528 Phil. 993
[W]henever one party to the taxable document enjoys exemption from the tax herein imposed, the other party thereto who is not exempt shall be the one directly liable for the tax.In 1988, respondent CIR ordered an investigation to be made on BPI's sale of foreign currency. As a result thereof, the CIR issued a pre-assessment notice informing BPI that in accordance with Section 195 (now Section 182) of the NIRC, BPI was liable for documentary stamp tax at the rate of P0.30 per P200.00 on all foreign exchange sold to the Central Bank. Total tax liability was assessed at P3,016,316.06, which consists of a documentary stamp tax liability of P2,412,812.85, a 25% surcharge of P603,203.21, and a compromise penalty of P300.00.
WHEREFORE, premises considered, petitioner is hereby ordered to pay respondent Commissioner of Internal Revenue, the amount of P690,030 inclusive of surcharge and compromise penalty, plus 20% annual interest until fully paid pursuant to Section 249 (cc) (sic) (3) of the Tax Code.The CTA ruled that BPI's instructions to its correspondent bank in the U.S. to pay to the Federal Reserve Bank in New York, for the account of the Central Bank, a sum of money falls squarely within the scope of Section 51 of The Revised Documentary Stamp Tax Regulations (Regulations No. 26), dated 26 March 1924, the implementing rules to the earlier provisions on documentary stamp tax, which provides that: 
What may be regarded as telegraphic transfer.-a local bank cables to a certain bank in a foreign country with which bank said local bank has a credit, and directs that foreign bank to pay to another bank or person in the same locality a certain sum of money, the document for and in respect such transaction will be regarded as a telegraphic transfer, taxable under the provisions of Section 1449(i) of the Administrative Code.Nevertheless, the CTA also noted that although Presidential Decree No. 1994, the law which passes the liability on to the non-exempt party, was published in the Official Gazette issue of 2 December 1985, the same was released to the public only on 18 June 1986, as certified by the National Printing Office. Therefore, Presidential Decree No. 1994 took effect only in July 1986 or 15 days after the issue of Official Gazette where the law was actually published, that is, circulated to the public. As a result of the delay, BPI's transactions prior to the effectivity of Presidential Decree No. 1994 were not subject to documentary stamp tax. Hence, the CTA reduced the assessment from P3,016,316.06 to P690,030.00, plus 20% annual interest until fully paid pursuant to Section 249(c) of the NIRC.
The first issue raised by the petitioner is whether BPI is liable for documentary stamp taxes in connection with its sale of foreign exchange to the Central Bank in 1986 under Section 195 (now Section 182) of the NIRC, quoted hereunder:IWHETHER OR NOT, THE COURT OF APPEALS GRIEVOUSLY ERRED IN HOLDING THAT SALES OF FOREIGN EXCHANGE (SPOT CASH), AS DISTINGUISHED FROM SALES OF FOREIGN BILLS OF EXCHANGE, ARE SUBJECT TO DOCUMENTARY STAMP TAX UNDER SECTION 182 OF THE TAX CODEII
WHETHER OR NOT, THE COURT OF APPEALS GRIEVOUSLY ERRED IN AFFIRMING THE IMPOSITION OF A DELINQUENCY INTEREST OF 20% ON THE REVISED DEFICIENCY STAMP ASSESSMENT DESPITE A REDUCTION THEREOF BY THE COUR T OF TAX APPEALS WHICH ERRED IN ITS ORIGINAL ASSESSMENT.
Sec. 182. Stamp tax on foreign bills of exchange and letters of credit. On all foreign bills of exchange and letters of credit (including orders, by telegraph or otherwise, for the payment of money issued by express or steamship companies or by any person or persons) drawn in but payable out of the Philippines in a set of three or more according to the custom of merchants and bankers, there shall be collected a documentary stamp tax of thirty centavos on each two hundred pesos, or fractional part thereof, of the face value of such bill of exchange or letter of credit, or the Philippine equivalent of such face value, if expressed in foreign country.To determine what is being taxed under this section, a discussion on the nature of the acts covered by Section 195 (now Section 182) of the NIRC is indispensable. This section imposes a documentary stamp tax on (1) foreign bills of exchange, (2) letters of credit, and (3) orders, by telegraph or otherwise, for the payment of money issued by express or steamship companies or by any person or persons. This enumeration is further limited by the qualification that they should be drawn in the Philippines and payable outside of the Philippines.
Sec. 39. Definition of "bill of exchange". The term bill of exchange denotes checks, drafts, and all other kinds of orders for the payment of money, payable at sight, or on demand or after a specific period after sight or from a stated date.Section 126 of The Negotiable Instruments Law (Act No. 2031) reiterates that it is an "order for the payment of money" and specifies the particular requisites that make it negotiable.
Sec. 126. Bill of exchange defined. - A bill of exchange is an unconditional order in writing addressed by one person to another, signed by the person giving it, requiring the person to whom it is addressed to pay on demand or at fixed or determinable future time a sum certain in money to order or to bearer.Section 129 of the same law classifies bills of exchange as inland and foreign, the distinction is laid down by where the bills are drawn and paid. Thus, a "foreign bill of exchange" may be drawn outside the Philippines, payable outside the Philippines, or both drawn and payable outside of the Philippines.
Sec. 129. Inland and foreign bills of exchange. -- An inland bill of exchange is a bill which is, or on its face purports to be, both drawn and payable within the Philippines. Any other bill is a foreign bill. x xThe Code of Commerce loosely defines a "letter of credit" and provides for its essential conditions, thus:
Art. 567. Letters of credit are those issued by one merchant to another or for the purpose of attending to a commercial transaction.A more explicit definition of a letter of credit can be found in the commentaries:
Art 568. The essential conditions of letters of credit shall be:
- To be issued in favor of a definite person and not to order.
