ASIATRUST DEVELOPMENT BANK v. COMMISSIONER OF INTERNAL REVENUE

REPUBLIC Of THE PHILIPPINES COURT OF TAX APPEALS Ql~EZON CITY FIRST DIVISION ASIATRUST DEVELOPMENT BANK, C.T .A. CASE NO . 6209 Petitioner, Members : - versus - ACOSTA, Chairperson BAUTISTA, and CASANOVA, JJ. COMMISSIONER OF INTERN~L Promulgated: . ~ A r_, ,~, 11 �ji)f~g v� LJ R~s~on~e-n: ~ ~- REVENUE, x ____ ___ _ ____ __ ___ ____ __ _________ DECISION CASANOVA, J. : STATEMENT OF THE CASE This is a Petition for Revi ew praying for th e cancellation of the deficiency income, documentary stamp - reg ular, documen tary stamp - industry issue, final withholding, expanded withholding, and fringe benefits tax assessments issued by respondent against the petition er for the fi sca l years ended June 30, 1996, 1997 & 1998 in the amounts of ONE HUNDRED THIRTY ONE MILLION NINE HUNDRED NINE THOUSAND ONE HUNDRED SIXTY ONE AND 85/100 (P131,909,161.85), EIGHTY THREE MILLION TWELVE THOUSAND TWO HUNDRED SIXTY FIVE AND 7 8/100 ( P8 3, 012,26 5 .7 8) , and ONE HUNDRED FORTY FOUR MILLION TWELVE THOU SAND NINE HUNDRED EIGHTEEN AND 42/100 (P144,012,918.42) , respectiv ely$ - 33

DECISION C.T.A. CASE NO. 62 09 STATEMENT OF THE F~CTS Asiatrust Development Bank, herein petitioner, is a corporation duly organized and existing under and by virtue of Philippin e La ws, with principal address at 1424 Quezon Avenue, Quezon City. It is registered with . th e Securiti es and Exchang e Commission (SEC) and likewi se authorized by th e Bangko Sentral ng Pilipinas (BSP) to engage in banking operations as a thrift bank within the contemplation of Republic Act No. (R.A.) 7906, otherwise known as the "Thrift Bank Act of 1995". 1 Commissioner of Internal Revenue, herein respondent, on the other hand, is duly appointed to perform the duties of 'his office, including, among others, th e power to decide, cancel, and abate ta x liabilities pursuant to Section 204(8) of th e Tax Code, as amended by Republic Act No . (R.A.) 8424, otherwise known as the ~'Tax Reform Act of 1997".2 On February 16, 2000, petition er rece ived respondent's Formal Letter of Demand with twelve (12) Assessment Notices, sent through personal delivery, numbered ST-DST-97-0341 -99, ST-DST-97-0342-99, ST-Ff-97-0343 -99, ST-WC-97- 0344-99, ST-CP-97-0345-99, ST-EWT-97-0346-99, ST-EWT-97-0347-99, ST-DST2- 97-0348-99, ST-CP-97-0349-99, ST-Ff2-97-0350-99, ST-Ff3-97.,-0351 -99, and ST- INC-97-0352-99 for deficiency internal revenue ta xes in the aggregate am ount of P83,012,265.78 covering the fi scal year ended June 30, 1997. 3 Subsequently, on February 21, 2000, likewise through pers onal service, petitioner received Formal Letter of Dernand with Assessment Notice Nos. ST-DST1 - 96-229-2000, ST-DST2-96-0230 -2000, ST- DST3-96-0231 -2000, ST-OT-96- 0232~ 1 Paragraph 1, Petition fo r Review 2 Paragraph 2, Ibid 3 Pa ragraph 3, Ibid 34

�'. DECISION C.T.A. CASE NO. 62.09 ' J, . Page 3 of 2.3 2000, ST-WT-96-233-2000, ST-EWT-96-0234-2000, ST-WT2-96-0235-2000, ST- FWT-96-0236-2000, ST-WT-96-0237 -2 000, ST-INC-96-0238-2000, ST-RF2-96-0239- 2000, ST-CPl-96-0240-2000, ST-CPl -96-0241 -2000, ST-CPl-96-0242-2000, and ST- DST4-96-0243-2000 for deficiency internal revenue taxes in the aggregate amount 4 of P131,909,16L85 covering the fiscal year ended .June 30, 1996. On February 22, 2000, petitioner re ceived through personal service the Formal Letter of Demand for deficiency internal revenue ta xes in the aggregate amount of P144,012,918A2 covering the fi scal year ended June 30, 1998 under Assessment Notice Nos. ST-DST1-98-0322-2000, ST-DST2-98-0323-2000, ST-DST3- 98-0324-2000I ST-OT-98-0325-2000I ST-WT-98-0326-2000f ST-WTC-98-0327-2000I ST-EWT-98-0328-2000, ST-FWT-98-0329-2000, ST-WC-98-0330-2000, ST-INC-98- 0331-2000, ST-CP2-98-0332-2000, ST-RF-98-0333-2000, and ST-CP1-98-0334-2000. On March 17, 2000, petition er formally fil ed its protest letter contesting each item of deficiency internal revenue t axes5 assessed against it and requested th e cancellation and withdrawal of the same. In support thereof, petitioner submitted ' additional documents6 on May 16, 2000 in accordance with Section 228 of the National Internal Revenue Code (NIRC) of 1997, as amended . Respondent having failed to act on petitioner's protest-letter within 180-days from the date of the submission of its supporting documents, petitioner then filed this present Petition for Review on December 11, 2000. On January 22, 2001, respondent fil ed his An swe r, raising his Special and Affirmative Defenses, summed up as follows: 1. The law allowing a period of three (3) years from the time the return was filed or should have been filed, whichever is the latter'.l.!b- ' Paragraph 4, Petition for Review 5 Paragraph 4, Joint Stipu lation of Facts & Issues 6 Paragraph 5, Ibid � I 35

