G.R. No. 170257, September 7, 2011
RIZAL COMMERCIAL BANKING CORPORATION, Petitioner, vs. COMMISSIONER OF INTERNAL REVENUE, Respondent.

FACTS

Petitioner Rizal Commercial Banking Corporation (RCBC) is a corporation engaged in general banking operations. It filed its Corporation Annual Income Tax Returns for Foreign Currency Deposit Unit for 1994 and 1995. On August 15, 1996, RCBC received a Letter of Authority authorizing a special audit for the years 1994 and 1995. On January 23, 1997, RCBC executed two Waivers of the Defense of Prescription, extending the period for the Bureau of Internal Revenue (BIR) to assess taxes up to December 31, 2000. On January 27, 2000, RCBC received a Formal Letter of Demand with Assessment Notices for various deficiency taxes for 1994 and 1995 totaling approximately ₱4.17 billion. RCBC filed a protest and later a petition for review before the Court of Tax Appeals (CTA). On December 6, 2000, RCBC received another Formal Letter of Demand dated October 20, 2000, following a reinvestigation, which reduced the deficiency assessments to approximately ₱303.16 million. On the same day, RCBC paid a portion of the assessed deficiencies totaling ₱15.42 million but refused to pay the assessments for deficiency final tax on FCDU onshore income (approximately ₱235.27 million) and deficiency documentary stamp tax (approximately ₱52.49 million), which remained the subject of its petition. RCBC argued that the waivers of the statute of limitations were invalid for lack of the Commissioner’s signature and that for the FCDU onshore tax, the borrower as withholding agent was primarily liable for its remittance. The CTA First Division partially granted RCBC’s petition, upholding the assessments for deficiency final tax on FCDU onshore income and deficiency documentary stamp tax, ordering RCBC to pay approximately ₱132.65 million plus delinquency tax. RCBC’s motion for reconsideration was denied, prompting an appeal to the CTA En Banc.

ISSUE

1. Whether the right of the respondent to assess deficiency onshore tax and documentary stamp tax for taxable years 1994 and 1995 had already prescribed.
2. Whether petitioner is liable for the deficiency final tax on FCDU onshore income.
3. Whether petitioner’s special savings account is subject to documentary stamp tax.

RULING

The Supreme Court denied the petition and affirmed the decision of the CTA En Banc.
1. On Prescription: The Court ruled that the right to assess had not prescribed. The waivers executed by RCBC on January 23, 1997, extending the assessment period to December 31, 2000, were valid. RCBC was estopped from questioning their validity after having benefited from them by using the extended period to submit documents for reinvestigation, which led to a significant reduction of the deficiency assessments. The principle of estoppel prevents a party from taking inconsistent positions to the detriment of the other.
2. On Liability for FCDU Onshore Tax: The Court held RCBC liable for the deficiency final tax on FCDU onshore income. Under Section 57(A) of the 1993 National Internal Revenue Code, the obligation to withhold the tax falls upon the payor/corporation, which in this case was RCBC as the lender. The law designates the payor as the withholding agent primarily responsible for withholding and remitting the tax. RCBC’s argument that the borrower was liable was incorrect; the borrower’s liability is for the interest payment, while RCBC’s liability is for the withholding and remittance of the tax due on that interest.
3. On Documentary Stamp Tax on Special Savings Account: The Court ruled that RCBC’s special savings account was subject to documentary stamp tax. The account, which required a minimum balance and paid higher interest, was essentially a deposit substitute. Under the Tax Code, deposit substitutes are subject to documentary stamp tax. The Court found no distinction that would exempt this particular savings account from the tax imposed on all forms of deposits that are considered deposit substitutes.