G.R. No. 180529, November 13, 2013
COMMISSIONER OF INTERNAL REVENUE, Petitioners, v. BANK OF COMMERCE, Respondent.
D E C I S I O N
LEONARDO-DE CASTRO, J.:
- [Bank of Commerce (BOC)] is a banking corporation duly organized and existing under and by virtue of the laws of the Republic of the Philippines, with principal office address at 12th Floor, Bankers’ Centre Building, 6764 Ayala Avenue, Makati City.
- Respondent is the Commissioner of the Bureau of Internal Revenue [(CIR)], duly appointed to perform the duties of his office, including, among others, the power to decide, cancel and abate tax liabilities pursuant to Section 244(B) of the Tax Code, as amended by Republic Act (“RA” No.) 8424, otherwise known as the ‘Tax Reform Act’ (“TRA”) of 1997.
- On November 9, 2001, [BOC] and Traders Royal Bank (TRB) executed a Purchase and Sale Agreement5 whereby it stipulated the TRB’s desire to sell and the BOC’s desire to purchase identified recorded assets of TRB in consideration of BOC assuming identified recorded liabilities.
- Under the Purchase and Sale Agreement, BOC and TRB shall continue to exist as separate corporations with distinct corporate personalities.
- On September 27, 2002, [BOC] received copies of the Formal Letter of Demand and Assessment Notice No. DST-99-00-000049 dated September 11, 2002, addressed to “TRADERS ROYAL BANK (now Bank of Commerce)”, issued by [the CIR] demanding payment of the amount of P41,467,887.51, as deficiency documentary stamp taxes (DST) on Special Savings Deposit (SSD) [account] of TRB for taxable year 1999.
- On October 11, 2002, [TRB] filed its protest letter contesting the Formal Letter of Demand and Assessment Notice No. DST-99-00-000049 dated September 11, 2002, pursuant to Sec. 228 of the Tax Code.
- On March 31, 2004, [BOC] received the Decision dated March 22, 2004 denying the protest filed by [TRB] on October 11, 2002. The last two paragraphs of the Decision stated that:“WHEREFORE, in view of all the foregoing, Assessment Notice No. DST-99-00-000049 demanding payment of the amount of P41,467,887.51, as deficiency stamp tax for the taxable year 1999 is hereby MODIFIED AND/OR REDUCED to P41,442,887.51. Consequently, Traders Royal Bank (now Bank of Commerce) is hereby ordered to pay the above-stated amount, plus interest that have accrued thereon until the actual date of payment, to the Large Taxpayers Service, B.I.R. National Office Building, Diliman, Quezon City, within thirty (30) days from receipt hereof; otherwise, collection thereof shall be effected through the summary remedies provided by law.
This constitutes the Final Decision of this Office on the matter.”6
- Whether [BOC] can be held liable for [TRB]’s alleged deficiency [DST] liability on [its SSD] Account[s] for taxable year 1999 in the amount of P41,442,887.51, inclusive of penalties.
- Whether TRB’s [SSD] Account[s] for taxable year 1999 is subject to [DST].8
THE HOLDING OF THE HONORABLE SECOND DIVISION THAT [BOC] IS DEEMED TO HAVE ADMITTED THAT IT IS THE PROPER PARTY ASSESSED BY THE [CIR] BECAUSE IT DID NOT RAISE THE ISSUE OF MERGER IN THE LETTER OF PROTEST FILED WITH THE [CIR] IS WITHOUT BASIS AND VIOLATES ELEMENTARY RULES OF DUE PROCESS.
THE HONORABLE SECOND DIVISION ERRED IN HOLDING THAT TRB’S SSD ACCOUNTS FOR TAXABLE YEAR 1999 ARE SUBJECT TO [DST] UNDER THEN SECTION 180 OF THE TAX CODE.15
There was no merger between [BOC] and [TRB] as already decided by this Honorable Court in a decision dated 18 June 2007; hence [BOC] cannot be held liable for the tax liability of [TRB.]
