Republic v. Phil-Ville Development and Housing Corp.

SECOND DIVISION

[G.R. No. 220983. October 13, 2021.]

REPUBLIC OF THE PHILIPPINES, REPRESENTED BY THE TOLL REGULATORY BOARD, petitioner, vs. PHIL-VILLE DEVELOPMENT AND HOUSING CORPORATION AND SY CHI SIONG AND CO., INC., respondents.

NOTICE

Sirs/Mesdames :

Please take notice that the Court, Second Division, issued a Resolution dated13 October 2021which reads as follows:

"G.R. No. 220983(Republic of the Philippines, represented by the Toll Regulatory Board v. Phil-Ville Development and Housing Corporation and Sy Chi Siong and Co., Inc.). — This is a petition for review on certiorari1 assailing the Decision 2 dated July 7, 2014 and Order 3 dated July 27, 2015 of the Regional Trial Court (RTC) of Caloocan City, Branch 131, in Civil Case No. C-651.

The Antecedent Facts

Respondents Phil-Ville Development & Housing Corp. (Phil-Ville) and Sy Chi Siong & Co., Inc. (Sy Chi Siong) (collectively, respondents) are registered owners of parcels of land located in Caloocan City. Phil-Ville owned the land covered by Transfer Certificate of Title (TCT) No. 243189 with an area of 425 square meters (sqm). Sy Chi Siong owned the land covered by TCT No. 29737 with an area of 8,425 sqm, a 2,143-sqm portion of which is involved in this case (collectively, Subject Lands).

On August 23, 2001, the Republic, through the Toll Regulatory Board, filed a complaint with the RTC to expropriate the Subject Lands for the construction, rehabilitation, and expansion of the North Luzon Expressway (NLEX) project. The expropriation of the Subject Lands was allegedly for the public purpose of increasing the capacity of the NLEX project and creating more efficient ingress, egress, and toll collection in the toll plazas and barriers. The Republic deposited the amount equivalent to the zonal value of the Subject Lands with a government bank. 4

Respondents filed a motion to dismiss the complaint on the grounds of improper venue and lack of jurisdiction, which was denied by the RTC. Sy Chi Siong subsequently filed an answer reiterating its argument of improper venue and alleging that the expropriation was tantamount to taking its property without due process of law. Alternatively, if the right to expropriate is upheld, it should be entitled to receive just compensation. CAIHTE

Phil-Ville also filed a petition for certiorari and prohibition with prayer for the issuance of a restraining order and preliminary injunction with the Court of Appeals (CA), which was ultimately dismissed.

The RTC eventually granted a writ of possession in favor of the Republic. On December 19, 2007, it issued the Order of Expropriation declaring that the Republic had a lawful right to expropriate the Subject Lands.

The Board of Commissioners (BOC) was thereafter constituted from among the parties' nominations to assist in determining the just compensation to be paid. The BOC comprised of Anthony L. Pulmano, City Assessor of Caloocan City, for the Republic; Oscar Baraquero for Phil-Ville; and Victoriano Nuqui for Sy Chi Siong.

The BOC recommended the amount of just compensation to be based on the zonal value of the Subject Lands, plus 25% to cover the possibility that this valuation is not updated and other factors affecting the Subject Lands. The just compensation for Phil-Ville's land was determined to be P1,875.00 per sqm and Sy Chi Siong's land at P2,500.00 per sqm, summarized as follows: 5

 

Owner	Lot No.	Lot Area (sqm)	BIR ZV plus 25% (per sqm)	6% compounded interest	Total Recommended Just Compensation
Phil-Ville	66 (LRC) PCs-1828	425	Php1,875.00	Php549,406.00	Php1,346,281.00
Sy Chi Siong	18 (LRC) Pcs-1828	2,143	Php2,500.00	Php3,693,825.00	Php9,051,325.00

 

This recommendation was based on the 4th Revision of the Bureau of Internal Revenue (BIR) Zonal Valuation and a Decision by the RTC of Caloocan City, Branch 121, in another expropriation case where the just compensation of P7,500.00 per sqm was fixed for lots adjacent to the Subject Lands.

