FIRST DIVISION
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BANK OF THE
PHILIPPINE ISLANDS, Petitioner, - versus - COMMISSIONER
OF INTERNAL REVENUE, Respondent. |
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G. R. No. 137002 Present: PANGANIBAN,
C.J,
Chairman, YNARES-SANTIAGO AUSTRIA-MARTINEZ, CALLEJO,
SR., and CHICO-NAZARIO, JJ. Promulgated: July
27, 2006 |
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D E C I S I O N
CHICO-NAZARIO, J.:
This is a Petition
for Review on Certiorari under Rule
45 of the 1997 Rules of Court, as amended, seeking to set aside a Decision[1]
of the Court of Appeals dated 14 August 2004 ordering the petitioner to pay
respondent Commissioner of Internal Revenue (CIR) deficiency documentary stamp
tax of P690,030 for the year 1986, inclusive of
surcharge and compromise penalty, plus 20% annual interest until fully
paid. The Court of Appeals in its
assailed Decision affirmed the Decision[2]
of the Court of Tax Appeals (CTA) dated
From P1,608,541,900.00. BPI
instructed, by cable, its correspondent bank in
New York to transfer U.S. dollars deposited in BPI’s
account therein to the Federal Reserve Bank in New York for credit to the
Central Bank’s account therein.
Thereafter, the Federal Reserve Bank sent to the Central Bank
confirmation that such funds had been credited to its account and the Central
Bank promptly transferred to the petitioner’s account in the Philippines the
corresponding amount in Philippine pesos.[3]
During the
period starting
[W]henever 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.
In 1988, respondent CIR ordered an investigation to
be made on BPI’s sale of foreign currency. As a result thereof, the CIR issued a
pre-assessment notice informing BPI that in accordance with Section 195 (now Section
182)[4]
of the NIRC, BPI was liable for documentary stamp tax at the rate of P0.30
per P200.00 on all foreign exchange sold to the Central Bank. Total tax liability was assessed at P3,016,316.06,
which consists of a documentary stamp tax liability of P2,412,812.85, a
25% surcharge of P603,203.21, and a compromise penalty of P300.00.[5]
BPI disputed the findings contained in the
pre-assessment notice. Nevertheless, the
CIR issued Assessment No. FAS-5-86-88-003022, dated P3,016,316.06.
Consequently, a petition for review was filed with the CTA on
On
WHEREFORE, premises
considered, petitioner is hereby ordered to pay respondent Commissioner of
Internal Revenue, the amount of P690,030 inclusive of surcharge and
compromise penalty, plus 20% annual interest until fully paid pursuant to
Section 249 (cc) (sic) (3) of the Tax Code.[7]
The CTA ruled that BPI’s instructions to its correspondent bank in the U.S. to pay to the Federal Reserve Bank in New York, for the account of the Central Bank, a sum of money falls squarely within the scope of Section 51 of The Revised Documentary Stamp Tax Regulations (Regulations No. 26), dated 26 March 1924, the implementing rules to the earlier provisions on documentary stamp tax, which provides that: [8]
What may be
regarded as telegraphic transfer.—a local bank cables to a certain bank in a foreign
country with which bank said local bank has a credit, and directs that foreign bank
to pay to another bank or person in the same locality a certain sum of money,
the document for and in respect such transaction will be regarded as a
telegraphic transfer, taxable under the provisions of Section 1449(i) of the Administrative Code.
