Exemption from the Payment of Capital Gains Tax

November 20, 1989 BIR RULING NO. 236-89 21 (e) & 78 000-00 236-89 S i r : This refers to your letter dated September 11, 1989 requesting exemption from the payment of capital gains tax of the portion of a lot covered under Tax Declaration No. 07020-363 situated at San Nicolas, Betis, Guagua, Pampanga particularly described as Lot No. 5566 in Cadastral Survey No. CAD 3760 sold in your favor by Mr. Cornelio C. Ocampo on September 5, 1989; and from the payment of the estate tax of the property covered by Lot No. 5560 of the Guagua Cadastre situated at San Nicolas II, Betis, Guagua, Pampanga, being claimed by your deceased aunt, Ms. Marcela Ocampo, which you have adjudicated to yourself for the purpose of claiming ownership and possession thereof. It is represented that the reasons for your aforesaid request are as follows: 1.) That priests cooperate with the moral and 1/2 spiritual upliftment of our people, hence, catholic church properties are tax exempt; 2.) That the two lots concerned will be used for religious purposes; and 3.) That God has required from you a vow of poverty all your priestly life 1954-1989. In reply, please be informed that based on the foregoing reasons, your request cannot be granted. Moreover, under Section 21(e) of the Tax Code, as amended, capital gains presumed to have been realized from the sale, exchange or other disposition of real property located in the Philippines classified as capital assets, including pacto de retro sales and other forms of conditional sales, by individuals, including estates and trusts, shall be taxed at the rate of 5% based on the gross selling price or the fair market value prevailing at the time of sale, whichever is higher. It will be noted from the foregoing provision that the seller is the one liable for the 5% capital gains tax on sale of real property classified as capital assets and not the buyer thereof. Accordingly, the reasons for your request do not apply to Mr. Cornelio C. Ocampo, the seller in the aforementioned sale made in your favor. Furthermore, even assuming that you are the one liable for the said tax, the same conclusion would still be arrived at since it is a cardinal rule in taxation that exemptions therefrom are highly disfavored in law and he who claims tax exemption must be able to justify his claim or right. The exemption cannot be established by mere implication but it must be clearly expressed. (Wonder Mechanical Engineering Corporation vs. Court of Tax Appeals, et al, 64 SCRA 555). Also, under Section 78(a) of the Tax Code, as amended the value of the gross estate of the decedent shall be determined by including the value at the time of death of all property, real or personal, tangible or intangible, wherever situated, to the extent of the interest therein of the decedent at the time of his death. Accordingly, the interest on the property you adjudicated unto yourself which your deceased aunt had prior to her death forms part of her gross estate subject to estate tax. The only probable instance of tax exemption regarding said properties which you said will be used for religious purposes, is in the case of the real property tax. Art. VI, Sec. 28(3) of the Constitution provides for exemption if properties are "actually, directly, and exclusively" used for religious, charitable, and educational purposes. The impositions herein like the 5% capital gains tax and the estate tax are not real property taxes but taxes on excises and privileges. cdt Very truly yours, (SGD.) VICTOR A. DEOFERIO, JR. Deputy Commissioner