The Republic filed a Comment opposing the BOC's recommendation arguing that it used the wrong zonal valuation of the Subject Lands prevailing at the time of taking. Further, respondents' own tax declarations indicated that the value of Phil-Ville's land was merely P540.00 per sqm and Sy Chi Siong's land was P450.00 per sqm.

The RTC Ruling

The RTC issued its Decision 6 fixing the just compensation due for the Subject Lands at P900.00 per sqm:

WHEREFORE, judgment is hereby rendered fixing the just compensation of the land of defendant Phil-Ville Development Corporation & Housing Corporation and Sy Chi Siong & Co., Inc. at nine hundred pesos (P900.00) per square meter.

SO ORDERED. 7

The RTC held that the BOC erred in using the 4th Revision of the BIR Zonal Valuation as basis for its recommendation since this was not the prevailing valuation at the time of the taking of the property. The decision in the other expropriation case involving adjacent lots to the Subject Lands was also inapplicable because these lots were already subdivided and had many utilities and improvements. The valuation of these lots would therefore clearly be higher than the Subject Lands which were raw and had no developments or improvements. 8

On September 12, 2014, the Republic sought reconsideration 9 of the decision on the ground that it should have included an order for respondents to pay the capital gains tax (CGT) and other taxes and fees due on the transfer of the Subject Lands. It additionally prayed for an order to (1) respondents to surrender their TCTs over the Subject Lands to petitioner, and (2) the Register of Deeds to issue new TCTs in favor of petitioner.

Sy Chi Siong also sought reconsideration of the decision claiming that the P900.00 per sqm valuation violated the constitutional guaranty for just compensation. It insisted that the proper just compensation should be P7,500.00 per sqm.

On July 27, 2015, the RTC issued an Order 10 denying both parties' motions for lack of merit. It held that it could not order the payment of CGT and other taxes and fees due on the transfer because the Republic did not include it as a claim in its complaint nor adduce evidence to support it. Respondents thus had no opportunity to oppose the claim should they be ordered to pay it. 11

Aggrieved, the Republic assailed the RTC Decision 12 and Order 13 directly to this Court through the instant petition.

Issues

1. WHETHER OR NOT THE REPUBLIC COULD FILE THE INSTANT PETITION DIRECTLY WITH THIS COURT TO ASSAIL THE RTC DECISION AND ORDER.

2. WHETHER OR NOT RESPONDENTS SHOULD BE MADE LIABLE TO PAY THE CGT AND OTHER TAXES AND FEES DUE ON THE TRANSFER OF THE SUBJECT LANDS.

The Republic in its petition 14 primarily argued that respondents as the sellers in the transaction are statutorily liable to pay the CGT pursuant to Section 24 of Republic Act (R.A.) No. 8424. It is respondents' legal obligation which the RTC should have pronounced in its ruling without need of any evidence. 15

Sy Chi Siong filed a Comment 16 to the petition. It alleged that it filed a Notice of Appeal of the RTC Decision and Order to the CA on October 29, 2015. Its appeal was docketed as CA-G.R. CV No. 106006 and was pending at the time this petition was instituted. The Republic thus violated its Certification Against Forum Shopping when it failed to inform the Court about this appeal. DETACa

It also argued that the Republic's direct recourse to this Court should not be allowed for being contrary to the standard rules of procedure. Lastly, it reiterated its argument that the issue on the payment of CGT was not alleged during the proceedings before the RTC and cannot be belatedly taken up now.

The Republic filed a Reply 17 to the comment arguing that the issue on CGT liability is a question of law which can be raised in a petition for review on certiorari under Rule 45 of the Rules of Court directly to the Supreme Court. It also alleged that it did not violate its Certification Against Forum Shopping because its petition and Sy Chi Siong's appeal before the CA involved different issues. Sy Chi Siong's appeal pertained to the issue on the amount of just compensation, while its petition dealt with the issue on CGT liability.

Phil-Ville was given numerous notices 18 by this Court to file its comment to the petition and participate in the proceedings. Despite such notices, it failed to file a comment resulting in the imposition of a fine to its counsel. This Court issued its Resolution 19 dated January 12, 2021 notifying Phil-Ville that it has waived its right to comment and that this case is deemed submitted for resolution.

The Ruling of the Court

The petition is denied.

The Republic's petition for review on.

Preliminarily, this Court rules that the instant petition for review on certiorari filed by the Republic is a permissible remedy under the Rules of Court.

Section 2, Rule 41 of the Rules of Court governing remedies from judgments of the RTC provides that appeals involving only questions of law shall be made to the Supreme Court via a petition for review on certiorari under Rule 45 of the Rules of Court:

Section 2. Modes of appeal. —

xxx xxx xxx

(c) Appeal by certiorari. — In all cases where only questions of law are raised or involved, the appeal shall be to the Supreme Court by petition for review on certiorari in accordance with the Rule 45.

This Court in Sevilleno v. Carilo20 pronounced that "[i]n all cases decided by the RTC in the exercise of its original jurisdiction where the appellant raises only questions of law, the appeal must be taken to the Supreme Court on a petition for review on certiorari under Rule 45."

In this regard, a question of law exists when "there is doubt as to what the law is on a certain state of facts, while there is a question of fact when the doubt arises as to the truth or falsity of the alleged facts." 21 To be a question of law, it "must not involve an examination of the probative value of the evidence presented by the litigants or any of them. The resolution of the issue must rest solely on what the law provides on the given set of circumstances. Once it is clear that the issue invites a review of the evidence presented, the question posed is one of fact." 22

Applying the foregoing to this case, the sole issue raised in the instant petition is respondents' liability to pay for the CGT and other taxes and fees due on the transfer. There is no issue on the Republic's right to expropriate the Subject Lands or the amount of just compensation awarded.

Verily, there is no need to review the facts or re-examine any evidence to resolve the issue on CGT liability. This can be determined simply by analyzing and applying relevant governing laws. Consequently, the petition involved only a question of law which could be brought directly to this Court pursuant to Section 2, Rule 41 of the Rules of Court.

The Republic must shoulder payment

Sections 24 (D) and 56 (A) (3) of the National Internal Revenue Code which govern the payment of CGT on the sale of real properties pertinently provide:

Section 24. Income Tax Rates. —

xxx xxx xxx

(D) Capital Gains from Sale of Real Property. —

(1) In General. — The provisions of Section 39(B) notwithstanding, 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 this Code, whichever is higher, is hereby imposed upon capital gains presumed to have been realized from the sale, exchange, or other disposition of real property located in the Philippines, classified as capital assets, including pacto de retro sales and other forms of conditional sales, by individuals, including estates and trusts: Provided, That the tax liability, if any, on gains from sales or other dispositions of real property to the government or any of its political subdivisions or agencies or to government-owned or controlled corporations shall be determined either under Section 24(A) or under this Subsection, at the option of the taxpayer. aDSIHc

Section 56. Payment and Assessment of Income Tax for Individuals and Corporations. —

(A) Payment of Tax —

xxx xxx xxx

(3) Payment of Capital Gains Tax. — The total amount of tax imposed and prescribed under Section 24(C), 24(D), 27(E)(2), 28(A)(8)(c) and 28(B)(5)(c) shall be paid on the date the return prescribed therefor is filed by the person liable thereto: Provided, That if the seller submits proof of his intention to avail himself of the benefit of exemption of capital gains under existing special laws, no such payments shall be required: Provided, further, That in case of failure to qualify for exemption under such special laws and implementing rules and regulations, the tax due on the gains realized from the original transaction shall immediately become due and payable, subject to the penalties prescribed under applicable provisions of this Code: Provided, finally, That if the seller, having paid the tax, submits such proof of intent within six (6) months from the registration of the document transferring the real property, he shall be entitled to a refund of such tax upon verification of his compliance with the requirements for such exemption.

It is clear from the foregoing that the seller is the party statutorily liable to pay the CGT. This was applied in the expropriation case of Republic v. Soriano23 where it was ruled that the seller must generally shoulder the payment of CGT:

Thus, it has been held that since capital gains is a tax on passive income, it is the seller, not the buyer, who generally would shoulder the tax. Accordingly, the BIR, in its BIR Ruling No. 476-2013, dated December 18, 2013, constituted the DPWH as a withholding agent to withhold the six percent (6%) final withholding tax in the expropriation of real property for infrastructure projects. As far as the government is concerned, therefore, the capital gains tax remains a liability of the seller since it is a tax on the seller's gain from the sale of the real estate. 24 (Emphasis and underscoring supplied, citations omitted)

A similar ruling was rendered in the expropriation case of Republic v. Spouses Salvador25(Spouses Salvador) where it was established that the seller should be liable for the CGT as a tax on its passive income:

It is settled that the transfer of property through expropriation proceedings is a sale or exchange within the meaning of Sections 24(D) and 56(A)(3) of the National Internal Revenue Code, and profit from the transaction constitutes capital gain. Since capital gains tax is a tax on passive income, it is the seller, or respondents in this case, who are liable to shoulder the tax. 26 (Emphasis and underscoring supplied, citations omitted)

However, it bears stressing that the Republic's exercise of the right of eminent domain must always comply with two mandatory requirements: (1) the taking is for a public purpose, and (2) just compensation must be paid to the property owner. 27

The just compensation due has been referred to as the "final determination of the fair market value of the property" or "the just and complete equivalent of the loss which the owner of the thing expropriated has to suffer by reason of the expropriation." 28 Notably, Section 5 of R.A. No. 8974 enumerates various standards in the determination of just compensation:

SEC. 5. Standards for the Assessment of the Value of the Land Subject of Expropriation Proceedings or Negotiated Sale. — In order to facilitate the determination of just compensation, the court may consider, among other well-established factors, the following relevant standards:

(a) The classification and use for which the property is suited;

(b) The developmental costs for improving the land;

(c) The value declared by the owners;

(d) The current selling price of similar lands in the vicinity;

(e) The reasonable disturbance compensation for the removal and/or demolition of certain improvement on the land and for the value of improvements thereon;

(f) The size, shape or location, tax declaration and zonal valuation of the land;

(g) The price of the land as manifested in the ocular findings, oral as well as documentary evidence presented; and

(h) Such facts and events as to enable the affected property owners to have sufficient funds to acquire similarly-situated lands of approximate areas as those required from them by the government, and thereby rehabilitate themselves as early as possible.

The determination of just compensation is necessarily a judicial function. The court is duty-bound to uphold the Constitutional guarantee that private property shall not be taken for public use without just compensation. 29 It must always ensure that the property owner should receive just compensation equivalent to the fair and full equivalent of the loss incurred. The word "just" was intended to "convey the idea that the equivalent to be given for the property to be taken shall be real, substantial, full and ample." 30

It was significantly pronounced in Republic v. Spouses Bunsay31(Spouses Bunsay) that this duty of the court is important on account of the nature of expropriation as "forced sales" by compulsion of law. The selling price of the lands in expropriation cases is essentially determined by the court in the form of just compensation. This is very different from ordinary sales of land governed by Article 1458 of the Civil Code where the parties can reach an agreement on the selling price through arm's length negotiation. ETHIDa

Hence, by virtue of its mandate, this Court can always review the "justness" of the decreed just compensation when necessary. 32 In certain cases, the Court must be wary that the payment of CGT and other transfer taxes and fees may prevent the property owner from receiving the full and ample just compensation properly due. It was therefore recognized in Spouses Bunsay that the ruling in Spouses Salvador imposing the burden of paying the CGT on the seller "should not be interpreted to preclude the courts from considering the value of CGT and other transfer taxes in determining the amount of just compensation to be awarded to the affected owner." 33

It was elucidated in Spouses Bunsay that since the just compensation awarded should be full and ample, the court must consider the incidental costs to facilitate the transfer of the expropriated lands such as the CGT. The CGT and other transfer taxes and fees must be factored in the determination of just compensation to ensure that the property owner receives full just compensation. In the event that the CGT and other transfer taxes and fees have not been considered, this Court has the power, in the interest of justice and equity, to order the Republic to shoulder the CGT and other transfer taxes and fees to preserve the property owner's full and ample just compensation. It was pertinently held:

To recall, Section 6, Rule 67 of the Rules of Court mandates that "in no case shall x x x the owner be deprived of the actual value of his property so taken." Since just compensation requires that real, substantial, full and ample equivalent be given for the property taken, the loss incurred by the affected owner necessarily includes all incidental costs to facilitate the transfer of the expropriated property to the expropriating authority, including the CGT, other taxes and fees due on the forced sale. These costs must be taken into consideration in determining just compensation in the same way these costs are factored into the selling price of real property in an arm's length transaction. Notably, the value of the expropriated property, as declared by the affected owner, and the current selling price of similar lands are factors listed under Section 5 of RA 8974.

