BIR Ruling No. 262-11

July 27, 2011 BIR RULING NO. 262-11 Section 204 (C) of the Tax Code of 1997, as amended; BIR Ruling No. 006-09 Mr. Salvador B. Chan #12 West Point Street, Cubao, Quezon City Sir : This refers to your letter dated 10 September 2009 requesting a refund for capital gains tax and documentary stamp tax payments made in relation to two (2) foreclosure sale of real property consequently declared null and void by the Courts with finality. It appears from the facts represented that you were legally married to Leonida Llamanzares Chan on January 3, 1962 in Manila and among your conjugal properties were two (2) parcels of land evidenced by Transfer Certificate of Title (TCT) RT-4828 located at the district of Cubao, Quezon City containing an area of 300 square meters, more or less; and Transfer Certificate of Title (TCT) RT-13550 located at San Roque/Murphy, Quezon City containing an area of 604 square meters, more or less. A Special Power of Attorney was executed in your favor in order to secure or borrow a loan from any party and, as collateral thereof, to mortgage in whole or in part, the abovementioned real properties. It also appears that such Special Power of Attorney was revoked on December 28, 1984 which instrument was registered on January 5, 1985. Despite such revocation, you proceeded to enter into a real estate mortgage for the abovementioned properties with Cesario Davilla and Huspicio Arceo which ultimately resulted in their extra-judicial foreclosure. The trial courts, in two (2) separate cases, found that "using the Real Estate Mortgage, which defendants intentionally allowed to mature, and motivated by a commonality of purpose and mutually conspiring and confederating with one another, defendants were able to cause extra-judicial foreclosure of the mortgage on the property at public auction and had the same sold, as the highest bidder, to Cesario Davilla, Jr. by the Ex-Officio Sheriff of Quezon City on November 28, 1990, without, however, paying any single centavo as bid price thereof." And Salvador and Huspicio, through conspiracy, was able to extra-judicially foreclose the property and sold it at public auction: the property was eventually sold to Huspicio. aEHASI As a result, Certificates of Sale were issued, TCT RT-4828 and TCT RT-13550 were cancelled and new Transfer Certificates of Title were issued by the Register of Deeds of Quezon City to the two (2) highest bidders Davilla and Arceo. It is alleged that in order to transfer the subject properties to such highest bidders and in compliance with the provisions of the National Internal Revenue Code, you paid the corresponding Capital Gains Tax of 6% and Documentary Stamp Tax of 1.5%. We reply accordingly, Despite repeated requests made by this Office, no Certificate from the Revenue Accounting Division was ever produced or submitted showing payment of the abovementioned taxes. Neither was the tax returns and official receipts produced showing that such taxes were indeed paid. Nevertheless, even assuming that such documents were produced, we are constrained to deny your request for the following reasons: Section 204 (C) of the National Internal Revenue Code of 1997, as amended, which took effect on January 1, 1998, provides that: "Credit or refund of taxes erroneously or illegally received or penalties imposed without authority, refund the value of internal revenue stamps when they are returned in good condition by the purchaser, and, in his discretion, redeemed or change unused stamps that have been rendered unfit for use and refund their value upon proof of destruction. No credit or refund of taxes or penalties shall be allowed unless the taxpayer files in writing with the Commissioner a claim for credit or refund within two (2) years after the payment of the tax or penalty , provided, however, that a return filed showing an overpayment shall be considered as a written claim for credit or refund." (emphasis ours) Thus, considering that the claim for refund was filed with this Office only on September 10, 2009, it is clear that such claim for refund has already prescribed for having been filed more than two (2) years after the payments of tax, which were presumably made sometime in 1991 and 1992 prior to the issuance of new TCTs in favor of Davilla and Arceo. In the case of State Land Investment Corporation vs. Commissioner of Internal Revenue , 1 the Court held that: "Substantial justice, equity and fair play are on the side of petitioner. Technicalities and legalisms, however exalted, should not be misused by the government to keep money not belonging to it, thereby enriching itself at the expense of its law-abiding citizens. Under the principle of solutio indebiti , provided in Art. 2154, C ivil Co de, the BIR received something "when there [was] no right to demand it," and thus, it has the obligation to return it. Heavily militating against the respondent Commissioner is the ancient principle that no one, not even the state, shall enrich oneself at the expense of another. Indeed, simple justice requires the speedy refund of the wrongly held taxes." In this case, however, the trial courts found, as affirmed by the Court of Appeals, that fraudulent means were employed. Such being the case, substantial justice, equity and fair play dictate that such technicalities remain. Furthermore, the principle of solutio indebiti is not applicable as the Civil Code is merely a general law while the Tax Code is a special law. 2 cEATSI Moreover, the payment of the amounts sought to be recovered or credited should be an independent single act of voluntary payment of a tax believed to be due and collectible when it is not so, or in other words, a payment by mistake. 3 In the instant case, the payments of DST and CGT were actually due when it was paid in the course of the transfer of the properties. At the time of the foreclosure and auction sale, the transfer of the properties became effective with the rights proceeding therefrom being vested until such time that the said transfers were annulled by the court. Hence, the payment of the taxes was actually valid at the time of the subject transactions. As repeatedly held by the Supreme Court, a claim for refund is in the nature of a claim for exemption and should be construed strictissimi juris against the taxpayer. 4 This principle was reiterated recently in the case of Commissioner of Internal Revenue vs. Bank of the Philippine Islands . 5 Accordingly, your claim for refund is already barred by prescription for failure to file within the reglementary period in accordance with Section 240 (C) of the National Internal Revenue Code of 1997, as amended. (BIR Ruling No. 006-09 dated April 1, 2009). This is our final ruling on the matter. Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue Footnotes 1. G.R. No. 171956 dated January 18, 2008. 2. Commissioner of Internal Revenue vs. Manila Electric Company , CTA EB Case No. 264 dated October 15, 2007. 3. Chemical Industries of the Philippines, Inc. vs. CIR , CA-G.R. SP No. 622881 dated December 12, 2005. 4. Commissioner of Internal Revenue vs. Tokyo Shipping Co., Ltd., 244 SCRA 332; Province of Tarlac vs. Alcantara , 216 SCRA 790, Philippine Petroleum Corp. vs. Municipality of Pililia Rizal, 198 SCRA 82; Commissioner of Internal Revenue vs. Mitsubishi Metal Corp. , 181 SCRA 214. 5. G.R. No. 134062 dated April 17, 2007.