Prudential Bank v. CIR

G.R. No.
180390 July 27, 2011

PRUDENTIAL BANK, Petitioner,
vs.
COMMISSIONER OF INTERNAL REVENUE, Respondent.
FACTS:
Petitioner Prudential Bank is a banking corporation organized and existing under Philippine law.
Petitioner received from the respondent CIR a Final Assessment Notice and a Demand Letter for
deficiency Documentary Stamp Tax (DST) for the taxable year 1995 on its Repurchase
Agreement with the Bangko Sentral ng Pilipinas [BSP], Purchase of Treasury Bills from the
BSP, and on its Savings Account Plus [SAP] product, in the amount of ₱18,982,734.38.
Petitioner protested the assessment on the ground that the documents subject matter of the
assessment are not subject to DST. Later, they filed a petition before CTA.
CTA First Division: Affirmed the assessment for deficiency DST insofar as the SAPis
concerned, but cancelled and set aside the assessment on petitioner’s repurchase agreement and
purchase of treasury bills
CTA En banc: Denied the appeal for lack of merit. It affirmed the ruling of its First Division that
petitioner’s SAP is a certificate of deposit bearing interest subject to DST under Section 180 of
the old National Internal Revenue Code (NIRC), as amended by Republic Act (RA) No. 7660
Petitioner contends that its SAP is not subject to DST because it is not included in the list of
documents under Section 180 of the old NIRC, as amended. Petitioner insists that unlike a time
deposit, its SAP is evidenced by a passbook and not by a deposit certificate. In addition, its SAP
is payable on demand and not on a fixed determinable future. To support its position, petitioner
relies on the legislative intent of the law prior to Republic Act (RA) No. 9243 and the historical
background of the taxability of certificates of deposit. Assuming arguendo that SAP is subject to
DST, the CTA En Banc nonetheless erred in denying petitioner's withdrawal of its petition
considering that it has paid under the IVAP the amount of P5,084,272.50, which it claims is
100% of the basic tax of the original assessment of the Bureau of Internal Revenue (BIR).
Petitioner insists that the payment it made should be deemed substantial compliance considering
the refusal of the respondent to issue the letter of termination and authority to cancel assessment.
Respondent maintains that petitioner's SAP is subject to DST conformably with the ruling in
International Exchange Bank v. Commissioner of Internal Revenue. It also contends that the
CTA En Banc correctly denied the motion to withdraw since petitioner failed to comply with the
requirements of the IVAP. Mere payment of the deficiency DST cannot be deemed substantial
compliance as tax amnesty, like tax exemption, must be construed strictly against the taxpayer.
ISSUE:
Won petitioner’s SAP with a higher interest is subject to documentary stamp tax.
RULING:
Yes. Petitioner’s Savings Account Plus is subject to Documentary Stamp Tax.
DST is imposed on certificates of deposit bearing interest pursuant to Section 180 of the old
NIRC.
A certificate of deposit is defined as "a written acknowledgment by a bank or banker of the

receipt of a sum of money on deposit which the bank or banker promises to pay to the depositor,
to the order of the depositor, or to some other person or his order, whereby the relation of debtor
and creditor between the bank and the depositor is created.
In China Banking Corporation v. Commissioner of Internal Revenue, it was held that the
Savings Plus Deposit Account, which has the following features: (1) Amount deposited is
withdrawable anytime; (2) The same is evidenced by a passbook; (3) The rate of interest offered
is the prevailing market rate, provided the depositor would maintain his minimum balance in
thirty (30) days at the minimum, and should he withdraw before the period, his deposit would
earn the regular savings deposit rate; is subject to DST as it is essentially the same as the
Special/Super Savings Deposit Account in Philippine Banking Corporation v. Commissioner of
Internal Revenue, and the Savings Account-Fixed Savings Deposit in International Exchange
Bank v. Commissioner of Internal Revenue, which are considered certificates of deposit drawing
interests. Similarly, in this case, although the money deposited in a SAP is payable anytime, the
withdrawal of the money before the expiration of 30 days results in the reduction of the interest
rate. In the same way, a time deposit withdrawn before its maturity results to a lower interest rate
and payment of bank charges or penalties.
The fact that the SAP is evidenced by a passbook likewise cannot remove its coverage from
Section 180 of the old NIRC, as amended. A document to be considered a certificate of deposit
need not be in a specific form. Thus, a passbook issued by a bank qualifies as a certificate of
deposit drawing interest because it is considered a written acknowledgement by a bank that it has
accepted a deposit of a sum of money from a depositor.

Prudential Bank v. CIR

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Prudential Bank v. CIR

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G.R. No.

180390 July 27, 2011

Yes. Petitioner’s Savings Account Plus is subject to Documentary Stamp Tax.

A certificate of deposit is defined as "a written acknowledgment by a bank or banker of the

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