DECISION C.T.A. CASE NO. 6209 within which the government is authorized by law to make any assessment on taxable income, is the general rule. Section 222 of t he Tax Code provides for the exceptions or the instances wherein the three ( 3) year period does not apply, among them, "if before the expirati on of the three (3) year period for the assessment of the tax, there is an agreement in writing between the taxpayer and the BIR Commissioner" [Section 222(b)]. Records disclosed that petitioner, through its repre sentative Rebecca R. Igot, executed a Waiver of the Defense of Prescription under the Statute of Limitations of the National Internal Revenue Code, expressly waiving or renouncing its right to use as defense the prescriptive period allowed by law for the government to make the proper assessment on any ta xable income�: 2. Revenue Regulation No. 4-95 which implements R.A. 7906. Section 3 thereof explicitly provides that: Section 3. Liability of � Thrift Banks to Documentary Stamp Tax. - "All thrift banks shall be liable to the payment of documentary stamp tax on that portion of loaned amount in excess of fifty thousand pesos ." From the foregoing, the exemption of thrift banks from documentary stamp ta x extends only to loans not exceeding Fifty Thousand Pesos (Php 50,000.00). Verily and consistent with the well-settled principle that laws granting exemption from taxes are construed strictissimi juris against the taxpayer and liberally in favor of the taxing power, the assessed deficiency documentary stamp tax against the petitioner is proper. 3. Income derived under the Expanded Foreign Currency Deposit System as sanctioned and prescribed by Presidential Decree 1034 as amended by P.D. 1035, ar)d implemented by Revenue Regu lations 14-77 with regards :to domestic corporat ions; income derived by depositary bank under the expanded foreign currency deposit system from foreign currency transactions with non- residents, offshore banking units in the Philippines, local commercial banks, including branches of foreign banks that may be authorized by the BSP to transact business with Foreign Currency E>epositary System, are exempt from all taxes, except taxable income from such transaction as maybe specified by the Secretary of Finance. Moreover, interest income from foreign currency loans granted by the Depositary Banks under the said expanded system to residents (other than offshore banking units in the Philippines or other depositary banks under the expanded system) is subject to 10% onshore ta x~ 3t

DECI SION C. T A. CASE NO. 6209 4. Section 57 of the National Internal Revenue Code (.NIRC) as amended, specifically prescribes the withholding of taxes on royalties, prizes and other winnings, dividends, "interest on bank deposits, yields or any other monetary benefit from deposit substitutes and from trust fund and similar arrangements." Revenue Regulations No. 17-84 governs the manner of income taxation of interest income derived from deposit substitutes as provided for under P.O. No. 1959; and Section 3 thereof provides in part that "final withholding income tax on interest on savings and time deposits maintained with the bank shall be fifteen ( 15%) percent based on gross interest pa id or� accrued and the final withholding ta x to be imposed on yield on deposit substitutes shall be fifteen (15% )". However, Revenue Regulations No . 10-86 amended Rev. Reg. No. 17-84 increasing the final withholding ta x rate to twenty (20%). On the other hand, Section 4 of Revenue Regulations J:jo. 17-84 provides th at the final withholding ta x on savings a.bnyd time deposits sshaaHvinbg'es based on gross interest paid or accrued banks on all and time deposits, and final withholding ta x yield of deposit substitutes shall be based on gross interest or yield paid or accrued by banks and non-bank financial intermediaries on all its deposit substitutes or debt instrument issued. The compromise penalty imposed against petitioner for non- payment of the above-mentioned final withholding ta x is based on the provision of Revenue Regulations 1-90. 5. Revenue Regulations No. 6-8 5 was promulgated to implement the withholding of creditable income ta xes from certain income payment which are otherwise deductible from gross income of the payor and in conjunction with Revenue Regulation No. 2-90, wherein the payor is required to withhold tax on certain income payments made to residents of th e Philippines. Certain income payments made by petitioner were not subjected to withholding tax in violation of said regulation and Section 57(B) of the Tax Code. 6. Section 33 of the Comprehensive Ta x Reform Act imposes a gradual diminishing fringe benefit ta x of 34%, 33 % , and 32%, for the years 1998, 1999, and 2000, respectively, based on the grossed up monetary value of th e fringe benefits furnished or granted. The fringe benefit granted is a form of compensation and thus constitutes an item of gross in come. 7. The deficiency withholding tax on com pensation was based on Section 78 of the Ta x Code, in conjunction with Revenue Regulations No. 12-86 . 8. The deficiency income ta x was based mainly on the disallowance of some actual expenses, for which petitioner failed to prove that ,...rp-- 37

