BIR Ruling No. 001-06

February 9, 2006 BIR RULING NO. 001-06 000-00 Luz & Cerezo Law Office No. 145 Gonzales Street Corner Abada Loyola Heights, Quezon City Attention: Atty. Restituto Q. Luz Gentlemen : This refers to your letter dated August 1, 2005 requesting on behalf of your clients, the Heirs of Aurea Munar Masangkay, for a ruling on the following issues: 1) The effect/s on the validity of the derivative Transfer Certificate of Title (TCT) when transfer taxes were not paid, or when the transfer transaction was made to appear to be exempt from taxes. 2) The effect/s on the validity of the derivative TCT when the amount declared for taxation was undervalued. The case at hand arose from the cancellation of TCT No. 143583 of the Registry of Deeds of Manila. The said cancelled TCT is registered in the name of Aurea Munar Masangkay, which covers a parcel of land containing an area of 58.31 square meters, situated at 362-A L. Ibarra St., Tondo, Manila. TCT No. 143583 was cancelled by virtue of the transfer of its ownership to Placida Ronquillo through the execution of a Deed of Sale dated January 26, 1989, with the signature of the original owner Aurea Munar Masangkay allegedly falsified. ICTacD Placida Ronquillo, together with Benjamin Masangkay, son of Aurea Munar Masangkay, and the Notary Public, Atty. Rosendo Ramos, were indicted in an information dated March 7, 1990 for the crime of Falsification of Public and/or Official Document. Separate Motions for Reinvestigation were filed by Placida Ronquillo and Atty. Rosendo Ramos before the State Prosecutor. On August 2, 1990, the State Prosecutor filed an Omnibus Motion recommending the dismissal of the case against both accused Ronquillo and Ramos, which was partially granted by the court (Regional Trial Court (RTC), Branch 53, Manila) in an Order dated January 11, 1991, dismissing the case only against accused Atty. Ramos. Accused Benjamin Masangkay remained at large. Placida Ronquillo was convicted of the crime charged on October 24, 2002. She appealed her conviction to the Court of Appeals and on January 12, 2005, she obtained a reversal thereof on the ground that the evidence of the prosecution was insufficient to establish her guilt beyond reasonable doubt. Both the lower court and the appellate court, however, did not rule on the validity of the transfer of the property of Aurea Munar Masangkay to Placida Ronquillo. Neither court discounted the fact of falsification of public document that led to the transfer of the above-mentioned property to Placida Ronquillo. Likewise, Placida Ronquillo testified in court that there were two (2) sets of Deed of Sale executed on the above sale transaction. Benjamin Masangkay and the old woman who posed as his mother Aurea asked the notary public to execute two deeds, one with a purchase price of P30,000.00 executed for presentation to the BIR, and the other with a purchase price of P130,000.00, which covered the true consideration given by Ronquillo to Benjamin Masangkay for the said sale transaction. In both deeds, the signature of Aurea Munar Masangkay was falsified as attested to by an expert of the National Investigation Bureau (NBI). In the year the sale transaction was made, the zonal value of the subject lot was P58,310.00 (at P1,000.00 per square meter) while its fair market value (FMV) per 1985 Tax Declaration was only P17,490.00. The FMV of the improvement was P9,620.00. The deed with P30,000.00 as consideration was presented to Revenue District Office (RDO) No. 22, Tondo San Nicolas, Manila by Placida Ronquillo. It was duly stamped, with an inscription, among others, at the back, the word "EXEMPT", referring to the payment of the capital gains tax. The documentary stamp tax (DST) was paid in the amount of P475.00. Placida Ronquillo signed as payor of the taxes at the stamped portion by the BIR in the back of the presented Deed of Sale. The Certificate Authorizing Registration (CAR) was issued based thereon, resulting in the transfer of the title of the subject property to Placida Ronquillo. TSIaAc Records on the above transaction at RDO No. 22 are nowhere to be found. Although the transaction appears in the Primary Book of Entry, the envelope containing the pertinent documents ( i.e. , Deed of Sale, copy of the returns for the capital gains and documentary stamp taxes, receipt of payment of taxes, verification report, and copy of the CAR) was empty. A certification that there are no available records on the questioned sale transaction was issued by the Revenue District Officer concerned. Most of the documents were gathered from the Records Section of the Court of Appeals. Aurea Munar Masangkay is dead. To continue her fight to recover the subject property, her heirs, through their Attorney-in-Fact, Alberto Lopez, are filing a case of Quieting of Title to cancel the title obtained by Placida Ronquillo and revive the original title of the decedent thereto. In reply to the issues above raised, please be informed as follows: Section 58 (E) of the Tax Code of 1997, as amended, provides: "(E) Registration with Register of Deeds . No registration of any document transferring real property shall be effected by the Register of Deeds unless the Commissioner or his duly authorized representative has certified that such transfer has been reported, and the capital gains or creditable withholding tax, if any, has been paid: . . . : Provided , finally , That any violation of this provision by the Register of Deeds shall be subject to the penalties imposed under Section 269 of this Code." On the other hand, under paragraphs (m) and (q), Section 3, Rule 131 of the Revised Rules of Court, it is presumed that official duty has been regularly performed and that ordinary course of business has been followed. 