BIR Ruling No. 357-12

May 23, 2012 BIR RULING NO. 357-12 RA 7279; RR 11-97;RMC No. 42-01; 000-00 Mardee Trading Realty and Development Corporation Escol Surveying Office Banale, Pagadian City, Zamboanga del Sur Attention: Patricio R. Marcelo General Manager Gentlemen : This refers to your letter dated November 10, 2011 requesting tax exemption on the alleged development of Socialized Housing in Brgy. Masao, Municipality of Tungawan, Zamboanga del Sur pursuant to Republic Act (R.A.) No. 7279, otherwise known as the "Urban Development and Housing Act of 1992". Documents submitted show that Mardee Trading Realty & Development, a duly registered estate development company, entered into a Joint Venture Agreement (JVA) with the following private parties with their corresponding personal information: Name of the Seller Address CTC NO. Celso T. Benzon Nasugbu, Batangas 16959981 Perfecto T. Benzon Jr. Ipil City, Zamboanga del Sur 28914844 Pedro T. Benzon Nasugbu, Batangas 16959953 Samuel T. Eguia Ipil City, Zamboanga del Sur On the same day, the parties executed Deeds of Absolute Sale (DOAS) which provides, to wit: Name of the Seller TCT No. Area (sq.m.) Price Celso T. Benzon T-34,465 20,003 P10.00/sq.m. Perfecto T. Benzon Jr. T-34,464 10,693 P10.00/sq.m. Pedro T. Benzon T-34,466 19,996 P10.00/sq.m. Samuel T. Eguia T-34,463 19,001 P10.00/sq.m. Heirs of Leonardo B. Tenorio 1 T-34,462 9,999 P10.00/sq.m. Moreover, the pertinent Deeds of Absolute Sale (DOAS) were executed pursuant to the JVA which provides, to wit: SECAHa "II. ROLE OF THE SECOND (LANDOWNER) PARTY xxx xxx xxx Shall sign the necessary Deed of Absolute Sale (DOAS), with Side Agreement covering his property for the purpose of securing the necessary bank loan or project financing from any private or government financing institutions." In reply, please be informed that your request for the tax exemption on the alleged development of socialized housing by Mardee Trading Realty & Development cannot be granted for lack of factual and legal basis. Sections 4 and 5 of R.A. No. 7279, states that: "Section 4. Coverage. The Program shall cover all lands in urban and urbanizable areas, including existing areas for priority development, zonal improvement sites, slum improvement and resettlement sites, and in other areas that may be identified by the local government units as suitable for socialized housing . Section 5. Exemptions. The following lands shall be exempt from the coverage of this Act: (a) Those included in the coverage of Republic Act No. 6657, otherwise known as the Comprehensive Agrarian Reform Law; (b) Those actually used for national defense and security of the State; (c) Those used, reserved or otherwise set aside for government offices, facilities and other installations, whether owned by the national government, its agencies and instrumentalities, including government-owned or -controlled corporations, or by the local government units: Provided, however, That the lands herein mentioned, or portions thereof, which have not been used for the purpose for which they have been reserved or set aside for the past ten (10) years from the effectivity of this Act, shall be covered by this Act; (d) Those used or set aside for parks, reserves for flora and fauna, forests and watersheds, and other areas necessary to maintain ecological balance or environmental protection, as determined and certified to by the proper government agency; and (e) Those actually and primarily used for religious, charitable, or educational purposes, cultural and historical sites, hospitals and health centers, and cemeteries or memorial parks. The exemptions herein provided shall not apply when the use or purpose of the abovementioned lands has ceased to exist." (Emphasis supplied) On the contrary, Mardee Trading only presented the Letter of Mayor Climaco dated August 22, 2011 stating in part: ". . . Initially, we shall be able to come-up with a scale model which will be prepared by your group/team for the approval of the Municipal Council, Complementing our Comprehensive Land Use Plan (CLUP) and which will serve our blueprint in our development program." (Underscoring ours) It is apparent that the aforementioned "scale model" is not yet approved. Further, the Municipal Mayor, as the head of the concerned Local Government Unit (LGU), did not categorically state that the proposed site is suitable for socialized housing as required by RA No. 7279. Furthermore, no supporting document was presented herein to prove that the proposed site for the project is not among the exempted lands mentioned under Section 5 of the said law. Moreover, Mardee Trading failed to submit proof to show compliance with the requisites laid down in Sections 8, 16, 17 and 39 of RA No. 7279, to wit: "Section 8. Identification of Sites for Socialized Housing. After the inventory the local government units, in coordination with the National Housing Authority, the Housing and Land Use Regulatory Board, the National Mapping Resource Information Authority, and the Land Management Bureau , shall identify lands for socialized housing and resettlement areas for the immediate and future needs of the underprivileged and homeless in the urban areas, taking into consideration and degree of availability of basic services and facilities, their accessibility and proximity of jobs sites and other economic opportunities, and the actual number of registered beneficiaries." DSHTaC "Section 16. Eligibility Criteria for Socialized Housing Program Beneficiaries. To qualify for the socialized housing program, a beneficiary: (a) Must be a Filipino citizen; (b) Must be an underprivileged and homeless citizen, as defined in Section 3 of this Act; (c) Must not own any real property whether in the urban or rural areas; and (d) Must not be a professional squatter or a member of squatting syndicates. Section 17. Registration of Socialized Housing Beneficiaries. The Housing and Urban Development Coordinating Council, in coordination with the local government units, shall design a system for the registration of qualified Program beneficiaries in accordance with the Framework. The local government units, within one (1) year from the effectivity of this Act, shall identify and register all beneficiaries within their respective localities." "Section 39. Role of Local Government Units. The local government units shall be charged with the implementation of this Act in their respective localities, in coordination with the Housing and Urban Development Coordinating Council, the national housing agencies, the Presidential Commission for the Urban Poor, the private sector and other nongovernment organizations . They shall prepare a comprehensive land use plan for their respective localities in accordance with the provisions of this Act." (Underscoring provided) Likewise, verification of the DOASs submitted herewith discloses that the beneficiaries of the socialized housing project are not yet determinable, viz.: "WHEREAS, the BUYER, is a duly licensed Contractor-Land Developer, who is likewise interested and qualified to acquire the above-described property for the purpose of constructing a housing project for qualified PAG-IBIG, Government Service Insurance System (GSIS), Social Security System (SSS) member; Teachers, salaried individuals, qualified policemen, military men and uniform service men; and, individual interested buyers ;" (Emphasis ours) In addition, inquiry of the DOASs and JVAs submitted herewith between Mardee Trading and the following private parties: CSDcTA Name Address 1. Celso T. Benzon Nasugbu, Batangas 2. Perfecto T. Benzon, Jr. Ipil City, Zamboanga del Sur 3. Pedro T. Benzon Nasugbu, Batangas yields that the said documents were not duly notarized considering that the registered business address of Mardee Trading is at Mango Drive, San Jose Road, Baliwasa, Zamboanga City (per DTI Certificate of Registration); that Mr. Patricio Reyes Marcelo, the sole proprietor of Mardee Trading, is a resident of # 10 Sta. Lutgarda, Macabebe, Pampangga ; and that the properties subject of the transfer are all located in the province of Zamboanga del Sur while the Notary Public who signed the said DOASs and JVAs is granted an authority to perform notarial acts in the City of Manila. Section 240 of the Notarial Law is explicit when it provided: "Section 240. Territorial jurisdiction. The jurisdiction of a notary public in a province shall be co-extensive with the province. The jurisdiction of a notary public in a City of Manila shall be co-extensive with said city. No notary shall possess authority to do any notarial act beyond the limits of his jurisdiction ." (Boldfacing supplied) Further, it is noteworthy to mention that a notary public's commission is the grant of authority in his favor to perform notarial acts. It is issued "within and for" a particular territorial jurisdiction and the notary public's authority is co-extensive with it. In other words, a notary public is authorized to perform notarial acts, including the taking of acknowledgments, within that territorial jurisdiction only. Outside the place of his commission, he is bereft of power to perform any notarial act; he is not a notary public. Any notarial act outside the limits of his jurisdiction has no force and effect. 2 Furthermore, Article 1358 of the Civil Code requires that the form of a contract that transmits or extinguishes real rights over immovable property should be in a public document but the failure to observe proper form does not render the transaction invalid. However, it is settled in our jurisprudence that contracts, otherwise valid and binding among the parties, produces legal effects only between the parties. Consequently, the provisions of the DOASs and JVAs submitted herewith do not produce any binding effect on the BIR, a third party to the contract. Finally, as regards the JVA executed between Mardee Trading and Samuel T. Eguia, the pertinent Community Tax Certificate (CTC) of the latter and his spouse are not duly indicated therein in contravention of Section 251 of the Notarial Law which states: "Section 251. Requirement as to notation of payment of (cedula) residence tax. Every contract, deed, or other document acknowledged before a notary public shall have certified thereon that the parties thereto have presented their proper (cedula) residence certificates or are exempt from the (cedula) residence tax, and there shall be entered by the notary public as a part of such certification the number, place of issue, and date of each (cedula) residence certificate as aforesaid . (See C.A. 238, re abolition of cedula tax; see also C.A. 465, Section 6, re presentation of residence certificate by a person liable to pay residence tax when acknowledging document before a notary public.)" (Emphasis ours) In view of the foregoing, request for the tax exemption on the alleged development of socialized housing by Mardee Trading Realty & Development cannot be granted for lack of factual and legal basis. Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue Footnotes 1. Only a Joint Deed of Sale with Inchoate Rights was executed with Mardee Trading, represented by its sole proprietor and General Manager, Patricio R. Marcelo exclusive of any JVA. 2. Bella A. Guerrero vs. Resurreccion A. Bihis , G.R. No. 174144, April 17, 2007.