CTA Case No. 6401 (Decision)

REPUBLICOF THE PHILIPPINES

COURT OF TAX APPEALS

QUEZON CITY

FIRST DIVISION

*************

BANCO DE ORO UNIVERSAL BANK Petitioner,

C.T.A. CASE NO. 6401

versus- Members: AcosTA, Chaiman BAUTISTA,and CASANOVA,JU

COMMISSIONER OF INTERNAL REVENUE Respondent. Promulgated: SEP 1 9 2005

mkyHaara

DECISION

BAUTISTA,L.J

The instant Petition for Review seeks the reversal of the decision of respondent

dated December 21, 2001 denying the protest of Dao Heng Bank,a bank absorbed by

petitioner in a merger duly approved by the Bangko Sentral ng Pilipinas and the Securities

and Exchange Commission, against Assessment Notice Nos.ST-DST-96-0101-99 and ST-

DST-97-0103-99 covering deficiency documentary stamp taxes in the amounts of

P10,483,816.90 and P50,101,164.40 for taxable years 1996 and 1997, respectively.

Petitioner is a domestic corporation duly registered with the Securities and Exchange

Commission and duly authorized by the Bangko Sentral ng Pilipinas (BSP) as a universal

bank with principal business address at No.12 ADB Ave. cor.J.Vargas, Ortigas Center, Pasig

DECISION C.A.CASE NO. 6401 Page 2

City par.2, Summary of Admitted Facts. Banco de Oro is the surviving corporation,while

Dao Heng Bank, Inc. (Dao Heng) was the absorbed corporation, pursuant to the Articles and

Plan of Merger entered into by the two banks on October 30, 2000 and approved by the

Bangko Sentral ng Pilipinas on February 27,2001. On June 15,2001, the Securities and

Exchange Commission issued the corresponding Certificate of Filing of the Articles and Plan

of Merger. Clause 1.4.4 of the Merger provides that "any pending caim, action or

proceeding brought by or against DHBI [Dao Heng]may be prosecuted by or against BDO]

[Banco de Oro]." Dao Heng and Banco de Oro, being one and the same after the merger,

are hereafter interchangeably referred to as the petitioner.

Through Letter of Authority No. 000018567 dated July 27,1998, respondent caused

the examination of petitioner's books of accounts/accounting records relative to the latter's

all internal revenue tax liabilities for the Fiscal Years (FYs ended June 30,1996 and June

30, 1997 (Exhibit 1; par.6, Summary of Admitted Facts).

As a result of the investigation, petitioner received from respondent on September 7.

1999 a Pre-Assessment Notice dated August 30,1999 (Exhibit 4) informing petitioner about

the proposed assessment for the following deficiency taxes for FYs ended June 30, 1996 and

June 30, 1997

DEFICIENCY FINALTAX-ONSHORE INCOME DEFICIENCY GROSS RECEIPTS TAX DEFICIENCY DOCUMENTARY STAMP TAX 10,155,362.73 FY 1996 27,151.57 466,444.61 P 49,443,518.05 12,681,188.35 FY 1997 166,277.74

On September 24, 1999, petitioner filed a protest letter detailing therein the reasons

why it disagreed with the findings of the respondent (Exhibit 5).

On December 3, 1999, petitioner received from respondent four Formal Assessment

Notices and accompanying Formal Letters of Demand, all dated December 1,1999, this time

assessing petitioner for penalties for late payment of final withholding tax on onshore

DECISION C.T.A.CASE NO.6401 Page 3

income and deficiency documentary stamp tax (DST for FYs 1996 and 1997, in the

following amounts (pages 451-452 & 462-469, BIR Records):

FISCAL YEAR ENDED JUNE 30,1996

ASSESSMENT NO. ST-FWT-96-0100-99

PENALTIES FOR LATE PAYMENTOF FWT-ONSHOREINCOME

Add: Total Basic tax TOTAL AMOUNT DUE Less: 20% interest from 7-11-96 to 8-10-96 (.016666) Basic tax paid dated 8-10-96 25% surcharge Compromise penalty P 2,630.42 P 4,331.87 P 1701.45 2.630.42 1,000.00 657.61 43.84

