Bureau of Local Government Finance Opinion

February 9, 2005 BUREAU OF LOCAL GOVERNMENT FINANCE OPINION 3rd Indorsement Respectfully returned, thru the OIC-Regional Director for Local Government Finance, Region IV-13 MIMAROPA, People's Mansion Compound, Batangas City, to the City Assessor, Puerto Princesa City, his within next preceding Indorsement dated June 14, 2004, requesting opinion/ruling on the propriety/legality for the transfer of real properties, (machinery and equipment) in the absence of a Deed of Conveyance/Waiver of Rights. The subject request pertains to the letter-request of Atty. Arnulfo L. Tagle, Legal Counsel for Delta P. Inc. (DPI for brevity), for issuance/transfer of Tax Declaration in their name which was previously declared for taxation purposes in the name of Paragua Power Company Phils. Inc. (PPCPI) and covered by Tax Declaration Nos. 032-4627 and 032-4629, situated at Brgy. Sta. Lourdes, that City. Atty. Tagle, in his May 14, 2004 letter made representation that DPI allegedly acquired the power generating machinery and equipment from its parent company Wartsila Technology Oy Ab (WTOA), by way of a tax-free exchange of properties for DPI shares, thru a Deed of Assignment executed on December 23, 2002. EIAaDC Representation is likewise being made that DPI secured both the approval and required certification from the Securities and Exchange Commission (SEC) when it applied for the increase in its authorized capital stocks while the Bureau of Internal Revenue (BIR), issued the Documentary Stamp Tax Return. DPI argued that had there been any question on the validity of the transfer, neither the SEC nor the BIR would not have correspondingly issued the requested certification. The City Assessor in his 1st Indorsement dated June 14, 2004 informed that the initial assessment of PDCPI was made in 1997 on the basis of the Building Permit, Sanitary/Plumbing Permit, and Electrical Permit issued by the Puerto Princesa City Engineering Department, SEC Certificate, and Custom Invoice No. 960401 dated August 3, 1996. DPI Further argued that in the case of the Province of Nueva Ecija vs. Imperial Mining Company (IMC), G.R. No. L-59463 dated November 19, 1982 the Supreme Court held that "the real property tax exemption did not cover the mineral land since IMC was a taxable person to whom (the) beneficial use of the property was granted. The Supreme Court further stated that because it was IMC as lessee which enjoyed beneficial use of the property, it is therefore IMC that was liable liar the real property tax." By analogy, therefore DPI argued that because it was PPCPI, which in the past had beneficial use of the power generating machineries and equipment, buildings and improvement, it was liable to pay real property tax. It is likewise argued that the previously issued Tax Declarations (TDs) in the name of PPCPI do not vest ownership of the property upon the declarant. Thus, despite the fact that PPCPI is named as owner in the TD, this, allegedly is not conclusive proof of ownership over the machineries and equipment to defeat the superior right of DPI that comes from valid deeds of assignment from WTOA. On the first argument, it is informed that the "beneficial use" theory provided under Section 234 (a) of the Local Government Code of 1991 (R.A. No. 7160) refers to the real properties owned by the Republic of the Philippines, its instrumentalities and political subdivisions, the beneficial use of which have been granted for consideration or otherwise to a taxable person and does not apply to private properties acquired nor leased to other private persons. On the second argument, this Bureau agrees that TDs are not conclusive proof of ownership. Tax Declaration does not and cannot, alone by itself, confer any legal title of ownership in fee simple to the declarant/assessee over the properties covered. The primary function of the Tax Declaration is to serve as documentary "evidence of taxability" of the real property covered (Local Assessment Opinion No. 1-81 dated February 19, 1981 of the Department of Finance). SEDaAH Section 205 of the Local Government Code (LGC) of 1991, provides the following: "SEC. 205. Listing of Real Property in the Assessment Rolls ." "(a) In every province and city, including the municipalities within Metropolitan Manila Area, there shall be prepared and maintained by the provincial, city or municipal assessor an assessment roll wherein shall be listed all real property, whether taxable or exempt, located within the territorial jurisdiction of the local government unit concerned. Real property shall be listed, valued and assessed in the name of the owner or administrator, or anyone having legal interest in the property." xxx xxx xxx." Apparently, the circumstances behind the transfer of the subject machinery and equipment from PPCPI to DPI nor to another company cannot be substantiated by DPI. Further, the City Assessor submitted that the said machinery and equipment are still declared for taxation purposes in the name of PPCPI, such that his office cannot issue the required TD in the name of DPI, in the absence of the required documents for such transfer. This Bureau in the attached 2nd Indorsement dated September 16, 2004 with respect to the request for issuance of TD based on a Deed of Conveyance not registered with the Registry of Deeds, opined that "when real property is conveyed, cancellation and transfer of tax declaration covering a real property may be effected only upon the submission of instruments conveying real property duly registered with the Registry of Deeds of the place where the property is located." Moreover, the subject 2nd Indorsement of this Bureau further opines that Original Certificate of Title (OCT) alone is not sufficient to support the transfer and issuance of tax declaration. Additional documents such as evidence of full payment of real property tax; Certificate of payment of tax on transfer of real property, and payment of the capital gains tax issued by the Bureau of Internal Revenue (BIR) should likewise be submitted and/or presented to the Assessor concerned. DcCEHI It is emphasized that proof of payment of the Capital Gains Tax to the Bureau of Internal Revenue (BIR) is a prerequisite for the issuance of BIR of the Certificate Authorizing Registration (CAR) for presentation to and as a requirement of the Register of Deeds for the transfer of the title of the subject property; and lastly for the issuance of a corresponding Tax Declaration from the former owner to the new owner. Enclosed is a copy of this Bureau's letter dated October 27, 2004, for your ready reference. Viewed in the light of the foregoing, this Bureau upholds the stand of the Assessor that the request to transfer a tax declaration of the machinery and equipment previously issued in the name of Paragua Power Company Inc. to Delta P. Inc.; cannot be granted for lack of the required documents of transfer. Be guided accordingly. (SGD.) MA. PRESENTACION R. MONTESA Executive Director