BIR Ruling [DA-010-01]

February 6, 2001 BIR RULING [DA-010-01] 5-R Agro-Industrial Corporation 334 G. Angeles Street, Paso de Blas Valenzuela, Metro Manila Attention: Mr . Porfirio L . Rodriguez President & General Manager Gentlemen : This refers to your letter dated March 20, 2000 relative to your letters dated February 23, 1999 and July 14, 1999 requesting for a ruling on the legal justification for the imposition of the surcharge, interest and compromise penalties as part of the total amount of P66,648.95 proposed to be imposed by Mesdames Nora Bornales and Irene Alfonso of the Assessment Group of Revenue District Office (RDO) No. 24, Valenzuela, due to the late payment of documentary stamp tax (DST) relative to the tax free exchange transaction entered into by you and your wife, Roberta Rodriguez, in favor of 5-R Agro Industrial Corporation. It appears and is alleged that on January 11, 1999, the tax-free character of your exchange transaction was approved by the BIR under BIR Ruling No. S-40-008-99; that the said transaction was embodied in a duly executed Deed of Assignment dated August 20, 1998; that under the said transaction, your eleven (11) parcels of land situated in Valenzuela, Metro Manila and more particularly described as follows: TCT No. Acquisition Cost Zonal Value T-65880 P4,968.00 P1,564,000.00 T-157784 6,250.00 1,062,500.00 T-10832 5,000.00 1,062,500.00 T-79853 3,875.00 1,062,500.00 T-221048 35,475.00 3,506,250.00 T-79852 3,875.00 1,062,500.00 T-67319 5,022.00 1,581,000.00 B-9712 6,000.00 1,011,500.00 T-124780 8,420.00 4,250,000.00 T-11623 7,500.00 1,275,000.00 V-24593 232,500.00 426,250.00 P318,885.00 P17,864,000.00 ========= =========== were transferred to 5-R Agro Industrial Corporation in exchange for the latter's shares of stock; that when you tried to obtain clearance from RDO No. 24, in compliance with the aforesaid ruling, the latter assessed you surcharge, penalties and interest for late payment of the corresponding documentary stamp tax as follows: a. Doc. Stamps on subscribed shares paid on 09 Feb' 99 P81,650.00 Surcharge P20,412.50 Interest 8,022.11 Compromise 12,000.00 P40,434.61 b. Doc. Stamps on zonal valuation paid on 18 Feb'99 P267,960.00 Surcharge P66,990.00 Interest 27,901.33 Compromise 16,000.00 P110,891.33 that on February 2, 1999 and February 28, 1999, you have paid respectively the corresponding documentary stamp taxes for the shares subscribed and the properties transferred relative to the aforesaid transaction in the amounts of P81,650.00 and P267,960.00 as evidenced by Official Receipts duly issued by the Prudential Bank, Ayala Branch and the Land Bank of the Philippines, Valenzuela Branch; that on June 17, 1999, you have paid the surcharge, interest and penalties in the amounts of P40,434.61 and P110,891.33 as evidenced by Official Receipts duly issued by the Land Bank of the Philippines, Valenzuela Branch; that after review by the Assessment Group led by Mesdames Nora Bornales and Irene Alfonso, you were informed that a deficiency still exists, on the basis of incorrect zonal valuation, as follows: a. Basic DST on zonal valuation @ P4,900.00 P307,743.00 Less: DST computed on zonal valuation as it appears on BIR Ruling and paid on Feb. 18, 1999 267,960.00 P39,783.00 b. Surcharge, 25% on difference 9,945.75 c. Interest computed up to July 15, 1999 8,419.09 d. Compromise 8,500.00 Additional Assessment P66,647.84 ========= and that you never intended to avoid paying the aforesaid DST or any tax liability as long as the same is legally due. In reply thereto, please be informed that Section 248(A)(1), in relation to Section 249, both of the Tax Code of 1997, provides that the imposition of the surcharge and interest on delinquency is mandatory. Reproduced below are the pertinent portions of said provisions, viz: Sec. 248. Civil Penalties "(A) There shall be imposed, in addition to the tax required to be paid, a penalty equivalent to twenty five percent (25%) of the amount due, in the following cases: "(1) Failure to file any return and pay the tax due thereon as required under the provisions of the said Code or rules and regulations on the date prescribed." "xxx xxx xxx" In relation thereto, Section 249 of the Code, supra , provides "Sec. 249. Interest . "(A) In general . There shall be assessed and collected on any unpaid amount of tax interest at the rate of twenty percent (20%) per annum, or such higher rate as may be prescribed by rules and regulations, from the date prescribed for payment until the amount is fully paid. "(B) Deficiency Interest . Any deficiency in the tax due, as the term is defined in the said Code, shall be subject to the interest prescribed in Subsection (A) hereof, which interest shall be assessed and collected from the date prescribed for its payment thereof. "xxx xxx xxx" It is clear from the above-cited Sections in the Tax Code, supra , that the imposition of the penalties and interest is to discourage delay in the payment of the taxes due to the State. Revenue Memorandum Order (RMO) No. 8-89 provides that the documentary stamp tax on the original issues of certificates of stock attaches upon acceptance of the stockholder's subscription in the capital stock of a corporation regardless of the physical issuance and delivery to the stockholders of the certificate of stock evidencing his stockholdings (Commissioner on Internal Revenue vs. Construction of Resources of Asia, Inc.) which shall be paid on or before the tenth day of the month following the date of registration with the Securities and Exchange Commission. On the other hand, Section 200 of the Tax Code (bid) provides that the tax return prescribed in the said Section shall be filed within ten (10) days after the close of the month when the taxable document was made, signed, issued, . . and the tax thereon shall be paid at the same time the aforesaid return is filed. Considering that the Deed of Assignment in the case at bar was executed on August 20, 1998 or after the effectivity of the said RMO, then it is crystal clear that you have incurred delay in the filing of the returns and the payment of the aforesaid taxes. Inasmuch as you have paid the said taxes together with the surcharge, interest and penalties in the aggregate amount of P500,935.94, this Office finds no justification for further imposing another surcharge and compromise penalty on the proposed deficiency assessment arising from the discrepancy in the zonal valuations used in determining the documentary stamp tax after review by the Assessment Group lead by Mesdames Nora Bornales and Irene Alfonso. On the issue of the surcharge, interest and penalties being part of the total amount of P66,648.95, it would be best to have first an understanding of how it was arrived at. The surcharge in the amount of P9,945.75 represents 25% of the basic deficiency document stamp tax of P39,783.00, which is the difference between the documentary stamp tax due per investigation of P307,743.00 less the documentary stamp tax paid per return of P267,960.00. This was attributable to the discrepancy in the zonal valuation used in determining the documentary stamp tax. An interest of 20% per annum was charged for alleged delay in the payment of the basic deficiency documentary stamp tax per investigation of P39,783.00 and the surcharge of P9,945.75. The interest due on the documentary stamp tax return is P8,419.09 computed up to July 15, 1999. It is to be noted that a deficiency tax which is not due to willful neglect or fraud, is known to the taxpayer only upon receipt of the assessment. Consequently, the time prescribed for its payment is the period provided therein, it is only when taxpayer fails to pay the deficiency tax assessment within the time prescribed in the assessment notice will the 25% surcharge be imposed. Inasmuch as you have not received the said notice then there is no justification for imposing the 25% surcharge on the deficiency assessment. The delay, if any, cannot be attributed to you. As a matter of fact, you exerted considerable efforts in securing the immediate settlement of your tax liabilities, notably, the payments you made on February 2, 1999, February 28, 1999 and June 17, 1999. With regards to the interest on the documentary stamp tax in the assessed amount of P8,419.09 as of July 15, 1999 including the interest up to the time of payment arising from the discrepancy in the zonal valuations used in determining the documentary stamp tax, your request for its waiver cannot be granted pursuant to Sec. 249 of the Tax Code. Strong reasons of the policy support a strict observance of the rule regarding the payment of tax. The laws imposing penalties for delinquencies are clearly intended to hasten tax payments or punish evasions or neglect of duty in respect thereof. If delays in tax payments are to be condoned for light reasons, the law imposing penalties for delinquencies would be rendered nugatory and maintenance of the government and its multifarious activities would be as precarious as taxpayers are willing or unwilling to pay their obligations to the state on time. (Jamora vs. Meer, 74 Phil. 22) Finally, as to be compromise penalty of P8,500.00, it is well-settled that the taxpayer cannot be compelled by the BIR Commissioner to enter into a compromise, compromise being mutual in nature. (Brinas vs. Collector, CTA Case No. 16, September 14, 1955) Therefore there is no basis for charging the compromise fee in the absence of any agreement pertaining thereto. Considering, however, that compromise is in lieu of criminal prosecution, non-payment of the compromise fee reserves the right of the government to institute criminal action against the violator. WHEREFORE, premises considered, this Office is of the opinion as it hereby holds that the imposition of the surcharge, and compromise penalties in the aggregate amount of P18,445.75 is without any legal justification and therefore the proposed assessment is hereby modified to the effect that taxpayer is liable only to the basic deficiency tax of P39,783.00 plus the interest arising from discrepancy in the zonal valuation computed up to the date when it is fully paid. Consequently, this will serve as the basis for the Revenue District Officer of RDO No. 24 to issue the Certificate Authorizing Registration (CAR) of the Deed of Assignment dated August 20, 1998 over the aforementioned properties upon payment of the above tax deficiency. This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be disclosed that the facts are different, then this ruling shall be considered null and void. Very truly yours, Commissioner of Internal Revenue By: (SGD.) LILIAN B. HEFTI Deputy Commissioner Officer-in-Charge