BIR Ruling

February 24, 1997 Mr. Ramon O. Lizares 11 th Street Capitol Subdivision Bacolod City S i r : This refers to your letter dated August 24, 1992 requesting that Warrant of Distraint and/or Levy issued against you in connection with Assessment Notice No. FAN-1-88-90-00284 requiring you to pay the amount of P195,885.78 as deficiency capital gains tax for taxable year 1988 be quashed or cancelled. prll Records disclosed that you applied for tax exemption for the sales transactions made over real properties covered by TCT Nos. T-122586, T-122587, T-122585, T-122590, T-122592, T-122593, T-122587, T-122591 and T-122588 on the basis that they were sold in connection with your trade and/or business; that in view thereof a Certificate Authorizing Registration (Untaxed Capital Gains on Real Estate Transactions) over the sale of real properties covered by TCT Nos. T-112586 and T-122589 was issued; that the review of your capital gains tax return for 1988 ascertained that there was still due and collectible from you the amount of P130,590.52 representing deficiency capital gains tax, exclusive of interest shown as follows, to wit: Selling Price Per Investigation P 842,895.00 Less: Acquisition Cost P182,220.00 / 40% P455,550.00 Documentary Stamp Tax P8,430.00 P463,980.00 Gain Realized P378,915.00 Tax Due Thereon P87,060.35 Add: 50% Surcharge P43,530.17 TOTAL AMOUNT DUE P130,590.52 and since it was verified from the Revenue Computer Center that there was no record of your capital gains tax return, 20% interest per annum shall be added to the total amount due, hence, the computations shall be as follows: Net Capital Gains Per Investigation P 842,895.00 Less: Acquisition Cost P455,550.00 Doc. Stamp P8,430.00 P463,980.00 Net Capital Gains After Review P378,915.00 Tax Due Thereon P87,060.35 Add: Surcharge 50% P43,530.17 Interest from 5/13/88 to 11/27/96 P148,002.60 TOTAL AMOUNT DUE P278,593.12 that in your letter dated November 27, 1991 you alleged that there was no transfer of titles undertaken, but merely annotations, as they were all mortgaged to the Philippine National Bank; and finally, you requested to quash or cancel the Warrant of Distraint and/or Levy on the ground that the sale transaction was not consummated, as evidenced by the Deed of Rescission dated August 27, 1992. The legal issue that cropped up is whether or not the execution of the Deed of Rescission of the Deed of Absolute Sale of real properties covered by TCT Nos. T-112586 and T-122589 is valid. Reference thereto, a letter dated August 6, 1996 was sent by this Office requiring you to submit necessary documents to substantiate your claim. However, up to the present, you have not submitted the same. In reply, please be informed that after a careful review of your protest taking into consideration the applicable laws and jurisprudence, this Office cannot subscribe to your justifications and contentions. The records disclosed that the deficiency tax assessment notice was issued on October 22, 1990 prior to the execution of the Deed of Rescission of the Deed of Absolute Sale over the subject properties. Considering the period of time between the receipt of the assessment and the execution of the Deed of Rescission, there seemed an implication that the latter was executed as an evasion from payment of tax and your failure and refusal to submit to us the copies of the Transfer Certificates of Titles Nos. T-112586 and T-122589 affirmed our presumption that the Deed of Rescission is a simulated contract (Art. 1345 NCC). Further, the execution of the said Deed of Rescission is beyond the four (4) year prescriptive period allowed by law (Art 1389, NCC) having been executed on August 27, 1992 from April 13, 1988, the date of the sales transaction. Lastly, it must be remembered that in taxation, the burden of proof, lies on the taxpayer to present evidence to show the incorrectness of the assessment and failure to do so is fatal in view of the well accepted principle that the assessment by the Commissioner is presumed to be prima facie correct, unless controverted. (Collector of Internal Revenue vs. Bohol Land Transportation company, L-13099, April 29, 1960). Based on the aforequoted doctrine and on your failure and/or refusal to present evidences that may controvert our assessments, this Bureau finds no basis at all to disturb the finding that you are liable to the assessed deficiency capital gains tax for taxable year 1988 over the sales of real properties covered by TCT Nos. T-112586 and T-122589. In view thereof, your request to quash or cancel the Warrant of Distraint and/or Levy has to be as it is denied. Consequently, it is requested that you pay the amount of P278,593.12 including the increments thereto as deficiency capital gains tax, to the Revenue District Office nearest your residence within fifteen (15) days from receipt hereof in order that this case may be closed. This constitutes the final decision of this Office on the matter. Very truly yours, (SGD.) LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue