G.R. No. 137002 ; July 27, 2006
BANK OF THE PHILIPPINE ISLANDS, petitioner, vs. COMMISSIONER OF INTERNAL REVENUE, respondent.

FACTS

Petitioner Bank of the Philippine Islands (BPI) sold U.S. dollars to the Central Bank from February to October 1986. BPI instructed its New York correspondent bank via cable to transfer dollars to the Federal Reserve Bank for the Central Bank’s account, after which the Central Bank credited BPI’s local account with the corresponding peso value. The Commissioner of Internal Revenue (CIR) later assessed BPI for deficiency documentary stamp tax on these transactions under Section 182 of the National Internal Revenue Code (NIRC), arguing the cable instructions constituted taxable telegraphic transfers. BPI protested, contending the tax applied only to foreign bills of exchange, not spot foreign exchange sales.
The Court of Tax Appeals (CTA) held BPI liable but only for transactions occurring from July 1986 onward, reducing the assessment. This was because Presidential Decree No. 1994, which shifted tax liability to the non-exempt party when one party (like the Central Bank) is exempt, took effect only in July 1986 after its publication. The CTA ruled the cable instructions were taxable telegraphic transfers under Revenue Regulations. The Court of Appeals affirmed the CTA’s decision, including the imposition of a 20% annual delinquency interest on the deficiency.

ISSUE

The core issues were: (1) whether sales of foreign exchange via cable transfers are subject to documentary stamp tax under Section 182 of the NIRC, and (2) whether the imposition of delinquency interest on the reduced tax assessment was proper.

RULING

The Supreme Court denied the petition and affirmed the Court of Appeals. On the first issue, the Court held that Section 182 of the NIRC explicitly imposes documentary stamp tax not only on foreign bills of exchange and letters of credit but also on “orders, by telegraph or otherwise, for the payment of money.” BPI’s cable instruction to its correspondent bank was precisely an order for the payment of money drawn in the Philippines but payable abroad, falling squarely within the statute’s ambit. The Court rejected BPI’s narrow interpretation, emphasizing that the law’s clear language encompasses telegraphic transfers, which are distinct from but equally taxable as bills of exchange.
On the second issue, the Court upheld the imposition of delinquency interest. It ruled that such interest is compensatory, not penal, in nature. It is imposed for the taxpayer’s use of public funds during the period of delay in payment. The obligation to pay interest attaches once the tax becomes due and demandable, and the government’s error in the initial computation or the subsequent reduction of the assessment does not negate this liability. The reduced assessment remained a valid deficiency tax, and the delay in its payment justified the interest charge under Section 249(c)(3) of the NIRC.