LINCOLN PHILIPPINE LIFE INSURANCE COMPANY, INC VS COURT OF APPEALS

FACTS

Petitioner, now the Jardine-CMG Life Insurance Company, Inc. is a domestic corporation.
It issued 50,000 shares of stock as stock dividends, with a par value of P100 or a total of P5 million. Petitioner paid documentary stamp taxes on each certificate on the basis of its par value.

 CIR took a view that the book value of the shares, amounting to P19,307,500.00, should be used as basis for

determining the amount of the documentary stamp tax.

CIR issued a deficiency documentary stamp tax assessment in the amount of P78,991.25 in excess of the par

value of the stock dividends.

 Petitioner appealed to the CTA. It favored the petitioner. It rendered its decision holding the amount of the documentary stamp tax should be based o the par value stated

on each certificate of stock.

WHEREFORE, the deficiency documentary stamp tax assessments in the amount of P464,898.76 and P78,991.25 or a total of P543,890.01 are hereby cancelled for lack of merit. Respondent Commissioner of Internal Revenue is ordered to desist from collecting said deficiency documentary stamp taxes for the same are considered withdrawn.

 CIR appealed to the CA. It held in favor of the respondent.

It said that in assessing the tax in question, the basis should be the actual value represented by the subject shares

on the assumption that stock dividends, being a distinct class of shares, are not subject to the qualification in the law as to the type of certificate of stock used (with or without par value).

IN VIEW OF ALL THE FOREGOING, the decision appealed from is hereby REVERSED with respect to the deficiency tax assessment on the stock dividends, but AFFIRMED with regards to the assessment on the Insurance Policies. Consequently, private respondent is ordered to pay the petitioner herein the sum of P78,991.25, representing documentary stamp tax on the stock dividends it issued. No costs pronouncement.

ISSUE

Whether in determining the amount to be paid as documentary stamp tax, it is the par value of the certificates of

stock or the book value of the shares which should be considered.

HELD

Yes. The amount of the documentary stamp tax should be based o the par value stated on each certificate of

stock.
Apparently, the Court of Appeals treats stock dividends as distinct from ordinary shares of stock for purposes of

the then 224 of the National Internal Revenue Code. There is, however, no basis for considering stock dividends as a distinct class from ordinary shares of stock since under this provision only certificates of stock are required to be distinguished (into either one with par value or one without) rather than the classes of shares themselves.
The documentary stamp tax is not levied upon the shares of stock per se but rather on the privilege of issuing

certificates of stock.
A stock certificate is merely evidence of a share of stock and not the share itself.

 Stock dividends are in the nature of shares of stock, the consideration for which is the amount of unrestricted

retained earnings converted into equity in the corporations books.[6] Thus,

A stock dividend is any dividend payable in shares of stock of the corporation declaring or authorizing such dividend. It is, what the term itself implies, a distribution of the shares of stock of the corporation among the stockholders as dividends. A stock dividend of a corporation is a dividend paid in shares of stock instead of cash, and is properly payable only out of surplus profits. So, a stock dividend is actually two things: (1) a dividend and (2) the enforced use of the dividend money to purchase additional shares of stock at par..

 It is clear that stock dividends are shares of stock and not certificates of stock which merely represent them.

There is, therefore, no reason for determining the actual value of such dividends for purposes of the documentary stamp tax if the certificates representing them indicate a par value.

 According to the Solicitor General, under the then 224 of the NIRC, the basis for assessment is the actual value

of the business transaction that is the source of the original issuance of stock certificates.
However, the documentary stamp tax here is not levied upon the specific transaction which gives rise to such

original issuance but on the privilege of issuing certificates of stock.

A documentary stamp tax is in the nature of an excise tax. It is not imposed upon the business transacted but is an excise upon the privilege, opportunity or facility offered at exchanges for the transaction of the business. It is an excise upon the facilities used in the transaction of the business separate and apart from the business itself. (Du Pont v. U.S., 300 U.S. 150; Thomas v. U.S., 192 U.S., 363; Nicol v. Ames, 173 U.S. 509). With respect to stock certificates, it is levied upon the privilege of issuing them; not on the money or property received by the issuing company for such certificates. Neither is it imposed upon the share of stock. As Justice Learned Hand pointed out in one case, documentary stamp tax is levied on the document and not on the property which it described. (Empire Trust co. v. Hoey, 103 F 2d. 430). . . .