FRANCISCO A. DIZON vs. COMMISSIONER OF INTERNAL REVENUE. Re spondent. X - - - - - - - - - X D c I s I Cl N This is a claim for refund/credit of the alleged overpaid capital gains TAX of petitioner for the sale of shares of stock in 1990 in the sum of P1,885,253.07. Petitioner, is a Filipino citizen of legal age with address at # 19 Don Vicente Rufino Avenue, Corinthian Garden, Quezon City, Metro Manila. On March 29, 1990, petitioner by virtue of a Deed of Assignment <Exhibits A to A-4> entered into a stock swap transaction with Benguet Corporation whereby petitioner transferred 122,500 shares of stock of AB Capital and Investment Corporation <or ABCIC for short> <formerly Anscor Capital and Investment Corporation> to Benguet' s 569,387 newly issued class "A" shares with an agreed transfer 1075

DECISION -

- 2 - price o f

ABCI C

s hare in the a mount of ?21, 932,767 . 50.

On April 27, 1990, petitioner paid a capital gains tax covering said stock swap transacti on 'in t he amount of ?1,885,253. <Exhibit C > at t he r a t e of l OY. and 20% under Section 2l<d><l > of the t ax code, as evidenced by CBP Confirmat i on Recei pt No.

819952234 and BIR Payment Order No . C8047812 bot h bearing the date Apri l 27, 1990 <Exh ibits D and D- 1> On December 21 , 1990 thru a Deed of Absolute Sale of shares <Exhibits F to F-2 > petitione r s old 6 66, 542 Benguet shares at P 1 1. 00 per sha re for a total consideration of ?7,331,962.00.

Petitioner did not pay any ca pital gai ns tax on this transaction when he filed his capital gains tax return (Exhibit H >, Instead petitioner declared a capital loss of Pl3, 208, 196.27 s tating t hat the I a ggregate adjusted cost basis of t he 666,542 Benguet s hares is P20, 540, 158. 27 (i.e. , 6 66, 542 multip l i ed by P30. 816 per share, the acquisition cost of t he Benguet shares) .

On January 23, 1991, petitioner filed his final consolid ated tax returns covering hi s stock transactions al l eging that both trans a ction s were e ffected o utside the stock exch a nges, and that d uring the year 1990, said stock t rans actions shox

- 3 - _, a net capital loss of ?3,731,950.90 which completely negated his net capital gains for the same year. On February 6, 1991, petitioner filed with respondent a claim for refund in the sum •of P 1, 885, 253. 07 allegedly representing excess capital gains tax for 1990 <Annex "G">. Without waiting for responden action on his clai m for refund, and to interrupt he two <2 > y ar pr scriptive period, petitioner filed he instant pe ition for review on April 21 , 1992.

Respondent, filed her answer on July B, 1993 alleging among others t hat the s a le of Petitioner's Benguet Corporation shares of stocks on December 21, 1990 falls within the purvi w o Sec ion 21<d><2> of the tax code, and overned by transactional capital a ns ta~ of 1/4 of 1Y. as _ selling price;

that petit oner is not t?nt itled to ·' refund considering t hat the transactions are . separate and distinct from each ot her: that the filing of the .

l • returns cannot be consolidated in a ccordance with Section 7 of R venue R gul t · ons No.

2 -'82, which provides a separate manner of payment and filing of returns is covered by Section 21 < d 5 < 2 > of the tax code. <Answer, p. 411, CTA records) i ('

