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INTERNATIONAL EXCHANGE BANK vs.COMMISSIONER OF INTERNAL REVENUE

G.R. No. 171266, April 4, 2007

Facts

On January 12, 2000, the InternationalExchange Bank received a FormalAssessment Notice (FAN) for deficiency DSTon its Government Securities Purchased-Reverse Repurchase Agreement (RRPA) andFixed-Savings Deposit (FSD), includingsurcharges, in the amountsof P25,180,492.15 for 1996and P75,383,751.55 for 1997, and anaccompanying demand letter requestingpayment thereof within 30 days.

Acting on the FAN, petitioner filed onFebruary 11, 2000 a protest letter allegingthat the assessments should be reconsideredbased on grounds mainly predicated on analleged absence of a law imposing DST onRRPA and FSD.

Issues:

(1) What is a Certificate of Deposit?(2) Is a Fixed-Savings Deposit considered

a Certificate of Deposit subject toDST?

Held:

(1) A certificate of deposit is defined as awritten acknowledgment by a bank orbanker of the receipt of a sum of money on deposit which the bank orbanker promises to pay to thedepositor, to the order of thedepositor, or to some other person orhis order, whereby the relation of debtor and creditor between the bank

and the depositor is created.

As correctly found by the CTA EnBanc, a passbook representing aninterest earning deposit accountissued by a bank qualifies as acertificate of deposit drawing interest.A document to be deemed acertificate of deposit requires nospecific form as long as there is somewritten memorandum that the bankaccepted a deposit of a sum of moneyfrom a depositor. What is important

and controlling is the nature ormeaning conveyed by the passbookand not the particular label ornomenclature attached to it,

inasmuch as substance, not form, isparamount.

 The negotiable character of any andall documents under Section 180 isimmaterial for purposes of imposingDST. Orders for the payment of sum

of money payable at sight or ondemand are of course explicitlyexempted from the payment of DST. Thus, a regular savings account witha passbook which is withdrawable atany time is not subject to DST, unlikea time deposit which is payable on afixed maturity date.

 The FSD, like a time deposit, providesfor a higher interest rate when thedeposit is not withdrawn within the

required fixed period; otherwise, itearns interest pertaining to a regularsavings deposit. Having a fixed termand the reduction of interest rates incase of pre-termination are essentialfeatures of a time deposit.

(2) Yes, a Fixed Savings Deposit is withinthe meaning and contemplation of law of a certificate of deposit andtherefore subject to DST. Theapplicable provision is Section 180 of the Tax Code (amended and

renumbered as Sec. 179 of the NIRCby R.A. 9243) :

Sec. 180. Stamp tax on xxxcertificates of depositsdrawing interest, or ordersfor the payment of any sum of money otherwise than at sightor on demand, or on allpromissory notes, whethernegotiable or non-negotiable,except bank notes issued forcirculation, and on eachrenewal of any such note,there shall be collected adocumentary stamp tax of  Thirty centavos (P0.30) oneach two hundred pesos, orfractional part thereof, of theface value of any suchagreement, bill of exchange,draft, certificate of deposit, ornote: Provided, That only onedocumentary stamp tax shallbe imposed on either loan

agreement, or promissorynotes issued to secure suchloan, whichever will yield ahigher tax: Provided, however, That loan agreements or

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promissory notes theaggregate of which does notexceed Two hundred fiftythousand pesos (P250,000)executed by an individual forhis purchase on installment forhis personal use or that of his

family and not for business,resale, barter or hire of ahouse, lot, motor vehicle,appliance or furniture shall beexempt from the payment of the documentary stamp taxprovided under this section.

It bears emphasis that DST is leviedon the exercise by persons of certainprivileges conferred by law for thecreation, revision, or termination of specific legal relationships throughthe execution of specificinstruments. It is an excise upon theprivilege, opportunity or facilityoffered at exchanges for thetransaction of the business.

While tax avoidance schemes andarrangements are not prohibited, taxlaws cannot be circumvented in orderto evade payment of just taxes. Toclaim that time deposits evidenced bypassbooks should not be subject to

DST is a clear evasion of the rule onequality and uniformity in taxationthat requires the imposition of DST ondocuments evidencing transactions of the same kind, in this particular case,on all certificates of deposits drawinginterest.