University of Santo Tomas Hospital, Inc. vs. Commissioner of Internal Revenue

D E CI S ION

MINDARO -GRULLA, :!_.:

This is a Petition for Review filed on April 17, 2009 by the University of Santo Tomas Hospital, Inc., as petitioner, against the Commissioner of Internal Revenue (CIR) as respondent. for the Court in Division, pursuant to Rule 4, Section 3 (a) (2), in relation to Rule 8, Section 4(o), of the Revised Rules of the Court of Tax Appeals (RRCTA), over respondent's inaction on petitioner's administrative c laim for tax refund. The tax refund involves the amount of P 15,000,000.00, which represents documentary stomp tax (DST) paid on 488 University of Santo Tomas Hosp1ta~ Inc. v. Commissioner of Internal Revenue petitioner's approved credit line/facility under the Omnibus Loon and Security Agreement doted April l 2, 2007.

Petitioner University of Santo Tomas Hospital, Inc. is a non-stock, non- profit corporation duly organized and existing under Philippine lows, with principal office address located at the University of Santo Tomas Compound, Espana Boulevard, Monilo. 1 Respondent, on the other hand, is the duly appointed Commissioner of the Bureau of Internal Revenue (BIR) empowered to perform the duties of said office including, among others, the power tQ :decide, approve, and ..

grant refunds or tax credits of erroneously or excessltlely paid taxes. He holds office at the BIR Notional Office Building, Aghom Rood, Dilimon, Quezon City. On April 12, 2007, petitioner, designated as "borrower", signed and executed on Omnibus Loon and Security Agreement (OLSA) 2 with other contracting parties, designated as "lenders"; composed of bonking institutions, namely: ( l) Development Bonk of the Philippines (DBP); (2) Land Bonk of the Philippines (LBP); (3) Philtrust Bonk; and (4) Development Bonk of the Philippines-Trust Services (DBP-Trust).

The Development Bonk of the

Philippines likewise served as Fodlity· Agent, Mortgage Trustee or DSRA Agent. 1 Annex "A", Petition for Review, Docket, pp. 32-42

2 Exhibit "A"

L

489 University of Santo Tomas Hosp1ta" Inc. v. Commissioner of Internal Revenue In the said Agreement, the lenders agreed to provide loons to petitioner in the aggregate amount of P3,000,000,000.00, for the purpose of financing petitioner's projects 3 and other general financing requirements for its operations, subject to the terms and c onditions set forth therein.4 The said lenders referred to the Agreement as a syndicated term loon facility, with each lender bonk agreeing to provide its respective approved credit line/facility, detailed as follow s:

lending Bank Credit line/ Facility

DBP

p l ,500,000,000

LBP

l ,000,000,000 Phi/trust Bonk 300,000,000

DBP-Trust

200,000,000

TOTAL

P3,000,000,000

On April

18, 2007, petitioner paid respondent the amount of P 15,000,000.00 as documentary stomp taxes (DST) for its approved credit line/ facility under the Omnibus Loon and Sec urity Agreement doted April 12, 2007.5 However, the credit line/facility, as contained in the Omnibus Loon and Security Agreement, was never implemented and/or availed of although the 3 The 3-Phase redevelopment and expansion of the University of Santo Tomas Hospital involving the construction of the Benavides Cancer Institute Building, a 21-storey Medical Arts Building, a 7-storey Podium that will include clinics and office spaces for around 1,000 doctors comprising its ·.~medical staff, parking spaces for lease, retail facilities and the renovation and expansion of existing facilities, including the acquisition of new hospital furniture and equipment; page 7 of OLSA dated April 12, 2007, Docket, p. 238 4 Exhibit "A", Docket, p. 233 5 Exhibits "F" and "F-1", Judicial Affidavit of Rev. Fr. Jose Ma. Tinoko,. O.P; pars. 1 and 3, Joint Stipulation of Facts and Issues (JSFI), Docket, pp. 179-180 ' ·• ' '

I'

.,_ , ' '- 490 University of Santo Tomas Hosp1ta~ Inc. v. Commissioner of Internal Revenue documentary stamp taxes were already paid. In fa ct, petitioner never made a "drawdown" on the same approved credit line/facility. Eventually, the approved credit line/facility was cancelled by petitioner after discovering that there were irregularities in ·the application for the said credit line/facility as well as in its execution. 6 On October 2, 2008, petitioner filed an administrative claim for refund with the BIR District Office No. 32 of Manila, in the amount of P 15,000,000.00, representing erroneously paid DST for the approved credit line/facility under OLSA dated April 12, 2007.7 To date, respondent has yet to act on said administrative claim for refund. Hence, petitioner filed this Petition for Review on April 17, 2009. Respondent filed his Answers on May 13, 2009, alleging the following

Special and Affirmative Defenses:

"23. The petition is premature considering that petitioner's application for the refund of the alleged erroneously paid documentary stomp tax in the amount of Php 15,000,000.00 is still pending investigation with Revenue District Office No. 32, Revenue Region No.6, Manila.

