Mario C. Bansil

October 30, 2009 BIR RULING [DA-(I-036) 639-09] Section 32 (B) (6) (b); BIR Ruling No. 0003-04 Mario C. Bansil Barrio Virac Itogon, Benguet Sir : This refers to your request regarding the imposition of tax on a parcel of land situated in Barrio Virac, Itogon, Benguet, acquired by virtue of a decision by the Department of Labor and Employment (DOLE)-CAR. ITADaE In relation to the said decision, a Certificate of Sale was issued ordering the seizure of property of your previous employer (RSB Realty Incorporated) as payment for your unpaid wages as a security guard of the said corporation and separation benefits, to wit: "WHEREAS, by virtue of the Writ of Execution issued by the Honorable Regional Director, Department of Labor and Employment, Cordillera Administrative Region, in the above-entitled case, served November 29, 2002, directing the undersigned Sheriff to seize the goods, chattels, or other properties of the respondent and to render to the concerned employees, Joel C. Manialac, Marvin Bansil and Mario C. Bansil the total amount of TWO HUNDRED FIFTY THREE THOUSAND EIGHT HUNDRED THIRTY FIVE AND 36/100 PESOS (Php253,836.36) * LEVIED on the 10th of January, 2003 upon the lot of the respondent Benigno M. Salvador, located at Barrio Virac, Municipality of Itogon, Sub-Province of Benguet, covered by Transfer Certificate of Title No. T-35455, registered under RSB Realty, Inc. . . . xxx xxx xxx IT IS FURTHER CERTIFIED that the bidder in the public auction sale proceedings was MARIO C. BANSIL, bidding the amount equal to his monetary claims of TWO HUNDRED FIFTY THREE THOUSAND EIGHT HUNDRED THIRTY FIVE AND 36/100 PESOS (Php253,836.36), * the amount was not anymore remitted to the Sheriff's Office but in turn credited to the claim of the complainant against the respondent as FULL SATISFACTION of the case mentioned above." Moreover, the Benguet Regional Trial Court Branch 8 has ruled in the "Petition for the Approval of Consolidation of Ownership and Issuance of a New Title in the Name of Mario Bansil Married to Levy Bansil": "WHEREFORE, the property covered by Transfer Certificate of Title No. T-35455 is hereby consolidated in the name of petitioner Mario Bansil. The Register of Deeds of the Province of Benguet is directed upon payment of the required fees and upon compliance with the requirements of their office to cancel Transfer Certificate of Title No. T-35455 in the name of RSB Realty Incorporation and issue a new title to herein petitioner Mario C. Bansil, of legal age, Filipino Citizen, married to Levy P. Bansil likewise of legal age, Filipino Citizen and with residence at No. 1479, Bobon Virac, Itogon, Benguet." IECAaD In reply, please be informed as follows: 1) Under Section 32 (B) (6) (b) of the 1997 Tax Code, any amount received by an official or employee or by his heirs from the employer as a consequence of separation of such official or employee from the service of the employer due to death, sickness or other physical disability or for any cause beyond the control of the said official or employee is exempt from taxes regardless of age or length of service. The phrase "for any cause beyond the control of the said official or employee" in effect connotes involuntariness on the part of the official or employee. The separation from the service of the official or employee must not be of his own making. (Sec. 4 (f), Revenue Regulations No. 1-68; Sec. 2 (b) (2), Rev. Regs. No. 6-82, as amended) In view of the foregoing, the separation pay you received as a consequence of your involuntary separation from the service of your employer is not subject to income tax imposed under Section 24 (A) of the Tax Code of 1997, and consequently to the withholding tax on wages pursuant to Section 79, Chapter XIII, Title II of the Tax Code as implemented by Revenue Regulations No. 2-98, as amended. However, the amount received corresponding to your backwages and the amount representing your unpaid salary cannot be considered as benefits paid as a consequence of your involuntary separation from the service of your employer within the contemplation of Section 32 (B) (6) (b) of the 1997 Tax Code; instead they are remuneration for services that are deemed to have been performed by you for your company prior to or during the period of your illegal dismissal from the service as affirmed by the NLRC. Such being the case, said backwages and the amount representing your unpaid salary are subject to income tax and consequently, to the withholding tax on wages pursuant to Section 79, Chapter XIII, Title II of the Tax Code as implemented by Revenue Regulations No. 2-98, as amended. 2) The conveyance of the aforesaid parcel of land by RSB Realty Incorporated in your favor as payment of your backwages and separation pay is subject to the creditable withholding tax imposed under Sec. 2.57.2 (J) of Revenue Regulations No. 2-98, as amended. Under the said provision, except as otherwise provided, there shall be withheld a creditable income tax rates from the following items of income payments to persons residing in the Philippines: "(J) Gross selling price or total amount of consideration or its equivalent paid to the seller/owner for the sale, exchange or transfer of Real property, other than capital assets, sold by an individual, corporation, estate, trust, trust fund or pension fund and the seller/transferor is habitually engaged in the real estate business in accordance with the following schedule Those which are exempt from a withholding tax at source as prescribed in Sec. 2.57.5 of these Regulations Exempt With a selling price of five hundred thousand Pesos (P500,000.00) or less 1.5% With selling price of more than five hundred thousand pesos (P500,000.00) but not more than two million pesos (P2,000,000.00) 3.0% With selling price of more than two million pesos (2,000,000.00) 5.0% "A seller/transferor must show proof of registration with HLURB or HUDCC to be considered as habitually engaged in the real estate business . . . ." The foregoing creditable withholding tax rates apply to sale or disposition of real properties by a taxpayer who is habitually engaged in the real estate business. Categorically, under Section 39 of the 1997 Tax Code, these properties held by a taxpayer primarily for sale in the ordinary course of business are considered as ordinary assets, the same being excluded in the definition of "capital asset". (Emphasis supplied.) In view of the foregoing, a creditable withholding tax at the rate of 1.5% based on the fair market value or zonal value determined in accordance with Section 6 (E) of the Code, whichever is higher, for the transfer/disposition of the aforementioned subdivision lot, which is classified as ordinary asset, shall be imposed upon RSB Realty Incorporated pursuant to Section 2.57.2 (J) of Revenue Regulations No. 2-98, as amended. TECcHA Moreover, RSB Realty Incorporated is subject to the value-added tax on the transfer of said subdivision lot originally intended for sale or for use in the course of business pursuant to Section 106 (B) of the Tax Code of 1997, the same being considered as a "deemed sale" transaction. 3) Moreover, the transfer of the property is also not subject to capital gains tax, as such transfer is equivalent to a conveyance but without any monetary consideration, made in compliance with the court's Decision. Neither is the said transfer subject to documentary stamp tax since the monetary consideration in the conveyance of the property from which tax shall be based is wanting. 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 as null and void. Very truly yours, Commissioner of Internal Revenue By: (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service