Froilan L. Balagtas

July 15, 2008 BIR RULING [DA-(PV-001) 037-08] Sec. 6 (E) Froilan L. Balagtas No. 52 Ladislawa Avenue Ladislawa Village Davao City S i r : This refers to your letter requesting on behalf of your client, Charles David C. Yu, for a clarification on the tax base to be used for purposes of computing capital gains and documentary stamp taxes due on the transfer of a certain parcel of land located at Alejandro de Lara St., Calinan District, Davao City. Background On May 30, 2007, a Deed of Absolute Sale was executed between Conrado E. Sanchez, Jr., Erlinda E. Sanchez-Mojica, Wilfredo E. Santos and Renato E. Sanchez, as sellers, and Charles David C. Yu, as buyer, involving a parcel of land with an area of Ten Thousand One Hundred Sixty Two (10,162) square meters and covered by Transfer Certificate of Title No. T-53278. The consideration appearing in the Deed of Absolute Sale amounted to One Million (P1,000,000.00) Pesos, which is higher compared to the P70.00 per square meter in the BIR's Revised Zonal Valuation schedule. The corresponding capital gains and documentary stamp taxes in the aggregate amount of P60,000.00 and P15,000.00, respectively, were already paid and the issuance of the Certificate Authorizing Registration (CAR) is now pending in the Revenue District Office No. 113 in Davao City. AIaDcH After the revenue officers of the said BIR District Office conducted their ocular inspection, prior to the issuance of CAR, a letter from the Revenue District Officer (RDO) was received by Charles David C. Yu notifying that a re-computation of the taxes paid was made based on a residential rate valuation of P500.00 per square meter on the premise that the subject property is located in a predominantly residential area. Furthermore, the RDO asserted that the basis in computing the zonal valuation should be in consonance with the provision of the Department Order (D.O.) No. 41-02 dated September 16, 2002, specifically Items 1 (a) and 2 (b) of its implementing guidelines for zonal valuation. In reply, please be informed that "Certain Guidelines in the Implementation of Zonal Valuation of Real Properties for RDO No. 113-Davao City, which is attached to the Department of Finance Order No. 41-02 dated September 16, 2002, relating to the "Implementation of the Revised Zonal Values of Real Properties in Davao City under Revenue District Office No. 113 (Davao City), Revenue Region No. 19 (Davao City) for Internal Revenue Tax Purposes 2nd Revision", provides: "1. NO ZONAL VALUE HAS BEEN PRESCRIBED FOR A PARTICULAR CLASSIFICATION OF REAL PROPERTY. WHERE IN THE APPROVED SCHEDULE OF ZONAL VALUES FOR A PARTICULAR BARANGAY a) NO ZONAL VALUE HAS BEEN PRESCRIBED FOR A PARTICULAR CLASSIFICATION IN A PARTICULAR STREET/SUBDIVISION IN A BARANGAY, THE ZONAL VALUE PRESCRIBED FOR THE SAME CLASSIFICATION OF REAL PROPERTY LOCATED IN THE ADJACENT STREET/SUBDIVISION WITHIN THE SAME BARANGAY OF SIMILAR CONDITIONS SHALL BE USED; AND" "2. PREDOMINANT USE OF PROPERTY xxx xxx xxx b) THE PREDOMINANT USE OF OTHER CLASSIFICATION OF PROPERTIES LOCATED IN A STREET/BARANGAY/ZONE, REGARDLESS OF ACTUAL USE SHALL BE CONSIDERED FOR PURPOSES OF ZONAL VALUATION." DCTSEA In the case of DAR vs. Green City Estate Corporation, (G.R. No. 139592, October 5, 2000) the Supreme Court held that there is no law or jurisprudence that holds that the land classification embodied in the tax declarations are conclusive and final nor would proscribe any further inquiry. Therefore, the classification of the subject property as agricultural, as shown in the Tax Declaration, is not conclusive for purposes of determining the tax base in the computation of capital gains and documentary stamp taxes. Considering that the classification of properties as shown in the Tax Declaration is not conclusive for purposes of determining the tax base in the computation of capital gains and documentary stamp taxes, the guidelines laid down in D.O. No. 41-02 shall be followed. Thus, the predominant use provision under the abovementioned Order shall apply. Accordingly, as found by the district office, the subject property should have a zonal value ranging from P500.00 to P850.00 per square meter since the subject property is located in a predominantly residential area, as provided in D.O. No. 41-02. Based on the foregoing, this Office finds no cogent reason to disturb the findings made by the district office. It is however, required that before the Revenue District Officer concerned shall issue the "Certificate Authorizing Registration" of the subject property to the seller/buyer, the Special Power of Attorney issued by seller Conrado E. Sanchez, Jr. in favor of Renato E. Sanchez executed before Atty. Sofronio C. Untalan, Jr. dated May 10, 2007 and entered into his Notarial Register under Doc. No. 232, Page No. 47, Book No. CXXXVIII, Series of 2007; and the one issued by seller Erlinda E. Sanchez-Mojica in favor also of Renato E. Sanchez executed and duly authenticated in U.S.A. on April 4, 2005 and April 11, 2005, respectively, should both be produced and should form part and parcel of the subject Deed of Sale. HAICTD Very truly yours, Commissioner of Internal Revenue By: (SGD.) GREGORIO V. CABANTAC Deputy Commissioner Legal and Inspection Group