Security Bank and Trust Company vs. ~ Commissioner of Internal Revenue, et al.

DECISION

This is a review of the 1983 deficiency documentary 7 stamps tax (DST) assessment on sale of securities in the amount of P3,287,399.e0 issued by the Bureau of Internal Revenue (BIR? against Security Bank and Trust Company (SBTC).

FPetitianer is a duly registered domestic corporation engaged in commerciald banking. It is a member of the Bankers Association of the Philippines (BAF?. It received from the B.1.R., sometime before March 19, 1987, a Pre-Assessment Notice, dated March 6, i9a7, containing the following details, ta wit:

31

DECISTON -

1983 -_Deficiency Docusentary Staeps Tax

A, Qn Progissory Notes [ssued Srosissory notes issued during the year - P 926, 385,205.00 Decusentary starp tax dug thereon :

P_ 326, 385,255.00 # P0.55 = ...... orremseecusscerecerccen Foy ClO, 702.08 b200

8. Or Sale of Securities under Repurchase Agreeaent Securities sold during the year - ,...... o» P3, 022, 803, 857,63 Docusentary staap tax due thereon :

13, 022, 803,857.63 9 POLZS = .eccereone coeevensrecsrvecre Sy 718, 304. Be

P20

TO a1 Lee ccceceenecscerewcccrccencracsseccrresressencensce Fihy fEay Phe WD Add : Compromise penalty ....cccesscccccccsscvcrcvesneccerores £00. 00 TOTAL AMOUNT DUE AND COLLECTIBLE ...cceecccusscetceveeceresees FG, 709,856.10 In a letter, dated March 13, 1997, petitioner disputed the above-quoted assessment on the grounds that: CL) promissary notes issued by OGOATC prior to Octsber 15, 1984 ar specifically, in 1983, were non-negotiable and, there Fora, net subject to decumentary stamp tan; and

(2) sale of securities under Ropurchase Agreement is not subject to DST.

Instead of answering this written protest, respondent sent petitioner an assessment letter, dated May 29, 1987, which was received by the latter on June il, {9687. The assessment was ai rerberation af the protease sessment previnovily meeceived by petitioner,

- 3 - On June 23, 1987, as a reply to the assessment letter, petitioner clarified that his answer was contained in his previous letter of March 19, 1987.

Pursuant to the Compromise Agreement

ent et~ed into on llpr i 1 8, 1988, by and betweE'n B. A. P.

and the former

Commissioner of Internal

Revenue Bienvenido A. Tan, petitioner compromised on

August

5, 1988 ( p.

30,

BIR

the aforementioned assessments by paying the amount of P541,743.23 as full sett 1 ement of said assess!lllents <E><h. "4", Respondent; p. 21, Ibid.) The amount of P641, 743. 23 was co• put ed ( p. 146,

BIR

records) by adding the total amount of promissory notes issued during the year 1'383, and the bJtal amount of securities sold during the same year.

Thl::

c:ono;tituted the compt·ur::.se ba•;e, wh1ch if d1vtdl?d b'; 200, ,,nc! then muP: ipl ied by PO. 0325 ~-10uld gi•n:;

1. 11f! compromised amount.

Thus:

Promissory notes issued during the year 1983

Add:

Securities sold under repurchase agreement Cumpr·omise base

Compt-omise Base

200 = P3 7 949,189, 112.G3 200 >c PO. 0325 p 925,385,255.00 3,022,~()3,857.53 ~!t2t.}~'?, 11<:~:"..53 c o ,., p r· o m i s e d a m o 11 n t p ;·-t 1 d '·' n d e , ..

P. D.

No. C3252171 E~nd C. n.

~·lo.

33

NECISION -

C.T.A. Case Noa. 4784 B1i4457384 both dated March 31, 1988.

Despite petitioner’s availment of the Compromise agreement, 3t still received from respondent a letter demanding payment of the amount of ©3,287,399.20 as decumentary stamp tan on securities sold under a repurchase agreement in 1983. Details of this amount are shown hereunder (Exh. "7", Resp., p. S11, PIR records):

1983

Deficiency Documentary Stamp Tax

On Sale of Securities Under Repurchase Aureement

Securities Sold During the Year . PS, OfC, 893, 857.63

Documentary Stamp Tax Due Thereon

P3, 922, 603, 557.63 PZO0. 00 » PO.25 Pp 3, 778, 604. 82

Les

Pa]

eq

Partial Fayment —

PR, O22, B02, 857.63 PLO, OO ye PO, O25 2st TOTAL AMDUNT GTILL DUE AND COLLECTIBLE P E87, 2" Thraugh a letter, gated August @3, 1989, petiticner infermed respondent that the assessment suught to be collected was already the subject of a compro7ise.

