CTA Case No. 4583

DECISION -

-~ 3~ jhe other deficiency documentary stamp tax assessment for the same year of F78,991.25 arose from the issuance by petitioner of stock dividends of 8O,000 shares with a par value of P1000, 00 per share or a total par value of PS, 000,000, 00, Documentary stamp tax was paid based only on the par value of PS, 000, 000,00, It is respondent's position that the documentary stamp tax should be ‘based on the actual ouiaé of said shares represented by its book value of F19, 307, 500. 00. | ‘The issues raised for resolution PY this Court are purely lenal questions. These are:

I, Whether aor nat petitioner is liable i for dacumentary stamp bax on the automat ie INCPreASE in sum assured although no new life insurance policies covering such increases are issued during the taxable year, Aaving paid the dacumentary stamp tax on the policies issued based an the original sum assured: and .

me Whether ar nat dacumerntary stamp taxes an stock dividends involving shares with par value sheuld be computed using as tax base the par value or the actual value répresented by such shares. ‘ le On automatic inerease in f sum assured with no new policies issued —- i Respondent is of the view that dogua enemies: } stamp tax on life insurance policies is imposed or computed on the basis of the amount of policy whith includes the increase in the sum initially assured even though no new nolicv is issued since the said imereace is already made an intenral part of the poliav. He claims that petitioner's "Junior Estate Builder Policy" martakes of the nature of) an obliagation with EN suspensive condition under Article 481 of the New Civil Code, since the efficacy of the obligation and the acquisition of riohts are made to depend upon the fulfillment of the condition, that is, there will be an automatic increase in the sum assured upon attainment of a certain age by the insured without the need of €S5uUing a new policy. The documentary stamp tax on the sum corresponding to the increase became due and payable only in the yea 1984 when the candition was comonlied with, making the policy onerative an the increased sum assured.

Far his Bart petitioper éontends that no documentary stamm tax is due on mere increases in sums assured where suéh increases are not covered by insurance policies issued during the taxable year. Under Section #32 (now 183) in relation to Section #22 (now 173) and Section 249 (now 200) df i t the Tax Code, documentary stamp tax on! life f insurance policies is imposed only once based on the amount insured at the time of actual issuance of such policies. It is well-settled that the 266 .t

- 5 ~- documentary stamnm tax, beinn an excise tax, is imnosed on the document and mav be collected only onee. when the cocument subject to the tax is first or orininally issued. Any subsequent increase in insurance caverage resulting from policies already subjected to documentary stamp tax at the time of isstanece of such policies is not subject to documentary stamn tax. In the Besetoe of any clear pravisien of Jaw impasinn documentary stamp taxes on inereases in sum assured, no documentary stamp tax mav be imposed as the imposition of taxes can never be oresumed.

The provision of law involved is Section 232 , (now Las) of the Tax Code, aquoted below:

"Seetion #36 (now 183), Stamp tax on life insurance’: policies. ~ On all nabicieas of ansurance or other instruments by whatever name the same may he called, whereby any insurance shall be made or renewed upon only life or lives, there shat} he collected ai documentary etamo tax af thirty (now 50) centavos on each two hundred ‘pesos or fractional part thereof, of the amount, issued by any such nolicy. " (Underscoring sunplied.)

a To put in the proper centext the meaning of the foredqoino., the related provisions of law should ' 1 likewise be considered. These are as follows:

"Sectian #FP (now 173). Stamp taxes unan documents, instruments, and papers. - Unon documents, instruments, and papers, and upon armreotances, assionments, sales, and transfers of the obligation, right or 269

DECISION -

C.T.-A. CASE NM. 4583 Draperty ineideant thereto, there shall be levied cellected and maid far, and in respack of the transaction so had or acconmmlishect, the corresponding domumentacy stamn taxes prescribed in the Folloving sertians of this Title, by the nerson making, siqninn, issuing, amcepting or transferrinn the same, and at the same time such act is. done or transaction had: Pravided. That whenever one party to the taxable document enjoys exemption from the tax herein imposed, the other marty thereto whe is not exempt shall he the one directly liahle for the tax. " QiInderscorinon sunplied. )

