FORT BONIFACIO DEVELOPMENT CORPORATION, Petitioner, vs. COMMISSIONER OF INTERNAL REVENUE, Respondent.
FACTS
The Bases Conversion Development Authority (BCDA), a government entity, established Fort Bonifacio Development Corporation (FBDC) as its wholly-owned subsidiary to develop military land. In February 1995, the Republic transferred 214 hectares in Fort Bonifacio to FBDC via a Special Patent, and FBDC executed a promissory note for over ₱71 billion. The Republic also executed a Deed of Absolute Sale covering the same land for the same amount, and a title was issued to FBDC. Later that month, Congress enacted R.A. 7917, exempting from all taxes the proceeds from the government sale of this land. In 1998, the Commissioner of Internal Revenue assessed FBDC for deficiency Documentary Stamp Tax (DST) on the 1995 deed of sale.
FBDC protested, invoking the tax exemption under R.A. 7917. The Court of Tax Appeals (CTA) affirmed the assessment, ruling the Special Patent was tax-exempt but the subsequent Deed of Absolute Sale was not, and imposed delinquency interest. The Court of Appeals affirmed. During Supreme Court proceedings, BCDA paid the assessment using government funds from the Military Camps Sale Proceeds Fund.
ISSUE
Whether FBDC is liable for DST on the Deed of Absolute Sale executed by the Republic, and whether the case is moot due to BCDA’s payment.
RULING
The Supreme Court granted FBDC’s petition and voided the assessment. The legal logic centers on statutory interpretation and the nature of the transaction. First, the Court rejected the CTA’s artificial separation of the Special Patent and the Deed of Absolute Sale. These documents were integral parts of a single, indivisible transaction by which the government transferred the land to its wholly-owned corporate instrumentality, FBDC, to raise funds as mandated by law. The Deed was a necessary perfection of the transfer initiated by the Patent.
Second, R.A. 7917, enacted shortly after the sale, explicitly exempted “the proceeds” of the Fort Bonifacio land sale “from all forms of taxes.” Documentary Stamp Tax is a tax on the document evidencing the sale; imposing it would directly diminish the net proceeds received by the government from the sale, contravening the clear legislative intent of the exemption. The government itself, through the Deed of Absolute Sale, warranted no taxes were due on the transfer. Allowing the BCDA to later pay the tax from the very proceeds fund further demonstrated the assessment undermined the statutory exemption. Consequently, FBDC was not liable. The Court found it unnecessary to rule on mootness given its disposition on the merits.