As the case was referred to respondent*s Appellate Division, petitioner filed with this office on Jure {7, “3OL, a tobSer disputing the reaisessment of docusentary atamp tank on the latter’s sale of securities.

34

Protest ta the reassessment was denied ty respondent in a@ letter, dated January 29, 1992, which was received by petitioner on March ii, 1992.

Then on March 16, i99e, a request for reconsideration was Filed by petitioner. However, although this letter, as borne by the records, came into the hands of the B.1.R., no action or answer has been received by petitioner up to the time the instant petition for review was filed with this Cwuurt on April 10, 1992.

Respondent*s answer was filed an June 19, 1992 alleging a5 special and affirmative cefrenses the following:

i. The I978BGB BIR-BAP DST Cumpromiee Agreement movers only tax assessmerts involving £ documentary stanp tam oon all types t proamisseary notes issued prior ta Octrche- ity 1304;

. 5 ce Petitioner’s sale of securities under a Repurchase Agreement is not included oar Placed within the scape of the Compramise Ayreement,. The law is specific Liat the subject af A compromise comprises aonty those matters which are definitely stated therein (Article 2936, New Civil Code}; ,

a. Petitioner knowin Fully otwerdl that ’ y documentary stamp taxes on sales of sccurities under Reourchase Agreement were not wi the soune of the BIR-BAP DST Compromise foreement, incfuced the respondent to enter reba a compramise settlerent therecsf. A compramise it which there is a mistake, fraud, violence, intimidation, undue inflywence ar falsity af cocuments may te rescinded or invalidated 35

DECISTON

C.T.A. Case Nu. 4784 - & _ (Article 2038 in relation to Article 1439 of the New Civil Code?5 and “4 The assessment 25 ain accordance with law and regulation.

Issues having bern joined, petitigner presented decumentary and testimonial evidence to prove and/or ‘ support its case. , After petitioner rested ats case, respondent presented and offered only documentary evidence which were part of the SBIR records. No testimonial evidence was offered by respondent.

The two issues that confront us in this case, are both purely legal. First issue- is whether oar not the Passessment, imposing DST on securities under a repurchase agreement, is covered by the compromise agreement of April B, 1988 The second issue deals on whether or nat subject reassessment has Tegal basis.

Respondent avers that the subject reassessment 15 not covered by the 1985 BIR-BAP DST Compremise Gygrerement, Aas it covers only tax assessment involving documentary shame fax on types oF prumissar) riar Lo Octeaber Ih, 1984. The hest evidence of respondertts avernment 1s the Compromise Mgreement pie lt, whedeh provides, among athers, te fullowing:

hereinafter vreferepr) to as nthe “De nm eyoomaermbs ee ef the Bankers Assoriation of the Pha lippines, aan hereby offer to compromise its Droumentar:

Stamp Tex (ST) ~Seacasnent_ ete ea te ne negotiable Fromassory No! ~Tesued “iar ta 36

DECISlON -

C.T.A. Case No.

~784 - 7 - October 15, 1984, under the following terms and conditions.:

I.

COMPPOMI SE RATE:

I I.

SCOPE:

The above-mentioned Documentary

Stamp

Tax Cr.1mprom.ise contemplates and incl•.1des: A.

All

assessment years with notices;

assessments ar-:d pre- B.

Yeal~s wh~n~e documentary sta•p tax on non-negotiable priot· to October~ protest;

promissory notes issued 15, 1'384 were paid under C.

Years where a case is presently with the Court of Tax Appeals; and D.

All

open yea,~s, up to

Octobel~

14, 1984, at the option of the Bank. Ill. COMPROMISE BASE:

XXX

IV.

COMPROMISE COMPUTATION:

XXX

V.

MODE OF PAYMENT:

XXX

VI.

