BIR Ruling No. 396-15

December 7, 2015 BIR RULING NO. 396-15 Section 29, 37, 51 (e), 72, of Commonwealth Act No. 466; BIR General Circular No. V-125 Philippine Air Force Colonel Jesus Villamor Air Base, Pasay City Attention: Lt. Col. Froilando G. Angat Chief, Air Force Real Estate Office Gentlemen : This refers to your letter dated February 3, 2014, requesting for a ruling confirming your opinion that that the expropriation, decreed and declared final on December 28, 1954, of 187 parcels of land in Lipa City, Batangas by the Philippine Government for the use of the military and where the Fernando Air Base now stands, is exempt from Capital Gains Tax (CGT); and directing the concerned Revenue District Office (RDO) to issue a Certificate Authorizing Registration (CAR) to effect the transfer of the titles of the lots concerned. It is represented that on March 31, 1951, the Court of First Instance-Batangas rendered its decision in Republic of the Philippines vs. Enrique Lara, et al. (Civil Case No. 43 for [Eminent Domain]) declaring that the Republic of the Philippines has the right to expropriate 187 parcels of land in Lipa City and the corresponding just compensation for each property. The amounts therein set were appealed by the land owners to the Supreme Court and the latter decided on November 29, 1954 to affirm the lower court's decision with the exception of the revaluation of the just compensation for nine (9) properties (Lot Nos. 6613, 6612, 6609, 6604-A, 6606-A, 6610-A, 6611-A, 8445, and 6247-A). The Decision became final after the Entry of Judgment effected on December 28, 1954. However, while the dockets were remanded by the Supreme Court to the Court of First Instance-Batangas, no revaluation was conducted as the latter was not able to take action on the said case. The Philippine Air Force, on its part, sought the intervention of the Office of the Solicitor General (OSG) so that an action for revival of judgment be filed before the trial court to partly execute and/or implement the said Supreme Court's Decision. However, the OSG opined, the decision sought to be executed having become final in 1954, the right to file an action for revival of judgment to execute the decision in the expropriation is no longer legally feasible and has long prescribed. The PAF requested the Registrar of Deeds of Lipa City for the implementation of the judgement in the Supreme Court Decision on G.R. No. L-5080. The Register of Deeds of Lipa City required the PAF to secure a BIR Ruling/Certification in order to effect the registration of the 187 parcels of land subject of the expropriation. You now request for a Ruling declaring the expropriation of the 187 parcels of land in 1954 as exempt from CGT, since the law creating the CGT, Batas Pambansa Blg. 37, was only enacted on September 7, 1979; and recommending the issuance of a CAR. In reply, we affirm your position that the expropriation of the 187 parcels of land, where the Fernando Air Base now stands, is exempt from CGT. HOWEVER, the respective landowners of the 187 parcels of land should have reported and included the amount of just compensation received for income tax purposes as imposed under Section 21 in relation to Sections 29 and 37 of Commonwealth Act No. 466. No CGT is due on the expropriation of the 187 parcels of lot since Commonwealth Act No. 466, the National Internal Revenue Code in effect in 1954, does not have any provision imposing CGT. However, the same law provides that income from sale of real property shall be considered part of an individual or a corporation's gross income and subjects the same, not to CGT, but to the regular income tax rates. Section 29 of Commonwealth Act No. 466, provides: ASEcHI SECTION 29. Gross Income. (a) General Definition. "Gross income" includes gains, profits, and income derived from salaries, wages, or compensation for personal service of whatever kind and in whatever form paid, or from professions, vocations, trades, business, commerce, sales, or dealings in property, whether real or personal, growing out of the ownership or use of or interest in such property ; also from interests, rents, dividends, securities, or the transactions of any business carried on for gain or profit, or gains, profits, and income derived from any source whatever. xxx xxx xxx SECTION 37. Income from Sources within the Philippines. (a) Gross income from sources within the Philippines. The following items of gross income shall be treated as gross income from sources within the Philippines: xxx xxx xxx (5) Sale of real property. Gains, profits, and income from the sale of real property located in the Philippines ; and Thus, for purposes of the issuance of CARs on the expropriated properties, proof of the payment of income tax on the just compensation received by the landowners must be presented to the Revenue District Office having jurisdiction over the said properties. If no proof of payment is presented, income tax on such just compensation shall have to be paid at the rate of income tax for individuals in 1954. 1 Since the same shall be considered late payment of taxes, it shall be imposed interest, surcharge and compromise penalty as follows: Interest Section 51 (e) of Commonwealth Act No. 466, to wit: SECTION 51. Assessment and Payment of Income Tax. (a) Assessment of tax. . . . xxx xxx xxx (e) Surcharge and interest in case of delinquency. To any sum or sums due and unpaid after the dates prescribed in subsections (b), (c) and (d) for the payment of the amount of tax unpaid and interest at the rate of one per centum a month upon said tax from the time the same became due , except from the estates of insane, deceased, or insolvent persons. Surcharge The imposition of surcharge shall be based, considering the fact of expropriation and the antecedent circumstances, on Section 72 of Commonwealth Act No. 466, which provides: SECTION 72. Surcharge for Failure to Render Returns and for Rendering False and Fraudulent Returns. The Collector of Internal Revenue shall