6 Exhibit "B", Docket, p. 903; Exhibit "F", page 2 of Judicial Affidavit of Rev. Fr. Jose Ma. Tinoko, O.P., Docket,

p. 908 7 Par. 2, JSFI, Docket, p. 179 8 Docket, pp. 157-161 49 1 University of Santo Tomas Hospttal, Inc. v. Commissioner of Internal Revenue

24.

The subject 'Omnibus Loon and Security Agreement' (OLSA), as the words imply, is in itself a loon agreement subject to the documentary stomp tax under the Tax Code of 1997, as amended by R.A. 9243.

Section 179 of the said Act further provides that only one d ocumentary stomp tax shall be imposed on either loon agreement, or promissory notes issued to secure such loon.

25.

The documentary stomp tax was legally due and paid in accordance with low.

26.

In Philippine Home Assurance Corporation, Philippine American Accident Insurance Company, Philippine American General Insurance Company and American International Underwriters (Phils.], Inc. vs. Court of Appeals and Commissioner of Internal Revenue, G.R. No. 119446 doted January 21, 1999 it was held that- In general, documentary stamp taxes are levied on the exercise by persons of certain privileges conferred by law for the creation, revision, or termination of specific /ega/ relationships through the execution of specific instruments. Examples of such privileges, the exercise of which, as effected through the issuance of particular documents, are subject to the payment of documentary stamp taxes are leases of lands, mortgages, pledges, and trusts, and conveyances of real property.

Documentary stamp taxes are thus levied on the exercise of these privileges through the execution of specific instruments, independently of the legal status of the transactions giving rise thereto.

The documentary stamp taxes must be paid upon the issuance of the said instruments, without regard to whether the contracts which gave rise to them are rescissible, void, voidable, or unenforceable. xxx xxx xxx 27.

Claim for refund is construed strictly against the claiman t and should not be allowed unless proven explicitly and categorica lly.

28.

The allegations regarding tax refundobility do not ipso facto merit the refund c laimed."

..

University of Santo Tomas Hospita~ Inc. v. Commissioner of Internal Revenue

During trial, petitioner presented as witness Rev. Fr. Jose Mo. Tinoko, O.P., petitioner's former Treasurer and Member of the Board of Trustees. 9 Thereafter, petitioner filed its Formal Offer of Documentary Evidence 10 on October 8, 2009, from Exhibits "A" to "H", inclusive of sub-markings. This Court resolved to admit all said exhibits in a Resolution 11 dated November 20, 2009. On the other hand, respondent waived the presentation of his evidence considering that the administrative investigation of petitioner's claim for refund has not been completed yet and that the tax docket has already been forwarded to this Court. 12 On January 8, 201 0, this case was submitted for decision, considering respondent's Memorandum filed on December 22, 2009 and petitioner's . Memorandum filed on December 23, 2009. 13 The parties' jointly stipulated issues 14 submitted for this

Court's

consideration are as follows:

"1 . Whether or not petitioner is entitled to a refund of the PhP 15,000,000.00 documentary stamp taxes paid plus interest, if any, in connection with its approved credit line/facility under the Omnibus Loan and Security Agreement dated 12 April 2007. 9 Minutes of Hearing dated July 27, 2009, Docket, p. 199 10 Docket, p. 217 11 Docket, p. 917 12 Par. 3, Joint Stipulation of Facts filed on September 9, 2009, Docket, p. 207 13 Docket, p. 955 14 Docket, p. 180

49J

University of Santo Tomas Hospital, Inc. v. Commissioner of Internal Revenue

2.

Whether

or not petitioner erroneously paid the amount of PhP 15,000,000.00 as documentary stamp taxes relative to its approved credit line/facility under the Omnibus Loan and Security Agreement dated 12 April 2007."

The above-stated two (2) issues ore joined as one ( 1) principal issue - whether petitioner is entitled to a tax refund in the amount of P 15,000,000.00, arising from the alleged errof}eous payment of documentary stomp taxes on the approved credit line/facility under the Omnibus Loon and Security Agreement doted April 12, 2007.

