BIR Ruling No. 137-10

December 7, 2010 BIR RULING NO. 137-10 RA 7279; RR 11-97, as amended by RR 17-01; RMO 41-91; Sections 32 (B) (7) (b) & 196, of the Tax Code of 1997, as amended; 000-00 Hon. Eric A. Constantino Municipal Mayor, Municipality of Abra De Ilog Province of Occidental Mindoro Sir : This refers to your letter dated February 4, 2009 requesting exemption from the payment of capital gains tax on the transfers of housing units to the beneficiaries of the Core Shelter Housing Project of the Municipality of Abra De Ilog, Occidental Mindoro and the Department of Social Welfare and Development, Regional Office IV. SIacTE It is represented that the Municipality of Abra De Ilog, Occidental Mindoro and the Department of Social Welfare and Development (DSWD), Regional Office IV, have a Core Shelter Housing Project implemented in 1990. It is a joint program wherein houses were provided for free by the DSWD and the lots were payable by the occupants to the Municipal Government within fifteen (15) years. Once the occupants-beneficiaries paid their obligations, copy of the Transfer Certificates of Title over the housing units will be issued to them for free and at the expense of the Municipal Government. Hence, this request for exemption from the payment of capital gains tax. In support of your claim, you presented the following documents: a. Copy of the Deed of Absolute Sale dated June 6, 2007; b. Resolution No. 2005-47, Series of 2005, approved by the Sangguniang Bayan of Abra De Ilog on December 19, 2005; c. Kautusan Blg. 5-A, Taong 1990; d. Photocopy of Transfer Certificate of Title No. 11421 of the Registry of Deeds of the Province of Mindoro Occidental, covering Lot No. 93-A; e. Subdivision Plan for Lot 93-A; and f. List of beneficiaries and the corresponding lots they occupied and the amount paid for the same, as disclosed in the submitted Deed of Absolute Sale: Name Lot No. Area Amount 1. Adelaida Balanza 93-A-1 Blk. 5 150 sq. m. P3,000.00 2. Bernardino Oberas 93-A-2 Blk. 5 150 sq. m. 3,000.00 3. Alberto Artiola 93-A-3 Blk. 5 150 sq. m. 3,000.00 4. Rodyardo Toriana 93-A-5 Blk. 5 150 sq. m. 3,000.00 5. Salvador Ramos 93-A-6 Blk. 5 150 sq. m. 3,000.00 6. Ireneo Caviteo 93-A-3 Blk. 4 150 sq. m. 3,000.00 7. Marlon O. Toriana 93-A-4 Blk. 4 150 sq. m. 3,000.00 8. Mayolito Oberas 93-A-6 Blk. 4 147 sq. m. 2,940.00 9. Alexander Lagunsad 93-A-10 Blk. 1 148 sq. m. 2,960.00 10. Luzvimindo Maurin 93-A-1 Blk. 2 155 sq. m. 3,100.00 11. Corazon O. Toriana 93-A-3 Blk. 2 150 sq. m. 3,000.00 12. Ronaldy Maurin 93-A-4 Blk. 2 150 sq. m. 3,000.00 13. Benito Prudente 93-A-5 Blk. 2 150 sq. m. 3,000.00 14. Rolando Balanza 93-A-6 Blk. 2 150 sq. m. 3,000.00 15. Miguel Parco 93-A-7 Blk. 2 150 sq. m. 3,000.00 16. Arnel Florida 93-A-11 Blk. 2 201 sq. m. 4,020.00 17. Jonathan B. Mendoza 93-A-3 Blk. 1 150 sq. m. 3,000.00 18. Godofredo Sangalang 93-A-6 Blk. 1 150 sq. m. 3,000.00 19. Salvador Cutara 93-A-7 Blk. 1 150 sq. m. 3,000.00 TOTAL P58,020.00 ======== In reply, please be informed that the distribution or transfer of the housing units to the above-named occupants-beneficiaries of the Core Shelter Housing Project of the Municipality of Abra De Ilog and the DSWD is exempt from income taxes. The Municipality of Abra De Ilog, which is tasked to implement the distribution of the housing units, shall not be subject to any tax, for it is only performing a mandated governmental function of providing shelter to the underprivileged and homeless citizens. An instrumentality of the government 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 and since 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, the Municipality of Abra De Ilog together with the DSWD, therefore, shall not be subject to any tax in their joint project to provide shelter to the less fortunate constituents of the Municipality of Abra De Ilog, Occidental Mindoro as they are only performing a mandated governmental function. The foregoing is despite the fact that the Municipality of Abra De Ilog has received monetary consideration for the transfer of the individual lots to the intended beneficiaries. Pertinent portion of Section 32 (B) (7) (b) of the Tax Code of 1997, as amended, provides that "income derived from the exercise of any essential governmental function accruing to the Government of the Philippines or to any political subdivision thereof, is excluded from gross income thereby exempt from taxation. On the other hand, the deed transferring the housing units to the respective occupants-beneficiaries is subject to the documentary stamp tax (DST) imposed under Section 196 of the Tax Code of 1997, as amended, in accordance with Revenue Regulations No. 11-97, as amended by Revenue Regulations No. 17-2001. The DST herein imposed, however, shall be based on the actual consideration considering that one of the contracting parties is the Government pursuant to Revenue Memorandum Order No. 41-91 and Section 196 of the Tax Code of 1997. HDTCSI 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