Case Title: PhilAm Life vs Sec of Finance

Facts: Secretary of Finance Ruling:

Petitioner The Philippine American Life and General Insurance Company Affirmed CIR’s ruling
(Philamlife) used to own 498,590 Class A shares in Philam Care Health
Systems, Inc. (PhilamCare), representing 49.89% of the latter's outstanding CA ruling:
capital stock. In 2009, petitioner, in a bid to divest itself of its interests in the Petition was dismissed for lack of jurisdiction.
health maintenance organization industry, offered to sell its shareholdings in
PhilamCare through competitive bidding. Thus, petitioner’s Class A shares
were sold to STI Investments Inc., as the highest bidder.

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 to which,
the petitioner complied.
Petitioner’s (Philamlife) Contentions:
Philamlife pointed 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.
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Insisting on the propriety of the interposed CA petition, Philamlife, while
conceding that respondent Commissioner issued BIR Ruling No. 015-12 in
accordance with her authority to interpret tax laws, argued nonetheless that
such ruling is subject to review by the Secretary of Finance under Sec. 4 of the
NIRC.
Issue #1: Whether or not the CA erred in dismissing the CA Petition for lack of
jurisdiction.
Ruling:
No, the CA did not err in dismissing the CA Petition.
Admittedly, there is no provision in law that expressly provides where exactly
the ruling of the Secretary of Finance under the adverted NIRC provision is
appealable to. However, We find that Sec. 7(a)(1) of RA 1125, as amended,
addresses the seeming gap in the law asit vests the CTA, albeit impliedly, with
jurisdiction over the CA petition as "other matters" arising under the NIRC or
other laws administered by the BIR.
Sec. 7. Jurisdiction - The CTA shall exercise:
a. Exclusive appellate jurisdiction to review by appeal, as herein
provided:

Petitioner postulates that there is a need to differentiate the rulings 1. Decisions of the Commissioner of Internal Revenue in cases
promulgated by the respondent Commissioner relating to those rendered involving disputed assessments, refunds of internal revenue taxes, fees
under the first paragraph of Sec. 4 of the NIRC, which are appealable to the or other charges, penalties in relation thereto, or other matters arising
Secretary of Finance, from those rendered under the second paragraph of
Sec. 4 of the NIRC, which are subject to review on appeal with the CTA.
Philamlife further averred that Sec.7 of RA 1125, as amended, does not find
application in the case at bar since it only governs appeals from the
Commissioner’s rulings under the second paragraph and does not encompass
rulings from the Secretary of Finance in the exercise of his power of review
under the first, as what was elevated to the CA. It added that under RA 1125,
as amended, the only decisions of the Secretary appealable to the CTA are
those rendered in customs cases elevated to him automatically under Section
2315 of the Tariff and Customs Code.
There is, thus, a gap in the law when the NIRC, as couched, and RA 1125, as
amended, failed to supply where the rulings of the Secretary in its exercise of
its power of review under Sec. 4 of the NIRC are appealable to. This gap,
petitioner submits, was remedied by British American Tobacco v. Camacho
wherein the Court ruled that where what is assailed is the validity or
constitutionality of a law, or a rule or regulation issued by the administrative
agency, the regular courts have jurisdiction to pass upon the same.
Decisions of the Secretary of Finance in the exercise of its power of review
under Sec. 4 of the NIRC are not within the CTA’s limited special jurisdiction
and, according to petitioner, are appealable to the CA via Rule 43 petition for
review.
under the National Internal Revenue or other laws administered by the
Bureau of Internal Revenue.
Even though the provision suggests that it only covers rulings of the
Commissioner, We hold that it is, nonetheless, sufficient enough to
include appeals from the Secretary’s review under Sec. 4 of the NIRC.
It is axiomatic that laws should be given a reasonable interpretation
which does not defeat the very purpose for which they were passed.
Indeed, to leave undetermined the mode of appeal from the Secretary of
Finance would be an injustice to taxpayers prejudiced by his adverse rulings.
To remedy this situation, We imply from the purpose of RA 1125 and its
amendatory laws that the CTA is the proper forum with which to institute the
appeal. This is not, and should not, in any way, be taken as a derogation of
the power of the Office of President but merely as recognition that matters
calling for technical knowledge should be handled by the agency or quasi-
judicial body with specialization over the controversy. As the specialized
quasi-judicial agency mandated to adjudicate tax, customs, and assessment
cases, there can be no other court of appellate jurisdiction that can decide
the issues raised inthe CA petition, which involves the tax treatment of the
shares of stocks sold.
Republic Act No. 1125 is a complete law by itself and expressly enumerates
the matters which the Court of Tax Appeals may consider; such enumeration
excludes all others by implication.
In the recent case of City of Manila v. Grecia-Cuerdo,25 the Court en
banc has ruled that the CTA now has the power of certiorari in cases
within its appellate jurisdiction. To elucidate:
The prevailing doctrine is that the authority to issue writs of certiorari
involves the exercise of original jurisdiction which must be expressly
conferred by the Constitution or by law and cannot be implied from the
mere existence of appellate jurisdiction.
The foregoing notwithstanding, 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