EXCLUSIONS:

Othel~

issues raised in the tax assessments or which may be raised for open and assessed/pre-assessed years respectively, not involving documentary '3tamp tax on alL types of pr·orntssu1·y nr;tes issued prior

to October

15, 1984 arc not

Included

tn, nor affected by this compr~omise.

xxx" <pp.

1£.-17,

CTA

records; underscoring supplied> 37

DECISION ~

C.T.A. Case Me. 4784 We concur with respondent*s contention. The above- Guoted provisions of the Compromise Agreement clearly show’ that it cavers only DST assessment on all types of promissory notes issued prior to October 15, 1984. It does not cover DST assessment on securities sold under a repurchase agreement and all other documentary stamp tax assessments.

Petitianer's averment, that the subject reassessment imposing DST on securities sald under aorepurchase agreement, is already covered by the compromise agreement, was based on its erroneous interpretation of

Section 2a) of the Revised Securities Act (Batas

Pambansa Big. 8), whith states that:

“eK Securitics shall imocluce bards, debenhured, rates, evidences of Lrideloberie $5 MMM Qa: momrercial Papers evid andetteduess ef any person, Finanvial ovr Fittanciral entity exe such as prom repurchasy agreements MEK supplied).

Based on the abuve-quoted provision, petitioner

Ty

wrongfully equates "securities” with “promissary notes”. Hence, even if the Compromise Agreerent specifically mentioned that it covers only DST astessments on all ‘ypes of promissory notes, DST assessments on securities .

ae Deemed gnctuded, Following petitioner’ s interpretation that seeurities include promissory motes.

38

DECISION ~

C.T.R. Case No. 4784 The Court brushes asade petitioner’s interpretation and/or definitian of the term "securities," The ayt aforeguoted prevision of the Revised Securities Act did nat properly define or gescribe the term “securities. What has been done by the said provision, was merely to cite examples, or enumerate different forms of securities, and one of those given was promissory notes. The proper and more acceptable definitions are those quated hereinbelow, stating that:

“Securities are generally defined as written assurances for the return o- repayment of money or evidences of indebtedness." (Jaffe Ve Goldner, 251 Iii. App. 188; Words and Phrases, Vol. 34, p. 469).

The term security has no exactly defined legal definition. Generically, the word has reFerence to written instruments, usually for the payment of muney or evidences af ai debt, and bein more than a omere Promise of the debtor of & general Liability on His part, fut having as collateral to it a pledge of property aor some additional obligation.

Webster defines it as anything civen or deposited to secure the ayment of 3 debt or the performance of a contract, as a bond with surety, a mortgage, the indorsemen® oF a responsible man, or a pledge. Tt is that which renders a matter Sure; an instrament which renders certain the performance of a cuntract." (Storm v. Wanddell, N.Y. , 2& Sandf. Th. 494, 507, citing 2 Bouv. Law Dict. . 4933 Words and Piogses, Vol. 38, p. 4721) Tt 28 manifestiy tlear Freom oa] pies Ve Pie th poms Queens, Thyat “semura tied’ are not TOTES ym tenes wi hth peomissary noes. Far while a “promigsor x 5 39 • - 10 - wl~ itt en pr~omise by to pay another therein named or order a fixed sum of money <1t. all events and at a t i me s p e c i f i e d t he~~ e i n o ~~ ;:~t a t i M •?

t•Jh i ch must

<Clarhe

v. Hunter, 83 I 1 1. App.

100;

than mer·e prom 1 se to pay, as it has a collateral to such prom1se 1 a pledge of property or some additional obligation.

Hence, if the subject Compromise

Agreement

specifically pr·ov ided, that it would cover· only

DST

assessments on all types of prom i s so r y not e s, de fin it ely, it ~o-wuld not cover DST assessments on sec u r· it i e s sold under a repurchase agr·eement.

It is a well· settled rule that:

"A compromise agreement must be strictly int.er·pr·etvd and m!JSt be under·stood as including only ma.ttet·s~eci.fically determined thet-ein o•:· which, by necessary inference from its wording Tlll..lst be dE•f?med included." <Ferrer vs. Ignacio, 39 Phil;. 446; Underscoring supplied) plea f ot~ the cancellation withdrawal of the subject DST assessment on 1 ·y on the that the assessment was com pt~ om i s e d, on account that it lacks basis (see

p. 13, Petitioner's Memorandum;

p. 191, P e t i t 1 o n P t" holds the that cor"~veyaror:p ef instruments •entioned in Sec: .. ions 223 <now Section!'.

