Commissioner of Internal Revenue v. Sun Life Assurance Co. of Canada

THIRTEENTH DIVISION [CA-G.R. SP No. 69125. January 23, 2003.] COMMISSIONER OF INTERNAL REVENUE , petitioner , vs . SUN LIFE ASSURANCE COMPANY OF CANADA , respondent . D E C I S I O N AGCAOILI , J p : The petition before us urges this court to review the decision, 1 dated November 12, 2002, rendered by the Court of Tax Appeals (CTA) in CTA Case No. 5925, exempting respondent Sun Life Assurance Company of Canada (Sun Life) from the payment of premium and documentary stamp tax (DST) and ordering herein petitioner Commissioner of Internal Revenue (CIR) to refund or issue a tax credit certificate for the amount erroneously paid by Sun Life for tax year 1997. The CIR would have us reconsider in this petition the standing of mutual life insurance companies as purely cooperative companies exempt from the payment of premium tax and documentary stamp tax. Sun Life is a mutual life insurance company organized and existing under the laws of Canada. 2 It is registered and authorized by the Securities and Exchange Commission and the Insurance Commission 3 to engage in business in the Philippines as a mutual life insurance company with principal office at Paseo de Roxas, Legaspi Village, Makati City. On October 20, 1997, Sun Life filed with the CIR its insurance premium tax return for the third quarter of 1997 and paid the premium tax in the amount of P31,485,834.51. 4 For the period covering August 21 to December 18, 1997, petitioner filed with the CIR its DST declaration returns and paid the total amount of P30,000,000.00. On December 29, 1997, the CTA rendered its decision in Insular Life Assurance Co. Ltd. v. Commissioner of Internal Revenue, 5 which held that mutual life insurance companies are purely cooperative companies and are exempt from the payment of premium tax and DST. This pronouncement was later affirmed by this court in Commissioner of Internal Revenue v. Insular Life Assurance Company, Ltd. 6 Sun Life surmised that being a mutual life insurance company, it was likewise exempt from the payment of premium tax and DST. Hence, on August 20, 1999, Sun Life filed with the CIR an administrative claim for tax credit of its alleged erroneously paid premium tax and DST for the aforestated tax periods. For failure of the CIR to act upon the administrative claim for tax credit and with the 2-year period to file a claim for tax credit or refund dwindling away and about to expire, Sun Life filed with the CTA a petition for review on August 23, 1999. In its petition, it prayed for the issuance of a tax credit certificate in the amount of P61,485,834.51 representing P31,485,834.51 of erroneously paid premium tax for the third quarter of 1997 and P30,000.00 of DST on policies of insurance from August 21 to December 18, 1997. 7 Sun Life stood firm on its contention that it is a mutual life insurance company vested with all the characteristic features and elements of a cooperative company or association as defined in section 121 8 of the Tax Code. Primarily, the management and affairs of Sun Life were conducted by its members; secondly, it is operated with money collected from its members; and, lastly, it has for its purpose the mutual protection of its members and not for profit or gain. In its answer, 9 the CIR, then respondent, raised as special and affirmative defenses the following: "7. Petitioner's (Sun Life's) alleged claim for refund is subject to administrative routinary investigation/examination by respondent's (CIR's) Bureau. 8. Petitioner must prove that it falls under the exception provided for under Section 121 (now 123) of the Tax Code to be exempted from premium tax and be entitled to the refund sought. 9. Claims for tax refund/credit are construed strictly against the claimants thereof as they are in the nature of exemption from payment of tax. 10. In an action for tax credit/refund, the burden is upon the taxpayer to establish its right thereto, and failure to sustain this burden is fatal to said claim ( Surigao Consolidated Mining Co. vs. CIR 9 SCRA 728-734 [1963]. 11. It is incumbent upon petitioner to show that it has complied with the provisions of Section 204 in relation to Section 229, both in the 1997 Tax Code." 10 On November 12, 2002, the CTA found in favor of Sun Life. Quoting largely from its earlier findings in Insular Life Assurance Company, Ltd. v. Commissioner of Internal Revenue, 11 which it found to be on all fours with the present action, the CTA ruled: "The Court of Appeals has already spoken. It ruled that a mutual life insurance company is a purely cooperative company, thus, exempted from the payment of premium and documentary stamp taxes. Petitioner Sun Life is without doubt a mutual life insurance company . . . xxx xxx xxx Being similarly situated with Insular, Petitioner at bar is entitled to the same interpretation given by this Court in the earlier cases of The Insular Life Assurance Company, Ltd. vs. Commissioner of Internal Revenue (CTA Case Nos. 5336 and 5601) and by the Court of Appeals in the case entitled Commissioner of Internal Revenue vs. The Insular Life Assurance Company, Ltd. , C.A. G.R. SP No. 46516, September 29, 1998. Petitioner Sun Life as a mutual life insurance company is therefore a cooperative company or association and is exempted from the