CTA Case No. 4797 (Decision)

REPUBLIC OF THE PHILIPPINES COURT OF TAX APPEALS QUEZON CITY JOSE C. IBAZETA, C.T.A. CASE NO. 4797 Petitioner, - versus - COMMISSIONER OF INTERNAL REVENUE, Respondent. X- - - - - - - - - - - X DECISION This is a claim for refund or in the alternative, issuance of a ta:..; credit .certificate in the amount of ?827,522.50 representing alleged excess capital gains tax paid by petitioner on stock transactions for the calendar year ~990. The facts of the case are not in dispute. Petitioner is a Filipino citizen, of legal age and resident of #316 Mango Drive, New Alabang, Muntinlu pa , Metro Manila. On March 29, 1990, . thru a Deed of Assignment <Exhibits "A" to "A-4">, the peti~ioner entered into a stock swap transaction with Benguel Corporation whereby he transferred a total of 46,250 shares of stock of Anscor Capit.al and Investment Corporat.ion <ACIC:> (now AB Capital and I n v e s t.m e n t. t .o Benguet 680

DECISION - - 2- C.T.A. Case No. 4797 .�, Corporat ion in exchange �or 2 14,972 newly issued Class 0 ... "A" shar es o� stock therein. The agreed trans�er price for the 46, 250 ACIC shares was P8,280,738.75 <Exhibit "A- 5"). The Deed o� Assignment states that the transfer price of ?8, 280,738.75 is "equivalent to the total market value o� the Benguet shares, less five percent<5Y.) thereo�, computed based on the average market value o� the i s sued and traded shares of the capital stock o� Benguet Corporation" for the period �rom March 8 to 14, 1990. For this period, the average closing price o� the Benguet shares in the stock market was P38.52 per share. In e��ect, the ACIC shares were exchanged �or Benguet Shares at P179.043 per share <i.e., the "trans�er price" of P8,282,738.75 divided by 46,250 ACIC shares>. As o� Ma r ch 31, 1990, ACIC shares had a book value o� P112. 85/share <see E>thibits "B", "B- 1" and ."B- 2">. The exchange of shares was done outside o� the stock market. The Petitioner filed a capital gains tax retuin covering the stock swap transaction involving the ACIC sha r es <Exhibi t "C">. The acquisition cost of the Aci c sh ar es was s t .at.ed in the return as P4,093,125.00 o' r P88 . 5 0 per s hare. S ince the ACIC shares were e��ectively e xc hanged for Be nguet Shares at P179.04 3 per share, the 691

DECISION - C.T.A. Case No. 4797 - 3- Petiti oner realized capi tal qains on the stock swap transaction i n the aggregate amount o� P4,187,613.75 (i.e . , the trans zer price o� P8, 280,738 . 75 less "cost" o� P4,093,1 25 .00> �or which the Petitioner paid capital gains tax at the schedular rate o� 10/. and 20/. under Section 2 1<d><1> o� the NIRC in the amount o� P827,522.75 and was issued the corresponding Conzirmation Receipt and Order o� Paym~nt <Exhibits "D" and "D-1">. Subsequent to the azorementioned stock swap transaction, Benguet Corporation declared a 25/. stock dividend to all stockholders o� record as o� June 15, 1990 <Exhibits "E" and "E- 1">. As a r esult o� the stock dividend declaration, the shareholdings o� the Petitioner in Benguet Corporation increas ed �rom 2 14,972 shares to 268,715 shares. The end-e��ec t o� this stock dividend declaration is to reduce the cos t per share o� the total shareholdings o� the Petitioner in Benguet Corporation. Thus, the adjusted cost bas~s per share o� the Petitioner's shareholdings in Benguet Cor por ation azter June 15, 1990 is P30.816 per share (as compared to the original acquisition cost o� P 3 8.52 per share prior to the stoc~ dividend declaration>. '� On December 2 1, 1990, thru a Deed o� Absolute Sale o� Shares <Exh i bits "F" "F- 1" and "F- 2 ") the Petitionei 692

DECISION - - 4- C.T.A. Case No. 4797 .�, sold an aggregate number o� 251,797 Benguet shares at ' P11.00 per share or �or a total consideration o� P2,769,767.00. Although the Benguet Shares are listed in the stock exchange, the 251,797 Benguet shares were sold outside o� the stock exchange. Considering that the 251,797 Benguet shares subject o� the Deed o� Absolute Sale o� Shares were acquired at the adjusted cost basis o� P30.816 but were sold at P11.00 per share, said Benguet shares were therefore sold at a loss. Closing price o� Benguet Class "A" shares o� stock on December 21, 1990 was P10/share at the Makati Stock Exchange and P9.50/share at the Manila Stock E>tchange <Ex hibit "G" and "G - 1">. Accordingly, the Petitioner did not pay any capital gains tax on this transaction. In the capital gains tax return which the Petitioner filed covering this transaction <Exhibit "H">, he declared a capital loss o� P4,989,609.35 taking into account that the aggregate adjusted cost basis o� the 251,797 Benguet shares is P7,759,376.35 (i.e., 251,797 multiplied by P30.816 per share>. While petitioner had no other stock transaction for 1990 that r esulted in a capital gain, he had another t r ans a c t i o n which resulted in a capital loss . This i nvolv e t h e s ale of Asian Bank shares uf stoc k to A. S o~��i.an o C or ~. f or P 1 5 , 9 01,648.44 wi �th a reported loss of 693

