REPUBLIC OF THE PHILIPPINES

COURT OF TAX APPEALS

QUEZON CITY

ENBANC

MANILA ELECTRIC
COMPANY,
Petitioner, CTA EB No. 687
(CTA Case No. 7545)

Members:

Acosta, P.J.,
-versus- Castaneda, Jr.,
Bautista,
Uy,
Casanova,
Palanca-Enriquez,
Fabon-Victorino,
Mindaro-Grulla, and
Cotangco-Manalastas, 11.:

COMMISSIONER OF
INTERNAL REVENUE,
Respondent. Promulgated:
SEP 2 1 2011 l'u<Jft'P/4-..~
9, C/V ""' • l't,_
I

x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x 7

DECISION
CASTANEDA, JR., J.:
Assailed before this Court are the Decision dated March 22, 2010

denying Manila Electric Company's Petition for Review and the Resolution

dated September 13, 2010, also denying its Motion for Reconsideration in the

case docketed as CTA Case No. 7545, both issued by the Court's Special First

Division. r
DECISION
CTA EB Case No. 687 (CTA Case No. 7545)
Page 2 of 21

THE FACTS

Manila Electric Company ("Petitioner"), a corporation duly organized

and existing under and by virtue of the laws of the Republic of the Philippines,

is engaged in the business of distributing and supplying electric power within

its franchise area. Petitioner is a registered taxpayer with taxpayer

identification number 000-101-528-000 and Certificate of Registration No.

OCN8RC0000016119. 1

The Commissioner of Internal Revenue ("respondent") as a public

official is tasked to decide disputed assessments, collection, refund of

erroneously or excessively paid internal revenue taxes, fees or other charges,

penalties, or other matters under the 1997 National Internal Revenue Code

("NIRC"), as amended, or other laws administered by the Bureau of Internal

Revenue ("BIR"). 2

In year 2004, petitioner executed several Loan Agreements, Mortgage

Bonds and Supplemental Indenture, namely:

TRANSACTION PURPOSE

Omnibus Agreement dated November 12, To refinance under the terms and
2004 executed by petitioner and BPI Capital conditions set out in the finance
Corporation, Citibank, N.A., Philippine Branch, documents, and with respect to the
Citigroup Global Markets Asia Limited, and DBP-Tranche B Lenders (as such term
other parties named therein. is defined in the Tranche B Facility
Agreement), to revise and
redocument the terms and conditions
governing the DBP-JBIC Syndicated

1
Joint Stipulation of Facts and Issues, Docket, CTA Case No. 7545, p. 59.
2
Ibid.
DECISION
CTA EB Case No. 687 (CTA Case No. 7545)
Page 3 of 21

Facility in accordance with and to

conform to the terms and conditions
set out in the finance documents". 3

Tranche A Facility Agreement attached to the To provide loan facility to petitioner4 •

Omnibus Agreement dated November 12,
2004.

Tranche B Facility Agreement attached to the To pursue a comprehensive liability

Omnibus Agreement dated November 12, management program, the
2004. implementation of which will include,
among others, the revision and
redocumentation of the terms and
conditions governing the DBP-JBIC
Syndicated Facility in accordance with
and to conform to the terms and
conditions set out in this Agreement
and the Common Terms Agreement. 5

Omnibus Loan and Security Agreement dated To extend loan facility to petitioner in
November 26, 2004 by petitioner and Meralco refinancing the existing loan. 6
Employees Savings and Loan Association,
Inc.(" MESALA'')

One Hundred Second Supplemental Indenture To secure the principal of, the interest
entered by petitioner and Bank of the and premium (if any) on, and (to the
Philippine Islands as trustee. maximum extent allowed under the
Indenture) all other amounts payable
under, all bonds at any time issued
and outstanding under the Original
Indenture dated December 31, 1957. 7

First Mortgage Bond, Series 5K, No. RSK-1,

dated December 1, 2004, in the amount of
US$170,053,200.00 due on September 14,
2011;

