Commissioner of Internal Revenue vs. The Insular Life Assurance Co. Ltd.

A cooperative company may claim exemption from documentary stamp tax under Section 199(a) of the NIRC of 1997 without registering with the Cooperative Development Authority, because the NIRC does not impose CDA registration as a condition for that exemption and an administrative circular cannot impose a requirement absent from the statute.

The Commissioner of Internal Revenue is the official authorized under Section 4 of the NIRC of 1997 to assess and collect internal revenue taxes and to decide disputed assessments, subject to the exclusive appellate jurisdiction of the Supreme Court. The Insular Life Assurance Co. Ltd. is a corporation organized under Philippine laws and registered with the Securities and Exchange Commission as a non-stock mutual life insurer. The controversy concerns the documentary stamp tax exemption under Section 199(a) of the NIRC of 1997 for policies issued by a cooperative company, and the effect of the Cooperative Development Authority’s registration power under Republic Act No. 6939 and Revenue Memorandum Circular No. 48-91.

The Insular Life Assurance Co. Ltd. is a corporation organized under Philippine laws, with principal office at IL Corporate Center, Insular Life Drive, Filinvest Corporate City, Alabang, Muntinlupa City, and is registered with the Securities and Exchange Commission as a non-stock mutual life insurer. The Commissioner of Internal Revenue is the official authorized under Section 4 of the NIRC of 1997 to assess and collect internal revenue taxes and to decide disputed assessments, subject to the exclusive appellate jurisdiction of the Supreme Court.

On October 7, 2004, Insular Life received an Assessment Notice and Formal Letter of Demand, both dated July 29, 2004, assessing deficiency documentary stamp tax on its premiums on direct business/sums assured for calendar year 2002. The assessment consisted of basic deficiency DST of ₱70,732,389.83, plus increments for interest and compromise penalty of ₱23,201,969.38, for a total amount due of ₱93,934,359.21.

On November 4, 2004, Insular Life filed a Protest Letter. The Commissioner denied the protest in a Final Decision on Disputed Assessment dated April 15, 2005 for lack of factual and legal bases. Insular Life received that final decision only on June 23, 2005. On July 15, 2005, Insular Life filed a Petition for Review before the Court of Tax Appeals.

In the proceedings before the CTA, the CTA found that Insular Life and Sunlife Assurance Company of Canada are both engaged in mutual life insurance business in the Philippines; both converted from stock life insurance corporations to non-stock mutual life insurance for the benefit of policyholders pursuant to Section 266, Title 17 of the Insurance Code of 1978, before the effectivity of Republic Act No. 6938; both claim to be purely cooperative corporations licensed to engage in mutual life insurance; both claim exemption from DST under Section 199(1) of the Tax Code (now Section 199[a] of the NIRC of 1997); and the Commissioner requires registration with the CDA before granting tax exemptions. The CTA also found that Insular Life is managed by members, operated with money collected from the members, and has for its main purpose the mutual protection of members.

• CDA Registration as Condition Precedent: Petitioner contended that since respondent is not registered with the Cooperative Development Authority, it should not be considered a cooperative company entitled to the exemption provided under Section 199(a) of the National Internal Revenue Code of 1997.
• Reconsideration of Sunlife: Petitioner submitted that the doctrine in Sunlife should be reconsidered and not applied because it failed to consider Section 3(e) of Republic Act No. 6939, which provides that the CDA has the power to register all cooperatives; petitioner proposed that registration with the CDA is necessary for an association to be deemed a cooperative and to enjoy the tax privileges appurtenant thereto.

• DST Exemption: Respondent claimed exemption from payment of documentary stamp taxes under Section 199(1) of the Tax Code (now Section 199[a] of the NIRC of 1997), asserting that it is a purely cooperative corporation duly licensed to engage in mutual life insurance business.
• No CDA Registration Requirement Under Section 199: Respondent pointed out that in other provisions of the NIRC, registration with the CDA is expressly required in order to avail of certain tax exemptions or preferential tax treatment, a requirement noticeably absent in Section 199 of the NIRC.

• Cooperative Status and DST Exemption: Whether the CTA en banc erred in ruling that respondent is a cooperative and thus exempt from documentary stamp tax.

