[ G. R. No. 25369. September 29, 1926 ] 49 Phil. 413
[ G. R. No. 25369. September 29, 1926 ]
THE CHINA BANKING CORPORATION, PLAINTIFF AND APPELLEE, VS. THE COLLECTOR OF INTERNAL REVENUE, DEFENDANT AND APPELLANT. D E C I S I O N
JOHNSON, J.:
This appeal presents a question of first impression in this jurisdiction. The question is: Are the average daily amounts of balances of deposits of money resulting from the clearances between the banks in the Philippine Islands, subject to the payment by check or draft, or represented by certificates of deposit, or otherwise, subject to the tax of one-eighteenth of 1 per centum each month provided for in paragraph (b), section 1499 of Act No. 2711 (Administrative Code) ? The same question may be put in another way: Are such balances subject to payment by check or draft? The facts in the present case are not disputed and may be stated as follows: During the first semester of the year 1923 the amount of the averages of the daily balances due from the China Banking Corporation to other local banks, as the result of transactions between said banks, was P2,139,242.34. Upon that amount the Collector of Internal Revenue demanded the payment of the tax provided for in paragraph (b) of said section 1499, which amounted to P1,187.47, which the China Banking Corporation paid under protest. The present action was brought for the purpose of re- covering said tax. The question was submitted to the Honorable Pedro Concepcion, one of the judges of the Court of First Instance of the City of Manila, and by him decided that said tax had been illegally collected, and the amount was ordered to be repaid. From that judgment the defendant appealed, and now contends that the lower court committed an error in holding that the sum of the monthly averages of the daily bank balances in the possession of the plaintiff credited to the other local banks, as a result of the banking operations described in the first paragraph of the agreed statement of facts, does not constitute deposits within the meaning of paragraph (b) of section 1499 of the Administrative Code as amended by Act No. 3199. It may be noted at the outset that Act No. 3199 in no way affects the question presented. Said amendment refers to paragraph (d) of section 1499 only and has no reference whatever to said paragraph (b). By reference to said paragraph (b) we find that a tax of one-eighteenth of 1 per centum may be collected “upon the average amount of deposits (in the banks) of money, subject to payment by check or draft, or represented by certificates of deposit or otherwise.” It will be noted that said deposits of money, in order to be subject to the tax, must be “subject to payment by check or draft, or represented by certificates of deposit or otherwise.” There is no contention that the deposits in question were represented by certificates of deposit. We may deal, therefore, with the deposits of money subject to payment by check or draft. If the deposits of money are not subject to payment by check or draft, then said deposits are not subject to the tax imposed by said paragraph (b). The deposits in question represent the average daily balances of the plaintiff bank in its transactions with other banks. Said alleged deposits arose in the following manner according to the agreed statement of facts. A draws a check, for example, upon his bank, the International Banking Corporation, payable to B, for P1,000, dated September 1, 1926. B presents said check for collection to his bank, the China Banking Corporation, on the same date. B may either receive the P1,000 from his bank in cash, or have the same passed to his credit. If he receives the cash on his check, then the amount of the deposits of the China Banking Corporation for September 1 is reduced by P1,000, which reduction would diminish the daily or monthly average deposits of said banking corporation. If he decides to have the check passed to his credit, then in that case the amount of the deposits of the China Banking Corporation would neither be increased nor diminished, for the reason that it has not yet received the cash on said check from the International Banking Corporation. It is purely a paper transaction of September 1. It is admitted by the agreed statement of facts that it is the custom of the plaintiff as well as of the other banks, under transactions such as we have related, not to present A’s check to the bank upon which it is drawn until the following morning or, in our example, September 2, when the actual cash is paid by the International Banking Corporation upon said check to the China Banking’ Corporation. Until the P1,000 in our example is actually transferred from the International Banking Corporation to the China Banking Corporation, is the deposit of the latter increased and that of the International Banking Corporation decreased? During all of the day of September 1 in our example the P1,000 in question is still charged to the daily balances of the International Banking Corporation. The P1,000 is still a deposit in the International Banking Corporation. If the theory of the appellant is tenable, then the same P1,000 is chargeable to the average daily deposits of the appellee as well as to the International Banking Corporation. It must result therefore that the P1,000 in question is charged to both banks for September 1, which would result in a double taxation of the P1,000. That result was certainly not intended by the Legislature. If a further illustration were necessary to demonstrate that said paragraph (b) is not applicable to banking transactions like the one before us, we might give the following: A on the 1st day of September issued a check upon the International Banking Corporation, payable to B, for the sum of P2,139,242,34. B on the same day presents the check to the China Banking Corporation. The China Banking Corporation may (a) pay to B the amount of said check, which would reduce the deposits of the China Banking Corporation by that amount, or (b) it may pass the amount of said check to the credit of B, or (c) it may simply hold said check for collection, to be passed to the credit of B when collected. It will be noted that in the transaction of September 1 between B and the China Banking Corporation the actual deposits in the China Banking Corporation have not been increased or perhaps actually diminished by the amount of P2,139,242.34. By the agreed statement of facts, it is the custom of the banks for the holder of checks like the one in this example to present the same for payment to the bank upon which it was drawn, or in this example, to the International Banking Corporation, on the following morning, or September 2. On September 2, if the check is honored by the International Banking Corporation, the amount of it is paid to the China Banking Corporation, thereby reducing the amount of deposit of the International Banking Corporation on September 2, and increasing or balancing the deposits in the China Banking Corporation on the same day. Thus, it is clearly seen that by this transaction the deposits of the China Banking Corporation on September 1 were not increased by the amount of said check and possibly diminished by the amount of the check. It will also be seen that on September 1 the deposits of the International Banking Corporation were not diminished. The amount of said check was counted as a part of the average deposits of the International Banking Corporation for September 1 and upon which the International Banking Corporation would pay the tax provided for in said paragraph because said amount was subject to a draft or .check during that day. If the amount of the check was taxable as a deposit in the International Banking Corporation for September 1st it certainly could not be charged to the average deposits of the China Banking Corporation for the same day without a violation of the well settled rule of law that double taxation is not allowed. The amount of said check in this example was not subject to draft or check in the China Banking Corporation on September 1. The amount of said check was not there on deposit. It still remained in the vaults of the International Banking Corporation. From all of the foregoing it must follow from the facts and the law: (a) That said clearance balances are not subject to “draft or check;” (b) that they are not deposits at all in the credit bank until an actual transfer of the deposit is made from one bank to the other; and (c) that to allow the collection of the tax imposed by the Collector of Internal Revenue would be to permit a double collection of taxes, which is not permitted by the law. We are fully persuaded that it was not the intention of the Philippine Legislature to collect the percentage tax upon deposits in cases like the present. We find no reason nor justification for changing or modifying the decision of the lower court. The same is, therefore, hereby affirmed. So ordered. Avanceña, C. J., Villamor, Johns, Romualdez, and Villa- Real, JJ., concur.