BIR Ruling [DA-640-06]

October 27, 2006 BIR RULING [DA-640-06] VAT Ruling #27-96 dtd. 9/23/96 Cityland Incorporated 2/F & 3/F Cityland 10 Tower 1 156 H.V. dela Costa St. Ayala North, Makati City Attention: Rufina Buensuceso / Rudy Go Authorized Representatives Gentlemen : This refers to your letter dated October 7, 2005, requesting a ruling to the effect that involuntary transfers of vacant and idle real estate property to the State/Government are not transactions made in the ordinary course of the lot owner's trade or business; hence, said property should be classified as a capital asset, which is not subject to the value-added tax. It is represented that Cityland Inc. was the owner of an idle/vacant lot, measuring 248 square meters, located along Shaw Blvd., Mandaluyong City, covered by TCT No. 136125; that subject lot was expropriated by the State through the DPWH to form part of the EDSA-Shaw Flyover Project; that the Regional Trial Court (RTC) determined the just compensation for the said property in the amount of P34,100,000.00 plus legal interest from the date of actual possession of said lot by DPWH; that the RTC Decision was upheld by the Court of Appeals upon appeal by DPWH; that in view thereof, Cityland was constrained to surrender its lot to DPWH, after the decision thereon became final and executory; that it is your position that the just compensation paid for Cityland's expropriated lot can not be deemed as derived from the conduct of the ordinary course of trade or business and should not be subject to VAT. In reply, please be informed that inasmuch as the particular property is an idle/vacant lot consisting of 248 square meters and could not be utilized by Cityland since it was expropriated by the government in 1996 and the Supreme Court decided the expropriation case with finality in 2002, the same is not within the purview of Revenue Regulations No. 7-2003, thus the issue on whether or not a capital asset or ordinary asset is immaterial. Nevertheless, the gross receipts derived from the sale of the same is not subject to VAT, the said sale being involuntary and forced upon only on the seller by virtue of the exercise of the government's power of eminent domain and, therefore, cannot be said to have been conducted in the course of the taxpayer's trade or business. ( VAT Ruling No. 27-96 dated September 23, 1996 ) HSDCTA 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.) JAMES H. ROLDAN Assistant Commissioner Legal Service