[BOC] could not have raised the issue of non-merger of [BOC] and [TRB] in the proceedings before the [CIR] because it was never a party to the proceedings before the [CIR]. Contrary to the Court’s findings, the issue of non-merger is no longer an issue but a fact stipulated by both parties.
The [CIR]’s decision holding [BOC] liable for TRB’s tax liability is void since [BOC] was not a party to the proceedings before the [CIR].21
WHEREFORE, [BOC]’s Motion for Reconsideration is hereby GRANTED. The Decision in the case at bar promulgated on June 27, 2007 is REVERSED. The appealed Decision in C.T.A. Case No. 6975 is SET ASIDE and a new one is hereby ENTERED finding petitioner Bank of Commerce NOT LIABLE for the amount of P41,442,887.51 representing the assessment of deficiency Documentary Stamp Tax on the Special Savings Deposit accounts of Traders Royal Bank for taxable year 1999.22
By practice, a BIR ruling contains the official written interpretative opinion of the Commissioner of Internal Revenue addressed to a particular taxpayer regarding his taxability over certain matters. Moreover, well-settled is the rule that the interpretation of an administrative government agency like the BIR, is accorded great respect and ordinarily controls the construction of the courts. The reason behind this rule was explained in Nestle Philippines, Inc. vs. Court of Appeals, in this wise: “The rationale for this rule relates not only to the emergence of the multifarious needs of a modern or modernizing society and the establishment of diverse administrative agencies for addressing and satisfying those needs; it also relates to the accumulation of experience and growth of specialized capabilities by the administrative agency charged with implementing a particular statute.
Here, We have no reason to disregard the interpretation made by the Commissioner as it is in accord with the aforementioned Resolution of the First Division.28 (Citation omitted.)
[BOC] is estopped from raising the issue that it is not the party held liable for Trader[s] Royal Bank (TRB)’s deficiency DST assessment because it was not a party to the proceeding before [the] Bureau of Internal Revenue (BIR).30ChanRoblesVirtualawlibrary
Issues not raised in the administrative level cannot be raised for the first time on appeal.31ChanRoblesVirtualawlibrary
The deficiency Assessment of TRB can be enforced and collected against [BOC].32ChanRoblesVirtualawlibrary
The Honorable Court En Banc erred in considering BIR Ruling No. 10-2006 as basis to justify its conclusion.33ChanRoblesVirtualawlibrary
The Honorable Court En Banc has no sufficient justification for not considering the Escrow fund in its Amended Decision.34
THE DEFICIENCY ASSESSMENT OF TRADERS ROYAL BANK (TRB) CAN BE ENFORCED AND COLLECTED AGAINST RESPONDENT BANK OF COMMERCE (BOC) BECAUSE THE LATTER ASSUMED THE OBLIGATIONS AND LIABILITIES OF TRB PURSUANT TO THE PURCHASE AND SALE AGREEMENT EXECUTED BETWEEN THEM AND THE APPLICABLE LAW ON MERGER OF CORPORATIONS (SECTION 80 OF THE CORPORATION CODE).
THE COURT OF TAX APPEALS EN BANC GRAVELY ERRED IN REVERSING ITS PREVIOUS DECISION WHICH AFFIRMED THE ASSESSMENT AND ENFORCEMENT OF DEFICIENCY TAXES BY PETITIONER AGAINST RESPONDENT, CONTRARY TO LAW AND JURISPRUDENCE.38
- THE PETITION FOR REVIEW DID NOT RAISE QUESTIONS OF LAW.
- THE COURT OF TAX APPEALS EN BANC WAS CORRECT AND DID NOT COMMIT GRAVE ABUSE OF DISCRETION WHEN IT FOUND RESPONDENT NOT LIABLE FOR THE SUBJECT TAX BECAUSE:
- THERE WAS NO MERGER CREATED BETWEEN THE RESPONDENT BANK OF COMMERCE AND TRADERS ROYAL BANK (TRB).
- THE PETITIONER ITSELF RULED AND RENDERED AN OPINION UNDER BIR REVENUE RULING NO. 10-2006 THAT THERE WAS NO MERGER BETWEEN THE RESPONDENT AND TRB.
- RESPONDENT IS NOT ESTOPPED FROM RAISING THE ISSUE OF NON-MERGER BETWEEN RESPONDENT AND TRB BECAUSE IT WAS NOT A PARTY TO THE PROCEEDINGS BEFORE THE PETITIONER.
- THE PETITIONER’S DECISION HOLDING RESPONDENT LIABLE FOR TRB’S TAX LIABILITY IS VOID SINCE RESPONDENT WAS NOT A PARTY TO [THE] PROCEEDINGS BEFORE THE PETITIONER.40
In the Motion, [BOC] moves to have the Writ of Execution dated March 09, 2007 issued against it quashed on the ground that it is a separate entity from [TRB]; that there was no merger or consolidation between the two entities. Further, [BOC] claims that the deficiency [DST] amounting to P27,698,562.92 for the taxable years 1996 and 1997 of [TRB] was not one of the liabilities assumed by [BOC] in the Purchase and Sale Agreement.
After carefully evaluating the records, the [CTA 1st Division] agrees with [BOC] for the following reasons:
First, a close reading of the Purchase and Sale Agreement shows the following self-explanatory provisions:chanRoblesvirtualLawlibrarya) Items in litigation, both actual and prospective, against [TRB] are excluded from the liabilities to be assumed by the Bank of Commerce (Article II, paragraph 2); and
b) The Bank of Commerce and Traders Royal Bank shall continue to exist as separate corporations with distinct corporate personalities (Article III, paragraph 1).
Second, aside from the foregoing, the Purchase and Sale Agreement does not contain any provision that the [BOC] acquired the identified assets of [TRB] solely in exchange for the latter’s stocks. Merger is defined under Section 40 (C)(6)(b) of the Tax Code as follows:chanRoblesvirtualLawlibrary“b) The term “merger” or “consolidation”, when used in this Section, shall be understood to mean: (i) the ordinary merger or consolidation, or (ii) the acquisition by one corporation of all or substantially all the properties of another corporation solely for stock: Provided, [t]hat for a transaction to be regarded as a merger or consolidation within the purview of this Section, it must be undertaken for a bona fide business purpose and not solely for the purpose of escaping the burden of taxation: x x x.”
Since the purchase and sale of identified assets between the two companies does not constitute a merger under the foregoing definition, the Bank of Commerce is considered an entity separate from petitioner. Thus, it cannot be held liable for the payment of the deficiency DST assessed against petitioner.41 (Citation omitted.)
CONSIDERATION: ASSUMPTION OF LIABILITIES
In consideration of the sale of identified recorded assets and properties covered by this Agreement, [BOC] shall assume identified recorded TRB’s liabilities including booked contingent liabilities as listed and referred to in its Consolidated Statement of Condition as of August 31, 2001, in the total amount of PESOS: TEN BILLION FOUR HUNDRED ONE MILLION FOUR HUNDRED THIRTY[-]SIX THOUSAND (P10,401,436,000.00), provided that the liabilities so assumed shall not include:
x x x
2. Items in litigation, both actual and prospective, against TRB which include but are not limited to the following:
x x x
2.3 Other liabilities not included in said Consolidated Statement of Condition[.]42 (Emphases supplied.)
EFFECTS AND CONSEQUENCES
The effectivity of this Agreement shall have the following effects and consequences:
- [BOC] and TRB shall continue to exist as separate corporations with distinct corporate personalities;
- With the transfer of its branching licenses to [BOC] and upon surrender of its commercial banking license to BSP, TRB shall exist as an ordinary corporation placed outside the supervisory jurisdiction of BSP. To this end, TRB shall cause the amendment of its articles and by-laws to delete the terms “bank” and “banking” from its corporate name and purpose.