ASSESSMENT NO.ST-DST-96-0101-99

DEFICIENCY DST (INDUSTRY ISSUE)

Investment savings account (private bank) Investment savings account (individual) Basis of DST DST due thereon Add: IBCLterm Rate of tax 20% interest from 7-11-96 to 12-6-99 (.680554) P 4,148,955,918.01 3,972,939,584.67 175.000.000.00 1,046,333.34 6,223,434.00 4,235,382.90 30/200

TOTAL AMOUNT DUE Compromise penalty 10.483.816.90 25.000.00

FISCAL YEARENDED JUNE 30,1997

ASSESSMENT NO. ST-FWT-97-0102-99

PENALTIES FOR LATE PAYMENT OF FWT-ONSHORE INCOME

Total Less: TOTAL AMOUNT DUE Basic Tax Add: 25% surcharge 20% interest from 7-11-97 to 8-11-97 (.016666) Compromise penalty Basic tax paid dated 8-11-97 P 152,652.07 P44,768.8Q P 107.883.27 107.883.27 26,970.82 16,000.00 1,797.98

C.T.A.CASE NO.6401 Page 4 DECISION

ASSESSMENT NO.ST-DST-97-O103-99

DEFICIENCY DST (INDUSTRY ISSUE)

Investment savings account (individual) Rate of tax IBCL-term Basis of DST DST due thereon P19,483,390,208.15 P 22,548,390,208.15 0 3.065.000.000.00 33,822,585.60 30/200

TOTAL AMOUNT DUE Add 20% interest from 7-11-97 to 12-6-99 (.480554) Compromise penalty 50,101,164.40 16,253,578.80 25.000.00

In a letter dated December 21,1999 and received by respondent on December 23

1999, petitioner protested the assessments for deficiency DST for FYs 1996 and 1997 in the

amounts of P10,483,816.90 and P50,101,164.40 covered under Assessment Notice Nos. ST-

DST-96-0101-99 and ST-DST-97-0103-99, respectively (pages 445-449, BIR Records;par.9

Summary of Admitted Facts).

On January 29, 2002, petitioner received a copy of respondent's Final Decision on

the disputed assessments, denying petitioner's protest and ordering petitioner to pay the

amounts of P10,483,816.90 and P50,101,164.40 as deficiency DST for FYs 1996 and 1997,

respectivelypages 513-522,BIR Records;par.10,Summary of Admitted Facts).

On February 27,2002 or within thirty (30) days from January 29, 2002, petitioner

elevated its case before this Court.

In his Answer filed on April 3, 2002,respondent alleges, among others, that

petitioner's interbank call loans (IBCLs) are subject to the documentary stamp tax imposed

under Section 180 of the National Internal Revenue Code of 1977, as amended; that

petitioner's IBCLs fall squarely within the definition of deposit substitutes; that petitioner's

Investments Savings Accounts are considered time deposits and are subject to documentary

stamp tax under Section 180 of the Tax Code of 1977, as amended; that the assessments

were issued in accordance with law and regulations and that all presumptions are in favor of

the correctness of tax assessments.

DECISION Page 5 CASE NO. 6401

The issues posed jointly by the parties for this Court's resolution are:

I. Whether or not the 1977 NIRC imposes DST on deposit substitute debt

instruments;

2. Whether or not the IBCLs are deposit substitutes;

3.Whether or not petitioner's payment of final withholding tax on IBCLs is pursuant to Revenue Regulations No. 10-86; and

4. Whether or not the ISAs are included within the coverage of Article 180 of the 1977 NIRC, and taxable thereunder.

Records reveal that the disputed assessments arose from the respondent's imposition

of DST on petitioner's: 1) interbank call loans (IBCLs) and2) investment savings accounts

(ISAs) for FYs 1996 and 1997.

