G.R. No. 171138, April 7, 2009
H. TAMBUNTING PAWNSHOP, INC., Petitioner, vs. COMMISSIONER OF INTERNAL REVENUE, Respondent.

FACTS

The Commissioner of Internal Revenue (CIR) issued a Pre-Assessment Notice and subsequent assessment notice against H. Tambunting Pawnshop, Inc. (Tambunting) for deficiency documentary stamp tax (DST) for taxable year 1997. Tambunting filed a written protest, arguing it was not subject to DST under Section 195 of the National Internal Revenue Code (NIRC) because the tax applied only to pledge contracts, and pawnshop business did not involve such contracts. When the CIR did not act on the protest, Tambunting filed a petition with the Court of Tax Appeals (CTA). The CTA partially granted the petition, canceling the DST assessment. The CIR elevated the case to the Court of Appeals, which reversed the CTA and held Tambunting liable for the DST. Tambunting then filed this petition for review.

ISSUE

Whether or not the Court of Appeals gravely erred in finding petitioner liable for documentary stamp tax on pawn tickets. Stated simply, is Tambunting liable for documentary stamp taxes based on the pawn tickets that it issued?

RULING

Yes, Tambunting is liable for documentary stamp tax on pawn tickets. The Supreme Court affirmed the Court of Appeals’ decision with modification, deleting the surcharges and interest.
The Court held that:
1. A pawn ticket, as defined by the Bangko Sentral ng Pilipinas Manual of Regulations, contains all essential information found in a pledge agreement (e.g., names, loan amount, interest, description of pawn, maturity date). It documents the pledge, which is a real contract constituted by the delivery of the pawned property to the pawnshop (creditor/pledgee). The pawn ticket is the document evidencing the pledge, even if it is termed a “receipt” and is neither a security nor a printed evidence of indebtedness under Presidential Decree No. 114.
2. Section 173 of the NIRC imposes DST “upon documents, instruments, loan agreements and papers, and upon acceptances, assignments, sales and transfers of the obligation, right or property incident thereto, there shall be levied, collected and paid for, and in respect of the transaction so had or accomplished.” Section 195 specifically imposes DST “on every mortgage or pledge.” The law imposes the tax on documents issued in respect of specified transactions, like a pledge, not only on papers evidencing indebtedness. Therefore, a pawn ticket, issued in respect of a pledge transaction, is subject to DST.
3. The issue is not novel. The Court cited its prior ruling in Michel J. Lhuillier Pawnshop, Inc. v. Commissioner of Internal Revenue, which held that Section 195 of the NIRC imposes DST on every pledge, and entries in a pawn ticket spell out a contract of pledge subject to tax.
4. However, since this case was filed before the Court’s resolution in Michel J. Lhuillier on September 11, 2006, good faith could still be ascribed to petitioner. Consequently, the imposition of surcharges and interest on the deficiency DST assessment was deleted.
DISPOSITIVE PORTION:
The petition is PARTLY GRANTED. The Decision of the Court of Appeals is AFFIRMED with the MODIFICATION that surcharges and interest imposed on the deficiency documentary stamp tax assessment are DELETED.