CIR vs.

First Express Pawnshop

G.R. No. 172045-046 ; June 16, 2009

Facts: On December of 2001, Petitioner (CIR) issued a notice of assessment against respondent
First Express Pawnshop Company, Inc. (First Express). Said assessment was deficiency income
tax, VAT and Documentary Stamp Taxes for deposit subscriptions and pawn tickets.
First Express filed a written protest on said assessments and raised the defense that the
transactions and documents submitted by respondents are not covered under Sec. 180 of the
NIRC, therefore not liable for Documentary Stamp Tax and that issuance of pawn tickets did not
constitute a pledge covered under Sec. 195 of the NIRC. Petitioner, on the other hand, cited BIR
Ruling No. 221-91 which provides that pawn tickets are subject to DST. Respondent
subsequently paid the deficient income taxes. CTA first division ruled in favor of respondent
cancelling the assessments pertaining to DST on both pawn tickets and on deposit subscriptions.
CTA En Banc however overturned and asked respondent to pay DST on pawn tickets but
affirmed that it was not liable for DST on deposit subscriptions. CTA affirmed the ruling by
stating that that deposit on subscription is not subject to DST in the absence of proof that an
equivalent amount of shares was subscribed or issued in consideration for the deposit citing First
Southern Philippines Enterprise, Inc. vs. CIR. The guidelines provide that one is not liable for
DST if: 1. There is no agreement to subscribe; 2. There are no shares issued or any additional
subscription; and 3. No proof that issued shares can be considered as issued Certificates of Stock.
CTA held in this case that there was no subscription or any contract for the acquisition of
unissued stock for 800,000 for the taxable year assessed. The GIS only provided only a capital
structure of 500,000 subscribed Capital Stock and 250,000 paid-up Capital and did not include
said amount of 800,000.
Issue: WON Respondent is liable for Documentary Stamp Tax on deposit on subscriptions.
Held: No. Supreme Court said that the deposit on stock subscription as reflected in the balance
sheet of the respondent as of 1998 is NOT A SUBSCRIPTION AGREEMENT subject to DST.
Said deposit on stock subscription is merely an amount of money received by a corporation with
a view of applying the same as payment for additional issuance of shares in the future, an event
which may or may not happen. Stated clearly, the person making the deposit does not have a
standing of a stockholder and has no voting rights or other attributes of that of a stockholder.
Citing CIR vs. Construction Reso of Asia, SC held in that case that as regards those certificates of
stocks temporarily subject to suspensive conditions they shall be liable for said tax only when
released from said conditions, for then and only then shall they truly acquire any practical value
for their owners. A stock subscription is a contract by which the subscriber agrees to take a
certain number of shares of the capital stock of a corporation, paying for the same or expressly or
impliedly promising to pay for the same.