BIR Ruling [DA-074-04]

February 19, 2004 BIR RULING [DA-074-04] Padilla Law Office 7/F Padilla-De Los Reyes Building 232 Juan Luna Street, Binondo Manila Attention: Atty. Sabino Padilla, Jr . Gentlemen : This refers to your letter dated November 24, 2003 stating that your client, the Roman Catholic Archbishop of Caceres (Archdiocese), is a religious corporation sole with address at the Archbishop's Residence, E. Angeles Street, Naga City; that in 1991, the Archdiocese entered into a Contract to Sell and to Buy with Benjamin Molata, married to Hospicia Sta. Ana (Mr. Molata), under which the Archdiocese agreed to sell, and Mr. Molata agreed to buy the vacant parcel of land owned by the Archdiocese known as Lot 37-C, Psd-05-008892 situated in the District of Bagumbayan, Naga City, with an area of 433 square meters; that the agreed purchase price was P104,200.00, of which P81,000.00 was paid upon the execution of the contract; that the balance was payable upon opening of the road leading to the property; that upon payment of the balance, the Archdiocese would execute a deed of absolute sale in favor of the buyer; that when the balance of the purchase price became due, a certain Dr. Manuel Maralit filed on March 12, 1991, a Complaint in the Regional Trial Court of Naga City against the Archdiocese and Mr. Molata docketed as Civil Case No. 91-2278 alleging that the Archdiocese previous to the execution of the contract with Mr. Molata had agreed to sell to him the lot in question and had accepted from him a P12,000.00 down payment; that the Archdiocese denied the claim of Mr. Molata and asked for damages; that because of the pendency of his suit, the Archdiocese and Mr. Molata could not consummate the sale of the aforesaid property; that after the protracted trial, the Regional Trial Court of Naga City in a decision dated July 2, 1993 dismissed the complaint of Dr. Maralit for lack of merit and instead sentenced him to pay the Archdiocese damages in the amount of P25,000.00 for attorney's fees and P2,500.00 per appearance of the lawyer Archdiocese; that Dr. Maralit appealed to the Court of Appeals docketed as CA-G.R. No. 42884-CV; that the Court of Appeals on July 29, 1999 dismissed his appeal for lack of merit and affirmed the decision of the Regional Trial Court; that when the decision became final and executory on August 27, 1999, the records were remanded to the Regional Trial Court for execution; that in March 2003, Mr. Molata tendered to the Archdiocese the balance of the purchase price and asked that the Archdiocese execute the Deed of Absolute Sale since there was no more obstacle to its execution; that the Archdiocese executed a Deed of Absolute Sale for the consideration of P104,200.00 as agreed upon in the 1991 Contract to Sell and to Buy, but when the Deed of Absolute Sale was presented to the Revenue District Office (RDO) No. 65, Naga City, the capital gains tax and documentary stamp tax due on the transaction was computed based on the current zonal value or fair market value, whichever is higher; that between 1991 to 2003, the fair market value of the property as determined by the City Assessor of Naga City had increased from P36,372.00 to P519,000.00; that the Archdiocese maintained that the capital gains tax and documentary stamp tax should be based on whichever is higher between the consideration in the deed of sale, the zonal value in 1991 and the fair market value of the property in 1991, when the Archdiocese became legally obligated to sell the property to Mr. Molata for a fixed and final consideration; and that the RDO suggested that the matter be brought to the National Office for a definitive ruling. Based on the foregoing representations, you now request for an opinion that in a Contract to Buy and Sell, the capital gains and the corresponding documentary stamp tax are based on the highest of (1) the agreed consideration, (2) the zonal value; and (3) the fair market value as determined by the City Assessor of Naga, as of the time the Deed of Absolute Sale is executed. In reply thereto, please be informed that Article 1475 of the Civil Code of the Philippines "Art. 1475. The contract of sale is perfected at the moment there is a meeting of the minds upon the thing which is the object of the contract and upon the price. "From the moment, the parties may reciprocally demand performance, subject to the provisions of the law governing the form of contract." The above-cited article provides that a contract of purchase and sale is perfected from the moment the parties have agreed upon a determinate thing i.e. the object of the contract and a price certain therefore, even if neither is delivered. Thus, the delivery of the thing sold is not necessary for the perfection of the contract. In the case at bar, there is indeed a perfected sale as the seller of the aforesaid property has agreed to sell and had actually sold the above-mentioned lot to Mr. Molata while the latter had agreed to pay the contract price therefore, although delivery had not been effected until no less than the Court of Appeals had resolved the case in favor of Mr. Molata, but from the time on, the vendee/buyer is given the right to compel the vendor/seller Archdiocese to deliver the lot sold where it not for the inhibition filed by Dr. Maralit on March 12, 1991. Thus in BIR Ruling No. DA508-03 dated December 16, 2003, this Office ruled that ". . . it should be emphasized that it is a well-settled rule that the law or BIR issuance at the time of the transaction should be applied. The execution of the Deed of Absolute Sale in the year 2003, pursuant to the Order of the HLURB on a transaction took place and was actually consummated in 1985 is merely a confirmation of title. . . ." IN VIEW OF THE FOREGOING, this Office holds that the capital gains tax and the corresponding documentary stamp tax should be based on the fair market value prevailing or the consideration agreed upon at the time of the execution of the Contract to Buy and Sell between the Archdiocese and Mr. Molata. 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, (SGD.) JOSE MARIO C. BUAG Deputy Commissioner Legal Inspection Group