- There shall be no employer-employee relationship between [BOC] and the personnel and officers of TRB.43 (Emphases supplied.)
WHEREAS, TRB desires to sell and [BOC] desires to purchase identified recorded assets of TRB in consideration of [BOC] assuming identified recorded liabilities of TRB x x x.44
One distinctive characteristic for a merger to exist under the second part of [Section 40(C)(b) of the 1997 NIRC] is that, it is not enough for a corporation to acquire all or substantially all the properties of another corporation but it is also necessary that such acquisition is solely for stock of the absorbing corporation. Stated differently, the acquiring corporation will issue a block of shares equal to the net asset value transferred, which stocks are in turn distributed to the stockholders of the absorbed corporation in proportion to the respective share.
After a careful perusal of the facts presented as well as the details of the instant case, it is observed by this Office that the transaction was purely concerning acquisition and assumption by [BOC] of the recorded liabilities of TRB. The [Purchase and Sale] Agreement did not mention with respect to the issuance of shares of stock of [BOC] in favor of the stockholders of TRB. Such transaction is absent of the requisite of a stock transfer and same belies the existence of a merger. As such, this Office considers the Agreement between [BOC] and TRB as one of “a sale of assets with an assumption of liabilities rather than ‘merger’.”
x x x
In the case at bar, [BOC] purchased identified recorded assets and properties of TRB. In consideration thereof, [BOC] assumed certain liabilities of TRB which were identified in the Consolidated Statement of Condition as of August 31, 2001. In this wise, the liabilities of TRB assumed by [BOC] were limited only to those already identified as of August 31, 2001 amounting in all to Ten Billion Four Hundred One Million Four Hundred Thirty[-]Six Thousand Pesos (P10,401, 436,000.00) x x x. More so, liabilities that were not assumed by [BOC] should not be enforced against it. x x x. (Emphasis supplied.)
x x x
2. Much have been said that the transaction between TRB and [BOC] is not a merger within the contemplation of Section 40(C)(b) of the Tax Code of 1997. To reiterate, this Office has ruled in the foregoing discussion that the transaction is one of sale of assets with assumption of identified recorded liabilities of TRB. As such, the liabilities assumed by [BOC] amounted only to P10,401,436,000.00 with some enumerated exclusion in the Agreement. x x x.46
1 Under Rule 45 of the 1997 Rules of Civil Procedure.
2Rollo, pp. 56-63; penned by Associate Justice Lovell R. Bautista with Presiding Justice Ernesto D. Acosta and Associate Justices Juanito C. Castañeda, Jr., Erlinda P. Uy, Caesar A. Casanova and Olga Palanca-Enriquez, concurring.
3 Id. at 64-70.
4 Id. at 13-14.
5 Records, pp. 11-29.
6Rollo, pp. 135-137.
7 Id. at 108-116.
8 Id. at 137.
9 Records, pp. 4-5.
10Rollo, pp. 84-99.
11 Id. at 97.
12 Id. at 174-185.
13 Id. at 100-101.
14 Id. at 186-203.
15 Id. at 190.
16 Id. at 82.
17 549 Phil. 456 (2007).
18Rollo, p. 78.
19 Id. at 80-81.
20 Id. at 204-221.
21 Id. at 209-210.
22 Id. at 62.
23 Id. at 225-227.
24 Id. at 58.
25 Id. at 58-59.
26 Id. at 228-232.
27 Id. at 59.
28 Id. at 61.
29 Id. at 233-247.
30 Id. at 234.
31 Id. at 235.
32 Id. at 236.
33 Id. at 239.
34 Id. at 243.
35 Id. at 66-68.
36 Id. at 68-69.
37 Id. at 69.
38 Id. at 25.
39 Id. at 265-283.
40 Id. at 269-271.
41 Id. at 225-226.
42 Records, pp. 12-13.
43 Id. at 13.
44 Id. at 11.
45Rollo, pp. 45-49.
46 Id. at 230-232.
47 Id. at 136.