Commissioner of Internal Revenue v. Antam Pawnshop Corp.

NINTH DIVISION [CA-G.R. SP No. 79117. January 21, 2005.] COMMISSIONER OF INTERNAL REVENUE , petitioner , vs . ANTAM PAWNSHOP CORPORATION , respondent . D E C I S I O N DEL CASTILLO, M. , J p : The Solicitor-General for the Commissioner of Internal Revenue (CIR) by this Petition for Partial Review, challenges the Court of Tax Appeals Decision 1 and Resolution 2 in CTA Case No. 6510, rendered on May 14 and August 28, 2003, respectively, ruling that 'pawnshop tickets are not subject to documentary stamp taxes.' This case started when CIR thru Ruperto P. Somera, then Acting Regional Director of Revenue Region 6, Manila, sent Antam Pawnshop Corporation (Antam), a domestic corporation in Manila engaged in the pawnshop business, Assessment Notices numbered 32-1-98 3 dated November 23, 2001 demanding payment of the following deficiency business taxes for the taxable year 1998: Value Added Tax (VAT): PhP382,445.01 4 Minimum Corporate Income Tax (MCIT): PhP687.69 5 and Documentary Stamp Tax (DST): PhP78,590 What triggered this legal controversy is the computation of the DST on pledge loans: Pledge Loan (P15,898.350/5,000) P63,590.00 Subscribed Capital Stock, Sec. 175 15,000.00 Deficiency Tax Due and Collectible P78,590.00 6 Antam promptly filed its written protest to the CIR's assessments on December 21, 2001 7 . Getting no response from the CIR, it filed its appeal with the CTA on July 19, 2002, where it questioned, among other things, the validity and correctness of the DST imposed on pawn tickets, which the CIR considered as `pledge loans,' taxable under the 1997 National Internal Revenue Code (NIRC). aAHTDS Both parties having been heard, the CTA rendered judgment it favor of the CIR, ordering Antam to pay all the deficiency taxes computed for the year 1998, except as to the payment of the DST on the pledge loans in the amount of PhP63,590.06 : WHEREFORE, in view of all the foregoing, the instant Petition for Review is hereby PARTIALLY GRANTED. Accordingly, petitioner is hereby ORDERED to PAY the following: 1. Deficiency VAT assessment in the amount of P382,445.01, inclusive of 20% deficiency interest, plus 20% delinquency interest from December 28, 2001 until fully paid pursuant to Sections 248 and 249(B) and (C) of the Tax Code; 2. Deficiency interest of P233.74 for late payment of MCIT pursuant to Section 249(6) of the Tax Code, plus 20% delinquency interest from December 28, 2001 until fully paid pursuant to Section 249 (C) of the Tax Code; and 3. Deficiency documentary stamp tax assessment on subscribed capital stock in the amount of P15,000.00. However, finding that a pawnshop ticket is not subject to the documentary stamp tax under Section 195 of the Tax Code, Assessment Notice No. 32-1-98 dated November 23, 2001 for deficiency documentary stamp tax in the amount of P63,590.00 is hereby CANCELLED and SET ASIDE. Moreover, Assessment Notice No. 32-1-98 dated November 23, 2001 for Deficiency Income Tax-Unpaid MCIT in the amount of P451.24 is hereby CANCELLED and SET ASIDE on account of payment made by petitioner on November 15, 2001. Lastly, the assessment notices dated November 23, 2001, also numbered 32-1-98, issued by respondent against petitioner for compromise penalty for late payment/late filing in the amounts of P16,000.00, P200.00 and P12,000.00 are hereby CANCELLED and SET ASIDE as there is no compromise to speak of in the instant case. tax2005 SO ORDERED. 8 The CTA justified the exemption of pawnshop tickets from the DST by relying on the governing law for pawnshop establishment P.D. No. 114 (Pawnshop Regulation Act). Under Section 3 therein, "Pawn ticket" is defined as the "pawnbrokers' receipt for a pawn, which is neither a security nor a printed evidence of indebtedness." Following this provision, a pawn ticket then cannot be subject to DST under Section 195 of the NIRC since it is not a document evidencing indebtedness. 9 Said provision states: Section 195. Stamp Tax on Mortgages, Pledges and Deeds of Trust. On every mortgage or pledge of lands, estate, or property, real or personal, heritable or movable, whatsoever, where the same shall be made as a security for the payment of any definite and certain sum of money lent at the time or previously due and owing or forborne to be paid, being payable, and on any conveyance of land, estate, or property whatsoever, in trust or to be sold, or otherwise converted into money which shall be and intended only as security, either by express stipulation or otherwise, there shall be collected a documentary stamp tax at the following rates: . . . " On Motions for Reconsideration of both parties, the CTA did no yield to their arguments and denied both motions. Hence, the CIR raises in this Petition that: THE COURT OF TAX APPEALS GRAVELY ERRED IN DECLARING THAT PAWNSHOP TICKETS ISSUED BY RESPONDENT ARE NOT SUBJECT TO DOCUMENTARY STAMP TAX UNDER SECTION 195 OF THE TAX CODE. 10 Petitioner contends that the pawnshop business engages in extending loans