BIR Ruling [DA-056-96]

February 2, 1996 BIR RULING [DA-056-96] Mr. Maximo D. Serdoncillo 2450 Buendia Street, Balut, Tondo Manila S i r : This refers to your undated letter stating that you are the owner of a parcel of land together with the improvements thereon located in Balut, Tondo, Manila containing an area of 292.6 square meters at P5,500.00 per square and covered by Transfer Certificate of Title No. 104437; that said property consists of a two (2) storey residential building with a floor area of 263.60 square meters, a garage with steel gates measuring 110.40 square meters and concrete walkway measuring 39.00 square meters; that sometime in 1993, the National Government embarked on the construction of pumping station in Balut, Tondo; that as a result, your property was expropriated by the government, which is now the subject of expropriation proceedings under Civil Case No. 93-65410; Branch IV, Regional Trial Court of Manila; that the government is now paying you the amount of P1,068,000.00 as just compensation for the property; that said amount is not sufficient to cover the replacement or reproduction cost which will amount to more than Three Million Pesos (P3,000,000.00); that said dislocation will deprive you of your regular income which you are deriving from the small grocery store; and that this will result to the disruption of the schooling of your children who are studying on the nearby school. cdtech Based on the foregoing representations, you are now appealing for exemption from the payment of capital gains tax on the amount to be paid by the government for the property taken as just compensation. In reply, please be informed that your request is hereby denied for lack of legal basis. Section 21(e) of the Tax Code, as amended provides, viz: "SEC. 21(e) Capital gains from sales of real property . The provisions of Section 33(b) notwithstanding, capital gains presumed to have been realized from the 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 trust, 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. Accordingly, execution sale like expropriation sale is subject to the 5% capital gains tax regardless of whether any gain or profit was derived therefrom since the aforecited law is comprehensive enough to cover not only voluntary sale but also involuntary sale as in the instant case. (BIR Ruling No. 091-89 dated May 2, 1989) Moreover, you are liable for the payment of the corresponding documentary stamp tax. However, if the National Government has agreed to shoulder the payment of the documentary stamp tax, then it will be the one directly liable therefor. This is because the government or any of its instrumentalities, is no longer exempt from the payment of taxes including the documentary stamp taxes. Payment of the documentary stamp tax is effected by the purchase, affixture and subsequent cancellation of the documentary stamps (or notation of payment of documentary stamp tax with denomination of P10.00 or more) on the document at the time such ACT IS DONE OR TRANSACTION HAD, meaning on the date of the execution or signing of the document by the parties thereto. (BIR Ruling No. 273-91 dated December 26, 1991) 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, ALICIA P. CLEMENO Assistant Commissioner (Legal Service) By: ALICIA L. TOMACRUZ Head Revenue Executive Assistant (Legal Service)