The first, second and third issues above stipulated relate to the validity of

respondent's imposition of DST on petitioner's IBCLs. Anent the first issue, respondent

claims that petitioner's IBCLs are deposit substitute debt instruments subject to DST under

Section 180 of the NIRC of 1977, as amended, which reads as follows:

- On all loan agreements signed abroad wherein the object of the contract is the government or any of its instrumentalities, deposit bearing interest and others not payable on sight or demand. Iocated or used in the Philippines; bills of exchange (between points withir notes, bills of exchange, drafts, instruments and securities issued by Sec. 180.. Stamp tax on all loan agreements, promissory certificatesof

the Philippines,drafts,instruments and securities issuedby the Government

demand, or on all promissory notes, whether negotiable or non-negotiable, note, there shall be collected a documentary stamp tax of Thirty centavos fifty thousand pesos (P250,000) executed by an individual for his purchase on orders for the payment of any sum of money otherwise than at sight or or except bank notes issued for circulation, and on each renewal of any such value of any such agreement, bill of exchange, draft, certificate of deposit, or either loan agreement, or promissory notes issued to secure such loan or promissory notes the aggregate of which does not exceed Two hundred installment for his personal use or that of his family and not for business resale, barter or hire of a house, lot, motor vehicle, appliance or furniture shall be exempt from the payment of the documentary stamp tax provided under this section. (as amended by RA 7660) or any of its instrumentalities or certificates of deposits drawing interest, or (P0.30 on each two hundred pesos, or fractional part thereof, of the face note: Provided, That only one documentary stamp tax shall be imposed or whichever will yield a higher tax: Provided however, That loan agreements

DECISION C.T.A.CASE NO. 6401 Page 6

To support his position, respondent cites the case of BPI Family Bank vs

Commissioner of Internal Revenue and Court of Tax Appeals, C.A.-G.R. Sp No.

29853, September 19,1994, wherein the Court of Appeals ruled that:

"A perusal of Section 180 of the Tax Code will show that it covers the following instruments:(1) promissory notes, whether negotiable or not; (2) defined as follows: bills of exchange;3 drafts;4 certificates of deposit; and 5 debt instruments used_for deposit_substitute. The foregoing instruments are

XXX XXX XX

acceptance of debt instruments for the borrowers own account, for the from the public, other than deposits, through the issuance, indorsement, or repurchase agreements, certificates of assignment or participation and similar industrial, finance companies and other.Provided, however, That only debt y). Deposit substitutes shall mean an alternative form of obtaining funds financing their own needs or the needs of their agent or dealer. These instruments with recourse as may be authorized by the Central Bank of the Philippines, for banks and non-bank financial intermediaries or by the Securities and Exchange Commission of the Philippines for commercial, instruments issued for inter-bank call ioans to cover deficiency on reserves against deposit liabilities including those between or among banks and quasi- purpose of relending or purchasing of receivables and other obligations, or instruments may include but need not be limited to promissory notes bank shall not be considered as deposit substitute debt instruments'.

Petitioner, on the other hand, counter-argues that Section 180 of the NIRC of 1977,

as amended, the law in effect during the years covered by the subject assessments, did not

impose DST on deposit substitute debt instruments.The term "deposit substitute debt

instruments" was inserted in Section 180 of the Tax Reform Act of 1997 which took effect

only on January 1, 1998. Petitioner further avers that respondent's reliance on the BPI

Family Bank case is misplaced as the factual circumstances and issues therein do not apply

in the instant case.

We rule in favor of petitioner.

Clearly, from the earlier cited provisions of Section 180 of the NIRC of 1977, as

amended, only the following documents are subject to DST

DECISION C.T.A.CASE NO. 6401 Page 7

6.) Other orders for the payment of any sum of money otherwise than at sight or 1.) Loan agreements; 2. Promissory notes 3.) Bills of exchange; 4. Drafts, instruments and securities issued by the Government or any of its 5.) Certificates of deposit bearing interest; and demand. nstrumentalities;

