BIR Ruling No. 349-15

October 8, 2015 BIR RULING NO. 349-15 RA No. 7279; RA 7160; BIR Ruling No. 201-14 Urban Settlements Office Room 569, 5th Floor, Manila City Hall Building, Arroceros St., Ermita, Manila Attention: Ms. Victoria S. Clavel City Government Department Head III Gentlemen : This is to acknowledge your letter dated June 9, 2014, requesting for a ruling that the transfer of a private property registered under Manotok Realty, Inc. covered by Transfer Certificate of Title (TCT) No. 24544 to the City of Manila by virtue of Expropriation Order intended for the latter's socialized housing program, is exempted from payment of capital gains tax and other fees allowed under R.A. No. 7279, otherwise known as the "Urban Development and Housing Act of 1992". Documents submitted show that Manotok Realty, Inc. (TIN 000-629-804-000) is the absolute registered owner of a parcel of land covered by TCT No. 24544 issued by the Registry of Deeds for the City of Manila; that the aforesaid property is situated at the District of Bagumbuhay, Tondo, Manila, containing an area of Six Thousand Six Hundred Forty Six Square Meters and Eighty Square Decimeters (6,646.80), more or less; that on February 1, 2010, a Decision (Civil Case No. 04-110470 for Eminent Domain) was rendered by the Regional Trial Court of Manila, Branch 34 granting the expropriation of the subject property authorized by City Ordinance No. 8058 dated August 25, 2003; that the said property was for resale to qualified, actual and bona fide tenants/occupants of the area pursuant to the Land-for-the-Landless/Socialized Housing Program of the City of Manila; and that in the same decision the Court issued an order fixing the just compensation in the amount of Sixty Three Million Eleven Thousand Six Hundred Sixty Four Pesos & 03/100 (P63,011,664.03) and were received by Manotok Realty, Inc. as follows: CaSAcH Date Payments Made By: Amount (php) August 4, 2009 City of Manila 22,867,295.00 August 24, 2009 Community/Beneficiaries 71,065.00 March 4, 2011 City of Manila 21,240,870.00 November 19, 2012 Community/Beneficiaries 1,844,758.19 January 15, 2013 City of Manila 16,987,675.84 Total Payments 63,011,664.03 =========== In reply thereto, Section 19 of Republic Act No. 7160 provides the basis for the exercise of the power of eminent domain of local government, which provides that: "SECTION 19. Eminent Domain. A local government unit may, through its chief executive and acting pursuant to an ordinance, exercise the power of eminent domain for public use, or purpose or welfare for the benefit of the poor and the landless, upon payment of just compensation, pursuant to the provisions of the Constitution and pertinent laws: Provided, however, That the power of eminent domain may not be exercised unless a valid and definite offer has been previously made to the owner, and such offer was not accepted: Provided, further, That the local government unit may immediately take possession of the property upon the filing of the expropriation proceedings and upon making a deposit with the proper court of at least fifteen percent (15%) of the fair market value of the property based on the current tax declaration of the property to be expropriated: Provided, finally, That, the amount to be paid for the expropriated property shall be determined by the proper court, based on the fair market value at the time of the taking of the property." As an instrumentality of the government, a local government unit, which acts for the purpose of accomplishing government policies and objectives and extending essential services to the people, performs governmental and not proprietary functions. (Peoples' Homesite and Housing Corporation vs. Court of Industrial Relations, 150 SCRA 296, 310 [1987]) Thus, in line with the foregoing, it is a declared State policy as laid down in Republic Act No. 7279, otherwise known as the "Urban Development and Housing Act of 1992", to provide decent and affordable housing to the underprivileged and homeless citizens. (BIR Ruling No. 201-14 dated June 17, 2014) Moreover, the pertinent portion of Section 20 of RA No. 7279, reads: "Sec. 20. Incentives for the Private Sector Participating in Socialized Housing. To encourage greater private sector participation in socialized housing and further reduce the cost of housing units for the benefit of the underprivileged and homeless, the following incentives shall be extended to the private sector: IaHDcT xxx xxx xxx "(d) Exemption from the payment of the following: (1) . . . (2) Capital Gains Tax; xxx xxx xxx" Pursuant to the aforementioned provision, the owner of the raw land is exempt from the payment of capital gains tax on the conveyance although involuntarily of the above-described property in favor of the City of Manila for use in its socialized housing project. Upon application for exemption, a lien on the title of the land shall be annotated by the Register of Deeds having jurisdiction over the property, to the effect that the same is to be applied or is being applied to socialized housing project pursuant to R.A. 7279. (BIR Ruling No. 201-14 dated June 17, 2014) However, the sale is subject to the documentary stamp tax imposed under Section 196 of the Tax Code of 1997 based on the actual consideration of the property transferred, considering that one of the contracting parties is the Government. (BIR Ruling No. 201-14 dated June 17, 2014) This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be disclosed that the facts are different, then this ruling shall be considered null and void. Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue