G.R. No. 118043 July 23, 1998
LINCOLN PHILIPPINE LIFE INSURANCE COMPANY, INC. (now JARDINE-CMG LIFE INSURANCE CO. INC.), petitioner, vs. COURT OF APPEALS and COMMISSIONER OF INTERNAL REVENUE, respondents.

FACTS

Petitioner Lincoln Philippine Life Insurance Company, Inc. (now Jardine-CMG Life Insurance Co. Inc.), a domestic corporation engaged in the life insurance business, issued 50,000 shares of stock as stock dividends in 1984, with a par value of P100 per share or a total of P5 million. Petitioner paid documentary stamp taxes on each certificate based on this par value. The Commissioner of Internal Revenue assessed a deficiency documentary stamp tax, contending that the tax should be based on the book value of the shares, amounting to P19,307,500.00, resulting in an additional assessment of P78,991.25. Petitioner appealed to the Court of Tax Appeals (CTA), which ruled in its favor, holding the tax should be based on the par value. The Commissioner appealed to the Court of Appeals, which reversed the CTA’s decision regarding the stock dividends, holding that the tax should be based on the “actual value represented by each share.” Petitioner then filed this petition for review.

ISSUE

Whether, under Section 224 of the National Internal Revenue Code (now Section 175), the documentary stamp tax on stock dividends involving shares with par value should be based on the par value or the book value (actual value) of the shares.

RULING

The Supreme Court ruled in favor of the petitioner. The documentary stamp tax on stock dividends involving shares with par value should be based on the par value stated on the certificate of stock, not the book value. The Court reversed the decision of the Court of Appeals and reinstated the decision of the Court of Tax Appeals.
The Court held that:
1. The documentary stamp tax under the then Section 224 was levied on the privilege of issuing certificates of stock, not on the shares of stock themselves or the underlying transaction. A stock certificate is merely evidence of a share of stock. Stock dividends are shares of stock, and when represented by certificates indicating a par value, the tax base is that par value.
2. The provision distinguished stock dividends in its proviso (“in the case of stock dividends on the actual value represented by each share”) only to prevent claims that stock dividends are exempt from tax since corporations receive no consideration for them, unlike ordinary shares. This distinction does not create a third class of shares separate from shares with or without par value.
3. The documentary stamp tax is an excise tax on the privilege, opportunity, or facility used in the transaction of business, not on the business transaction itself or the property received.
4. Tax laws must be construed strictly against the State and liberally in favor of the taxpayer in case of doubt. The subsequent amendment of the law (Section 175) to expressly levy the tax on “shares of stock” rather than “certificates of stock” underscores that the old law was not clear in imposing the tax based on actual value for par value stock dividends.
5. Therefore, for stock dividends with a stated par value, the documentary stamp tax is computed based on that par value.