The principal issue is answered affirmatively, as follows: 1 . Petitioner has two (2) years from the dote of payment of tax within which to file its claim for tax refund. Petitioner paid the subject DST on April 18, 2007;15 filed its administrative c laim with respondent on October 2, 2008;16 and filed its judicial claim on April 17, 2009. Thus, counting from April 18, 2007, when petitioner mode its payment, both administrative and judicial claims were timely filed w ithin the two-year prescriptive period. Sections 229 and 204(C) of the Notional Internal Revenue Code (NIRC) of 1997 read :

15 Par. 3, JSFI, Docket, p. 180 16 Annex "J", Petition for Review, Docket, p. 140 49 4 University of Santo Tomas Hospital, Inc. v. Commissioner of Internal Revenue

"SEC. 229. Recovery of tax erroneously or illegally collected. - No suit or proceeding sha ll be maintained in any court for the recovery of any notional internal revenue tax hereafter alleged to have been erroneously or illegally assessed or collec ted , or of any penalty claimed to hove been collec ted without authority, or of any sum a lleged to hove been excessively or in any manner wrongfully collected, until a c laim for refund or c redit has been duly filed with the Commissioner; but such suit or proceeding may be maintained, whether or no t such tax, penalty, or sum has been paid under protest or duress.

In any case, no such suit or proceeding shall be filed after the expiration of two years from the dote o f payment of the tax or penalty regardless of any supervening cause that may arise after payment; Provided however, That the Commissioner may, even without a written c laim therefor, refund or c redit any tax, where on the face of the return upon w hic h payment was mode, such payment appears clearly to hove been erroneously paid." "SEC. 204. Authority of the Commissioner to Compromise, Abate, and Refund or Credit Taxes. -The Commissioner may -

XXX

XXX

XXX

(c ) Credit or refund taxes erroneously or illegally received or penalties imposed without authority, refund the value o f internal revenue stamps w hen they are returned in good condition by the purchaser, and, in his discretion, redeem or c hange unused stomps that hove been rendered unfit for use and refund their value upon proof of destruc tion. No credit or refund of taxes or penalties shall be allowed unless the taxpayer files in writing with the Commissioner a claim for credit or refund within two (2) years after the payment of the tax or penalty: Provided, however, That o return filed showing an overpayment shall be considered as o written claim for credit or refund." (Emphasis supplied)

2. Section 179 of the NIRC of 1997, as amended b y Republic Act No. 9243, provides:

"SEC. 179. Stamp Tax on All Debt Instruments. - On every original issue of debt instruments, there sha ll be collected a docume ntary stomp tax of. One peso (Pl .OO) on eoc,;h Two hundred pesos (P200), or fractional part thereof, of the issue price o f any such debt instruments: Provided, That for such debt

49 S

University of Santo Tomas Hosp1ta~ Inc. v. Commissioner of Internal Revenue instruments with terms of less than one ( 1) year, the documentary stomp tax to be collected shall be of a proportional amount in accordance with the ratio of its term in number of days to three hundred sixty-five (365) days: Provided, further, That only one documentary stomp tax shall be imposed on either loon agreement, or promissory notes issued to secure such loon.

For purposes of this section, the term debt instrument shall mean instruments representing borrowing and lending transactions including but not limited to debentures, certificates of indebtedness, due bills, bonds, loan agreements, including those signed abroad wherein the object of contract is located or used in the Philippines, instruments and securities issued by the government or any of its instrumentalities, deposit substitute debt instruments, certificates or other evidences of deposits that ore either drawing interest significantly higher than the regular savings deposit taking into consideration the size of the deposit and the risks involved or drawing interest and having a specific maturity dote, orders for payment of any sum of money otherwise than at sight or on demand, promissory notes, whether negotiable or non-negotiable, except bonk notes issued for c irculation." (Emphasis supplied) Further, Sections 3(b) and 6 of Revenue Regulations No. 9-94 state that: "SECTION 3. Definition of Terms. - For purposes of these Regulations, the following terms shall mean:

XXX

XXX

XXX

(b) 'Loon Agreement' - refers to a contract in writing where one of the parties delivers to another money or other consumable thing, upon the condition that the same amount of the same kind and quality shall be paid . The term sha ll include credit facilities, which may be evidenced by credit memo, advice or drawings.

XXX

XXX

XXX

SECTION 6. Stomp Tax on All Loon Agreements. -~.II loon agreements, whether mode or signed in the Philippines, or abroad when the obligation or right arises from the Philippine sources or the property or object of the contrac t is loca ted or used in the Philippines shall be subject to the documentary stomp tax of thirty centavos (P0.30) on each two hundred . ~· .

. · ·;.

[_

49G

University of Santo Tomas Hosp1ta~ Inc. v. Commissioner of Internal Revenue pesos, or fractional port thereof, of the face value of any of such agreements, pursuant to Section 180 in relation to Section 173 of the Tax Code.