174 and 175> of

the Ta>'

Code, 40 and legal

CTA

only and ar~e

DECISION —

C.T.€A. Case No. 4784 - li - subject to DST imposed by Section 225 (now Section 176) of the same Code. Conveyances of instruments covered by ather sections of ‘the Code, such as the instruments covered by Section 229 (now Section 180), are not subject to DST imposed by Section 225.

In other words, only transfer or sale of bonds, debentures, certificates of indebtedness Cianstruments mentioned in Section 223) and certificates of stocks (instrument mentioned in Section oH), are subject to DST imposed by Section 225. However, transfer or sale of instruments mentioned in Section “229 such as promissory notes, bills of exchange, drafts, certificates of deposit are not subject to DST imposed by Section 225, The Court docs not uphold petibliounerts View, Respondent’ s revised reassessment propertly Fieds legal basis in Section @2e5 of the Tax Code, which provides:

"Section 225. Stamp Tax oon Sales, Agreement to Sell, Memoranda af Sales, Deliveries of Transfer of Bonds, Due Bills, Certificates of Obligatian, or Shares or Certificates of Stock. - On all sales or agrestents to sell, or memoranda af saies, or deliveries, or transfer of bonds, dee Mills, certificates of obligation, or shares or certificates af stock, in any association, campany or corporation, or transfer of such Becurities by assignment ain blank, or by delivery, or by any paper, or agreement, are memorandum or other evidences of transfer or gale whether entitling the helder in any manner to the benefit of stich bonds, due bills, certificates of obligation oar stock, or to secure the future payment of money, or for the 41 - 12 - future transfer of any bond, due bills, certificate of obligation or stock, there shall be collected a documentary stamp tax.o( twenty- five centavos on each two hundred p~sos, or

Fractional

part thereof, of the oar value qf such bond, due bill.

cet~tificates of stock ot~ obligation or stock. xxx xxx xxx xxx xxx."

(Underscoring supplied.> stated in t he abo v e- q •.10 t e d provision, securities is clearly subject

to DST at

the rate of P0.25 on each P200.00 or fractional part of the par value thereof.

It

is manifestly for p e t i t i on e 1~ , to insist again that its secm~ities sold under repurchase agreement, ar~ synonymous to "pt~o miss ot~y notes"

Qentioned

in

Section

229.

The

Court

has previously expla1ned that secs..wi ties from promissory notes.

Al t!IO\Jgh as 1--wovided in the

Revised

Act, that [1 0 t (.' s' :i -!;· doer not fo11o\-.J t h at:

p ,- o m i :;. :.:. o , .. 'l r ~ o t P ::.

:inc l!.td c Hence, .if S"'ct::.on 229 Spf.'cifit·~11•r P'"' o v 1 de::-.

note·=·, this h: 11 not mFan to As apt 1 y po..1t by 1- e r, p o n d e J"' t , p e t i t 1 o THn·· • s sa1e of agreement, rightf~lly falls under Section 225, which impDses DST not on the issuance, on the s<'lle

Ot"

ment1oned +::·.et·t::r:ir:., (~r1ons :. E.-' c '.n·- i t i f? s • SE'Ct.lO" -! p..,--, C C1.":

17]) of

Tal><

42 ~ ' ..

• ~-....... ·

I\

pee bs

H

€ 7 was bire deervsiar laid doen it the cane fe CRASS, Septenber 19, 1794, which ruled that:

“Without any doubt, having the orneral character af investment securities, T Bills and Ch-Bills cannot he considered at mpore promissory notes. In fact, the primary Function of Ce-Bilils and J-Bills are quite different fram that af instruments evicdenning Jette in mredinary transactians bekmeen individuals Article 9, U.S. Reg. Ne. 71, Treasury Departrent, cited in Rrateas, Urrhated rg ' 70 National Tnternal Revenue Cade, re ff.3 Re.oined Deoumentar,y Stamn Tas Regulation, Departrent af Finance, September 16, 3924; Leen IT, OG. lt.

p. 2257, Geotian gt), Inctruments evicenecing debts an ordinary transactions between care roo in the nakues avtharity af the Centrat Dank. PESUaNCH and the ubseduent uf gevernment securities