3
Whereas Clause, Exhibit " A".
4
Whereas Clause, Vol. B, Tranche A Facility Agreement.
5
Whereas Clause, Vol. C Tranche B Facility Agreement.
6
Whereas Clause, Omnibus Loan and Security Agreement dated November 26, 2004, Exhibit " C".
7
Exhibit " B" .
DECISION
CTA EB Case No. 687 (CTA Case No. 7545)
Page 4 of 21

First Mortgage Bond, Series 5L-DBP Tranche B

Loans, No. R5L-1, dated 1 December 2004, in
the amount of Php1,935,000,000.00 due on
14 September 2011;

First Mortgage Bond, Series 5L - LBP Tranche

B Loans, No. R5L-2, dated December 1, 2004,
in the amount of P359,999,995.00 due on
September 14, 2011;

First Mortgage Bond, Series 5L - Tranche B3

Loans, No. R5L-3, dated December 1, 2004, in
the amount of P935,964,000.00 due on
September 14, 2011

First Mortgage Bond, Series 5M, No. R5M-1,

dated December 1, 2004, in the amount of
P5,167,466.13 due on March 14, 2005;

First Mortgage Bond, Series 5M, No. R5M-2,

dated December 1, 2004, in the amount of
P5,167,466.13 due on June 14, 2005;

First Mortgage Bond, Series 5M, No. R5M-3,

dated December 1, 2004, in the amount of
P5,167,466.13 due on September 14, 2005;

First Mortgage Bond, Series 5M, No. R5M-4,

dated December 1, 2004, in the amount of
P5,167,466.13 due on December 14, 2005;

First Mortgage Bond, Series 5M, No. R5M-5,

dated December 1, 2004, in the amount of
P5,167,466.13 due on March 14, 2006;

First Mortgage Bond, Series 5M, No. R5M-6,

dated December 1, 2004, in the amount of
P5,167,466.13 due on June 14, 2006;

~----------------------~--------------------~~
DECISION
CTA EB Case No. 687 (CTA Case No. 7545)
Page 5 of 21

First Mortgage Bond, Series SM, No. RSM-7,

dated December 1, 2004, in the amount of
P5,167,466.13 due on September 14, 2006;

First Mortgage Bond, Series SM, No. RSM-8,

dated December 1, 2004, in the amount of
P5,167,466.13 due on December 14, 2006;

First Mortgage Bond, Series SM, No. RSM-9,

dated December 1, 2004, in the amount of
P15,502,398.39 due on March 14, 2007;

First Mortgage Bond, Series SM, No. RSM-10,

dated December 1, 2004, in the amount of
P15,502,398.39 due on June 14, 2007;

First Mortgage Bond, Series SM, No. RSM-11,

dated December 1, 2004, in the amount of
P15,502,398.39 due on September 14, 2007;

First Mortgage Bond, Series SM, No. RSM-12,

dated December 1, 2004, in the amount of
P15,502,398.39 due on December 14, 2007;

First Mortgage Bond, Series SM, No. RSM-13,

dated December 1, 2004, in the amount of
P15,502,398.39 due on March 14, 2008;

First Mortgage Bond, Series SM, No. RSM-14,

dated December 1, 2004, in the amount of
P15,502,398.39 due on June 14, 2008;

~------------------~----------------~fr
DECISION
CTA EB Case No. 687 (CTA Case No. 7545)
Page 6 of 21

First Mortgage Bond, Series SM, No. RSM-15,

dated December 1, 2004, in the amount of
P15,502,398.39 due on September 14, 2008;

First Mortgage Bond, Series SM, No. RSM-16,

dated December 1, 2004, in the amount of
P15,502,398.39 due on December 14, 2008;

First Mortgage Bond, Series SM, No. RSM-17,

dated December 1, 2004, in the amount of
P20,669,864.53 due on March 14, 2009;

