GR 130838; (August, 2006) (Digest)
G.R. No. 130838 August 22, 2006
Security Bank Corporation vs. Commissioner of Internal Revenue
FACTS
The Bureau of Internal Revenue (BIR) assessed Security Bank Corporation (SBC) for deficiency documentary stamp tax (DST) for 1983, covering promissory notes and sales of securities under repurchase agreements. SBC protested, arguing its promissory notes were non-negotiable and that sales under repurchase agreements were not subject to DST. Subsequently, the BIR and the Bankers Association of the Philippines entered a general compromise agreement on DST assessments for non-negotiable promissory notes. Pursuant to this, SBC executed its own compromise agreement with the BIR in August 1988, paying a lump sum computed on a base amount that included the value of both the promissory notes and the securities sold under repurchase agreements.
Despite this payment, the BIR later demanded from SBC an additional payment specifically for DST on the sales of securities under repurchase agreements, claiming this item was not covered by the compromise. SBC contested this reassessment, arguing the compromise agreement had settled its entire DST liability for 1983. The Court of Tax Appeals ruled in favor of the BIR, a decision affirmed by the Court of Appeals.
ISSUE
Whether the compromise agreement between SBC and the BIR extinguished SBC’s liability for documentary stamp tax on its sales of securities under repurchase agreements for the year 1983.
RULING
No, the compromise agreement did not extinguish SBC’s liability for DST on the sales of securities under repurchase agreements. The Supreme Court affirmed the lower courts’ rulings. The legal logic rests on the principle that a compromise agreement covers only those matters expressly included within its terms. The general BIR-BAP compromise agreement specifically pertained to DST on “non-negotiable promissory notes issued prior to October 15, 1984.” The subsequent individual agreement signed by SBC, while using a computation base that included the value of the securities, did not explicitly state that the DST on sales of securities under repurchase agreements was itself being compromised. The Court held that the computation formula was merely a mechanical tool for determining the compromise amount for the covered items (promissory notes), not a tacit expansion of the agreement’s scope to include a distinct tax assessment.
Furthermore, the power to compromise tax assessments is vested solely in the Commissioner of Internal Revenue. There was no evidence that the Commissioner authorized the inclusion of the DST on securities in the compromise. Therefore, the act of other BIR officials in accepting a payment computed on a broader base could not bind the government, as it was an ultra vires act. Consequently, the BIR correctly issued a reassessment for the unpaid DST on the sales of securities, which remained a valid and collectible liability.