CTA Case No. 5285 (Decision)

. ... ~.,_, REPUBLIC OF THE PHILIPPINES COURT OF TAX APPEALS QUEZON CITY WELL.INGTON AND COMPANY, INC., Petitioner, - Vet'SUS -- C.T.A. CASE NO. 5285 THE HONORABLE COMMISSIONER OF INTERNAL REVENUE, Respondent. X- - - - - - - - - - - - - - - - - - - - - - - - - - X DEC S I ON This petition is a claim for� the refund of documentary stamp tax in the amount of P710,578.50 (P710,581.50 less P3.00 documentary stamp tax on the acknowledgment certificate pursuant to Section 188 of the Tax Code, as amended) alleged to be erroneously paid on the transfer of property declared as dividends effect~d on September 10, 1993. Petitioner Is a domestic corporation engaged In the bus I ness of Investment and rea I estate. The evidence presented by the petitioner showed that on September 10, 1993, a Deed of Assignment was executed by petitioner corporation in favor of Its shareholders namely: Wellington, Wei ison, William, Washington and Teresita, all SlH'named Ty; LetIcIa T. Dee, L i I y T. Ang; Fellcislma T. Sia; Salustiana T. Tan and Wi lan Resources Corporation, pursuant to a Board of Directors' resolution

...-� DECISION C.T.A. CASE NO. 5285 - 2- declaring property dividends covering certain condominium units of the Dona Salustlana D. Ty Tower, with an aggregate area of 5,932.77 sq. m. located along Paseo de Roxas, Makatl (Exhibit A). The properties assigned to Its shareholders have a book value of P71,058,123.47 as of December 22, 1992. As a consequence of the transfer, petitioner corporation paid on September 10, 1993 the total amount of P710,581.50 to the Bureau of Internal Revenue, corresponding to the 1% of the value of the properties as documentary stamp tax <Exhibits Band B-1). On November 2, 1994, petitioner fl led a claim for refund with respondent's office, requesting that the documentary stamp tax that it paid on the transaction earlier mentioned, be returned to them on the ground that the transfer of property declared as dividends is not subject to the documentary stamp tax pursuant to Section 196 of the Tax Code and Revenue Ruling No. 498-93, where respondent declared that a deed of assignment effecting the transfer of property as dividends is not subject to the documentary stamp tax. Respondent remained silent on this claim for refund so petitioner filed an appeal with this Court reiterating the same grounds proposed in the administrative I eve I. St iII, respondent maintained her passive stance by not fl I ing an answer to the petition for review, untl I she lJ8C1

�' �-� DECISION C.T.A. CASE NO. 5285 - 3- was finally declared In default by this Court In a Resolution, dated February 23, 1996 (p. 22, CTA reo.). No motion to set aside the order of default was ever filed by respondent to r-estore her' standing in Court, hence, she was not a I I owed to take part In the proceedings of this case untl I the same was submitted for decision. Petitioner anchors its Claim on the argument that the Tax Code provisions and relevant revenue regulations on documentary stamp tax Impose such tax on conveyances of property with a consideration and since It transferred the Condominium units to Its shareholders as property dividends, the said transfer being without consideration, Is therefore exempt from the documentary stamp tax. Furthermore, petitioner contends that In Revenue Ruling No. 498-93, respondent held that a Deed of Assignment effecting the transfer of property declared as dividends Is not subject to the documentary stamp tax. The Issue presented for resolution Is whether or not the transfer of property declared as dividends Is exempt from the documentary stamp tax. The answer to this question will determine whether or not the petitioner Is ent~tled to the refund of P710,578.50, corresponding to ,the documentary stamp tax on the assignment of property as dividends net of the P3.00 due on the acknowledgment 119J.

DECISION C.T.A. CASE NO. 5285 - 4- certificate pursuant under Section 188 of the Tax Code, as amended. As respondent was already declared In default, this Cour-t relied heavily on the evidence presented by the petitioner to see If the contention of the petitioner rests on sound factua I and I ega I bases. We find the petitioner's argument meritorious. As pointed out In the petit ion for review, Sect Ion 185 of Revenue Regulations No. 26, as amended, more commonly known as the "Documentary 8lamp Tax Regulations", provides that conveyances of r-ealty without a consideration Is exempt from the documentary stamp tax and we quote: "Section 185. Conveyances without consideration. Conveyances of realty, not in connection with a sale, to trustees or other pers~ns without consideration are not taxable." Even the respondent acknowledged the abovequoted provision as It relates to conveyance of properties declared as dividends when she Issued Revenue Au I lng No. 49B-9a, dated December 20, 199a, pertinent portions of wh I c h a r e q u o t e d h e r- e u nd e r : "Such being the case, your opinion that s I n c e yo u r c I I e nt , L i b r- a Ag r o- I nd u s t r I a I Development Corporation declared on November 5, 1990 property dividend to all Its stockholders of record as of November 15, 1990, the said property dividend is no longer subject to Income tax and consequently to the creditable expanded withholding tax Imposed under Revenue

DECISION C.T.A. CASE NO. 5285 - 5- Regulations No. 1-90, Implementing Section 50(b) of the Tax Code, as amended, Is hereby confirmed. Moreover, under Section 185 of Regulations No. 26, as amended, otherwise known as the Documentary Stamp fax Regulations, conveyances of realty, not in connection with a sale, to trustees or other persons without consideration ar�e not taxable. In view thereof, and considering that the proposed transfer of the said property dividend to the stockholder-s of your cl lent not In connection with a sale or its sale and the same is without any monetary consideration, this Office I ikewise confirms your opinion that the Deed to be executed to effect the transfer of such property dividend to the stockholders of your cl lent is not subject to the documentary stamp tax imposed under Section 196 of the Tax Code, as amended. The acknowledgment however, of said Deed of Conveyance is subject to the documentary stamp tax (P3.00) on certificates pursuant to Section 188 of the lax Code." 011 November- 16, 1994, r-espondent Issued another r u I I ng, BIR Ruling No. 156-94, r�eaffirming her- earlier stand, thus It was stated: "(4) fhat the Deed of Conveyance to be executed between Foodmine and the recipient stockholders covering the real estate rnopert i es dec I ar-ed as property dividends, not being a sale and without monetary consideration slla II not be subject to the documentary stamp tax imposed under Section 1Y6 of the Tax Code, au amended, but only to the documentary stamp ta~ of P10.00 pursuant to Section 188 of the IHx Code, as amended <BIR Hul ing Nos. 108-93 dated March 16, 1993; 498-93 dated December 20, 1993)." the evidence presented by the petitioner clearly s h o ~, s t tl at a U e e d of Assignment was executed between pel;itloner corporation and Its stockholders as a

DECISION C.T.A. CASE NO. 5285 - 6- consequence of the declaration of dividends In the form of real properties (Exhibit A). Petitioner subsequently paid the documentary stamp tax on said transaction in the amount of P710, 581.50, corresponding to 1% of the book value [P71,058,123.4"11 of the real properties <Exhibits B and B-1). As earlier- discussed, such payment was clearly erroneous because no documentary stamp tax liability ensued from such transaction primarily because there was no consideration for the conveyance of the real properties to the stockholders, except for- the minimal amount of P3.00 as documentary stamp tax on certificates pursuant to Section 188 of the Tax Code. This fact Is evident from the provisions of Section 196 of the Tax code which provides, thus: "Sec. 196. Stamp tax on deed of sale and conveyance of real property. On alI conveyances, deeds, Instruments or writings other than grants, patents, or original certificates of adjudication Issued by the Government, whereby any Iands, tenements or other realty sold shal I be granted, assigned, transferred or otherwise conveyed to _ the purchaser, or purchasers, or to any other person or persons designated by such purchaser or pur-ohaser�s, there sha I I be co I Iected a documentary stamp tax at the following rates. (a) When the consideration, or value received or contracted to be paid for such realty, after making proper allowance of any encumbrance, does not exceed one thousand pesos, ten pesos. (b) For each additional one thousand pesos, or fractional part thereof In excess of

. ~ ,... UECISION C.T.A. CASE NO. 5285 7 one thousand pesos of such consideration or� va I ue. ten pesos. liiliwn 1 t appear'S lhat the amount of the dooumentarv stamp tax payable h~r�eunder has IJE!en redu,;ed tnt a 11 I '"-~ o I' I' e c t ~ 1: a t �:>.nHHl l , of the ()0Jl<Jidr�'f8tlnn in tltl\( COtl\/f:)yanCl~, d~?ed. I n R t: r u "' P 1t I . r1 r wr I t 1 n q q u b J e e t t' o s t1 c h t� ~ x . t h e Commi~�:~:rnn�~r. r�tnvlnnl~l ('r c i t y tr�easur~r. flt 11 t. her� ,, �~ 'r �:' flit�~ , d f i r� H 1 ~3 II ;.1 I I , f t n 111 t h ~~ a s s F� q <J Ill n n t r� n I I '' ~' t � 1 I !r '-' t t n I i ~~ h I r � .,, u u r� c e o 1 lnror'lll<~tt�Jit, Hf'~.n~;�_; ti!H pl�opt"Hl.y �.11' ilE> true mH r� lq� t v ,. ! 11 ,_, �'-~ t1 d ' : n J I " " I ~� d 1 ll e 1t1 ' 1p (,� r t n Y tiHH !'!OIL ' !�v ( r'\!'3 ;.j!IJf'ildt~d FP I <E.i / fllld !-'[) 1 (:!(!9} ]It IS f'f <1 vI "i I r' It thaI the do�.:uml"ntarv "~' 1Hnp 1.'1,, ;.IJ ..ll I nvo I vr:�rl . II I '�, l I u ,, <, f~ ;I I w 1 1. h�� ul such cons 1 �.l~�r �l t 1 �'11 t \ j ) !' ! ) ; (I !tl f'" II f. I~ 1 ,II I '> 'lit!' l�" '.� a 1.1 s e t It en t II P' ,. I '.Jt ,4 \ii1 I I d I.'UllljdJ I i1 t I (lfl of tit�~ n���. 'I vs. GOUIIII i HH I PI!<�! df lilt PI IIi! No. 4H.~'O, datPd ,lrtlt!l�lf \' I II 1 �: t h '' '�''� t.: �.:1 �:-; I � 'II to r " 1 f' . t It u ~�� , ,,,,.. v tlfl� lllll�'lt! ��1! . : t 1111 1' ::1�,; �1!1 d Dr:�~>d "I I �; ! '."I~,; �� d n !l I t; <�� cntr" 1 rlP-r nt 1 on Of I., IH'' P'll �I f n1 th" 'fltJrl ;l �f I " I !IIi~ f� I nq f.' I �lf'IC-' I ,., I I nwAnce fnr AIIV �.11 1i ; IIIli b I il < ' � : �'' I I 1� 1 P �J!! If', ! H H�tlcnq Nt�. ,..� ~~ ;l ,.J u I v b, I llHt''. wrthout ::r! l I 1!<<1 111 t.JH ll '�' ltr�!ll Wfl~'J�r:' til<~ dOUUHlPilli:ltjl ~,1"\IIIP '_; t.l!ll p u t (" d ��n f I"; I' ., 1, ~~ ll ,., l \ ! I f) !} I " ,_. '.I ttl�:~ <llll<IUIII fJ f C <..1 !l ''' I d H I ' M l_� I <' II ~ l! 11 ;:~ I ' I '-:" r�~�c.:; 1 v��:.�d ~_,r �~ u II t 1 l �; 1. �.!' I I u I�" p l j d � 'I I l1 �" I ;'! If� HI ;II IP~ !' Vdlll�~ of tll~l l~>fl Pt�>pert.v. wllt�.lp��Jet t�; ht1tll!'H ( He v. J�.lemo. \, ; ' . 1\1' I , ,) 'J � (i !;\ ) , 1i ~-.!,o- J ..

DECISION C.T.A. CASE NO. 5285 - 8- It Is clear from the foregoing provision (referring to Section 196 of the Tax Code) that first there must be a consideration on which the documentary stamp shall be based. Thus, It applies only If the Instrument Is a sale or other conveyance of real property for a consideration In money or money's worth. However, the last paragraph of Section 196 allows the Commissioner to use as basis for the documentary stamp tax the "true market value" of the property only If the consideration Is Incorrectly stated In the Deed of Conveyance or Sale. Still It Is preconditioned to the fact that there must be an Incorrect consideration as compared to no consideration at alI. In the latter case, similar to the case at bar, no documentary stamp tax Is due." WHEREFORE, In vIew of the foregoing, respondent Is hereby ordered to REFUND In favor of the petitioner, the amount of P710,578.50, net of the P3.00 documentary stamp tax on acknowledgment certificate pursuant to Section 188 of the Tax Code, as amended, representing erroneously paid documentary stamp tax on the Deed of Assignment cohveying real properties declared as dividends to the shareholders of the corporation. SO ORDERED. ~~- C2-..h_ ERNESTO D. ACOSTA Presiding Judge I CONCUR~ \ !' .11~)5

. DECISION C.T.A. CASE NO. 5285 - 9- CERTIFICATION hereby certify that this decision was reached after due consultation with the member of the Court of Tax Appeals In accordance with Section 13, Article VI I I of the Constitution. CLz:- \SZ-~ ~ ERNESTO D. ACOSTA Presiding Judge Court of Tax Appeals '11 ',-1 ,___1~~ -JI '--