First Mortgage Bond, Series SM, No. RSM-18,

dated December 1, 2004, in the amount of
P20,669,864.53 due on June 14, 2009;

First Mortgage Bond, Series SM, No. RSM-19,

dated December 1, 2004, in the amount of
P20,669,864.53 due on September 14, 2009;

First Mortgage Bond, Series SM, No. RSM-20,

dated December 1, 2004, in the amount of
P20,669,864.53 due on December 14, 2009;

First Mortgage Bond, Seri es SM, No. RSM-21,

dated December 1, 2004, in the amount of
P20,669,864.53 due on March 14, 2010;

First Mortgage Bond, Series SM, No. RSM-22,

dated December 1, 2004, in the amount of
P20,669,864.53 due on June 14, 2010;

'----------- - - - ' - - - - -- - - - - ' fz--

DECISION
CTA EB Case No. 687 (CTA Case No. 7545)
Page 7 of 21

First Mortgage Bond, Series SM, No. RSM-23,

dated December 1, 2004, in the amount of
P20,669,864.53 due on September 14, 2010;
31.

First Mortgage Bond, Series SM, No. RSM-24,

dated December 1, 2004, in the amount of
P20,669,864.53 due on December 14, 2010;

First Mortgage Bond, Series SM, No. RSM-25,

dated December 1, 2004, in the amount of
P26,870,823.88 due on March 14, 2011;

First Mortgage Bond, Series SM, No. RSM-26,

dated December 1, 2004, in the amount of
P26,870,823.88 due on June 14, 2011; and

First Mortgage Bond, Series SM, No. RSM-27,

dated December 1, 2004, in the amount of
P28,937,810.34 due on September 14, 2011. 8

Petitioner allegedly filed the corresponding 2004 documentary stamp

tax ("DST") returns for the following transactions: ~

8
Joint Stipulation of Facts and Issues, Docket, CTA Case No. 7545, pp. 6_Q-62.
DECISION
CTA EB Case No. 687 (CTA Case No. 7545)
Page 8 of 21

TRANSACTION EXHIBIT DATE OF AMOUNT /TAX BASE DST PAID

FILING
OF DST
RETURN
LOAN II November p 9,579,266,809.20 p 47,896,335.00
AGREEMENT 30, 2004
(TRANCHE A)
LOAN KK November p 3,230,963,995.00 p 16,154,820.00
AGREEMENT 30, 2004
(TRANCHE B)
LOAN MM December p 413,397,290.50 p 2,066,987.00
AGREEMENT 6, 2004
(MESALA)

Sub-total p 66,118,142.00

MORTGAGE 00 December p 13,806,784,359.98 p 66,118,142.00

BONDS 6, 2004

ONE HUNDRED QQ December p 13,806,784,359.98 P26,447,266.19 9

SECOND 6, 2004
SUPPLEMENTAL
INDENTURE
C'SUPPLEMENTAL
INDENTURE'')

In the letter dated November 28, 2006 addressed to then

Commissioner Jose Mario C. Bunag, petitioner claimed DST excess payments

of P66,118,140.42. 10

On December 4, 2006, petitioner demanded a refund of additional

excess documentary stamp taxes ("DST") of P26,447,266.19 or the aggregate

amount of P92,565,408.61Y ~

9
Docket, CTA Case No. 7545, pp. 120, 140 & 148.
10
Joint Stipulation of Facts and Issues, Docket, CTA Case No. 7545, p. 62.
11
Ibid.
DECISION
CfA EB Case No. 687 (CfA Case No. 7545)
Page 9 of 21

Respondent's inaction on the refund claim prompted petitioner to

appeal before the Court's Special First Division on December 5, 2006.

Petitioner sought for the refund of P92,565,408.61 allegedly representing

excess and erroneous 2004 DST payments arising from Loan Agreements,

Mortgage Bonds, and Supplemental Indenture executed in connection with

refinancing and revision of its loan facilities. 12

The Court's Special First Division rendered a Decision dated March 22,

2010 dismissing the Petition for Review. 13

Acting upon petitioner's Motion for Reconsideration of the assailed

Decision, the Court's Special First Division issued a Resolution dated

September 13, 2010 denying the same for lack of merit. 14 The Court

reasoned that the parties clearly intended to treat the Omnibus Agreement

containing Tranche A and B Facility Agreements, Supplemental Indenture, the

Omnibus Loan and Security Agreement, and the Mortgage Bonds as separate

transactions, each subject to DST. Thus, the denial of the refund claim is

proper.

THE ISSUES

Unfazed, petitioner filed a Petition for Review with the Court En Bane

raising the following issues: ~

12
lbid.
13
Rollo, pp. 23-35. Penned by Associate Justice Lovell R. Bautista and concurred in by Presid ing
Justice Ernesto D. Acosta and Associate Justice Caesar A. Casanova
14
Rollo, pp. 37-41.
DECISION
CfA EB Case No. 687 (CfA Case No. 7545)
Page 10 of 21

WHETHER THE PETITIONER ERRONEOUSLY PAID EXCESS

DOCUMENTARY STAMP TAXES IN THE TOTAL AMOUNT OF
P92,565,408.61;

WHETHER THE OMNIBUS AGREEMENT (TRANCHE A) IN THE

AMOUNT OF USD170,053,200.00 (PHP 9,759,266,809.00), AND
THE FIRST MORTGAGE BOND AND MORTGAGE TRUST
INDENTURE SECURING THE SAME, CONSTITUTE A SINGLE AND
ENTIRE TRANSACTION WHICH IS SUBJECT TO ONE
DOCUMENTARY STAMP TAX;

WHETHER THE OMNIBUS AGREEMENT (TRANCHE B) IN THE

AMOUNT OF PHP 3,230,963,995.00, AND THE FIRST MORTGAGE
BOND AND MORTGAGE TRUST INDENTURE SECURING THE
SAME, CONSTITUTE A SINGLE ENTIRE TRANSACTION WHICH IS
SUBJECT TO ONE DOCUMENTARY STAMP TAX;

WHETHER THE OMNIBUS LOAN AND SECURITY AGREEMENT IN

THE AMOUNT OF PHP413,397,290.50, AND THE FIRST
MORTGAGE BONDS AND MORTGAGE TRUST INDENTURE
SECURING THE SAME, CONSTITUTE A SINGLE AND ENTIRE
TRANSACTION WHICH IS SUBJECT TO ONE DOCUMENTARY
STAMP TAX; AND

WHETHER THE PETITIONER IS ENTITLED TO A REFUND OR TAX

CREDIT IN THE AMOUNT OF P92,565,408.61 REPRESENTING
EXCESS DOCUMENTARY STAMP TAX ERRONEOUSLY PAID. 15

Respondent failed to file her Comment to the Petition.

In the Resolution dated December 1, 2010, the Court directed the

parties to file their respective Memorandum. However, only petitioner filed its

Memorandum. 16
Thereafter, the case was submitted for decision. je---

15
Rollo, p. 7.
16
Rollo, p. 49 .
DECISION
CfA EB Case No. 687 (CfA Case No. 7545)
Page 11 of 21

THE COURT'S RULING

DST is an excise tax on the exercise of a right or privilege to transfer

obligations, rights or properties incident thereto. 17 Otherwise stated, this

tax is imposed upon the privilege, opportunity or facility offered at exchanges

for the transaction of the business. 18 It is not limited to the document,

instrument and paper embodying the transaction specified under the law .19

Considering that in the instant case, the parties executed the Loan

Agreements, Mortgage Bonds and Supplemental Indenture, and the

corresponding 2004 DST were each paid for these transactions, the applicable

law is the 1997 NIRC, as amended by Republic Act ("R.A.") No. 9243 20 and

implemented by Revenue Regulations ("RR") No. 13-04. 21

DST is imposed on debt instruments under Section 179 of the 1997

NIRC, as amended, as follows:

