G.R. No. L-25424 March 8, 1976
PHILIPPINE CONSOLIDATED COCONUT INDUSTRIES, INC., petitioner, vs. COLLECTOR OF INTERNAL REVENUE, respondent.

FACTS

Petitioner Philippine Consolidated Coconut Industries, Inc., a domestic corporation, was registered with the Securities and Exchange Commission (SEC) in 1950. A portion of its authorized capital stock was subscribed and paid for through the transfer of patent rights, valued at P14,375,000. For public protection, the SEC required the incorporator-subscribers to deposit P14,000,000 worth of the corresponding stock certificates with the Commission under a restrictive escrow agreement. The agreement prohibited any sale, transfer, or encumbrance of the deposited shares until released by the SEC upon declaration of adequate dividends or under justified circumstances. Separately, shares worth P791,400 (Certificate No. 16) were issued to A.E. Prats and later transferred to various persons pursuant to an SEC permit. The Collector of Internal Revenue assessed petitioner for documentary stamp tax on both the original issuance of all certificates and the subsequent transfers of Certificate No. 16.

ISSUE

The principal issue is whether certificates of stock mandatorily deposited with and held in escrow by the SEC are considered “issued” for purposes of imposing the documentary stamp tax under Section 212 of the National Internal Revenue Code.

RULING

The Supreme Court ruled that certificates held under restrictive SEC deposit are not subject to documentary stamp tax at the time of deposit. The tax imposed by Section 212 is an excise tax levied on the privilege of issuing certificates of stock. The Court defined “issue” in this context to mean the release of the certificate to the stockholder, conferring the rights of ownership. Since the deposited certificates were not released to the stockholders but were held in escrow under suspensive conditions that prevented the exercise of ownership rights (e.g., sale, transfer, receipt of dividends), they were not deemed “issued” for tax purposes. Consequently, the documentary stamp tax on these original certificates would only accrue when the SEC eventually releases them from deposit. However, the Court upheld the tax assessment on the P791,400 worth of shares (Certificate No. 16) that were originally issued and subsequently transferred without restriction, as these were unquestionably issued and released. The decision of the Court of Tax Appeals was modified accordingly, limiting the immediate tax liability to those shares not under restrictive deposit.