Registration of Deeds of Sale of Lands

August 28, 1989 BIR RULING NO. 185-89 21 (e) 000-00 185-89 Gentlemen : This refers to your letter dated July 4, 1989 stating that in connection with the registration of deeds of sale of lands acquired by you thru negotiation for your electrification projects in relation to E.O. No. 1035, a deed of sale of land executed in your favor when submitted to the Revenue District Officer of Valenzuela, Bulacan together with your certification that the capital gains tax due on the subject transaction shall be deducted/withheld from the payment to the landowner and the same to be remitted to the Revenue District Office, the officers/employees thereat refused to issue the corresponding Certificate Authorizing Registration of the said instrument requiring/assessing the following: 1. Payment of the capital gains tax before issuance of the Certificate Authorizing Registration. 2. Addition of 10% to 50% of the market value of improvements consisting of houses, buildings or other structures per latest tax declaration, if any, to form the tax base in the computation of capital gains tax. 3. Requiring payment of documentary stamps. 4. Imposing penalty on the capital gains tax due if the same is not paid within 30 days from and after the date of execution of the instrument. Based on the foregoing representations, you now request a ruling on the following queries: "1. May the certification issued by NAPOCOR based on the assessment made by the Revenue District Office concerned pursuant to E.O. No. 1035 that it shall deduct/withheld the corresponding capital gains tax due on the subject deed of sale and remit the same to the Revenue District Office concerned be sufficient basis for the issuance of the Certificate Authorizing Registration of the deed of sale of real property in favor of NAPOCOR? "2. Is the addition of 10% to 50% of the market value of improvements consisting of houses, buildings or other structures, per latest declaration, if any, to form part of the tax base in the computation of capital gains tax applicable to purchases by NAPOCOR of lands needed for its electrification projects? 2.1. Is the requirement pursuant to RAMO No. 1-88 that the disposition of real property without improvements consisting of houses, buildings and other structures shall be accompanied by a certification from the Assessor and an affidavit of the taxpayer that there are no improvements consisting of houses, buildings or other structures on the land subject of sale applicable to purchases by NAPOCOR of lands needed for its projects? "3. Is NAPOCOR required to pay documentary stamp tax on the instruments to which it is a party when there is an stipulation that all expenses in connection with the execution and registration of this instrument shall be for the account of NAPOCOR? "4. Is the imposition of penalty on the capital gains tax if it is not paid within 30 days period from and after the date of execution of the instrument applicable in the acquisition of lands by NAPOCOR needed for its projects? In reply, please be informed as follows: 1. Sections 9 and 10, Title C of Executive Order No. 1035 providing the procedures and guidelines for the expeditious acquisition by the government of private real properties or rights thereon infrastructure and other government projects provides, viz: "TITLE C PROCEDURE FOR PAYMENT AND REGISTRATION OF PROPERTY/ROW ACQUISITIONS SEC. 9. Assessment of Taxes Due. the Bureau of Internal Revenue and the respective Provincial/City/Municipal Treasurers shall assess the following taxes, where applicable, on the property being acquired: acd a) Capital gains tax due on the gain derived from the sale of the real property to the government b) . . . c) . . . Such assessment shall be made and transmitted to the government implementing agency/instrumentality concerned within one (1) week from the submission of complete requirements. "SEC. 10. Withholding Tax/Tax Clearance Upon Receipt of the assessment of the aforementioned taxes, the government implementing agency/instrumentality concerned shall issue a certification that upon payment to the landowner, it shall deduct the corresponding capital gains tax and any unpaid estate tax and real estate tax." On the basis of such certification, the BIR and the respective Provincial/City Municipal Treasurers shall issue the tax clearance for the registration of the property in favor of the government implementing agency/instrumentality concerned. All taxes deducted shall be immediately remitted by the government implementing agency/instrumentality concerned to the BIR or the Provincial/City/Municipality Treasurer, as the case may be." In this connection, it is noted that under Section 21(e) of the Tax Code, it is provided "that the tax liability, if any, on gains from sales or other disposition of real property to the government or any of its political subdivisions or agencies or to the government-owned or controlled corporations shall be determined either under Section 21(a) or under this sub-section, at the option of the taxpayer." Since you are a government corporation, this provision applies to sales of real property in your favor. Accordingly, if your seller elects Section 21(a), this Office, through the authorized revenue officer, shall issue the certification authorizing the transfer of title to you, as the purchaser. [Sec. 7(a)(5), Revenue Regulations No. 8-79; BIR Ruling Nos. 74-81 and 199-83] On the other hand, in case your seller elects Section 21(e), the above procedure outlined under E.O. No. 1035 shall be followed. 2. Your queries Nos. 2 and 2.1 are answered in the negative. Under Section 3-A of R.A. 6395 entitled "an Act Revising the Charter of the National Power Corporation," as amended by P.D. No. 939, in acquiring private property or private property rights through expropriation proceedings where the land or portion thereof will be traversed by the transmission lines, only a right-of-way easements thereon shall be acquired when the principal purpose for which such land is actually devoted will not be impaired, and where land itself or portion thereof will be needed for the projects or works, such land or portion thereof as necessary shall be acquired. In addition to the just compensation for easement of right-of-way, the owner of the land or owner of the improvement, as the case may be, shall be compensated for the improvements, actually damaged by the construction and maintenance of the transmission lines, in an amount not exceeding the market value thereof as declared by the owner or administrator, or anyone having legal interest in the property, or such market value as determined by the assessor whichever is lower; provided, that in case any building, houses and similar structures are actually affected by the right-of-way for the transmission lines, their transfer, if feasible, shall be effected at the expense of the Corporation. Accordingly, and since improvements consisting of houses, buildings or other structures do not form part of the sale, the 10% to 50% of the market value of such improvements should not be added as part of the tax base in computing the capital gains tax as directed under RAMO No. 1-88 nor is the requirement that a certification from the assessor and an affidavit of the taxpayer that there are no such improvements, required. 3. Under Section 173 of the Tax Code as amended by P.D. No. 1994, "whichever one party to the taxable document enjoys exemption from the tax herein imposed, the other party thereto who is not exempt shall be the one directly liable for the tax." Accordingly, as regards the deeds of sale entered into by you since you are exempt from the documentary stamp tax under FIRB Resolution No. 17-87, your sellers shall be the parties liable for the payment of the documentary stamp tax imposed by Section 196 of the Tax Code. The fact that it is stipulated in the Deeds in question that all expenses connected with the execution and registration of the instruments which expense include the documentary stamp tax due thereon, shall be for your account, will not exempt your sellers from the liability to the documentary stamp tax. 4. Your query No. 4 is answered in the negative. Since the Deed of Sale stipulates that the landowner-seller will not be paid until title is transferred and a new Certificates of Title is submitted in your name, as required by COA rules and regulations, this Office shall allow the registration of the Deed of Sale with the Register of Deeds, and, consequently, the transfer of the property sold can be effected. Thereafter, the seller shall file the corresponding capital gains tax return within thirty (30) days from submission of the Certificate of Title. (BIR Ruling No. 354-88) Upon filing of said return, the authorized revenue officer shall verify the correct amount of capital gains tax due from the seller. After said verification, this Office shall assess the tax and cause the collection thereof in the manner outlined in Section 9 and 10 of E.O. No. 1035 above-quoted. aisadc Very truly yours, (SGD.) JOSE U. ONG Commissioner