BIR Ruling

April 22, 1998 MEMORANDUM FOR: The Commissioner This refers to the protested tax case of Mr. APOLINAR M. SUAREZ of East Capitol Hills, Cebu City, involving the amount of P54,513.59 as alleged accrued increments for late payment of Capital Gains Tax on sale of real property for the year 1990, covered by Assessment Notice No. FAN 1-90-91-001018 dated March 25, 1991. LLjur Records show that on May 9, 1990, a Deed of Absolute Sale of real property amounting to P3,250,000.00 was executed in Cebu City by and between Mr. Apolinar M. Suarez (vendor) and the Civil Service Commission (vendee) with stipulation that the seller shall not be paid until and unless the title of the property is transferred to the government. The Deed of Absolute Sale was brought to the Civil Service Commission, Main Office in Manila for final approval by the Chairman. On July 5, 1990, Mr. Suarez received a check amounting to P3,250,000.00 as payment for the said property, and on July 16, 1990, Mr. Suarez paid the corresponding taxes due on the said sale and subsequently Transfer Certificate of Title Nos. 113688 and 113826 were issued by the Land Registration Authority in the name of the Civil Service Commission. On July 20, 1990, an investigation was conducted by Revenue Officer Lilia J. Quitchon who recommended that surcharge and interest amounting to P54,513.59 be imposed as there was late payment of the capital gains tax (p. 17 docket), hence, an assessment notice was issued against the taxpayer on March 25, 1991. On April 17, 1991, a protest letter was filed by herein-taxpayer alleging, among others, that he was not late in the payment of the capital gains tax. He argued that the right of the government to assess and collect taxes arises only after the consummation of the contract of sale and not from the time the deed of absolute sale was prepared and signed by the other party, since the same is still subject to final approval by higher authorities, thus, payment and transfer of ownership is yet to be made. Under Section 21(e) of the National Internal Revenue Code, capital gains presumed to have been realized from sale, exchange, or other disposition of real property located in the Philippines classified as capital assets, including pacto de retro sales and other forms of conditional sales by individuals, including estates and trusts, shall be taxed at the rate of 5% based on the gross selling price or the fair market value prevailing at the time of sale whichever is higher; Provided, that the tax liability, if any, on gains from sales or other dispositions of real property to the government or any of its political subdivisions or agencies or to government-owned or controlled corporations shall be determined either under Section 21(a) or under this sub-section, at the option of the taxpayer. In BIR Ruling No. 82-87 dated March 19, 1987 it is expressly stated that any individual who sells his/her real property in favor of the government or any of its political subdivisions or instrumentalities or to government-owned or controlled corporations and the contract of sale stipulates that the vendor shall not be paid until title to the property is transferred to the government or its instrumentalities, may pay the capital gains tax due on said sale within thirty (30) days from the date of issuance of the title to the government. The taxpayer in the present case, sold his land to the Civil Service Commission (CSC) which is an instrumentality of the government and the document evidencing the sale which was executed on March 9, 1990 stipulates that the vendor shall not be paid until and unless title to the property sold is transferred to CSC. On July 5, 1990, the taxpayer received the sum of P3,250,000.00 as payment of his property. On July 16, 1990 or eleven (11) days after receipt of the consideration, said taxpayer paid the capital gains tax due on the sale. Thereafter, Transfer Certificate of Title Nos. 113688 and 113826 were issued in favor of CSC. Based on the above-referred dates, it is clear that the capital gains tax due was paid on time, hence, there is no factual or legal basis to justify the imposition of surcharges, interests and penalties. In view of all the foregoing, it is recommended that the assessment against Mr. Apolinar M. Suarez involving the amount of P54,513.59 as accrued increments for late payment of the capital gains tax for the year 1990 be withdrawn and cancelled and this case considered closed and terminated. LLphil Respectfully submitted: (SGD.) RODULFO L. SALAZAR Chief, Appellate Division I CONCUR: (SGD.) ESTHER R. IBAEZ OIC, Head Revenue Executive Assistant (Legal Service) Recommendation-APPROVED: (SGD.) LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue