05. JOSE C. IBAZETA v.

CIR

CTA Case No. 4797; 8 August 1994

Topic: Initial Public Offering | Ponente: Judge Ernesto D. Acosta | Author: Villanueva

Doctrine: The scheduler rate of 10% and 20% based on the net capital gains realized from sales of shares of stocks
applied to those not traded through the local stock exchange. Whereas, the ¼ of 1% based on the gross selling price
of the shares of stock [Sec 21 (d) (2)] applied to those listed and traded through a local stock exchange. While it is
true that only those shares which are listed may be traded in the local stock exchange, it does not necessarily follow
that listed shares may only be traded in the local stock exchange. They may be sold outside the local stock exchange.
LISTING and ACTUAL TRADING must CONCUR in order Sec 21 (d) (2) to apply.

The said provision of law both mentions LISTED and TRADED joined by the injuncture word AND meaning concurrence.
IF the shares of stock are listed but sold outside the local stock exchange, Sec 21 (d) (2) should apply. What is
CONTROLLING is WON the shares ARE TRADED IN THE LOCAL STOCK EXCHANGE. This is the COMMON DENOMINATION
in both provisions of law.

 Emergency Recit: The petitioner sought for a refund from his stock transactions for year 1990. In his stock
transaction, the gains realized and subsequent loss to another transaction involved to a sale of stocks not
traded to the local stock exchange. However, the refund was denied by the BIR because what should be
applied is the sale made by the petitioner falls within Sec 21 (d) (1) and Sec 21 (d) (2) of the NIRC. This is
in support of Revenue regulation No. 2-82 which distinguished shares which are traded through the stock
exchange and shares which are not traded through the stock exchanges but listed in one or more stock
exchanges. What happened here is that the petitioner was entitled to a refund because of the DOCTRINE
above.

Facts:

 Petitioner is a Filipino citizen. Petitioner Ibazeta entered into a stock swap transaction through a Deed of
Assignment with Benguet Corporation. In the agreement, the Benguet Corporation transferred shares of
stock of Anscor Capital and Investment Corporation (ACIC) (now AB Capital and Investment Corporation) to
Benguet Corporation in exchange of newly issued Class A shares of stock. Meanwhile, in the deed of
assignment, the transfer price of Benguet shares which is less than 5% shares thereof will be computed
based on the average market value of the issued and traded shares of the capital stock of Benguet
Corporation. NOTE: The exchange of shares was done outside of the stock market.
 The Petitioner filed a capital gains tax return covering the stock swap transaction involving ACIC shares.
Since the ACIC shares were effectively exchanged for Benguet shares, the petitioner realized capital gains
on the stock swap transaction. In which case, the petitioner paid capital gains tax at the schedulear rate
of 10% and 20% under Sec 21 (d) (2) of the NIRC and was issued the corresponding Confirmation Receipt and
Order of Payment.
 A stock dividend declaration was made by Benguet. This resulted to increased of Benguet’s number of
shares. The end effect is that it reduces the COST per share of Petitioner’s shareholding in Benguet
Corportion. (TAGALOG: BUMABA IYONG PRESYO NG SHARE HOLDINGS NI IBAZETA like initially example to ah
3 pesos per share pero dahil tumaas ang numbers ng shares ng corp… naging 1 peso per share in short,
feel siguro ni Ibazeta, nalugi ako)
 A deed of absolute sale of shares was executed by the petitioner and sold its Benguet shares. Although the
Benguet shares are listed in the stock exchange, the same shares were sold OUTSIDE the stock exchange.
 In effect, the sale made by petitioner incurred a loss. Because of this, the petitioner, DID NOT DECLARED
PAY ANY CAPITAL GAINS TAX ON THIS TRANSACTION. INITIALLY, MAY GAIN SI PETITIONER BUT SUBSEQUENTLY
 MAY LOSS. This involved another transaction which involves the sale of Asian Bank shares to A Soriano Corp.
and resulted a loss.
 The petitioner filed a consolidated tax return covering his stock transactions outside the stock exchange
for year 1990. He reported a net capital loss which wiped out all the net capital gains derived from his stock
transactions for the same year.
 Petitioner sought to refund with BIR. However, the latter did not act upon the refund. After two year
prescriptive period, the petitioner filed a petition for review with SC. The petitioner contended that the
sale of listed shares outside of the stock exchange is governed by Sec 21 (d) (1) providing for the scheduler
rate of 10% and 20% based on the net capital gains realized therein and NOT Sec 21 (d) (2) of NIRC providing
for a final tax of ¼ of 1% based on the gross selling price of the shares sold. He argued that Sec 21 (d) (2)
of NIRC only applies to sale or disposition of shares of stock which are listed and traded in stock exchange
and not to shares listed but NOT traded through the stock exchange. Respondent, on the other hand,
contends that the sale made by the petitioner falls within Sec 21 (d) (1) and Sec 21 (d) (2) of the NIRC. This
is in support of Revenue regulation No. 2-82 which distinguished shares which are traded through the stock
exchange and shares which are not traded through the stock exchanges but listed in one or more stock
exchanges.

Issue/s: WON Sec 21 (d) (2) of NIRC is applicable in determining the capital gains tax due on the gain realized from
the sale of listed shares but NOT TRADED through the stock exchanges

Held: YES.

Ruling:

In this case, petitioner’s stock transactions were outside the local stock exchange. What should be imposed is the
chedular rate of 10% and 20% based on the net capital realized during the taxable year meaning, the excess of the
gains from sales or exchanges of capital assets over the losses from such sales or exchanges Sec 21 (d) (2) should be
imposed. Hence, since petitioner paid a capital gains tax for taxable year 1990 even he incurred net capital loss
from all his 1990 stock transactions, the petitioner is entitled to a REFUND.