Case Digest (G.R. No. 119176)
Facts:
Commissioner of Internal Revenue assessed Lincoln Philippine Life Insurance Company, Inc. (now Jardine-CMA Life Insurance Company, Inc.) for deficiency documentary stamp taxes for 1984. The assessments covered (a) an amount corresponding to the automatic increase clause in Junior Estate Builder Policy life insurance policies and (b) an amount based on the book value in excess of par value of stock dividends issued in 1984.
The Court of Tax Appeals cancelled both deficiency assessments, and ordered the Commissioner to desist from collecting them. The Court of Appeals affirmed the cancellation for the insurance policy deficiency but reversed as to the stock dividends, ordering payment of the deficiency documentary stamp tax for the stock dividends based on the actual/book value; both parties appealed.
Issues:
- Whether the automatic increase clause embodied in the life insurance policies required payment of documentary stamp tax on the increased coverage that took effect in 1984.
- Whether the tax base for documentary stamp tax on the life insurance policies under Section 183 of the National Internal Revenue Code should exclude the future increase resulting from the clause already written into the original policy.
Ruling:
The Supreme Court granted the Commissioner’s petition and set aside the Court of Appeals decision insofar as it affirmed the Court of Tax Appeals’ cancellation of the deficiency documentary stamp tax on the insurance policy increase.
It held that the documentary stamp tax deficiency for 1984 arising from the automatic increase in the amount insured should not have been cancelled.
Ratio:
The Court held that the automatic increase clause was already part and parcel of the insurance contract at the time the policy was issued because the Insurance Code treats a policy as the written instrument containing the contract, and permits clauses and riders to complete the contract; therefore, no separate agreement was needed for the increase that later took effect.
Applying Section 173 (tax paid based on the transaction having been done or the obligation arising) and Section 183 (tax based on the amount fixed in the policy unless the insured interest is susceptible of exact pecuniary measurement), the Court ruled that the “amount insured by the policy” included the determinable future increase under the conditional clause; thus, the deficiency tax on the increase was properly imposed.
Doctrine:
- A clause or rider embodied in a life insurance policy at the time of issuance is treated as part of the policy and contract of insurance.
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