Request for Issuance of Order Directing the Revenue District Officer to Accept Payment of CGT

February 4, 1998 BIR RULING NO. 007-98 Sec. 3, 10 and 49-000-00-007-98 Primetown Property Group, Inc. Penthouse, Century Citadel Inn 5007 P. Burgos St., Bel-Air Makati City Attention: Atty . Raul G . Quiroz Assistant Vice President , Legal . Dept . Gentlemen : This refers to your letter dated May 21, 1997 stating that on November 14, 1985, Mr. Miguel Cosino sold a parcel of land located at Alfonso, Cavite to Ms. Pastora A. Alcazar for P25,750.00 as shown in the notarized Deed of Sale between the parties; that in an affidavit executed in September 1995, Mr. Cosino has attested the validity of the aforesaid Deed, that is, almost ten (10) years after the time of sale; that it was established that the corresponding capital gains tax was not paid by Mr. Cosino, nor by the vendee, Ms. Alcazar; that without actually registering the aforesaid sale, the vendee, Ms. Alcazar, subsequently sold the same parcel of land to Primetown Property Group, Inc. (PPGI) for P14,424,800.00 on July 5, 1995; that the corresponding fees, including the capital gains tax on this second sale, were paid as shown in the copies of the receipts for the taxes paid submitted to this Office; that on April 18, 1997, a manager's check in the amount of P45,270.00 representing payment for the unpaid capital gains tax including the penalties accruing thereon, due on the first sale between Mr. Cosino and Ms. Alcazar, was tendered by PPGI to Mr. David J. Alarcon, Revenue District Officer of Cavite City; that the said tender of payment was, however, refused by the said Revenue District Officer on the basis of the letter written by Mr. Cosino on April 1, 1997 to the effect that the sale of his parcel of land to Ms. Alcazar did not materialize because he was not paid the purchase price on that transaction. Hence, this request for the issuance of an order directing the Revenue District Officer to accept payment for the capital gains tax due on the sale of land between Mr. Cosino and Ms. Alcazar. LibLex In reply, please be informed that pursuant to Section 3 of the Tax Code, as amended, which reads: "SEC. 3. Powers and Duties of the Bureau . The powers and duties of the Bureau of Internal Revenue shall comprehend the assessment and collection of all national internal revenue taxes, fees, and charges, and the enforcement of all forfeitures, penalties, and fines connected therewith including the execution of judgments in all cases decided in its favor by the Court of Tax Appeals and the ordinary courts. Said Bureau shall also give effect to and administer the supervisory and police powers conferred to it by this Code or other laws." Likewise, Section 10 of the same Code provides, viz: "SEC. 10. Duties of Revenue District Officers and Other Internal Revenue Officers . It shall be the duty of every Revenue District Officer or other internal revenue officers and employees to see that all laws and regulations affecting national internal revenue are faithfully executed and complied with, and to aid in the prevention, detection and punishment of frauds or delinquencies in connection therewith." Thus, in this connection, the prime concern of the Bureau of Internal Revenue is evidently the collection of taxes. On the other hand, while it is true that the seller-taxpayer has requested the Revenue District Officer concerned to hold in abeyance the collection of the capital gains tax on the sale over the subject property allegedly on the ground that he was not paid the purchase price, the circumstances surrounding the transaction and the documents supporting the transaction as submitted to this Office show the following, viz: 1. The subject Deed of Sale shows that it was properly executed, and the seller, Mr. Cosino acknowledged the receipt of the consideration; 2. The same was properly notarized by the Honorable Judge Lucio B. Perena, Municipal Judge of Alfonso, Cavite; 3. The Owner's Duplicate Copy of Original Certificate of Title No. P-3293 is in PPGI's possession as it was allegedly turned over by Mr. Cosino to Ms. Alcazar from whom PPGI bought the property; and 4. From the time the aforesaid Deed of Sale was executed, which was already more than ten (10) years, the seller-taxpayer has not filed any action to nullify the aforesaid Deed or to recover the Owner's Duplicate Copy of OCT No. 3293, but rather he executed an affidavit in September 1995 and duly notarized by a certain Atty. Eddie N. Fernandez attesting that the aforesaid Deed of Sale was genuine in all respects. prcd The