The term "deposit substitute" or "debt instruments used for deposit substitute" is

not among those enumerated as subject to documentary stamp tax under Section 180 of

the NIRC of 1977, as amended. As held by this Court in the case SOLIDBANK

CORPORATION (now: First Metro Investment Corporation) vs. COMMISSIONER

OF INTERNAL REVENUE,CTA Case No. 6557,May 5,2005(citing the case of ING

BANK N.V.MANILA BRANCH VS.COMMISSIONER OF INTERNAL REVENUE, CTA

Case No. 6187, dated August 9, 2004 the said phrase was only inserted in the

following provisions of Section 180 of the NIRC of 1997 which became effective only on

January 1, 1998:

all bonds, loan agreements, including those signed abroad, wherein the debt instruments, certificates of deposits drawing interest, orders for payment Promissory Notes, Bills of Exchange, Drafts, Instruments and Deposit Substitute Debt Instruments, Certificates of Deposits Bearing Interest and Others Not Payable on Sight or Demand.- On object of the contract is located or used in the Philippines, bills of exchange issued by the Government or any of its instrumentalities, deposit substitute between points within the Philippines, drafts, instruments and securities of any sum of money otherwise than at sight or on demand,on all promissory notes, whether negotiable or non-negotiable, except bank notes issued for Securities Issued by the Government or Any of its Instrumentalities SEC. 180.Stamp Tax on All Bonds, Loan Agreements

circulation, and on each renewal of any such note, there shall be collected a documentary stamp tax of Thirty centavos (Po.30) on each Two hundred agreement, bill of exchange, draft, certificate of deposit, or note: xxx (Underscoring supplied). pesos P200), or fractional part thereof, of the face value of any such

The taxable years in question pertain to 1996 and 1997, prior to the effectivity of

the NIRC of 1997.Since it is an eiementary rule that a tax law can only have a retroactive

Pae8 DECO C..CAS NO. 6401

application in cases where the rights of the taxpayers are not prejudiced, Section 180 of the

NIRC of 1997 cannot be made to apply in the instant case.

Inasmuch as Section 180 of the NIRC of 1977, as amended, the law existing in 1996

and 1997 did not cover deposit substitute debt instruments, which respondent claims the

IBCLs to be, this Court rules that the assessments for deficiency DST on IBCLs for 1996 and

1997 have no legal basis and must therefore,be cancelled and withdrawn.

Accordingly, it is unnecessary to discuss the second and third issues as they delve on

whether or not petitioner's IBCLs for 1996 and 1997 are deposit substitutes within the

meaning of the law and regulations then obtaining. Even assuming that the said IBCLs are

deposit substitutes, this Court reiterates that there was no law in 1996 and 1997 which

subjected deposit substitutes to documentary stamp tax.

We then proceed to the fourth issue of whether or not petitioner's Investment

Savings Accounts (ISAs) are included within the coverage of Section 180 of the 1977 NIRC,

as amended, and taxable thereunder.

Petitioner asserts that a passbook evidencing its special savings account known as

investment savings account (ISA) is not among the documents subject to DST under Section

180 of the NIRC of 1977, as amended. Thus the subject assessments have no leg to stand

on. Petitioner interprets Section 180 as to include those documents that provide for the

payment of sums of money otherwise than at sight or demand.. In other words, the

documents that are subject to DST are those that provide for the payment of money at a

fixed period or maturity date, such as a certificate of deposit which has the following

features:: a) it must cover a deposit of a sum of money;b) the deposit must be interest-

earning; c) it must be a deposit payable otherwise than at sight or on demand [in other

words, the deposit must have a fixed maturity date]; and it must be evidenced by a

"certificate" In the banking industry, the term "certificate" refers to no other than a

DECISION Page 9 T.A.CASE NO.6401 C

certificate of time deposit. Thus, according to the petitioner, passbooks issued by banks to

evidence deposits such as ISAs that may be withdrawn at anytime,are clearly excluded from

the coverage of Section 180. These documents entitle the holders thereof to payment of

money "at sight or on demand"and, by the language of Section 180, are not subject to

DST.

On the contrary, respondent insists that petitioner's ISAs are subject to DST under

Section 180 of the NIRC of 1977, as amended, since it has the same features of a time

deposit,namely: a) it has a fixed maturity date and yield a higher interest rate; and b) it

can be withdrawn anytime in whole or in part before maturity date, subject, however to the

prevailing regular savings account interest rate. The use of an ordinary savings account

passbook instead of a certificate of deposit does not alter the substance of the Investment

Savings Account.

