Rodolfo P. del Rosario

January 22, 2009 BIR RULING [DA-(PV-001) 030-09] Sec. 6 (E); DA-313-2003; 041-2001 Rodolfo P. del Rosario 201 Recoletos St., Urdaneta Village Makati City Sir : This refers to your letter dated October 6, 2006 indorsed to this Office by the Revenue District Officer of RDO No. 32, Quiapo-Sta. Mesa-Sampaloc, and to your subsequent letter dated April 2, 2007 requesting, in effect, for a ruling on whether or not Revenue Officers have the authority or discretion to reclassify properties in order to determine the fair market value of a property for purposes of computing the capital gains and documentary stamp taxes imposed on a transfer of property. The facts as represented are as follows: On August 9, 2006, you sold a parcel of land classified as residential to Nenita Florendo, married to Antonio Florendo, which is situated at Brgy. 481, Zone 47, Corner Piy Margall-Carola Streets, Sampaloc, Manila, and covered by Transfer Certificate of Title No. 214854 for a consideration of P3,000,000.00. The zonal value of the property as determined by the Revenue Officer of RDO No. 32 is P3,138,750.00 or at P9,300.00 per square meter. The capital gains and documentary stamp taxes were paid on August 31, 2006 in the amount of P188,325.00 and 47,085.00, respectively. The documents pertaining to the sale were presented by you to RDO No. 32, Quiapo, for the issuance of the Certificate Authorizing Registration (CAR). In a letter dated September 18, 2006, the Revenue District Officer of RDO No. 32 informed you that there should be a re-computation of the CGT and DST, applying thereto the zonal value of commercial properties along Corola Street, as the ocular inspection conducted by his Revenue Officers turned out that your property is located in a predominantly commercial area. The Revenue District Officer informed you that the re-computation of the taxes shall be based on the zonal value prescribed for properties located along the vicinity of Carola and A. Mendoza which are classified as commercial with zonal value at P20,020.00 per sq. m. Hence, you were required to pay deficiency on CGT and DST. Incidentally, you found out also that the zonal value of P9,300.00 used in computing the taxes you paid is prescribed for residential properties located along the vicinity of A. Mendoza and Carola per BIR prescribed schedule of zonal value. aCcSDT It is your contention, however, that your property, although situated along Carola Street, is located far away from the above vicinities. Your property is located along the corner of Corola Street and Piy Margall Street wherein in said vicinity what is predominant are residential houses. The Tax Declaration covering your property classified the same as residential. The portion or stretch of Corola Street passing through Piy Margall and Dapitan Street which is the vicinity where your property is located has a much lower zonal value at P7,680.00 per sq. m. and properties situated along the said vicinity are classified as residential per BIR schedule of zonal valuation. Hence, the CGT and DST you paid exceeded by P41,010.00. However, you have no desire to claim refund of the excess of the CGT and DST you paid based on the P9,300.00 per sq. m. zonal valuation. In reply, please be informed as follows: Section 6 (E) of the Tax Code of 1997 provides that the Commissioner is authorized to divide the Philippines into different zones or areas and shall, upon consultation with competent appraisers both from the public and private sectors, determine the fair market value of real properties located in each zone or area. For purposes of computing any internal revenue tax, the value of the property shall be whichever is higher of: 1. The fair market value as determined by the Commissioner or 2. The fair market value as shown in the schedule of values of the Provincial and City-Assessors. It is clear from the foregoing that only the Commissioner has the authority to determine the fair market value of real properties in specific zones or areas upon consultation with competent appraiser. Once the zonal value has been established in any particular area, the same shall be applied in computing all internal revenue taxes due on sales, exchanges, or other dispositions of real property. Inasmuch as a zonal value has already been prescribed by the Commissioner for properties located within the vicinity where your property is located, said valuation should have been followed. It behooves therefore upon the Revenue Officer concerned to use it in computing the internal revenue taxes. Revenue Officers have no discretion to determine the classification or valuation of the properties located in areas where properties were already classified and zonal valuations are already prescribed. (BIR Ruling No. 041-2001 dated September 18, 2001) The belief of the Revenue Officer that the classification of the property should be "commercial" and that a re-computation of the taxable value be made for purposes of computing the deficiency capital gains and documentary stamp taxes due on this particular sale is without any legal basis. As discussed above, only the Commissioner has the authority to determine the zonal valuation of any particular area. Stated otherwise, the Revenue Officer cannot use any other valuation of the property you sold to Nenita Florendo than what is determined by the Commissioner of Internal Revenue. THCSEA This will, therefore, serve as the authority of the Revenue Officer to compute the internal revenue taxes due on the sale based on the zonal valuation determined by the Commissioner and to process the application for the issuance of the Certificate Authorizing Registration or CAR. (BIR Ruling No. DA-313-2003 dated September 25, 2003) 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, Commissioner of Internal Revenue By: (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service