payment of premium tax and documentary stamp tax on policies of insurance pursuant to Section 121 (now Section 123) and Section 199[1] (now Section 199[a]) of the Tax Code." 12 Seeking reconsideration of the decision of the CTA, the CIR argued that Sun Life ought to have registered, foremost, with the Cooperative Development Authority before it could enjoy the exemptions from premium tax and DST extended to purely cooperative companies or associations under sections 121 and 199 of the Tax Code. 13 For its failure to register, it could not avail of the exemptions prayed for. Moreover, the CIR alleged that Sun Life failed to prove that ownership of the company was vested in its members who are entitled to vote and elect the Board of Trustees among themselves. The CIR further claimed that the change in the 1997 Tax Code subjecting mutual life insurance companies to the regular corporate income tax rate reflected the legislature's recognition that these companies must be earning profits. 14 Notwithstanding these arguments, the CTA denied the CIR's motion for reconsideration. SECcIH Thwarted anew but nonetheless undaunted, the CIR comes to this court via this petition on the sole ground that: "The Tax Court erred in granting the refund because respondent does not fall under the exception provided for under Section 121 (now 123) of the Tax Code to be exempted from premium tax and DST and be entitled to the refund." 15 The CIR repleads the arguments it raised with the CTA and proposes further that the Court of Appeals decision in Commissioner of Internal Revenue v. Insular Life Assurance Company, Ltd. 16 is not controlling and cannot constitute res judicata in the present action. At best, the pronouncements are merely persuasive as the decisions of the Supreme Court alone have a universal and mandatory effect. The petition does not warrant our affirmation. A clear understanding of the nature of cooperative associations vis--vis mutual life insurance companies dispels without much difficulty the cloud of doubt hovering over Sun Life's supplication for exemption from the payment of premium tax and DST. R.A. No. 8424 17 extends the following exemptions to life insurance companies: "SEC. 123. Tax on Life Insurance Premiums. There shall be collected from every person, company or corporation (except purely cooperative companies or associations) doing life insurance business of any sort in the Philippines a tax of five percent (5%) of the total premium collected, whether such premiums are paid in money, notes, credits or any substitute for money; but premiums, refunded within six (6) months after payment on account of rejection of risk or returned for other reason to a person insured shall not be included in the taxable receipts; nor shall any tax be paid upon reinsurance by a company that has already paid the tax; nor upon premiums collected or received by any branch of a domestic corporation, firm or association doing business outside the Philippines on account of any life insurance of the insured who is a nonresident, if any tax on such premium is imposed by the foreign country where the branch is established nor upon premiums collected or received on account of any reinsurance, if the insured, in case of personal insurance, resides outside the Philippines, if any tax on such premiums is imposed by the foreign country where the original insurance has been issued or perfected; nor upon that portion of the premiums collected or received by the insurance companies on variable contracts (as defined in Section 232(2) of Presidential Decree No. 612), in excess of the amounts necessary to insure the lives of the variable contract workers. ' Cooperative companies or associations are such as are conducted by the members thereof with the money collected from among themselves and solely for their own protection and not for profit. xxx xxx xxx 'SEC. 199. Documents and Papers Not Subject to Stamp Tax. The provisions of Section 173 to the contrary notwithstanding, the following instruments, documents and papers shall be exempt from the documentary stamp tax: '(a) Policies of insurance or annuities made or granted by a fraternal or beneficiary society, order, association or cooperative company, operated on the lodge system or local cooperation plan and organized and conducted solely by the members thereof for the exclusive benefit of each member and not for profit." 18 Section 123 provides that only purely cooperative companies or associations are exempt from the payment of premium tax. The same provision further confines cooperative companies or associations to those which are conducted by the members thereof with money collected from among themselves and solely for their own protection and not for profit. Precisely, to be classified as a purely cooperative corporation or association exempt from payment of premium tax and DST, Sun Life must proffer categorical substantiation that, first , it is managed and conducted by its members; second , it is operated with money collected from its members; and, third , it has for its main purpose the mutual protection of its members and not for profit. It remains uncontroverted that Sun Life is a mutual life insurance company. Its Amending Letters Patent 19 unqualifiedly declares such status. Both the SEC and the IC certify that Sun Life is a foreign mutual insurance company duly licensed to engage in such business in the Philippines. 