DECISION ~ C.T.A. CASE NO. 6209 they were made in relation to its business, attributed to the business activity of Foreign Currency Deposit Units (FCDUs) expenses not subjected to withholding ta x; 9. Revenue Regulations No. 1-90 clearly requires the payment of annual registration fees on or before the last day of January and every year thereafter. 10. Revenue Regulations No. 4-96 requires the filing of Information Returns on or before the lOLh day following the close of each month with respect to DST. 11. Revenue Regulations No. 1-90 requires the filing of Form 1701 B, 1743-IR and an Alpha List. 12. Compromise penalty imposed due to petitioner's failure to file the 1st and 2nd Quarter Income Ta x Return . 13. Petitioner was informed of th e law and the facts on which the assessments were made in compliance with Section 228 of the Tax Code. 14. The assessments were issued in accordance with law and regulations. 15. All pres umpti ons are in favor of th e correctness of ta x assessm ents. After pre-trial, the parties submitted their Joint Stipulation of Facts and Issues on June 7, 2001, which was duly approved by this Court in a Resolution on June 14,. 2001. Additional facts were stipulated by the parties on March 13, 2002, based on events which have transpired after the original Joint Stipulation was submitted to thi~ Court, likewise duly approved by the Court on March 19, 2002. Accordingly, on December 28, 2001, respondent, through the examiners of the Enforcement Service, personally served petitioner a new Assessmen t Notice for defici ency taxes in th e amounts of P112,816,258.73, P53, 314,512.72, and . 1?133,013,458.73 covering the fiscal years ended June 30, 1996, 1997, and 1998, respectively. Consequently, o~

DECISION C.T.A. CASE NO. 6209 the same date, petitioner pa id parti ally the , afore- mentioned deficiency tax assessments, with the remaining ba lances as follo":"'s: Fiscal Year 1996 p 13,497,227.80 Documentary Stamp Tax 8,770, 265 .07 Final Withholding Tax -Trust Documentary Stamp Tax - Industry I ssue 88,584,931.39 TOTAL e.1.1.0.,.852 . 4 2 4.2.6. Fiscal Year 1997 p 10,156,408.63 Documentary Stamp Ta x 39,163,539.57 Documentary Stamp Tax - Industry Issue� p 49.319.948.20 TOTAL Fiscal Year 1998 p 20,425,770.07 Documentary Stamp Tax 10,183,367.80 Final Withholding Jax - Trust 93,430,878.54 Documentary Stamp Tax - Industry Issue P124 .040.016.41 TOTAL On August 15, 2005, petitioner filed a Manifestation stating that, on April 19, 2005, the National Eva luation Board of the Bureau of Internal Revenue approved its Offer of Compromise of the subject Documentary Stamp Tax - Regular assess ments in the aggregate amount of P9,015,593 .10, eql!ivalent to 40 % of the basic Documentary Stamp Tax assessed for the years 1996, 1997, and 1998. Petitioner attached a copy of the June 9, 2005 letter from the respondent confirming the said approva17, and copies of the corresponding Compromise Settlement Payment Forms I 9 , (BIR Form No. 0608)8. During the hearing on August 16, 2005 respondent's counsel manifested that he has received the copy of the said approved Compromise Settlement made by petitioner, and further manifested that, in view of the said payment, the on ly issues that remain unresolved for this Court's consideration are the deficiency final withholding ta x with regard to petitioner's Trust Department, and the deficiency documentary stamp tax assessment with regard to its special savings account. However, on December 27, 200 1, separate applications for th~ 7 Annex "A", Rollo, page 376 8-Annexes "B", "C", and "0", Rollo, page 378 9 TSN, August 16, 2005, pages 7-8 39

DECI SION C.T .A. CASE NO. 6209 Pag e 8 of 23 abatementl0 of its deficien cy final withh oldin g ta x - trust assessments for the fi scal years 1996 and 1998 we re fil ed by petiti oner. � A favorable response from respondent has yet to be 1 eceived by petitione r. Both parties submitted their respective Memorandum on July 10, 2008 and August 4, 2008. This case was finally submitted for decision on August 11, 2008. STIPULATED ISSUES The parties originally jointly agreed to th e following issues for the consideration of the Court, to wit: 1. Whether cir not th.e Fothrme alreLse'pttoenrdseonf.t Dt;!mand and Assessment Notices issued by against the petitioner assessing deficiency ta xes for taxable fiscal year 1996, 1997, and 1998, respectively, confortn with the requirements set forth under Section 228 of the Ta x Code, as amended. 2. Whether or not the right of the respondent lo assess deficiency taxes for taxable fiscal year ending June 30, 1996 has already prescribed when it issued the Formal Letter of Demand and Assessment Notices covering the said ta xable fiscal year. 3. Whether or not petitioner is exem pt from documentary stamp tax (DST) pursuant to Section 17 of Republic Act No. 7906, otherwise known as the "Thrift Bank Act of 1995". 4. Whether or not the assessments for deficiency ,DST for ta xable fiscal years 1996, 1997, and 1998 under Assessm ent Notice Nos. ST-DST1-96-0229-2000, ST-DST-97-0341-99, and ST- DST1 -98-0322-2000, respectivel y, are proper. 5. Whether or not the assessments for deficiency DST for ta xable fiscal years 1996, 1997, and 1998 under Assessm ent Notice Nos. ST-DST4-96-0243-2000, ST-DST2-97-0348-99, and ST- DST2-98-0323-2000, respectively, ar.e proper. 6. Whether or not the assessments for deficiency DST for taxable fiscal years 1996, 1997, and 1998 under Assessment Notice Nos. ST-DST2-96-0230-2000, ST-DST2 -9 7-0342-99, and ST- DST3-98-0324-2000, respectively, are proper. 7. Whether or not petition er is li ab le for deficiency DST under Assessment Notice No. ST-DST3-96-0231-2000.~ 10 Exhibits " EEEEE" ("4"), "FFFFF" ("5") & "GGGGG" (" 6") 40

DECISION C.T.A. CASE NO. 6209 8. Whether or not th e assessmehts for deficiency onshore ta x for taxa ble fisca l yea r 1996, 1997, and 1998 under Assessmen t Notice Nos. ST-OT-96-0232-2000, ST-FT3-97-0351-99, and ST- OT-98-03 25-2000, respectively, are proper. 9. Whether or not the assessments of deficiency final withholding tax for taxable fiscal years 1996, 1997, and 1998 under Assessment Notice Nos. ST-WT-96-0233 -2000, ST-FT2-97- 0350-99, and ST-WT1 -98-0326-2000, respectively, are proper. 10. Whether or not the assessments for deficiency withholding ta x on compensation for taxable fi sca l years 1996, 1997, and 1998 under Assessm ent Notice Nos. ST-WT2-96-0235-2000, ST-WC- 97-0344-99, and ST-WTC-98-0327-2000, respectively, are proper. . 11.. Whether or not the assessments of deficiency expanded withholding ta x for taxable fi sca l years 1996, 1997, and 1998 under Assessment Notice Nos. ST-EWT-96-0234-2000, ST- EWT-97-0346-99, and ST-EWT-98-0323-2000, respectively, are proper. 12. Whether or not the assessments for deficiency final withholding ta x for taxable fiscal years 1996, 1997, and 1998 under Assessment Notice Nos. ST-FWT-96-0236-2000, ST-FT-97- 0343 -99, and ST-FWT-98-0329-2000, respectively, are proper. 13. Whether or not the assessment of deficiency fringe benefit ta x for ta xable fiscal year 1998 under Assessment Notice No. ST- WC-98-0330-2000 i? proper. � 14. Whether or not th e assessments of deficiency income tax for taxable fi sca l year 1996, 1997, and 1998 under Assessme nt Notice Nos . ST-INC-96-0238-2000, ST-INC-9 7-0352-99, and ST-INC-98-0331- 2000, respectively, are proper. 15. Wheth er or not the assessments of registration fees for ta xable > �' fiscal yea rs 1996, 1997, and 1998 under Assessment Notice Nos.� ST-RF-96-0239-2000, ST-CP-97-0349 -99 , and ST-RF-98- 033 3-2000, respectively, are proper. 16. Whether or not the assessments of compromise penalty for ta xable fi sca l yea r 1996 und er Assessment Notice Nos. ST-CP1- 96-0240-2000, ST-CP1-96-0241-2000, � ST-CP1 -96-0242-2000, and ST-WT-96-0237-2000, are proper. 17. Wheth er or not th e assessments of penalty for taxable fi sca l year 1997 und er Assessment Notice Nos. ST-CP-97-0345-99, and ST-EWT-97-0347-99 are proper. ~ 41 I

DECISION C.T.A. CASE NO. 6209 18. Whether or not th e assessments of compromise penalty for taxable fisca�l year 1998 und er Assess ment Notice Nos. ST-CPl- 98-0334-2000 and ST-CP2-96-0332-2000.are proper. Considering the events that transpired during the course of the trial, before the case was submitted for decision, th e remaining issues for this Court's consideration are as follows: 1. Whether or not the Formal Letters of Demand and Assessment Notices issued by the respondent � against the petitioner assessing deficiency ta xes for taxa ble fiscal year 1996, 1997, and 1998, respectively, conform with the requirements set forth under Section 228 of th e Tax Code, as amended. 2. Whether or not the right of the respondent to assess deficiency ta xes for taxa bl e fisca l year ending June 30, 1996 ha s already prescribed when it issued the Formal Letter of Dema nd and Assessment Notices covering the sa id taxable fiscal year. 3. Whether or not the assessments of deficiency documentary stamp ta xes as regards petitioner's special savings accounts for the fiscal years 1996, 1997, and 1998, are proper. 4. Whether or not the assessm ents of deficiency final withholding taxes- trust for the fiscal years 1996 and 1998, are proper. DISCUSSION As regards the first issu e, petitioner argues that respondent fail ed to cite the legal basis on various deficiency ta x assessments issued against it for the fisca l years I ending June 30, 1996, 1997, and 1998. Respondent's penchant for procedural shortcuts - by not disclosing to petitioner the nature, details, and basis of the assessments - is a blatant disregard of Revenue Regulations 12-8 5 and 12-99. As such, the issuance of the subject assessm ents violates due process and fair play. We do not subscribe to petitioner' s argument. The simple meaning of procedural due process is that a party to a case must be given sufficient opportunity to be heard. Its very esse nce is to allow all partie~ �~ 42

