SECOND
DIVISION
|
INTERNATIONAL EXCHANGE BANK, Petitioner, - versus - COMMISSIONER OF INTERNAL REVENUE, Respondent. |
G.R. No. 171266 Present: QUISUMBING, J., Chairperson, CARPIO, CARPIO MORALES, TINGA, and VELASCO, JR., JJ.
Promulgated: |
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D E C I S I O N
CARPIO
MORALES, J.:
Is a Savings Account-Fixed Savings
Deposit (FSD) evidenced by a passbook issued by International Exchange Bank
(petitioner) subject to documentary stamp tax (DST) for the years 1996 and
1997?
Petitioner,
a banking institution duly organized and existing under the laws of the
Philippines, was on April 13, 1999 served Letter of Authority No. 000020535[1] by
the Commissioner of Internal Revenue (respondent) directing the examination by
a “Special Team created pursuant to RSO 797-98” (Special Team) of petitioner’s books
of accounts and other accounting records for the year 1997 and “unverified
prior years.” An examination of said documents was in fact
conducted.
Petitioner subsequently received on
November 16, 1999 a “Notice to Taxpayer”[2] from
the Assistant Commissioner, Enforcement Service of the Bureau of Internal
Revenue, notifying it of the results of the examination conducted by the Special
Team regarding its tax liabilities, which amounted to P465,158,118.31
for 1996 and P17,033,311,974.23 for 1997, and requesting it to appear
for an informal conference to present its side.
Between November[3]
and December[4] 1999, petitioner’s
representatives met with the Special Team to discuss and/or dispute portions of
the Special Team’s audit findings.
Eventually, the parties resolved issues relating to transactions involving
payment of final withholding and gross receipts taxes.[5]
On
Details of Discrepancies
(Taxable Year 1996)
INDUSTRY ISSUES
1. DOCUMENTARY STAMP
TAX (DST) – On Government Securities Purchased-RRPA and Savings Deposits - SD
totaling P25,180,492.15.
Government
Securities Purchased-RRP amounting to P3,584,098,013.35 is subject to
DST under Section 180 of the NIRC, as amended, since this falls under the
classification of Deposits Substitutes as defined by RR 3-97.
Savings
Deposit-FSD amounting to P9,845,497,800.27 should be treated as time
deposits considering that its features are very much the same as time deposits
(interest rates; terms). In substance,
these are certificate[s] of deposits subject to Documentary Stamp Tax under
Section 180 of the NIRC which provides among others that certificate[s] of
deposits bearing interest and others not payable on sight or demand are subject
to DST.[7]
Details of Discrepancies
(Taxable Year 1997)
INDUSTRY
ISSUES
1. DOCUMENTARY STAMP TAX (DST) – On Government
Securities Purchased-RRPA and Savings Deposits-FSD totaling P75,383,751.55.
Government
Securities Purchased-RRP amounting to P12,180.427,820.44 is subject to DST
under Sec. 180 of the NIRC, as amended, since this falls under the
classification of Deposit Substitutes as defined by RR 3-97.
Savings
Deposits-FSD amounting to P28,024,239,673.35 should be treated as time
deposits considering that its features are very much the same as time deposits
(interest rates; terms). In substance,
these are certificates of deposit subject to Documentary Stamp Tax under
Section 180 of the NIRC which provides among others that certificate[s] of
deposit bearing interest and others not payable on sight or demand are subject
to DST.[8] (Underscoring in the original)
The PAN advised
petitioner that in case it was not agreeable to the above-quoted findings, it
may “see the Assistant Commissioner-Enforcement Service to clarify issues arising
from the investigation and/or review,” and its failure to do so within 15 days
from receipt of the PAN would mean that it was agreeable.[9]
On P25,180,492.15 for 1996 and P75,383,751.55 for 1997, and an
accompanying demand letter[11] requesting
payment thereof within 30 days.
Acting
on the FAN, petitioner filed on February 11, 2000 a protest letter[12] alleging
that the assessments should be reconsidered on the grounds that: (1) the
assessments are null and void for having been issued without any authority and
due process, and were made beyond the prescribed period for making assessments;
(2) there is no law imposing DST on RRPA, and assuming that DST was payable, it
is the Bangko Sentral ng Pilipinas which is liable therefor; (3) there is no law imposing DST on its FSD;
and (4) assuming the deficiency assessments for DST were proper, the imposition
of surcharges was patently without legal authority.
