October 2009 - Philippine Supreme Court Decisions/Resolutions
Philippine Supreme Court Jurisprudence
G.R. No. 172359 - China Banking Corporation v. The Commsissioner of Internal Revenue
THIRD DIVISION
[G.R. NO. 172359 : October 2, 2009]
CHINA BANKING CORPORATION, Petitioner, v. THE COMMISSIONER OF INTERNAL REVENUE, Respondent.
D E C I S I O N
DEL CASTILLO, J.:
Before this Court is a Petition for Review on Certiorari1 under Rule 45 of the Rules of Court seeking to set aside the January 3, 2006 Decision2 and March 20, 2006 Resolution3 of the Court of Tax Appeals (CTA) En Banc in C.T.A. EB No. 66 (C.T.A Case No. 6400).
The facts of the case.
Petitioner China Banking Corporation, a universal banking corporation duly organized and existing under and by virtue of the laws of the Republic of the Philippines, was engaged in the transaction of accepting special savings deposits (SSD), otherwise known as "Savings Plus Deposit.4
On September 23, 1999, petitioner received a Pre-Assessment Notice5 (PAN) issued by respondent Commission on Internal Revenue, assessing it for deficiency documentary stamp tax on its Reverse Repurchase Agreements (RRA) and SSDs for the taxable years 1994 and 1995 in the total amount of Php 27,451,844.09 including increments thereon.
On October 6, 1999, petitioner sent a letter6 to respondent whereby it manifested its formal disagreement to the PAN.
Subsequently, petitioner received a Final Assessment Notice (FAN) dated October 8, 1999, which reiterated petitioner's liability for deficiency documentary stamp tax on its RRAs and SSDs for the taxable years 1994 and 1995. The same was detailed as follows, to wit:
For the year 1994 A. Reverse Repurchase Agreements P424,000,000.00B. Special Savings Accounts 2,142,305,326.67
- - - - - - - - - - - - - - - - - - - - - - - -Total 2,566,305,326.67 Rate of Tax 0.15%
- - - - - - - - - - - - - - - - - - - - - - - -Total Tax due thereon 3,849,457.98 Add: 25% Surcharge 962,364.50 Compromise Penalty 25,000.00
- - - - - - - - - - - - - - - - - - - - - - - -987,364.50
- - - - - - - - - - - - - - - - - - - - - - - -Total Deficiency DST-Industry Issue P4,836,822.487For the year 1995 A. Reverse Repurchase Agreements P9,773,000,000.00B. Special Savings Accounts 2,275,011,526.88
- - - - - - - - - - - - - - - - - - - - - -Total 12,048,011,526.88 Rate of Tax 0.15%
- - - - - - - - - - - - - - - - - - - - - -Total Tax due thereon P18,072,017.29Add: 25% Surcharge 4,518,004.32 Compromise Penalty 25,000.00
- - - - - - - - - - - - - - - - - - - - - - - -4,543,004.32
- - - - - - - - - - - - - - - - - - - - - - - -Total Deficiency DST-Industry Issue P22,615,021.618
On November 24, 1999, petitioner filed a formal protest9 questioning the legality and basis of both the PAN and the FAN. In said protest, petitioner contested the basis of the assessment of deficiency documentary stamp tax on its SSDs in the following manner, to wit:
x x x
B. On the Special Savings Account:
With respect to the Savings Plus Deposit transactions, the latter is also not subject to documentary stamp tax because by the very nature of the transaction which is just a variation of the regular savings account, the same is not taxable under the aforequoted Section 180. Let us consider some salient features of the product that differentiates it from a Time Deposit Account:
1. The terms and conditions of the Savings Plus Deposit are provided for in the traditional passbook form as distinguished from a Time Deposit Account which is evidenced by a certificate of deposit.
2. In a time deposit, there is no partial withdrawal. The term is preterminated and the certificate of deposit is cancelled and surrendered and the entire amount is paid to the depositor. In the case of Savings Plus Deposit, however, there is partial withdrawal, which is posted in the passbook. The amount withdrawn is paid to the depositor and the passbook is returned to the depositor. In other words, the Savings Plus Deposit, contrary to the basis for assessment, represents a continuing fund which is open to deposits and withdrawals anytime, and therefore, falls under the category of certificates of deposit at sight or on demand which is exempt from documentary stamp tax.
3. When fifty percent (50%) of the term of a Time Deposit had lapsed, interest to be paid is fifty percent (50%) of the agreed rate. When less than fifty percent (50%) of the term had lapsed, interest to be paid is twenty - five percent (25%) of the agreed rate. In the case of a Savings Plus Deposit, however, amount withdrawn earns only the regular fixed savings rate of three percent (3%).
4. The features of the product in no way resemble that of a promissory note or a certificate of indebtedness, and
5. The intention, not any occasional error in the implementation of the product, should be the basis of taxation. A correctible error in the implementation does not convert a non-taxable product into a taxable one.
In view of all the foregoing reasons and considerations, we hereby request that subject assessment notice be recalled and/or reconsidered, the same not being due and demandable from China Bank, under the premises.10
On December 20, 1999, petitioner received a Preliminary Agreement Notice11 dated December 17, 1999, assessing petitioner's deficiency documentary stamp taxes on its RRAs and SSDs covering the taxable years 1996 and 1997. Like in the first assessment, petitioner sent a letter12 manifesting its disagreement thereto.
On December 29, 1999, a formal letter of demand13 was received by petitioner whereby respondent demanded the total amount of P13,781,350.00, representing deficiency documentary stamp tax on petitioner's RRAs and SSDs for the taxable years 1996 and 1997.
On January 26, 2000, petitioner sent a letter14 to respondent reiterating its position that the RRAs and SSDs were not subject to documentary stamp tax.
On February 18, 2000, respondent sent a notice15 to petitioner setting an informal hearing with regard to the protest made by the latter on the assessment of deficiency documentary stamp tax on its RRAs and SSDs. On April 7, 2000, petitioner submitted its final position paper.16
On January 11, 2002, respondent rendered a Decision17 resolving to cancel and withdraw the assessments for deficiency documentary stamp tax on petitioner's RRAs covering the taxable years 1994, 1995 and 1996. However, said decision affirmed the assessments for alleged deficiency documentary stamp tax on petitioner's RRAs for the year 1997 as well as on its SSDs covering the taxable years 1994 to 1997. The dispositive portion of said decision is hereunder quoted, to wit:
IN VIEW WHEREOF, this Office do hereby resolved the following:
1. The protest of herein protestant bank on the deficiency stamp taxes on RRPs covering the years 1994, 1995 and 1996 under the following Assessment Notices, to wit:
Assessment Notice No. Amount Year ST-DST-94-0054-99 P820,000.001994 ST-DST-95-0055-99 P18,349,375.001995 ST-DST-96-0374-99 P1,976,250.001996 are hereby withdrawn and cancelled and the same are considered closed and terminated.
2. The protest of herein protestant bank on the deficiency stamp tax on RRPs for 1997 under Assessment Notice No. ST-DST-97-0372-99 demanding payment of
P3,523,600.00 is hereby affirmed and reiterated.3. The protest of herein protestant bank on the deficiency stamp taxes on SSA covering the taxable years 1994, 1995, 1996 and 1997 under the following Assessment Notices, to wit:
Assessment Notice No. Amount Year ST-DST-94-0054-99 P4, 041,822.481994 ST-DST-95-0055-99 4,290,646.61 1995 ST-DST-96-0371-99 1,633,750.00 1996 ST-DST-97-0373-99 2,595,400.00 1997 are hereby affirmed in all respects.
Consequently, the protestant bank is hereby ordered to pay the above - stated amounts plus interest that may have accrued thereon until actual payment to the Collection Service, BIR National Office, Diliman, Quezon City, within thirty (30) days from receipt hereof, otherwise, the collection thereof shall be effected through the summary remedies provided by law.
This constitutes the final decision of this Office on the matter.18
On February 22, 2002, petitioner appealed to the Court of Tax Appeals (CTA) via a Petition for Review,19 the same was docketed as C.T.A. Case No. 6400.
On October 14, 2004, the CTA rendered a Decision20 partially granting the petition, the dispositive portion of which reads:
IN VIEW OF THE FOREGOING, the subject Petition for Review is hereby PARTIALLY GRANTED. Assessment Notice No. ST-DST-97-0372-99 for deficiency documentary stamp taxes on petitioner's Reverse Repurchase Agreement Transactions in the amount of P3,523,600.00 covering the taxable year 1997 is hereby CANCELLED AND WITHDRAWN. However, Assessment Notice Nos. ST-DST-94-0054-99, ST-DST-95-0055-99, ST-DST-96-0371-99, and ST-DST-96-0373-99 for deficiency documentary stamp taxes on petitioner's Special Savings Deposit Accounts for the taxable years 1994, 1995, 1996 and 1997, respectively, are UPHELD but in the following modified amounts:
x x x
Accordingly, petitioner is ORDERED TO PAY the above recomputed documentary stamp tax liabilities of P4,016,822.48, P4,265,646.61, P1,218,750.00 and P1,890,000.00 or in the total amount of P11,391,219.09, plus 20% delinquency interest from February 24, 2002 until full payment thereof pursuant to Section 249 (c) of the 1997 Tax Code.
SO ORDERED.21
On November 9, 2004, petitioner filed a Motion for Partial Reconsideration,22 specifically assailing the portion of the CTA Decision affirming the assessment of deficiency documentary stamp tax on its SSDs.
On February 2, 2005, the CTA issued a Resolution23 denying petitioner's motion for partial reconsideration.
Aggrieved with the Decision and Resolution of the CTA, petitioner then filed a Petition for Review 24 before the CTA en banc.
On January 3, 2006, the CTA en banc rendered a Decision25 denying said petition, the dispositive portion of which reads:
WHEREFORE, the instant petition is hereby DENIED DUE COURSE, and accordingly, DISMISSED for the above-stated reasons. The assailed Decision and Resolution are hereby AFFIRMED.26
The CTA en banc ruled that a deposit account which have the same features as a time deposit account, i.e., a fixed term in order to earn a higher interest rate, is subject to the Documentary Stamp Tax imposed in Section 18027 of the 1997 National Internal Revenue Code.28 Specifically, the CTA en banc held that the SSDs are "certificates of deposit drawing interest" as contemplated under Section 180.
Petitioner then filed a Motion for Partial Reconsideration,29 which was, however, denied by the CTA en banc in a Resolution30 dated March 20, 2006.
Hence, herein petition, with petitioner raising the following errors, to wit:
I
IN RENDERING THE QUESTIONED DECISION AND RESOLUTION (ANNEXES "A" AND "B"), THE HONORABLE COURT OF TAX APPEALS EN BANC, IN CLEAR DISREGARD OF THE BASIC RULES ON STATUTORY CONSTRUCTION, ERRONEOUSLY AND CAPRICIOUSLY INTERPRETED THE BANKING-INDUSTRYWIDE INNOVATIVE PRODUCT CALLED "SPECIAL SAVINGS DEPOSIT" AS A CERTIFICATE OF TIME DEPOSIT SUBJECT TO DOCUMENTARY STAMP TAX UNDER SECTION 180 OF THE THEN GOVERNING NATIONAL INTERNAL REVENUE CODE.
II
THE HONORABLE COURT OF TAX APPEALS EN BANC GRAVELY ERRED IN NOT CONSIDERING THAT ITS ERRONEOUS INTERPRETATION OF THE "SPECIAL SAVINGS DEPOSIT" WAS ONLY RATIONALIZED AND EXPLICITLY PROVIDED FOR UNDER REPUBLIC ACT NO. 9243, OTHERWISE KNOWN AS "AN ACT RATIONALIZING THE PROVISIONS ON THE DOCUMENTARY STAMP TAX OF THE NATIONAL INTERNAL REVENUE CODE OF 1997, AS AMENDED, AND FOR OTHER PURPOSE" WHICH WAS ENACTED INTO LAW ON FEBRUARY 7, 2004.31
The petition is not meritorious.
