CTA Case No. 5025 (Decision)

- REPUBLIC OF THE PHILIPPINES COURT OF TAX APPEALS QUEZON CITY LINCOLN PHILIPPINE LIFE �C.T.A. Case No. 5025 INSURANCE COMPANY, INC. (now Jardine CMG Life Insurance Co�pany, Inc.>, Petitionet~, - vet~sus COMMISSIONER OF INTERNAL REVENUE, Respondent. X- - - - .DECISION This case involves an ~ssessment for documentary stamp tax for. the yeat~s 1987, 1988 and 1989 in the total amount of P11,495,784~38. Petitionet~ i s a domestic cOl�~pot~ation duly ot~ganized and existing undet~ the laws of the Philippines, with pri nci pa 1 o�ffice at Sen. Gi 1 J. Puyat� Avenue, Makat i, Mett~o Manila. On August 27, 1991, respondent sent a letter of demand and an Assessment Notice No. FASS-87-91-002412 both dated August a, 1991. Respondent assessed petitioner for alleged deficiency documentary stamp taxes for the year 1987 in the total amount of P3,770,206.25. 1350

.. - -- ....,.. DECISION C.T.A. CASE NO. 5025 - 2- Again anothet~ demand lettet~ with t~espective Assessment Notice Nos. FAS1-88-89-002941 and FAS1-89-92- 002942 both dated June 29, 1992 was received by the petitioner on July 28, 1992. Respondent assessed petitioner for alleged deficiency documentary stamp taxes for the year 1988 and 1989 in the amount of P4,554,068.75 and P3,171,509.38, respectively. The abovementioned 1987 deficiency documentary stamp tax assessment at~ose due to the inclusion of the am'ount of P953,951,000.00, representing the increases in sum assured pet" "Exhibit 15-Life Insl..tt"ance Policies"� of petitioner's � 1987 Ann(tal �Report to the Office of the Insurance Commissionet~, as par:t of the taxable base fot" documentary stamp tax purposes, although no insurance policiei covering such increases were actually issued during the taxable yea~s in question. On Septembet~ 3, 1991, petitionet" filed a lettet" with the t~espondent, pt~otest ing the assessment for documentary stamp tax for the year 1987. Thereafter on August 5, 1992, petitioner filed a letter with the t~espondent, protesting the assessments for documentary stamp tax for the years 1988 and 1989. On August 26, 1993, t~espondent, served on petitionet~ C.'\ Wat~t"ant of Distt~aint and/ot~ levy issued on August 13, 1993 which seeks to enforce collection in the total amount of P11,495,784.38 for documentary stamp taxes 1:159

DECISION C.T.A. CASE NO. 5025 - 3- inclusive of increments for the years 1987, 1988 and 198':3. Respondent contends that ltndet~ Section 183 of the Tax Code, stamp tax is imposed on all policies of insurance not only at the time of the issuance thet~eof but also upon the t~enewal of the same. It averred that petitioner's increases in the sum assured discovered by the t~espondent' s examinet~s are considet~ed renewal upon the policies iss�.1ed and, therefot~e Sllbject to documentar~ stamp tax. Moreover, respondent argued that petitioner's policy contains an obligation with a suspensive condition, under Section 173 in reference to ~rticle 1181 of the New Civil Code. Petitioner's reliance on the case of Commissioner of Intet~nal Revenue vs. Heald Lumbet~ Company, 10 SCRA 372, Respondent held that the issue in the above cited case is the transfet~ of sm~plus to capital and an increase in the stated value of the outstanding no par value shat~es of the taxpayet~. The case at bat~ is very differ~ent ft~om the issue of pr~otest. Additionally, tax assessments b~ ~he examiH~~~ ~~- ~r~'umed correct and made in good faith. Petitioner~ on the other~ hand maintain that Section 183 in relation to Section 173 and Section 200 of the Tax Code provides that the documentary stamp tax em 1 i fe 1380

DECISION C.T.A. CASE NO. 5025 - 4- insurance policies is imposed only once on policies issued based on the amount insur~ed at the time of the actual issuance of such policies. Moreover~, i t is we 11-sett 1 ed that the documentary stamp tax being an excise tax is imposed on the document and may be collected only once, when the document subject to the tax is first or originally issued. Petitioner aver~r~ed that any subsequent i ncr~ease in insurance cover~age res1..tl t i ng from policies subjected to. documentary stamp tax at the time of issuance of such policies is not subject to documentar~y stamp tax. Further~mor~e, petitioner~ asser~ts t h a t in the absence of any clear provision of law� imposing documentary stamp taxes on incr~eases in sum assur~ed, no documentar~y stamp tax may be imposed as the imposition of taxes can never~ be presumed. Lastly, petitioner invo~<ed the r~uling of this Court in Lincoln Philippine Life Ins �.tr~ance Co. Inc. vs. Commissioner of Internal Revenue, CTA Case No. 4583, March 30, 1'3'33, wher~ein this Cour~t held that in the case of l:l.fe insltrance policies, the stamp tax shall, be collected based on the original amount issued under~ said pol icy, and that subseqltent incr~eases in sltm assured are not subject to documentary stamp tax. 1361

DECISION C.T.A. CASE NO. 5025 - 5- The sole issue to be resolved in this case is whether or not petitioner is liable for documentary stamp tax on the subsequent increase in sum assured although no new life insm"'ance policies covering such inct"'ease are issued during the stamp tax on the policies issued. In the light of the antecedent facts of the case the Court arrived at the following findings: Under Section 183 in t"elation to Section 173 and Section 200 of the Tax Code, documentary stmmp tax on life insuranc� policies is imposed only once based on the amount insured at the time of actual issumnce of such policies. It cannot be �denied that docltmentmry stamp tax, being an excise tax is imposed on the doc1..tment as originally issued. In view. of this, any subsequent increase in insut"'ance covet"'age resulting �From policies already subjected to documentary stamp tax at the time of i ssl..tance of such po 1 ici es is not subject to documentary stamp tax. Th et"'e f Ot"'e, in the absence ~f any clear provision of law imposing documentary stamp taxes on increases in sum assut"'ed, no documflnt;,�,,t~y ''.t2\i:<p 1.:.,:.\i~ '"'�'>1.V he 1362

DECISION C.T.A. CASE NO. 5025 - 6- Sect ion 173. Sta�p taxes upon docu�ents, instruments, and papers. Upon documents, ins�truments, and papet~s, and upon acceptances, assignments, sales, and transfet~s of the obligation, t~ight, or propet~ty incident thereto, thet~e shall be levied, collected and paid fot~, and in respect of the transaction so had ot~ accomplished, the cot~t~esponding doc�.1mentary stamp taxes presct~ibed in the following sections of this Title, by the pet~sons maldng, signino, isst..ling, accepting, or transfet~t~ing the same, and at the same time such act is done or transaction� had: Provided; That whenever one party to the taxable document enjoys exempt ion �from the tax het~ein imposed, the other party thereto who is not exempt shall be the one directly liable for the tax. Section 183. Sta�p tax on li'Fe insurance policies.- On all policies of insut~ance or other instruments by whatever name the same may be called, whet~eby any insm~ance shall be made or t~ en ewe d �upon on 1 y 1 i f e o t~ 1 i v e s, the t~ e s h a 11 be collected a document-ary stamp tax of fifty centavos on each two ht..tndred pesos or fractional p.:wt thet~eof, of the amount issued by any such policy. Section 200. Pay�ent of docu�entary sta�p ta~. Cancellation of sta�p. Documentary stamp taxes shall be paid by the pm~chase and affixture tif document~ry stamps to the document ot~ instt~ument taxed or to such othet~ papet~ as may be indicated by law or t~egulations as the proper recipient of the stamp, and by the subsequent cancellation to be accomplished by writino. stamping or pet~forating the date of the cancellation across the face of each stamp in such manner that part of the writing, impression or perforation shall be on the stamp itself and part on the papet~ to which it is "'~t1111:peq: Prp,vided, That if the cancellation is ~Pf~mrH~~he~.:~t writ~ng ~.r� PY -~t,t1,pt,Ping the date of.{ ~~n~e lli=\t tP_p, ."'} . tlf! 1f! .~4ff i Fi ~f1t ~ y 1aJ.~ge to be visible to �the ��nal-<lfd �Y",.~hFll be pL1J1ched, cut ot~ perfor~ated on both -the stamp arid the� document e i thet" by the use of a hand pt..mch, knife, perforating machine, scissors, or any other cutting instl'"ument; but if the cancellation is accomplished by perforating the date of cancellation, no othet" hole need be made on the stamp. xxx <Underscoring supplied) 1363 ('