DECISI ON J C.T.A. CASE NO . 6209 the opportunity to present evidence. In administrative cases, the requirement of due process is the right to a hearing, including th e right of th e party interested or affected to present his own case and submit evidence to support his allegation. Contrary to its contention that no lega l basis was cited, this Court rules that the assessment notices are valid and that the requirem.ent of informing the ta xpayer of the facts and the law upon which they we re based has � been substantially complied with. There was substa[)tial compliance with Section 228 because petitioner was able to protest the assessments intelligently11,� thereby implying that it had actual knowledge of the factual and legal ba ses of th e assessments. The fact that petitioner was furnished the computation and brief explanation of how the assessment for deficiency quarterly income ta x was arrived at12, the requirement under Section 228 of the National Internal Revenue Code (NIRC) of 1997 Ta x Code is deemed complied with. Petitioner was likewise notified of the specific provisions of law on which the assessment was based . This is evident in the Details of Discrepandes13 annexed to the Demand Letter and Assessment Notices wherein sections and provisions of the applicable laws were written. The presence of the Details of Discrepancies thus belies petitioner's allegations that respondent failed to state the facts and the law on which th e assessment notices were based. Evidently, petitioner was informed of the factual and legal bases on which the questioned assessrpents were based; the requirement set forth in Section 228 of th e NIRC of 1997 being substantially complied with. Consequently, the assessment notices were valid. $.-- 11 Exhibit "05" 12 Exhibits "A" to "A-2", " B" to "B�2", and "C" to "C-2" 13 supra 43

DECISION C.T.A. CASE NO. 6209 As regards the second issue raised, for the fiscal year ending June 30, 1996, respondent has until 1999 within which to issue �� assessment notices against .Petitioner for any deficiency taxes covering the fiscal year 1996, pursuant to Section 203 of the NIRC of 1997, as amended. And under the same Section 203, it is provided that an assessment notice issued after the lapse of the 3-year prescriptive period is no longer valid and effective, except for certain exceptions, one of which is Section 222 (b) of the same Code, which provides: Section 222. Exceptions as to the Period of Limitation of Assessment and Collection of Taxes.:- X X X (b) If before the expiration of the tih1e prescribed in Section 203 for the assessment of the tax, both the Commissioner and the taxpayer have agreed in writing to its assessment after such time, the tax may be assessed within the period agreed upon. The period so agreed upon may be extended by subsequent written agreement made before the expiration of the period previously agreed upon. X X X In this regard, it becomes necessary for this Court to determine the validity of the Waivers of the Statute of Limitations since the validity of the 1996 assessments depends upon the validity of the said waivers. Respondent submits that petitioner, through its representative Rebecca R. Igot, executed a document denominated as a "Wa iver of the Defense of Prescription under the Statute of Limitation of the National Internal Revenue Code". Accordingly, in the said undertaking, petitioner expressly waived or renounced its right to make use as defense the prescriptive period allowed by law for the government to make the proper assessment on any ta xable income. Such being the case, petitioner is ~- now .estopped from questioning the validity of the assessment._e.-

DE CI SI ON C.T.A. CASE NO. 6209 This Court does not agree. In the case of Phil ippine Journalists, I nc. vs. Commissioner of Internal Revenue14, the Supreme Court discussed the nature of a valid Waiver of the Statute of Limitations in this wise: "A waiver of the statute of limitations under the NIRC, to a certain extent, is a derogation of the ta xpayers' right to security against prolonged and unscrupulous investigations and must therefore be carefu lly and strictly construed. The waiver of the statute of limitations is not a waiver of the right to invoke the defense of prescription as erroneously held by the Court of Appea ls. It is an agreement between the taxpayer and the BIR that the period to issue an assessment and collect the taxes due is extended to a date certain. The wai ver does not mean that the. taxpayer relinquishes the right to invoke prescription unequivocally particularly where the language of the document is equ ivocal. For the purpose of safeguarding taxpayers from any unreasonable examination, investigation or assessment, our tax � law provides a statute of limitations in the collection of taxes. Thus, the law on prescription, being a remedial measure, should be liberally construed in order to afford such protection. As a corollary, the exceptions to the law on prescript ion should perforce be strictly construed . . . ." (Empha sis supplied) From the foregoing, contrary to respondent's argument, petitioner's execution of a waiver does not in itself result in petitioner waiving its right to invoke the defense of prescription. A perusal of the records of the case : would show that respondent failed to submit the said waiver to this Court for consideration. Noteworthy is the fact that respondent filed a Motion to Withdraw BIR Records on February 22, 2007 which was granted through this Court's Resolution on February 23, 2007. And records are bereft of proof that the withdrawn BIR Records were returned to this Court within the period allowed. Moreover, Section 34 of Rute 132 of the Revised Rules of Court specifically states that "(T)he court shall consider no evidence which has not been~ 14 G.R. No. 162852, December 16, 2004 45

