BIR Ruling [DA-197-01]

October 19, 2001 BIR RULING [DA-197-01] CA 466; BP 37; 148-84 National Power Corporation Cor. Quezon Avenue & Agham Road Diliman, Quezon City Attention: Marcelino R . Abesamis Project Director CBK-BROT Project Gentlemen : This refers to your letter dated June 18, 2001 requesting for exemption from the payment of all back taxes on the transfer of a parcel of land in favor of the National Power Corporation (NPC). Based on your representation and the documents you submitted, the following are the facts: On June 15, 1940, NPC, thru its then General Manager Marcial Kasilag and then Project Engineer Filemon Zablan bought from Mr. Juan Aaliwin and Mesdames Fausta, Lorenza and Maria, all surnamed Aaliwin, a 6,753 square-meter parcel of land situated in Lewin, Lumban, Laguna, specifically described as Lot No. 1877 of the Cadastral Survey of Lumban. The said lot was one of the properties affected by the construction of the Caliraya Hydro-Electric Power Plant by NPC in the late 1930's and was subject of an easement by the latter. Recently, NPC entered into a Built-Rehabilitate-Operate-Transfer (BROT) Agreement with IMPSA/CNK-PCI. The said Agreement requires NPC to present proof of ownership of Lot No. 1877. Towards complying with the said condition, NPC presented before the Registry of Deeds of Sta. Cruz, Laguna the "Escritura De Venta Absoluta" (Deed of Absolute Sale) that it executed with the Aaliwin siblings in 1940. However, the Register of Deeds of Sta. Cruz, Laguna advised that NPC to secure a certificate of exemption from the payment of capital gains tax as a condition precedent for the registration of the said property in its name. TADcCS In reply, 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) Such being the case, the gain derived by the sellers, Mr. Juan Aaliwin, and Mesdames Fausta, Lorenza and Maria, all surnamed Aaliwin, on the sale of the above-mentioned parcel of land in favor of NPC on June 15, 1940 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 Commonwealth Act (CA) No. 466, otherwise known as the "National Internal Revenue Code of 1939", the law applicable at the time the said transaction took place. For the failure to make a return and pay the tax in accordance with Section 45(c) of CA No. 466, 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 sixty-one (61) years since the time the return should have been filed and the tax thereon paid. Under Section 332 of CA No. 466, 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. In the instant case, the omission or failure to file a return and/or pay the tax was discovered only when NPC filed its request for exemption from the payment of the capital gains tax upon advised by the Registry of Deeds as a condition precedent for the registration of the aforementioned property in its name. 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 the Aaliwin siblings in favor of the NPC. The liability/burden to pay the income tax, although it principally rests on the sellers, may be paid by the NPC as the buyer of the property, interested in transferring the title of the property to its name, without prejudice to its recourse against the Aaliwin siblings. HSTaEC Moreover, the "Escritura De Venta Absoluta" or the Deeds of Absolute Sale executed by the Aaliwin siblings in favor of NPC is subject to the documentary stamp tax imposed under Section 233 of CA No. 466. Furthermore, considering that the parties thereto failed to affix the correct amount of documentary stamps, they shall be subject to a fine of not less than twenty pesos nor more than three hundred pesos pursuant to Section 239 of the same Code. CA No. 466, which is the applicable law at the time of transaction, does not authorize the imposition of any surcharge and interest for failure to file a return on the transaction. 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 the said transaction took place. Thereafter, the RDO shall issue the corresponding Certificate Authorizing Registration (CAR) 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.) EDMUNDO P. GUEVARRA Deputy Commissioner Legal and Inspection Group