1uptax2006 Based on the foregoing, even if title to a property has been transferred through the employment of fraud, insofar as the pre-requisite of payment of taxes is concerned, the validity of the certificate of title will not be affected. The fraud that may cause the cancellation of a certificate of title is one that affects the validity of the deed of transfer itself, as when a person, by means of a forged deed of sale succeeds in obtaining transfer certificate of title in his favor on the strength of the deed supposedly signed by the owner. The title issued to the forger should be cancelled unless the property has been transferred to an innocent purchaser for value. ( De la Cruz vs. Fabie , 35 Phil. 144 [1916]; Montelibano vs. De la Cruz , V Lawyer's Journal, 87) Thus, even if transfer taxes were not paid, or when the transfer transaction was made to appear to be exempt from taxes, or when the amount declared for taxation was undervalued, these facts will not affect the validity of the transfer certificate of title. Nonetheless, the parties responsible for the fraudulent act that results in the irregular transfer of the certificate of title are administratively and criminally liable. Likewise, the taxes due on the transfer shall be assessed accordingly. EAaHTI In the instant case, the irregularity in the processes at the BIR level, from the assessment of the taxes due on the transaction up to the verification of payment that paved way for the issuance of the CAR, is very much apparent. For example, the subject sale transaction was exempted from payment of the CGT without any basis for said exemption. On the other hand, although the DST was imposed on the transaction, the tax base used was erroneous. The tax base used was the consideration appearing in the Deed of Sale submitted, when in fact the zonal valuation of the subject property was much higher than it. 1 Evident as it is that there was an irregularity in the process, the presentor-buyer Placida Ronquillo, still managed to get the CAR. In view thereof, the Personnel Inquiry Division (PID) of this Bureau is hereby tasked to conduct an investigation of the above incident. Likewise, in consonance with the intensified tax collection efforts of the Bureau and its campaign to minimize and/or stop tax evasion, the Special Investigation Division of Revenue Region No. 6, Manila, shall be tasked to take the necessary action against Placida Ronquillo, the presentor-buyer, for her act of knowingly presenting to the BIR a document designed purposely to defraud the government by substantially under-declaring the consideration on the sale of property in her favor. The foregoing action shall take its course despite the filing of a case of Quieting of Title in the RTC to cancel the title obtained by Placida Ronquillo over the subject property. The payment of the correct taxes due on the subject transfer of property shall be due immediately. Thus, the revenue district office concerned is hereby ordered to assess the deficiency capital gains and documentary stamp taxes, including the corresponding penalty, surcharge and interest due thereon. However, in the event that the court decides against the validity of the transfer of property to Placida Ronquillo, the CGT and DST paid thereon, including the increments, shall be refunded. On the other hand, the heirs of Aurea Munar Masangkay shall be entitled to the subject property. Consequently, the title to the said property shall be transferred to the heirs but only upon filing of the estate tax return of the decedent and upon payment of the estate tax due thereon, if there is any. Finally, this Office expresses its sincerest gratitude to you in bringing to the attention of the Bureau the above matters. Rest assured that all actions necessary to address the situation shall be taken accordingly. Very truly yours, (SGD.) JOSE MARIO C. BUAG Commissioner of Internal Revenue Footnotes 1. The CGT and the DST imposed under Secs. 24 (D) (1) and 196 of the 1977 Tax Code, as amended, are based on the consideration contracted to be paid for such realty or on its fair market value determined in accordance with Sec. 6 (E) of the same Code, whichever is higher. The DST due based on the total value of the lot and improvement at the time of the transaction was P680.00 [or 1% of P67,930.00, the aggregate value of the lot (using the zonal valuation) and improvement (using the FMV)].