"SEC. 179. Stamp Tax on All Debt Instruments. - On every

original issue of debt instruments, there shall be collected a
documentary stamp tax on One peso (Pl.OO) on each Two hundred
pesos (P200), or fractional part thereof, of the issue price of any such
debt instruments: Provided, That for such debt instruments with jk-
17
Michel J. Lhuillier Pawnshop, Inc. v. Commissioner ofInternal Revenue, G.R. No. 166786, 489 SCRA
147.
18
Commissioner of Internal Revenue v. Manila Bankers' Life Insurance Corporation, G.R. No. 169103,
March 16, 2011.
19
Irene C Salud v. Commissioner ofInternal Revenue, C.T.A. EB Case No. 412, April 30, 2009.
20
AN ACf RATIONALIZING THE PROVISIONS ON THE DOCUMENTARY STAMP TAX OF THE NATIONAL
INTERNAL REVENUE CODE OF 1997, AS AMENDED, AND FOR OTHER PURPOSES took effect on March
20, 2004.
21
IMPLEMENTING THE PROVISIONS OF REPUBLIC ACf No. 9243, AN ACf RATIONALIZING THE
PROVISIONS ON THE DOCUMENTARY STAMP TAX OF THE NATIONAL INTERNAL REVENUE CODE OF
1997, AS AMENDED, AND FOR OTHER PURPOSES.
DECISION
CTA EB Case No. 687 (CTA Case No. 7545)
Page 12 of 21

terms of less than one (1) year, the documentary stamp tax to be
collected shall be of a proportional amount in accordance with the
ratio of its term in number of days to three hundred sixty-five (365)
days: Provided, further, That only one documentary stamp tax shall
be imposed on either loan agreement, or promissory notes issued to
secure such loan.

For purposes of this section, the term debt instrument shall

mean instruments representing borrowing and lending transactions
including but not limited to debentures, certificates of indebtedness,
due bills, bonds, loan agreements, including those signed abroad
wherein the object of contract is located or used in the Philippines,
instruments, securities issued by the government or any of its
instrumentalities, deposit substitute debt instruments, certificates or
other evidences of deposits that are either drawing interest
significantly higher than the regular savings deposit taking into
consideration the size of the deposit and the risks involved or
drawing interest and having a specific maturity date, orders for
payment of any sum of money otherwise than at sight or on demand,
promissory notes, whether negotiable or non-negotiable, except bank
notes issued for circulation. (Emphasis supplied.)

Debt instruments under Section 179 of the 1997 NIRC, as amended,

cover instruments representing borrowing and lending transactions including

but not limited to the following:

a. Debentures,

b. Certificates of indebtedness,

c. Due bills,

d. bonds,

e. loan agreements, including those signed abroad

wherein the object of the contract is located or used in the
Philippines,

f. instruments and securities issued by the government or any of

its instrumentalities,

g. deposit substitute debt instruments,

h. certificates or other evidences of deposit that are drawing

instrument significantly higher than the regular saving deposit taking
fv
into consideration the size of the deposit and the risks involved,
DECISION
CTA EB Case No. 687 (CTA Case No. 7545)
Page 13 of 21

i. certificates or ot her evidences of deposits that are drawing

interest and having a specific maturity date,

j. orders for paym ent of any sum of money otherwise than at

sight or on demand,

k. promissory notes, whether negotiable or non-negotiable ,

except bank notes issued for circulation. 22 (Emphasis supplied.)

Clearly, the Om ni bus Agreement dated November 12, 2004, including

Tranches A and B Faci lity Agreements and the Omnibus Loan and Security

Agreement dated November 26, 2004 as debt instruments are subject to DST

under Section 179 of the 1997 NIRC, as amended.

THE OMNIBUS AG REEM ENT, TRANCHES

A AND B FACILITY AGREEM ENTS ALL
DATED NOVEMBER 12, 2004, OMNIBUS
LOAN AND SECURITY AGREEMENT
DATED NOVEMBER 2 6, 2004, MORTGAGE
BONDS AND SUPPLEM ENTAL I NDENTURE
PERTAIN TO DI FFE RENT AND
INDEPENDENT TRAN SACTIONS, THUS,
EACH OF WHICH IS SUBJECT TO DST.

Petitioner alleges the payment of one DST on either the loan

agreement or the promissory notes issued to secure such loan. Since the

parties essentially intended to enter into one taxable transaction, a contract of

loan, the issuance of secu rity for the loan formed an integral part of the

contract, and is not subject to another DST because this tax is principally a

privilege tax, and not a tax on documents. r

22
Revenue Regulations No. 13-04.
DECISION
CTA EB Case No. 687 (CTA Case No. 7545)
Page 14 of 21

Only one DST can be imposed either on the loan agreement or the

other "debt instruments" issued to secure such loan. Bonds issued to secure

a loan, equivalent to the amount of loan being secured, being certificates of

indebtedness which are promissory notes, are not subject to a separate DST.

DST imposed on debt inst ruments under Section 179 of the 1997

NIRC, as amended, and mortgages under Section 195 of the same Code refer

to the one taxable t ra nsaction rule as attested by Section 8 of Revenue

Regulations ("RR") Nos. 9-94 and 13-2004 and BIR Rulings DA-091-03, DA-

317-07 and DA-201-2007.

The loan agreements, both with auxiliary security covenants, each

constitute one taxable tra nsaction, and each subject to only one DST.

Otherwise, the funda menta l principles of "just taxation" and due process are

violated.

The Court disag rees.

In executing the Omnibus Agreement, Tranches A and B Facility

Agreements all dated November 12, 2004, the parties have in effect

stipulated separate and independent treatment for each of these transactions

as bolstered by subhead ings (a) and (c), Section 2 of the Omnibus Agreement

dated November 12, 2004, reading : r

DECISION
CTA EB Case No. 687 (CTA Case No. 7545)
Page 15 of 21

2. AGREEMENT AND BINDING EFFECT

(a) All persons party to this Omnibus Agreement agree

to the provisions hereof and any person described as a party
to a Volume of this Omnibus Agreement hereby agrees to the
provisions of such Volume as if it had separately executed
and delivered such Volume;

XXX XXX XXX

(c) Each party to any Volume of this Omnibus

Agreement is entitled to enforce such Volume as a separate
agreement, as if the agreement set out in such Volume did
not comprise part of this Omnibus Agreement, and the
inclusion of such agreement as a Volume of this Omnibus
Agreement does not in any way derogate from or impair the
rights of such party under, or the effectiveness or
enforceability of the provisions of, such Volume. 23 (Emphasis
supplied .)

The Omnibus Agreement dated November 12, 2004 marked as Exhibit "A"

was formally offered and subsequently admitted by the Court as shown in the

Resolution dated June 3, 2008. 24 Under Section 34, Rule 132 of the Rules of

Court, "The Court shall consider no evidence wh ich has not been formally

offered ". The offer of evidence is necessary because it is the duty of the j udge to

rest his findings of facts and his judgment only and strictly upon the evidence

offered by the parties at the trial. Such offer may be made orally or in writing

sufficient to show that the party is ready and willing to submit the evidence to ~

23
Exhibit "A", p.2.
24
Docket, CTA Case No. 7545, p. 120.
DECISION
CfA EB Case No. 687 (CfA Case No. 7545)
Page 16 of 21

the court. 25 Thus, the Court gives credence to petitioner's admission in the

Omnibus Agreement dated November 12, 2004.

On the other hand, the Omnibus Loan and Security Agreement dated

November 26, 2004 entered between petitioner and Meralco Employees Savings

and Loan Association, Inc. ("MESALA") is also distinct and separate from the

Omnibus Agreement, Tranches A and B Facility Agreements all dated November

12, 2004. Aside from the fact that the loan agreements involve different parties,

the terms and conditions of each loan facility vary. The purpose of the Omnibus

Agreement dated November 12, 2004 is to refinance under the terms and

conditions set out in the finance documents, and, with respect to the DBP-

Tranche B Lenders (as such term is defined in the Tranche B Facility Agreement)

to revise and redocument the terms and conditions governing the DBP-JBIC

Syndicated Facility in accordance with and to conform to the terms and

conditions set out in the finance documents. 26 The objective of the MESALA

Agreement dated November 26, 2004 is for MESALA to provide a loan facility to

petitioner to refinance the existing unsecured loan; while petitioner agreed to

issue First Mortgage Bonds to MESALA as security for the prompt payment, when

due, of all liabilities and indebtedness of petitioner under the loan. 27 Moreover,

Tranches A and B Loan Facility Agreements cover the amounts of Jt:-

25
Ramos v. Spouses Dizon, G.R . No. 137247, August 07, 2006, 498 SCRA 17 citing Chua v. Court of
Appeals, G.R. No. 88383, February 19, 1992, 206 SCRA 339. See Elvira Mato Vda. de Onate v. Court of
Appeals, G.R. No. 116149, November 23, 1995, 250 SCRA 283.
26
Whereas Clause Exhibit "A"
27
Exhibit "C". '
DECISION
CTA EB Case No. 687 (CTA Case No. 7545)
Page 17 of 21

USD170,053,200.00 and PHP3,230,963,995.00 28 , respectively; while the MESALA

agreement dated November 26, 2004 pertains to petitioner's outstanding loans

of PHP93,397,290.50 and PHP320,000,000 29 • Clearly, the respondent correctly

imposed separate DST on the MESALA loan agreement.

DST is likewise imposed on each of the mortgage bonds securing

petitioner's loans under Section 195 of the 1997 NIRC, as amended. The law

requires DST payments on mortgage, pledge and trust transactions similar to

petitioner's mortgage bonds pursuant to Section 195 of the same Code, stating:

SECTION. 195. Stamp Tax on Mortgages, Pledges and Deeds of Trust.

- On every mortgage or pledge of lands, estate, or property, real or
personal, heritable or movable, whatsoever, where the same shall be
made as a security for the payment of any definite and certain sum of
money lent at the time or previously due and owing for forborne to be
paid, being payable, and on any conveyance of land, estate, or
property whatsoever, in trust to be sold, or otherwise converted into
money which shall be and intended only as security, either by express
stipulation or otherwise, there shall be collected a documentary stamp
tax xxx.

Petitioner also argues that in the same manner, the Supplemental

Indenture and the Mortgage Bonds issued pursuant thereto, cannot be taxed

separately. The Supplemental Indenture and Mortgage Bonds are indivisible

because these are integral parts of the two Loan Agreements, and each of

the Loan Agreements constitutes one taxable transaction covered by DST. ~

28
Exhibit "A", pp.31- 32.
29
Exhibit " C", p. 1.
DECISION
CTA EB Case No. 687 (CTA Case No. 7545)
Page 18 of 21

Independently of the mortgage bonds, the Supplemental Indenture could not

be taxed DST since the amount of the security appears not on the Mortgage

Indenture itself but on the face of the Mortgage Bonds issued pursuant

thereto. The Mortgage Bonds and the Supplemental Indenture were issued

by the petitioner only as security for the payment of the obligations as

expressly mentioned in the Loan Agreements. A mortgage bond can be

likened to a promissory note. It is immaterial, if it was covered by a

separate document. DST is a tax on the privilege of entering into a contract

of loan. It is not a tax on documents.