DECI SI ON -

- 4 - Respondent opted not to su bmit evidence in s upport of her case manifesting t hat the i ssue i n this case is purel y legal and instea d submitt ed the case for decision based on the ple a d i ngs after t'he f i ling of her memorandum. The principal question raised i n t hi s a ppeal i s whether 0 not p titionctr ia ntitled t o a refund/tax credit of the amount of Pl, B85,253.07 representing lleged overpaid capital g a i ns t a x f or t he taxable year ended Deoemb r 31, 1990. . The parties have diffe rent contentions regarding the following provisiona of t he tax c ode: "Section 2l<d)(l) a nd Section 21<d><2> - The provisions of Sect ion 33 <b > notwithstanding, capi 1 gains real ized from the sale, exchange or d isp Qa itiq~ of shares of stock in any d omestic corporation s hall be taxed as f o ll o ~ ~ : · < 1 > Net capital gain as def i ned in Section 33 <a > realiz ed d uring e a c h taxab l e year f om the sale, e xc hange o ~ , other disposition 0 sh res of s t ock D..Q.L.-~-r~!i ... £L .. -~l\1:.9..~.g_tL_ ;;i ___ !,_qg-'J.--~-t.Q..<;:L~ e ~.9..h~Jl9.!'!• Not over P100,000 Over PlOO, OOO lOY.

20 Y.

< 2 > Capital gains presume d 1 ~t o have been ealized from the s a l e, exchange or disposition of s hares of , stock Jj._~-'t.~.!::L .~.n.!!...J'..r_ii!Ef~ d__!;.hr ou h a....l_9cal ~_tp_gJL .. ~-~lLna.g 1/4 of 1 Y.

based on the gross selling pric of the s har e or sharea o£ stock. "

1 /) ;'"1 .- ·' - 5 - Petitioner maintains that the .final · tax o£ 1/4 . I o£ lY. mentioned in Section 21<d)(2) o£ the tax code applies exclusively to the sale o£ listed shares which are traded in the stock exchanges and not ~o sale o£ listed shares outside o£ the ~xchanges which is subject to the schedular rate o.f lOY.

and 20Y.

under Section 21<d><l> o£ the tax code. Petitioner argues that the use o£ the words "listed and traded" in Section 21<d><2> o£ the tax code will not apply to the sale by petitioner o£ listed shares because they were sold outside o£ the stock exchanges and the transaction is now covered by Section 21(d)(l) with the schedular rate o£ lOY. a n d 20Y. based on he ne - capital gains ther .from . To support his stand, • t i ..., .

petitioner cit s t he case o£ Fagel Taben, Agricultural Corporation v. Jacinto,

203 SCRA 189:

~1arina Port Services Inc.

' v.

Inigo, 181 SCRA 304, wherein the cour r uled t hat it is a basic rule ' , .,_, in statutory construction that when the • I!

o> statute in question uses pl in nd c lear words and ·:r ~- phrases, said statu mu t be t ken to mean exactly ' .

what it says and must be applied -..t:ithout attempted interpretation Andf ~ven if petitioner has admitted that only listed sharea can be traded through the stock exchanges, it does not prohibit the

DECI S ION -

- 6 - l i s t ed s h a r es outside o:f the stock exch a nge s. The :fact that neither he Makati and Ma n i la stock exchanges by - laws prohibit th sale o:f l i sted shares out of t he exchanges, then l isted shares may be traded through privately negoti t d sales. The natur of h share <wh t her listed or not is not mat -r ' l tor the purpose of a pplying Section 2U d)( U of thfl '\:.Q){ ocd or- th sch dul a r rate o:f taxati1:m.

Wha s material is he nanner by which these shares d d. Revenuo R g u l t iona No. 2- 82 further dist'nguiehes sh r e which are t r a ded in t he exchanges and shares which n ot traded through the stoc k exchanges, thus: Section 5.

Imposition oL the tax I IIi <a> Sales of shares of stock listed and traded through a local stock exchange - a tax of 1/4 of 1% shall be imposed on the gross selling price of the shares of .. j s t ock sold, exchanged or transferred thr ough the facilities of stock exch"'nges • f • ~ c registered with the Securities and Exchange Commissi on. . ;

,,.

<b> Shares of s tock not traded ~ (., L through a local stock exchange - net capital gain derive d the tc;lxable ,year from sales, exc hanges, transfers or si mi lar transactions shall be taxed as follo ws:

n o t over PlOO, OOO over PlOO,OOO 1 '' n - 10% ~0 % _,

- 7 - The distinction clearly indicates that the Bureau of Inter nal Re v nu recog n ize ~ the fa6t that listed shares need not be traded in the stock exchanges.