• Cooperative Status and DST Exemption: No. The CTA en banc did not err. Under Section 199(a) of the NIRC of 1997 and Republic of the Philippines vs. Sunlife Assurance Company of Canada, a cooperative company may be exempt from DST even without CDA registration; Section 3(e) of Republic Act No. 6939 does not impose registration as a condition precedent.

• Cooperative Status and DST Exemption: The Court applied stare decisis and held that the CTA en banc correctly relied on Sunlife because the factual circumstances were substantially the same.
• Sunlife as Controlling Precedent: The Court had pronounced in Republic of the Philippines vs. Sunlife Assurance Company of Canada that under the Tax Code, although the respondent therein was a cooperative, registration with the CDA is not necessary for exemption from percentage taxes on insurance premiums under Section 121 and documentary stamp taxes on policies of insurance or annuities under Section 199. The CTA established five similarities between Sunlife and the present case: both are engaged in mutual life insurance business in the Philippines; both converted from stock life insurance corporations to non-stock mutual life insurance for the benefit of policyholders pursuant to Section 266, Title 17 of the Insurance Code of 1978, before the effectivity of Republic Act No. 6938; both claim to be purely cooperative corporations licensed to engage in mutual life insurance; both claim exemption from DST under Section 199(1) of the Tax Code (now Section 199[a] of the NIRC of 1997); and the CIR requires registration with the CDA before granting tax exemptions.
• Section 3(e) of Republic Act No. 6939: The Court rejected petitioner’s argument that Sunlife should be reconsidered because it failed to consider Section 3(e) of Republic Act No. 6939. A perusal of Section 3(e) shows that it is merely a statement of one of the powers exercised by the CDA. Neither Section 3(e) nor any other provision in that statute imposes registration with the CDA as a condition precedent to claiming DST exemption. Republic Act No. 6939 is also inapplicable to the present case.
• NIRC Definition and Section 199: The NIRC of 1997 defined a cooperative company or association as conducted by the members thereof with money collected from among themselves and solely for their own protection and not for profit. As long as these requisites are satisfied, a company or association is deemed a cooperative insofar as taxation is concerned. Respondent sufficiently established that it conforms with the elements of a cooperative as defined in the NIRC of 1997.
• The Three Sunlife Justifications: The Court reiterated three justifications in Sunlife why CDA registration is not necessary for cooperatives to claim exemption from DST. First, the NIRC of 1997 does not require registration with the CDA; no tax provision requires a mutual life insurance company to register with that agency to enjoy exemption from both percentage and DST. Although Revenue Memorandum Circular No. 48-91 requires submission of a Certificate of Registration with the CDA before issuance of a tax exemption certificate, that provision cannot prevail over the clear absence of an equivalent requirement under the Tax Code. Other provisions of the NIRC, such as Section 109(r) to (u), expressly require CDA registration for certain VAT exemptions, but Section 199 contains no such requirement; this absence manifests the legislative intent to do away with registration before the CDA for the DST exemption under Section 199. Second, the provisions of the Cooperative Code of the Philippines do not apply. Under the old law, Presidential Decree No. 175, cooperatives referred only to an organization composed primarily of small producers and consumers who voluntarily joined to form a business enterprise that they themselves owned, controlled, and patronized; the Bureau of Cooperatives Development had authority to register, regulate, and supervise only specified types of cooperatives, and respondent does not fall under any of them. When the Cooperative Code was enacted, all cooperatives registered under P.D. No. 175 and previous laws were deemed registered with the CDA; since respondent was not required to be registered under the old law, it was not required to be registered even under the new law. Only cooperatives to be formed or organized under the Cooperative Code needed registration with the CDA. Third, the Insurance Code does not require registration with the CDA; its provisions primarily govern insurance contracts, and only if a particular matter is not specifically provided for shall the Civil Code on contracts and special laws govern.
• Administrative Circular Cannot Expand the Law: There being no cogent reason to deviate from Sunlife, the Court held that respondent, being a cooperative company not mandated by law to be registered with the CDA, cannot be required under RMC No. 48-91, a mere circular, to be registered prior to availing of DST exemption. While administrative agencies such as the Bureau of Internal Revenue may issue regulations to implement statutes, they are without authority to limit the scope of the statute to less than what it provides, or extend or expand the statute beyond its terms, or in any way modify explicit provisions of the law. A quasi-judicial body or administrative agency cannot amend an act of Congress; in case of discrepancy between the basic law and an interpretative or administrative ruling, the basic law prevails.

