CTA Case No. 5601 (Decision)

REPUBLIC OF THE PHILIPPINES COURT OF TAX APPEALS QUEZON CITY THE INSULAR LIFE ASSURANCE Pet 1 t i oner~, COMPANY, LTD., - - vel�~sus C.T.A. CASE NO. 5601 COMMISSIONER OF INTERNAL REVENUE, Pr~omulgated: Respondent. MAY 2_7 1999 ~di ~ X - �- - �-� - - - :-< DECISION Before Us for consideration is a judicial claim for refund or tax credit instituted by the Petitioner in the e aggr~egat amount of 1='219,7-41,965.35 allegedly representing erroneously paid premium taxes for the four quarters of 1996 and the first three quarters of 1997. Petitioner is a non-stock mutual life i ns1.wance corporation duly organized and existing under and by virtue of Philippine laws with office address at Insular~ Life Building, 6781 Ayala Avenue, Makati City. The facts are simple. For the period abovestated, Petitioner allegedly paid its quarterly liability on premium taxes, as follows:

DECISION - C.T.A. CASE NO. 5601 Date of filing/ Amount Exhibit payment of Quarterly Insurance Tax Return Apr~i 1 22, 19':36 ~� 25, 406, 192. 5;::: "A" July 22, 1996 c:~4, 980, 996. 25 Oct abet~ 35, 773, 075. 9'+ liB II 21' 1996 32,521.,618. 11 ,Januat~y c:~1, 1997 30,319,265.29 ~~c~~ 35, 762, 2i)LJ.. 1'+ (.~pr~ i l 21' 1997 34,978,613. 10 "D" July 21' 1997 Oct abet~ 20, 1997 P219,741,965~35 "E" GRAND TOTAL "F" "G" On Mat~ch 26, 1 ':398, Petitioner~ filed ~-Jith Respondent's Bureau a written claim for refund of said amount of premium taxes based on the Decision of this Cotwt in Insular Life Assurance Company Ltd. vs. Commissioner of Internal Revenue, CTA Case No. 5336, promulgated on December 29, 1997, wh �> t' E~ in it was r~ u l e d t h a t Petitioner~ who, together~ v~ith Respondent, is also the principal par~ty in the instant case, is exempted from the payment of pr~emium and documentary stamp taxes by virtue of its being a purely cooperative company, an insurance entity which is exempt from said taxes under Sections 121 and 199 of the Tax Code (1996) (see Exhibit "!"). On Apt~ i l 6, 1998, Petitioner~ elevated its administrative claim before this Court allegedly due to Respondent's inaction thereto and the fact that judicial action for its claim far the first quarter of 1996 is about to expire when reckoned from the prescriptive period of two years from date of payment of the tax, as

DECISION - C.T.A. CASE NO. 5601 -3 pr'OV ided in Section 230 (now Section 229) of the Tax Code. At bar, Petitioner basically reasserts its stance a qua. On the other hand, Respondent interposes from among othet's the special and affirmative defenses that Petitioner is legally subject to premium tax pursuant to Section 121 of the Tax Code on the ground that a mutual 1 i fe insurance company is not a purely cooperative company as contemplated in the exempting clause of the said section, hence, not entitled to the refund claimed; and that the decision in CTA Case No. dated December 29, 1997 which is solely relied upon by the Petitioner as the basis of its claim for refund is still pending appeal at the Court of Appe.::1.1s, hence, the instant petition is still premature for the reason that the said decision has not yet become final and executory. The pt'oceedings involved mainly the pt'esf.mtat ion, identification and for--mal offer of exhibits for the Petitioner with the Respondent opting not to adduce evidence on his part. Petitioner submitted a memorandum while Respo n dent failed to do so within the mandated pet'iod. Based on the foregoing facts and arguments of the this Court is confronted with the following issues, namely:

DEC IS I 01\1 -- C.T.A. CASE NO. 5601 -� 4 - L Legally, whether~ ot-� not Petitione1��� is a p urely cooperative company, as provided in Section 121 of the Tax Code, and therefore exempt from the payment of pr emium t a x on insurance policies; and if in the affirmative, 2. Whether or not Petitioner has presented sufficient the factual aspect of its evidence to prove tax cr~edi t . claim for refund or Anent the first issue, there is no mor~e impediment .::.\t this point in tim~? to the legality of Petitioner's contention t hat it is a purely cooperative company. The decision of this Court in the case of I nsu lar Life Ass urance Company , Ltd. v s. Commissioner of Internal Re ven ue , CTA Case No. 5336 , has already been upheld in toto by the Court of Appeals in CA G. R. SP No. 46516 with the corresponding Entry of Judgment made on October~ ~:::3, 1 9'38. The finality of such case now serves as a res judicata on the similar legal issue being raised by the parties in the case at pertinent portions o f the aforementioned decision of this Court which ruled in favor of petitioner: As r~eg<::wds the second issue, this Cout't mutual r��ul es in fa v ot' of the petitioner~. A is a insut~ance company such as petitioner~ ptwel y coopet~at ive company. For~ easy r~e f e t~ence, per't inent pr~ovisions of h et~e in-be 1 ow the Tax Code quoted, to ~;,~it: SEC. 121. Tax on i nsttt�ance p t� e 111 i u 111. Thet'e shall be collected from eve1�~y o n per~s 7 company, ot~ cot'pcwat ion (except purely coopet~ at ive companies or~