foregoing factual bases clearly show that the capital gains and the documentary stamp taxes on the sale between Mr. Cosino and Ms. Alcazar are already long overdue and payable. This Office has no power to refuse acceptance of payment of the capital gains tax tendered by Ms. Alcazar through Primetown, merely on the basis of Mr. Cosino's claim that he was not paid the purchase price of the said sale. It is noted by this Office that Mr. Cosino has attested to the validity of the subject Deed of Sale in an Affidavit he executed ten (10) years after the sale. The sale has clearly complied with the provision of the Statute of Frauds, particularly Article 1358(1) of the Civil Code of the Philippines, i.e., sale of real property or interest therein must appear in a public instrument. Thus, when the Deed of Sale was executed by the taxpayer with receipt of the consideration properly acknowledged, the corresponding capital gains tax has become effectively due and, payable. The non-registration of the evidence of the consummated sale by the buyer, Ms. Alcazar, with the Registry of Deeds concerned and the holding of the instrument and the Owner's Duplicate OCT in her possession did not abate the capital gains and the documentary stamp tax liabilities which have already become overdue. The claim of Mr. Cosino on the nullity of the sale due to non-payment of the consideration, when the Deed of Sale and the Affidavit he submitted show otherwise, did not extinguish the right of this Office to collect the capital gains tax and the corresponding interest and surcharges due thereon. We would like to emphasize, however, that although this Office rules on the taxability of the aforementioned transaction which is properly supported by a Deed of Sale, which is a taxable document, it does not usurp the power of the Court to hear, determine and decide cases affecting substantive rights and it merely does so on the basis of above-quoted Section 3 of the Tax Code, as amended. If the seller-taxpayer feels that he is being aggrieved or was defrauded in the said transaction, then the case must be fully ventilated in the proper forum. Meanwhile, since the documents submitted to this Office, i.e., the Deed of Sale and the Affidavit reiterating the occurrence of the transaction, clearly show that a taxable transaction has occurred, then it is ministerial upon the Bureau of Internal Revenue to collect the tax. On the other hand, the Revenue District Officer's duty is limited to what is clearly defined in the above-quoted Section 10 of the Code. Thus, in consonance with the defined duty of this Office, the concerned RDO cannot, likewise, refuse the payment being tendered by Ms. Alcazar through Primetown Property Group merely on the basis of the claim of the seller which has to be proven in the proper forum. Once a taxable transaction is shown, the duty to collect is imperative. The payment of taxes by Ms. Alcazar, through Primetown Property Group is likewise proper. Pertinent provision of the Tax Code, particularly the last paragraph of Section 49(a)(4) states, viz: "SEC. 49. Payment and assessment of income tax for individuals and corporations . "(a) Payment of tax. xxx xxx xxx "(4) Payment of capital gains tax. "No registration of any document transferring real property shall be effected by the Register of Deeds unless the Commissioner of Internal Revenue or his duly authorized representative has certified that such transfer has been reported, and the tax herein imposed, if any, has been paid." Logically, the payment of capital gains tax must be done by the seller. However, experience has proven that there are instances when the seller does not assume, or does not want to pay the capital gains tax and the buyer, who is the person interested in registering the property in his name, is thereby left at the mercy of the seller if the latter does not or as a matter of fact refuses to pay. Equity and justice, therefore, dictate that the above provision must be construed to benefit both parties, extending the same right to pay the tax to either party under exceptional circumstances such as this one. Thus, it is reasonable that payment being tendered by the vendee, Ms. Alcazar, through Primetown Property Group, should be accepted and credited for the unpaid capital gains tax relating to the first sale. Furthermore, in addition to the capital gains tax, there must be assessed interest accruing thereon, as well as surcharges and penalties. LLcd 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.) LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue