BIR Ruling [DA-423-04]

August 4, 2004 BIR RULING [DA-423-04] Commercial Center, Inc . Suite 201, CCI Building 1091 N. Lopez Street, Ermita Manila Attention: Ms . Luz Victoria S . Dulatas Corporate Director Gentlemen : This refers to your letter dated May 23, 2003 which was referred to this Office by Revenue District Office No. 27, Caloocan City, by way of its 1st Indorsement dated May 29, 2003, requesting for a ruling on the legal justification for the imposition of surcharge and corresponding penalties for an alleged late payment of capital gains tax and the documentary stamp tax relative to an extra-judicial sale between you and Spouses Damian A. Nacario, Jr. & Lourdes S. Nacario (Spouses Nacario), with the former as the highest bidder. It appears that Spouses Nacario are the absolute and registered owners of real parcels of land located in Caloocan City covered by TCT Nos. 95476 and 265150 both issued by the Registry of Deeds for Caloocan City; that said properties have been acquired in an extra-judicial foreclosure proceedings to which you were the highest bidder, and subsequently a Certificate of Sale was issued in your favor; that on September 25, 2001, the said Certificate of Sale was annotated at the back of the titles under Entry Nos. 7205 & 7202, respectively; that on September 25, 2002 or after the expiration of the one (1) year redemption period, you have paid the capital gains tax and the corresponding documentary stamp tax for the consolidation of the titles in your name; that you were surprised when the Revenue District Office No. 27, Caloocan City, threatened to impose penalties for late payment of the aforesaid taxes, which should have been due and paid already on or before October 5, 2001 for documentary stamp tax and October 25, 2001 for the capital gains tax, or within thirty (30) days of the annotation of the Certificate of Sale, since you do not fall under the category of banks, finance and insurance companies under Revenue Regulations No. 4-99. However, it is your contention that in BIR Ruling No. 044-2001, where this Office ruled that "Considering that the transfer of ownership is not perfected until the execution and delivery of the sheriff's final deed of sale after the expiry of the one year redemption period, and considering further that registration of the certificate of sale is a mere ministerial act by which an instrument is sought to be inscribed in the records of the Office of the Registry of Deeds and annotated at the back of the certificate of title covering the land subject of the instrument, it is therefore, safe to conclude that mere sale of the property at an execution sale under Rule 39 of the Rules of Court and the corresponding registration of the certificate of sale in the Office of the Registry of Deeds is not subject to the capital gains tax and documentary stamp tax as respectively prescribed in Sections 24(D)(1) and 196 both of the Tax Code of 1997. "SUCH BEING THE CASE, this will therefore serve as an authority for the Registrar of Deeds to register the aforementioned sheriff's certificate of sale and to annotate at the back of the certificate of title covering the land subject of the execution sale, without the payment of the capital gains tax and the corresponding documentary stamp tax." should likewise be applied to your case, and therefore you should not be made to pay said taxes upon foreclosure, but only upon the expiration of the one (1) year redemption period when no redemption has been exercised or upon consolidation of ownership thereof, when the sale has become final. In reply thereto, please be informed that Section 248(A)(1) of the Tax Code of 1997 provides that the imposition of the surcharge on delinquency is mandatory. Reproduced below are the pertinent portions of said provisions, viz : "Sec. 248. Civil Penalties . "(A) There shall be imposed, in addition to the tax required to be paid, a penalty equivalent to twenty five percent (25%) of the amount due, in the following cases: "(1) Failure to file any return and pay the tax due thereon as required under the provisions of the said Code or rules and regulations on the date prescribed." It is clear from the above-cited Section in the Tax Code of 1997 that the imposition of the penalties is to discourage delay in the payment of the taxes due to the State. Sections 3 and 4 of Revenue Regulations No. 4-99, otherwise known as the Extra-Judicial Foreclosure Sale of Capital Assets Initiated by Banks, Finance. and Insurance Companies, provides that "Sec. 3. Capital Gains Tax . "(1) In case the mortgagor exercises his right of redemption within one year from the issuance of the certificate of sale, no capital gains tax shall be imposed because no capital gains has been derived by the mortgagor and no sale or transfer of real property was realized. A certification to that effect or the deed of redemption shall be filed with the Revenue District Office having jurisdiction over the place where the property is located which certification or deed shall likewise be filed with the Register of Deeds and a brief memorandum thereof shall be made by the Register of Deeds on the Certificate of Title of the mortgagor. "(2) In case of non-redemption, the capital gains tax on the foreclosure sale imposed under Sections 24(D)(1) and 27(D)(5) of the Tax Code of 1997 shall become due based on the bid price of the highest bidder but only upon the expiration of the one-year period of redemption provided for under Section 6 of Act No. 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." "Sec. 4. Documentary Stamp Tax . "(1) In case the mortgagor exercises his right of redemption, the transaction shall only be subject to the P15.00 documentary stamp tax imposed under Section 188 of the Tax Code of 1997 because no land or realty was sold or transferred for a consideration. "(2) In case of non-redemption, the corresponding documentary stamp tax shall be levied, collected and paid by the person making, signing, issuing, accepting or transferring the real property wherever the document is made, signed, issued, accepted or transferred where the property is situated in the Philippines; Provided, that whenever one party to the taxable document enjoys exemption from the tax, the other party thereto who is not exempt shall be the one directly liable for the tax. The tax return prescribed under the Code shall be filed within ten (10) [now five (5)] days after the close of the month following the lapse of the one-year redemption period, and the tax due under Section 196 of the Tax Code of 1997 shall be paid based on the bid price at the same time the aforesaid return is filed. The above-cited regulations is clarified in Revenue Memorandum Circular No. 55-99 which provides that the transactions herein covered are those pertaining to extra-judicial foreclosure sales of capital assets initiated by banks, finance and insurance companies. However, in the case of Yap vs. Intermediate Appellate Court , G.R. No. 68464 dated March 22, 1993, the Supreme Court held that a certificate of sale given to the purchaser at the time the sale is made is different and distinct from the final deed, which is delivered at the expiration of the period of redemption, since the former is not intended to operate as an absolute transfer of the property, but merely to identify the property, price paid, and the date when the right of redemption expires. In other words, it is but a mere memorial of the fact that a purchase was made by the person named in the certificate as the buyer. Thus, the mere issuance of a certificate of sale will not confer the buyer full ownership over the mortgaged property but it is only upon the issuance of the final deed of sale by the sheriff after the expiration of the one (1) year period of redemption that ownership over the said property is transferred to the buyer. SEACTH It is a cardinal rule in taxation that laws operate equally and uniformly on all persons under similar circumstances or that all persons must be treated in the same manner, the conditions not being different, both in privileges conferred and the liabilities imposed. For the principle is that equal protection and security shall be given to every person under circumstances, which if not identical, are analogous. While it is true that banks, financial institutions and insurance companies are vested with public interest, a domestic corporation or an individual, as mortgagee, would also be entitled to the same privilege as banks, insurance and financial companies as the principle in extra-judicial foreclosure sale is the same whether initiated by banks or by a domestic corporation, as the mortgagee in all cases are entitled to redeem the property within a period of one year reckoned from the date the certificate of sale is inscribed at the back of the title of the mortgaged property. Inasmuch as your company had paid the aforesaid taxes with the Revenue District Office concerned, this Office finds no justification for imposing the surcharge and corresponding penalty for the alleged late payment of the capital gains tax and documentary stamp tax relative to the extra-judicial foreclosure sale initiated by you, as the payment of the aforesaid taxes should be reckoned 30 days from the expiration of the one (1) year period of redemption and 5 days after the close of the month following the lapse of the one year period. Finally, it is well-settled that the taxpayer cannot be compelled by the BIR Commissioner to enter into a compromise, compromise being mutual in nature. ( Brinas vs. Collector , CTA Case No. 16, September 14, 1955) Therefore there is no basis for charging the compromise fee in the absence of any agreement pertaining thereto. Considering, however, that compromise is in lieu of criminal prosecution, non-payment of the compromise fee reserves the right of the government to institute criminal action against the violator. WHEREFORE, premises considered, this Office holds that the imposition of the surcharge and penalties for the alleged late payment of the capital gains tax and the corresponding documentary stamp tax relative to the extra-judicial foreclosure sale initiated by the aforesaid domestic corporation is without any legal justification and therefore the case is hereby declared closed and terminated. Consequently, this will serve as an authority for the Revenue District Office No. 27, Caloocan City to issue the Certificate Authorizing Registration, (CAR) so that titles to the said properties may now be issued in your favor, Commercial Center. Inc. 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, (SGD.) JOSE MARIO C. BUAG Deputy Commissioner Legal & Inspection Group