petitioner bank as seller pursuant to PD 1994 which took effect on January 1, 1986 and brought about an amendment to Section 222 (now Section 173 of the NIRC) which reads thus: LLjur '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.' Furthermore, the decision of the Court of Appeals in the China Banking case threw out the argument of petitioner that such transactions are not taxable for documentary stamp tax and instead upheld this Court's ruling that the taxability of such sale of foreign exchange finds legal support in Section 51 of Revenue Regulations No. 26 (supra)." From the abovementioned decision of this Court, it can be gleaned that the Central Bank during the period June 11, 1984 to March 9, 1987 enjoyed tax exemption privilege, including the payment of documentary stamp tax (DST) pursuant to Resolution No. 35-85 dated May 3, 1985 of the Fiscal Incentive Review Board. As such, the Central Bank, as buyer of the foreign currency, is exempt from paying the documentary stamp tax for the period above-mentioned. This Court further expounded that said tax exemption of the Central Bank was modified beginning January 1, 1986 when Presidential Decree (P.D.) 1994 took effect. Under this decree the liability for DST on sales of foreign currency to the Central Bank is shifted to the seller. Applying the above decision to the case at bar, petitioner cannot be held liable for DST on its 1985 sales of foreign currencies to the Central Bank, as the latter who is the purchaser of the subject currencies is the one liable thereof. However, since the Central Bank is exempt from all taxes during 1985 by virtue of Resolution No. 35-85 of the Fiscal Incentive Review Board dated March 3, 1985, neither the petitioner nor the Central Bank is liable for the payment of the documentary stamp tax for the former's 1985 sales of foreign currencies to the latter. The Court does not agree with the CTA. It is not disputed that the sale of foreign currency to Central Bank took place on June 6, 1985 and June 14, 1985 (p. 35, Rollo). Such being the case, the BIR Ruling dated May 30, 1977 is applicable, thus: ". . . Documentary stamp taxes are payable by either the person, signing, issuing, accepting, or transferring the instrument, document or paper. It is now well settled where one party to the instrument is exempt from said taxes, the other party who is not exempt should be liable." Established market practice shifting the payment of documentary stamp tax to the buyer is not binding upon the BIR. To allow such shifting of payment of documentary stamp tax would be inconsistent with the well-enshrined tax principle that taxes are the life blood of the government and should be collected without unnecessary hindrance (Marcos II vs. Court of Appeals, 273 SCRA 47). Public policy dictates that collection of taxes should be accorded paramount importance for the sustenance of government. Such market practice being contrary to the "lifeblood doctrine" and public policy, the same should not be countenanced (Art. II, Civil Code). Besides, the Bankers Association of the Philippines expressly recognized the subject practice only on March 17, 1987 (Consolidated Bank & Trust Co. vs. Commissioner of Internal revenue and the Court of Tax Appeals. CA-G.R. SP No. 35950, dated March 31, 1995). It should be noted that the sale of foreign currencies subject to documentary stamp tax was made in 1985. Tax exemptions, as a general rule, are construed strictly against the grantee and liberally in favor of the taxing authority. The burden of proof rests upon the party claiming exemption to prove that it is in fact covered by the exemption so claimed (Caltex Philippines, Inc. vs. COA, 208 SCRA 726). Respondent BPI miserably failed to prove such grant of exemption under a tax statute. Settled is the rule that the law does not look with favor on tax exemptions and that he who would seek to be thus privileged must justify it by words too plain to be mistaken and too categorical to be misinterpreted (Commissioner of Internal Revenue vs. P.J. Kiener Co., Ltd., 65 SCRA 144). Respondent BPI having failed to discharge such burden, CTA erred in cancelling the subject tax assessment. It should be stressed that in issuing its unnumbered Ruling of May 30, 1977, the BIR exercised its quasi-legislative power for the effective enforcement of the following provision of the Tax Code. SECTION 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 the person making, signing, issuing, accepting, or transferring the same and the time such act is done or transaction had. Subject BIR Ruling of May 30, 1977, was intended to carry out, not to supplement nor to modify, Section 222 of the National Internal Revenue Code. The Court finds nothing in said ruling incongruous with the Tax Code of 1977. Furthermore, a documentary stamp tax is in the nature of an excise tax imposed not on the business transacted but on the privilege, opportunity or facility offered at exchanges for the transaction of business (Com. of Internal Revenue vs. Heald Lumber Co., 10 SCRA 3721. In other words, said tax is imposed not on business transactions but on the privilege to enter into such transaction. Anent respondent BPI's claim that the right of the Commissioner of Internal Revenue to collect the documentary stamp tax under Assessment Notice No. FAS-5-35-89-002054 has prescribed, citing the case of Collection vs. Suyoc Consolidated Mining Corporation. 104 Phil. 819, suffice it to state that when respondent BPI filed a protest against the tax assessment on November 17, 1989, the running of the prescriptive period was deemed suspended. Respondent's protest partook of the nature of a request for reconsideration or reinvestigation under Rev. Reg. 12-85 dated November 29, 1985. Thus, the National Internal Revenue Code of 1977 provides: SECTION 320. Suspension of Running of Statute . The running of the statute of limitations provided in Section 318 and 319 on the making of assessment . . . shall be suspended . . . when the taxpayer requests for a reinvestigation which is granted by the Commissioner . . . It being a substantive law, Section 320 of the NIRC of 1977 (now Section 223 of RA 84241 supersedes the doctrine enunciated in the case of Collector vs. Suyoc Consolidated Mining Corporation. Clearly, the tax assessment was made within the prescriptive period. WHEREFORE, the decision appealed from is hereby REVERSED and SET ASIDE. Accordingly, Assessment Notice No. FAS-5-35-89-002054 requiring respondent BPI to pay the amount of P28,020.00 as deficiency documentary stamp tax for the taxable year 1985 inclusive of compromise penalty is REINSTATED. No pronouncement as to costs. SO ORDERED. Verzola and Asuncion, JJ . , concur.