Nevertheless, the CTA also noted that although
Presidential Decree No. 1994, the law which passes the liability on to the
non-exempt party, was published in the Official Gazette issue of 2 December
1985, the same was released to the public only on 18 June 1986, as certified by
the National Printing Office. Therefore,
Presidential Decree No. 1994 took effect only in July 1986 or 15 days after the
issue of Official Gazette where the law was actually published, that is, circulated
to the public. As a result of the delay,
BPI’s transactions prior to the effectivity of
Presidential Decree No. 1994 were not subject to documentary stamp tax. Hence, the CTA reduced the assessment from P3,016,316.06 to P690,030.00, plus 20% annual interest
until fully paid pursuant to Section 249(c) of the NIRC.[9]
Both
parties filed their respective Motions for Reconsideration, which the CTA
denied in a Resolution dated
Petitioner filed a Partial Motion for
Reconsideration on
Hence this petition, wherein the petitioner raised the following issues:
I
WHETHER OR NOT, THE COURT OF APPEALS GRIEVOUSLY ERRED
IN HOLDING THAT SALES OF FOREIGN
EXCHANGE (SPOT CASH), AS DISTINGUISHED FROM SALES OF FOREIGN BILLS OF EXCHANGE,
ARE SUBJECT TO DOCUMENTARY STAMP TAX UNDER SECTION 182 OF THE TAX CODE
II
WHETHER OR NOT, THE COURT OF APPEALS GRIEVOUSLY ERRED
IN AFFIRMING THE IMPOSITION OF A DELINQUENCY INTEREST OF 20% ON THE REVISED
DEFICIENCY STAMP ASSESSMENT DESPITE A REDUCTION THEREOF BY THE COUR T OF TAX
APPEALS WHICH ERRED IN ITS ORIGINAL ASSESSMENT.[12]
The first issue raised by the petitioner is whether BPI is liable for documentary stamp taxes in connection with its sale of foreign exchange to the Central Bank in 1986 under Section 195 (now Section 182) of the NIRC, quoted hereunder:
Sec. 182. Stamp tax on foreign bills of exchange and letters of credit. On
all foreign bills of exchange and letters of credit (including orders, by
telegraph or otherwise, for the payment of money issued by express or steamship
companies or by any person or persons) drawn in but payable out of the
Philippines in a set of three or more according to the custom of merchants and
bankers, there shall be collected a documentary stamp tax of thirty centavos on
each two hundred pesos, or fractional part thereof, of the face value of such
bill of exchange or letter of credit, or the Philippine equivalent of such face
value, if expressed in foreign country.
To determine what is being taxed under this section,
a discussion on the nature of the acts covered by Section 195 (now Section 182)
of the NIRC is indispensable. This
section imposes a documentary stamp tax on (1) foreign bills of exchange, (2)
letters of credit, and (3) orders, by telegraph or otherwise, for the payment
of money issued by express or steamship companies or by any person or
persons. This enumeration is further
limited by the qualification that they should be drawn in the
A definition of a “bill of exchange” is provided by Section 39 of Regulations No. 26, the rules governing documentary taxes promulgated by the Bureau of Internal Revenue (BIR) in 1924:
Sec. 39. Definition of “bill of exchange”. The term bill of exchange denotes checks, drafts,
and all other kinds of orders for the payment of money, payable at sight, or on
demand or after a specific period after sight or from a stated date.
Section 126 of The Negotiable Instruments Law (Act No. 2031) reiterates that it is an “order for the payment of money” and specifies the particular requisites that make it negotiable.
Sec. 126.
Bill of exchange defined. – A bill of exchange is an unconditional order in
writing addressed by one person to another, signed by the person giving it,
requiring the person to whom it is addressed to pay on demand or at fixed or
determinable future time a sum certain in money to order or to bearer.
Section
129 of the same law classifies bills of exchange as inland and foreign, the
distinction is laid down by where the bills are drawn and paid. Thus, a “foreign bill of exchange” may be
drawn outside the
Sec. 129. Inland and foreign bills of
exchange. -- An inland bill of exchange is a bill which is, or on its
face purports to be, both drawn and payable within the
The Code of Commerce loosely defines a “letter of credit” and provides for its essential conditions, thus:
Art. 567. Letters of credit are those issued by one
merchant to another or for the purpose of attending to a commercial
transaction.
Art 568. The
essential conditions of letters of credit shall be:
1.
To be issued in favor of a definite person and not to order.
2.
To
be limited to a fixed and specified amount, or to one or more undetermined
amounts, but within a maximum the limits of which has to be stated exactly.
A more explicit definition of a letter of credit can be found in the commentaries:
A letter of credit is one
whereby one person requests some other person to advance money or give credit
to a third person, and promises that he will repay the same to the person
making the advancement, or accept the bills drawn upon himself for the like
amount.[13]
A bill of exchange and a letter of credit may differ as to their negotiability, and as to who owns the funds used for the payment at the time payment is made. However, in both bills of exchange and letters of credit, a person orders another to pay money to a third person.
The phrase “orders, by telegraph or otherwise, for the payment of money” used in reference to documentary stamp taxes may be found in an earlier documentary tax provision, Section 1449(i) of the Administrative Code of 1917, which was substantially reproduced in Section 195 (now Section 182) of the NIRC. Regulations No. 26, which provided the rules and guidelines for the documentary stamp tax imposed under the Administrative Code of 1917, contains an explanation for the phrase “orders, by telegraph or otherwise, for the payment of money”:
What may be
regarded as telegraphic transfer.—a local bank cables to a certain bank in a foreign
country with which bank said local bank has a credit, and directs that foreign
bank to pay to another bank or person in the same locality a certain sum of
money, the document for and in respect such transaction will be regarded as a
telegraphic transfer, taxable under the provisions of Section 1449(i) of the Administrative Code.
