Request to Pay Taxes Due on Sale of Land Based on Consideration in Deed of Sale Rather than on Zonal Valuation

December 24, 1991 BIR RULING NO. 272-91 50 (b) 000-00 272-91 Gentlemen : This refers to your letter dated July 25, 1991 requesting in effect that you be allowed to pay the taxes due on the sale in your favor by Benpres Corp. on June 27, 1991 of its parcel of land situated at Madurriao, Iloilo City, covered by TCT No. 47197 based on the consideration appearing on the Deed of Sale executed for the purpose and not on the zonal valuation of the property and the waiver of the requirement that payment of documentary stamp tax must be made within 24 hours from the signing of the said Deed of Sale. It is represented that you are a community association of landless urban poor consisting of 134 low-ranking military and police personnel registered with the SEC on September 28, 1989; that you started your said home lot acquisition project for your members in May 1989 by offering to purchase the Benpres property in Mandurriao at P36.00/sq. m., that Benpres agreed to your lower-than-market price offer because it knew that your members were low-salaried and low-ranking military and police personnel and there is no other buyer then; that as a result you applied for a loan with the National Home Mortgage Finance Corp. (NHMFC); that Benpres was issued its Letter of Guaranty, in your favor by the NHMFC on May 1991 but not before Benpres has advised you of its intention to withdraw its commitment to sell after July 15, 1991; that you were thus left with the option to apply for interim financing from Home Insurance & Guaranty Corp. (HIGC) whose charter allows its liberality or fast-tracking loan releases of NHMFC approved loans; that among its requirements was a Deed of Sale between you and Benpres; that this deed was signed, notarized and delivered to HIGC in Manila on July 2, 1991; that unfortunately, the President of HIGC was in Cebu that day and the check for Benpres could not be signed and delivered until July 12, 1991; that it was not until July 17, 1991 that the HIGC representative came to Iloilo to deliver to you the check representing the withheld tax (capital gains tax) from the (sale) transaction with Benpres (for payment to BIR Iloilo); that at the earliest you could remit the withheld tax in the amount of P71,442.00 only on July 18, 1991 which is beyond the 24 hours required by this Office; that when you tried to effect payment last July 18, 1991; you were told that you are liable to pay surcharge for late payment (documentary stamp tax); that the taxes withheld was based on the Deed of Sale and the actual amount paid by HIGC to Benpres (P1,428,840.00 or at P36.00 per sq. m.) and not on the zonal valuation of P130.00 per sq. m.; that an additional P186,543.00 (capital gains tax) would have to be withheld and paid to this Office if the latter were to be the basis; that Benpres does not agree to the payment of the additional sum of P186,543.00, while, on the other hand, your members cannot afford to raise the said amount on top of the documentary stamp tax and other transfer expenses; and that as a consequence: the title cannot be transferred to you; the advance of HIGC cannot be refunded by HIGC; and your members will continue to be frustrated in their long sought desire to finally own their land on which to build their homes. In reply, please be informed that all sales, exchanges, or transfers of real properties (whether classified as ordinary or capital asset) by corporation, as in the instant case, consummated on or after January 1, 1990, are subject to the creditable withholding tax imposed under Revenue Regulations No. 1-90 implementing Section 50 (b) of the Tax Code, as amended, and not to the 5% capital gains tax imposed under Section 21 (e) of the Tax Code, based on the gross selling price. For this purpose, the term "Gross Selling Price" means the consideration stated in the sales document or the fair market value/zonal value, whichever is higher. (Revenue Memorandum Circular No. 7-90). However, this Office, realizing that it takes a considerable amount of sacrifice and fortitude on the part of the Benpres to part with and dispose of its real property specially at a price much lower than the current zonal valuation or market appraised value and considering that the likelihood of understatement of consideration is remote in this case as the payment thereof was made through the National Home Mortgage Finance Corporation and the Home Insurance & Guaranty Corporation both of whom are government corporations financing the government's shelter program, the use of the actual consideration of P36.00 per square meter as basis in determining Benpres creditable withholding tax liability as a consequence of said sale of its property, is hereby granted as an exception to the policy of this Bureau in relation to Revenue Regulations No. 1-90 implementing Section 50 (b) of the Tax Code, as amended. Moreover, under Section 248 (d) of the Tax Code, as amended in case of failure to affix the property documentary stamps to a document or instrument, there shall, for every violation, be imposed, in addition to the amount of documentary stamp tax required to be paid, an amount equivalent to twenty-five (25%) percent of such unpaid amount which shall be in lieu of the interest prescribed in Section 249 of the same Code. However, under Section 204 (b) (2) (a) of the Tax Code, as amended, the Commissioner may abate or cancel a tax liability, when the tax or any portion thereof appears to be unjustly on excessively assessed. Accordingly, and since under the attendant facts of this case the imposition of the 25% surcharge prescribed under Section 248 (d) of the same Code could be considered as excessive and unjust, this Office hereby waives the same on your failure to affix the proper documentary stamp tax on the aforementioned Deed of Sale covering the sale by Benpres in your favor of its parcel of land covered by TCT No. 47197. Very truly yours, (SGD.) JOSE U. ONG Commissioner