Recomputation of Capital Gains and Documentary Stamp Taxes Based on Predominant Use of Real Properties

September 18, 2001 BIR RULING NO. 041-01 Sec. 6 (E) 000-00 Lazaro Tuazon Santos and Associates No. 1 Central Avenue New Era, Quezon City Attention: Attys. Vimar M. Barcellano and Restituto S. Lazaro Gentlemen : This refers to your letter dated December 5, 2000, for and on behalf of your client, the IGLESIA NI CRISTO, requesting that the recomputation of the capital gains and documentary stamp taxes based on the predominant use of the real properties located at Mindanao Avenue, Bago Bantay, Quezon City be set aside. The pertinent facts are as follows: On November 14, 2000, the Iglesia ni Cristo bought from Sharleen Vincent G. Tecson, Winwin Vincent G. Tecson, Freence Vincent G. Tecson, Jenz Vincent J. Tecson, all minors, represented by Wilson J. Tecson married to Julie Tecson, that parcel of land covered by Transfer Certificate of Title No. N-208649 located at Mindanao Avenue, Pag-asa, Bago Bantay, Quezon City. On November 17, 2000, Wilson J. Tecson paid the capital gains and the documentary stamp taxes due on the sale. The tax base of the computation of the capital gains and documentary stamp taxes was P20,000.00 per square meter, the zonal value of residential lots at Mindanao Avenue, Bago Bantay, Quezon City. However, the Revenue District Officer, RDO No. 38, North Quezon City, ordered the recomputation of the capital gains and documentary stamp taxes due on the sale on the ground that the real property is located in a predominantly commercial area and must be classified as commercial for purposes of zonal valuation pursuant to the guidelines provided under Department of Finance Order 6-2000, dated February 15, 2000. As such, its zonal value shall be P25,000.00 per square meter, the zonal value of commercial real properties at Mindanao Avenue, Bago Bantay, Quezon City. It is your position that the recomputation of the capital gains and the documentary stamp taxes is erroneous considering that the actual use of the property is residential, it being utilized as the residence of your ministers. Further, you argue that the guidelines refer to real properties which are predominantly used for commercial purposes. In reply, please be informed that this Office finds your request meritorious. The number 2 guidelines laid down in Certain Guidelines in the Implementation of Zonal Valuation of Real Properties for RDO No. 38-North Quezon City, which is attached to the Department of Finance Order No. 6-2000 dated February 15, 1999, relating to the "Implementation of the Revised Zonal Values of Real Properties in North Quezon City under Revenue District Office No. 38 (North Quezon City), Revenue Region No. 7 (Quezon City) for Internal Revenue Tax Purposes", does not apply to this case. Number 2 of the " CERTAIN GUIDELINES IN THE IMPLEMENTATION OF ZONAL VALUATION OF REAL PROPERTIES FOR RD NO. 38 NORTH QUEZON CITY ", provides: "2. PREDOMINANT USE OF PROPERTY ALL REAL PROPERTIES, REGARDLESS OF ACTUAL USE, LOCATED IN A STREET/BARANGAY ZONE, THE USE OF WHICH ARE PREDOMINANTLY COMMERCIAL SHALL BE CLASSIFIED AS "COMMERCIAL" FOR PURPOSES OF ZONAL VALUATION. " It is the considered opinion of this Office that the guideline applies when the real property is located in an area or zone where the properties are not yet classified and their respective zonal valuation are not yet determined. In this case, however, the classification and valuation of the properties located in Mindanao Avenue, Bagong Bantay have already been determined. Under Department of Finance Order No. 6-2000, supra ., the properties along Mindanao Avenue, Bagong Bantay had already been classified as residential and commercial. The zonal valuation thereof had already been determined. Residential properties are valued at P20,000.00 per square meter, while commercial properties are valued at P25,000.00 per square meter. Further, the real property under consideration is used for residential purposes as shown in Tax Declaration Nos. D00703181 and D00703182 and as certified by the Office of the City Assessor, Quezon City. Therefore, the Revenue District Officer of Revenue District Office No. 38 has no discretion to determine the classification or valuation of the properties located in the pertinent area. The computation of the capital gains and documentary stamp taxes shall be based on the zonal value of residential real properties located at Mindanao Avenue, Bago Bantay, Quezon City. A contrary ruling would improperly penalize a taxpayer who had faithfully relied on the Schedule of Zonal Valuation for Real Properties issued by the BIR. This ruling is 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.) RENE G. BAEZ Commissioner of Internal Revenue