• Stare decisis et non quieta movere — When a court has laid down a principle of law applicable to a certain state of facts, it will adhere to that principle and apply it to all future cases in which the facts are substantially the same, even though the parties may be different. Absent powerful countervailing considerations, like cases ought to be decided alike; where the same questions relating to the same event have been put forward by parties similarly situated as in a previous case litigated and decided by a competent court, the rule of stare decisis is a bar to any attempt to relitigate the same issue. The Court applied this doctrine because the CTA found the factual circumstances in Sunlife and the present case substantially the same.
• DST Exemption for Cooperative Companies Under Section 199(a) — Section 199(a) of the NIRC of 1997 exempts from documentary stamp tax policies of insurance or annuities made or granted by a fraternal or beneficiary society, order, association, or cooperative company, operated on the lodge system or local cooperation plan and organized and conducted solely by the members thereof for the exclusive benefit of each member and not for profit. A cooperative company or association is defined under the NIRC as conducted by the members thereof with money collected from among themselves and solely for their own protection and not for profit. As long as these requisites are satisfied, the company or association is deemed a cooperative for taxation purposes.
• CDA Registration Not a Condition Precedent for DST Exemption — Registration with the Cooperative Development Authority is not required for a cooperative company to claim exemption from documentary stamp tax under Section 199(a) of the NIRC of 1997. The NIRC does not impose such registration, and Section 3(e) of Republic Act No. 6939 merely states the CDA’s power to register cooperatives; it does not impose registration as a condition precedent to the DST exemption.
• Administrative Circulars Cannot Amend Statutes — While administrative agencies may issue regulations to implement statutes, they are without authority to limit the scope of the statute to less than what it provides, extend or expand the statute beyond its terms, or modify explicit provisions of law. A quasi-judicial body or administrative agency cannot amend an act of Congress; in case of discrepancy between the basic law and an interpretative or administrative ruling, the basic law prevails. Thus, Revenue Memorandum Circular No. 48-91 cannot require CDA registration when the Tax Code does not.
• Cooperative Code Inapplicability to Certain Mutual Life Insurers — Mutual life insurance companies that converted from stock life insurance corporations to non-stock mutual life insurance for the benefit of policyholders pursuant to Section 266, Title 17 of the Insurance Code of 1978, before the effectivity of Republic Act No. 6938, and that were not required to register under Presidential Decree No. 175, are not required to register with the CDA under the subsequent cooperative law. Only cooperatives formed or organized under the Cooperative Code needed registration with the CDA.

• "[u]nder the Tax Code although respondent is a cooperative, registration with the CDA is not necessary in order for it to be exempt from the payment of both percentage taxes on insurance premiums, under Section 121; and documentary stamp taxes on policies of insurance or annuities it grants, under Section 199." — This passage, quoted from Sunlife, states the controlling ratio: CDA registration is not a condition for the percentage tax and documentary stamp tax exemptions of a cooperative.
• "A perusal of Section 3(e) of R.A. No. 6939 evidently shows that it is merely a statement of one of the powers exercised by CDA. Neither Section 3(e) of R.A. No. 6939 nor any other provision in the aforementioned statute imposes registration with the CDA as a condition precedent to claiming DST exemption." — This is the Court’s direct rejection of the petitioner’s principal argument that the CDA’s registration power under Republic Act No. 6939 makes registration mandatory for the DST exemption.
• "This absence of the registration requirement under Section 199 clearly manifests the intention of the Legislative branch of the government to do away with registration before the CDA for a cooperative to benefit from the DST exemption under this particular section." — This excerpt articulates the statutory-construction rationale: the express CDA-registration requirements in other NIRC provisions, contrasted with their absence in Section 199, reveal legislative intent.
• "While administrative agencies, such as the Bureau of Internal Revenue, may issue regulations to implement statutes, they are without authority to limit the scope of the statute to less than what it provides, or extend or expand the statute beyond its terms, or in any way modify explicit provisions of the law. Indeed, a quasi-judicial body or an administrative agency for that matter cannot amend an act of Congress. Hence, in case of a discrepancy between the basic law and an interpretative or administrative ruling, the basic law prevails." — This passage states the rule that Revenue Memorandum Circular No. 48-91 cannot impose a registration requirement absent from the Tax Code and is a frequently cited formulation on the hierarchy between statutes and administrative issuances.

