BIR Ruling No. 433-12

June 25, 2012 BIR RULING NO. 433-12 RA 7279; Section 27 (D) (5) of the 1997 Tax Code, as amended; BIR Ruling No. 396-2011 Sy E. Him, Antonio Sy and Manuel Sy 677 Elcano St., Tondo Manila Gentlemen : This refers to the 2nd indorsement dated September 12, 2011 of Revenue Region No. 5-Caloocan City requesting for an exemption from payment of Expanded Withholding Tax and Documentary Stamp Tax on the transfer of a parcel of land pursuant to Republic Act 7279 otherwise known as the "Urban Development and Housing Act of 1992". Documents submitted disclosed that the NHA, with Taxpayer Identification No. 000-916-384-000 is the registered owner of the parcel of land designated as Lot 15 of the consolidation-subdivision plan Pcs-00-011604 being a consolidation of Lots 4-B-1 & 4-A-2-B-4, Psd-00-048069 and Lot 5-E-1, Psd-00-048070, L.R.C. Record No. 1288 covered by Transfer Certificate of Title (TCT) No. M-35827 located at Brgy. North Bay Blvd. South, Navotas City issued by the Registry of Deeds for Malabon City; that the property is within the Dagat-Dagatan Project, a resettlement/slum/zonal upgrading project of the NHA; that the said property disposed is a commercial area to support the cross-subsidy scheme under Urban II Area 5 agreement with the World Bank and to generate employment opportunities in the project for the benefit of the beneficiaries; that on October 1, 1984, NHA executed a Conditional Contract to Sell over the subject property to Sy E. Him, Antonio Sy and Manuel Sy at an agreed price of Nine Hundred Ninety Seven Thousand Six Hundred Pesos (P997,600.00) at Four Hundred Pesos (P400.00) per sq.m.; that the agreed price shall be payable for a period not to exceed 15 years with interest at the rate of 18% per annum until fully paid in 180 monthly installment in the amount of Fifteen Thousand Two Hundred Eighty Nine Pesos & 33/100 (P15,289.33) commencing from January 1985; that the initial payment made in the amount of Forty Eight Thousand Two Hundred Pesos & 34/100 (P48,200.34) was acknowledged by the NHA; that on August 4, 2010, NHA executed a Deed of Sale whereby it transferred and conveyed, two thousand five hundred eighteen square meters (2,518 sq.m.) 1 of the subject property to Sy E. Him, Antonio Sy and Manuel Sy at an agreed price of One Million Seven Thousand Two Hundred Pesos (P1,007,200.00) at Four Hundred Pesos (P400.00) per sq.m. HSEcTC In reply, please be informed that Section 19 of Republic Act (RA) No. 7279, otherwise known as the Urban Development and Housing Act of 1992 provides as follows: "Sec. 19. Incentives for the National Housing Authority. The National Housing Authority, being the primary government agency in charge of providing housing for the underprivileged and homeless, shall be exempted from the payment of all fees and charges of any kind, whether local or national, such as income and realty taxes. All documents or contracts executed by and in favor of the National Housing Authority shall also be exempt from the payment of documentary stamp tax and registration fees, including fees required for the issuance of transfer certificates of title." Moreover, Section 3 (r) of R.A. 7279 defines "socialized housing" as follows: "(r) "Socialized housing" refers to housing programs and projects covering houses and lots or homelots only undertaken by the Government or the private sector for the underprivileged and homeless citizens which shall include sites and services development, long-term financing, liberalized terms on interest payments, and such other benefits in accordance with the provisions of this Act; " (Underscoring supplied) In this case, the sale of commercial lot to Sy E. Him, Antonio Sy and Manuel Sy, although certified by the NHA as within its low cost housing project, is nevertheless outside the definition of a "socialized housing" in relation to the tax incentives for the NHA under Section 19 of R.A. 7279. Moreover, under Section 27 (D) (5) of the 1997 Tax Code, as amended, it is provided that in the case of sale, exchange, or other disposition of lands and/or buildings which are not actually used in business and are treated as capital assets by domestic corporations, a final tax of six percent (6%) based on the gross selling price or current fair market value as determined in accordance with Section 6 (E) of the Tax Code, whichever is higher, is imposed upon capital gains presumed to have been realized therefrom. It must be noted that the capital gains tax mentioned under the aforementioned provision is an income tax, the burden of which rests upon the seller which, in this case, is the National Housing Authority. It is noteworthy to mention that National Housing Authority is subject to the capital gains tax of 6% imposed on its capital gains presumed to have been realized from the sale of the said parcel of land in spite of its being a government agency. This is in accordance with Sec. 32 (B) (7) (b) of the Tax Code of 1997 which provides that only the income derived by the government agency from the exercise of its essential governmental function shall be excluded from its gross income. ( BIR Ruling No. 396-2011 dated October 25, 2011 ) Furthermore, the Deed of Absolute Sale is subject to the documentary stamp tax based on the actual consideration of the property sold pursuant to Sec. 196 of the Tax Code of 1997. In view of the foregoing, this Office regrets to deny your request for exemption from capital gains tax and documentary stamp tax for lack of legal basis. cADEIa Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue Footnotes 1. Increased by 24 sq.m. per certification issued by NHA.