Respondent firmly believes that petitioner's ISAs and time deposits are akin to each

other, only that efforts were made by petitioner to place superficial distinction between the

two deposit accounts by introducing an innovation i.e., by using a regular passbook to

document the said special savings account. Respondent maintains that a close scrutiny of

an ordinary savings account passbook discloses the following entries, which are reflected in

separate columns, to wit: date, withdrawals, deposit/interest, balance and remarks. From

these entries, even an ordinary layman could easily decipher that on a certain date, the

depositor made either a deposit or withdrawal and that after making such transaction the

amount appearing in the "balance column" is what remains of his money that is kept by the

bank. In the "remarks column," the bank's representative attaches his initial/signature. The

initial/signature signifies that the bank acknowledges the correctness, authenticity and

veracity of all the entries therein, which means that the bank recognizes and admits that on

the stated date, the depositor made a deposit which is received by the bank and that it will

C.T.A.CASE NO. 6401 DECIO Page 10

pay the depositor or his representative should he decide to withdraw his money..Clearly

therefore, the regular savings account passbook has the same substance, attributes anc

qualities as a "certificate of deposit". The fact that petitioner's"Investment Savings Deposit

is evidenced by a regular savings account passbook and not by a certificate of deposit is of

no moment. What is important and controlling is the nature or meaning conveyed by the

passbook and not the particular label or nomenclature attached to it, inasmuch as its

substance is paramount than its form.

We agree with the respondent.

We have already ruled in a number of cases that a special savings account such as

the ISA in the instant case, is subject to documentary stamp tax. In the more recent case

entitied TRADERS ROYAL BANK VS COMMISSIONER OF INTERNAL REVENUE, CTA

EB NO.34,APRIL 26,2005,the Court En Banc ruled

between the bank and the depositor is created (Far East Bank and Trust bank or banker of the receipt of a sum of money on deposit which the bank or banker promises to pay to the depositor, to the order of the depositor, or to some other person his order, whereby the relation of debtor and creditor Company vs. Querimit, 373 SCRA 671). A certificate of deposit is defined as a written acknowledgment by a

"certificate of deposit" to documentary stamp tax. A documentary stamp tax is a tax on documents, instruments and papers evidencing the acceptance, assignment, sale or transfer of an obligation, right, or property incident thereto Hector S.De Leon, The National Internal Revenue Code,2000,ed. p. 722). It is in the nature of an excise tax imposed on the privilege, opportunity or facility offered at exchanges for the transaction of the business and not upon the business transacted (Lincoln Phil. Life Insurance Co., Inc ys. Court of Appeals, 293 SCRA 92). From the aforequoted provision of Section 180, the law subjects a

Royal Bank vs. Commissioner of Internal Revenue, CTA EB No. 34, April 26, 2005 Union Bank of the Philippines vs.Commissioner of Internal Revenue, CTA Case No. 6436, February Corporation vs. Commissioner of Internal Revenue,CTA Case No.6400,October 14,2004;ING Bank Internal Revenue, CTA Case No. 6198,February 16,2005; Rizal Commercial Banking Corporation vs Commissioner of Internal Revenue, CTA Case No. 6201, December 15,2004; International Exchange N.V.Manila Branch vs. Comissioner of Internal Revenue, CTA Case No.6187, August 9,2004 Bank vs. Commissioner of Internal Revenue, CTA Case No. 6392, April 28, 2004 affirmed in Traders 21,2005;Prudential Bank vs.Bureau of Internal Revenue,repre Bank vs.Commissioner of Internal Revenue, CTA Case No.6159,October 26,2004;China Banking Banco de Oro vs. Commissioner of Internal Revenue, CTA Case No.6390, July 1,2004;Traders Royal esented by the Commissioner of

