Case Summary (G.R. No. 164155)
Chronology of the Transaction
R.A. 7227 created the Bases Conversion and Development Authority (BCDA) to raise funds through sale of military camps. On February 3, 1995 BCDA established FBDC as a wholly‑owned subsidiary to develop Fort Bonifacio. On February 7, 1995 the Republic issued Special Patent No. 3596 transferring a 214‑hectare portion of Fort Bonifacio to FBDC; FBDC executed a promissory note for P71.2 billion plus in favor of the Republic. The Republic assigned that promissory note to BCDA, which in turn used it to satisfy its subscription to FBDC’s authorized capital. On February 8, 1995 the Republic executed a Deed of Absolute Sale with Quitclaim covering the same land for the same price. An Original Certificate of Title (OCT) was issued on February 19, 1995. On February 24, 1995 Congress enacted R.A. 7917 declaring proceeds of the Government sale of the Fort Bonifacio land exempt from all forms of taxes.
Subsequent Commercial and Administrative Events
BCDA later sold 55% of FBDC shares to private investors, retaining 45%. The Commissioner of Internal Revenue issued a Letter of Authority on September 15, 1998 to examine FBDC’s 1995 records and, on December 10, 1999, issued a Final Assessment Notice for documentary stamp tax (DST) of P1,068,412,560 based on the Republic’s 1995 Deed of Absolute Sale. FBDC protested and invoked R.A. 7917; the Commissioner did not act within the statutory period, prompting FBDC to file before the Court of Tax Appeals (CTA).
Procedural History
The CTA denied FBDC’s petition and affirmed the DST assessment, treating the Special Patent and the Deed of Absolute Sale as distinct documentary events with differing tax consequences. The Commissioner sought additional penalties; CTA later imposed 20% delinquency interest. The Court of Appeals (CA) affirmed both the CTA decision and the imposition of interest. FBDC consolidated appeals to the Supreme Court. While petitions were pending, BCDA caused payment of the assessed amounts through a Special Allotment Release Order charged to the Military Camps Sale Proceeds Fund; the Commissioner contended that payment was improper and beyond R.A. 7917’s scope.
Issues Presented
- Whether FBDC was liable for DST and 20% delinquency interest on the Deed of Absolute Sale covering the 214‑hectare Fort Bonifacio land. 2) Whether the case became moot and academic by reason of BCDA’s payment of the assessed DST.
Statutory Texts and Legal Character of DST
NIRC Section 196 (as amended by R.A. 7660) imposes DST on conveyances, deeds, instruments or writings “other than grants, patents, or original certificates of adjudication issued by the Government.” DST is characterized as an excise tax levied on the exercise of privileges conferred by law, typically tied to execution of specified documents effecting creation, modification, or termination of private contractual rights.
Core Legal Analysis — Single Transaction Twice Documented
The Supreme Court concluded that the Special Patent and the Deed of Absolute Sale were not two separate conveyances but two instruments documenting the same single transaction: the Republic’s sale and the transfer of legal title to FBDC for the same consideration, paid once (by promissory note) and then assigned to BCDA for capitalization. The Special Patent operated to convey ownership and was issued pursuant to R.A. 7227; the Deed of Absolute Sale, acknowledged in its own terms, effectively confirmed an already absolute and irrevocable transfer effected by the Special Patent. Thus, the Deed was a formality to facilitate registration and issuance of an OCT and not an independent conveyance creating a separate DST taxable event.
Appropriation, Capitalization and Tax Exemption Under R.A. 7227 and R.A. 7917
The Court emphasized that R.A. 7227 expressly directed that proceeds from sale of Metro Manila military camps be used to capitalize BCDA (Sections 6 and 8) and that such proceeds were earmarked for specific government projects, not for general diminution by taxation. The statute’s funding scheme demonstrated legislative intent that the sale proceeds be applied to BCDA capitalization and related uses. Moreover, R.A. 7917 specifically declared proceeds of the Government sale of Fort Bonifacio exempt from all forms of taxes. Taxing the sale proceeds would effectively tax a legislative appropriation and would undermine the statutory scheme authorizing sale and capitalization through BCDA and its subsidiary.
Nature of the Deed and the Inapplicability of DST
Because the Special Patent (a government patent) was among the instruments expressly excluded from DST by Section 196, and because the Deed of Absolute Sale merely formalized an existing transfer effected by the patent, the
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Facts and the Case
- In 1992, Congress enacted Republic Act (R.A.) No. 7227 creating the Bases Conversion and Development Authority (BCDA) to raise funds through the sale to private investors of military camps in Metro Manila.
- On February 3, 1995, the BCDA established Fort Bonifacio Development Corporation (FBDC) to develop a 440-hectare area in Fort Bonifacio, Taguig City, for mixed residential, commercial, business, institutional, recreational, tourism and other purposes; at incorporation FBDC was a wholly-owned subsidiary of BCDA.