- To be limited to a fixed and specified amount, or to one or more undetermined amounts, but within a maximum the limits of which has to be stated exactly.
A letter of credit is one whereby one person requests some other person to advance money or give credit to a third person, and promises that he will repay the same to the person making the advancement, or accept the bills drawn upon himself for the like amount.A bill of exchange and a letter of credit may differ as to their negotiability, and as to who owns the funds used for the payment at the time payment is made. However, in both bills of exchange and letters of credit, a person orders another to pay money to a third person.
What may be regarded as telegraphic transfer.-a local bank cables to a certain bank in a foreign country with which bank said local bank has a credit, and directs that foreign bank to pay to another bank or person in the same locality a certain sum of money, the document for and in respect such transaction will be regarded as a telegraphic transfer, taxable under the provisions of Section 1449(i) of the Administrative Code.In this case, BPI ordered its correspondent bank in the U.S. to pay the Federal Reserve Bank in New York a sum of money, which is to be credited to the account of the Central Bank. These are the same acts described under Section 51 of Regulations No. 26, interpreting the documentary stamp tax provision in the Administrative Code of 1917, which is substantially identical to Section 195 (now Section 182) of the NIRC. These acts performed by BPI incidental to its sale of foreign exchange to the Central Bank are included among those taxed under Section 195 (now Section 182) of the NIRC.
And as correctly stated by the trial court, the term "credit" in its usual meaning is a sum credited on the books of a company to a person who appears to be entitled to it. It presupposes a creditor-debtor relationship, and may be said to imply ability, by reason of property or estates, to make a promised payment. It is the correlative to debt or indebtedness, and that which is due to any person, as distinguished from that which he owes. The same is true with the term "deposits" in banks where the relationship created between the depositor and the bank is that of creditor and debtor.By this definition of "credit," BPI's deposit account with its correspondent bank is much the same as the "credit" referred to in Section 51 of Regulations No. 26. Thus, the fact that the funds transferred to the Central Bank's account with the Federal Reserve Bank are from BPI's deposit account with the correspondent bank can only underline that the present case is the same situation described under Section 51 of Regulations No. 26.
A draft is a form of a bill of exchange used mainly in transactions between persons physically remote from each other. It is an order made by one person, say the buyer of goods, addressed to a person having in his possession funds of such buyer ordering the addressee to pay the purchase price to the seller of the goods. Where the order is made by one bank to another, it is referred to as a bank draft.BPI argues that the foreign exchange sold was deposited and transferred within the U.S. and is therefore outside Philippine territory. This argument is unsubstantial. The documentary stamp tax is not imposed on the sale of foreign exchange, rather it is an excise tax on the privilege or facility which the parties used in their transaction. In the case of Allied Thread Co., Inc. v. City Mayor of Manila, the Court explained the scope encompassed by the power to levy an excise tax:
The tax imposition here is upon the performance of an act, enjoyment of a privilege, or the engaging in an occupation, and hence is in the nature of an excise tax.In this case, the act of BPI instructing the correspondent bank to transfer the funds to the Federal Reserve Bank was performed in the Philippines. Therefore, the excise tax may be levied by the Philippine government. Section 195 (now Section 182) of the NIRC would be rendered invalid if the fact that the payment was made outside of the country can be used as a basis for nonpayment of the tax.
The power to levy an excise upon the performance of an act or the engaging in an occupation does not depend upon the domicile of the person subject to the excise, nor upon the physical location of the property and in connection with the act or occupation taxed, but depends upon the place in which the act is performed or occupation engaged in (Emphasis supplied).
As correctly pointed out by the Solicitor General, the deficiency tax assessment in this case, which was the subject of the demand letter of respondent Commissioner dated April 11, 1989, should have been paid within thirty (30) days from receipt thereof. By reason of petitioner's default thereon, the delinquency penalties of 25% surcharge and interest of 20% accrued from April 11, 1989. The fact that petitioner appealed the assessment to the CTA and that the same was modified does not relieve petitioner of the penalties incident to delinquency. The reduced amount of P237,381.25 is but a part of the original assessment of P1,892,584.00.This doctrine is consistent with the earlier decisions of this Court justifying the imposition of additional charges and interests incident to delinquency by explaining that the nature of additional charges is compensatory and not a penalty.
The above legal provision makes no distinctions nor does it establish exceptions. It directs the collection of the surcharge and interest at the stated rate upon any sum or sums due and unpaid after the dates prescribed in subsections (b), (c), and (d) of the Act for the payment of the amounts due. The provision therefore is mandatory in case of delinquency. This is justified because the intention of the law is precisely to discourage delay in the payment of taxes due to the State and, in this sense, the surcharge and interest charged are not penal but compensatory in nature - they are compensation to the State for the delay in payment, or for the concomitant use of the funds by the taxpayer beyond the date he is supposed to have paid them to the State.The same principle was used in Ross v. U.S. when the U.S. Supreme Court ruled that it was only equitable for the government to collect interest from a taxpayer who, by the government's error, received a refund which was not due him.
Even though [the] taxpayer here did not request the refund made to him, and the situation is entirely due to an error on the part of the government, taxpayer and not the government has had the use of the money during the period involved and it is not unjustly penalizing taxpayer to require him to pay compensation for this use of money.Based on established doctrine, these charges incident to delinquency are compensatory in nature and are imposed for the taxpayers' use of the funds at the time when the State should have control of said funds. Collecting such charges is mandatory. Therefore, the Decision of the Court of Appeals imposing a 20% delinquency interest over the assessment reduced by the CTA was justified and in accordance with Section 249(c)(3) of the NIRC.