at interest on the security of a personal property (pawn) upon which a ticket is issued upon receipt of this pawn, and this ticket should be presented to the pawnshop upon redemption of the property. It follows then that a pawn ticket is thus an evidence a pledge contract and thus, taxable. Antam argues that for a document to be taxable under Section 195 of the NIRC, the document must show on its face the existence of a debt. We hold for the petitioner. Section 173 of the NIRC provides: Stamp Taxes Upon Documents, Loan Agreements, Instruments and Papers . Upon documents, instruments, loan agreements 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 tax prescribed in the following sections of this Title, by the person making, signing, issuing, accepting, or transferring the same wherever the document is made, signed, issued, accepted, or transferred when the obligation or right arises from Philippine sources or the property is situated in the Philippines, and at the same time such act is done or transaction had: Provided , That 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. From this provision, the DST is indeed levied on the documents, but in respect of the transaction so had or accomplished . In general, documentary stamp taxes are levied on the exercise by persons of certain privileges conferred by law for the creation, revision, or termination of specific legal relationships through the execution of specific instruments . Examples of such privileges, the exercise of which , as effected through the issuance of particular documents , are subject to the payment of documentary stamp taxes are leases of lands, mortgages, pledges, and trusts and conveyances of real property 11 (emphasis ours). DST is not imposed upon the business transacted but is an excise upon the privilege, opportunity or facility offered at exchanges for the transaction of the business, an excise upon the facilities used in the transaction of the business separate and apart from the business itself 12 . To reiterate, the DST is imposed on the documents issued caused by the transactions enumerated subject to the DST. What actually matters is not the designation of the document but the nature of the transaction entered into as reflected in the document to be taxed. Even granting that P.D. 114 defines a pawn ticket neither as a security nor a printed evidence of indebtedness but as a 'pawnbroker's receipt for a pawn,' it nevertheless defines a 'pawn' as the ' personal property delivered by the pawner to the pawnee as security for a loan , 13 hence, the Pawnshop Regulation Act itself acknowledges that pawnshops enter into contracts of pledge. We thus agree with the dissenting opinion of CTA Justice Juanito Castaeda, Jr., 14 who concurred with the argument of the Solicitor-General that a pawn ticket is the logical document evidencing pledge contract subject to DST. From the foregoing, Antam is liable for the deficiency documentary stamp taxes for the taxable year 1998, but only for the amount of PhP31,810.00 and not PhP63,590.00 15 , computed follows: Pledge loans: P15,898,350.00 First P5,000 P20.00 P15,893,350.00/P5,000 = 3178.67; equivalent to 3179 x P10.00 = P31,790.00 Deficient DST for 1998: PhP31,810.00 WHEREFORE, the decision of the Court of Tax Appeals is REVERSED insofar as the cancellation of the deficiency documentary tax assessment on the pledge loans is concerned. Respondent is ORDERED to PAY P31,810.00, inclusive of surcharge and interest thereon for the year 1998, plus 20% delinquency interest from December 28, 2001 until fully paid pursuant to Section 249(C) of the NIRC. SO ORDERED. Brawner and De Leon, JJ ., concur. Footnotes 1. Rollo , pp. 34-52. 2. Ibid , pp. 56-60. 3. Ibid , pp. 79-87. 4. Computed as follows: Unpaid VAT: Taxable Sales/Receipts P2,437,508.00 Sec. 108, 10% Output Tax Due, less allowable tax credits/taxes already paid 243,750.80 Add: 25% surcharge (non-filing and payment) 20% interest per annum until 11-29-01 138,694.21 Total Amount Due & Collectible P382,445.01 5. Computed as follows: Unpaid MCIT: Total Income P2,437,508.00 Less Direct Cost 2,297,934.54 Gross Income 139,573.46 2% MCIT due (Sec. 27e) 2,791.47 Less paid per return 2,340.23 Deficiency MCIT due P451.24 Add 25% surcharge 20% interest until 11-29-01 236.45 P687.69 6. Supra note 1, p. 86. 7. Ibid , pp. 88-95. 8. Ibid , pp. 50-51. Division composed of Judges Ernesto Acosta, Lovell Bautista, and Juanito Castaeda. 9. Ibid , p. 48. 10. Ibid , p. 18. 11. Philippine Home Assurance Corporation vs. CA , 301 SCRA 443, at 447. 12. Tax Law and Jurisprudence, 2nd ed., Vitug and Acosta, 2000, citing Lincoln Philippine Life Insurance Company, Inc. vs. CA and CIR , 293 SCRA 92 13. Section 3. 14. Supra note 1, pp. 53-55. 15. DST rates prescribed: Section 195(a) When the amount secured does not exceed Five thousand pesos (P5,000), Twenty pesos (P20.00) (b) On each Five thousand pesos (P5,000), or fractional part thereof in excess of Five thousand pesos (P5,000), an additional tax of Ten pesos (P10.00).