Mr. Mario M. Borja

February 1, 2008 BIR RULING [DA-069-08] 34 (h), 1977 Tax Code; DA-197-01; 148-84 Mr. Mario M. Borja 120 Sampaguita Avenue Sampaguita Village, San Pedro Laguna S i r : This refers to your letter dated January 8, 2007 requesting a ruling on the taxability of a sale of real property that took place in the year 1978. The facts of the case are as follows: On April 12, 1978, Jose V. Perez executed an instrument known as "Kasulatan Ng Bilihang Patuloyan", wherein he conveyed to Spouses Ponciano Rogavilla and Jersefe Perez Rogavilla a parcel of land located in Sta. Lucia, San Bartolome, Quezon City, covered by Transfer Certificate of Title (TCT) No. 235116 of the Registry of deeds of Metro Manila District No. II and Tax Declaration No. E-414-01754, for and in consideration of the amount of P6,000.00. The aforementioned sale document was notarized on April 12, 1978 and the corresponding documentary stamp tax in the amount of P0.30 was affixed thereon. The aforesaid document of sale, however, was not presented by the spouses-vendee to the Registry of Deeds concerned up to the present time for registration. Neither was a clearance obtained from the BIR for purposes of said transfer. The TCT of the subject property which was recently reconstituted and the Tax Declaration covering the same continue to be in the name of the vendor, Jose V. Perez, who already passed away. ITScAE From the foregoing, you are in effect asking for an opinion whether the above sale transaction is subject to capital gains tax. In view of your above request, you submitted the following documents: 1) Photocopy of the original of the document of sale known as "Kasulatan Ng Bilihang Patuloyan" and the duplicate original copy thereof; 2) Photocopy of TCT No. 235116; 3) Photocopy of TD No. E-414-01754; 4) Certification from the National Archive to the effect that there is no available copy on its files of the document of sale executed by Jose V. Perez in favor of Spouses Rogavilla on April 12, 1978; and 5) Other pertinent documents. In reply thereto, please be informed that Batas Pambansa No. 37, as implemented by Revenue Regulations No. 8-79, which requires the imposition of a final schedular tax on capital gains realized by individuals from sales or other disposition of real property and the issuance of a certification that the said tax had been fully paid before registration with the Registry of Deeds, is applicable only on deeds of conveyance executed and acknowledged before a notary public on or after September 7, 1979. Deeds of Conveyance executed and acknowledged before a notary public prior to such date are not subject to the final schedular tax on capital gains, however, the gains realized therefrom are subject to the regular income tax imposed on individuals. (BIR Ruling No. 148-84 dated September 5, 1984) AICDSa Such being the case, the gain derived by the seller, Jose V. Perez, on the sale of the above-mentioned parcel of land in favor of Spouses Rogavilla on April 12, 1978 is not subject to the capital gains tax imposed under Section 34 (h) of the 1977 Tax Code, as amended by Batas Pambansa Blg. 37 and implemented by Revenue Regulations No. 8-79, but subject to the income tax imposed under Section 21 of National Internal Revenue Code of 1977, the law applicable at the time the said transaction took place. For failure to make a return and pay the tax in accordance with Section 45 (c) of the Tax Code of 1977, a penalty of Two Thousand Pesos (P2,000.00) is hereby imposed in accordance with Section 73 of the same Code. The right of the government to assess and collect the tax and the penalty due on the aforementioned sale transaction has not prescribed in spite of the fact that it has been about twenty-nine (29) years since the time the return should have been filed and the tax thereon paid. Under Section 319 (a) of the Tax Code of 1977, the period of limitation of assessment and collection of taxes does not set in, in the case of a failure to file a return. The tax due thereon may be assessed, or a proceeding in court for the collection of such tax may be begun without assessment, at any time within ten years after the discovery of the omission. ICDSca In the instant case, the omission or failure to file a return and/or pay the tax was discovered only when you filed this request for ruling upon advise by the Revenue District Office concerned as a condition precedent for the registration of the aforementioned property in the name of the spouses-vendee. Such being the case, the government still has all the right to assess and collect the taxes due on the sale of a parcel of land by Jose V. Perez in favor of the spouses. The liability/burden to pay the income tax, although it principally rests on the seller, may be paid by the spouses as the buyer of the property, interested in transferring the title of the property to their name. (DA-197-01 October 19, 2001) The income tax due on the subject sale transaction shall be based on the rate prevailing at the time of sale. Moreover, considering that the parties thereto failed to affix the correct amount of documentary stamps (the documentary stamp tax supposedly due on the transaction was P42.00), they shall be subject to a fine of not less than twenty pesos nor more than three hundred pesos pursuant to Section 251 of the Tax Code of 1977. On the basis of the foregoing, the Revenue District Officer (RDO) concerned is hereby directed to compute and collect the taxes and the imposable penalties due on the above-mentioned transaction on the basis of the laws applicable at the time said transaction took place. Thereafter, the RDO shall issue the corresponding Certificate Authorizing Registration (CAR). SCIcTD 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.) JAMES H. ROLDAN Assistant Commissioner Legal Service