Philacor Credit Corporation v. Revenue

BRION, J.:

Before us is a petition for review on certiorari1under Rule 45 of the Rules of Court seeking the reversal of the decision2 dated September 23, 2005 of the Court of Tax Appeals (CTA) en bane in C.T.A, E.B. No. 19 (C.T.A. Case No. 5674). In the assailed decision, the CTA en banc affirmed the CTA Division's resolution3 of April 6, 2004. Both courts held that petitioner Philacor Credit Corporation (Philacor), as an assignee of promissory notes, is liable for deficiency documentary stamp tax (DST) on (1) the issuance of promissory notes; and (2) the assignment of promissory notes for the fiscal year ended 1993.

The facts are not disputed. Philacor is a domestic corporation organized under Philippine laws and is engaged in the business of retail financing. Through retail financing, a prospective buyer of a home appliance - with neither cash nor any credit card - may purchase appliances on installment basis from an appliance dealer.

After Philacor conducts a credit investigation and approves the buyer's application, the buyer executes a unilateral promissory note in favor of the appliance dealer. The same promissory note is subsequently assigned by the appliance dealer to Philacor.4 Pursuant to Letter of Authority No. 17107 dated July 6, 1974, Revenue Officer Celestino Mejia examined Philacor's books of accounts and other accounting records for the fiscal year August 1, 1992 to July 31, 1993. Philacor received tentative computations of deficiency taxes for this year.

Philacor's Finance Manager, Leticia Pangan, contested the tentative computations of deficiency taxes (totaling P20,037,013.83) through a letter dated April 17, 1995.5 On May 16, 1995, Mr. Mejia sent a letter to Philacor revising the preliminary assessments as follows: Deficiency Income Tax P 9,832,098.22 Deficiency Percentage Tax 866,287.60 Deficiency Documentary Stamp Tax 3,368,169. 45 Total ============== P14,066,555.27 6 ============== Philacor then received Pre-Assessment Notices (PANs), all dated July 18, 1996, covering the alleged deficiency income, percentage and DSTs, including increments.7 On February 3, 1998, Philacor received demand letters and the corresponding assessment notices, all dated January 28, 1998. The assessments, inclusive of increments, cover the following: Deficiency Income Tax P12, 888,085.09 Deficiency Percentage Tax 1,185,977.07 Deficiency DST Tax 3,368,196.

45 Total ============== P17,442,231.61 8 ============== On March 4, 1998, Philacor protested the PANs, with a request for reconsideration and reinvestigation. It alleged that the assessed deficiency income tax was erroneously computed when it failed to take into account the reversing entries of the revenue accounts and income adjustments, such as repossessions, write-offs and legal accounts. Similarly, the Bureau of Internal Revenue (BIR) failed to take into account the reversing entries of repossessions, legal accounts, and write-offs when it computed the percentage tax ; thus, the total income reported, that the BIR arrived at, was not equal to the actual receipts of payment from the customers.

As for the deficiency DST , Philacor claims that the accredited appliance dealers were required by law to affix the documentary stamps on all promissory notes purchased until the enactment of Republic Act No. 7660, otherwise known as An Act Rationalizing Further the Structure and Administration of the Documentary Stamp Tax, 9 which took effect on January 15, 1994. In addition, Philacor filed, on the following day, a supplemental protest, arguing that the assessments were void for failure to state the law and the facts on which they were based.10 On September 30, 1998, Philacor filed a petition for review before the CTA Division, docketed as C.T.A. Case No. 5674.

11 The CTA Division rendered its decision on August 14, 2003.12 After examining the documents submitted by the parties, it concluded that Philacor failed to declare part of its income, making it liable for deficiency income tax and percentage tax. However, it also found that the Commissioner of Internal Revenue (CIR) erred in his analysis of the entries in Philacor's books thereby considerably reducing Philacor's liability to a deficiency income tax of P1,757,262.47 and a deficiency percentage tax of P613,987.86. The CTA also ruled that Philacor is liable for the DST on the issuance of the promissory notes and their subsequent transfer or assignment.

Noting that Philacor failed to prove that the DST on its promissory notes had been paid for these two transactions, the CTA held Philacor liable for deficiency DST of P673,633.88, which is computed as follows: Total Notes purchased during the taxable year P 269,453,556.94 Divided by rate under Section 180 200.00