Computation of the Basis of the Zonal Value of the Properties Sold

December 11, 1989 BIR RULING NO. 248-89 24 000-00 248-89 2nd Indorsement August 31, 1989 Returned to the Assistant Commissioner, National Assessment Office, Attention: The Chief, National Audit Review Division, the entire docket bearing on the internal revenue tax case of Cosmos Bottling Corporation, 241 MacArthur Highway, Malabon, Metro Manila, relative to the sale of portions of its properties covered by TCT Nos. 178590, 178591, 178592 in favor of the government represented by the National Irrigation Administration (NIA) on January 19, 1988. cdt Records of this case disclosed that taxpayer is a domestic corporation engaged in business as a manufacturer of soft drinks; that it was formerly named The Manila Cosmos Aerated Water Factory, Inc.; that it is the registered owner of several parcels of land situated at Muntinlupa, Rizal covered by TCT Nos. 178590, 178591 and 178592; that on January 19, 1988, it entered and executed with the NIA a Deed of Absolute Sale with Right-of-Way Easement whereby it sold portions of said properties covering Lot Nos. 290-E-1-3 with a total area of 614 sq.m., 293-B with a total of 482 sq.m. and 292-B with a total area of 1,616 sq.m. in favor of the government represented by the NIA for and in consideration of P474,325.26 so as to allow the passage and construction of the NIA canal and other facilities designed to siphon water from Laguna Lake to the Cavite Lands for agricultural purposes; that said sale was approved by the Court in its order dated March 25, 1988 granting the motion of the taxpayer dated January 21, 1988 to the effect that the sale agreement it executed with the NIA on January 19, 1988 be considered as the amicable settlement or compromise agreement between itself and the Republic of the Philippines represented by the NIA in Civil case No. 14718 filed against it by the latter for the purpose of expropriating its aforementioned properties; that as a consequence of said sale, it filed with this Office a capital gains tax return on August 8, 1988 and paid documentary stamp tax amounting to P18,275.00 under Confirmation Receipt No. B14939913 dated August 26, 1988; that based on said return and payment, this Office issued a Certificate Authorizing Registration of the aforesaid properties sold in favor of the NIA; that it is stated in said certificate that the zonal valuation of the properties sold amounts to P1,301,760.00 while the fair market value as per assessor's findings of Lot Nos. 290-E-1,292 and 293 which cover the portion of the properties sold amounts to P180,080.00, P540,050.00 and P3,130,050.00, respectively; that upon review of the aforesaid sale transaction, this Office requested the taxpayer to submit certain documents pertinent to the same for its proper evaluation which include the 1988 Income Tax Return of the taxpayer and the deed of sale evidencing taxpayer's acquisition of the properties sold; that based on the copy of the Deed of Sale with Real Estate Mortgage to Secure Balance of Purchase Price submitted by the Taxpayer Lot Nos. 292 and 293 containing an area of 17,886 sq.m. and 3,096 sq.m. respectively, were acquired by the taxpayer from Mr. Eustaquio M. Arevalo on December 20, 1966 for and in consideration of P133,000.00; and that in taxpayer's 1989 Income Tax Return it is shown that it reported the amount of P445,193.76 as its income from the sale of its property. Based on the foregoing, a ruling is now, in effect, being requested as to whether or not the gains derived by the taxpayer on the aforementioned sale in favor of the government represented by the NIA should be computed based on the zonal value of the properties sold. It is noted in this case that the taxpayer is a corporation; hence, the gain derived from the above sale transaction forms part of its gross income subject to income tax. (Sec. 28, Tax Code) The gain derived from the transaction is computed in accordance with Section 34(a) as follows: "SEC. 34. Determination of Amount of and Recognition of Gain or Loss . (a) Computation of gain or loss . The gain from the sale or other disposition of property shall be the excess of the amount realized therefrom over the basis or adjusted basis for determining gain and the loss shall be the excess of the basis or adjusted basis for determining loss over the amount realized. The amount realized from the sale or other disposition of property shall be the sum of money received plus the fair market value of the property (other than money) received". (As amended by E.O. No. 37). From the foregoing provision, the amount realized from the sale shall be determined according to the fair market value of the property (other than money) received. Under Section 16(e) of the Tax Code, as amended, for purposes of computing any internal revenue tax the value of the property shall be whichever is the higher of: (1) The fair market value as determined by the Commissioner; or (2) The fair market value as shown in the schedule of values of the Provincial and City Assessors. Accordingly, if upon proper computation it is determined that the fair market value as determined by the Commissioner (zonal value) of the aforementioned properties sold is higher than the fair market value as shown in the schedule of values of the Provincial and/or City Assessor, the gains derived by the taxpayer on the aforesaid sale in favor of the government should, therefore, be computed based on the zonal values of said properties sold. aisadc Very truly yours, (SGD.) JOSE U. ONG Commissioner