"Section £49 (now #00), Payment of documentary stamn tax. - Cancellation of atamp. - Documentary stamp taxes shall be naid by the purchase, and affixture of documentary stamns to the document or instrument taxed or to such oather. paper as may be indicated hy law or reguiations as the mroney recinient of the stamp, and by the subsequent cancellation. to. be accomplished by writing, ,stamping, or perforatinn the date of the cancellation acroags the fare of each stamnm in such Manner that part of the writing, immrescion. oar merforation shall be on the stamp itself and part on the naner ta uhich it is attached: Provided: Vhat if the cancellation is accomplished hy writinn oar by stamping the date of tancellotion. a hole eufficiently large to he visible to the naked eye shall be punched. cut of perforated on both the stamp and the document either by the use of ai hand punch, knife, perforating machines, scissors, or any other cutting instrument, but aif the cancellation is accomplished by perforating the date of mancellation., no other hole need be made on the stann. i i "In appropriate cases, and in the discretion of the Commissioner, documentary stamns may be imprinted an certain cocuments upon payment of the 270

DECISION -

C.7T.A. CASE NO. 4583 force value of such stamp, in which case Vag Imre t nhac etamps need not be eangeabted as indicated in the nreceding maranranth. | Cnderecoring sunplied. ) "se sgor > xx."

Constrvec in the light of the above provisions of Jaw. it is clear that the documentary stamp tax upon the taxable cocument shauld be oaid at the same time such act is done or transaction had. The docomentary stamn tax shall be naid by the purchase and afVixture of documentary stamms to the dacument ar anstrument taxed or to such ather paper and by the subseducn! _canceijlatioan thereof ar in agp oomstate PARAS by imprinting on certain % doeements upon mayment of the fare value of such stamnos.

Peenoncdent has in :faect receognized the above ink nretation in’ ats rulings. In Revenue Plone ouedam Ciyerlar No, 45-88 dated Senmtember 7, Laan respondent Sree that "Documentary stamps shonle therefere he bought and/or affixed on the documents at the time such act is ‘fave or transaction had. " The documentary stamp shall be affived at the time the taxable document! is ;

executed (BIR Ruling No. 304-88) and at the rates then in force (AIR Ruling No. 227-84).

27 4

Vhe GSuoreme Court had occasion toa discuss the notere af cocumentary stann tax in the case of Commissianer of Tnternal Revenue v. Heald Luaber Co.. GR. No. 116440, February £9, 1964, 10 SCRA S7i. The Court held thats "Q cocumentary stamp tax is. in the nature of an excise tax. 1t ais not imposed uoon the business transacted but is an excise upon the privilene, onportiunity er facility offered at oxechanges for the transaction of the business, Tt is an excise upon the - facilities used in the transaction of the huginess senarate and part from the lusiness itself. (Qn Pont v. US.., 300 U.S. 150: Thomas v. U.S., 192 U.S., 363; Nicol v. Ames, 173 U.S. 509). With respect to stock certificates, it .is levied cmon the privilege of issuing thems not on the money or property received by the issuing company for such certificates, Neither is it imposed upon the share of stock. As Justice Learned Mend pointed out in one case, documentary. etamo tax is levied on the document and net the opronerty it described. (Empire Trust Co. v. ‘Hoey, 103 F @d 430) If therefore, as is apparent from the forenoinn cliseussion, ‘that the tax in wiestion is imnmased on the privilege of i i¢gshing mertificates, then the tax may be .

collected. oniv once: when the tcartificates are. first. or _ originally issued. | The reason is because a °- certificate is issued only once, Whatever documentary tax is due, is due. at that, time. (Empire Trust Co. v. Hoey, supra) . (Underscoring supplied. )

es All of the foregoing discussions can onlyébe interpreted. ta mean that documentary stamp tax is levied and paid only once at the time the taxable .

document ais issued. Evidently, the documentary 21k | 5 -t

DECISION -

Ct.T.A. CASE ND. 4583 stamp tax shall be computed using as tax base the value at the time of issuance of the instrument. in the case of life insurance policies, the documentary stamp tax shall be collected based on the amount issued hy such policy oringinally. Subsequent increases in the sum assured with no new life insurance npolicies issued are not subject to documentary stamn tax. At the time the insurance nolicies were issued ta the insured, such increases did not form mart of the amonnt issued by such nolicve The 1984 ineewabes in the insurance coaverane pertain to molicies issued a number of vears hack.

it ji interesting to nok that in several cases recently decided by this Court, namely:

American Homes. Assurance Company vs. Hon. Commissioner of Internal, Revenue, CTH Case No.

