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[G.R. No. 117319. July 19, 2006]

BPI FAMILY BANK versus COURT OF APPEALS, COURT OF TAX APPEALS AND COMMISSIONER OF INTERNAL REVENUE

Third Division

Sirs/Mesdames:

Quoted hereunder, for your information, is a resolution of this Court dated JULY 19, 2006 .

G.R. No. 117319 (BPI Family Bank versus Court of Appeals, Court of Tax Appeals and Commissioner of Internal Revenue)

x ------------------------------------------------------------------------------------------------------------------------- x

RESOLUTION

From April 28, 1986 to December 19, 1986, petitioner affixed and paid the documentary stamps on its confirmations of sale of T-bills and Central Bank bills. On April 6, 1987, the Bureau of Internal Revenue (BIR) issued Revenue Memorandum Circular No. 13-87 [1] cralaw stating among others that no documentary stamp tax shall be imposed on documents of conveyance of instruments enumerated in Section 229, [2] cralaw presently Section 180 of the National Internal Revenue Code (NIRC). Pursuant thereto, petitioner filed with the BIR a claim for refund, amounting to P1,116,612, alleging among others that T-bills and Central Bank bills fall within the purview of the instruments enumerated in Section 229 (now Section 180) of the National Internal Revenue Code.

On April 15, 1988, petitioner filed a petition for review with the respondent Court of Tax Appeals. The Court of Tax Appeals denied the claim for refund, and later on, the motion for reconsideration. On appeal, the Court of Appeals ruled that, procedurally, the petitioner failed to attach in its petition the proof of service and the duplicate original of the Court of Tax Appeals' decision; and on the substantial merits of the appeal, the sale and transfer of T-bills and Central Bank bills are subject to documentary stamp tax under Section 225 [3] cralaw (now Section 176) of the NIRC. The dispositive portion of the Court of Appeals' decision reads as follows:

WHEREFORE, the instant petition is hereby DISMISSED and the decision under review AFFIRMED.

Costs against petitioner.

SO ORDERED. [4] cralaw

Hence, this petition, raising the following issues:

From the foregoing it is clear that there is a procedural as well as substantive issue that presents itself in this case. The procedural issue is whether the petition is dismissible for failure to comply with the requirements of Supreme Court Circular No. 1-88. The substantive issue is whether the Court of Appeals committed reversible error in not ruling that Treasury Bills and Central [Bank] Bills are promissory notes or are included in the definition of deposit substitutes under sec. 180 of the NIRC. [5] cralaw (Stress supplied.)

Simply, the issue on the substantive aspect is, Are T-bills and Central Bank bills subject to documentary stamp tax under Section 225 of the NIRC? On the procedural aspect, the issue is: Did the Court of Appeals err in dismissing the petition for failure to attach the proof of service and the duplicate original of the Court of Tax Appeals' decision?

Before us, petitioner now submits that said government securities do not fall under Section 225. Also, petitioner claims that those cited government securities are deemed as promissory notes and/or deposit substitutes enumerated under Section 229 (now Section 180), hence, by virtue of Revenue Memorandum Circular No. 13-87, they are not subject to documentary stamp tax. Petitioner also contends that:

(1) in BIR Ruling No. 036 dated February 10, 1988, the then Commissioner has issued an opinion addressed to the Chief of the Banks, Financing & Insurance Division of the BIR that, since treasury bills are considered as deposit substitutes, they are subject to documentary stamp tax under Section 229 of the NIRC; [6] cralaw

(2) Revenue Regulations No. 17-84, Section 2(h)(b) provided that, the following borrowings shall be considered as deposit substitutes, ". . .(b) All borrowings of the national and local government and its instrumentalities including the Central Bank of the Philippines, evidenced by debt instruments denoted as treasury bonds, bills, notes, certificates of indebtedness and similar instruments;" [7] cralaw

(3) Revenue Memorandum Circular No. 13-87, stated that, since Section 225 of the NIRC applies only to documents of conveyances covering instruments stated in Sections 223 and 224 (now Secs. 174 and 175) of the NIRC, it follows that documents of conveyance covering instruments stated in Section 229 are not subject to DST. [8] cralaw

Therefore, according to petitioner, the subject government securities are exempt from documentary stamp taxes.

The tax court and the appellate court, however, held that T-bills and Central Bank bills, under its governing laws, Republic Act No. 245, as amended by Presidential Decree No. 142, [9] cralaw and R.A. No. 265, [10] cralaw are denominated as evidence of indebtedness, hence, are deemed the same as certificates of obligations or certificates of indebtedness. They added that the issuance of said government securities falls within the purview of Sections 222 (now Section 173) and 223 (now Section 174), while its sale, transfer or conveyance is under Section 225 (now Section 176) of the NIRC.

We agree with the ruling of both the tax and appellate courts.

It bears stressing that the main issue raised before us is: Are confirmations of sale of the subject government securities, between herein petitioner and private individuals/entities, subject to documentary stamp tax?