DECI SION J C.T.A. CASE NO. 6209 Page 1'1 of 23 formally offered. The purpose for which the evidence is offered must be specified." Although respondent had the subject waivers marked before the Court during the February 11, 2004 hearing, the same was never formally offered as forming part of respondent's evidence. Inasmuch as there is no Waiver of the Statute of Limitations to consider, consequently, the three-year prescriptive period provided for in Section 203 of the NIRC of 1997 was not suspended. Effectively, the subject assessment notices covering th~ fiscal year ended June 30, 1996 are void for having been issued beyond the prescriptive period allowed by law. Going now to the remaining issues of the case, for the fiscal year ending June 30, 1997 and 1998, respondent assessed petitioner for deficiency documentary stamp taxes on its special savings accounts (SSA), interbank call loans (IBCL) and trust placements, and deficiency final withholding taxes - trust. The issue on the ta xability of Special Savings Accounts (SSA) is no longer of fi rst impression. No other than the Supreme Court recently settled that the account Special Savi ngs Deposits/Account is similar to a time deposit subject to documentary stamp taxes, when it sustained this Court sitting En Bane in the case of Banco De Oro Universal Bank vs. Commissioner of Internal Revenue,15 the pertinent portion of the Decision is hereby quoted, thus: "Second, in practice, a tim e deposit transaction is covered by a certificate of deposit while petitioner's ISA transaction is through a passbook. However, despite the differences in form of the documents, a time deposit and ISA � have essentially the same attributes and features. Petitioner admitted that the ISA deposit may be withdrawn at anytime even before its maturity but the depositor gets to earn a lower rate of interest similar to a ~ime deposi~ . account. The fact that the ISA~ 15 CTA EB No. 138 (CTA Case No. 6588) as affirmed in Banco De Oro Uni versal Bank vs. Commissioner ofJnema/ Revenue, GR � No. 173602, January 15, 2007 . 4E

DECISI ON J C.T.A. CASE NO. 6209 is documented in a passbook and with quthorized term ination of deposits prior to the lapse of the predetermined period does not detract from its nature as a certificate of deposit subject to DST. Section 180 of the 1997 NIRC does not prescribe the form of a certif icate of deposit. It may be any "written acknowledgment by a bank of the receipt of money on deposit" . A certificate of deposit, being a written instrument evid encing transaction between parties, must be considered in the light of th e same ru le of law as other written instrument: The definition of a ce rtificate of deposit is all encompassing to include a saving s account deposit such as ISA ." (Emphasis supp lied) Moreover, in th e case of Philippine Banking Corporation vs . Commissioner of Internal Revenue,16 this Court explained that as long as there is some written memorandum of the fact that the bank accepted a deposit of a sum of money from a depositor; the writing constitutes a certificate of deposit. Hence, a passbook representing an interest earning deposit account issued by a bank qua lifies as a certificate of deposit drawing interest. Effectively, when petitioner' s client has a SSA, and he is issued a pa ssbook serving as a record of his fund s and their movement, the same is a manifestation of a written memorandum of the fact of deposit. The fact that a passbook evidences" petitioner's SSA is immaterial. 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. This Court cannot allow the practice of banks in labeling their deposit account subject to DST as SSA or any other name in order to avoid ta x li abil ities. To discuss further, a "time deposit", which is also a form of a certificate of deposit, refers to a deposit account payin g interest for a fi xed term, with th e understanding that funds cannot be withd ra wn before maturity without giving-ea.- 16 Philippine Banking Corporation (Now: Global Bus1i1ess Bank, Inc. ) vs. Commissioner of Internal Revenue, CTA EB No. 63 (CTA Case No. 639 5) November 23, 2005 . I '41

DECISION J C.T.A. CASE NO . 6209 advance notice. In pra ctice, a "time deposit" is evidenced by a certificate of time deposit. Certificates of deposit or time depos1ts usually carry penalties for early 0 withdrawals. 17 Summarizing the definition, it appears that a time deposit bears an interest for a fixed term and it cannot be withdrawn before maturity, otherwise there would be a corresponding penalty. The High Tribunal made a similar pronouncement in the recent case of ~ .. 18 International Exchange Bank vs. Com missioner of Internal Revenue, where the $upreme Court again sustained the Decision of this Court En Bane on the same issue, the relevant portion of which reads: "As correctly found by the CTA En Bane, a passbook representing an interest earning deposit account issued by a bank qualifies as a certificate of deposit drawing interest. A document to be deemed a certificate of deposit requires no specific form as long as there is some written memorandum that the bank accepted a deposit of a sum of money from a depositor. What is important and controlling is the natJre or meaning conveyed by the passbook and not the particular label or nomenclature attached to it, inasmuch as substance, not form, is paramount. XXX XXX XXX As for petitioner' s argument that its FSD is similar to a regular savings deposit because it is evidenced by a passbook, and that ba sed on the legislative deliberations on t)le bill which was to become R.A. 9243 which amended Section 180 of the NIRC (which is to a large extent the same as Section 180 of the Tax Code, as amended by R.A. 7660), Congress admitted that deposits evidenced by passbooks which have features akin to time deposits are not subject to DST, the same does not lie." The deposits of money in petitioner's SSAs are withdrawable anytime and have no maturity. However, as correctly argued by respondent, the depositor would forfeit the higher interest rate for SSA if the deposit is withdrawn before th~ 17 LR. Heat Treating Co., 28 TC 874; BPi Family Bank vs. CJR, et a/,;CA-GR SP No. 29853, September 19, 1994. 18 GR No. 171266, April 4, 2007 -4 8