� DECISION C.T.A. CASE NO. 5025 - 7- In view of the forego-ing provisions of law, it is clear that the documentar~y stamp tax upon the taxable document should be paid at the same time such act is done or tr~ansact ion had. The documentar~y stamp tax shall be paid by the purchase and affixture of documentary stamps to the doc�.tment or instr~ument taxed or to such other paper and by the subsequent cance 11 at ion ther~eof or in app~opriate cases by imprinting on certain documents upon payment of the face value of such stamps. In fac�t _the High Com~t discussed� the natm~e of the documen�tary stamp tax in the case of Commi ssionet~ of" Intet�nal Revenue� v. Heald. Lum,bet�. Co., G. R. No. L-16340, Febntat�y 296, 1964, 10 SCRA. 372. "(~ documentar~y stamp is in the nature of an excise tax. It is not imposed upon the business tt��ansact ed but is an excise �.tpon the pt�ivilege, oppot�tunity. or� facility offet�ed at exchanges fat� the tr�ansaction of the business. It is an excise upon the facilities used in the transaction of the business. It is an excise upon the facilities used in the transaction of the business sepat�ate and pat�t ft�om the business itself. <On Pont v. US ��� , 300 U.S. 150; Thomas v. U.S., 1'32 U.S., 363; Nicol v. f\lllti!h .. 173 U.S. 50'3). With respect to stod< ~~rt;}y~c~�~es 1 j_t is levied 1..tpon the privilege pf; .i).:~i..tP,~t t!lem; not:.� on ~he money or pt�opet�ty rectd.ved �. by.; the issuing c;:.ompany fot� such cet�tificat;es. Neither� is it .:'lii,JPOSed l.tpon the p''t share ot~�.:; stock. As Just f~'Jt Leat�ned Hand pointed, in one case, doc1..tmentar�v stamp tax is levi~g on the document and"no~,�~i;be pr�opet�ty it desctlbed. <Empit��e Tr~ust c'g''. ~l'-:_Hp~y, 103 F 2d 43(1Y'� � ''1 f therefor~e, as is app~)\~~?ht ' from the forego'frl!3 \j:hscussion, that the tn;\:.j;, �q,i�:)stion is i'm'posed on the pt�ivilege��� 'f. certifi\:~a't"es, then the tax J!J:S).l..,. ::> ,�~d.I''J only once: when the C!:!t�tj,ficc.'ttrs .::~;�,~� 1364

DECISION C.T.A. CASE NO. 5025 - a- originally issued. The r~eason is because a What ever~ certificate is issued only once. the time. documentary tax is due, is due at supr~a). <Empire Trust Co. v. Hoey, <Underscoring supplied.> Ft~om the above quoted discussions, it is clear~ that documentary stamp tax is levied and paid only once at the time the taxable document is issued. Documentary Stamp tax shall be computed using as tax ~ase the value at the time of issuance of the instrument. Wh i 1 e i n 1 i f e insurance, the documentar~y stamp tax shall be collected based on the amount issued by such policy originally. It is also to be noted that documentary stamp tax is to be paid by the put~chase of stamps and the affixture and subsequent cancellation the~~o~ on the insurance policies. In simpler~ terms, tax must be paid based on the amount i nsur~ed at the time of the i ss1..1ance of such insurance policies. lt can be deduced from the foregoing that� the amount insur��ed at the time of such issuance does not include any subsequent increases in sum assured since collection on the policy at the time would certainly not include such increases, which are effective only at some fH~ur~ ~af;J, � ttit! f:i:\xii:\ble y.ears .~n q~..~~s:tion in this case. : ; : t .t �. ~�; ~-: <:..... : ~ ,:. ...,~ ~-�. ~ , 1~~ �~~-.. �. , � "~, ~ ~ � :~� ~ � : 1~1n~~~q :;l~~~1f~f~r���L~f'~. ''~�~~~~*ite-: F:~t- ;~:nc. Na:: Commissione;~ or . Intet�tia:Z'-��~Rev~tH.i~;�~>\fitR 'Case Ma t�ch 30, 1 993> � WHEREFORE, the deficiency documentary stamp tax assessments in the total amount of P11,4'35,784.38 are 1365;

DECISION C.T.A. CAaE NO. 5025 - 9- hereby cancelled fot~ lad< of Respondent Commissioner of Intet~nal Revenlle is ot~der~ed to desist from collecting said deficiency documentary stamp taxes for the same are considet'ed withdt'awn. Respondent is likewise ot'det'ed to lift the wart'apnt of distr"aint and levy issued against the petitioner. SO ORDERED. GRUBA Judge WE CONCUR: cEt ~_;jOfQD..AcCO.S~TA Presiding /]~ 1RAMON 0. '~ 1 I / I I I C:ERTl:FXC:ATXON This is to certify that the above decision was reached after due cons�.1l tat ion among the members of the Court of Tax Appeals in accordance with Section 13, Article VIII of the Constitution. 1366