American Interhational Underwriters (Phils.), Inc. vs. Cowsissioner of Internal Revenue, CTA Case it No. 4208 5

Philippine American General Insurance Cogpany

; pee vs. Commissioner of Internal Revenue, CTA ‘Case No.

ASOD + :

vO ne

G7

DECISION —-

Philiocine American Accident Insurance Company

vs, Lammissioner af Internal Revenue. CTO Case No. f wttyes Philionine Home Assurance Corporation vs. Commissioner of Internal Revenue, CTA Case No. 4eql, resnondent likewise issued an assessment but on connlebely anposite lenal basis. He was arguing in those. cases in the same manner petitioner is arominn now in the instant case, In those cited Cass, this Court sided with respondent Compigeioner of Tnternal Revenue that the dAnenmontarvy stann on insurance policies should be ’ determined at the time of issuance thereof and should not he doenendent on some future events, thie ie comntete reversal of his stand in the moeecrak care. Thies Court believes that ere Compisetoner of Internal Revenue although primarily tachul with eolleetidn of revenue should likewise u meovide stability to the interpretation of the ib various pravisions of the Tax Code in order to properly guide the business sector as well as all H t baxoavers in the praner conduct of their business and other. affairs which may involve payment of taékos, nO el «

=, 4) tn Bhs save le Civicteneds.

eanstabinne af shares of staclo with mar yvalua —- The deficiency documentary stamp tax assesament arose from resnondent’s contentian that in the case of stock dividends, the documentary stamn tax is imnocect on the actual value renresanted hy each share renardless of whether the shares of stock be with par value or without par value, Reanoncdent oointed out that distinction mist he macdo hetween the imposition of documentary ehamry tax an the Sr ininad issues of shares of storks oan the ones hand, and the imnosition of documentary atamo tax an stock dividends on the others, ftir the rates hetween the two are entirely dicshine& and clitferent from one another. A reading of Section 4 (now 175) of the Tax Code, as amonlert, wanted show that, a comma is used to senarake the sectian with respect to oriqinal issues of stock and! stock dividends. Documentary stamn tax on the former is based on "par value" and if there is "no par value", then on the actual consideration received; whereas on the latter, it is based on the actual value represpnted by! adth charve renardiess of whether the stock be with par value or without mar value.

a0

DECISION —-

cC.T.A. CASE NO. 4583 Peatbitters: diconbes the deficiency documentary sham Lay Aaneecsmant on the around that veanondent’ «= interpretation of Section #=F4 (naw 175) af the Tax Code. as amended is erroneous. It is metitioner’s view that only stock dividends without par value are subiect ta documentary stamp tax hased on the actual values. stock dividends with nar value are subject to tax a on their par value. Yoniving the doctrine on strict conshreuction of oroevisos in conjunction with the doctrine of last ane emedatits it is oa4vident to nebitioner that what is referred to in section 224 (now 175) of the Tax Code are stack dividends without par value. This is enphagaeea by the fact that the phrase "and in the case of stock dividends on the actual value renresented by each share" is part oand onarcel of the, proviso referring to original TRSUANCES without par valine, The anternedent mhrases ‘uemevided, That in the. case of i the original issue of stock without par. value the amount of the documentary stamp tax prescribed shall be based —upon __the_ edi actual consideration" is separated not only by ‘a comma from the main clause of Section 224 (now 175) of the Tax Code referring to original issue of eertificates of stock with par value, it is also 270 -t

DECISION —

c.7.8. CASE NO. 4583 -—~ 13 - separated by a colon and the qualifying word "Pravided", Hence, the phrase “and in the case of stomk dividends on the actual value represented by each share" can only modify its + immediate antecedent phrase referring to original issue of stock without par value. Furthermore, the general rule that the documentary stamp tax liability is determined by the farm and face of the dusuwerts apolies in the case of original issue with par value including stock dividends with par value. This determination cannot fon affected by proof of facts outside of the instrument itself, such as the actual net hook value of the stock, in view of the ’ existence of par value. In U.S. ve. Isham, 17 Wall.

496, 84 U.S. 496, the U.S. Supreme Court enunciated the following basic. rules governing documentary stamn Liability: 4 "xxx XXX KXMe "rd. ‘the liability of an instrument to a stamp duty, as well as the amount of such duty, is determined by the form and face of the instrument, and cannot be affected by proof of facts outside of the instrument itself.

"hath, If there is doubt as to thd liability of an instrument to taxation, the canstruction is in favor of the exemption, because in the language of Pallock, C.B., in Girr v. Seudds, 11 Exchequer, i914 (see also Conroy Ve Warren, & Johnson’s Cases, 259, to the eit “ft = te - came oaffermk) "a tax cannot he imnmosed withaut clear and exoress words for that NUP NOS, sey MMM xxe 2 Snaspuch as the stock dividends in question ARE orininal issuances with par value, it is evicont that petitioner correctly naid documentary stann taxes on sttch stock dividends on the basis of theis par value, fhe heart of the controversy is the statutory canstruction of Section #24 (new 175) quoeted below:

"Seotion 24° (now 175). Stamp tax on original issue af certificates of stock. ~ On every original issue, whether on ormanization or reorganization of for any lawful miuvnose, af certificates of stock hy Lary association, company, or ecnrooration. there shall be. collected a documentary stamp tax of one nesa and ten mentavor (now one pesa and saventy centayvaes) on each two hundred mesos, ar fractinonal, nart thereof, of the par value of sich certificates: Pravided, That in the cace, of the original issue of stack withork mer value the amount of the documentery stamn tax herein orescribed etyadd he based -ounon the actual consideration a received by the associatian, company, or corporation for the issuance of such stock, and in the case of stock dividends on the actyal value _ represented by each share. " (Underscoring supplied.)

The cardinal rule of statutory construction —— requires the court to give effect to the oeneral becisishtve intent if that can be discovered within the four corners of the law, When the object intended to be arcomnmlished by the statute is once 2°70 “et

DECISION -

cC.T.A. CASE NO. 4583 - 15 - elnarty ascertained, neneral words may be restrained to it, anc those of narrower import may “he exnmanded to embrace it, to effectuate the intant. (Borromeo v. Mariano, 41 Phil. 322). The Court has no other choice but to anply the law according to its evident intent. {Regalado v. Yulo, 61 Phil, 173). | A close readinn of Sectien 224 (now 175), tonether with the arquments of both the petitioner and respondent, convinced this Court that stock dividends involvinn shares with nar value are subiect ta documentary stamp tax based on the par value thereof, The section heading "Stamp tax on orioinal fismine of certificates of stock" indicates thak it covers stock dividends originally issued. For documentary stamp tax purposes. distinction is made hetween shares with, par value and those without par value, The rationale for the difference is that the liability of an instrument \ to documentary stamp tax as well as the amount of it such tax is determined by the form and face of the instrument and cannot be affected by proof of facts ‘ ' outside of the instrument itself. (ULS. ve. Ishan, 17 Wall 486, 84 U.S. 496). Premises considered, every original issue of stock ineluding stock divirlends with par value is subject to documentary - 279 ‘2 shann tax braced an the mar value. On the other hare, documentary stamn tax shell be collected on ehyay es Wwithort nar value upon the actual cansittorpatioan received in the case of. original issun and oon the actual value renresented by each share in the case of stock dividends. In the case of Cammissianer of Internal Revenue v.. Heald, Luaber Ca, '~-16340, February £9, 1964, 10 SCRA 372, the Supceme Court held that "Se far as those terms (Tamtuat ovale? and cCartual consideration’) are inveltved in the case at — they are one and aynanvmous. ".

WHEREFORE, the deficiency documentary stamp tax assesswents in the amount of P464, 898.76 and P78,991.25 or a total of P543,890,01 are hereby cancelled for lack of merit. Respondent Commissioner of Internal ,Revenue is ardered to desist from collecting said deficiency documentary stamp taxes for the slame are considered withdrawn.

DELTSTON —

C.7.8. CASE NO. 4583

= AF

VE CONCUR:

Cuts Qa

ERNESTA b. ALOSTA

Fresiding Juctne

GRUBA

Associate Jucdne

leaRTIF TCATIORN T herehy certify that this decision was reached after due consultation among the member of the Court of Tax Appeals in accordance with Section 13, firtiele YVITT of the Constitution.

Rr Q Gre

ERNESTO D. ACOSTA

Presidinn Judqe

Court af Tax Appeals