• Republic of the Philippines vs. Sunlife Assurance Company of Canada, 509 Phil. 707 (2005) — Controlling precedent. The Court applied stare decisis and held that the CTA correctly relied on this case because the factual circumstances of the present case are substantially the same; Sunlife established that CDA registration is not necessary for a cooperative to be exempt from percentage tax under Section 121 and documentary stamp tax under Section 199.
• Chinese Young Men’s Christian Association of the Philippine Islands vs. Remington Steel Corporation, 573 Phil. 320, 337 (2008), citing Ty vs. Banco Filipino Savings & Mortgage Bank, 511 Phil. 510, 520–521 (2005) — Cited at the outset for the doctrine of stare decisis et non quieta movere, including the principle that like cases ought to be decided alike and that the rule bars relitigation of the same issue.
• Fort Bonifacio Development Corporation vs. Commissioner of Internal Revenue, G.R. No. 158885, October 2, 2009, 602 SCRA 159, 167 — Cited for the rule that administrative agencies cannot amend an act of Congress and that, in case of discrepancy between the basic law and an interpretative or administrative ruling, the basic law prevails.

• Section 199(a), National Internal Revenue Code of 1997 — Exempts from documentary stamp tax policies of insurance or annuities made or granted by a fraternal or beneficiary society, order, association, or cooperative company, operated on the lodge system or local cooperation plan and organized and conducted solely by the members thereof for the exclusive benefit of each member and not for profit. The Court applied this provision to hold respondent exempt from DST.
• Section 123, National Internal Revenue Code of 1997 — Defines a cooperative company or association as conducted by the members thereof with money collected from among themselves and solely for their own protection and not for profit. The Court used this definition to determine that respondent qualifies as a cooperative for taxation purposes.
• Section 3(e), Republic Act No. 6939 — Provides that the Cooperative Development Authority has the power to register all cooperatives and their federations and unions, including their division, merger, consolidation, dissolution, or liquidation. The Court held that this provision merely states a power and does not impose CDA registration as a condition precedent to claiming DST exemption.
• Section 109(r) to (u), National Internal Revenue Code of 1997 — Lists certain cooperatives expressly required to be registered with the Cooperative Development Authority before their transactions may be exempt from value-added tax. The Court cited these provisions to contrast them with Section 199, which contains no such registration requirement, thereby showing legislative intent not to require CDA registration for the DST exemption.
• Section 266, Title 17, Insurance Code of 1978 — Cited as the provision pursuant to which both Sunlife and respondent converted from stock life insurance corporations to non-stock mutual life insurance for the benefit of policyholders. This conversion, made before the effectivity of Republic Act No. 6938, was part of the factual similarity supporting the application of Sunlife.
• Presidential Decree No. 175 — The old law on cooperatives. The Court discussed it to show that respondent did not fall under the types of cooperatives required to be registered under the old law, and therefore was not required to be registered even under the subsequent cooperative law.
• Republic Act No. 6938 (Cooperative Code of the Philippines) — The Court held that its provisions do not apply to respondent because respondent was not required to be registered under the old cooperative law; only cooperatives formed or organized under the Cooperative Code needed registration with the CDA.
• Section 121, National Internal Revenue Code of 1997 — Mentioned in the Sunlife ruling quoted by the Court as the provision exempting cooperatives from percentage taxes on insurance premiums; the Court used the same reasoning to affirm the DST exemption under Section 199.
• Section 4, National Internal Revenue Code of 1997 — Identifies the Commissioner of Internal Revenue as the official authorized to assess and collect internal revenue taxes and to decide disputed assessments, subject to the exclusive appellate jurisdiction of the Supreme Court.
• Rule 45, Rules of Court — The procedural basis for the Petition for Review on Certiorari filed by the Commissioner of Internal Revenue.

Chief Justice Maria Lourdes P. A. Sereno (Chairperson), Associate Justice Teresita J. Leonardo-De Castro, Associate Justice Lucas P. Bersamin, and Associate Justice Martin S. Villarama, Jr. concurred. No separate concurring opinions are summarized in the text.