DECISION - -5- C.T.A. Case No. 4..797 .�, P1, 6 2 8,211.70. No other details were provided since this ' will not a��ect at all the subject claim. On January 23, 1991, the Petitioner �iled a Final Consolidated Tax Return covering his stock transactions outside the stock exchanges �or the year 1990 <Exhibit "I"). He reported in the Final Return that �or the year 1990, his stock transactions outside the stock exchanges resulted in ,a net capital loss o� P2,430,207.30 which wiped out all the net capital gains he derived �rom his stock transactions �or the same year. The stock transactions entered into by petitioner for calendar year 1990 is summarized below: Date of Total Net Gain Capital Gains Transaction Particulars Selling Price (Loss) Tax Paid 03-28-90 Petitioner sold Asian Bank Shares to A. Soriano f~rp. Pl5,90l,b84. 44 P17,529,896.14 IP1,&28,2l1.70) P 03-29-90 Petitioner swapped with Benguet. Corp. IBCl 46,250 shares of Anscor Capital & lnvesbent Corp. IAClCl ior 214,912 Class "A" shar~ of BC 12-21-90 Petitioner sold 2,7&9,767.00 7,759,376.35 (4,989,609.35) 251,797 Class "A" shares of BC to Leonardo T. Seguion Reyna T 0 TAL S P26,952,190.19 P29,382,J79.49 (P2,4:.1,207.:JO) P827,522.SO 694

DECISION - C.T.A. Case No. 4797 - 6- An administrative claim �or re�und in the amount o� P827,522 .50 was �iled by petitioner with the Bureau o� Internal Revehue <BIR> on Februar y 6, 1991 <Exhibit "J">. Respondent Commissioner did not act upon the petitioner ' s claim �or re�und. To interrupt the two - year prescriptive period, the Petitioner �iled the herein petition �or review with this Court on April 24, 1992. The only issue is whether or not petitioner is entitled to the re�und o� P827,522.50 representing alleged overpaid capital gains tax on stock transactions �or 1990. Underlying the said issue is whether Section 21 (d) ( 1 ) or Section 2 1<d><2> o� the National Internal Revenue Code <NIRC> is applicable in determining the capital qains tax due on the qain realized �rom the sale o� listed shares but not traded through the stock exchanges. Quoted hereunder are the pertinent provisions o� law, viz: SECTION 21. Tax on cit.izens or resident.. - :>OtX }[)[}t XXX <d> Capital gains �rom sales o� shares o� s tock. The p r ovisions o� Section 33<b> notwithstanding, capital gains realized �rom the sale, exchange o r disposition o� share o� stocks in any domestic corporation shall be taxed a s follows: 695

-- DECISION - C.T.A. Case No. 4797 .�, -7- (1) Net capital gain as deiined in Section 33<a><2> realized during each taxable year Irom the sale, exchange or other disposition oi shares oi stock not traded through a local stock exchange: Not over PlOO,OOO.OO lOr. Over PlOO,OOO.OO 20r. <2> Capital gains presumed to have been realized Irom the sale, exchange or dispositibn oi shares oi stock listed and traded through a local stock exchange - l/4 oi lX based on the gross selling price of the share or shares of stock. <Underscoring supplied). XXX XXX XXX Petitioner submits that the sale of listed shares outside of the stock exchange is governed by the provisions of Sect~on 2l(d)(l) of the NIRC~ i.e., the schedular rate of lOX and 20X based on the net capital gains realized thereon, and not by Section 2l<d><2> of the NIRC, i.e. , the final tax of 1/4 of 1X based on the gross selling price of the share sold. It is argued that Section 2 1< d)( 2) of the NIRC applies exclusively to the sale or disposition of shares of stock which are listed and traded in the stock exchanges and not to shares listed but not traded through the stock exchanges. There should be a concurrence of "listing" of shares in the stock exch~nges and actual "trading" of the same through the facilities of the exchange in order that the tax of 1/4 of lX under Section 2l<d><2> of the NIRC shall be applicable. Otherwise stated, the phrase "and ~raded ,,. 696 '.. l

