BIR Ruling [DA-433-04]

August 12, 2004 BIR RULING [DA-433-04] Development Bank of the Philippines Sen. Gil J. Puyat Avenue corner Makati Avenue Makati City Attention: Mr. Renato A. Castillo Senior Vice President Gentlemen : This refers to your letter dated October 14, 2003 stating that in June 1996, the Development Bank of the Philippines (DBP) granted Y-Electric Power Corporation an industrial loan of P408,000.00 to finance the expansion of its electric power project located in Atimonan and Gumaca, Quezon; that the loan was secured, among others, by TCT No. 342461 located at Barangay Culiat, Tandang Sora, Quezon City; that due to mounting arrearages, DBP foreclosed the mortgaged property on March 4, 1977 and acquired the same as sole bidder for P250,000.00; that the redemption period expired on May 25, 1978; that on April 16, 1986, TCT No. 342461 was consolidated in DBP's name; that the aforesaid property which is presently occupied by squatter-families will be traversed by Congressional Avenue Extension; that in coordination with the Department of Public Works and Highways (DPWH), DENR-LMB and Register of Deeds-Quezon City, TCT No. RT-101612 was subdivided into two (2) lots on March 12, 2003 as follows: TCT No. Area (sq. m.) Remarks N-247959 4,786 Reserve for Congressional Avenue- Extension N-247960 5,214 To be purchased by squatter-families thru Community Mortgage Program of NHMFC that when DBP facilitated the transfer of Tax Declaration covering the above two (2) lots, the Quezon City-Taxes and Fees Division computed the transfer tax based on 0.75% of zonal valuation of P20,000.00 per square meter or P1.50 million; and that DBP did not accede because its contention is that the transfer tax should be based on the acquisition cost of P250,000.00 per attached Certificate of Sale dated March 8, 1977. Based on the foregoing representations, you now request a ruling as to whether the assessment made by the Quezon City-Assessor of the transfer tax based on the zonal value of the properties relative to the foreclosure sale held in 1986 and subsequently consolidated in its name is in order. In reply thereto, please be informed that in Revenue Memorandum Order (RMO) No. 41-91 provides that ". . . the determination of the tax base of sales, exchange or any disposition or conveyance of real property for documentary stamp tax purposes shall be the same as the tax base used in the computation of the capital gains tax which means, gross selling price, fair market value, or zonal value of the real property, whichever is higher, except in the following instances, where actual consideration appearing in the Deed of Sale shall be an acceptable tax base in the computation of not only the capital gains tax but also of the documentary stamp tax, viz : "(1) . . . "(2) . . . "(3) sale of real property effected through public bidding, e.g. , judicial sale, extra judicial foreclosure sale, where both the 5% capital gains tax (now 6%) and the documentary stamp tax where computed based on the highest or winning bid price. ( BIR Ruling No. 105-91; 001-91 ) DAHCaI "xxx xxx xxx" Thus, in BIR Ruling No. 144-96 dated December 24, 1996 addressed to Hon. Manuel "Lito" Lapid, which refers to the expropriation by the Provincial Government of Pampanga, with the assistance of the National Government of a number of properties which were adversely affected by the construction of FVR megadike and similar structures to prevent further destruction from lahar and floodwaters especially in the high risk areas in the province, this Office ruled that "Accordingly, expropriation sale is subject to the 5% capital gains tax regardless of whether any gain or profit was derived therefrom since the aforecited law is comprehensive enough to cover not only voluntary sale but also involuntary sale as in the instant case. However, both capital gains tax and documentary stamp tax shall be computed based on the actual consideration appearing in the Deed of Sale, pursuant to Revenue Memorandum Order No. 41-91." Corollarily, in BIR Ruling No. 150-98 dated October 19, 1998, this Office ruled that ". . ., the non-use or non-application of the prescribed zonal valuation under special circumstances that adversely impacts the value or marketability of a property like in this case, a deviation from the general rule or guidelines on valuation of such property is always justified, otherwise, the imposition of an unjust or unreasonable tax or levy amounts to a confiscation of the property without due process and runs afoul of the equal protection clause of the Constitution. Hence, in this instant case, the use of assessed value or selling price (actual consideration), whichever is higher, in lieu of zonal value, is in order for being analogous to the exceptions recognized under RMO No. 41-91, BIR Ruling No. 144-96 dated December 24, 1996. After all, Standard has been paying real property tax on the basis of the assessed value of said road lot as per the tax declaration issued by the Office of the Municipal Assessor of Paraaque. "xxx xxx xxx" SUCH BEING THE CASE, this Office holds that the Quezon City Assessor should based the transfer tax for the properties acquired by DBP through foreclosure sale on the bid price or in the amount of P250,000.00, instead of the zonal valuation of P20,000.00 per square meter, for purposes of consolidating the titles in the name of DBP. 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