It also solidifies t he fact that list~d shares maybe sold outside of the stock exchanges and the gain therefrom if ny, shall b ~ taxed at !

" ..

the ···,.

schedular rate of lOY. and 20~. 1' , ...

Petition r'e al of s tock f£ ct~d outside the faciliti s of th tock exchan s zalls squarely within the mandate of 9 ction 2 <d)< 1) of the tax code.

By promulg ting Reven ll tilsttion No.

2-82 · the Bureau f !n.t l"'na.l.

~ ven u~ f'@cog i:tes the fact that listeO:

shaf' s may be t .. ad~d .

tJold ;:,utside of the facilities of the stock exc ngeg in which c ase the same shall not be subject to 1/4 of 1Y. tax on ,.

the gross selling price of the shares but by the schedular systems of capital gain tax at the rate of . l lOY. and 20Y. under Section 21<d><l>. . l ~ r In the recent case of Jardine Davies, Inc. vs. Commissioner of Internal Revenue, CTA Case No. ~32 4, June 22, 1993, this Court ruled, thB s~ XXX XXX I,.

"this involv ~s th@ g le of shares of stocks ne raded through a local .stock exchange.

~ ~p ond @tlt 'it$ counsel was not 1 no '1 ' {

DECISION -

C.T.A. CASE HO. 4798 - 8 - heard to object when petitioner presented as evidence stock transactions capital gains tax return <Exhibits B, C and

E >

clearly showing that the transactions were treated in accordance with Section 24<2> <a> formerly Section 21<d) (1> o£ the tax code.

The contrary view of respondent that Section 24<2><b> formerly Section 21<d><2> of the tax code applies is without any factual or legal basis." · Also, in the earlier cas e of · ·Jardine Davies, Inc. vs. Commissioner of Internal Revenue, CTA Cas~ No. 4032, August 6, 1992, this Court has ordered the refund of the overpaid capital gains tax on s t6ck t ransaction fQr t h• n ~i re year.

Respondent did not c ontrov t-t pet itioner 's evidence.

In fact, respondent has mer ely submit ted this case for decision on the basis of the records and pleadings of the case, without - ~resenting ( ' counter evidence.

II' Lastly, a taxpayer can, indeed offset the capital losses which he incurred : from .t,hd.s stoc~ • ' .

t rr:tnsl.!lo t ens during the taxable year, 1aga,il?st ~ ap it.a l gains der ived t herefrom dur 1rHl +. h~ ElQfll.0' year, and i ~ . ' claim, at the end of said taxable year, a refund in case of an overpayment of capital gains tax. This : t;

is so because a final consolidated return or an adjustment return concerning all stock trans ac::~.i on during the taxable year shall b ~ ~ i ~ ed on or before the 15t h day of the f o urth month following ther

- 9 - • 'f .i. (} of the taxable year. <Sec.7, Rev. Re~. #2 ~82>.

Taking the two-transact~pn~ ;1 • ~ogether, .. ,~, .

~ ~':".- petitioner's capital, losses in the sale of the Benguet shares in December 1990 wiped out whatever gains he realized from the exchange transaction involving the ABCIC shares in March 1990.

Considering that petitioner incurred a net capital loss for his stock transactions in 1990, we simply cannot deny but instead give due course to its petition.

WHEREFORE, respondent Commissioner of Internal Revenue is here by ordered to refund/issue tax credit to peti t.ioner F nei. co A.

Dizon in th€1 amount of P1,885,253.07 repre ontin GV e~paid ca~ital gains ,- tax in taxable year ended Decemb ~ 3i, 19~ 0.

SO ORDERE •

Quezon City, Me ro H n la, Novembe WE C~HCURjQ, ~ ~wSTO D. ACOSTA P __ esiding JudJe /! ' 2 / ·tJ~Jll/1 AM~O. DE V~ Associate Judge I . ' ':'t)

- 10 - CERTIFICATION I hereby certify that the decision was reached after due consultation among the members of the Court of Tax Appeals in accordance with Section 13, Article VIII of the Canstitution.

Y a2. Cora STo D. ACOSTA Presiding Judge Court of Tax Appeals