BIR Ruling [DA-301-06]

May 9, 2006 BIR RULING [DA-301-06] 6 (E); #041-2001 Crown Communities Cebu, (Inc.) Suite 103, Centro Maximo Building D. Jakosalem Street, Cebu City Attention: Ms. Jerylle Luz C. Quismundo President Gentlemen : This refers to your letter dated May 3, 2006 requesting for clarification on the proper valuation to be used as basis for the payment of capital gains and documentary stamp taxes relative to a sale of a parcel of land. Based on your representations, as well as from the documents submitted, the facts are as follows: 1. Crown Communities (Cebu), Inc. (formerly Communities Philippines, Inc.), is a domestic corporation engaged in real estate. On July 15, 2005, the company acquired a parcel of land ("subject property") situated in Brgy. Maghaway, Talisay, Cebu from Urbano C. Apostol and Rena O. Cabrera. The subject property is an agricultural land covered by Transfer Certificate of the (TCT) No. 83125, and duly classified as such in the Declaration of Real Property issued by the City Assessor's Office in Talisay, Cebu. The classification and zonal value of the said property have been determined and approved by the BIR, as shown in Department Order No. 44-02 dated September 16, 2002, relating to the "Implementation of the Revised Zonal Values of Real Properties in the City of Talisay under the jurisdiction of Revenue District Office No. 83 (Talisay City, Cebu), Revenue Region No. 13 (Cebu City) for Internal Revenue Tax Purposes", as Agricultural (A49 & A50) with the corresponding zonal values of P100.00 and P200.00 for classification A49 and A50, respectively. 2. As of today, the subject property has remained as is since the time it was acquired from the afore-mentioned vendor. Then sometime in April 2006, a representative of the company sought the assistance of the BIR Officer in Talisay (RDO #83) for the computation of the corresponding Capital Gains Tax ("CGT") and Documentary Stamp Tax ("DST") due on the above transaction. In turn, the BIR Officer computed the CGT and DST based on the current zonal value of residential lots in the area instead of the zonal value of agricultural land as evidenced by the documents presented. 3. So the company requested a reconsideration of said computation and that the re-assessment be based on the zonal value of agricultural land, but the BIR Officer insisted that inasmuch as the purpose of the corporation in acquiring the subject property is to develop the same into residential lots, the valuation to be used should be the zonal value for lots classified as "residential". However, you think otherwise since the CGT and DST to be paid are for the sale transaction between the individual sellers and the Corporation, as the purchaser. Moreover, you submit that the purpose of the purchaser is immaterial because under the NIRC, the seller is the one liable for the CGT and DST. In reply, please be informed that Section 6(E) of the Tax Code of 1997, as amended by Republic Act No. 9337, authorized the Commissioner of Internal Revenue to divide the Philippines into different zones or areas and determine for internal revenue tax purposes, the fair market value of the real properties located in each zone or area upon consultation with competent appraisers both from private and public sectors. In line with the said authority, the Bureau of Internal Revenue through the Department of Finance provides for the implementation of the authority by issuing the respective implementing rules and guidelines. In the instant case, the Department of Finance issued Department Order No. 44-02 dated September 16, 2002, relating to the "Implementation of the Revised Zonal Values of Real Properties in the City of Talisay under the jurisdiction of Revenue District Office No. 83 (Talisay City, Cebu), Revenue Region No. 13 (Cebu City) for Internal Revenue Tax Purposes". Anent the said Revised Zonal Values is the "Certain Guidelines in the Implementation of Zonal Valuation of Real Properties for RDO No. 83-Talisay, Cebu", where the rules are laid down in case no zonal value has already been prescribed, among others. ACTaDH It is the considered opinion of this Office that for purposes of computing the capital gains and documentary stamp taxes in the present case, the aforementioned guidelines do not apply. Such guidelines will only apply in cases where a real property is located in an area or zone where the properties therein are not yet classified and the respective zonal values are not yet determined or there is a conflict between the classification made by the Local Assessor's Office and the BIR. In the instant case, the Local Assessor's Office of Talisay, Cebu classified the subject property as agricultural while the BIR also classified the same as agricultural and has prescribed a zonal value for the same. In this case, however, the classification and valuation of the subject property had already been determined. Under Department Order No. 44-02, the properties located along Maghaway Proper, Barangay Maghaway, Talisay, Cebu had already been classified as residential and agricultural. The zonal valuation thereof had already been determined. Apparently, there is no room for interpretation but a mere implementation of the Schedule of Zonal Valuation for Real Properties located in Talisay, Cebu. With regard to the contention of the BIR Revenue Officer "that inasmuch as the purpose of the corporation in acquiring the subject property is to develop the same into residential lots, the valuation to be used should be the zonal value for lots classified as 'residential'", the same is erroneous since the purpose in acquiring the property is immaterial. In cases of sale, exchange or disposition of lands and/or buildings by an individual classified as capital assets, the burden of paying the 6% capital gains tax is on the seller/transferor, and not on the buyer, because the former is the one who realized the capital gains subject to tax, unless there is a stipulation to the contrary. (BIR Ruling No. DA-079-2002 dated April 29, 2002) Therefore, the Revenue District Officer of Revenue District Office No. 83 has no discretion to determine the classification or valuation of the properties located in the pertinent area. The computation of the capital gains and documentary stamp taxes on the subject property shall be based on the zonal value of agricultural real properties located at Barangay Maghaway, Talisay, Cebu. A contrary ruling would improperly penalize a taxpayer who had faithfully relied on the Schedule of Zonal Valuation for Real Properties issued by the BIR. (BIR Ruling No. 041-2001 dated September 18, 2001) 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 as null and void. Very truly yours, Commissioner of Internal Revenue By: (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service