BIR Ruling [DA-361-04]

June 28, 2004 BIR RULING [DA-361-04] Act 3135; RA 8791; 117-99 Abella & Romero Second Floor, PCS Center No. 8586 Sgt. F. Yabut Circle Guadalupe, Makati City Attention: Atty. Eduardo J.F. Abella Gentlemen : This refers to your letter dated October 23, 2003 stating that Eastern Peninsula Capital Resources, Inc. (EPCRI) is a domestic corporation doing business as a lending investor; that on April 27, 1998, a Real Estate Mortgage was executed by Spouses Rolando A. Francisco and Irma Francisco (Spouses Francisco) in favor of EPCRI involving a parcel of land together with the improvements thereon containing an area of 216 square meters and covered by TCT No. 156648 issued by the Registry of Deeds for Makati City; that on October 10, 2001, Sheriff Melvin T. Bagabaldo sold in a public auction the aforesaid property in favor of EPCRI, as the highest bidder in the amount of P1,500,000.00; that the Certificate of Sale was recorded and registered with the Register of Deeds on November 7, 2002, Spouses Francisco pleaded for time for them to redeem the aforesaid property to which EPCRI agreed; that however, when it became apparent that Spouses Francisco could not redeem the said property, EPCRI asked the Sheriff to issue the final deed of sale on August 27, 2003; that on September 8, 2003, EPCRO paid the capital gains tax and corresponding documentary stamp tax in the respective amounts of P90,000.00 and P22,500.00; and that however, the Revenue District Office (RDO) in Muntinlupa City is imposing surcharges and interest contending that the said taxes should have been paid last November 7, 2002. In connection therewith, you now request clarification that Revenue Regulations No. 4-99 applies only to banks, finance and insurance companies but not to lending investors and the consequent waiver of the corresponding surcharges and interest imposed by the RDO-Muntinlupa City. In reply thereto, please be informed that in extra-judicial foreclosure of mortgage under Act No. 3135, as amended, the mortgagor has the right to redeem the property within one year from the 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 Manila, L-26752 dated March 19, 1971; Reyes vs. Tolentino et al., L-29142, November 29, 1971 ) While Revenue Regulations No. 4-99 contemplates extra-judicial foreclosure sale of capital assets initiated by banks, finance and insurance companies, the mortgagor (individual or corporate) is given a one (1) year period within which to redeem the property subject of foreclosure sale, which shall be reckoned from the issuance of the certificate of sale. If the mortgagor fails to redeem the property within the aforesaid period, the capital gains tax and the corresponding documentary stamp tax shall become due based on the bid price but only upon the expiration of the one-year period of redemption. The aforesaid taxes shall be paid within thirty (30) days for capital gains tax and ten (10) days [now 5 days] for documentary stamp tax from the expiration of the said one-year period of redemption. ( Secs. 3(2) and 4(2), Revenue Regulations No. 4-99 ) Moreover, the same procedure is likewise applicable in the case of sale, exchange or other disposition of real properties located in the Philippines, classified as capital assets, including pacto de retro sales and other forms of conditional sales by individual or corporate seller, where the capital gains tax shall be filed and paid within thirty (30) days to an Authorized Agent Bank (AAB) located within the Revenue District Office (RDO) having jurisdiction over the place where the property being transferred is located ( see Revenue Regulations No. 8-98 ) On the other hand, Section 47 of R.A. No. 8791, otherwise known as the General Banking Law of 2000 provides that "Sec. 47. Foreclosure of Real Estate Mortgage. In the event of foreclosure, whether judicially or extra-judicially of any mortgage on real estate which is security for any loan or other credit accommodation granted, the mortgagor or debtor whose real property has been sold for the full or partial payment of his obligation shall have the right within one year after the sale of the real estate, to redeem the property by paying the amount due under the mortgage deed, with interest thereon at the rate specified in the mortgage, and all the costs and expenses incurred by the bank or institution from the sale and custody of said property less the income derived therefrom. However, the purchaser at the auction sale concerned whether in a judicial or extra-judicial foreclosure shall have the right to enter upon and take possession of such property immediately after the date of the confirmation of the auction sale and administer the same in accordance with law. Any petition in court to enjoin or restrain the conduct of foreclosure proceedings instituted pursuant to this provision shall be given due course only upon the filing by the petitioner of a bond in an amount fixed by the court conditioned that he will pay all the damages which the bank may suffer by the enjoining or the restraint of the foreclosure proceeding. "Notwithstanding Act 3135, ,juridical persons whose property is being sold pursuant to an extra-judicial foreclosure, shall have the right to redeem the property in accordance with this provision until, but not after, the registration of the certificate of foreclosure sale with the applicable Register of Deeds which in no case shall be more than three (3) months after foreclosure, whichever is earlier. Owner of property that has been sold in a foreclosure sale prior to the effectivity of this Act shall retain their redemption rights until their expiration." It is clear from the above-cited laws that the counting of the one year period of redemption by the individual mortgagor in the case of extra-judicial foreclosure of mortgage shall be reckoned from the date of registration of the certificate of sale in the Registry of Deeds or from November 7, 2002. An exemption thus made in the case of juridical persons which are allowed to exercise the right of redemption only until but not after the registration of the Certificate of Foreclosure Sale and in no case more than three (3) months after foreclosure, whichever comes first. Thus, in BIR Ruling No. 117-99 dated November 17, 1999, this Office has consistently ruled that the one-year period of redemption of the mortgaged property has been fixed by law and the same cannot be extended by the mortgagee-bank, finance and insurance companies nor by the parties in the case of extra-judicial foreclosure of mortgage under Act No. 3135, as amended. Considering that the Certificate of Sale in the instant case has been recorded with the Register of Deeds on November 7, 2002, the one-year period of redemption should be reckoned on the latter date as prescribed in R.A. 8791, since the mortgagor or debtor in the instant case is an individual. Consequently, payment of the capital gains tax and documentary tax due on the said foreclosure sale should have been made thirty (30) days and ten (10) days [now 5 days] from the expiration of one-year period of redemption, i.e. , November 6, 2003. SUCH BEING THE CASE, the payment of the aforesaid taxes on September 8, 2003 is deemed made within the period prescribed by law. Accordingly, this Office rules that the imposition of the corresponding surcharge and penalties by the RDO-Muntinlupa City is devoid of legal basis. 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. cTCaEA Very truly yours, (SGD.) JOSE MARIO C. BUAG Deputy Commissioner Legal & Inspection Group