Authority to Pay the DST Based on the Actual Consideration of the Property Acquired

May 11, 1989 BIR RULING NO. 101-89 196-00 000-00 101-89 Gentlemen : This refers to your letter dated April 10, 1989 in behalf of your client, Manila Bay Development Corporation (MBDC) requesting authority to pay the documentary stamp tax based on the actual consideration of the property acquired by said corporation through public bidding from the Public Estates Authority (PEA), a government corporation created under P.D. No. 1084, and at the same time requesting for the waiver of the surcharge and penalties for failure to pay the documentary stamp tax on time. It is represented that PEA offered for sale by public bidding three parcels of land located at the reclaimed area adjacent to Roxas Boulevard, Paraaque, Metro Manila; that the entire property is basically rawland with more than 50% thereof still under water; that while the minimum bid price is only P900.00 per square meter, MBDC's winning bid was for P1,150.00 per square meter; that on August 23, 1988 PEA and MBDC executed in Makati, Metro Manila, a Deed of Sale over said property for a total consideration of P472,037,050.00 subject to the condition that the contract of sale shall become final and executory upon approval by the Office of the President and that payment in full of the contract price shall be made within fifteen (15) days from receipt by MBDC of said approval; that the President's approval was contained in an Indorsement signed by Executive Secretary Catalino Macaraig, Jr. dated December 28, 1988 and received by MBDC on January 9, 1989, and that on January 23, 1989, MBDC paid PEA the total consideration in full; that notwithstanding the approval of the President and full payment of the consideration, the sale could not be given effect because at the time of the execution of the contracts the lots comprised in the Deed of Sale have not been titled yet; that it was only on January 13, 1989 that SP No. 02 was issued and that the title of the other lots consisting of 295,530 square meters was issued only on February 6, 1989; that in view thereof, PEA and MBDC entered into a "Supplementary Deed of Sale" to confirm that the subject property sold under the approved Deed of Sale dated August 23, 1988 is covered by TCT No. 19346 issued on February 6, 1989 and Original Certificate of Title No. SP #02 (Special Patent No. 3548) issued on January 13, 1989 in the name of PEA; that PEA delivered OCT #02 and TCT No. 19346 only on the second week of March, 1989; that subsequently, the basic documentary stamp tax liability was computed on the basis of the zonal value at P2,000 per square meter as prescribed under Department Order No. 1-89 dated September 23, 1989, or twice the value actually generated in the public bidding and indicated in the Deed of Sale. MBDC's documentary stamp tax liability is being computed as follows: cdtech Basic DST P8,209,340.00 25% surcharge 2,052,335.00 Compromise Penalty 15,000.00 TOTAL P10,276,675.00 ============ In reply, please be informed that pursuant to Revenue Audit Memorandum Order Nos. 1-88, 2-87 and 3-87 implementing Section 16(e) of the Tax Code, the tax base recommended for internal revenue tax purposes shall be the zonal value established in the place where the property is located. Nevertheless, Section 196 of the Tax Code is clear in stating that the determination of the documentary stamp tax on deeds of sale of real property is to be governed by the amount of the consideration received. This provision is undoubtedly in accordance with the jurisprudence that the liability of an instrument to stamp tax, and the amount of the tax, are determined by the form and the face thereof and cannot be affected by proof of facts outside of the instrument. (U.S. v. Isham, 17 Wall, D. 96, 84 U.S. 496) cited in Araas Commentary of the NIRC, p. 382) However, said provision also states the following: "When it appears that the amount of the documentary stamp tax payable hereunder has been reduced by an incorrect statement of the consideration in any conveyance, deed, instrument, or writing subject to such tax the Commissioner, provincial or city treasurer, or other revenue officer shall from the assessment rolls or other reliable source of information, assess the property of its true market value and collect the proper tax thereon." In other words, the Commissioner is allowed to utilize the "true market value" as basis of the documentary stamp tax only if the consideration is incorrectly stated in the deed of conveyance. Hence, if the consideration is correctly stated in the deed of sale as in the instant case where the same was determined by public bidding, the use of the true market value or zonal value is not justified. Accordingly, in the instant case, the documentary stamp tax should be based on the actual consideration appearing in the Deed of Sale executed on August 23, 1988, which is P472,037,050.00. (BIR Ruling No. 082-89) However, your request for the waiver of the 25% surcharge in this case has to be, as it hereby denied for lack of legal basis. Pursuant to Section 173 of the Tax Code, the documentary stamp tax is due at the time the taxable activity is done or transaction had . According to the contract between PEA and MBDC, the sale of the property in this case became final and executory upon approval of the Office of the President on December 28, 1988, written notice of which was received by MBDC on January 9, 1989 as well as payment in full of the consideration on January 23, 1989. Since no documentary stamp tax was paid at the finality of the transaction, the 25% surcharge imposed under Section 248(d) of the Tax Code had already accrued and should also be paid in addition to the documentary stamp tax due in this case. cdta Very truly yours, (SGD.) JOSE U. ONG Commissioner