BIR Ruling [DA-329-03]

September 30, 2003 BIR RULING [DA-329-03] RR 4-99; 177-99 Philtrust Bank Philippine Trust Company United Nations Ave., cor. San Marcelino St., Manila Attention: Ms. Perla Young-Duque Senior Vice-President Collections Department Gentlemen : This refers to your letter dated November 9, 2000 duly endorsed to this Office by then Regional Director Antonio I. Ortega of Revenue Region No. 7 on your query regarding the correct reckoning date of the one-year redemption period provided under Section 6 of Act No. 3135 in connection with Revenue Regulations No. 4-99. The facts of the transaction, as you represent, are as follows: On July 20, 1999, acting upon the petition for the extra judicial foreclosure of mortgage filed by Philtrust Bank (Philtrust for brevity), the Office of the Clerk and Ex Officio Sheriff of Antipolo, Rizal, sold at public auction the mortgaged property of Spouses Francisco and Maria Rosario Pascual (Sps. Pascual for brevity) covered by TCT No. 595800. In the said auction sale, Philtrust was adjudged as the highest bidder with a bid price of P589,452.37. On July 30, 1999, the Ex-Officio Sheriff issued a Certificate of Sale after payment of all judicial costs, which certificate was registered with the Office of the Register of Deeds on August 12, 1999. Sps. Pascual failed to redeem the foreclosed property; hence, ownership thereof was consolidated by Philtrust. On September 8, 2000 Philtrust paid the capital gains tax and documentary stamp tax with BIR Revenue District Office (RDO for brevity) No. 46, Cainta, Rizal. The latter, however, charged Philtrust with penalties on the ground of late payment. According to the said office, the one-year redemption period should be counted from the date of the instrument (Certificate of Sale), which is July 30, 1999. Hence, they contend that the redemption period expired on July 30, 2000 in accordance with Section 2 (last paragraph) and Section 3(2) of Revenue Regulations No. 4-99. The thirty day deadline to pay the taxes should have been reckoned from July 30, 2000, and not one year from August 12, 1999, the date of registration of the Sheriff's Certificate of Sale or August 12, 2000. The Legal Division of Revenue Region No. 7 opined that the imposition of the penalty on Philtrust for late payment of capital gains tax and documentary stamp tax is illegal. It posits that the redemption period should be reckoned from the date the certificate of sale of the property involved was registered citing the case of Gorospe vs. Santos, 69 SCRA 191, Rule 39, and Section 25 of the Revised Rules of Court . It further added that "a conflict exists between Act No. 3135 as amended by Act 4118 and Revenue Regulation 4-99" ( RR 4-99 for brevity). In reply, please be informed that this Office agrees with the position of the Legal Division of Revenue Region No. 7 that the period for the expiration of the redemption should be reckoned from the date of the registration of the certificate of sale. This Office, however, disagrees that a conflict exists between Act No. 3135 as amended by Act 4118 and RR 4-99. In BIR Ruling No. 177-99 dated November 17, 1999, this Office opined that: "(1) In extrajudicial foreclosure of mortgage under Act No. 3135, as amended, the mortgagor has the right to redeem the property within one year from date of sale. The date of sale has been construed to mean the date of registration of the certificate of sale in the registry of Deeds . ( Santos vs. Register of Deeds of Manila , L-26752, March 19, 1971; Reyes vs. Tolentino et al. , L-29142, November 29, 1971) In the case of foreclosure of mortgage by banks, finance and insurance companies whether judicial or extrajudicial, the mortgagor has the right of legal redemption of one year from registration of the certificate of sale . ( Quimson vs. PNB , L-24920, November 24, 1970) Thus, the counting of the period of redemption in the case of an extrajudicial foreclosure of mortgage under Section 6 of Act No. 3135, as amended, as well as judicial or extrajudicial foreclosure of mortgage by banks, finance and insurance companies shall be the date of the registration of the certificate of sale in the Registry of Deeds ." (Emphasis supplied.) The seeming conflict, this Office observed, does not exist between Act No. 3135 as amended by Act 4118 and RR 4-99, but rather on RR 4-99 itself. Section 3(2) of RR 4-99 specifically provides that: "(2) In case of non-redemption, the capital gains tax on the foreclosure sale imposed under Secs. 24(D) (1) and 27(D) (5) of the Tax Code of 1997 shall become due . . . only upon the expiration of the one-year period of redemption provided for under Sec. 6 of Act 3135, as amended by Act No. 4118 , and shall be paid within thirty (30) days from the expiration of the said one-year redemption period." (Emphasis supplied.) Clearly, RR 4-99 explicitly mentions the one-year redemption period provided by Act 3135, as amended, as the reckoning period. However, the noticeable conflict arises from the last paragraph of Section 2 and Section 3(1) thereof, which both state that the right of redemption should be exercised "within one year from the issuance of the certificate of sale" . In light of the Supreme Court's pronouncements in the cases cited in the above ruling, the above-stated conflict should be construed as a mere aberration in the said Regulation. Basic and axiomatic is the rule on statutory construction that conflicting provisions must be reconciled and harmonized in a manner that will give full force and effect to the said Regulation, and give the same its logical construction so as to effectuate the intention of its framers. In view thereof, this Office opines and reiterates the principle laid down in BIR Ruling No. 177-99 dated November 17, 1999; that the counting of the period of redemption in the case of an extrajudicial foreclosure of mortgage under Section 6 of Act No. 3135, as amended, as well as judicial or extrajudicial foreclosure of mortgage by banks, finance and insurance companies shall be the date of registration of the certificate of sale in the Registry of Deeds. Accordingly, the said tax shall be paid within thirty (30) days from the expiration of the said one-year redemption period. CIAHDT Since the certificate of sale was registered on August 12, 1999, the one-year redemption period expired on August 12, 2000 and you had until September 11, 2000 within which to pay the capital gains tax and documentary stamp tax. Since you paid the said taxes on September 8, 2000, this Office therefore agrees with the Legal Division of Revenue Region No. 7 and so holds that there was no delay in the payment of the said taxes. This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be ascertained that the facts are different, then this ruling shall be considered void. Very truly yours, Commissioner of Internal Revenue By: (SGD.) JOSE MARIO C. BUAG Deputy Commissioner Legal & Inspection Group