Here, Spouses Bunsay received, as just compensation, an amount equal to the sum of the zonal value of the Disputed Property and the replacement cost of the improvements built thereon. Evidently, the value of CGT and transfer taxes due on the transfer of the Disputed Property was not factored into the amount paid to Spouses Bunsay, but instead, separately awarded as consequential damages.

While the award of consequential damages equivalent to the value of CGT and transfer taxes must be struck down for being erroneous, the Court deems it just and equitable to direct the Republic to shoulder such taxes to preserve the compensation awarded to Spouses Bunsay as a consequence of the expropriation. To stress, compensation, to be just, must be of such value as to fully rehabilitate the affected owner; it must be sufficient to make the affected owner whole. 34 (Emphasis and underscoring supplied)

In this case, it appears from the records that the just compensation awarded to respondents in the amount of P900.00 per sqm was based primarily on the zonal value of the Subject Lands at the time of taking. 35 This was already below the market value determined by the BOC and that of its adjacent lots. Admittedly, this valuation also failed to factor in the CGT the other taxes and fees associated with the transfer of the Subject Lands which respondents are legally obliged to pay.

Although respondents are the sellers of the Subject Lands legally obligated to pay the CGT, to require them in this case to pay for it will unduly decrease their just compensation and deprive them full and ample payment for the value of their lands. Consequently, in the interest of justice and equity, it is deemed proper to order the Republic to shoulder the CGT and other transfer taxes and fees associated with the expropriation to protect respondents' right to receive just compensation.

WHEREFORE, the Petition for Review on Certiorari is DENIED. The Decision dated July 7, 2014 and Order dated July 27, 2015 of the Regional Trial Court of Caloocan City, Branch 131, in Civil Case No. C-651 are MODIFIED. The petitioner is ORDERED to shoulder and pay the capital gains tax and other transfer taxes and fees associated with the expropriation as part of the just compensation awarded to respondents.

SO ORDERED." (Perlas-Bernabe, J., on official leave; Hernando, J., Acting Chairperson per Special Order No. 2846 dated October 6, 2021.)

By authority of the Court:

(SGD.) TERESITA AQUINO TUAZONDivision Clerk of Court

 

Footnotes

1.Rollo, pp. 9-22.

2.Id. at 23-28. Penned by Presiding Judge Ma. Teresa E. De Guzman-Alvarez.

3.Id. at 29-30.

4.Id. at 23-24.

5.Id. at 25.

6.Id. at 23-28.

7.Id. at 28.

8.Id. at 27-28.

9.Id. at 31-35.

10.Id. at 29-30.

11.Id. at 30.

12.Id. at 20-28.

13.Id. at 29-30.

14.Id. at 9-22.

15.Id. at 14-16.

16.Id. at 42-47.

17.Id. at 87-96.

18.Id. at 98-99, 105, 110.

19.Id. at 121.

20. 559 Phil. 789, 792 (2007), citing Macawiwili Gold Mining and Development Co., Inc. v. Court of Appeals, 358 Phil. 245, 257 (1998).

21.PNOC Alternative Fuels Corporation v. National Grid Corporation of the Philippines, G.R. No. 224936, September 4, 2019.

22.Id.

23. 755 Phil. 187 (2015).

24.Id. at 204.

25. 810 Phil. 742 (2017).

26.Id. at 748.

27.National Transmission Corporation v. Oroville Development Corporation, 815 Phil. 91, 103 (2017).

28.Republic v. Cancio, 597 Phil. 342, 351 (2009).

29. 1987 PHILIPPINE CONSTITUTION, Article III, Section 9.

30.Republic v. Spouses Bunsay, G.R. No. 205473, December 10, 2019.

31.Id.

32.National Power Corporation v. Posada, 755 Phil. 613, 637 (2015).

33.Republic v. