BIR Ruling No. 064-14

February 20, 2014 BIR RULING NO. 064-14 RA No. 7279; RA 7160; BIR Ruling No. 093-12 Urban Settlements Office City of Manila Room 569, 5th Floor, Manila City Hall, Manila Attention: Deogracias J. Tablan, Jr. Urban Settlement Officer Gentlemen : This is to acknowledge your letter dated March 1, 2007, requesting for a ruling on behalf of Tzarita De Guia, 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 Tzarita De Guia, is the absolute registered owner of a parcel of land identified as Lot 2-A of subdivision plan (LRC) Psd-6527, being a portion of Lot 2, Block 3012 of the Cadastral Survey of Manila, LRC (GLRO) cad. Record No. 373 covered by Transfer Certificate of Title (TCT) No. 54660 issued by the Registry of Deeds for the City of Manila, containing an area of eight hundred two square meters and seventy decimeters (802.70 sq.m.) more or less; that a Deed of Sale was executed by Tzarita De Guia and the City of Manila, represented by Mayor Jose L. Atieza Jr. on May 25, 2006; that the sale was a gesture of humanitarian and equitable consideration to contribute to the Land for the Landless and socialized housing program of the City of Manila under Ordinance No. 8059 which resulted to a Compromise Agreement executed in relation to Civil Case No. 94-72282 for Eminent Domain instituted by the City of Manila; and that the consideration for the sale the subject property is Three Million Thousand One Hundred Twenty Five Pesos (P3,010,125.00). n Pursuant to Resolution No. 028 s. 07 of the City Tenants Security Committee of the City of Manila, homelots were awarded to the following thirteen (13) qualified residents for Lot 2-A Psd-6527, to wit: cIHDaE LOT-2-A of the subdivision plan Psd 6527 (TCT 54660) Name of Beneficiary Lot No. 1 Rolando C. Curaes 1 Psd 6527 2 Victoriano A. Linga 2 Psd 6527 3 Violeta C. Tiusingco 3 Psd 6527 4 Benjamin Tiusingco 4 Psd 6527 5 Yolanda G. Calonzo 5 Psd 6527 6 Rosita T. Reyes 6 Psd 6527 7 Rodel T. Reyes 7 Psd 6527 8 Cesar F. Cenit 8 Psd 6527 9 Gina Cenit-Escoto (co-awardee) 8 Psd 6527 10 Lorenzo F. Cenit (co-awardee) 8 Psd 6527 11 Dominador S. Sapiandate 9 Psd 6527 12 Laarni Laudencia Meim (co-awardee) 9 Psd 6527 13 Ernesto I. Panganiban 10 Psd 6527 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: "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." 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 actual consideration of the property transferred, considering that one of the contracting parties is the Government. (BIR Ruling No. 093-12 dated February 16, 2012) aEHTSc 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