Wi

Payment gf a:

i shoule) nS

Fs §

s] ptLamp beves pursuant toa phon 17S, 5 amended by mop, Ho. 17354, of thre NPeer which speci Piamediy statber:

Seekyer Tra. Stamp Taxes Mapes tacumenks, podbrumpeabte, and QE LeY , and open acuephances, assignments, noiles, and beansfers of thie pubigebioan, right or preverty moiderkck thereto, tlegive shall tip levied, collected and paid for, end mo oerepspect ef the transaction sr bed or arrcanplisted, the correpapemelbicgu oat documentary tiamp tave ass prescribech in the Follawinng seebiones of this Tittle ty the person, mater citi, SLLVING = x PR UENE, atcceph ing ome Rear Fees pry the somr, acral the namo time nag k set it tie oar Lransactian branch 3 Posmugtifedd, Thigt whenever ane party aa ble teaxeabhle nooument ermoogy S @oce mp horny Fram the hereir tpesec, than 43 “BP YT Family Bank vs. CIR and Court of Tax Appeals", CA-G.R. SP

DEC [SION --

It is - 14 - othFr party thereto who 1s not exempt shall be the one directly liable for the tax.• <Underscoring supplied) not l1kewise correct for petitioner to state that the instant reassessment has no factual basis.

A

careful review of the computation of subject reassessment reveals, that the figure of P3,022,803,857.63 denominated as "securities ~-old dtwing the year~", was the same figure supplied or given by petitioner to respondent during the Compromise Agreement.

This amount of sale of securities under a repurchase agreement, was properly subjected to

DST at

the r~ate of P0.25 on each P200. 00 or~

Section 225 of

thP Ta)( Code.

The r~esul t was P3,778,604.82 which represents the amount of DST due on the aforesaid sale of SPcurities.

However, a m ' ' •.: n t.

u f s <.1 1 E' o f s e c •.t ,~ i t. i e s W a r, !" ,- · · 0 T1 E' 0 '.1 5 1 'y' includpd in the Com p )''om i s E:' P g r· e emf:' n t , at -~. "e of PO. 032::::-• on l?i:lCh P200.00 par··t

I

the ,~e su 1 t i ng am o•.1nt of considered as p0rtial paynn:-nt, and the s<:lme vi:<':· ded·.tct ed P3,77B,E.04.82 leaving the nf:"t of P3,287,3'39.20 as thl?

amount of

DST

still d I.! E' and callectible from petitioner. F 1 r: a 1 1 'l, the Co·.wt consider-s as following ttH:' 44 .- ---- ~-------

LIS

"Assessments are prima facie presumed correct and made in good faith, The taxpayer has the duty of proving otherwise. In the absence of proof of any irregularities ment will 1 iv in the performance of official duties an asses not be disturbed. All presumptions are in favor of tax assessments (Interprovincial fAutobus Co., Inc. Ve Collector, 98 Phil. 2909; Cecilia Teodoro Dayrit v. Hon. Fernando Cruz and Commissioner, L-39910, Sept. 26, 1988; Bonifacia Sy Pe v. CTA and Commissioner, G.R. No. 81446, Aug. 18, 1988). Failure to present proof of error in the assessment will gustify judicial. affirmance of said assessment (Delta Motors Co. v. Commissioncr, CTA Case No. 3782, May 1, i786). "

WHEREFORE, mmoview orf all tye Ffarcvrrockg, portant petoikiom for review re Found Boo ber wit game is hereby DISMISSED. ACCORDINGLY, pebitaomer ais hereby ORDERED to PAY to respondent the amount of MP3, ORF, O79. ee, without any surcharge enn interest thereon, as Ceficrency cdoacumentary statp tax due on petitioner’ s sale ut securities under repurchase agreement for the year AAR,

RAMON OL DF VEYR

RBssocirabr Ivey

DECESTON -

{.7T.A. Case Na. 4784

WE CONCUR:

{on leave) . CE RTEPF EMAaT ror To oterebys certify that Chis decistor was reach after due monsultation among the members of the Craurt Tax Appeals teoamcordatca with Section £3, A hreols ve aa sr pciat = MANUEL Ke, CRUNN e 7 warty Court of Tas One ote ee 4% vas