BIR Ruling No. 048-12

February 9, 2012 BIR RULING NO. 048-12 Tax Code of 1997, as amended, Sections 27 (D) (5); 32 (B) (7) (b); 196; BIR Ruling No. 396-2011 National Telecommunications Commission NTC Building, BIR Road, East Triangle Diliman, Quezon City Attention: Gamaliel A. Cordoba Commissioner Gentlemen : This refers to your letter dated 23 August 2011, received by this Office on 04 October 2011 by way of 1st Indorsement from Revenue Region No. 7, Quezon City dated 29 September 2011, requesting on behalf of the Philippine Atmospheric, Geophysical and Astronomical Services Administration ("PAGASA") for exemption from the capital gains tax (CGT) and documentary stamp tax (DST) on the sale of a parcel of land executed by and between PAGASA and the National Telecommunications Commission ("NTC"). Documents submitted show that PAGASA has acquired from the National Housing Authority (NHA), by way of a Deed of Sale with Mortgage, a parcel of land consisting of 19,014 sq. m., situated at the East Triangle, Diliman, Quezon City and covered by Transfer Certificate of Title (TCT) No. N-275928; that PAGASA has utilized the said lot for its technical facilities, leaving only an unoccupied area of 3,069 sq. m.; that on 07 June 1995, PAGASA and NTC have entered into a Memorandum of Agreement (MOA) whereby PAGASA agreed to the relocation of the office of NTC to the said unoccupied area for a consideration of Three Million Five Hundred Ninety Three Thousand Two Hundred One Pesos and Fifty Five Centavos (Php3,593,201.55), 1 with an understanding that upon full payment by PAGASA of the total purchase price to the NHA, the lot shall be partitioned between PAGASA and NTC in proportion to their respective interests in the property; that it was discovered after a survey that the unoccupied area subject of the MOA has an actual area of 3,131 sq. m. or 62 sq. m. over and in excess of the negotiated lot of 3,069 sq. m. stated in the MOA; that in a subsequent undated Supplemental Deed of Sale, PAGASA and NTC entered into an agreement whereby NTC bought the excess lot of 62 sq. m. including a vacant portion consisting of 894 sq. m. for a total consideration of Eleven Million Four Hundred Seventy Two Thousand Pesos (Php11,472,000.00); and that by virtue of the foregoing agreements made by and between the parties, the aggregate area of the lot sold to and will be transferred to NTC is 4,025 sq. m. In reply, please be informed that under Section 27 (D) (5) of the 1997 Tax Code, as amended, it is provided that in the case of sale, exchange, or other disposition of lands and/or buildings which are not actually used in business and are treated as capital assets by domestic corporations, a final tax of six percent (6%) based on the gross selling price or current fair market value as determined in accordance with Section 6 (E) of the Tax Code, whichever is higher, is imposed upon capital gains presumed to have been realized therefrom. It must be noted that the capital gains tax mentioned under the aforementioned provision is an income tax, the burden of which rests upon the seller which, in this case, is the PAGASA. ADEaHT It is noteworthy to mention that PAGASA is subject to the capital gains tax of 6% imposed on its capital gains presumed to have been realized from the sale of the said parcel of land in spite of its being a government agency. This is in accordance with Sec. 32 (B) (7) (b) of the Tax Code of 1997 which provides that only the income derived by the government agency from the exercise of its essential governmental function shall be excluded from its gross income. ( BIR Ruling No. 396-2011 dated October 25, 2011 ) Furthermore, the Deed of Absolute Sale is subject to the documentary stamp tax based on the actual consideration of the property sold pursuant to Sec. 196 of the Tax Code of 1997. In view of the foregoing, this Office is of the opinion as it hereby holds that PAGASA is not exempt from the payment of CGT and DST on its sale of the subject property in favor of the NTC. Please be guided accordingly. Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue Footnotes 1. The amount reflected in the undated Supplemental Deed of Sale executed between PAGASA and NTC.