The issue of whether or not Special Savings Deposits are subject to documentary stamp tax is not novel as the same has been the subject of this Court's ruling in International Exchange Bank v. Commissioner of Internal Revenue32 (International) and Philippine Banking Corporation v. Commissioner of Internal Revenue33 (PBC).
Section 180 of the 1997 National Internal Revenue Code, as amended, provides:
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 the 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 note 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.
The CTA en banc dissected Section 180 and enumerated the following documents which are subject to documentary stamp tax, to wit:
1. Loan Agreements;
2. Bills of Exchange;
3. Drafts;
4. Instruments and Securities issued by the Government or any of its instrumentalities;
5. Certificates of Deposit Drawing Interest;
6. Order for the payment of money otherwise that at sight or on demand;
7. Promissory Notes, whether negotiable or non-negotiable.34
From said enumeration, the CTA en banc held that petitioner's SSDs fall under the category of "certificates of deposit drawing interest."
In Far East Bank and Trust Company v. Querimit,35 the Court defined a certificate of deposit 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." A certificate of deposit is also defined as "a receipt issued by a bank for an interest-bearing time deposit coming due at a specified future date."
In its Decision, the CTA en banc held that certificates of time deposit are subject to documentary stamp tax and that the same are but a type of a certificate of deposit drawing interest.36 Hence, whether or not SSDs are subject to documentary stamp tax is dependent on the nature and specific features thereof. It is thus conceded that if the SSDs are more akin to a time deposit account then the same would be subject to documentary stamp tax. However, if the SSDs are more akin to a regular savings deposit account then the same would not be subject to documentary stamp tax.
Petitioner argues that its SSDs have the same distinctive features of a regular savings deposit account. Particularly, petitioner asserts that its SSDs are not "certificates of deposits drawing interest" as held by the CTA en banc. Petitioner thus explains:
Firstly, the law, as it may in pertinence, be scrutinized, specifically mentioned "certificates of deposits drawing interest" as subject to the documentary stamp tax. In the special savings deposit of petitioner, what is issued to a depositor is a passbook just like in regular savings deposit. The reason for this is that, as appreciated by the Honorable Court a quo itself - - - the amount deposited in the special savings deposit is withdrawable any time. Partial or full withdrawal may be done by the depositor from this deposit. Not only this, the depositor may likewise deposit any amount he pleases anytime he wants. Hence, the fund in a special savings deposit is a continuing fund, just like regular savings account. The passbook then would be suitable and proper record of all the transactions made and to be made on the special savings deposit.
Certificates of deposit, on the other hand, are issued to evidence a time deposit placement. Time deposits, to a tee, are certificates of indebtedness issued by a bank for fixed amounts which earn interest at fixed rates and payable at a fixed future date. These features do not attend foursquare on the special savings deposit. In the latter, just like in ordinary savings deposit, there is a minimum amount of deposit required, but it is never fixed or stipulated upon; the interest is assured at savings deposit rate but if the balance required is maintained for a certain period, the depositor is entitled to a prevailing market rate; and, special savings deposit has no maturity date and is a continuing concern. With the withdrawability of the amount deposited herein at any time, as the depositor may please, special savings deposit just like an ordinary savings account includes itself under the category of deposit payable at sight or on demand, read as "orders for the payment of any sum of money [otherwise] at sight or on demand" which is exempt from documentary stamp tax.37
This Court does not agree. Contrary to the claim of petitioner, the SSDs are in fact "certificates of deposits drawing interest" subject to documentary stamp tax as provided for in Section 180 of the 1997 NIRC.
In PBC, this Court distinguished a regular savings account, a time deposit account and the Special/Super Savings Deposit Account (SSDA) in the following manner, to wit:
