BANCO DE ORO UNIVERSAL BANK v. COMMISSIONER OF INTERNAL REVENUE

..,:: Republic of the Philippines COURT IF TU APPEALS Quezon Citv 111/IAIIC BANCO DE ORO UNIVERSAL BANK, CTA-E.B. NO. 138 Petitioner, (C.T.A. Case No.6588) - versus- Present: Acosta, P.J. , Castaneda, Jr., Bautista , Uy , Casanova, and Palanca-Enriquez, JJ. COMMISSIONER OF INTERNAL Promulgated : REVENUE, APR 0 7 20064~~~ Respondent. X - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -X DECISION UY, J.: Assailed in this Petition for Review filed before the Court of Tax Appeals Ell Bnnc under Section 11 of Republic Act No. 9282 are : the Decision and Resolution promulgated on Au gust 5, 2005 and October 11, 2005, respectively, of the First Division of this Court, which affirm ed the Com.missioner of Internal Revenue's assessmen t in the amount of Thirteen Million Eight Hundred Eigh ty Four Thousand One Hundred Fifty ine Pesos and 90/ 100 (Pl3,884,159.90) representing Documf ntary Stamp Tax deficiency

DECISION CTA E.B. No. 138 Page 2 o�9 for fiscal year ending June 30, 1998 in CTA Case No. 6588 entitled, "Banco De Oro Universal Bank versus Commissioner of Internal Revenue". Banco De Oro Universal Bank ("petitioner") is a universal bank duly organized and existing by virtue and under the laws of the Republic of the Philippines with its principal and place of business located at No. 12 ADB Avenue corner Julia Vargas Avenue, Ortigas Center, Mandaluyong City. It is authorized by the Bangko Sentral ng Pilipinas to engage in banking and trust business in the Philippines. On October 30, 2000, Dao Heng Bank, Inc. (Dao Heng for short) and petitioner, entered into a statutory merger executing a Plan of Merger and Articles of Merger, whereby among others, Dao Heng merged into petitioner as the surviving entity, absorbing all the assets and liabilities of the former. Subsequently, on June 15, 2001, the Securities and Exchange Commission ("SEC") issued the definitive Certificate of Filing of Articles of Merger and Plan of Merger, which rendered the merger between Dao Heng and the petitioner effective. On June 11, 2002, the Commissioner of Internal Revenue ("respondent") issued Assessment Notice No. DST2-98-000017 with corresponding letter of demand informing petitioner of its liability in the amount of P13,884,159.90 representing Documentary Stamp Tax ("DST") deficiencies accruing from special savings account product denominated as Investment Savings Account ("ISA") covering fiscal year ending June 30, 1998. Assailing the findings of the respondent, petitioner protested the said

DECIS IO N .; CT A E. B. No. 138 Page 3 of 9 Respondent's failure to act on the protest assessment on June 19, 2002. consh�ained petitioner to file a Petition for Review docketed as CTA Case No. 6588 on January 15, 2003. On August 5, 2005, the First Division of this Court, through the ponencia of Justice Emesto D. Acosta, issued the assailed Decision in favor of the respondent decreeing as follows: "WHEREFORE, the Petition for Review is D ENIED for lack of merit. The assessment for deficiency documenta1y stamp tax on Investment Savings Account for t_~e fiscal year ending June 30, 1998 is AFFIRMED . Accordingly, petitioner is ORD ERED TO PAY the respondent the amount of P13,884,159.90 inclusive of interest, representing deficiency documentary stamp tax for 1998, plus 20 % delinquency interest per ammm from May 31, 2002 until fully paid pursuant to Section 249(C) of the Tax Code. SO ORDERED (Decision, CTA Case No. 6588, August 5, 2005, Records, pp. 26-34)." A separate Concurring and Dissenting Opinion was pe1med by Justice Caesar A. Casanova recommending that the petition for review in C.T.A. Case No. 6588 be granted, and manifesting his dissent in the Decision of said case holding petitioner Banco de Oro liable for deficiency documentary stamp tax on its Investment Savings Accounts (ISA) . Allegedly, from the text of Section 180 of the Tax Code, a "certificate of deposit" subject to DST must have the features of a time deposit; that petitioner's lnveshnent Savings Account is an ilmovative product offered by the petitioner to its clients which is a crossbreed between a regular savings deposit and a time deposit and as such, it contains essential features of both products but does not fall within

DECIS ION CTA E. B. N o. 138 Page -i o f 9 the d efinition of a "certificate of dep osit" to make it liable for DST. Furtherm ore, prior to the am endment of Secti.:m 180 by Republic Ac t No . 9243, entitled "An Ac t Rationalizing the Provisions of the Documentary Stam p Tax of the National Internal Revenue Cod e of 1997, as Am ended , and for O ther Purposes", which was enac ted into law on February 17, 2004, there was allegedly n o law or legisla tive enac tment tha t manda tes the imposition of DST on p etition er's ISA, and it was only after the p assage of R. A. 9243 tha t "all o ther evid ences of d ep osits tha t are draw ing interest significantly higher than the regular savings d ep osit takin g into consi:J.era tion the size of d ep osit and risks in volved " (w hich includes p etitioner's ISA) became liable for DST (Concurring and Dissenting Opinion, Justice Caesar A. Casanova, Records, pp . 35-39) . Unfazed, p etitioner filed a Motion for Reconsidera tion, w hich the Court d enied in its Resolution affirming i11 toto the Decision of Au gus t 5, 2005 (Resolu tion, CTA Case No. 6588, October 11, 2005, Records, p p . 46-51). H ence, this Petition for Review En Bn11 c. Petitioner restates the followin g issu es: 1. Whether or not the formal letter of demand and assessm ent notice are void; 2. Whe ther or no t Dao H eng' s ISA (lnves hnent Savings Account) p roduct is subject to the d ocumentary stamp tax; and 3. If Dao Hen g' s ISA is a "certifica te of deposit", w hether or no t it is payable on demand.

DECISION CT A E. B. No. 138 Petitioner reiterates its arguments that the assessment and demand letter are not valid for being devoid of factual and legal bases pursuant to Section 228 of the 1997 National Internal Revenue Code ("NIRC" ) and Revenue Regulations No. 12-99. A void assessment confers no rights; nor are rights divested. Petitioner further avers that savings account deposits evidenced by passbooks are not certificates of deposit subject to DST pursuant to Section 180 of the 1997 NIRC because the said provision of law imposes DST on certificates of deposit with a fixed term or maturity. Its ISA product is payable on demand because the deposit may be withdrawn at any time. Hence, petitioner concludes that an ISA deposit is not subject to DST. The first, second and third issues raised by the petitioner in this Petition for Review are identical to the issues raised in petitioner's Memorandum and Motion for Reconsideration before the Court's First Division as extensively discussed in the assailed Decision and Resolution dated August 5, 2005 and October 11, 2005, respectively. The Court sustains the findings of the Court's First Division on the following grounds: First, the requirement that the assessment ~hall state the facts and law on which the assessment is based is in consonance with tenets of due process. As correctly observed by the Court's First Division, the DST deficiency assessment is supported by factual and legal bases. To quote: "We do not agree . There was substantial compliance with Section 228. As early as the pre-assessment notice dated April 2, 2002 (Exhibit C), petitioner has been informed in writing of the facts and law on which the assessment was made. Aside from the computation

DECISION CT A E. B. N o. 138 of the Documentary Stamp Tax Due per Aud it, Annex A-1 thereof States that the special savings account of the bank is subject to DST under Section 180 of the 1997 NIRC. XXX XXX XXX In the case at bar, petitioner cannot claim that it has no knowledge of the facts and the law upon which the assessment against it was made. The protests against the pre-assessment notice and against the letter of demand and assessment notice disclose that petitioner has full knowledge of the facts surrounding the assessment. The third paragraph of the protest to the Assessment Notice even states: 'The Bureau premises the Assessment on the conclusion that Dao Heng's ISA Savings Account is the equivalent of the certificate of deposit and which would make it subject to documentary stamp taxes under Section 180 of the NIRC' (Exhibit G) . Verily, at the time the assessment was issued, petitioner knew very well the law and the facts on which it was base(. . The purpose of the law having been served, Section 228 of the Tax Code is deemed to have been complied with (Decision, CTA Case N o. 6588, August 5, 2005, Records, pp . 29-30)." Second, in practice, a time deposit transaction is covered by a certificate of deposit while petitioner's ISA h�ansaction is through a passbook. However, d espite the differences in form of the documents, a time deposit and ISA have essentially the same ath�ibutes and features. Petitioner admitted that the ISA deposit may be withdrawn at any time even before its maturity but the depositor gets to earn a lower rate of interest similar to a time deposit account. The fact that the ISA is documented in a passbook and with authorized termination of deposits prior to the lapse of the predetermined period does not deh�act from its nature as a certificate of deposit subject to DST. Section 180 of the 1997 NIRC does not prescribe the form of a certificate of deposit. It may be any "written acknowledgment by a bank of the receipt

DECISION CTA E.B. No. 138 of money on deposit11 � A certificate of deposit, being a written instrument evidencing transaction between parties, must be considered in the light of the same rule of law as other written instrument) The definition of a certificate of deposit is all encompassing to include a savings account deposit such as ISA. It bears stressing that the form of the document embodying the transaction is immaterial because DST liability does not arise from execution of the document. A DST is a tax on the privilege to enter into a transaction evidenced by the document as explained in the case of Philippine Home Assurance Corporation vs. Court of Appeals2 where the Supreme Court ruled, vzz: "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 legal 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. xxx" Finally, an ISA transaction similar to a time deposit bears a fixed term or maturity because the bank acknowledges the receipt of a sum of money on deposit and which the bank promises to pay to the depositor, bearer or to the order of a bearer on a specified period of time. It is the procedure by the Montgomery vs. Smith, 145 So. 822, 826, 226 Ala. 91 cited in the case of United Overseas Bank of the Philippines vs. Commissioner of Internal Revenue, C.T.A. E.B. NO. 31 (March 10, 2005) 2 301 SCRA 443

DECISION CTA E.B. No. 138 Page 8 of9 banks to compute the amount of interest of the deposit on a thirty (30), sixty (60), ninety (90) or three hundred sixty (360) day-maturity period. In the event of a withdrawal prior to the date of maturity, the holder of the account shall be entitled to the rate of interest lower than the agreed interest. Indubitably, respondent correctly assessed petitioner of DST deficiency in the amount of P13,884,159.90 arising from ISA deposits. In the light of the foregoing discussions, the Court En Bane finds no reversible error committed by the First Division of this Court that would warrant a reversal of the assailed Decision and Resolution promulgated on August 5, 2005 and October 11, 2005, respectively. WHEREFORE, premises considered, the Petition for Review is hereby DENIED DUE COURSE and accordingly DISMISSED for lack of merit. SO ORDERED. ' EA~~~CUticYe WE CONCUR: (\ n. ~1-(s:;. ~ ERNESTO D. ACOSTA Presiding Justice ~ ~ .Gwf-~Q(g.,~. (On Official Business) LOVELL R. BAUTISTA '(UANITO C. CASTANEDA/JR. Associate Justice Associate Justice (With Concurring and Dissenting Opinion) ~ tZ~ CAESAR A. CASANOVA Associate Justice OLGA PALANmNRIQUEZ Associate Justice

DEC ISION CT A E.B. No. 138 CERTIFICATION Pursuant to Section 13, Article VIII 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 En Bnnc. "~1.�. ~ ERNESTO D. ACOSTA. Presiding Justice