'' DECISION J C. T.A. CASE NO. 6209 expiration of the holcling period and the maintaining balance fell below the required minimum deposit. Clearly, this is simi lar to having a�maturity date and the penalty for early withdrawal is under the guise of a reduction in the interest, which the deposit may earn, if not for the early withdrawal. Obviously the right of the depositor is constrained. These are features which are prevalent in a time deposit, bringing SSAs within the purview of "certificate of deposit". As regards the issue of Interbank Call Loans (IBCL) being subject to documentary stamp taxes, this Court resolves that prior to th e 1997 NIRC, as amended, IBCLs are not subject to DST. The BSP, which exercises supervisory power among banks, requires banks to maintain a daily minimum cash reserve set as a proportion of their deposit liabilities. There are banks which may be holding on to a reserve surplus in a day, while others have deficiency in reserves. A bank may experience surplus in a day, but low reserves in some other days. To cover temporary deficits, banks normally borrow (usually on an overnight lending) from other banks with surpluses. This network allowing banks that are deficient in reserves to borrow from banks with surplus reserves is referred to as IBCL. In other w9rd s, IBCL transactions among banks are done primarily to correct reserve requirem ents. By availing of IBCLs, rese rve deficient banks are able to avoid BSP sanctions and the surplus banks are able to earn income on their excess cash holdings. 19 In this regard, the provisions of the NIRC of 1997, which took effect on January 1, 1998, apply for ta xes accruing for the taxable year 1998. Section 22 (Y) the Code reads:~ � 19 Metropolitan Bank & Trust Co. vs. Commissioner of internal Revenue, CTA EB No. 269, October 30, 200/ cili ng Benedicta , Du�Baladad, TAXATION OF FINANCIAL INSTITUT!ONS IN HIE PI;'IIL!PPINES, 2006 Edition, p. 48 .

DECISION J C.T.A. CASE NO. 6209 "SEC. 22. Definitions. - When ~ sed in this Title - XXX XXX ' .. XXX (Y) The term "deposit substitutes" shall mean an alternative form of obtaining funds from the public (the term "public" means borrowing from twenty (20) or more individual or corporate lenders at any one time) other than deposits, through th e issuance, endorsement, or acceptance of debt instruments for the borrower's own account, for the purpose of relending or purchasing of receivables and other obligations, or financing their own needs or the needs of their agent or dealer. These instruments may includ e, but need not be limited to, bankers' acceptances, promissory notes, repurchase agreements, including reverse repurchase agre ements entered into by and between the Bangko Sentral ng Pilipinas (SSP) and any authorized agent bank, certificates of assignment or participation and similar instruments with recoyrse: Provided, however, That debt instruments issued for inter- bank call loans with m ~ turity of n.ot more t han five (5) days to cover deficiency in rese rves again st deposit liabilities, including those between or among banks and quasi -ban k, shall not be consid ered as deposit substitute debt instruments." (Emphasis supplied) Concisely, IBCLs with a maturity period of more than five days and utilized to cover deficiency in reserves against deposit liabilities, including between or among banks and quasi-banks are treated as deposit substitutes. Effectively, the ta xability of IBCLs as deposit substitutes is likewise governed by Section 180 of the same Code, viz: "SEC. 180. Stamp Tax on all Bonds, Loan Agreements, Promissory Notes, Bill s of Exchange, Drafts, Instruments and Securities Issued by the Government or Any of Its Instrumentalities, Deposit Substitute Debt Instruments, Certificates of Deposits Bearing I nterest, and Others Not Payable on Sight or Demand . - On all bonds, loan agreements, including those signed abroad, wherein the object of the contract is located or used in the Philippines, bills of exchange (between points within the Philippines), drafts, instruments and securities issued by the Governm ent or any of its instrumentalities, deposit substitute debt instruments, certificates of deposits drawing interest, orders for the payment of any sum of mon ey oth erwi se th an at sight or on demand, on all promissory notes, wheth er negoti able or non-negotiable, exce pt bank notes issued for circulation, and on each renewal of any such note, there shall be collected a documentary stamp ta x of Thirty . ca. centavos (P.30) on each Two hundred pesos (P200), or fractional part .SQ I

DECI SIO N ) C.T.A. CASE NO. 6209 thereof, of the face valu e of any such agreement, bill of exchang e, draft, certificate of deposit, or note: Provid ed, That only one documentary st amp ta x shall be im posed on either loan agree ment, or promissory notes issued to secure such a loan, whichever will yi eld a higher tax: Provided~ however, That loa n agreements or promissory notes the aggregate of which does not exceed Two hundred fifty thousand pesos (P250,000) executed by an individual for his purchase on 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 bP- exempt from the payment of the documentary stamp tax provided under this Section. " Considering that petitione~ adopts th ~ fiscal year as its accounting cycle, starting from July 1 to June 30 of th e foll owing year, only those IBLC accounts transacted from January 1, 199820 to June 30, 1998 to cover petition er's fi scal year 1998 are taxable under the law.� However, record s are wanting of the lists of IBCL transactions, specimen of net transactions per counter-partie s, specimen of interbank loan advice credit ticket, specim en o f interbank repayment debit ticket, specimens of interbank repayment credit tickets, and specimen of daily statistics report for the petitioner, which would properly establish petitioner's transactions during the fiscal year ending June 30, 1998. This Court cannot thus distinguish with definiteness petitioner's claim . Consequently, for failure of petitioner to properly account for the transactions, this Court ha s no other alternative but to sustain respondent's assessment of the sa me. Finally, petitioner has been assessed defi ciency final withholding ta xes on its regular interest and trust department. Although applications for the abatement of taxes were admittedly filed by petitioner, it further alleges that it had paid the basic final withholding tax - trust department on June 29, 2007 in the amounts of _P4,187,683.27 and P6,097,825.03, for the fiscal years 1996 and 1 99 8 ~ 20 When the National Internal Revenue Code of 1997 took efl eel 51