DECISION C.T.A.CASE NO.6401 Page 11

enter into a transaction rather than a document. document because of the transaction (Hector S. De Leon, The Law on therefore, is the privilege of the petitioner to enter into such a transaction Transfer and Business Taxation, 1998, ed., p. 351). What is being taxed, It is a privilege tax because it is really imposed on the privilege to The law taxes the

a "time deposit is evidenced by a certificate of time deposit.Certificate of term, with the understanding that funds cannot be withdrawn before maturity without giving advance notice. Ordinarily, a time deposit is defined as "one, the payment of which cannot legally be required within such a specified certificate of deposit, refers to a deposit account paying interest for a fixed number of days"(BPI Family Savings Bank vs. First Metro Investment Corp. Law Dictionary, t ed..Verily, the main difference between a savings deposit" and a "time deposit" is the penalty, which may come in the form of reduced interest rate. An instance is when the depositor makes a withdrawal prior to the maturity of the deposit. G.R.No.132390,May 21,2004,citing 10 Am.Jur.2d.,p.652.In practice deposits or time deposits usually carry penalties for early withdrawal (Black's On the other hand, a "time deposit", which is also a form of a

stamp tax, it is thus relevant to determine whether petitioner's Special a time deposit certificate. Savings and Mega Savings Deposit bear the same nature or characteristics of A certificate of deposit, undeniably, being subject to documentary

As aptly ruled by the Division:

argument that an SSA is withdrawable anytime and the interest to which depends on how long the money is kept by savings account is not a time deposit, petitioner advances the the depositor with the bank; while in the case of a time deposit, there is a specific maturity date evidenced by a bears stressing though that petitioner's witness himself, Mr. Bayani R. Navarro, admitted that for a depositor under a Special Savings Deposit or Mega Savings Deposit to be able to avail of the higher rate of interest offered by the said kinds of deposit, the money should have been kept by the bank for a August 8, 2002; otherwise, the deposit earns interest pertaining to a regular savings deposit which is comparatively certificate of deposit TSN, page 11,August 8,2002.It period not less than thirty (30) days (TSN, pages 14-16, Smaller. "In its attempt to convince the court that the special

deposit even before its maturity subject to pretermination charges and the depositor loses his entitlement to earn the interest rate corresponding to the time deposit. Instead, he a time deposit. A depositor is still allowed to withdraw his time earns interest likewise pertaining to a regular savings deposit. It is to be noted that the same holds true in the case of

DECISION C.T.A.CASE NO.6401 Page 12

Clearly, petitioner's argument that one is withdrawable anytime and the other is not has no leg to stand on. The fact

the depositor gets to earn a lower rate of intefest.The only difference lies on the evidence of deposit. is: in both cases, the deposit may be withdrawn anytime but

transaction. In Special Savings Account, the transaction is are akin to each other in such a way that the bank the order of a bearer on a specified period of time. difference lies on the document issued to evidence the covered by a passbook, while in time deposit, it is through a subject to documentary stamp tax, substance would control over the form and labels xxx (Knudsa Creamery California vs.US, 121 F.Suppl.860,26 U.S.C.A.1800 1801).The court agrees with the findings of the respondent that the nature of Special Savings Deposit and Time Deposits acknowledges the receipt of a sum of money on deposit and which the bank promises to pay to the depositor, bearer or to certificate of deposit. But in determining whether a certain instrument is Co. of The

instruments or documents (Phil. Home Assurance Corp. vs. Court of Appeals, Savings Deposit are deemed to be of the same nature and substance as a certificate of deposit bearing interest. Therefore, We hold that said Special Savings and Mega Savings passbooks are in themselves certificates of deposit, subject to documentary stamp tax in accordance with Section 180, alone. Rather, the DST is levied on the exercise of a privilege of conducting a particular business or transaction through the execution of specific National Internal Revenue Code of 1993, as amended. While the DST is levied on the document itself, it is not intended to be a tax on the document 301 SCRA 435) For all intents and purposes, petitioner's Special Savings and Mega

Considering that the aforecited case is no different from the present case, this Court

upholds the assessments for deficiency DST on petitioner's investment savings accounts

(ISAs) for fiscal years 1996 and 1997 in the respective amounts of P10,020,977.10 and

P43,285,153.75 (inclusive of 20% deficiency interest) computed as follows:

FOR FY ENDED JUNE 30,1996 Investment savings account (private bank) Investment savings account (individual) Basis of DST Rate of tax Basic DST due Add: Total Amount Due 20% interest from 7-11-96 to 12-6-99 P 3.973,985,918.01 P P P 3.972.939.584.67 10,020,977.10 1,046,333.34 5,960,978.88 4.059 998.22 30200

DECISION Page 13 .1A CASE NO.640

FOR FY ENDED JUNE 30, 1997 Investment savings account (individual) Basic DST due Total Amount Due Rate of tax Add: 20% interest from 7-11-97 to 12-6-9 P19,483,390,208.15 2 43,285,153.75 29,225,085.31 14.060,068.44 30/200

As there was no compromise agreement between the parties, this Court cancels the

compromise penalty of P25,000.00 imposed by the respondent for each subject fiscal year.

IN VIEW OF THE FOREGOING, the instant Petition for Review is hereby

PARTIALLY GRANTED. The assessments for deficiency documentary stamp tax on

petitioner's interbank call loans for fiscal years 1996 and 1997 in the respective amounts of

P437,839.80 and P6,791,010.65 as well as the compromise penalties amounting to

P50,000.00 for both fiscal years 1996 and 1997 are hereby CANCELLED and SET ASIDE

However, the assessments for deficiency documentary stamp tax on petitioner's Investment

Savings Accounts for the fiscal years 1996 and 1997 are hereby AFFIRMED

Accordingly, petitioner is ORDERED TO PAY the respondent the reduced amounts

of P10,020,977.10 and P43,285,153.75 as deficiency documentary stamp tax for fiscal years

1996 and 1997, respectively, plus 20% delinquency interest computed from March 1,2002

until full payment thereof pursuant to Section 249(C) of the NIRC of 1997.

SO ORDERED

LOVELL R. BAUTISTA Associate Justice

DECISION C.T.A.CASE NO.6401 Page 14

WE CONCUR

ERNESTO C. ACOSTA Presiding Justice N

( With Concurring and Dissenting Opinion) CAESAR A. CASANOVA

Associate Justice

CERTIFICATION

I hereby certify that the above decision was reached after due consultation with the

members of the Division of the Court of Tax Appeals in accordance with Section 13, Article

VIII of the Constitution.

ERNESTO D. ACOSTA Chairman, First Division Presiding Justice

Republic of the Philippines COURT OF TAX APPEALS Quezon City

FIRST DIVISION

BANCO DE ORO, -versus- Petitioner, Members: CTA CASE No.6401 ACOSTA,PJ CASANOVA,JJ. BAUTISTA,and

COMMISSIONER OF INTERNAL REVENUE, Respondent. Promulgated: SEP 1 9 2005MabahS X

Concurring and Dissenting Opinion

I agree with the majority opinion regarding the cancellation and setting aside of the assessments for deficiency stamp tax on petitioner's interbank call loans for fiscal years 1996 and 1997. However, I am dissenting with my colleagues in holding petitioner Banco de Oro liable for Deficiency Documentary Stamp Tax on its Investment Savings Accounts.

It is my opinion that the Investment Savings Account, unlike a time deposit, has no holding period or maturity date in order to avail a higher interest

A time deposit has a maturity date wherein the parties mutually agree that the

Bank will pay the depositor the stipulated interest rate only upon the expiration of a definite, fixed and predetermined date. The depositor in a time deposit is

bound by the maturity date agreed upon; otherwise, he or she will be penalized by not receiving the high interest as stated in the certificate of deposit. In

contrast, Investment Savings Account has no maturity date. The period offered

to a prospective Investment Savings depositor is a length of time provided in a

schedule of placement, for which a corresponding rate is given. Still, the

Page 2 CTA CASE NO. 6401 Dissenting Opinion Concurring and

depositor is at liberty to withdraw his or her deposit at any time upon the presentation of his or her passbook.

