CTA Case No. 4865 (Decision)

-------..,..... ----... REPUBLIC OF TIE PHILIPPINES COURT OF TAX APPEALS OlEZON CITY BANK OF AMERICA NT & SA9 C. T. A. CASE NO. 4865 <Manila Branch) 9 Proaulgated: ~� Petit i one�~, JUN 1419115 THE COMMJSSIOIER OF INTERNAL. - ---- -- - ~ REVENUE, Respondent. M- - - - - - - - - - - - - - - - - DEC:::ZS:ICJN ~ This is an assessment case involving alleged deficiency income, branch profit remittance and documenta.~y in the total of P37,153,818.69 for the year 1981. Petitioner is a foreign banking institution duly licensed to do business in the Philippines. On April 20, 1987, Petitioner received from the Respondent� .,.t_�,,� ~ �.. ~ ~~.; letter a~~' ~$s~ssment notices, all . ,1 ��.: : �~. dat ~d A,p~i 1 llt;�es~�ng th'~ . fol~mer fo�~ alleged "deficiency ta:Hes <Other -. ~ Per BJR-BAP : i.n' c o m e 'Issues: -~ Compromise Agreement, FCDU-all oth,r5, Offshore lnco�e>, ' ' branch profit remittance and documentary stamp ta~es, 845

DECISION C. T. A. CASE NO. 4865 - 2- inclusive in the of P37,153,818.69 CEMh. B, CTA Records p. 9>. On Apl~i 1 30, 1987, Petitioner filed its protest letter, dated April 27, 1987, against the assess�ents on the grbunds that: a> petitioner's avail�ent of the inco�e taM amnesty under E.O. No. 41 eMtinguished its alleged 1981 deficiency income taM on both its Regular Banking Unit CRBU> and Foreign Currency Deposit Unit CFCDU>, alleged offshore inco�e and 1981 deficiency branch profit re�ittance taM; b> the alleged 1981 15~ profit re�ittance taM is covered by the income taM amnesty; and c> the 1981 non-negotiable promissory notes are not subject to documentary sta�p taM based on Revenue Me�orandu� Circular No. 33-86 (October 15, 1986) (Petition for Review, p. 2 and EMh. C> On Oct obei~ 2, 1992, Petitio,ner J~eceived a letter from the Respondent, dated Septe�ber 21, 1992, denying Petitioner's protest on the deficiency income deficiency documentary stamp taM and deficiency profit re�ittance taM since "your claim for the privilege of amnesty availment under EO No. 41 is also dismissed as not being bonafide, as required by law." CEMh. D> Hence, this appeal. The issues brought for resolution are the following: 1.> Whether or not Petitioner's availment of the taM amnesty eMtinguished its liability for the deficiency income and branch profits re�ittance ta~es assess�ent. 84b

DECISION C.T.A. CASE NO. 4865 3- 2.> Whether or not Petit i onel~ is liable Documentary Sta�p Tax. As regards to the first issue, We find for the Petit i onel~. This is not a case of first i�pression. In the case of R.O.H. AUTO PRODUCTS PHILIPPINES, INC., vs. THE COMMISSIONER OF INTERNAL REVENUE, CTA Case No. 4318, A...tgust 20, 1990 and BAY FOODS SPECIALTIES, JNC. VS. THE COMMISSIONER OF INTERNAL REVENUE, CTA Case No. 424&, . 1991' this Court ruled in favor of the petit i onet~s. The pertinent portion of the decision is hereby quoted, thus: The intent of the given legislation, as always, is telling. A reading of this executive order giving a�nesty shows the period covered - January 1, 1981 to Dece�ber 31, 1985 (Section 1, Section &, Executive Order No. 41, as a�ended). An a�nesty affords total pardon or forgiveness (3 Words and Phrases 480, citing cases>, as het~e pt~o�i sed by the order for all unpaid income, estate, donor's taxes and business taxes, and all civil, cri�inal, ad�inistrative liability that have arisen fro� non-payment of taxes in the above given period. <Underscoring supplied) On the other hand, an assess�ent is a notice of tax due with a de�and fot~ pay�ent CAlha�bra Cigar & Cigare-t-te Mfg. Co. v. Co��issioner, 105 Phil. 1337 unreported>. An assess�ent can be abated or co�pro�ised on the ad�inistrative level (Section 295, National Internal Revenue Code, now Section 204) while an a�nesty is an act of sovereign grace which obliterates an offense <Words and Phrases, supra> or as seen here, an act which relegates into oblivion all unpaid inco�e, estate, donor's taxes and business taxes incurred during a given period. The i�pression created thus is that considering the nature of a tax assess�ent, its significance

DECISION C. T. A. CASE NO. 4865 - 4- could not be more than that of an a�nesty properly availed of. An assess�ent, even a deficiency assess�ent as in the instant case, cannot defeat the intended effects of the a�nesty because precisely, it is the purpose of the � latter to forgive the non-pay�ent of the ta>epaye�~ of his ta>e liabilities. The respondent who seeks to recover taxes due cannot de�and so�ething which, although oreviouslv done, is now non-existent or has been obl it el~at ed as a consequence of sovereign grace. )C)C)C )C)C)C )C)C)C Respondent failed to present any case or law which proves that an assess�ent can withstand or negate the force and effects of a ta>e a�nesty. This burden of proof on the petitioner was created by the clear and e>epress ter�s of the e>eecutive order's intention- qualified availers of the a�nesty may pay an amnesty ta>e in lieu of said unpaid ta>ees which are forgiven <Section 2, Section 5, E>eecutive Order No. 41, as a�ended>. More specifically, the plain provisions in the statute granting ta>e amnesty for unpaid ta>ees for the period January 1, 1981 to Dece�ber 31, 1985 shifted the burden of proof on respondent to show !:!.2.t!. the issuance of an assess�ent before the date of the promulgation of the e>eecutive order could have a reasonable relation with the objective periods of the a�nestv. so as to �ake oetitioner still answerable for a tax liability which, through the statute, should have been erased with a orooer avail�ent of the a�nestv <Underscoring supplied). �Additionally, the e>eceptions enu�erated .. in:~Se~!jon 4 of E>eecutive Order No. 41, as -~~rid~d~ ~6 not indicate any reference to an ~i~~~s~'nt ~r pending investigation aside from one a~~~~~~� ~r~m infor�ation furnished by an .. infol~mel~. �Section 4. E>ecept ions- The following ta>epayers �ay not avail the�selves of the amnesty hel~ein gt~anted: 848

DECISION C.T.A. CASE NO. 4865 - 5- a) Those falling under the provisions of Executive Order Nos. 1, 2 and 14; b> Those with inco�e tax cases already filed in the Court as of the effe~tivity hereof; c> Those with criminal cases involving violations of the inco�e tax law already fil�d in Court as of the effectivity hel~eof; d) Those that have withholding tax liabilities under the National I nt eJ~n.'ll Revenue Code, as cUI ended, insofar as the said liabilities are conceJ~ned; e). Those with tax cases pending investigation by the Bureau of Internal Revenue as of the effectivity hereof as a result of inforaation furnished under Section 316 of the National Internal Revenue Code, as a11ended; f) Those with pending cases involving unexplained or unlawfully acquired wealth before the Sandiganbayan.' In its very recent Decision, dated January 20, 1995, the Supre�e Court in affirming this Court's Decision in the R.O.H. Case said, thus: We agree with both the Court of Appeals and Court of Tax Appeals that Executive Order No. 41 is quite explicit and requires hardly anything beyond a si�ple application of its provisions. XXX X )( X

DECISION C.T.A. CASE NO. 4865 -6 MMM the conclusion is unavoidable, and it is that the eMecutive order has been designed to be in the nature of a general grant of tax amnesty subject only to the case specifically e)(cepted by it. The Petitioner not being one of those specifically e)(cepted by E.O. 41, it should not therefore be deprived from availing said tax amnesty in accordance with the above Supreme Court ruling. This practice of the Bureau of Internal Revenue of enjoining taxpayers to avail of the tax accepting payment thereof but assess them later on is repugnant to the sense of equity and fair play and certainly run counter to the true wisdom of the Tax We cannot allow such transgression of the law to happen. As to the second issue, Respondent opined that "the basis for the assessment commercial papers issued by the taxpayer is the treatment of such debt instrument usually denominated as 'non- negotiable promissory notes' as investment securities and not as promissory notes whether negotiable or non- Records p. 100) "The nearest term we can apply to the commercial papers is that of certificates of indebtedness subject to documenta�~y stamp tax as such" (ibid.) under Section 223 of the 1977 Tax Code. 85lJ

DECISION C.T.A. CASE NO. 4865 - 7- The core of the issue therefore is: Whether or not co1111ercial papers issued by a corporation to raise funds general public for use in its business be as invest11ent sect..n.. ity, speci fical 1y, certificate of indebtedness as opined by the Respondent or should they be considered as non- negotiable proaissory note .as argued by the Petitioner. We are not prepared to accept the proposition of the Respondent as it lacks basis in law and jurisprudence. In fact, the BIR exa�iner herself was not sure about her stand and relied purely on aere interpretation as she thus: as aoney 11arket debt instru�ents are only a few decades old, they could not have been clas�ified by specific description in the Tax Code; hence, it is a aatter of deteraining their true nature and �placing them in their proper category." (ibid.) There is no roo� for interpretation here as the law under Section 229 of the Tax Code, prior to its a�endaent by.P.D. l9Q9 o~ October 15, 1984 provides that promissory ." . � ~ : �: ' t �.� �� :� \. . notes' are .~bj~c~ ~o thto sta11p t~:te onlv it: negotiable. ' �" '"f:': . f" It should be remembered therefore, that it was only after October 15, 1984 (effectivity date of P.O. 1959) that non_-negot iable promissory notes became sub.ject to documentary stamp tax. But since the above-subject non- 85i

DECISION C.T.A. CASE NO. 4865 - 8- negotiable promissory notes were issued by the Petitioner before October 15, 1984, it should, therefore, not be liable for documentary stamp tax. Moreover, needless to st~te that a tax cannot just be imposed by mere implication or without clear and express words for that purpose. Thus, "if the intent or meaning of the tax statute is not clear, or is doubtful as whethet~ a taxpayet~ is covet~ed by the tax obligation, the tax law shall be construed against the Government because revenue laws impose special burdens.'' CMarinduque h~on Mines Agents, Inc., vs. Hinabangan, Samar L-18924, June 30, 1964 >. WI�REFORE, in all the foregoing, Respondent is hereby CANCELLED, the Petitioner not being liable to any of the alleged 1981 deficiency income tax, branch profit re�ittance tax and - 0~.t~--I ~~ I / Associate Judge 852

DECISION - 9- C.T.A. CASE NO. 48&5 WE CONCUR: ~ \12.~0~ ERNESTO D. ACOSTA Presiding Judge ~LK. GRUBA Judge CERTIFICATION I hereby certify that this decision was reached after due consultation a�ong the �e�bers of the Court of Tax Appeals in accordance with Section 13, Article Vlll of the Constitution. � .. ~-Q_,~ ERNESTO D. ACOSTA PJ~es i ding Judge Court of Tax Appeals 853