20 Being a cooperative enterprise engaged in mutual life insurance business, therefore, the members or policyholders of Sun Life constitute both insurer and insured, and contribute by a system of premiums or assessments to the creation of a fund from which all losses and liabilities are paid. 21 Apparently, under its set up, the ownership of Sun Life is vested in the policyholders who elect the members of the Board of Directors. 22 Noteworthy is the undisputed representation made by Sun Life that its By-Laws, which was formally offered in the proceedings at the CTA, expressly provide under paragraph 2.1 that "the Board of Directors shall manage or supervise the management of the business and affairs of the company." 23 What is more, the premiums collected by Sun Life are entirely from its members or policyholders. These premiums are placed in a fund, which spawns the well from which payment for all indemnity and benefit claims are drawn. Anent Sun Life's purpose for mutual protection, we uphold and quote with favor the factual findings of the CTA, thus: "As testified by Mr. Cesar P. Altarejos, Jr., Assistant Vice President for Finance and Administration, on March 6, 2000, Petitioner is not organized for profit but solely for the protection of its members-policyholders. Petitioners invest the funds so it will earn additional income to ensure that sufficient funds are available to meet intended benefit claims and to pay operating expenses. The effect of investment income is to reduce the cost of insurance to individual policyholder. Thus investment made by Petitioner Sun Life ultimately redounds purely to the protection and benefit of its members-policyholders. In case there is a surplus over the intended benefit claims and the incidental expenses, they are distributed back to the policyholders as return of premiums. Respondent failed to produce contrary evidence." 24 We underscore anew that the dividends of a mutual life insurance company are not profits as in the case of an ordinary corporation, but really constitute a return to the policyholder of the amount he has been overcharged for his insurance. 25 In life insurance companies operating on the mutual plan, the whole of the divisible surplus is distributed among the members annually as equally as may be in the proportions in which they have contributed. The tax exemptions claimed by Sun Life ought, therefore, to be favorably considered since its entitlement thereto has been amply proven and substantiated. To warrant a refund of tax, it must only be shown in the taxpayer's request, among others, that it has erroneously paid a tax, which ought not to be collected from it. This, Sun Life has satisfactorily shown. Our perusal of the records reveals the same conclusions reached by the CTA. Sun Life's insurance premium tax return for the third quarter of 1997 reflects payment in the amount of P31,485,834.51. Its DST declarations likewise confirm payment of the aggregate sum of P30,000.00. Sun Life has indeed proven the entire amount of its claim corresponding to premium tax and DST taxes it remitted, which it ought not to have paid in the first place. It is well to remember that the findings of the Court of Appeals by itself, which are supported by substantial evidence, are almost beyond the power of review by the Supreme Court. 26 Pronouncements of the Court of Appeals, affirming the factual findings of lower courts or administrative bodies as the CTA, are entitled to the highest respect and are well-nigh conclusive upon the Supreme Court. 27 The findings of fact of a special court as the Court of Tax Appeals, exercising particular expertise on the subject of tax, are highly persuasive and generally binding upon the High Court, and with more reason, when its findings are substantially similar to the findings of the Court of Appeals which is the final arbiter of questions of facts. 28 The claim for tax credit having been seasonably filed and amply substantiated, there appears no legal obstacle for the grant of the tax credit certificate to Sun Life in the total amount of P61,485,834.51 representing the premium tax and DST tax it paid to the CIR. STIcEA WHEREFORE, the petition for review is hereby DENIED. SO ORDERED. Delos Santos and Maambong, JJ . , concur. Footnotes 1. Rollo , 28-39. 2. Ibid. , 49. 3. Ibid. , 50-51. 4. Ibid. , 52. 5. CTA Case No. 5336, December 29, 1997. 6. CA-G.R. SP No. 46516, September 29, 1998. 7. Rollo , 46. 8. Now section 123, R.A. No. 8424, otherwise known as the "Tax Reform Act of 1997". 9. Rollo , 163-165. 10. Ibid. , 164-165; words in parenthesis given. 11. Supra . 12. Rollo , 36-37. 13. Ibid. , 168. 14. Ibid. , 171. 15. Ibid. , 14. 16. Supra . 17. Tax Reform Act of 1997. 18. Emphasis given. 19. Rollo , 162. 20. Ibid. , 79-81. 21. Keehn v. Hodge Drive-It-Yourself, App. 53 N.E. 2d 69. 22. Ibid. , 44. 23. Ibid. , 177. 24. Ibid. , 36. 25. Rhine v. New York Life Ins. Co. , 248 App. Div. 120, 289 N.Y.S. 117. 26. Atlantic Gulf and Pacific Company of Manila, Inc. v. Court of Appeals, 247 SCRA 606 (1995); Pimentel v. Court of Appeals, 307 SCRA 38 (1999). 27. Carrara Marble v. Commissioner of Customs, 313 SCRA 453 (1999). 28. Commissioner of Internal Revenue v. Court of Appeals, 301 SCRA 152, 435 (1999).