A perusal of Section 225 [11] cralaw shows that on all sales, or agreements to sell, or memoranda of sales, or deliveries, or transfer of certificates of obligation, in any association, company, or corporation; or transfer of such securities by delivery, or by any paper, or agreement, or memorandum or other evidences of transfer or sale whether entitling the holder in any manner to the benefit of such certificates of obligation, there shall be collected a documentary stamp tax. In this case, we have to inquire whether the T-bills and Central Bank bills are covered by the said provision.

Under Section 1 [12] cralaw of Republic Act No. 245, as amended by P.D. No. 142, Treasury bills are evidence of indebtedness, issued by the National Government on a discount basis and offered for sale either at auction on competitive or non-competitive basis, payable at any date not later than one year from the date of issue. Central Bank bills are also evidence of indebtedness issued by the Central Bank conformably with Section 98 [13] cralaw of R.A. No. 265, which authorizes the Central Bank to issue and negotiate Central Bank obligations, and to place, buy, and sell freely its negotiable evidence of indebtedness.

Contrary to petitioner's argument, a certificate of indebtedness is different from ordinary debt instruments such as promissory notes and deposit substitutes. A certificate of indebtedness includes only instruments having the general character of investment securities as distinguished from instruments evidencing debts arising in ordinary transactions between individuals. [14] cralaw As distinguished from a promissory note which is an unconditional promise in writing made by one person to another, signed by the maker, engaging to pay on demand, or at a fixed or determinable future time, a sum certain in money, to order or bearer, [15] cralaw T-bills and Central Bank bills are investment securities of a public character, issued by the Philippine Government, thru the Central Bank of the Philippines.

On the other hand, the chief feature of a deposit substitute is borrowing. [16] cralaw In this case, petitioner sells government securities to private individuals/entities, in which its confirmations of sale are being subjected to documentary stamp tax. There is no borrowing or debt instrument involved in this case. Here, the petitioner, as the seller, simply conveys through sale, specific government securities to the buyer, who thereby acquires title thereto, including the plenary right of disposal. As there is no borrowing, there is no debt with respect to which the seller can be primarily bound. Nor is the seller subsidiarily bound to respond in case the issuer of the said securities defaults, hypothetically assuming that the Philippine Government, as issuer of the securities sold, could default. Precisely, the sale of said government securities is always "without recourse."

Both the respondent courts correctly held that whether T-bills and Central Bank bills are denominated as certificates of obligations, certificates of indebtedness or evidence of indebtedness, they bear the same meaning. Section 225 is clear. On all sales, or agreements to sell, or memoranda of sales, or deliveries, or transfer of certificates of obligation in any association, company, or corporation; or transfer of such securities by delivery, or by any paper, or agreement, or memorandum or other evidences of transfer or sale whether entitling the holder in any manner to the benefit of such certificates of obligation, there shall be collected a documentary stamp tax. The nomenclatures, i.e., evidence of indebtedness, certificate of obligation and certificate of indebtedness, bear the same meaning and although their various appellations are used interchangeably by law, they all refer to the subject securities, i.e., T-bills and Central Bank bills.

Rules and regulations issued by the administrative officials to implement a law cannot go beyond the terms and provisions of the latter. [17] cralaw While the interpretation placed upon a law by the executive officers is entitled to great respect by the courts, nevertheless, it is not conclusive and will be ignored if judicially found to be erroneous. Administrative rulings have been aptly described as follows: "They are the best guess of the moment and incidentally often contain such well considered and sound law; but the courts have held that they do not prevent an entire change of front at any time and are merely advisory - sort of an information service to the taxpayer." Moreover, administrative rulings of previous Commissioners are not conclusive and binding upon their successors [18] cralaw if the latter become convinced that a law warrants a different construction. Therefore, courts will not countenance administrative rulings that are not consistent and in harmony with the law they seek to apply and implement. Therefore, the confirmations of sale of government securities made by the petitioner to private individuals/entities are subject to documentary stamp tax pursuant to Section 225 of the NIRC.

We see no need to rule on the procedural issues, since the Court of Appeals, despite pronouncement of the alleged procedural defects, nevertheless, ruled on the merits of the case.

WHEREFORE, the instant petition is DENIED. The Court of Appeals' decision dated September 19, 1994 in CA-G.R. SP No. 29853 is AFFIRMED.

No pronouncement as to costs.

SO ORDERED.

Very truly yours,

(Sgd.) LUCITA ABJELINA-SORIANO
Clerk of Court


Endnotes:

[1] cralaw Supplementary Revenue Memorandum Circular to Revenue Memorandum Circular No. 33-86, Publishing Questions and Answers to Documentary Stamp Tax.

[2] cralaw SEC. 229. Stamp Tax on negotiable promissory notes, bills of exchange, drafts, certificates of deposit bearing interest and others not payable on sight or demand. - On all bills of exchange (between points within the Philippines), drafts or certificates of deposit drawing interest, or orders for the payment of any sum of money otherwise than at sight or on demand, on all negotiable promissory notes, except bank notes issued for circulation, and on each renewal of any such note, there shall be collected a documentary stamp tax . . .

[3] cralaw SEC. 225. Stamp tax on sales, agreements to sell, memoranda of sales, deliveries or transfer of bonds, due bills, certificate of obligation, or shares or certificates of stock. - On all sales, or agreements to sell, or memoranda of sales, or deliveries, or transfer of bonds, dues-bills, certificates of obligation, or shares or certificates of stock, in any association, company, or corporation, or transfer of such securities by assignment in blank, or by delivery, or by any paper, or agreement, or memorandum or other evidences of transfer or sale whether entitling the holder in any manner to the benefit of such certificate of obligation . . . or for the future transfer of any . . . certificate of obligation . . . there shall be collected a documentary stamp tax . . .

[4] cralaw Rollo, p. 100.

[5] cralaw Id. at 189.

[6] cralaw Id. at 22-23.

[7] cralaw Id. at 23.

[8] cralaw Id. at 21.

[9] cralaw AMENDING REPUBLIC ACT NO. 245 ENTITLED "AN ACT AUTHORIZING THE SECRETARY OF FINANCE TO BORROW TO MEET PUBLIC EXPENDITURES AUTHORIZED BY LAW AND FOR OTHER PURPOSES.

[10] cralaw AN ACT ESTABLISHING THE CENTRAL BANK OF THE PHILIPPINES, DEFINING ITS POWERS IN THE ADMINISTRATION OF THE MONETARY AND BANKING SYSTEM, AMENDING THE PERTINENT PROVISIONS OF THE ADMINISTRATIVE CODE WITH RESPECT TO THE CURRENCY AND THE BUREAU OF BANKING, AND FOR OTHER PURPOSES.

[11] cralaw Supra, note 3.

[12] cralaw Section 1. In order to meet public expenditures authorized by law or to provide for the purchase, redemption, or refunding of any obligations, either direct or guaranteed, of the Philippine Government, the Secretary of Finance, with the approval of the President of the Philippines, after consultation with the Monetary Board, is authorized to borrow from time to time on the credit of the Republic of the Philippines such sum or sums as in his judgment may be necessary, and to issue therefore evidences of indebtedness of the Philippine Government.

Such evidences of indebtedness may be of the following types:

a. Treasury bills issued on a discount basis or at par and payable at maturity without interest. Treasury bills may be offered for sale either on a competitive basis or at a fixed rate of discount or at par and may be made payable at any date not later than one year from the date of issue; x x x x

[13] cralaw SEC. 98. Issue and negotiation of Central Bank obligations. - In order to provide the Central Bank with effective instruments for open market operations, the Bank may, subject to such rules and regulations as the Monetary Board may prescribe and in accordance with the principles stated in Section 96 of this Act, issue, place, buy and sell freely negotiable evidences of indebtedness of the Bank. Said evidences of indebtedness may be issued directly against the international reserve of the Bank or against the securities which it has acquired under the provisions of Section 97 of this Act, or may be issued without relation to specific types of assets of the Bank. x x x x

[14] cralaw The Revised Documentary Stamp Tax Regulation, promulgated by the Department of Finance on September 16, 1924. XXII O.G. 112, p. 2335.

[15] cralaw ACT No. 2031, Sec. 184. Promissory note defined. - A negotiable promissory note within the meaning of this Act is an unconditional promise in writing made by one person to another, signed by the maker, engaging to pay on demand, or at a fixed or determinable future time, a sum certain in money to order or to bearer. Where a note is drawn to the maker's own order, it is not complete until indorsed by him.

[16] cralaw Revenue Memorandum Circular No. 62-2003 provides,

[T]he chief feature of a deposit substitute is "borrowing." Without borrowing, there is no deposit substitute. The sale of a debt instrument is deemed "borrowing" if the seller assumes liability to pay what in essence is a loan, by whatever name it is called and whatever be its form. The liability may be either primary or subsidiary. Primary liability refers to the obligation to pay back the purchase price (loan). There is a subsidiary liability if there is recourse against the seller in case the person primarily liable under the underlying instrument fails to pay. For this reason, "deposit substitutes" include certificates of assignment or participation "with recourse." Of course, if the seller is, by stipulation, already primarily liable - as where he has the firm obligation to buy back the very same debt paper he has sold - it is superfluous to talk of transfer "with or without recourse." Where, however, there is indeed no liability to pay, either primary or subsidiary, there is no borrowing or debt that can give rise to a deposit substitute . . .

[17] cralaw People v. Lim, 108 Phil. 1091, 1094 (1960).

[18] cralaw Hilado v. Coll. Of Internal Rev. and Ct. of Tax Appeals, 100 Phil. 288, 294 (1956).


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