Commissioner of Internal Revenue v. Sunlife Assurance Co. of Canada

SPECIAL FORMER FOURTEENTH DIVISION [CA-G.R. SP No. 71481. July 12, 2006.] COMMISSIONER OF INTERNAL REVENUE , petitioner , vs . SUNLIFE ASSURANCE COMPANY OF CANADA , respondent . D E C I S I O N BARRIOS , J p : The petitioner Commissioner of Internal Revenue (or CIR for brevity) in this petition for review assails the Court of Tax Appeals (or CTA) (a) decision dated March 22, 2002 ordering it to refund or issue Tax Credit Certificate in the sum of P320,590,792.08 to the respondent Sunlife Assurance Company of Canada (or Sunlife) and (b) subsequent Resolution Resolution dated June 18, 2002 denying the motion for its reconsideration. The said amount represents erroneous payments by Sunlife of premium tax for the period beginning the Fourth Quarter of 1997 to the First Quarter of 1999 in the sum of P234,090,792.08, and of documentary stamp tax on policies of insurance for the period from January 20, 1998 to August 10, 1999 in the sum of P86,500,000.00. On August 20, 1999 Sunlife filed with the Bureau of Internal Revenue (or BIR) an administrative claim for the issuance of tax credit certificate which would represent premium tax and documentary stamp tax paid by Sunlife on the policies of insurance in the total amount of P382,076,626.43, which were allegedly erroneously made. Since no result on this claim has been yielded as yet, to toll the running of the 2-year prescriptive period Sunlife instituted its claim for tax credit with the CTA. Sunlife claimed that it is a mutual life insurer hence it is a purely cooperative company which is exempt from the insurance premium tax and documentary stamp tax on the policies of insurance that it issued. Sunlife anchored this claim on the previous decision of the CTA in the case of Insular Life Assurance Company, Ltd. vs. Commissioner of Internal Revenue (CTA Case No. 5336, December 29, 1997) where it was ruled that a mutual life insurance company is a purely cooperative company. When the Insular Life case went up to the Court of Appeals, it upheld the decision of the CTA and granted a Tax Credit Certificate to Insular Life. Since there was already an Entry of Judgment on the case, Sunlife argued that the law and jurisprudence cited in the Insular Life suit should be applied in this case, hence it is entitled a Tax Credit Certificate. IEAaST To bolster its claim that Sunlife possesses the essential attributes of a purely cooperative company, it argued that it is owned, managed and operated solely by its member-policy holders wherein each member is entitled to one vote to elect the members of the Board among themselves. The Board then conducts the business of Sunlife and exercises all the express powers appurtenant thereto. Since Sunlife is owned and managed by its policyholders, the premiums paid are sourced also from them. These premiums collected are then pooled for the payment of indemnity and benefit claims of policyholders. This money collected by Sunlife, are solely for the benefit and protection of the policy members and not for profit. Even the investments made by Sunlife are not for profit but for the protection of its policy members. Finding Sunlife to be a mutual life insurance company the CTA rendered judgment granting the claim for tax credit certificate in its favor. The dispositive portion of the said decision reads: IN VIEW OF ALL THE FOREGOING, the instant Petition for review is hereby GRANTED. Respondent Commissioner of Internal Revenue is ORDERED to ISSUE A TAX CREDIT CERTIFICATE in favor of the Petitioner in the total amount of P320,590,792.08, representing erroneously paid premium tax for the period beginning the Fourth Quarter of 1997 of the First Quarter of 1999 in the amount of P234,090,792.08 and erroneously paid documentary stamp tax on policies of insurance for the period beginning January 20, 1998 to August 10, 1999 in the sum of P86,500,000.00. (p. 38, rollo ). Thus this petition for review wherein the CIR for its grant raised the lone 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. (p. 13, rollo ) The CIR insists that a mutual life insurance company is not a cooperative far purposes of exemption from premium and documentary stamp taxes under the Tax Code, because a mutual insurance company is a corporation organized for profit. The main purpose of Sunlife is to engage in the insurance business as it undertakes to indemnify for a consideration its insured against loss, damage or liability. From this view the objective of an insurance company is different from a cooperative company. Also, the CIR argues that the fact that Sunlife earns from its investments would preclude the claim that it is not for profit. The CIR asserts too that Sunlife failed to register as a cooperative in compliance with Revenue Memorandum Circular No. 48-91 providing the guidelines for the availment of the exemption provided for under Articles 61 and 62 of Republic Act No. 6938, Cooperative Code of the Philippines. Since it failed to register as cooperative, Sunlife did not qualify as one hence it is not entitled to the exemptions granted under the Tax Code. The CIR further defends that CTA could not make as the basis of its decision the said case of Insular Life Assurance Company, Ltd. vs. Commissioner of Internal Revenue which was rendered by the Court of Appeals. This is not controlling because only the decisions of the Supreme have a universal and mandatory effect. Concluding his arguments, the CIR avers that claims for tax refund should be