Respondent’s (CIR) Contentions:
Respondent Commissioner on Internal Revenue (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
SEC. 100. Transfer for Less Than Adequate and full Consideration.- Where
property, other than real property referred to in Section 24(D), is transferred
for less than an adequate and full consideration in money or money’s worth,
then the amount by which the fair market value of the property exceeded the
value of the consideration shall, for the purpose of the tax imposed by this
Chapter, be deemed a gift, and shall be included in computing the amount of
gifts made during the calendar year.
(c.2) Definition of ‘fair market value’of Shares of Stock. – For purposes
of this Section, ‘fair market value’ of the share of stock sold shall be:
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.
Issue #2: Whether or not the price difference in petitioner’s adverted sale of
shares in PhilamCare attracts donor’s tax.
Ruling:
Yes, the price difference is subject to donor's tax
Petitioner's substantive arguments are unavailing. The absence of
donative intent, if that be the case, does not exempt the sales of stock
transaction from donor's tax since Sec. 100 of the NIRC categorically
states that the amount by which the fair market value of the property
exceeded the value of the consideration shall be deemed a gift.1âwphi1
Thus, even if there is no actual donation, the difference in price is
considered a donation by fiction of law.
Moreover, Sec. 7(c.2.2) of RR 06-08 does not alter Sec. 100 of the
NIRC but merely sets the parameters for determining the "fair market
value" of a sale of stocks. Such issuance was made pursuant to the
Commissioner's power to interpret tax laws and to promulgate rules and
regulations for their implementation.
(c.2.2) In the case of shares of stock not listed and traded in the local
stock exchanges, the book value of the shares of stock as shown in the
financial statements duly certified by an independent certified public
accountant nearest to the date of sale shall be the fair market value.

In view of the foregoing, the Commissioner ruled that the difference

between the book value and the selling price in the sales transaction is
taxable donation subject to a 30% donor’s tax under Section 99(B) of
the NIRC.7 Respondent Commissioner likewise held that BIR Ruling
[DA-(DT-065) 715-09], on which petitioner anchored its claim, has
already been revoked by Revenue Memorandum Circular (RMC) No.
25-2011.

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Respondents countered petitioner’s procedural arguments by claiming

that even assuming arguendo that the CTA does not have jurisdiction
over the case, Philamlife, nevertheless,committed a fatal error when it
failed to appeal the Secretary of Finance’s ruling to the Office of the
President (OP). As made apparent by the rules, the Department of
Finance is not among the agencies and quasi-judicial bodies enumerated
under Sec. 1, Rule 43 of the Rules of Court whose decisions and rulings
are appealable through a petition for review.15 This is in stark contrast
to the OP’s specific mention under the same provision.

Section 17.The President shall have control of all the executive

departments, bureaus, and offices. He shall ensure that the laws be
faithfully executed.

respondents asseverate that the CA did not err in its holding respecting
the CTA’s jurisdiction over the controversy

Doctrine:
CTA is the proper forum with which to institute the appeal. This is not, and should not, in any way, be taken as a derogation of the power of the Office of
President but merely as recognition that matters calling for technical knowledge should be handled by the agency or quasi-judicial body with specialization
over the controversy.