Republic Bank vs. Court of Tax Appeals

The 1% monthly charge on bank reserve deficiencies under the second paragraph of Section 249 of the Tax Code remained enforceable as a tax notwithstanding the express repeal of Section 126 of Act No. 1459, the repealing banking laws having preserved reserve requirements and supplied the new basis for computing the deficiency.

Republic Bank was a commercial banking corporation subject to statutory reserve requirements against deposit liabilities. Bank reserves were originally governed by Section 126 of Act No. 1459, as amended, with collection of the deficiency charge assigned to the Collector of Internal Revenue. Subsequent legislation — Republic Act No. 337, the General Banking Act, and Republic Act No. 265, the Central Bank Act — repealed the Corporation Law provisions on banks and vested regulation of reserves and reserve ratios in the Monetary Board and Central Bank.

On September 14, 1971, the Commissioner of Internal Revenue assessed Republic Bank P1,060,615.06 plus 25% surcharge of P265,153.76, or a total of P1,325,768.82, as 1% monthly bank reserve deficiency tax for taxable year 1969 pursuant to the second paragraph of Section 249 of the Tax Code. Petitioner requested reconsideration in a letter dated October 6, 1971, which the Commissioner denied in a letter dated February 26, 1973. Thereafter, on April 5, 1973, the Commissioner assessed petitioner P1,562,506.14 plus 25% surcharge of P390,626.53, or a total of P1,953,132.67, as 1% monthly bank reserve deficiency tax for taxable year 1970. Petitioner likewise sought reconsideration on May 16, 1973, which was denied on May 6, 1974.

Petitioner contested both assessments before the Court of Tax Appeals in C.T.A. Case No. 2506 filed March 28, 1973 and C.T.A. Case No. 2618 filed July 3, 1974. The cases were consolidated for involving similar issues. After hearing, the Tax Court in its decision dated September 30, 1982 dismissed the petitions and upheld the assessments. The Commissioner computed the taxes on the basis of monthly averages of reserve deficiencies derived from daily reserve deficiency figures appearing in DSE Form No. 1 accomplished by the bank and filed with the Department of Supervision and Examination of the Central Bank. For example, for January 1970 the total daily deficiencies of P175,228,031.73 were divided by 21 banking days to obtain a monthly average of P8,344,196.75, to which the 1% rate was applied to yield P83,441.97.

• Repeal and Inoperativeness: Petitioner argued that Section 249 of the Tax Code was no longer enforceable because Section 126 of Act No. 1459, allegedly the basis for imposition of the 1% reserve deficiency tax, was repealed by Section 90 of Republic Act No. 337 and by Sections 100 and 101 of Republic Act No. 265, which provided a whole new set of rules on reserve requirements and showed legislative intent to remove bank operations from the Corporation Law.
• Nature as Penalty and Double Liability: Petitioner maintained that the second paragraph of Section 249 imposed a penalty, not a tax, since Section 126 itself called the exaction a penalty collectible by the Collector of Internal Revenue at a time when there was yet no Central Bank to regulate banks, such that a bank would wrongly be liable both for a 1% monthly charge to the Bureau of Internal Revenue and a 1/10 of 1% daily charge to the Central Bank.
• Computation Method: Petitioner claimed the Commissioner never informed it of the details of assessments involving complex computations, noting Section 249 called for monthly computation while the Central Bank Act provided for daily computation.
• Condonation under LOI No. 1330: Petitioner insisted it was exempted by Letter of Instruction No. 1330 issued June 6, 1983, ordering the Central Bank to fully condone all penalties and sanctions on its legal reserve deficiencies.

• Incorporation by Reference: Respondent countered that Section 249 of the Tax Code was deemed to have ipso facto incorporated by reference the new legislations on bank reserves after the repeal of Section 126 of Act No. 1459.
• Validity of Computation: Respondent explained, in compliance with the Resolution of December 17, 1984, that the taxes including surcharge were computed on monthly averages of reserve deficiencies using daily figures in DSE Form No. 1 filed by the bank with the Central Bank, adding daily deficiencies for one month and dividing by banking days before applying the 1% monthly rate.