- On February 7, 1995, the Republic of the Philippines transferred by land grant to FBDC, through Special Patent No. 3596, a 214-hectare parcel in Fort Bonifacio.
- FBDC executed a promissory note in favor of the Republic for P71.2 billion plus as payment for the land.
- The Republic assigned that promissory note to BCDA, which in turn assigned it back to FBDC as full and complete payment of BCDA’s subscription to FBDC’s authorized capital stock.
- On February 8, 1995 the Republic executed a Deed of Absolute Sale with Quitclaim in favor of FBDC covering the same 214-hectare land for P71.2 billion.
- On February 19, 1995 the Register of Deeds issued Original Certificate of Title SP-001 in favor of FBDC, replacing Special Patent 3596.
- On February 24, 1995 (within the same month), Congress enacted R.A. No. 7917, declaring exempt from all forms of taxes the proceeds of the Government sale of the Fort Bonifacio land.
- BCDA subsequently sold at public bidding 55% of its shares in FBDC to private investors and retained the remaining 45%.
- On September 15, 1998 the Commissioner of Internal Revenue issued a Letter of Authority to examine FBDC’s books and records for the 1995 taxable year.
- On December 10, 1999 the Commissioner issued a Final Assessment Notice to FBDC for deficiency documentary stamp tax (DST) of P1,068,412,560.00 based on the Republic’s 1995 sale to FBDC.
- FBDC protested the assessment and on January 6, 2000 invoked R.A. No. 7917, asserting exemption; when the Commissioner failed to act within the statutory 180-day period, FBDC filed a petition for review before the Court of Tax Appeals (CTA) (docketed as CTA Case No. 6149).
- On March 5, 2003 the CTA denied FBDC’s petition and affirmed the Commissioner’s DST assessment, treating the Special Patent and the Deed of Absolute Sale as separate and distinct documents and holding that the latter was not tax-exempt.
- The Commissioner moved for partial reconsideration seeking imposition of a 25% surcharge and 20% delinquency interest; FBDC filed a petition for review before the Court of Appeals (docketed as CA-G.R. SP 76017).
- On August 14, 2003 the CTA modified its March 5, 2003 decision and imposed a 20% delinquency interest on the P1,068,412,560.00 DST, computed from January 26, 2000 until full payment; FBDC filed a separate petition for review from this resolution (docketed as CA-G.R. SP 79010).
- The Court of Appeals affirmed both the March 5, 2003 CTA decision and the August 14, 2003 CTA resolution, holding FBDC liable for DST on the Deed of Absolute Sale and affirming the 20% delinquency interest.
- While the consolidated petitions were pending, on December 17, 2004 FBDC filed a manifestation and motion informing the Court that the disputed assessment had been paid through a Special Allotment Release Order (SARO) issued by the Department of Budget and Management (DBM) to BCDA for P1,189,121,947.00, covering DST, transfer fees, 5% withholding tax and registration fees for the sale of a portion of Fort Bonifacio, chargeable against the Military Camps Sale Proceeds Fund.
- The Commissioner contended that the payment was illegal because it breached the scope of the tax exemption in Section 8 of R.A. No. 7917 and because BCDA paid the tax for the benefit of FBDC, a private corporation.
Procedural History and Docket Numbers
- Initial administrative examination: Letter of Authority dated September 15, 1998.
- Final Assessment Notice issued: December 10, 1999 (Assessment ST‑DST‑95‑0131‑99).
- CTA petition: CTA Case No. 6149.
- First CA petition (from March 5, 2003 CTA decision): CA‑G.R. SP 76017.
- Second CA petition (from August 14, 2003 CTA resolution imposing 20% interest): CA‑G.R. SP 79010.
- Consolidated petitions to the Supreme Court: G.R. Nos. 164155 & 175543.
- Manifestation of payment via SARO: DBM SARO to BCDA dated December 17, 2004 for P1,189,121,947.00.
Issues Presented
- Whether the Court of Appeals erred in ruling that FBDC was liable for the payment of documentary stamp tax (DST) and a 20% delinquency interest on the Deed of Absolute Sale of the 214‑hectare Fort Bonifacio land executed by the Republic in FBDC’s favor.
- Whether the case was rendered moot and academic by BCDA’s subsequent payment of the DST assessment.
Relevant Statutes, Provisions and Authorities Referenced in the Case
- Republic Act No. 7227 (Bases Conversion and Development Act of 1992):
- Section 6 (Capitalization): provides for BCDA’s authorized capital (P100 billion) and that it “shall either be paid up from the proceeds of the sales of its land assets as provided for in Section 8 of this Act or by transferring to the Conversion Authority properties valued in such amount.”
- Section 8 (Funding Scheme): describes that the capital of BCDA shall come from the sales proceeds and/or transfers of certain Metro Manila military camps, authorizes the President to sell such lands, and provides that proceeds shall