BIR Ruling No. 014-14

January 16, 2014 BIR RULING NO. 014-14 RA No. 7279; RA 7160; BIR Ruling No. 093-12 The Law Firm of Parungao, Malimas, Sangalang & Gapasin 2180 Chino Roces Avenue, Makati City Attention: Richard Joseph C. Doria Gentlemen : This is to acknowledge your letter dated April 26, 2012, duly indorsed by Revenue Region No. 6-Manila, requesting for a ruling on behalf of the Heirs of Encarnacion Laosantos, for an exemption from the payment of capital gains tax on the involuntary sale of a parcel of land to the City of Manila for its socialized housing project under Republic Act (RA) No. 7279, otherwise known as the Urban Development and Housing Act of 1992, as implemented by Revenue Regulations No. 11-1997, as amended by Revenue Regulations No. 17-2001. It is represented that Encarnacion Laosantos married to Antonio Santos, is the absolute registered owner of a parcel of land covered by Transfer Certificate of Title (TCT) No. 74972 issued by the Registry of Deeds for the City of Manila, containing an area of eight hundred sixty one square meters and thirty seven decimeters (861.37 sq.m.) more or less; that on June 28, 2010, a Decision was rendered by the Regional Trial Court of Manila, Branch 10 on Civil Case No. 07-117474, which became final and executory on March 15, 2012, expropriating the said parcel of land pursuant to City of Manila Ordinance No. 8094, enacted by The City Council of Manila on July 14, 2005, and approved by the Mayor on August 3, 2005, acquiring the subject property for the purpose of selling the same to qualified and bonafide tenants/occupants thereat on installment basis not exceeding twenty (20) years pursuant to the Land for the Landless Program of the City of Manila; that in the same decision, the Court issued an order fixing the just compensation in the amount of Five Million Nine Hundred Forty One Thousand Five Hundred Thirty Pesos (P5,941,530.00); and that on May 7, 2013, the Urban Settlements Office of the City of Manila, certified that the abovementioned parcel of land shall be resold and distributed to its actual and bonafide occupants (see annex) under the Land-for-the-Landless, Socialized Housing Program and On Site Development Program of the City of Manila. In reply thereto, Section 19 of Republic Act No. 7160 provides the basis for the exercise of the power of eminent domain of local government, which provides that: ECaHSI "SEC. 19. Eminent Domain. A local government unit may, through its chief executive and acting pursuant to an ordinance, exercise the power of eminent domain for public use, or purpose or welfare for the benefit of the poor and the landless, upon payment of just compensation, pursuant to the provisions of the Constitution and pertinent laws: Provided, however, That the power of eminent domain may not be exercised unless a valid and definite offer has been previously made to the owner, and such offer was not accepted: Provided, further, That the local government unit may immediately take possession of the property upon the filing of the expropriation proceedings and upon making a deposit with the proper court of at least fifteen percent (15%) of the fair market value of the property based on the current tax declaration of the property to be expropriated: Provided, finally, That, the amount to be paid for the expropriated property shall be determined by the proper court, based on the fair market value at the time of the taking of the property." As an instrumentality of the government, a local government unit, which acts for the purpose of accomplishing government policies and objectives and extending essential services to the people, performs governmental and not proprietary functions. ( Peoples' Homesite and Housing Corporation vs. Court of Industrial Relations , 150 SCRA 296, 310 [1987]) Thus, in line with the foregoing, it is a declared State policy as laid down in Republic Act No. 7279, otherwise known as the "Urban Development and Housing Act of 1992", to provide decent and affordable housing to the underprivileged and homeless citizens. (BIR Ruling No. 093-12 dated February 16, 2012) Moreover, the pertinent portion of Section 20 of RA No. 7279, reads: "Sec. 20. Incentives for the Private Sector Participating in Socialized Housing. To encourage greater private sector participation in socialized housing and further reduce the cost of housing units for the benefit of the underprivileged and homeless, the following incentives shall be extended to the private sector: xxx xxx xxx "(d) Exemption from the payment of the following: (1) . . . (2) Capital gains tax on raw lands used for the project; xxx xxx xxx" Pursuant to the aforementioned provision, the owner of the raw land is exempt from the payment of capital gains tax on the conveyance although involuntarily of the above-described property in favor of the City of Manila for use in its socialized housing project. Upon application for exemption, a lien on the title of the land shall be annotated by the Register of Deeds having jurisdiction over the property, to the effect that the same is to be applied or is being applied to socialized housing project pursuant to R.A. 7279. However, the sale is subject to the documentary stamp tax imposed under Section 196 of the Tax Code of 1997 based on the consideration or the fair market value, whichever is higher. (BIR Ruling No. 093-12 dated February 16, 2012) AHcaDC 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.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue ANNEX Samahang Magkakapitbahay ng mga Taga Pavia Mejorada Pavia, Tondo, Manila Structure Status of No. Name of Applicant Address Occupancy 555 Pavia Tondo, Structure 1 Magdalena Galvez Unas Manila Owner 553 Pavia Tondo, 2 Leonora Gorospe Ng Manila Co-owner 551 Pavia Tondo, 2 Dianita Llasus Gorospe Manila Co-owner 553 Pavia Tondo, 2 Josefina Nipa Santos Manila Co-owner 553 Pavia Tondo, 3 Priscila Gorospe Caete Manila Co-owner 545 Pavia Tondo, Structure 3 Moises Briones Mendoza Manila Owner 539 Pavia Tondo, 4 Leonila dela Cruz Mesina Manila Renter 539 Pavia Tondo, 5 Bella Pamintuan Visda Manila Co-owner 5 Soledad dela Cruz Delos 539 Pavia Tondo, Santos Manila Co-owner 539 Pavia Tondo, Structure 6 Pacita Angeles Capulong Manila Owner 606 Pavia Tondo, Structure 8 Alberto Tuazon Santos Manila Owner 608 Pavia Tondo, Structure 9 Agapita Garcia Mawanay Manila Owner 610 Pavia Tondo, Structure 10 Eduardo Enriquez Miguel Manila Owner 612 Pavia Tondo, Structure 11 Rizalino Almazan Mendiola Manila Owner 612 Pavia Tondo, 13 Victoria Cunanan Mendoza Manila Renter 614 Pavia Tondo, Structure 14 Aurora Tuazon Limson Manila Owner 614 Pavia Tondo, Structure 15 Amparo Tuason Miguel Manila Owner