CTA Case No. 4222 (Decision)

REPUBLIC OF THE PH I LIPPINES COURT OF TAX APPEALS QUEZON CITY AMERICAN HOME ASSURANCE C.T.A. CASE NO~ 4222 COMPANY, Petitioner, - versus - THE HONORABLE COMMISSIONER OF INTERNAL REVENUE, Respondent. X- - - - - - - - - - - X DEC I S I 0 N This is a claim for t a x credit involving alleged overpa i d documentary s tamp tax on three (3) property insu r ance policies issued by American Home Assurance Company to Caltex Philippines, Inc. covering the period January 1985 to December 1986. Petitione r issued to Calte x Phils. Inc. the following insurance policies, to wit: (1) Op e n Mar i ne Insura nce Policy <Renewal) No . 34 - 5093 - 6 Da te Issu e d - Novemb er 14, 1 9 84 Period Covered - January to December 1985 Face Value- P11,069,410,856.06 Depos it premium charged - P9,685,734.50 Documentary stamp tax paid - P726,430.09 Date actual value of shipments ascertained February 27, 1986 Ac tual value P9,7 2 0,942,278.41 Premium charged - P8,505,824.49 Documentary stamp tax thereon P637,937.10 Alle ged excess documentary stamp tax paid - P88,492.99

DECISION - CTA CASE NO. 4222 -2- 2) Open Marine Insurance Policy <Renewal> No . 34-5093 Date Issued - November 14, 1985 Period Covered - January to December 1986 Face Value - P10,506,795,360.00 Deposit premium charged - P9,193,445.94 Documentary stamp tax paid - P689,508.60 Date actual value of shipments ascertained - February 24, 1987 Actual value - P7, 390,226,835.00 Premium charged - P6,466,448.48 Doc umentary stamp tax thereon P484,983.90 Alleged excess documentary stamp tax paid P204,524.55 3> Fi re Insurance Poli cy No. F - 13379 <F- 1996064) Date Issued - November 12, 1985 Period covered January 1, 1986 to December 31, 1986 Face value - P14,039, 131,308.00 Deposit premium char ged- P63,176,090.85 Documentary stamp tax paid P4,738,206.90 Date actual value ascertained - October 8, 1987 Actual value - P13,817,902,965.65 ) Premium charged- P62, 180, 563.35 Documentary � stamp tax thereon P4,663,542.25 Alleged excess documentary stamp tax paid - P74,664.65 Note that the premium payments by Caltex Phil. Inc. to petitioner for the three ( 3) insurance policies were claimed by the latter to be deposits. When the actual value of the property insured is subsequently ascertained, the premium charged is also adjusted . Inasmuch as the documentary stamp tax is based on the premium charged, the adjustment resulted in the alleged excess payment of 2 0 i.

DECISION - CTA CASE NO. 4222 -3- documentary stamp tax on t he aforementioned policies in the total amount of P367,682.19, subject matter of the instant c laim for tax credit and Petition for Review. Respondent does not dispute the material facts of the case. Therefore , the only issues for this Court to resolve are: <1> Whether or not the documentary stamp tax should be based on the premium charged on the face value of the insurance policies at the time of issuance, or should it be based on the adjusted actual value as finally determined at the end of the year. <2> Wh et her or not petitioner's c laim for tax credit of the alleged overpaid documentary stamp tax in the total amount of P367,682.19 has already p r e s c r i b'e d . Petitioner on his part alleges that pursuant to Section 184 of the Tax Code, as amended, the documentary stamp tax shall be collected based on the "amount of premium charged" and he takes this to mean the actual premium collected at the end of the year and not the deposit premium charged made at the time of the issuance of the policy. Respondent on the other hand maintains that the documentary stamp tax attaches upon the 2u.:. )