In cases where no formal loan agreements or promissory notes have been executed to cover credit facilities, the documentary stamp tax shall be based on the amount of drawings or availment of the facilities, which may be evidenced by credit/ debit memo; advice or drawings by any form of check or withdrawal slip, under Section 180 of the Tax Code, as amended. " (Emphasis supplied) Based on the foregoing, Section 179 of the NIRC of 199717, provides that debt instruments shall mean instruments representing borrowing and lending transactions including but not limited to debentures, certificates of indebtedness, due bills, bonds, and loan agreements . Under Sections 3(b) and 6 of Revenue Regulations No. 9-94, a loan agreement refers to a contract in writing where one of the parties delivers to 'another money or other consumable thing, upon the condition that the same amount of the same kind and quality shall be paid .

Stated otherwise, for a loan agreement to be subject to DST, there must be delivery of money or other consumable thing by a lender to the borrower, with corresponding obligation of repayment. The debt instrument, which includes loan agreement, must represent borrowing and lending transaction . Clearly, if there is no delivery of money or other consumable thing upon the condition that the same amount .

of the same kind and quality shall also be paid, there will be no DST to be imposed on the document evidencing such loan agreement. 17 Amended by Republic Act No. 9243 497 University of Santo Tomas Hospital, Inc. v. Commissioner of Internal Revenue

Records show that in support of its claim for refund, petitioner presented the following documentary evidence:

1. Omnibus Loan and Security Agreement dated April 12, 2007 (Exhibit "A") representing petitioner's approved credit line/facility granted by creditor banks DBP, DBP-Trust Services, LBP, and Philtrust Bank;

2. Certification by Rev. Fr. Rolando V. De La Rosa, O.P. doted July 29, 2008 (Exhibit "B"), certifying that petitioner never made o drawdown on the some approved credit line/facility covered by the Omnibus Loan and Security Agreement doted April 12, 2007 and that the approved credit line/facility was eventually cancelled;

3. Development Bank of the Philippines Letter-Certification doted July 9, 2008 (Exhibit "C") certifying that no drawdown was mode by petitioner on DBP's participation in the approved credit line/facility under OLSA doted April 12, 2007;

4. Philtrust Bonk Certification dated February 3, 2009 (Exhibit "D") certifying that no drawdown was mode by petitioner on Philtrust Bonk's participation in the approved credit line/facility and that the said bank had already cancelled said credit line/facility under the OLSA doted April 12, 2007;

5. Land Bank of the Philippines Certification dated February 9, 2009 (Exhibit "E") certifying that no drawdown was made by petitioner on LBP's participation in the approved credit line/facility and that the said bank hod already c ancelled said credit line/facility;

6. Judicial Affidavit of Rev. Fr. Jose Mo. Tinoko, (O.P.) (Exhibits "F" and

"F-1 ")

stating that petitioner erroneously paid the documentary stomp taxes in the amount of P 15,000,000.00 in connection with its approved c redit line/facility under OLSA doted April 12, 2007.

He further explained that petitioner was under the false impression or mistaken belief that it is obligated to pay documentary stamp taxes on the approved credit line/facility covered by the OLSA even though there is no actual drowdown on it yet ;

7. Development Bank of the Philippines-Trust Services

Letter-

Certification doted July 15, 2009 (Exhibit "G") certifying that no drawdown was made by petitioner on DBP-Trust Services' participation in the approved credit line/facility and that it had already cancelled said credit line/facility; and 493 University of Santo Tomas Hosp1ta~ Inc. v. Commissioner of Internal Revenue

8. Development Bonk of the Philippines Letter-Certification doted July 23, 2009 (Exhibit "H") certifying that petitioner never mode a drowdown on DBP's participation in the approved credit line/facility and that it hod already cancelled the credit line/facility under the OLSA.

It is undisputed that the O LSA doted April 12, 2007, executed by petitioner a nd a consortium o f creditor bonks (DBP, LBP, Philtrust Bonk, and DBP-Trust Services), is on agreement/commitment th a t the lenders-creditors will make available to petitioner a c redit line or credit facility in the total amount of P3,000,000,000.00, subject to certain conditions. 18 Further, pursuant to the subject O LSA, a "Note" 19 is required to be executed by the borrower once it makes a drowdown on the credit line/facility. However, as correctly pointed out by petitioner, there was no conveyance or delivery of the loaned amount in this case. In fact, the lenders-creditors certified that petitioner did not make on actual drowdown on the said credit line/fa c ility and that the some creditors cancelled the approved c redit line/facility; hence, no DST accrued.

Mere execution of the Omnibus Loon and Security Agreement, without the requisite delivery of the loaned amount and the execution of other 18 Exhibit "A", Section 4, pp. 16- 18 of OLSA 19 Exhibit "A", Section 3.03, p. 12 of OLSA c 499 University of Santo Tomas Hospita~ Inc. v. Commissioner of Internal Revenue documents evidencing the amount of drawings will not give rise to DST liability on the part of petitioner.

Credit facilities by themselves are not considered debt instruments that are subject to DST.

There must be another document · to prove that such credit fa cility has indeed been converted into a loan agreement, either by the execution of a formal loan agreement, a promissory note, a credit/debit memo, or an advice or drawings to prove that the credit facility has been availed of by the borrower.

A credit facility is merely a facility or a line for making a specific amount available for the use of the borrower. It is not tantamount to the delivery of the money to the borrower. Only when the borrower makes use of the available amount by drawing on this facility will there be delivery of the money that will give rise to a loan, but only up to the amount of the actual amount of money that was drawn from the credit facility.2o DST is a tax on documents, instruments, loan agreements, and papers evidencing the acceptance, assignment, sale or transfer of an obligation, right or property incident thereto.

DST is actually an excise tax because it is imposed on the transaction rather than on the document. DST is also levied on the exercise by persons of certain privileges conferred by law for the 20 SIR Ruling No. DA-036-07, January 24, 2007 ( 500 University of Santo Tomas Hospital, Inc. v. Commissioner of Internal Revenue creation, revision, or termination of specific legal relationships through the execution of specific instruments.21 Since petitioner did not avail of the credit line/facility under the OLSA petitioner also did not exercise a privilege considered taxable within the purview of Section 179 of the NIRC of 1997.

In Maersk Filipinos, Inc. vs Commissioner of Internal Revenue 22, this Court held that:

"xxx Thus, pursuant to Section 229 of the NIRC of 1997, in relation to Section 204 (C) of the same Code and Article 2154 of the New Civil Code whic h provides that if something is received when there is no right to demand it. and it was unduly delivered through mistake, the obligation to return it arises, thus, respondent has the bounden duty to return the erroneously paid withholding tax made by petitioner."

In the case of

Hewlett-Packard ·Philippines

Corporation

vs.

Commissioner of Internal Revenue23, it was likewise ruled that: "Basic is the principle that when money is paid to another under the influence of a mistake of fact, it may be recovered. The Government is not exempt from the scope of solutio indebiti principle. There being no doubt that petitioner paid its EWT for March 2006 twice, there arises an obligation on the port of the respondent to return what was mistakenly paid by petitioner". 21 Commissioner of Internal Revenue vs. First Express Pawnshop Company, Inc., G.R. Nos. 172045-46, June 16, 2009, citing Section 173 of the 1997 Tax Code and Michel J. Lhuillier Pawnshop, Inc. vs. Commissioner of Internal Revenue, G.R. No. 166786, May 3, 2006 22 C.T.A. Case No. 7073, April 4, 2007 23 C.T.A. Case No. 7756, August 6, 2009 50 :

University of Santo Tomas Hospita~ Inc. v. Commissioner of Internal Revenue CfA Case No. 7919

In fine, this Court finds petitioner entitled to a refund of the amount of P 15,000,000.00, representing documentary stamp taxes erroneously paid relative to the approved credit line/ fac ility under the Omnibus Loan and Security Agreement dated April 12, 2007, but which was not availed and was cancelled by the parties therein.

WHEREFORE, the instant Petition for Review is hereby GRANTED. Accordingly, respondent Commissioner of Internal Revenue is DIRECTED TO REFUND in favor of petition~r the amount of FIFTEEN MILLION PESOS (P15,000,000.00), representing erroneously paid documentary stamp taxes on the approved credit line/faci]ity dated April 12, 2007.

WE CONCUR:

Q.._..,.__·,c_ c . a...;r~ Q., .fUANITO C. CASTANEDA; Jlf

Associate Justice

~ N. lvt~~-Cvwt£- ciEuTo N. MINDARO-GRULLA

Associate Justice

$ CAESAR A. CASANOVA

Associate Justice

502 University of Santo Tomas Hosp1ta~ Inc. v. Commissioner of Internal Revenue

CERTIFICATION

Pursuant to Article VIII, Section 13 of the Constitution. it is hereby certified that the conclusions in the above Decision were reached in consultation before the case was assigned to the writer of the opinion of the Court's Division. ~"'c·~~.Q <ffi _bj..JI-TO C . CASTANED.('v.ff .

Acting Presiding Justice

Chairperson. 2 nd Division ·' ' .,.

i