FACTS
The Commission on Internal Revenue issued to Lincoln Philippine Life Insurance, Co., a deficiency documentary stamp taxes (DST) assessment amounting to P464,898.75 for the year 1984. This came about as a result of a special kind of life insurance policy issued by Lincoln known as the Junior Estate Builder Policy, which had a clause providing for an automatic increase in the amount of life insurance coverage which was to take effect in 1984.
The DST due on the policy were paid by Lincoln only on the initial sum assured. The CTA, upon Lincoln's appeal, cancelled the deficiency assessment. But the CIR argued that the automatic increase clause in the insurance policy in question is separate and distinct from the main agreement and involves another transaction; and that, while no new policy was issued, the original policy was essentially reissued when the additional obligation was assumed upon the effectivity of this automatic increase clause in 1984.
Therefore, a DST assessment based on the additional insurance not covered in the main policy was warranted.
RULING
The Supreme Court ruled in favor of the CIR.
The deficiency of DST imposed on Lincoln is definitely not on the amount of the original insurance coverage, but on the increase of the amount insured upon the effectivity of the Junior Estate Builder Policy.
Although the automatic increase in the amount of life insurance coverage was to take effect later on, the date of its effectivity, as well as the amount of the increase, was already definite at the time of the issuance of the policy. Thus, the amount insured by the policy at the time of its issuance necessarily included the additional sum covered by the automatic increase clause.
To claim that the increase in the amount insured should not be included in the computation of the documentary stamp taxes due on the policy would be a clear evasion of the law. While tax avoidance schemes and arrangements are not prohibited, tax laws cannot be circumvented in order to evade the payment of just taxes.
