G.R. No. L-68230 November 25, 1986
COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. CONSTRUCTION RESOURCES OF ASIA, INC., and THE COURT OF TAX APPEALS, respondents.

FACTS

Construction Resources of Asia, Inc., a domestic corporation, was assessed by the Commissioner of Internal Revenue for deficiency documentary and science stamp taxes amounting to P89,400.00. The assessment was based on the company’s paid-in capital of P17,880,000.00, for which stock certificates were allegedly issued without the corresponding stamps affixed as required by Sections 222 and 224 of the Tax Code. The Commissioner’s examiners found this liability during an investigation that also covered the company’s failure to withhold taxes on interest payments for foreign loans.
The Court of Tax Appeals cancelled the stamp tax assessment, ruling that the Commissioner failed to provide sufficient evidence that the stock certificates were actually or constructively issued or delivered to stockholders. The tax court gave credence to the company’s certification from its acting Corporate Secretary, which stated that the shares had not been fully paid and that certificates could not yet be issued due to difficulties in formally transferring contributed capital equipment to corporate assets. The Commissioner filed this petition for review.

ISSUE

Whether the liability for documentary and science stamp taxes on the original issue of stock certificates accrues upon the mere issuance of shares or only upon the delivery of the certificates to stockholders.

RULING

The Supreme Court ruled in favor of the Commissioner, holding that liability for documentary and science stamp taxes attaches upon the original issuance of shares of stock, and delivery of the certificates is not required for the tax to accrue. The Court emphasized that Section 224 of the Tax Code explicitly taxes “every original issue” of certificates of stock. The tax is imposed on the privilege to issue shares, and the transaction subject to tax is the issuance itself.
The Court found the assessment to be presumptively correct. It noted that the company did not initially deny receiving the paid-in capital of P17,880,000.00, lending credence to the examiners’ report that certificates were issued for this amount. The belated denial and the mere certification from a corporate officer were insufficient to overcome the presumption of correctness in favor of the tax assessment. Following established doctrine, all presumptions are in favor of the validity of tax assessments, and the burden of proving otherwise rests on the taxpayer. The company failed to present substantial evidence to rebut the assessment. Consequently, the decision of the Court of Tax Appeals was annulled, and Construction Resources of Asia, Inc. was ordered to pay the stamp tax liability of P89,400.00.