construed strictissimi juris against the taxpayer. This petition must fail. On his insistence that the CTA could not base its judgment on the decision rendered by the Court of Appeals, the CIR in his Memorandum quoted the decision of the Supreme Court in the case of Philippine Veterans Office vs. Segundo (164 SCRA 365 [1981]) that: Let it be admonished that decisions of the Supreme Court applying or interpreting the laws or the Constitution . . . form part of the legal system of the Philippines; and as it were 'laws' by their own right because they interpret what the laws say or mean. Unlike rulings of the lower courts, which should bind the parties to specific cases alone, our judgments are universal in their scope and application, and equally mandatory in character (p. 292, rollo ). This is so. But incidentally, save for the period of payment, all the issues involved herein as well as the facts and parties, have been straightened out by the Supreme Court in the recent case of Republic of the Philippines, represented by the Commissioner of Internal Revenue vs. Sunlife Assurance Company of Canada (G.R. No. 158058, October 14, 2005 ). The Supreme Court in its ruling categorizing Sunlife as a cooperative, comprehensively explained in that: The Tax Code defines a cooperative as an association conducted by the members thereof with the money collected from among themselves and solely for their own protection and not for profit. Without a doubt, respondent is a cooperative engaged in a mutual life insurance business. First , it is managed by its members. . . . . . . Respondent has been mutualized or converted from a stock life insurance company to a nonstock mutual life insurance corporation pursuant to Section 266 of the Insurance Code of 1978. On the basis of its bylaws, its operation has been vested in its member-policyholders who are each entitled to one vote, and who, in turn, elect from among themselves the members of its board of trustees. Being the governing body of a nonstock corporation, the board exercises corporate powers, lays down all corporate business policies, and assures responsibility for the efficiency of management. Second , it is operated with money collected from its members. Since respondent is composed entirely of members who are also its policyholders, all premiums collected obviously come only from them. xxx xxx xxx Third , it is licensed for the mutual protection of its members, not for the profit of anyone. A mutual life insurance company is conducted for the benefit of its member-policyholders, who pay into its capital by way of premiums. To that extent, they are responsible for the payment of all its losses. The cash paid in for premiums and the premium notes constitute their assets . . . . In the event that the company itself fails before the terms of the policies expire, the member-policy holders do not acquire the status of creditors. Rather, they simply become debtors for whatever premiums that they have originally agreed to pay the company, if they have not yet paid those amounts in full for mutual companies . . . depend solely upon . . . premiums. xxx xxx xxx The so-called "dividend" that is received by member-policyholders is not a portion of profits set aside for distribution to the stockholders in proportion to their subscription to the capital stock of a corporation. . . . Verily, a mutual life insurance corporation is a cooperative that promotes the welfare of its own members. It does not operate for profit but for the mutual benefit of its members-policyholders. They receive their insurance at cost, while reasonable and property guarding and maintaining the stability and solvency of the company. That settles it. The next argument of the CIR that Sunlife should not be exempt from payment of premiums and documentary stamp taxes because it failed to register as a cooperative, is also unavailing. In the same case, the Supreme Court declared: First , the Tax Code does not require registration with the CDA. No tax provision requires a mutual life insurance company to register with that agency in order to enjoy exemption from both percentage and documentary stamp tax. xxx xxx xxx Second , the provisions of the Cooperative Code of the Philippines do not apply. . . . xxx xxx xxx We have already determined that respondent is a cooperative. The distinguishing feature of a cooperative enterprise is the mutuality of a cooperation among its member-policyholders united for that purpose. So long as respondent meets his essential feature, it does not even have to use and carry the name of a cooperative to operate its mutual life insurance business. Gratia argumenti that registration is mandatory, it cannot deprive respondent of its tax exemption privilege merely because it failed to register. The nature of its operation is clear; its purpose well-defined. Exemption when granted cannot prevail over administrative convenience. Third , not even the Insurance Code requires registration with the CDA. The provisions of this Code primarily govern insurance contracts; only if a particular matter in question is not specifically provided for all the provisions of the Civil Code on contracts and special law govern. From this exhaustive explanation and ruling, Sunlife is therefore exempt from the payment from premium and documentary stamp taxes. Concomitant to this, Sunlife is thus entitled to the issuance of tax credit certificate. CIDTcH WHEREFORE, the petition is DENIED and DISMISSED. SO ORDERED. Barrios, Salazar-Fernando and Sundiam, JJ., concur.