DECISION - CTA CASE NO. 4222 -4- issuance o� the policies. The fact that the value and thP corresponding premium are reduced subsequently does not in any way a��ect the documentary stamp tax due on the policies, citing BIR ruling on the matter. The speci�ic provision o� law involved is Section 184 o� the National Internal Revenue Code, as amended quoted below: Section 197 <now 184> - Stamp tax on policies o� insurance upon property. On all policies o� insurance or other instruments by whatever name the same may be called, by which insurance shall be made or renewed upon property o� any description, including rente or pro�its against peril by sea or on inland waters, or by �ire or lightning, there shall be collegted a documentary stamp tax o� fi�ty <now thirty> centavos on each �our pesos, or �ractional part thereo�, o� the amount o� premium charged. Provided, however, that no documentary stamp tax shall be collected on reinsurance contracts or on any instrument by which cession or acceptance o� insurance risks under any reinsurance agreement is a��ect e d or r~corded. <Underscoring supplied. > For a clearer and easier way of interpreting the above provision o� law, we have to read it together with the �allowing related provisions of law: Section 186 (now 173>. - Stamp taxes upon documents, instruments and papers. Upon documents, instruments and papers, and upon acceptance, assignments, sales and transfers of the obligation, right or property incident thereto, there shall be levied, collected and paid for, and in 2 U~

DECISION - CTA CASE NO. 4222 -5- respect of the transaction so had or accompli s hed, the corresponding documentary stamp taxes pre scribed in the follow ing sections of this title, by the person making, sign ing, issuing, accepting, or transferring the same, and at the same time such act is done or transaction had: Provided, that whenever one party to the taxable document e njoys exemption from the tax herein i mposed, the other party thereto who is not exempt shall be the one directly liable for the tax. <Underscoring supplied.> Section 213 <now Section 200) Payment of documentary s tamp tax. Cancel lation of stamp. Do cumentary stamp taxes shall be paid by the purchase and affixture of documentary stamps to the document or instrument taxed or to such other paper as may be indicated by law or regulations as the proper recipient of the stamp, and by the subsequent cancellation to be accompl ished by writing, st am p in g, or perforating 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 paper to which it is attached: Provided, That if the cancellation is a ccomplished by writing or by stamping the date of cancellation, a hole suffic iently large to be visible to the naked eye shall be punched, cut or perforated on both the stamp and the document either by the use of a hand punch, knife, perforating machines, scissors, or any other cutting instrument; but if the cancellation is accomplished by perforating the date of cancellation, no other hole need be made on the stamp. <Underscoring supplied.> The general basis and guideline for the imposition � of documentary stamp tax is provided by Section 186 <now 173 >. It states that there shall

DECISION - CTA CASE NO. 4222 -6- be levied, collected and paid for upon documents, instruments and papers evidencing the act done or transaction had, documentary stamp taxes prescribed in the following sections. The different rates of documentary stamp tax imposed on the different kinds of document are enumerated in the sections that followed. On all policies of insurance upon property, Section 197 <now 184> provides that there shall be collected a documentary stamp tax of fifty <now thirty> centavos on each four pesos of the amount of premium charged. Take note that both provisions of law specify that the documentary stamp tax shall be collected on the document or instrument as in the case of insurance policy. Take for instance property ins urance, the rate of tax is based on the premium c harged. This is in l turn based on the amount of insurance secured. While petitioner may argue that the documentary stamp tax should be based on the actual premium charged, the same may not be true if we will consider the nature of documentary stamp tax. It is a tax on the document or instrument evidencing the transaction agreed upon. In the case of insurance,� it is a tax on the policy itself which sets forth the insurance coverage agreed upon by 2 Uv

DECISION - CTA CASE NO. 4222 - 7- and between the insurance company and the insured. Normally, they agree on the amount of insurance coverage as in the case at hand. Both the open marine policy and fire insurance policy in the instant case are with spJc~fied values <Exhibits "A-1" and "E" >. Pursuant to Section 61 of the Insurance Code, "a valued policy is one which express on its face an agreement that the thing insured shall be valued at a specified sum" while an open policy under Section 60, "is one in which the value of the thing insured is not agreed upon but is left to be ascertained in case of loss." The fact that the insurance companies and the insured have agreed to adjust the insurance premium based on the actual value of the shipments or property insured at the en~ of the year is of no moment. Liability of an instrument to a documentary stamp tax and the amount of the tax are determined by the form and face thereof and cann.~t .J be affected by proof of facts outside of the instrument itself <U.S. v. Isham, 17 Wall, D 96, 84 u.s. 496, cited on p. 773, Jose Arenas, Updated National Internal Revenue Code, 1988 ed>. Furthermore, pursuant to Section 213 <now 200) aforequoted, documentary stamp taxes are collected