In
this case, BPI ordered its correspondent bank in the
BPI alleges
that the assailed decision must be reversed since the sale between BPI and the
Central Bank of foreign exchange, as distinguished from foreign bills of
exchange, is not subject to the documentary stamp taxes prescribed in Section
195 (now Section 182) of the NIRC. This
argument leaves much to be desired. In
this case, it is not the sale of foreign exchange per se that is being taxed under Section 195 of the NIRC. This section refers to a documentary stamp
tax, which is an excise upon the facilities used in the transaction of the
business separate and apart from the business itself.[14] It is not a tax upon the business itself
which is so transacted, but it is a duty upon the facilities made use of and
actually employed in the transaction of the business, and separate and apart
from the business itself.[15]
Section 195 (now Section 182) of the NIRC covers
foreign bills of exchange, letters of credit, and orders of payment for money,
drawn in Philippines, but payable outside the Philippines. From this enumeration, two common elements
need to be present: (1) drawing the instrument or ordering a drawee, within the
A perusal of the facts contained in the record in
this case shows that BPI, while in the
BPI further alleges that since the funds transferred to the Federal Reserve Bank were taken from BPI’s account with the correspondent bank, this is not the transaction contemplated under Section 51 of Regulations No. 26. BPI argues that Section 51 of Regulations No. 26, in using the phrase “with which local bank has credit,” involves transactions wherein the drawee bank pays with its own funds and excludes from the coverage of the law situations wherein the funds paid out by the correspondent bank are owned by the drawer. In the case of Republic of the Philippines v. Philippine National Bank,[16] the Court equated “credit” with the term “deposits,” and identified the depositor as the creditor and the bank as the debtor.
And
as correctly stated by the trial court, the term “credit” in its usual meaning
is a sum credited on the books of a company to a person who appears to be
entitled to it. It presupposes a
creditor-debtor relationship, and may be said to imply ability, by reason of
property or estates, to make a promised payment. It is the correlative to debt or
indebtedness, and that which is due to any person, as distinguished from that
which he owes. The same is true with the
term “deposits” in banks where the relationship created between the depositor
and the bank is that of creditor and debtor.
By this definition of “credit,” BPI’s deposit account with its correspondent bank is much the same as the “credit” referred to in Section 51 of Regulations No. 26. Thus, the fact that the funds transferred to the Central Bank’s account with the Federal Reserve Bank are from BPI’s deposit account with the correspondent bank can only underline that the present case is the same situation described under Section 51 of Regulations No. 26.
Moreover, the fact that the funds belong to BPI and
were not advanced by the correspondent bank will not remove the transaction
from the coverage of Section 195 (now Section 182) of the NIRC. There are transactions covered by this
section wherein funds belonging to the drawer are used for payment. A bill of exchange, when drawn in the
A
draft is a form of a bill of exchange used mainly in transactions between
persons physically remote from each other.
It is an order made by one person, say the buyer of goods, addressed to
a person having in his possession funds of such buyer ordering the addressee to
pay the purchase price to the seller of the goods. Where the order is made by one bank to
another, it is referred to as a bank draft.[17]
BPI argues that the foreign exchange sold was
deposited and transferred within the
The tax imposition here is upon the performance of an
act, enjoyment of a privilege, or the engaging in an occupation, and hence is
in the nature of an excise tax.
The power to levy an excise upon the
performance of an act or the engaging in an occupation does not depend upon the
domicile of the person subject to the excise, nor upon the physical location of
the property and in connection with the act or occupation taxed, but depends upon the place in which the act
is performed or occupation engaged in (Emphasis supplied).
In this case,
the act of BPI instructing the correspondent bank to transfer the funds to the
Federal Reserve Bank was performed in the
The second issue is whether the delinquency interest of 20% per annum, as provided under Section 249(c)(3) of the NIRC, is applicable in this case.
In the case
of Philippine Refining Company v. Court
of Appeals,[19]
this Court categorically ruled that even if an assessment was later reduced by
the courts, a delinquency interest should still be imposed from the time demand
was made by the CIR.