Respondent
failed to act on the protest, prompting petitioner to file a petition for
review before the Court of Tax Appeals (CTA).
By Decision[13]
of
WHEREFORE,
petitioner’s deficiency assessments pertaining to the reverse purchase
agreements in the amounts of P6,720,183.77 and P22,838,302.16
inclusive of surcharges, for the years 1996 and 1997, respectively, are hereby
CANCELLED and WITHDRAWN. However, the deficiency assessments pertaining to
savings deposits-FSD are hereby UPHELD and petitioner is ORDERED to PAY
the respondent the amount of P71,005,757.77 representing deficiency
documentary stamp tax for the years 1996 and 1997. In addition thereto, petitioner is ORDERED to
PAY respondent 20% delinquency interest from
Petitioner moved for reconsideration
of the CTA Division decision. Respondent
moved too for a partial review of the decision.
Petitioner argued that its FSD is not
subject to DST since it was not one of the documents enumerated either under
the 1977 Tax Code (Tax Code) or the 1997 National Internal Revenue Code (NIRC).
Respondent on the other hand argued that petitioner should be liable not only
for DST on its FSD but also on its RRPA.
For lack of merit, the CTA Division, by
Resolution[15] of
Only petitioner appealed to the CTA
En Banc before which it proffered that its FSD cannot be considered a
certificate of deposit subject to DST under Section 180 of the Tax Code for,
unlike a certificate of deposit which is a negotiable instrument, the passbook
it issued for its FSD was not payable to the order of the depositor or to some
other person as the deposit could only be withdrawn by the depositor or by a
duly authorized representative.[16]
Petitioner likewise proffered that the
legislative deliberations on the bill that was to become Republic Act No. (R.A.)
9243[17]
showed that the definition of certificates of deposit was amended to include
“other evidences of deposits that are either drawing interest significantly
higher than the regular savings deposit taking into consideration the size of
the deposit and the risks involved or drawing interest and having a specific
maturity date” in order to plug a revenue loophole caused by the term “certificates
of deposit” provided under the Tax Code and the NIRC.[18]
Furthermore, petitioner argued that a
“deposits [sic] evidenced by a
passbook [which] have features akin to a time deposit,” such as petitioner’s
FSD, is not subject to DST under the Tax Code and the NIRC.[19]
Finally,
petitioner argued that the FAN for 1996 and 1997 were issued in violation of
its right to due process, they having been issued even before it could respond
to the PAN; and that the 1996 assessment
is null and void for having been issued beyond the 3-year prescriptive period.
By Decision[20]
of
In affirming the CTA Division Decision,
the CTA En Banc held that a time deposit is a type of a certificate of deposit
drawing interest, and petitioner’s FSD has the same nature and characteristics
as those of a time deposit; that the
requirement of due process had been substantially complied with; and the 1996 assessment was not barred by
prescription because there was no requirement for the filing of a DST return under
the Tax Code.
Hence, the present petition for
review on certiorari, petitioner reiterating the same grounds advanced before
the CTA En Banc.
The issue, in the main, is whether
petitioner’s FSD is subject to DST for the years assessed.
