BIR Ruling [DA-147-02]

September 4, 2002 BIR RULING [DA-147-02] S. 24 (D) 144-96/12-24-96 Atty. Faustino B. Tobia #22 Nicanor Reyes St., Loyola Heights Subdivision, Quezon City S i r : This refers to your letter dated June 26, 2002 requesting for an exemption from payment of all taxes and fees for the expropriation of the property of your wife, Patrocinio B. Hernando-Tobia pursuant to a Deed of Absolute Sale dated May 7, 2002 executed by and between her and the Republic of the Philippines. The facts, as you represented, are as follows: Some fifteen years ago, the Government, finding the need presumably to extend the runway of the Laoag International Airport, deemed it necessary to occupy, use and expropriate a parcel of land with an area of Three Thousand Six Hundred Thirty Two square meters (3,632 sq.m.) located at Bencag, Laoag City, Ilocos Norte covered by Original Certificate of Title No. 10926 of the Register of Deeds of Ilocos Norte. The original owners of the said property were Florencio Hernando and Vicenta Beltran, now deceased. You now request for exemption from the payment of all taxes and fees in connection with the expropriation sale invoking Section 66 of Republic Act No. 6657 (the CARP law), which provides that: "SEC. 66. Exemptions from Taxes and Fees of Land Transfers Transactions under this Act involving a transfer of ownership, whether from natural or juridical persons, shall be exempt from taxes arising from capital gains. These transactions shall also be exempted from the payment of registration fees, and all other taxes and fees for the conveyance or transfer thereof; Provided, That all arrearages in real property taxes, without penalty or interest, shall be deductible from the compensation to which the owner may be entitled." Please be informed that after a careful study of the facts and the pertinent laws and jurisprudence, we regret to inform you that we cannot accede to your request for the exemption from payment of all taxes appurtenant to the expropriation sale for lack of legal basis. The cited provision in the CARP law specifically applies only and strictly to expropriation sale of land covered by the said law. In the case at bar, the subject property was expropriated by the Government, through the Department of Transportation and Communications. Absent a specific Law exempting the expropriation sale from taxes, the same shall be subject to the corresponding taxes. It has always been the rule that exemptions from taxation are construed in strictissimi juris against the taxpayer and liberally in favor of the taxing authority primary because taxes are the lifeblood of government and their prompt and certain availability is an imperious need. Thus, to be exempted from payment of taxes, it is the taxpayer's duty to justify the exemption by words too plain to be mistaken and too categorical to be misinterpreted. ( Province of Tarlac vs. Hon. Fernando S. Alcantara and Tarlac Enterprises, Inc. , G.R. No. 65230 December 23, 1992) In BIR Ruling No. 144-96 dated December 24, 1996, this Office categorically ruled that: "Section 21 (e) of the Tax Code as amended, is explicit in its provisions that 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 including estates and trusts, shall be taxed at the rate of 5% based on gross selling price or the fair market value prevailing at the time of sale, whichever is higher. Accordingly, 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) However, both capital gains tax and documentary, stamp tax shall be computed based on the actual consideration appearing in the Deed of Sale, pursuant to Revenue Memorandum Order No. 41-91. Finally, this Office has no power to grant exemption from taxation to any persons." Moreover, Section 24(D)(1) of the 1997 Tax Code provides that: "SEC. 24. Income Tax Rates. xxx xxx xxx (D) Capital Gains from Sale of Real Property . (1) In General. The provisions of Section 39(B) notwithstanding, a final tax of six percent (6%) based on the gross selling price or current fair market value as determined in accordance with Section 6(E) of this Code, whichever is higher, is hereby imposed upon 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 trusts: 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 24(A) or under this Subsection, at the option of the taxpayer." (Emphasis supplied.) Accordingly, the aforecited section accords the taxpayer the option to determine his tax liability either under the Section 24(D)(1) or under Section 24(A) both of the 1997 Tax Code. In other words, the taxpayer may either pay (a) a final tax of six percent (6%) based on the gross selling price or current fair market value as determined in accordance with Section 6(E) of this Code, whichever is higher; or (b) the graduated income tax rate provided under Section 24(A) on his taxable income. If the taxpayer chooses the option (b), the sale will be subject to the appropriate withholding tax under Revenue Regulations No. 2-98, as amended. EICScD The documentary stamp tax due shall be based on the actual consideration on the transaction in accordance with Section 196 of the 1997 Tax Code, which provides in part: "SEC. 196. Stamp Tax on Deeds of Sale and Conveyances of Real Property . On all conveyances, deeds, instruments, or writings, other than grants, patents or original certificates of adjudication issued by the Government, whereby any land, tenement or other realty sold shall be granted, assigned, transferred or otherwise conveyed to the purchaser, or purchasers, or to any other person or persons designated by such purchaser or purchasers, there shall be collected a documentary stamp tax, at the rates herein below prescribed, based on the consideration contracted to be paid for such realty or on its fair market value determined in accordance with Section 6(E) of this Code, whichever is higher: Provided, That when one of the contracting parties is the Government, the tax herein imposed shall be based on the actual consideration:" (Emphasis supplied.) Very truly yours, Commissioner of Internal Revenue By: (SGD.) EDMUNDO P. GUEVARA Deputy Commissioner Legal & Inspection Group