DECISION - C.T.A. CASE NO. 5601 5- associations) doing insurance business of any sort in the Philippines a tax of five per centum (5%) of the total premium collected, whether such premiums are paid in money, notes, ct~edits or~ any substitute for money; but premiums refunded within six months after payment on account of rejection of risk or returned for other reason to a person insured shall not be included in the taxable receipts; nor shall any tax be paid upon reinsurance by a company that has already paid the tax; nor upon pr emiums collected or received by any branch of a domestic corporation, firm or association doing busin e ss outside the Philippines on account of any life insurance of the insured who is a non-r~esident, i f any tax on such premiums is imposed by the foreign country where the branch is established nor upon premiums collected or received on account of any l�~einstwance, i f the t~isk instwe against covers property located outside the Philippines, or the insured, in case of personal insurance, resides outside the Philippines if any tax on such premiums is imposed by the foreign country where the original insurance has been issued or perfected; nor upon that portion of the premiums collected or received by the insurance companies on variable contt~acts (as defined in Sec. 232(2) of the Pl�~esidential Dect��ee No. 6:!.;::::) in excess of the amount~ necessar~ ~o insure the lives of the variable contt~act W" ' n,�t~s. Co ope rative co mpanies or ass ociations are such as ar e c onducted by the members thereof with t h e mon ey c o llect e d f rom among themselves and solel y for thei r own protection and not for prof it. <Emphasis supplied) Sec. 199. Documents and papet~s not s ub ject t o s t a mp tax . The

DECISION �- C.T.A. CASE NO. 5 6 01 - 6- provisions of Section 173 to the contrary notwithstanding, the following instruments, documents, and papers shall be e x empt from the documentary stamp tax: (1) Policies of insurance or annuities made or granted by a fraternal or beneficiary society, Ql�~det~, association, or~ coopet~ativE~ company, operated on the lodge system or local cooperation plan and organized and conducted solely by the members thereof for the exclusive benefit of each member and not for pt-�ofi t. XXX XXX XXX (Emphasis supplied) As defined above, coopet~ative companies an,:! such as at~e: (1) conducted by the membet~s thereof, (2) with the money collected from among themselves and solely for their own protection and, (3) not for profit. Petitioner has demonstrated that its management and affairs are conducted by its member-policyholders. Article 7 of its Amended Ar��ticles of Incot~pot~ation <Exh. "A") indubitably shows that petitioner has been converted to a non-stock mutual life insurance corporation for the benefit of its policyholders pursuant to Section 266, Title 17 of the Insurance Code of 1978. Under such set- up, the ownership of petitioner is vested in its members who are entitled to one vote each and who, in tur~n, elect the membet~s of the Board of Trustees from among themselves <Exhibits "B-1" to "B-4"; Amended By-laws of the petitioner). The Board of Trustees on its part, exercises the powers and conducts the business of the cot~pm�~ation <Exh. "B--4"). XXX XXX XXX Likewise, it cannot be gainsaid that member-policyholders pay money premiums from among themselves for their exclusive benefit and protection from risks assumed by insurance policy. Inasmuch as petitioner is composed of members who are all policy-holders thereof, all

DECISION - C.T.A. CASE NO. 5601 -7 premiums collected are entirely sourced from the members only. Such premiums collected are then pooled and earmarked for payment of indemnity and benefit claims of member- pol icyholde~~s <TSN, dated Decembe~�� 12, 1':396? pp. 10-14). The aforementioned payment of indemnity and benefit claims clearly represent the type of protection con s titutive of a cooperative company. X X X In affirming the decision of this Court in the case of Ins ul a r L i fe Assurance Company, Ltd. v s. Co mmis s i on e r of Inte r nal Revenue, supr~, the Court of Appeals had this to say: "We find no cogent ~~eason to dispute the factual findings of the respondent Court that private respondent Insular Life Assurance Company, Ltd .. has satisfactorily demonstrated that it is a cooperative association as defined in its Amended Articles of Incorporation and By-laws. XXX XXX XXX Wherefore, finding no t~eve~~sible e~~r~or~ in the assailed decision, AFFIRMED in toto." the same is he~~eby What 1�~emains thus is the sole determination of the second issue on whether or not Petitioner has pl�~oven thE~ factual elements of its claim for refund or tax credit. A r~e view of the vat~ious exhibits presented by the Petitioner, namely: insurance premium tax returns for the four quarters of 1996 and the first of 1.997, BPI Checks and computations of premium tax due fo~~ the (Exhibits "A" to "G"' inclusive,

DECISION - C.T.A. CASE NO. 5601 - 8- clearly demonstrates the fact that actual payments for premium tax es in the aggregate amount of ~219,741,965.35, as shown by the machine validation entt'ies on th~~ returns, were duly made to Respondent's accredited Union Bank. Cleat'ly, thus? Petitioner is deserving of its claim fot' t'efund or tax ct'edit. WHEREFORE, in view of the foregoing, the instant Petition for Review is hereby GRANTED . Accot'd in g 1 '>', Respondent is hereby ORDERED to ISSUE A TAX CREDIT CERTIFICATE in the amount of P219,74 1,965.35 in favor of the Petitioner immediately. SO ORDERED. ~o~~vlh.._ ERNESTO D. ACOSTA Pt'esiding ,Judge WE CONCUR: CERTIFICATION I hereby certify that the above decision was reached after due consultation with the members of the Court of Tax Appeals in accordance with Section 13, Article VIII of the Constitution. ~� b)_,~ ERNESTO D. ACOSTA Pr�esiding ,Judge