assess all income taxes. In case of willful neglect to file the return or list within the time prescribed by law, or in case a false or fraudulent return or list is wilfully made, the Collector of Internal Revenue shall add to the tax or to the deficiency tax, in case any payment has been made on the basis of such return before the discovery of the falsity or fraud, or surcharge of fifty per centum of the amount of such tax or deficiency tax. In case of any failure to make and file a return or list within the time prescribed by law or by the Collector or other internal-revenue officer, not due to willful neglect, the Collector of Internal Revenue shall add to the tax twenty-five per centum of its amount, except that, when a return is voluntarily and without notice from the Collector or other officer filed after such time, and it is shown that the failure to file it was due to a reasonable, cause, no such addition shall be made to the tax. The amount so added to any tax shall be collected at the same time and in the same manner as part of the tax unless the tax has been paid before the discovery of the neglect, falsity or fraud, in which case the amount so added shall be collected in the same manner as the tax. ITAaHc Compromise Penalty BIR General Circular No. V-125 dated January 2, 1952 imposes the following compromise penalties: "1. Failure to file required income tax return (a) Individual for gross income of P10,000.00 or less P10.00 (b) Corporations . . . These compromises are for those cases where the returns have been voluntarily filed. Where the returns have been required to be filed, the compromise should be doubled. Where the taxpayer refuses to file or sign a return, the compromise should be trebled. 2. Failure to Pay tax on time. In addition to the 5% surcharge and 1% monthly interest for late payment, the following compromise for such late payment should be collected. If the amount of the income tax assessed or demanded, exclusive of the 5% surcharge and the 1% monthly interest (a) Does not exceed P100 P5.00 (b) Exceeds P100.00 but does not exceed P1,000.00 P10.00 (c) Exceed P1,000.00 but does not exceed P5,000.00 P20.00 (d) Exceeds P5,000.00 P40.00" cSaATC 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 Footnotes 1. The applicable rate in December 1954 is that provided in Commonwealth Act No. 466 as amended by Republic Act No. 1094: "Sec. 21. Rates of tax on citizens or residents. There shall be levied, assessed, collected, and paid annually upon the entire net income received by the preceding taxable year from all sources by every individual, a citizen or resident of the Philippines, a tax equal to the sum of the following: "Five per centum per annum upon the amount by which such total net income does not exceed two thousand pesos; "Eight per centum per annum upon the amount by which such total net income exceed two thousand pesos and does not exceed four thousand pesos; "Twelve per centum per annum upon the amount by which such total net income exceeds two thousand pesos; "Sixteen per centum per annum upon the amount by which such total net income exceed six thousand pesos and does not exceed eight thousand pesos; "Twenty per centum per annum upon the amount by which such total net income exceeds eight thousand pesos and does not exceed ten thousand pesos; "Twenty-four per centum per annum upon the amount by which such total net income exceeds ten thousand pesos; and does not exceed twenty thousand pesos; "Thirty per centum per annum upon the amount by which such total net income exceeds twenty thousand pesos and does not exceed thirty thousand pesos; "Thirty-six per centum per annum upon the amount by which such total net income exceeds thirty thousand pesos and does not exceed forty thousand pesos; "Forty per centum per annum upon the amount by which such total net income exceeds forty thousand pesos and does not exceed fifty thousand pesos; "Forty-two per centum per annum upon the amount by which such total net income exceeds fifty thousand pesos and does not exceed sixty thousand pesos; "Forty-four per centum per annum upon the amount by which such total net income exceeds sixty thousand pesos and does not exceed seventy thousand pesos; "Forty-six per centum per annum upon the amount by which such total net income exceeds seventy thousand pesos and does not exceed eighty thousand pesos; "Forty-eight per centum per annum upon the amount by which such total net income exceeds eighty thousand pesos and does not exceed ninety thousand pesos; "Fifty per centum per annum upon the amount by which such total net income exceeds ninety thousand pesos and does not exceed one hundred thousand pesos; "Fifty-two per centum per annum upon the amount by which such total net income exceeds one hundred thousand pesos and does not exceed one hundred and twenty thousand pesos; "Fifty-three per centum per annum upon the amount by which such total net income exceeds one hundred and twenty thousand pesos and does not exceed one hundred and forty thousand pesos; "Fifty-four per centum per annum upon the amount by which such total net income exceeds one hundred and forty thousand pesos and does not exceed one hundred and sixty thousand pesos; "Fifty-five per centum per annum upon the amount by which such total net income exceeds one hundred and sixty thousand pesos and does not exceed one two hundred thousand pesos; "Fifty-six per centum per annum upon the amount by which such total net income exceeds two hundred thousand pesos and does not exceed one two hundred and fifty thousand pesos; "Fifty-seven per centum per annum upon the amount by which such total net income exceeds two hundred and fifty thousand pesos and does not exceed three hundred thousand pesos; "Fifty-nine per centum per annum upon the amount by which such total net income exceeds three hundred thousand pesos and does not exceed four hundred thousand pesos; "Sixty per centum per annum upon the amount by which such total net income exceeds five hundred thousand pesos."