Case Digest: INTERNATIONAL EXCHANGE BANK v . COMMISSIONER OF INTERNAL REVENUE

INTERNATIONAL EXCHANGE BANK v . COMMISSIONER OF INTERNAL REVENUE 

To claim that time deposits evidenced by passbooks should not be subject to documentary stamp tax is a clear evasion of the rule on equality and uniformity in taxation that requires the imposition of documentary stamp tax on documents evidencing transactions of the same kind, in this particular case, on all certificates of deposits drawing interest.
The International Exchange Bank (IEB) personally received an assessment for deficiency Documentary Stamp Tax (DST) on its purchases of securities from the Bangko Sentral ng Pilpinas (BSP) or Government Securities Purchased-Reverse Repurchase Agreement (RRPA) and its Savings Account- Fixed Savings Deposit (FSD) for the taxable years 1996 and 1997. The IEB then filed a protest letter alleging that its FSD is not subject to DST since it cannot be considered a certificate of deposit subject to DST under Section 180 of the Tax Code for, unlike a certificate of deposit which is a negotiable instrument, the passbook it issued for its FSD was not payable to the order of the depositor or to some other person as the deposit could only be withdrawn by the depositor or by a duly authorized representative. Furthermore, the bank argued that deposits evidenced by a passbook which have features akin to a time deposit such as petitioner’s FSD, is not subject to DST under the Tax Code and the NIRC.

ISSUE:

Whether or not the IEB’s Fixed Savings Deposit evidenced by a passbook is subject to Documentary Stamp Tax for the years assessed

HELD:

A passbook representing an interest earning deposit account issued by a bank qualifies as a certificate of deposit drawing interest. A document to be deemed a certificate of deposit requires no specific form as long as there is some written memorandum that the bank accepted a deposit of a sum of money from a depositor. What is important and controlling is the nature or meaning conveyed by the passbook and not the particular label or nomenclature attached to it, inasmuch as substance, not form, is paramount. The negotiable character of any and all documents under Section 180 is immaterial for purposes of imposing DST. Orders for the payment of sum of money payable at sight or on demand are of course explicitly exempted from the payment of DST. Thus, a regular savings account with a passbook which is withdrawable at any time is not subject to DST, unlike a time deposit which is payable on a fixed maturity date.
As for the IEB’s argument that its FSD is similar to a regular savings deposit because it is evidenced by a passbook, the same does not lie.
The FSD, like a time deposit, provides for a higher interest rate when the deposit is not withdrawn within the required fixed period; otherwise, it earns interest pertaining to a regular savings deposit. Having a fixed term and the reduction of interest rates in case of pre-termination are essential features of a time deposit.
It bears emphasis that DST is an excise tax upon the privilege, opportunity or facility offered at exchanges for the transaction of the business. While tax avoidance schemes and arrangements are not prohibited, tax laws cannot be circumvented in order to evade payment of just taxes. To claim that time deposits evidenced by passbooks should not be subject to DST is a clear evasion of the rule on equality and uniformity in taxation that requires the imposition of DST on documents evidencing transactions of the same kind, in this particular case, on all certificates of deposits drawing interest.