DECISION - CTA CASE NO. 4222 -8- by the purchase and affixture of the documentary stamps to the document or instrument taxed. This bolsters our stand that the said tax is a tax on the document itself and therefore the rate of tax must be determined on the basis of what is -ritten or indicated on the instrument itself independent of arty adjustment which the parties may agree on in the future. At this point, this Court agrees with the opinion rendered by the previous Commissioner of Internal Revenue that the documentary stamp must be affixed to the insurance policy on the date it is issued even if no premiums have been paid, as the documentary stamp tax accrues the moment such policy is issued. This being the case, the subsequent cancellation of insurance policies issued will not exempt the insurer from the corresponding documentary stamp tax. <BIR Ruling No. 433 cited on page 805 of Arenas, Loc cit>. An interpretation given by the agency entrusted by iaw to implement the same carries a great weight. This Court finds this legal interpretation logical and a sound tax policy. When insurance policies are issued by an insurance company and the same are � accepted by the assured, rights and obligations are established. The insurance company 20,

DECISION - CTA CASE NO. 4222 -9- has the right to collect the premiums due but is under obligation to indemni�y the insured in case o� loss arising from the insurance risk. The assured in turn has the right to claim indemnity �or any loss covered by the insurance but is under obligation to pay the premium charged. Since rights and obligations between the parties are established and become en�orceable at the time o� the issuance and acceptance o� the policy~ so is the right o� the State to tax the documents evidencing the transaction especially i� on the �ace o� the instrument the same can also be determined. To interpret otherwise that the tax due would depend on the �ina! outcome o� events on ' some �uture time by reason o� the agreement o� the parties, would make the state at the mercy o� its constituents. I� tax is considered the li�eblood o� the government, by interpreting it the way petitioner wishes it to be interpreted, will provide instability to the government's existence. Taxation should not be made subject to private agreements but should be based on a stable, �irm and exact determination by the taxing authorities. Nevertheless assuming that petitioner is entitled to tax credit on the alleged overpaid

DECISION - CTA CASE NO. 4222 - 10 - documentary sta mp tax, petitioner's claim has already been barred by prescri ption. A two year limitation within which to �ile a written claim �or re�und or tax credit and to institute a suit or proceeding in this Court o� erroneously or .) illegally a ssessed or collected national internal revenue tax is provided by Section 230 o� the Tax Code, as amended. In the case at bar, the three <3> insuran ce policies were iss ued on November 14, 1984, Novemb er 14, 1985 and November 12, 1985 respectively. As discussed earlier, the documentary sta mp tax becomes due at the time the insurance policy is issued and payment is made by the purchase and a��ixture thereo� to the insurance policy upon issuance. In the inst ant case, the petition �or review was �iled on January 14, 1988 I which is way beyond the regl ementary period o� two years �rom the a�orementioned date8 the documentary stamp tax on the insurance policies involved w~re deemed paid. WHEREFORE, the instant Petition �or Review and claim �or tax credit is denied �or lack o� merit. SO ORDERED. Quezon City, Metro Manila, March 22, 1993. ~tz~~ ERNESTO D. ACOSTA Presiding Judge 2U ~

DECISION - CTA CASE NO. 4222 WE CONCUR: I ~MANU . GRUBA ;:i~~dge Associate ~~~ ~I RAMON 0. DEJ~~~A / I I C E RT I F I C AT I 0 N ( I hereby certify that this decision was reached after due consultation among the members of the Court of Tax Appeals in accordance with Section 13, Article VIII of the Constitution. o~Q_,~ ~RNESTO D. ACOSTA Presiding Judge Court of Tax Appeals 21u