Philamlife vs. The Secretary of Finance

 G.R. No. 210987               November 24, 2014

THE PHILIPPINE AMERICAN LIFE AND GENERAL INSURANCE COMPANY, Petitioner,

vs.

THE SECRETARY OF FINANCE and THE COMMISSIONER OF INTERNAL REVENUE, Respondents.

FACTS:

In 2009, petitioner, in a bid to divest itself of its interests in the health maintenance organization industry, offered to sell its shareholdings in PhilamCare through competitive bidding. After the sale was completed and the necessary documentary stamp and capital gains taxes were paid, Philamlife filed an application for a certificate authorizing registration/tax clearance with the Bureau of Internal Revenue (BIR) Large Taxpayers Service Division to facilitate the transfer of the shares. 

Months later, petitioner was informed that it needed to secure a BIR ruling in connection with its application due to potential donor’s tax liability. In compliance, petitioner, requested a ruling to confirm that the sale was not subject to donor’s tax, pointing out, in its request, the following: that the transaction cannot attract donor’s tax liability since there was no donative intent and,ergo, no taxable donation, citing BIR Ruling [DA-(DT-065) 715-09] dated November 27, 2009; that the shares were sold at their actual fair market value and at arm’s length; that as long as the transaction conducted is at arm’s length––such that a bona fide business arrangement of the dealings is done inthe ordinary course of business––a sale for less than an adequate consideration is not subject to donor’s tax; and that donor’s tax does not apply to saleof shares sold in an open bidding process.

However, respondent (Commissioner) denied Philamlife’s request through BIR Ruling No. 015-12. As determined by the Commissioner, the selling price of the shares thus sold was lower than their book value based on the financial statements of PhilamCare as of the end of 2008. As such, the Commisioner held, donor’s tax became imposable on the price difference pursuant to Sec. 100 of the National Internal Revenue Code (NIRC).

Aggrieved, petitioner requested respondent Secretary of Finance (Secretary) to review BIR Ruling No. 015-12, but to no avail. Respondent Secretary affirmed the Commissioner’s assailed ruling in its entirety.

Not contented with the adverse results, petitioner elevated the case to the CA via a petition for review under Rule 43. CA dismissing the petition for lack of jurisdiction, the appellate court ratiocinated that it is the Court of Tax Appeals (CTA), pursuant to Sec. 7(a)(1) of Republic Act No. 1125 (RA 1125),11 as amended, which has jurisdiction over the issues raised. The category "other matters arising under the NIRC or other laws administered by the BIR," which is under the jurisdiction of the CTA, not the CA.

Philamlife eventually sought reconsideration but the CA maintained its earlier position. Hence, the instant recourse.

ISSUE:

Whether CA erred in dismissing the petition for lack of jurisdiction.

RULING:

No, citing the case of City of Manila vs. Grecia-Cuerdo, the SC held that while there is no express grant of such power, with respect to the CTA, Section 1, Article VIII of the 1987 Constitution provides, nonetheless, that judicial power shall be vested in one Supreme Court and in such lower courts as may be established by law and that judicial power includes the duty of the courts of justice to settle actual controversies involving rights which are legally demandable and enforceable, and to determine whether or not there has been a grave abuse of discretion amounting to lack or excess of jurisdiction on the part of any branch or instrumentality of the Government.

On the strength of the above constitutional provisions, it can be fairly interpreted that the power of the CTA includes that of determining whether or not there has been grave abuse of discretion amounting to lack or excess of jurisdiction on the part of the RTC in issuing an interlocutory order in cases falling within the exclusive appellate jurisdiction of the tax court. It, thus, follows that the CTA, by constitutional mandate, is vested with jurisdiction to issue writs of certiorari in these cases.

Moreover, City of Manila diametrically opposes British American Tobacco to the effect that it is now within the power of the CTA, through its power of certiorari, to rule on the validity of a particular administrative ruleor regulation so long as it is within its appellate jurisdiction. Hence, it can now rule not only on the propriety of an assessment or tax treatment of a certain transaction, but also on the validity of the revenue regulation or revenue memorandum circular on which the said assessment is based.

Guided by the doctrinal teaching in resolving the case at bar, the fact that the CA petition not only contested the applicability of Sec. 100 of the NIRC over the sales transaction but likewise questioned the validity of Sec. 7 (c.2.2) of RR 06-08 and RMC 25-11 does not divest the CTA of its jurisdiction over the controversy, contrary to petitioner's arguments.

WHEREFORE, the petition is hereby DISMISSED.