The applicable provision is Section
180 of the Tax Code, as amended by R.A. 7660,[21] which reads:
Sec. 180. Stamp tax on all loan agreements,
promissory notes, bills of exchange, drafts, instruments and securities issued
by the government or any of its instrumentalities, certificates of deposit
bearing interest and others not payable on sight or demand. - On all loan
agreements signed abroad wherein the object of the contract is located or used
in the Philippines; bills of exchange (between points within the Philippines),
drafts, instruments and securities issued by the Government or any of its
instrumentalities or certificates of deposits drawing interest, or
orders for the payment of any sum of money otherwise than at sight or on
demand, or on all promissory notes, whether negotiable or non-negotiable,
except bank notes issued for circulation, and on each renewal of any such note,
there shall be collected a documentary stamp tax of Thirty
centavos (P0.30) on each two hundred pesos, or fractional part thereof,
of the face value of any such agreement, bill of exchange, draft, certificate
of deposit, or note: Provided, That only one documentary stamp tax shall be imposed on either loan agreement, or promissory notes
issued to secure such loan, whichever will yield a higher tax:
Provided, however, That loan agreements or promissory notes the aggregate of
which does not exceed Two hundred fifty thousand pesos (P250,000)
executed by an individual for his purchase on installment for his personal use
or that of his family and not for business, resale, barter or hire of a house,
lot, motor vehicle, appliance or furniture shall be exempt from the payment of
the documentary stamp tax provided under this section. (Emphasis and underscoring supplied)
Petitioner posits that based on this
Court’s definition of a certificate of deposit in Far
East Bank and Trust Company v. Querimit, [22] viz:
A certificate of deposit is defined as a written acknowledgment by a bank or banker of the receipt of a sum of money on deposit which the bank or banker promises to pay to the depositor, to the order of the depositor, or to some other person or his order, whereby the relation of debtor and creditor between the bank and the depositor is created. . . .[23]
its FSD is not a certificate of
deposit since there is nothing in the terms and
conditions printed on the passbook evidencing it that can be construed to mean that
the bank or banker acknowledges the receipt of a sum of money on deposit.[24]
Petitioner moreover posits
that the FSD, unlike a certificate of deposit, is not negotiable or payable to
the order of some other person or his order but is “only withdrawable by the
depositor or his authorized representative.”[25]
Petitioner’s position
does not lie.
As correctly found by the
CTA En Banc, a passbook representing
an interest earning deposit account issued by a bank qualifies as a certificate
of deposit drawing interest.[26]
A document to be deemed a
certificate of deposit requires no specific form as long as there is some
written memorandum that the bank accepted a deposit of a sum of money from a
depositor.[27] What is important and controlling is
the nature or meaning conveyed by the passbook and not the particular label or
nomenclature attached to it, inasmuch as substance, not form, is paramount.[28]
Contrary to petitioner’s
claim, not all certificates of deposit are negotiable. A certificate of deposit may or may not be negotiable
as gathered from the use of the conjunction or, instead of and, in its definition. A certificate of deposit may be payable to
the depositor, to the order of the depositor, or to some other person or
his order.
In any event, the
negotiable character of any and all documents under Section 180 is immaterial
for purposes of imposing DST.
Orders for the payment of
sum of money payable at sight or on demand are of course explicitly exempted
from the payment of DST. Thus, a regular
savings account with a passbook which is withdrawable at any time is not
subject to DST, unlike a time deposit which is payable on a fixed maturity date.
As for petitioner’s argument
that its FSD is similar to a regular savings deposit because it is evidenced by
a passbook,[29]
and that based on the legislative deliberations on the bill which was to become
R.A. 9243 which amended Section 180 of the NIRC (which is to a large extent the
same as Section 180 of the Tax Code, as amended by R.A. 7660), Congress
admitted that deposits evidenced by passbooks which have features akin to time
deposits are not subject to DST,[30]
the same does not lie.
The FSD,
like a time deposit, provides for a higher interest rate when the deposit is
not withdrawn within the required fixed period; otherwise, it earns interest
pertaining to a regular savings deposit.
Having a fixed term and the reduction of interest rates in case of
pre-termination are essential features of a time deposit. Thus explains the CTA En Banc:
It is well-settled that certificates of time deposit are
subject to the DST and that a certificate of time deposit is but a type of a
certificate of deposit drawing interest.
Thus, in resolving the issue before Us, it is necessary to determine
whether petitioner’s Savings Account-Fixed Savings Deposit (SA-FSD) has the
same nature and characteristics as a time deposit. In this regard, the findings of fact stated
in the assailed Decision [of the CTA Division] are as follows:
“In this case, a depositor of a
savings deposit-FSD is required to keep the money with the bank for at least
thirty (30) days in order to yield a higher interest rate. Otherwise, the deposit earns interest
pertaining only to a regular savings deposit.
The same feature is present in a
time deposit. A depositor is allowed to
withdraw his time deposit even before its maturity subject to bank charges on
its pre[-]termination and the depositor loses his entitlement to earn the
interest rate corresponding to the time deposit. Instead, he earns
interest pertaining only to a regular savings deposit. Thus, petitioner’s argument that the savings
deposit-FSD is withdrawable anytime as opposed to a time deposit which has a
maturity date, is not tenable. In both
cases, the deposit may be withdrawn anytime but the depositor gets to earn a
lower rate of interest. The only
difference lies on the evidence of deposit, a savings deposit-FSD is
evidenced by a passbook, while a time deposit is evidenced by a certificate of
time deposit.”
