Case Summary (G.R. No. 164155)
Legislative and Transactional Background
In 1992, R.A. 7227 mandated the creation of the BCDA to facilitate the disposal of military camps in Metro Manila, including Fort Bonifacio, with the goal of raising funds for government projects. The BCDA incorporated FBDC on February 3, 1995 as its wholly-owned subsidiary to develop the 440-hectare Fort Bonifacio area for mixed-use purposes.
Subsequently, the Republic of the Philippines transferred a 214-hectare portion of Fort Bonifacio to FBDC by virtue of Special Patent 3596 on February 7, 1995. FBDC executed a promissory note for over ₱71 billion as payment to the Republic. The Republic assigned this note to BCDA, which in turn assigned it back to FBDC as payment for its subscribed capital stock.
The next day, February 8, 1995, the Republic executed a Deed of Absolute Sale and Quitclaim covering the same land for the same amount. The land title was transferred to FBDC via Original Certificate of Title SP-001 issued on February 19, 1995. Days later, R.A. 7917 was enacted, which exempted proceeds from the sale of Fort Bonifacio land from all taxes.
Subsequent Developments and Government Action
BCDA sold 55% of its shares in FBDC to private investors, maintaining 45% ownership. More than three years later, the Commissioner of Internal Revenue issued a Letter of Authority to audit FBDC’s 1995 books and, in December 1999, imposed a documentary stamp tax deficiency assessment exceeding ₱1 billion.
After FBDC’s protest invoking R.A. 7917 tax exemption, the CIR did not grant relief, prompting FBDC to contest the assessment in the CTA. The CTA ruled the Special Patent was tax-exempt, but the Deed of Absolute Sale was not. The CIR later sought imposition of surcharges and interest. FBDC appealed to the Court of Appeals (CA), which affirmed both the DST assessment and the imposition of delinquency interest.
During these proceedings, the assessment was paid through a government fund, which the CIR challenged as illegal, asserting that the exemption did not extend to BCDA paying taxes on behalf of FBDC, a private corporation.
Issues for Resolution
- Whether FBDC was liable to pay documentary stamp tax and the 20% delinquency interest on the Deed of Absolute Sale executed by the Republic in its favor.
- Whether the controversy was rendered moot and academic due to the payment of the assessed tax by BCDA.
Court’s Legal Analysis on Tax Liability
The Court emphasized that Section 196 of the NIRC imposes documentary stamp tax on conveyances except grants, patents, or original certificates of adjudication issued by the government. The Special Patent transferring title to FBDC was exempt, consistent with this provision.
However, the same transaction was documented twice: first by Special Patent 3596 and then by the Deed of Absolute Sale. The Court held that these documents represented one transaction; only the initial conveyance—the Special Patent—constituted the valid sale and transfer of ownership. The Deed of Absolute Sale was a mere formality to enable registration and issuance of an Original Certificate of Title, facilitating commercial utilization in line with BCDA’s mandate.
The transaction did not confer a privilege to pay documentary stamp tax but was a statutory obligation to carry out a government-mandated sale for public purposes. Imposing DST would effectively tax a public appropriation authorized by Congress, which the Commissioner lacks authority to do.
Furthermore, R.A. 7227 explicitly provided that proceeds from such sales were to capitalize BCDA. Section 8 of the same Act expressly exempted these proceeds from all forms of taxes. Charging DST would diminish the capital required for the government projects BCDA was created to fund.
Validation of Government’s Payment and Implications
During the Court’s review, BCDA settled the assessed amount from the Military Camps Sale Proceeds Fund. This payment acknowledged the government’s assurance to private investors that proceeds from the land sale were tax-exempt per law.
Additionally, the Deed of Absolute Sale warranted that no taxes were due on the land or its transfer. The Court concluded that the payment by BCDA did not alter the fundamental exemption provided by law.
Given these circumstances, the Court deemed it unnecessary to rule on the mootness or academic nature of the tax payment issue.
Final Holding and Disposition
The Court granted the consolidated petitions and reversed the Court of Appeals’ decisions affirming the documentary stamp tax assessment and interest. The tax assessment was declared void for unlawfully imposing DST on a legislatively
Case Syllabus (G.R. No. 164155)
Background and Factual Context
- In 1992, Republic Act No. 7227 was enacted, creating the Bases Conversion Development Authority (BCDA) tasked with raising funds via the sale of Metro Manila military camps.
- On February 3, 1995, BCDA established Fort Bonifacio Development Corporation (FBDC) to develop a 440-hectare area in Fort Bonifacio, Taguig City for mixed use (residential, commercial, institutional, tourism, etc.). Initially, FBDC was wholly-owned by BCDA.
- On February 7, 1995, the Republic of the Philippines transferred a 214-hectare lot in Fort Bonifacio to FBDC by land grant through Special Patent No. 3596.
- FBDC issued a promissory note for over P71.2 billion to the Republic for the transaction.
- The Republic assigned the promissory note to BCDA, which then assigned it back to FBDC as full payment for BCDA’s subscription to FBDC's capital stock.
- On February 8, 1995, the Republic executed a Deed of Absolute Sale with Quitclaim over the same land to FBDC, also for P71.2 billion.
- The Register of Deeds issued an Original Certificate of Title SP-001 in favor of FBDC on February 19, 1995, replacing Special Patent 3596.
- On February 24, 1995 (weeks later), Congress passed Republic Act No. 7917 exempting the proceeds of the government’s sale of Fort Bonifacio land from all forms of taxes.
- BCDA subsequently sold 55% of its shares in FBDC to private investors, retaining 45%.
Procedural History
- On September 15, 1998, the Commissioner of Internal Revenue issued a Letter of Authority examining FBDC's books for 1995, focusing on internal revenue liabilities.
- On December 10, 1999, the Commissioner issued a Final Assessment Notice demanding P1,068,412,560 documentary stamp tax (DST) based on the 1995 sale.
- FBDC protested, invoking R.A. 7917’s tax exemption on January 6, 2000; the Commissioner failed to act within the 180-day period.
- FBDC filed a petition before the Court of Tax Appeals (CTA) challenging the DST assessment.
- On March 5, 2003, the CTA denied FBDC’s petition, affirming DST on the Deed of Absolute Sale, distinguishing it from the tax-exempt Special Patent.
- The Commissioner moved for partial reconsideration to impose additional surcharge and delinquency interest; FBDC petitioned the Court of Appeals (CA) contesting the CTA ruling.
- On August 14, 2003, the CTA modified its decision, imposing a 20% delinquency interest on the unpaid DST.
- The CA affirmed the CTA’s decisions, ruling FBDC liable for DST and delinquency interest.
- FBDC filed consolidated petitions for review before the Supreme Court.
- During pendency, on December 17, 2004, FBDC manifested that BCDA had paid the disputed tax plus related fees through a government fund release.
- The Commissioner contested the legality of payment, arguing it breached R.A. 7917’s exemption and benefited a private corporation improperly.
Legal Issues Presented
- Whether the Court of Appeals erred in holding FBDC liable for documentary stamp tax and delinquency interest on the Deed of Absolute Sale of Fort Bonifacio land.
- Whether the case is moot and academic due to the payment of the DST assessment by BCDA.
The Court’s Analysis on Documentary Stamp Tax Liability
- The CTA correctl