Punongbayan & Araullo

December 4, 2008 BIR RULING [DA-(PV-002) 494-08] R.A. 7160; DOF D.O. No. 10-97; DA-312-08; DA-009-2003 Punongbayan & Araullo 20th Floor, Tower I, The Enterprise Center 6766 Ayala Avenue, Makati City Attention: Atty. Benedicta Du-Baladad Partner Gentlemen : This refers to your letter dated September 17, 2008 stating that your client, DMCI Project Developers, Inc. ("DMCI"), is a domestic corporation organized and existing under Philippine laws and is engaged, among others, in business dealing with land or real estate, undertaking of financing, constructing, operation and maintenance of infrastructure and development projects such as but not limited to Build-Operate-and-Transfer (BOT), Build-Own-Operate (BOO), Build-Transfer-Operate (BTO), etc.; that it is purchasing three (3) parcels of land located in Quirino Highway, within the vicinity of Teresa Heights in the District of Novaliches, Quezon City; that the total lot area of the three (3) parcels of land is 30,000 square meters under the following titles: TCT No. Area in Square Meters N-235360 10,000 N-235361 10,000 88240 10,000 Total 30,000 ====== that the frontage of the above-mentioned property is equal to 3,143.70 square meters or 104.79 meters multiplied by the standard depth of 30 meters along Quirino Highway; and that the rest of the property consists of 26,856.30 square meters. SCIacA Based on the foregoing representations, you now request confirmation of your opinion that "1. The zonal value for lots located along Quirino Highway should only apply to the frontage of the property with a total lot area of 3,143.70 square meters and not to the total property; "2. The interior portion of the above-mentioned property which cannot be classified under any particular street/subdivision shall be classified and valued under "All Other Subd./Streets"; In reply, please be informed as follows: 1. In BIR Ruling No. DA-312-08 dated May 22, 2008, citing BIR Ruling No. 114-99 dated July 29, 1999, this Office has already made a determination of the correct value of land for internal revenue tax purposes, where the depth of the lot is deeper than the standard depth of land. In such a case, it is an accepted principle that the area of a lot beyond the standard depth is valued lower than the frontage area. This is because as the depth of lot increases, the unit value decreases. Accordingly, and pursuant to Section 201 of R.A. 7160 as well as Department Order No. 10-97 of the Department of Finance, this Office, in the said ruling, ruled as follows: HTDAac "It is undisputed that the zonal value or fair market value of lots located along the Zapote-Alabang Road is at P19,900.00. However, this Office recognizes that to extend such zonal valuation not only to the frontage area but to the rest of the Property would be inequitable and unjustified under the premises. According to the rules of valuation and under the above quoted Department Order No. 10-97 [The Revised Zonal Values of Real Properties in Las Pias and Muntinlupa under Revenue District No. 53 for Internal Revenue Tax Purposes] and considering the guidelines in the valuation of urban lands, the following are in order [ sic ]: (a) Only lots located along the Alabang-Zapote Road and vicinity (Ceciles R. Moonwalk) are valued at P19,900 for tax purposes. (b) If the area cannot be classified under any particular street/subdivision of vicinity the area would be lumped under the "All Other Streets" category; (c) The valuation of lands under the "All Other Streets" category are as follows: i. Residential Residential P2,200 ii. Commercial Residential 3,700 iii. General Purpose 1,900 xxx xxx xxx Hence, since the frontage area would consist of 4,500 sq.m., (150 meters x 30 meters) applying the zonal value of P19,900, the fair market value of this particular portion is P85,000,000. The remaining property would be General Purpose lot with an assigned zonal value of P1,900. HCacDE xxx xxx xxx." Accordingly, this Office confirms your opinion that the zonal valuation of P30,000.00 should only be applied to the frontage of the aforesaid properties consisting of 3,143.70 square meters, otherwise, to extend such zonal valuation to the entire property would be considered both inequitable and unjustified under the premises. It is a recognized fact that the value of lots decreases from street frontage to the rear. (Section 26, DOF Local Assessment No. 001-92) Thus, a standard depth is established to determine the true and correct value of a particular property where the depth of the lot is deeper than the standard depth. Under this rule, the frontage area which is computed on the basis of the length of the property located along a particular street/subdivision multiplied by the standard depth of the locality is valued more than the rear. BIR Ruling DA-009-2003 dated January 14, 2003, likewise, reiterates this accepted principle that the area beyond the standard depth is valued lower than the frontage area. This is but a recognition of the fact that as the depth of lot increases, the unit value decreases. Thus, applying the above formula for computing frontage area (length of property located along a particular street/subdivision multiplied by the standard depth), the length of the property along Quirino Highway is 104.79 square meters multiplied by the standard depth of 30 meters, the frontage area would equal to 3,143.70 square meters. Thus, the zonal value of P30,000.00 shall apply only to this portion of the property. Hence, the fair market value of this particular area shall be P94,311,000.00. 2. Under Department Order No. 43-98 (The Revised Zonal Values of Real Properties in Novaliches under Revenue District Office No. 28), the most recent valuation of the lands covering your area are as follows: CEIHcT BARANGAY: PASONG PUTIK STREET NAME/ CLASSI- 4TH REV. SUBDIVISION VICINITY FICATION ZV/SQ.M. MINDANAO AVE-QUIRINO BELFAST AVE HW RR 20,800.00 CR 20,800.00 xxx xxx xxx QUIRINO HIGHWAY TERESA HGTS-LAGRO CR 30,000.00 RR 25,000.00 I 30,000.00 LAGRO-SACRED HEART- SJDM CR 10,000.00 RR 8,000.00 REGALADO AVENUE MINDANAO AVE - RR 20,800.00 QUIRINO H-WAY CR 20,800.00 COMMONWEALTH AVE - RR 14,200.00 MINDANAO CR 14,200.00 SACERO ROAD NOVALICHES RR 2,200.00 SACRED HEART NOVALICHES RR 4,500.00 SSS NORTH FAIRVIEW HOMES NOVALICHES RR 3,500.00 ST. DOMINIC NOVALICHES RR 3,000.00 TERESA HEIGHTS NOVALICHES RR 4,800.00 ALL OTHER SUBD/STREETS NOVALICHES RR 2,200.00 NOVALICHES CR 4,000.00 TOWNHOUSE (CCT) NOVALICHES RC 22,000.00 CONDOMINIUM NOVALICHES RC 27,000.00 NOVALICHES CC 33,750.00 It is undisputed that the zonal value or fair market value of lots located along the Quirino Highway is at P30,000.00. However, this Office recognizes that to extend such zonal valuation not only to the frontage area but to the rest of the property would be inequitable and unjustified under the premises. (BIR Ruling No. DA-009-2003 dated January 14, 2003) Applying therefore the foregoing rules, with the exception of the frontage area, the remaining area of the property, consisting of 26,856.30 square meters, should be properly classified under "All Other Subd/Streets" Commercial. 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