In order for a depositor to earn the agreed higher interest
rate in a SA-FSD, the amount of deposit must be maintained for a fixed
period. Such being the case, We agree
with the finding that the SA-FSD is a deposit account with a fixed term. Withdrawal before the expiration of said
fixed term results in the reduction of the interest rate. Having a fixed term and reduction of interest
rate in case of pre-termination are essentially the features of a time
deposit. Hence, this Court concurs
with the conclusion reached in the assailed Decision that petitioner’s SA-FSD
and time deposit are substantially the same. . . .[31]
(Italics in the original; underscoring supplied)
The findings and conclusions reached
by the CTA which, by the very nature of its function, is dedicated exclusively
to the consideration of tax problems and has necessarily developed an expertise
on the subject, and unless there has been an abuse or improvident exercise of
authority,[32] and none
has been shown in the present case, deserves respect.
It bears
emphasis that DST is 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.[33] It is an excise
upon the privilege, opportunity or facility offered at exchanges for the
transaction of the business.[34]
While tax avoidance schemes and
arrangements are not prohibited, tax laws cannot be circumvented in order to
evade payment of just taxes. [35] To claim that time deposits evidenced by passbooks should not be subject to DST is a clear
evasion of the rule on equality and uniformity in taxation that requires
the imposition of DST on documents evidencing transactions of the same kind, in
this particular case, on all certificates of deposits drawing interest.[36]
The further amendment of Section 180 of the NIRC and its
renumbering as Section 179 by R.A. 9243, which was approved on February 17,
2004, viz:
SEC. 5. Section 180 of the National Internal Revenue Code
of 1997, as amended, is hereby renumbered as Section 179 and further amended to
read as follows:
SEC. 179. Stamp Tax
on All Debt Instruments. – On every original issue of debt instruments, there
shall be collected a documentary stamp tax of One peso (P1.00) on each
Two hundred pesos (P200), or fractional part thereof, of the issue price
of any such debt instruments: Provided,
That for such debt instruments with terms of less than one (1) year, the
documentary stamp tax to be collected shall be of a proportional amount in
accordance with the ratio of its term in number of days to three hundred
sixty-five (365) days: Provided, further,
That only one documentary stamp tax shall be imposed on either loan agreement,
or promissory notes issued to secure such loan.
For purposes of this section, the term debt instrument shall mean instruments representing borrowing and lending transactions including but not limited to debentures, certificates of indebtedness, due bills, bonds, loan agreements, including those signed abroad wherein the object of contract is located or used in the Philippines, instruments and securities issued by the government of any of its instrumentalities, deposit substitute debt instruments, certificates or other evidences of deposits that are either drawing interest significantly higher than the regular savings deposit taking into consideration the size of the deposit and the risks involved or drawing interest and having a specific maturity date, orders for payment of any sum of money otherwise than at sight or on demand, promissory notes, whether negotiable or non-negotiable, except bank notes issued for circulation.” (Underscoring supplied),
does not mean
that as proffered, prior to its further amendment on said date, Section 180 of
the Tax Code and the NIRC time deposits for which passbooks were issued were
exempted from payment of DST.
If at all, the further amendment was intended to eliminate precisely
the scheme used by banks of issuing passbooks to “cloak” its time deposits as
regular savings deposits. This is
reflected from the following exchanges between Mr. Miguel Andaya of the Bankers
Association of the
MR. MIGUEL ANDAYA (Bankers Association of the
THE CHAIRMAN. That’s
right.
MR. ANDAYA. Time
deposit is subject. I agree with you
in principle that if we are going to encourage deposits, whether savings or
time…
THE CHAIRMAN. Uh-huh.
MR. ANDAYA. . .it’s questionable whether we should tax it
with DST at all, even the question of imposing final withholding tax has been
raised as an issue.
THE CHAIRMAN. If I
had it my way, I’ll cut it by half.
MR. ANDAYA. Yeah, but I guess concerning the constraint of
government revenue, even the industry itself right now is not pushing in that
direction, but in the long term, when most of us in this room are gone, we hope
that DST will disappear from the face of this earth, ‘no.
Now, I
think the move of the DOF to expand the coverage of or to add that phrase,
“Other evidence of indebtedness,” it just removed ambiguity. When we testified earlier in the House on
this very same bull, we did not interpose any objections if only for the sake
of avoiding further ambiguity in the implementation of DST on deposits. Because of what has happened so far is, we
don’t know whether the examiner is gonna come in and say, “This savings deposit
is not savings but it’s time deposit.”
So, I think what DOF has done is to eliminate any confusion. They said that a deposit that has a maturity.
. .
THE CHAIRMAN. Uh-huh.
MR. ANDAYA. . . . which is time, in effect, regardless of
what form it takes should be subject to DST.
THE CHAIRMAN.
Would that include savings deposit now?
MR. ANDAYA. So
that if we cloaked a deposit as savings deposit but it has got a fixed maturity
. . .
THE CHAIRMAN.
Uh-huh.
MR. ANDAYA. . . that would fall under the purview.[37]
(Underscoring supplied)
Finally, as the records show, contrary
to petitioner’s claim, it had been afforded the opportunity to protest the
assessment notices as in fact it even requested for a re-investigation which
is, given the nature of the present case, the essence of due process.[38]
WHEREFORE, the
petition is DENIED.
SO ORDERED.
CONCHITA
CARPIO MORALES
Associate Justice
WE
CONCUR:
LEONARDO A.
QUISUMBING
Associate Justice
Chairperson
|
ANTONIO T. CARPIO Associate Justice |
DANTE O. TINGA Associate
Justice |
PRESBITERO J. VELASCO, JR.
Associate
Justice
ATTESTATION
I attest
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.
LEONARDO
A. QUISUMBING
Associate Justice
Chairperson
CERTIFICATION
Pursuant to
Article VIII, Section 13 of the Constitution, and the Division Chairperson’s
Attestation, 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.
REYNATO S. PUNO
Chief Justice
[1] Bureau of Internal Revenue (BIR) records,
p. 626. The BIR records are paginated
from 658-1.
[2]
[3]
[4] Court of Tax Appeals (CTA) Division rollo,
p. 73.
[5] Ibid.
[6] BIR records, pp. 619-617.
[7]
[8]
[9]
[10]
[11]
[12]
[13] CTA Division rollo, pp. 226-251.
[14]
[15] Id. at 315-318.
[16] CTA
En Banc rollo, pp. 20-21.
[17] An
Act Rationalizing The Provisions of the Documentary Stamp Tax of the National
Internal Revenue Code Of 1997, As Amended, and for Other Purposes.
[18] CTA
En Banc rollo, p. 37.
[19] Ibid.
[20] Id. at
157-180. The decision was penned by
Associate Justice Juanito C. Castañeda, Jr., and concurred in by Associate
Justices Ernesto D. Acosta, Novell R. Bautista, Erlinda P. Uy, and Olga
Palanca-Enriquez. Associate Justice
Caesar A. Casanova dissented from the majority decision.
[21] An Act Rationalizing Further the Structure and Administration of the
Documentary Stamp Tax, Amending for the Purpose Certain Provisions of the
National Internal Revenue Code, as Amended, Allocating Funds for Specific
Programs, and for Other Purposes.
[22] 424 Phil. 723 (2002).
[23]
[24] Rollo, p. 51.
[25] Id. at 51-52.
[26] CTA
En Banc rollo, p. 172.
[27] Ibid.
[28] China
Banking Corporation v. Commissioner of Internal Revenue, C.T.A. Case No.
6400,
[29] CTA Division rollo, p. 246.
[30] Rollo, p. 62.
[31] CTA
En Banc rollo, pp. 172-173.
[32] Commissioner
of Internal Revenue v. Citytrust Banking Corporation, G.R. No. 150812, August
22, 2006, 499 SCRA 477, 483 citing Sea-Land Service, Inc. v. Court of
Appeals, G.R. No. 122605, April 30, 2001, 357 SCRA 441, 445-446.
[33] Phil.
Home Assurance Corp. v. Court of Appeals, 361 Phil. 368, 372-373
(1999).
[34]
[35] Com. of Internal Revenue v. Lincoln Phil. Life Ins.
Co., Inc., 429 Phil. 154 (2002).
[36] China Banking Corporation v. Commissioner
of Internal Revenue, C.T.A. Case No. 6400,
[37] Transcript of Stenographic Notes,
Deliberations of the Senate Committee on Ways and Means, pp. 2-3, August 14,
2002.
[38] Marcos
II v. CA, 339 Phil. 253 (1997).