BIR Ruling [DA-628-04]

December 13, 2004 BIR RULING [DA-628-04] Mr. Wilson Cham Room 202 Mega State Building Araneta Avenue corner Agno Street Quezon City S i r : This refers to your letter dated September 20, 2004 requesting for a ruling on the legal justification for the imposition of the surcharge, interest and compromise penalty as part of the total amounts of P551,479.45 and P145,869.86 proposed to be imposed by the BIR examiner in Valenzuela due to the late payment of the capital gains tax and documentary stamp relative to the expiration of the one (1) year period of redemption of the foreclosure sale held on July 5, 2001 although inscribed only on September 16, 2003 by the Registry of Deeds for Valenzuela. It is represented that on June 23, 1998, a Real Estate Mortgage (REM) was executed by Leoncio Q. Bautista and Ma. Lourdes G. Bautista, mortgagor, in your favor as the mortgagee, involving real properties covered by TCT Nos. V-47596, V-50757, V048988 and V-50922 issued by the Registry of Deeds for Valenzuela, to secure a loan in the amount of P9,443,183.00; that at a public auction duly held on July 5, 2001, the aforesaid properties were sold to you as the highest bidder in the amount of P5,000,000.00; that when the period of redemption was about to expire, i.e., one (1) year from and after the registration of the Certificate of Sale with the Register of Deeds, you went to the BIR in Valenzuela to settle the capital gains tax and documentary stamp tax due on the foreclosure sale, but the BIR examiner imposed the corresponding taxes together with the surcharge, interest and compromise penalties as follows: Capital Gains Tax P5,000,000.00 x 6% P300,000.00 Add: 25% surcharge P75,000.45 Interest (8-6-02 to 9-27-04) 160,479.00 Compromise Penalty 16,000.00 251,479.45 Total P551,479.45 ========== Documentary Stamp Tax P5,000,000.00 x P15.00 for every P1,000 P75,000.00 Add: 25% surcharge P18,750.00 Interest (8-6-02 to 9-27-04) 40,119.86 Compromise penalty 12,000.00 70,869.86 Total P145,869.86 ========= In reply thereto, please be informed that in BIR Ruling No. DA239-03 dated September 30, 2003, this Office ruled that "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 extra-judicial foreclosure of mortgage under Section 6 of Act No. 3135, as amended, as well as judicial or extra-judicial 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. LexLib "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." Considering that in the instant case, the Certificate of Sale was registered with the Registry of Deeds for Valenzuela only on September 16, 2003, the one (1) year redemption period for purposes of reckoning the 30 day period as well as the 5 day period within which to pay the capital gains tax and the corresponding documentary stamp tax should be counted from September 16, 2003. WHEREFORE, in view of the foregoing, this Office holds that the imposition of the surcharge, interest and compromise penalties by the BIR in Valenzuela for the alleged late payment of the capital gains tax and documentary stamp tax due on the foreclosure sale is without any legal justification. Consequently, this will serve as the basis for the Revenue District Officer of RDO No. 24 to issue the Certificate of Registration (CAR) so that titles to the properties may now be registered in your favor. AcISTE 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