As correctly pointed out by
the Solicitor General, the deficiency tax assessment in this case, which was
the subject of the demand letter of respondent
Commissioner dated April 11, 1989, should have been paid within thirty (30)
days from receipt thereof. By reason of
petitioner’s default thereon, the delinquency penalties of 25% surcharge and
interest of 20% accrued from P237,381.25 is but a part
of the original assessment of P1,892,584.00.
This doctrine is consistent with the earlier decisions of this Court justifying the imposition of additional charges and interests incident to delinquency by explaining that the nature of additional charges is compensatory and not a penalty.
The above legal provision
makes no distinctions nor does it establish exceptions. It directs the collection of the surcharge
and interest at the stated rate upon any sum or sums due and unpaid after the
dates prescribed in subsections (b), (c), and (d) of the Act for the payment of
the amounts due. The provision therefore
is mandatory in case of delinquency.
This is justified because the intention of the law is precisely to
discourage delay in the payment of taxes due to the State and, in this sense,
the surcharge and interest charged are not penal but compensatory in nature –
they are compensation to the State for the delay in payment, or for the
concomitant use of the funds by the taxpayer beyond the date he is supposed to
have paid them to the State.[20]
The same
principle was used in Ross v. U.S.[21] when the U.S. Supreme Court ruled that
it was only equitable for the government to collect interest from a taxpayer who,
by the government’s error, received a refund which was not due him.
Even
though [the] taxpayer here did not request the refund made to him, and the
situation is entirely due to an error on the part of the government, taxpayer
and not the government has had the use of the money during the period involved
and it is not unjustly penalizing taxpayer to require him to pay compensation
for this use of money.
Based on established doctrine, these charges incident to delinquency are compensatory in nature and are imposed for the taxpayers’ use of the funds at the time when the State should have control of said funds. Collecting such charges is mandatory. Therefore, the Decision of the Court of Appeals imposing a 20% delinquency interest over the assessment reduced by the CTA was justified and in accordance with Section 249(c)(3) of the NIRC.
WHEREFORE, premises considered, this Court DENIES this petition and AFFIRMS the Decision of the Court of
Appeals in CA-G.R. SP No. 57362 dated 14 August 1998, ordering that petitioner Bank
of the Philippine Islands to pay Respondent Commissioner of Internal Revenue
the deficiency documentary stamp tax in the amount of P690,030.00 inclusive of surcharge and compromise penalty, plus
20% annual interest from 7 June 1990
until fully paid. Costs
against the petitioner.
SO ORDERED.
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MINITA V. CHICO-NAZARIO
Associate
Justice |
WE CONCUR:
Chief
Justice
Chairman
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CONSUELO YNARES-SANTIAGO Associate
Justice |
MA. ALICIA AUSTRIA-MARTINEZ
Associate
Justice |
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ROMEO J. CALLEJO, SR. Associate Justice |
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Pursuant to Article VIII,
Section 13 of the Constitution, it is hereby certified that the conclusions in
the above Decision were reached in consultation before the case was assigned to
the writer of the opinion of the Court’s Division.
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ARTEMIO V. PANGANIBANChief
Justice |
[1] Penned
by Associate Justice Arturo B. Buena with Associate Justice Ramon Mabutas, Jr. and Associate Justice Hilarion
L. Aquino, concurring; Rollo, pp. 42-51.
[2] CA rollo,
pp. 52-64.
[3] Rollo, p. 42
[4] Sec. 182. Stamp tax on
foreign bills of exchange and letters of credit. On all foreign bills of
exchange and letters of credit (including orders, by telegraph or otherwise,
for the payment of money issued by express or steamship companies or by any
person or persons) drawn in but payable out of the Philippines in a set of
three or more according to the custom of merchants and bankers, there shall be
collected a documentary stamp tax of thirty centavos on each two hundred pesos,
or fractional part thereof, of the face value of such bill of exchange or letter
of credit, or the Philippine equivalent of such face value, if expressed in
foreign country.
[5] CA
rollo,
p. 53.
[6]
[7]
[8]
[9]
[10] 326 Phil. 680 (1996).
[11] Rollo, p. 54.
[12]
[13] Jose Campos, Jr. and
Maria Clara Lopez-Campos, Notes and
Selected Cases on Negotiable Instruments Law, Fifth Edition.
[14] DuPont v.
[15]
[16] 113 Phil. 828, 830-831 (1961).
[17] Supra note 13 at 3.
[18] 218 Phil. 308, 313-314 (1984).
[19] Supra note 10 at 691.
[20] Republic v. Philippine Bank
of Commerce, 145 Phil. 81, 89 (1970).
[21] 148
F. Supp. 330 (1957), p. 333.