Chemical Industries of the Philippines, Inc. v. Commissioner of Bureau of Internal Revenue

FOURTEENTH DIVISION [CA-G.R. SP No. 62288. 1 December 12, 2005.] CHEMICAL INDUSTRIES OF THE PHILIPPINES, INC. , petitioner , vs . COMMISSIONER OF BUREAU OF INTERNAL REVENUE , respondent . D E C I S I O N PERLAS-BERNABE , E ., J p : For the resolution of the Court is a petition for review seeking the reversal of the Decision 2 of the Court of Tax Appeals (CTA) in CTA Case No. 5887 dated August 8, 2000 which denied petitioner's claim for refund of the amount of P536,861.85 paid as stock transaction tax, as well as its Resolution thereof. The facts are undisputed. On June 27, 1997, an Agreement 4 was executed between Chemical Industries of the Philippines, Inc. (hereinafter CIP) and the following members of the Tanco Group : Eusebio Y. Tanco, Rescom Developers Corporation (hereinafter Rescom), Alta Vista Resources Development Corporation (hereinafter Alta Vista) and Malogo Agriventures and Management Services, Inc. (hereinafter Malogo). Under the agreement, CIP agreed to sell in favor of the Tanco Group 142,643,111 shares of stocks owned and held by it in LMG Chemicals Corporation (hereinafter LMG), constituting approximately 73.70% of the total outstanding shares of stocks therein. Upon the signing of the agreement, the Tanco Group, specifically Rescom, Alta Vista and Malogo, purchased from CIP the first tranche of LMG shares consisting of 35,790,790 shares (hereinafter initial CIP Shares) through a cross sale in the Philippine Stock Exchange (PSE) for a declared price of P3.00 per share or a total price of P107,372,370.00 5 for which stock transaction tax in the amount of P536,861.85 was paid. Thereafter, the corresponding LMG stock certificates were given to the Tanco Group. As provided for under section 3.1 of the Agreement, the aforementioned cross sale covering the initial CIP shares was subject to the following resolutory conditions, the occurrence of any of which shall be grounds for the rescission of the cross sale and the agreement to purchase the resident CIP shares: "3.1 The Cross Sale shall be effective unless any of the following resolutory conditions occurs prior to or as of Closing Date: (a) LMG shall not have maintained its listed status at the PSE; (b) The TOMEN Group and the Tanco Group shall not have reached an agreement for the sale and transfer to the Tanco group of the TOMEN Group Shares by Closing Date; (c) A writ of injunction, garnishment, or order shall have been promulgated by a court or other competent governmental agency enjoining or prohibiting the disposition of the CIP shares, thereby rendering legally impossible the transfer to and acquisition by the Tanco Group by Closing Date of all of the CIP Shares, free from all liens and encumbrances; and CAaDSI (d) The approvals from the stockholders and the board of directors of CIP shall not have been procured for the sale of the Residual CIP Shares in favor of the Tanco Group." Petitioner CIP contended that some of the resolutory conditions happened which gave rise to the rescission/revocation of the Agreement and the cross sale effected through its letter to the Tanco Group dated February 9, 1998. 6 As a consequence, the purchase price for the initial CIP shares were returned to the Tanco Group and the latter indorsed back to CIP the LMG stock certificates issued to them. 7 On March 31, 1998, CIP served a letter 8 to the Office of the Deputy Commissioner of Quezon City (Q.C.) requesting for a "ruling for the refund of the transaction tax in the sum of P536,861.85 for the sale of the first tranche of shares." 9 As no ruling has been issued, CIP filed a petition for review before the CTA on May 31, 1999 seeking the refund of the stock transaction tax it paid. Petitioner claimed that the object of the agreement was the sale of 73.70% of the total LMG shares of 142,643,111 shares, hence, the transaction involving only 35,790,790 shares subject of the cross sale should not have been subjected to stock transaction tax. On the other hand, respondent Commissioner of Internal Revenue (hereinafter Commissioner) submitted the case for decision based on the pleadings. On August 8, 2000, the CTA rendered the assailed Decision denying CIP's petition. Aggrieved, the latter interposed the instant petition on the solitary ground that the CTA "erred in not holding that the Agreement dated June 27, 1997 involved an indivisible object and obligation and thus stock transaction tax may be (sic) not be imposed on a transaction involving only 35,790,790 shares of stock out of the total 142,643,111 LMG shares comprising 73.70% of the total LMG shares that is the object of an agreement to sell because no sale has been consummated." 10 The petition lacks merit . The general rule is that claimants of tax refunds, being in the nature of tax exemptions, bear the burden of proving the factual basis of their claims. 11 As such, statutes that allow exemptions are construed strictly against the grantee and liberally in favor of the government. 