DECISION - C.T.A. Case No. 4797 -8- through a local stock exchange" is not a mere descripti~n o:f "listed shares" but a quali:fication :for the application o:f the tax o:f 1/4 o:f 1/.. The provisions o:f the NIRC on stock transactions [Section 21(d)(1) and (2)J are allegedly clear and :free :from ambiguity and need no :further interpretation. The :foregoing was claimed to :find support in Revenue Regulations No. 2-82 which makes a distinction between "shares which are traded through the stock exchanges" and "share which are not traded through the stock exchanges but listed in one or more stock exchanges". On the other hand, respondent contends that petitioner's sale o:f Benguet Corporation share o:f stock on December 21, 1990 :fall within the purview o:f Section 21<d><2> o:f the Tax Code hence, subject to the capital gains tax o:f 1/4 o:f 1/. o:f the gross selling price. It is respondent's view that what is indispensable as required by law, is the :fact that the shares o:f stock are listed in the stock exchange. The actual trade o:f shares o:f stocks need not occur through local stock exchange. Consequently, petitioner is allegedly not entitled to the cl a im :for tax re:fund considering that the stock t 1 an a c t i ons are separ ate and distinct :from each other :t a nti th e :f i l i n g o :f ret u r ns cannot be consolidated, :for ,, 7 of Re ven ue Reg ulations No. 2 - 82 p r ovides a 69~

DECISION - C.T.A. Case No. 4797 -9- separate manner o� payment and �i1ing o� returns covered by Section 2 l<d><l> and Section 2l(d}(2} o� the Tax code. Respondent there�ore prays that petitioner be ordered to pay the capital gains tax o� 1/4 o� lX o� the gross selling price o� the Benguet Corp. shares o� stocks, plus surcharge and interest in accordance with Section 248 and 249 o� t he Tax Code, as amended. The � i rst and �undamenta1 duty o� the court is the applicati o n o� the law according to its express terms, interpretation being called �or only when such literal application is impossible <Pac:i.:f:i.c Oxygen, etc. vs. Central Bank, 37 SCRA 685; Republ:i.c Flour ft:i.lls, Inc. vs. Comm:i.ss:i.on~ o:f Customs, 39 SCRA 269; All:i.ed Brokerage Corp. vs. Comm:i.ss:i.oner o:f Customs, 40 SCRA 555; Gonzaga vs. Court o:f Appeals, 51 SCRA 381). When the words and phrases o� the statute are clear and unequivocal, their meaning must be determined �rom the language employed and the statute must be taken to mean exactly what it says (Pascual vs. Pascual - Baut:i.sta, 207 SCRA 561>. The Court cannot hardly �ind anything ambiguous in Section 2 l(d}(l} and <2> o� the Tax Code that pos e a problem o� interpretation. The words are plain and readily understandable. The schedular r ate o� lOX and 2 0X based on t he net capital gains realized �rom sale o� .t st1 ar es o� st.oc.ks �Section 2 1Cd>Cl>J applies to those not 698

DECISION - ~ 10 - C.T.A. Case No. 4797 .�. traded through the local stock exchange. Whereas, the ~ 1/4 of lX based on the gross s elling price of the shares of stock [Section 2l<d><2>J applies to those listed and traded through a local stock exchange. While it is true that only those shares which are listed may be traded in the local stock exchange, it does not necessarily follow that listed shares may only be traded in the local stock exchange. They may be sold outside the local stock exchange. We agree with petitioner that the "listing" and actual "trading" must concur in order for Section 2l<d) <2> to apply. Please note that the said provision of law both mentions "listed" and "traded", joined together by the injuncture word "and", meaning concurrence. If the shares of stock are listed but sold outside the local stoc k exchange, Section 2l<d><l> should apply. What is controlling is whether or not the shares of stock are traded in the local stock exchange. This is the common denomination in both provisions of law. In the instant case, petitioner's stock transactions were outside the local stock exchange. �A fortiori, Section 2 1<d><l> of the NIRC is applicable. The schedular rate of lOX and 20X based gain realized during the taxable year '~ I, on the net capital \ meaning, the excess of t he gains from sales or exchanges of capital assets 69 9

DECISION - - 11 - C.T.A. Case No. 4797 .�, over the losses �rom such sales or exchanges <Section 33<a><2>, NIRC> should be imposed. Pursuant to Section 45(d) o� the Tax Code, petitioner �iled a return and paid the corresponding capital gains tax thereon, i� any, within thirty days a�ter each transaction and a �inal consolidated return o� all transactions during the taxable year on or be�ore the �i�teenth day o� the �ourth month �allowing the close o� the taxable year. Consequently, petitioner has paid a capital gains tax o� P827,522.50 �or taxable year 1990 even i� it incurred a net capital loss of P2,430,207.30 from all his 1990 stock transactions taken together. <See summary o� stock transactions.). Verily, petitioner is entitled to a refund. WHEREFORE, respondent Commissioner o� Internal '\ Revenue is hereby ordered to re�und or issue tax credit certi�icate to petitioner Jose C. Ibazeta the amount o� P827,522.50 representing overpaid capital gains tax on stock transactions �or calendar year 1990. SO ORDERED. Quezon City, Metro Manila, August 8, 1994. ~.:iZ"a~ ~ ERNESTO D. ACOSTA Presiding Judge 700 ?'

DECISION - C.T.A. Case No. 4797 WE CONCUR: L ciat: Judge A::ff!:it~'~ CERTIFICATION I hereby certi�y that this decision was reached a�ter due consultation among the members o� the Court o� Tax Appeals in accordance with Section 1 3, Article VIII o� the Constitution. e...~Q. ~ ERNESTO D. ACOSTA Presiding ~Tudge Court o� Tax Appeals {01