• Operativeness After Repeal: Whether Section 249 of the Tax Code which provides for collection of one per centum per month upon reserve deficiencies as provided in Section 126 of Act No. 1459 has been rendered inoperative by the repeal of Section 126 of the Corporation Law.
• Tax vs. Penalty and Double Taxation: Whether simultaneous liability for the 1% monthly charge under Section 249 of the National Internal Revenue Code and the 1/10 of 1% daily charge under Section 106 of the Central Bank Act constitutes impermissible double liability or double taxation.
• Computation: Whether the Commissioner's computation of the reserve deficiency tax on a monthly-average basis was proper where the Central Bank Act computes deficiencies on a daily basis.
• Condonation: Whether Letter of Instruction No. 1330 condoned petitioner's reserve deficiency liabilities for 1969 and 1970.

• Operativeness After Repeal: No. Section 249 remained enforceable, the new banking laws merely providing the basis for computation of the reserve deficiency.
• Tax vs. Penalty and Double Taxation: No violation. The Section 106 exaction is a regulatory penalty payable to the Central Bank while the Section 249 exaction is a revenue tax payable to the Bureau of Internal Revenue, and double taxation as such is not invalid in any event.
• Computation: Yes. The monthly-average method followed the law to the letter, applying the 1% monthly rate to the average monthly deficiency derived from daily figures.
• Condonation: No. LOI No. 1330 issued June 6, 1983 did not cover the 1969 and 1970 assessments, relating instead to the later period when the bank served the government's sugar program.

• Operativeness After Repeal: Both parties agreed maintenance of bank reserves, previously in Section 126 of Act No. 1459, remained prescribed after repeal in Sec. 26 of R.A. No. 337 subjecting deposit liabilities to Monetary Board reserve requirements, and Secs. 100, 101 and 106 of R.A. No. 265 on required reserves, reserve ratios, and reserve deficiencies. Because those provisions supplied the operative reserve rules, the reference in Section 249 was given continuing effect with the new legislations as the basis for computing deficiency. Petitioner's quotation was found out of context for omitting that Section 249 falls under Title VIII on Miscellaneous Taxes and expressly heads the exaction a Tax on Banks.
• Tax vs. Penalty and Double Taxation: As the law stood in 1969 and 1970, a deficient bank paid twice: a penalty to the Central Bank under Section 106 for violation of Sections 100 and 101, and a tax to the Bureau of Internal Revenue for incurring a deficiency under Section 249. The former's primary purpose was regulation, the latter's was generation of revenue. Construed to harmonize the banking law and the tax law as two special laws covering petitioner, no double taxation existed since one exaction was a penalty and the other a tax; moreover, the validity of double taxation was upheld, and the asserted omission of the provision from the Tax Code as amended by P.D. No. 69 concerned legislative wisdom not within judicial province. Liability could always have been avoided by maintaining required reserves.
• Computation: The objection was too late, having never been raised in the motions for reconsideration before the Commissioner nor before the Court of Tax Appeals, the grounds there being the same repeal argument pressed on appeal. In any event, adding all daily deficiencies stated by petitioner itself in DSE Form No. 1 for one month and dividing by banking days to obtain the monthly average, then applying 1%, was mathematically correct because Section 249 called only for monthly computation and the 1% rate could not be applied to a daily deficiency.
• Condonation: LOI No. 1330 was issued with respect to Republic Planters Bank's role as financial arm of the sugar industry after PHILSUCOM, created by P.D. No. 388, bought petitioner from the Roman family, reciting overdrafts and deficiencies resulting from implementation of the sugar production and procurement program and not mismanagement. By its terms and date it covered that later predicament for viability relief, not the 1969 and 1970 assessments, so even on the thesis that Section 249 imposed a penalty, condonation did not apply.

• Tax vs. penalty distinguished by primary purpose — A charge whose primary purpose is regulation is a penalty, while one whose primary purpose is generation of revenue is a tax. Applied here, the 1/10 of 1% per day under Section 106 of the Central Bank Act was a penalty payable to the Central Bank, whereas the 1% per month under Section 249 of the National Internal Revenue Code was a tax payable to the Bureau of Internal Revenue, although triggered by the same reserve deficiency.
• Double taxation doctrine — Double taxation exists when the same person is taxed by the same jurisdiction for the same purpose, but its validity has been upheld. Applied here, no double taxation occurred because one exaction was a penalty and the other a tax; at any rate, double taxation would not invalidate the assessments.
• Harmonious construction of special laws — Two special laws covering the same subject should receive such construction as to make them harmonize with each other and with the body of pre-existing laws. Applied here, the banking law and the tax law were both given effect by treating the banking provisions as the basis for computing the deficiency taxed under the revenue law.
• Wisdom of legislation beyond judicial province — Courts do not pass upon the wisdom of legislation, such as whether deficient banks should pay twice or whether a tax provision should have been retained in a later code. Applied here, petitioner's argument from the omission of the questioned provision in the Tax Code as amended effective January 1, 1973 was rejected as a matter for the legislature.
• Issue not raised below cannot be raised on appeal — Grounds not invoked in reconsideration before the Commissioner nor before the Court of Tax Appeals will not be resolved for the first time on review. Applied here, the challenge to the details and method of computation was deemed raised too late.

• "There shall be collected upon the amount of reserve deficiencies incurred by the bank, and for the period of their duration, as provided in section one hundred twenty-six of Act Numbered one thousand four hundred and fifty-nine, as amended by Act Numbered three thousand six hundred and ten, one per centum per month." — States the operative text of the second paragraph of Section 249 under the heading Tax on Banks, establishing that the exaction is legislatively denominated a tax.
• "It is clear from the statutes then in force that there was no double taxation involved — one was a penalty and the other was a tax." — Articulates the ratio for rejecting double liability, distinguishing the Central Bank regulatory penalty from the revenue tax.
• "Petitioner should not complain that it is being asked to pay twice for incurring reserve deficiencies. It can always avoid this predicament by not having reserve deficiencies." — Emphasizes avoidability and the harmonized application of the banking and tax laws to deficient banks.
• "Dura lex sed lex!" — Caps the holding that the law as written must be applied even if petitioner views dual payment as harsh.

• Republic vs. Bacus, 176 SCRA 376, 384 — Cited for the proposition that the wisdom of legislation is not within the province of the Court.
• San Miguel Brewery, Inc. vs. City of Cebu, 43 SCRA 275, 280 — Cited to define double taxation as when the same person is taxed by the same jurisdiction for the same purpose.
• Progressive Development Corporation vs. Quezon City, 172 SCRA 629, 635 — Cited for the tax-versus-penalty distinction turning on whether revenue generation or regulation is the primary purpose.
• Commissioner of Customs vs. Esso Standard Eastern, Inc., 66 SCRA 113, 120 — Cited for the rule that special laws should be construed to harmonize with each other and with pre-existing laws.
• Matienza vs. Servidad, 107 SCRA 276, 283 — Cited to bar petitioner's belated challenge to the computation method not raised before the Commissioner or the Tax Court.

• Second paragraph, Section 249, Tax Code of 1970 (C.A. No. 466 as amended by R.A. No. 6110) — Imposed collection of 1% per month upon reserve deficiencies for their duration; applied as the tax basis for the 1969 and 1970 assessments plus 25% surcharge.
• Section 126, Act No. 1459 as amended by Act No. 3610 — Formerly defined reserve requirements, prohibited new loans or dividends while deficient, and penalized deficiencies at 1% per month collectible by the Collector of Internal Revenue; repealed but referenced as the historical measure for the tax.
• Section 90, R.A. No. 337 (General Banking Act) — Expressly repealed Sections 103 to 146 of Act No. 1459 among other laws inconsistent therewith; invoked by petitioner as rendering Section 249 inoperative.
• Section 26, R.A. No. 337; Sections 100, 101, 106, R.A. No. 265 (Central Bank Act) — Prescribed Monetary Board reserve requirements, authorized reserve ratios, and imposed 1/10 of 1% per day payable to the Central Bank for deficiencies with weekly offsetting; treated as the surviving basis for computing deficiencies.
• Letter of Instruction No. 1330, June 6, 1983 — Ordered Central Bank assistance by full condonation of penalties on legal reserve deficiencies of Republic Planters Bank in connection with the sugar program; held inapplicable to the 1969-1970 tax years.

Narvasa, C.J., Padilla and Regalado, JJ., concur. Melo, J., took no part.