BIR Ruling [DA-176-02]

September 25, 2002 BIR RULING [DA-176-02] RMC 34-91; 43-91; 047-98 dated April 14, 1998 Mr. Romeo P. Lawan No. 2196-I Leveriza Street Malate, Manila S i r : This refers to your letter dated June 7, 2000 requesting for exemption from the payment of capital gains tax relative to the Deed of Sale executed on January 18, 1966 by and between Hilario B. Lawan married to Dedicacion Peralta and Estrella P. Lawan so that title to the property can be registered in the name of the buyer, Estrella P. Lawan. It is represented that the late Hilario B. Lawan and Dedicacion Peralta were the absolute and registered owners of a parcel of land located at 2196-I Leveriza Street, Malate, Manila covered by TCT No. 79730 issued by the Registry of Deeds for Manila containing an area of 78.05 square meters; that on January 18, 1966, a Deed of Sale was executed by Hilario B. Lawan in favor of Estrella P. Lawan for and in consideration of P3,000.00; and that due to the demands of their work, they failed to register the same with the Register of Deeds for the issuance of another title in the latter's favor. In reply thereto, please be informed that Revenue Memorandum Circular No. 34-91 dated April 8, 1991 was issued primarily to stop further losses to the Bureau of Internal Revenue caused by antedating Deeds of Sale involving real properties in order to avoid the imposition of income tax or the creditable withholding tax or to reduce tax liabilities on these transactions. Henceforth, public instruments transferring real properties presented to the appropriate revenue officials beyond three (3) months from the date of notarization have been presumed as ante-dated and the tax liabilities of the parties have been determined in accordance with the rules and regulations obtaining at the time such documents were presented to the BIR. This Circular, however, was subsequently clarified by RMC No. 43-91 dated May 27, 1991 to prevent irritations between revenue officers and taxpayers due to conflicting interpretations and to achieve uniform application of the rules prescribed in RMC 43-91, the pertinent provisions of which read as follows: "In order to remove doubts as to what rules to apply and when to impose penalties for late filing of tax return and payments of tax, the following rules are hereby prescribed: "(a) When there is only a delay in the presentation of sales document, the rules on the kind of tax, rate of tax, zonal or fair market value, obtaining at the date of notarization shall be applied but the penalties for late filing of return and payment of tax shall be imposed. There is a delay in the presentation of sales document when the taxpayer submits said document to the BIR after thirty (30) days from date of notarization. The delay could be in terms of days, months or even years. For this purpose, taxpayers have the burden of proving by the submission of other documents, such as cancelled checks, official receipts, contract to sell, or certification of the archive official, to show that there is no ante-dating of public instrument. "(b) When the document is presented to the BIR after three months from date of notarization and the taxpayer cannot present additional receipts or documents to show that the same is not ante-dated, then the rules applicable at the time of the presentation of the document shall be applied but no penalty shall be imposed. It is expected that by applying the current rules, a higher tax will be collected from the taxpayer that when the old rules plus penalties had been followed." In the instant case, the submitted Deed of Sale executed on January 18, 1966 is a certified true copy of the original Deed of Sale, and the certification of the Assistant Clerk of Court Jennifer H. Dela Cruz-Buendia of the RTC of Manila, National Capital Judicial Region, dated June 5, 2000, attests to the genuineness of the signature of Notary Public Potenciano S. Ablen in the subject Deed of Sale vis-a-vis the signature of the latter's appointment and qualification as a Notary Public in and for the City of Manila. Furthermore, the delay in the presentation of the subject Deed of Sale to the BIR and to the Register of Deeds is not indicative of the taxpayer's desire to ante-date the transaction. Thus, the rules on the kind of tax, rate of tax, zonal or fair market value obtaining at the date of notarization on January 18, 1966 shall be applied in accordance with the provisions of RMC 34-91, as clarified by RMC 43-91. Moreover, the said transaction is subject to the regular income tax rates at the time of transaction and not to the 5% [now 6%] capital gains tax, which took effect only on September 7, 1979, subject to the corresponding penalties, interest and surcharges up to the time of payment. Thus, as of January 18, 1966, the date when the Deed of Sale was executed and notarized, the provision of the Tax Code on the 5% capital gains tax under Sec. 21(e) [now Section 24 (D) of RA No. 8424, otherwise known as the Tax Reform Act of 1997] was not yet in existence. Therefore, prior to the effectivity of BP Blg. 37, capital gains from the sale or transfer of real property classified as capital assets were then subject to the regular income tax rates. Accordingly, the subject sale of real property between the late Hilario B. Lawan and Dedicacion Peralta, as sellers, and Estrella P. Lawan, as buyer, is not subject to the 5% capital gains tax now imposed under Sec. 21(e) of the Tax Code, as amended [now under Sec. 24 (D) of RA No. 8424]. However, considering that the subject Deed of Sale does not show that it had already been subjected to the documentary stamp tax, the sellers or the buyer, in this case, should be made liable to the documentary stamp tax based on the consideration stipulated in the Deed of Sale at the rate prevailing on January 18, 1966 in accordance with Sec 233 (now Sec. 196) of the Tax Code in relation with the provisions of RMC 43-91, viz : "(a) When the consideration, or value received or contracted to be paid for such realty, after making proper allowance of any encumbrance, exceeds P200 and does not exceed P1,000, P.0.75; "(b) For each additional P1,000, or fractional part thereof in excess of P1,000 of such consideration or value, P3.00." The amount of documentary stamp tax due, however, shall be subject to penalties and other charges as provided for under Commonwealth Act No. 466, the law subsisting at the time of the transaction, and any amendments thereto. IN THE LIGHT OF THE FOREGOING, the subject parcel of land which is covered by the aforesaid Deed of Sale executed on January 18, 1966 may now be issued a Certificate Authorizing Registration (CAR) or Tax Clearance Certificate (TCC) without paying the 5% capital gains tax but the same shall be subject to the ordinary income tax and to the documentary stamp tax plus the corresponding penalties and other charges thereto from the date of execution of the contract until finally paid based on the law then prevailing. ( BIR Ruling No. 047-98 dated April 14, 1998 ) This ruling is being issued based on the foregoing representations. If upon investigation, however, it will be shown that the facts are different from the said representations, then this ruling shall be considered null and void. Very truly yours, Commissioner of Internal Revenue By: (SGD.) EDMUNDO P. GUEVARA Deputy Commissioner Legal & Inspection Group