Both loan agreements contained a security agreement. Thus, the

execution and delivery of the Mortgage Bonds and the Supplemental

Indenture were not separate and independent transactions, but merely

formed integral parts of the two (2) Loan Agreements. Further, each Loan

Agreement, secured by the Mortgage Bonds and the Supplemental Indenture

constituted a single and entire taxable transaction subject to one DST. Thus,

petitioner is entitled to DST refund or tax credit in the total amount of

P92,565,408.61.

We are not persuaded.

Section 17.01 of the Original Indenture dated December 31, 1957

authorizes the petitioner and trustee "to enter into indentures supplemental

thereto for the purpose of setting forth the terms and provisions of any series jv
DECISION
CTA EB Case No. 687 (CTA Case No. 7545)
Page 19 of 21

of bonds to be issued thereunder (other than the bonds of Series A referred

to therein) and the form of bonds and coupons of such series, and conveying,

transferring and assigning to the trustee xxx". 30 The Supplemental Indenture

refers to First Mortgage Bonds with various dates due on years 2005, 2006,

2007, 2008, 2009, 2010 and 2011. Thus, the Supplemental Indenture is

merely an extension of the Original Indenture, and is subject to DST

independently from the Mortgage Bonds under Section 198 of the 1997,

NIRC, as amended:

SEC.198. Stamp Tax on Assignments and Renewals of Certain

Instruments. - Upon each and every assignment or transfer of any
mortgage, lease or policy of insurance, or the renewal or continuance
of any agreement, contract, charter, or any evidence of obligation or
indebtedness by altering or otherwise, there shall be levied, collected
and paid a documentary stamp tax, at the same rate as that imposed
on the original instrument.

The one taxable transaction rule does not apply to the Omnibus

Agreement, Tranches A and B Facility Agreements all dated November 12,

2004, Omnibus Loan and Security Agreement dated November 26, 2004 and

Supplemental Indenture because these pertain to different transactions, and

are separately subject to DST. 31 In the Resolution dated September 13,

2010, the Court in Division aptly observed that: ~

30
Exhibit "B", p.l.
31
See Philippine Bank of Communication v. Commissioner of Internal Revenue, CTA Case No. 6177,
June 30, 2008.
DECISION
CTA EB Case No. 687 (CTA Case No. 7545)
Page 20 of 21

xxx each of the documents subjected to DST conferred

different rights and obligations to the parties, and that the
parties such as Manila Electric Company, BPI Capital
Corporation, Citibank, N.A., Philippine Branch, Citigroup Global
Markets Asia Limited, Bank of the Philippine Islands, and
Meralco Employees Savings and Loan Association, Inc., were
not exactly the same and/or were not parties to other
contractsjdocuments. 32

Clearly, the Court in Division's findings explained why petitioner is not

entitled to the refund claim of P92,565,408.61 representing DST paid for

taxable year 2004.

WHEREFORE, premises considered, the Petition for Review is hereby

DISMISSED. The assailed Decision dated March 22, 2010 and the

Resolution dated September 13, 2010 are AFFIRMED.

SO ORDERED.

a~z c:~~ Q.
lUANITO C. CASTANED(<iJR.:
Associate Justice

WE CONCUR:

~~ \y - Vvvt__
ERNESTO D. ACOSTA
Presiding Justice

32
Rollo, pp. 40-41.
DECISION
CTA EB Case No. 687 (CTA Case No. 7545)
Page 21 of 21

..

L ISTA ER~.UY
As~o~stice
~Ll__[_~ ~
CAESAR A. CASANOVA OLGA (,;~ENRIQUEZ
Associate Justice Associate Justice

~ W. tvr~-C~
CIELITO N. MINDARO-GRULLA
Associate Justice

L.dt0:f-4~
AMEL~~:~~~ANGCO-MANALASTAS
Associate Justice

CERTIFICATION

Pursuant to Article VIII, Section 13 of the Constitution, it is hereby

certified that the conclusions in the above decision were reached in
consultation before the case was assigned to the writer of the opinion of the
Court.

L!O. Q~
ERNESTO D. ACOSTA
Presiding Justice