12 In the case at bar, CIP failed to discharge its burden. EIcSTD Then Section 204(3) [ now Section 204(C)] of the National Internal Revenue Code (NIRC) authorized the Commissioner of Internal Revenue (hereinafter Commissioner) to credit or refund taxes when they have been erroneously or illegally received, provided the taxpayer files in writing with the Commissioner a claim for credit or refund within two (2) years after the payment of the tax. Then Section 230 ( now Section 229) of the NIRC further required that there be an allegation that the taxes sought to be recovered have been erroneously or illegally that the taxes sought to be recovered have been erroneously or illegally assessed or collected, or that any sum has been excessive or in any manner wrongfully collected. The payment of the amounts sought to be recovered or credited should be an independent single act of voluntary payment of a tax believed to be due and collectible 13 when it is not so ; in other words, a payment by mistake . In the instant case, CIP never claimed that the stock transaction tax was not due when paid, or that the payment made was excessive. On the contrary, the sale of the initial CIP shares, while subject to certain resolutory conditions, became effective with the rights proceeding therefrom being vested, until the happening of the conditions giving rise to its rescission. Thus, at the time of the cross sale at the PSE, the ownership of the subject shares were transferred to the Tanco Group which paid the consideration therefor. Such transfer subjected CIP, as the seller or transferor, to the payment of the transfer tax 14 thereon. That the cross sale and the Agreement were subsequently rescinded/revoked with the occurrence of the resolutory conditions was of no moment and did not change the situation that a sale transaction subject to stock transfer tax had already taken place. This is pursuant to then Section 124-A(a) [now Section 127(A)] of the NIRC on the tax consequence of sales of shares of stocks through the PSE which provides: "SECTION 124-A. Tax on sale, barter or exchange of shares of stock listed and traded through the local stock exchange or through initial public offering . (a) Tax on sale, barter or exchange of shares of stock listed and traded through the local stock exchange . There shall be levied, assessed and collected on every sale, barter, exchange or other disposition of shares of stock listed and traded through the local stock exchange other than the sale by a dealer in securities, a tax at the rate of one-half of one percent (1/2 of 1%) of the gross selling price or gross value in money of the shares of stock sold, bartered, exchanged or otherwise disposed which shall be paid by the seller or transferor." (Underscoring Ours) Moreover, reference to the express provisions of section 5 of the Agreement which provided that ". . . . In the event of rescission/revocation referred to in section 3, the stock transfer taxes and documentary stamp taxes due and payable, if any, in implementing Section 3.3 . shall be for the account of CIP. . . .," and the pertinent portion of CIP's statement in its letter to the Office of the Deputy Commissioner, Q.C. which states: "(p)lease take note that the reversion by the Tanco Group of the cross sale shares to CIP should not be subject to tax for the reason that the shares to be reverted back to CHEMPHIL are the same shares which were the subject of the rescission;" 15 indicates that indeed, the sale of the initial CIP shares was consummated and therefore, subject to stock transaction tax. Finally, it bears to emphasize that the Court will not set aside the conclusion reached by an agency such as the CTA which is, by the very nature of its functions, 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 its authority. 16 The Court finds no reason to take exception in the instant case. SEIcAD WHEREFORE, premises considered, the instant petition is hereby DISMISSED. The assailed Decision dated August 8, 2000 and the Resolution dated November 22, 2000 rendered by the CTA in CTA Case No. 5887 are hereby AFFIRMED. SO ORDERED. Salazar-Fernando and Abdulwahid, JJ., concur. Footnotes 1. Part of the initial caseload assigned to the Ponente pursuant to Office Order No. 16-04-EV dated October 26, 2004. 2. Rollo , pp. 46-52. 3. Id . at 54. 4. Id . at 20-28. 5. Id . at 30. 6. Id . at 31. 7. Certification dated March 17, 1998 issued by Rolando P. Navarro, VP-Legal Services, CIP: Id . at 33. 8. Id . at 34-35. 9. Id . at 35. 10. Id . at 6. 11. Commissioner of Internal Revenue vs. Seagate Technology , G.R. No. 153866, 11 February 2005. 12. Davao Gulf Lumber Corp. vs. Commissioner of Internal Revenue , G.R. No. 117359, 23 July 23, 1998 (293 SCRA 76, 77). 13. Aban, Benjamin B., Law of Basic Taxation in the Philippines, National Book Store, Inc., Metro Manila: 1994, p. 206, citing Collector of Internal Revenue vs. Li Yao , 9 SCRA 789. 14. It is a privilege tax imposed on the act of passing ownership of property and not a tax on the property itself. (Domondon, Abelardo T., Bar Reviewer in Taxation , Volume II, ADA CHIU-CO, Quezon City: 1996, p. 315.) 15. Id . at 35. 16. Paseo Realty & Development Corporation vs. Court of Appeals, et al . G.R. No. 119286, 13 October 2004.