DECISION C.T.A. CASE NO . 6209 It is worthy to note that petition er's all eged payment is a mere allegation wanting of any supporting docum entary or testim on ial evid ence to prove th e same. There are no other proffered doc uments to verify petitioner's allegation that it had indeed paid the subject final withholding tax assessments. Nonetheless, this Court finds the assailed assessments worthy of affirmation. Petitioner does not dispute the factual finding s of respondent; instead arguing that the tax base included accrued interest income which have not yet been received or distributed .. Accordi~gly,~ the accru ed interest income being not yet subject to the 20% final ta x, it should not have form ed part of the ta x base. Sections 50 (a) [now Section 57(A)], of the 1977 Tax Code provides that th e withholding of final ta xes on certain incomes prescribed therein shall be withheld by the payor-company in the same manner and subject to the same co nditions as provided in the subsequent Section 51 of th.e same Code. Section 51 (a) [now Section 58 (A)] of the same Code, on the other hand, provides for th e authority of the Commissioner of Internal Revenue, upon th~ approval of the Secretary of Finance, to require or implement rul es as regards th e withholding and payments of the taxes withheld. Corollary thereto, Section 3 of Revenue Regulations No. 17-84 provides that final withholding income ta x .on interest on savings and time deposits maintained with the banks shall be fifteen perce nt ( 15%) based on interest paid or accrued .and final withholding tax to be imposed on yield on deposit substitute shall be fifteen percent ( 15%) to twenty percent (20%) by virtue of Revenu e Regulations No. 10-86. Verily, contrary to petition er's argume~t, the withholding of tax on interest income includes those already paid and accrued. In this se nse, it is em phasized tha~

DECISION J C.T.A. CASE NO. 6209 tax assessments are presumed correct and done in good faith; and that the burden to prove otherwise dwells upon the one claiming it's irregularity or factual error. I Failure on the part of the one claiming to satisfactorily dispute otherwise leaves this Court with no other choice but to affirm the assailed assessments. On another issue, petitioner raised the argument that it had availed of the provisions of Republic Act No. 9480, otherwise known as the Tax Amnesty Law of 2007, on March 6, 2008. Again, suffice it to say that petitioner's argument is a mere allegation which has not been properly supported by documentary and testimonial evidence proving its availment. In this regard, this Court takes no consideration of the same. WHEREFORE , premises considered, the instant Petition for Review is hereby PARTIALLY GRANT ED. Accordingly, Assessment Notices issued against petitioner for deficiency documentary stamp, final withholding, expanded withholding, and fringe benefits tax assessments the fiscal year ended June 30, 1996 are VOID for being issues beyond the prescriptive period allowed by law. The Assessment Notices issued by respondent against petitioner for deficiency income, documentary stamp - regular, documentary stamp - trust, and fringe benefits tax assessments for the fisca l years ended June 30, 1997 & 1998 are hereby ordered CANCELLED and . WITHDRAWN . Moreover, petitioner's deficiency documentary stamp tax- IBCL assessment for the fiscal year ended June 30, 1997 is ordered CANCELLED and WITHDRAWN . However, petitioner's defici ency documentary stamp tax - Special Savings Account assessments for the fiscal years ended June 30, 1997 & 1998, and .~efici ency documentary stamp ta x- IBCL and deficiency final withholding tax- trus~ 5 ') J

) ) DECISION c.T.A. CASE NO. 6209 assessments for the fiscal year ended June 3�0, 1998, in the aggregate amount of P142,777,785 .91 are hereby AFFIRMED. Th e sa id amount is broken down as fo ll ows: Fi sca l Year 1997 p 39,163,539.5721 Documentary Stamp Tax - Industry I ssue 10,183,367.8022 Fiscal Year 1998 93,430.878.5423 Final Withholding Tax - Trust Documentary Stamp Tax- Industry I ssue ell2,_lli..ZS_5..9.1 Total Deficiency Tax SO ORDERED . ~ CAESAR A. CASANOVA Associate Justice WE CONCUR: ~- p_ _ Q---A- ERNESTO D. ACOSTA 21 Paragra ph 3, Joint Stipulation of Facts 12 Paragraph 3, Joint Stipulation of Facts 23 Supra

DECISION C.T.A. CASE NO. 6209 CERTIFICATION Pursuant to Article VIII, Section 13 of the Constitution, it is hereby certified that the conclusions in the above Decision we re reach ed in consultation before the case was assigned to the writer of the opinion of the Court's Division. ~~ - Q~ ERNESTO D. ACOSTA Presiding Justice Chairman, First Division ''� 55