Taxability of Sales, Exchanges or Transfers of Real Properties

January 8, 1992 BIR RULING NO. 005-92 26; 196 121-91 005-92 The National Housing Authority District I, Metro Manila Projects Department Quezon Memorial Elliptical Road Diliman, Quezon City Attention: Ms . Geronima B . Angeles Officer-in-Charge Gentlemen : This refers to your letter dated March 11, 1991 requesting for a ruling to the effect that the payment of all taxes by sellers transacting with the National Housing Authority in connection with the latter's housing projects for the urban poor should be based on actual cost of acquisition, and that further, as in this particular case, the surcharge in the amount of P660,525.25 included in the capital gains and documentary stamp taxes, and interest and compromise in the amounts of P385,416.48 and P25,000.00, respectively, or the aggregate amount of P1,016,941.73 be waived. It is represented that on July 11, 1990, a Deed of Exchange with Sale was entered into by between the National Housing Authority (NHA) and the Roman Catholic Archbishop of Manila (RCAM), with office address at 121 Arzobispo Street, Intramuros, Manila, whereby the parties agreed to exchange, on an "area for area" basis, parcels of land respectively owned by the parties; that specifically, RCAM is the registered owner of parcels of land located at Peafrancia, Paco, Manila, with an area of 27,133.10 square meters, more or less, while, upon the other hand, the NHA is the owner or properties located within its various projects in Metro Manila and which the NHA has earmarked for allocation and transfer to the RCAM; that the net amount of seven hundred forty eight thousand four hundred sixty four pesos (P748,464.00) shall be paid by the NHA to RCAM, representing the money value of the net of the excess area of 10,904.64 sq. m. equivalent to P1,090,464.00 less the cost of the Bagong Silang Church in Caloocan amounting to P342,000.00; that accordingly, the amount equivalent to 25% of the consideration of P748,464.00 shall be paid by NHA to RCAM upon signing by both parties of the said Deed of Exchange with Sale while the remaining five hundred sixty one thousand three hundred forty eight pesos (P561,348.00), equivalent to 75% of the stated net consideration, shall be paid by the NHA to RCAM not later than 60 days from the signing of said Deed of Exchange with Sale; that the NHA is presently in the process of transferring the titles covering the Peafrancia ZIP; and finally, it was informed that the computation of its capital gains tax liability shall be based on the zonal valuation of the properties involved. cdta In reply, all sales, exchanges or transfers of real properties (whether classified as ordinary or capital asset) by a corporation, which in the instant case is the Roman Catholic Archbishop of Manila, consummated on or after January 1, 1990, are subject to creditable withholding tax imposed under Section 50(b) of the Tax Code, as amended, as implemented by Revenue Regulations No. 1-90, and not to the 5% capital gains tax imposed under Section 21(e) of the Tax Code, based on the gross selling price. For this purpose, the term "Gross Selling Price" means the consideration stated in the sales document or the fair market value/zonal value, whichever is higher. (RMC No. 7-90) However, this Office, realizing that it took a considerable amount of sacrifice and fortitude on the part of the Roman Catholic Archbishop of Manila to part with the dispose of its real properties specially at a price much lower than the current zonal valuation/market appraised value and consideration further that the likelihood of understatement of consideration of P100 per square meter as the basis in determining the withholding tax liability as a consequence of said sale of properties is hereby granted as an exception to Section 50(b) of the Tax Code, as amended, and implemented by Revenue Regulations No. 1-90. Moreover, the above-stated Deed of Exchange with Sale of Real Properties shall be subject to the Documentary stamp tax pursuant to Section 196 of the same Tax Code, which tax shall be based on the exchangeable area of 32,453.60 sq. meters, instead of the net area of 10,904.64 sq. m. which RCAM sold to NHA, at P100 per square meter. Such being the case, it is the opinion of this Office as it hereby holds that the proposal to impose surcharge in the involved transaction is without legal basis and should, therefore, be withdrawn. The interest of P43,632.07 computed on the basis of the capital gains tax due from the exchangeable area mentioned in the next preceding paragraph should, nonetheless, be paid. atdc Very truly yours, (SGD.) JOSE U. ONG Commissioner of Internal Revenue