Investment Savings Account is an innovative product offered by the petitioner to its clients. It is a crossbreed between a regular savings deposit and

a time deposit and as such, it contains essential features of both products.This

new product offers higher interest rates upon certain conditions similar to a time deposit, but this does not automatically classify it as such.

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. A "time deposit", is

another term for a savings account or certificate of deposit in a commercial bank.

It is so called because in theory(though no longer in practice a person must wait a certain amount of time after notice of desire to withdraw part or all of his or her savings. Certificates of deposits usually carry penalties for early

withdrawal. Cash in a bank earning interest; contrast with demand deposit Black's Law Dictionary, 6h Edition.Thus, it is incorrect for the respondent to conclude that Investment Savings Account falls within the definition of a

"certificate of deposit"to make it liable for DST.

In a Supreme Court decision, it was held that:

"The Court takes this occasion to reiterate the hornbook doctrine in

the interpretation of the tax laws that "(a) statute will not be construed as

imposing_a tax unless it does so clearlyexpresslyand unambiguously.

Xxx (a) tax cannot be imposed without clear and express words for that

purpose.Accordingly, the general rule of requiring adherence to the ietter

Dissenting Opinion CTA CASE NO.6401 Page 3 Concurring and

in construing statutes applies with peculiar strictness to tax laws and the provisions of _a taxing act are_not_to be_extended_by_implication. Parenthetically, in answering the question of who is subject to tax statutes, it is basic that "in case of doubt, such statutes are to be

construed most strongly against the government and in favor of the subject citizens because burdens are not to be imposed nor presumed to be imposed beyond what statutes expressly and clearly import."(CIR vs. Court of Appeals, Court of Tax Appeals and Ateneo de Manila, 271 SCRA 605

There must be a law or legislative enactment that mandates the

imposition of any tax in order for it to be due and demandable. The legislative

intent behind Section 180 of the Tax Code is to include time deposits only as those liable for DST. It is through the introduction of Investment Savings Account and similar transactions by the banking industry that Congress deemed it necessary to enact a new law to specifically cover the said product within the purview of said (w.

Republic Act # 9243,"An Act Rationalizing the Provisions of the

Documentary Stamp Tax of the National Internal Revenue Code of 1997, as

Amended, and for Other Purposes" was enacted into law on February 17, 2004. Section 5 of the said law reads, as follows:

"SEC. 5. Section 180 of the National Internal Revenue Code of 1997, as amended, is hereby renumbered as Section 179 and further amended to read as

follows:

SEC.179.Stamp Tax on All Debt Instruments.-On every original

issue of debt instruments, there shall be collected a documentary stamp tax of

Dissenting Opinion Page 4 CTA CASE NO. 6401 Concurring and

One peso (P1.00) on each Two hundred pesos (P200, or a fractional part thereof, of the issue price of any such debt instruments: Provided, That for such debt instruments with terms of less than one (1) year, the documentary stamp 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 stamp tax shall be imposed on either loan agreement, or promissory notes issued to secure such loan.

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 instrument, certificates or other evidences of deposits that are 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 date, orders for payment of any sum of money otherwise than at sight or on demand, promissory notes, whether negotiable or non-negotiable, except bank notes issued for circulation."

The above-cited law clearly subjects to DST not only time deposits but also other evidences of deposits that are drawing interest significantly higher

than the regular savings deposit taking into consideration the size of deposit and

the risks invo/ved. Under this provision, bank deposits drawing interest higher

than the regular savings rate, even though the same may be withdrawn anytime,

are subject to DST.The enactment of Section 5 of RA # 9243 settled the conflict

between the Office of the Commissioner of Internal Revenue and the banking

industry with regard to the imposition of DST on Investment Savings Account

CTA CASE NO. 6401 Dissenting Opinion Concurring and Page 5

and similar transactions.The fact that Congress amended Section 180 of the Tax Code shows that the old law was inapplicable to the instant case. There was no law before the passage of RA # 9243 subjecting the Investment Savings Account of the petitioner to DST.

WHEREFORE, premises considered, I vote to GRANT the Petition

for Review

CAESAR A. CASANOVA Associate Justice