QUITAYEN, Ianna Carmel Y.

DATE: September 9, 2021

SUBJECT: TAXATION – I
PROFESSOR: ATTY. JOSEPH E. TOMANENG

Commissioner of Internal Revenue v. La Tondeña Distillers, Inc.

G.R. No. 175188 July 15, 2015

Facts:

La Tondeña Distillers, Inc, herein respondent, entered into a plan of

merger with the following companies: (1) Sugarland Beverage Corporation, (2)
SMC Juice, Inc., and (3) Metro Water Bottled Corporation. On October 26, 2001,
respondent requested for confirmation from the Bureau of Internal Revenue of
the tax-free nature of the merger. BIR ruled that pursuant to Section 40 (c)(2)
and (6)(b) of the NIRC, no gain or loss shall be recognized by the absorbed
corporation. However, transfer of real properties shall be subject to Documentary
Stamp Tax (DST) imposed under Section 196 of the NIRC. Respondent paid
approximately 14 Million of DST. On October 2003, respondent claimed that it
should be exempt from paying DST. The CTA entitled respondent to its claim for
tax refund or tax credit on the ground that Section 196 of the NIRC is
inapplicable to the case since there is no purchaser or buyer in the case of a
merger. The assets of the absorbed corporations were not bought or purchased
but merely transferred to and vested in respondent as legal consequence of the
merger, without any further act or deed. After elevating the matter to CTA En
Banc, the same found no reversible error on the decision of the CTA. Hence, this
petition for Review on Certiorari.

Issue: Whether or not respondent is exempt from payment of DST.

Ruling:

Yes, respondent is exempt from payment of DST.

As previously explained by the Supreme Court in other cases, section 196

of the NIRC does not include the transfer of real property from one corporation
to another pursuant to a merger. Section 196 refers to sale transactions where
real property is conveyed to a purchaser for a consideration. In a merger, such
as in the instant case, real properties are not deemed “sold” to the surviving
corporation and latter could not be considered as “purchaser” of realty since real
properties were merely absorbed by the surviving corporation by operation of
law. Therefore, transfer of real properties to the surviving corporation, La
Tondeña Distillers, pursuant to a merger is not subject to documentary stamp
tax.

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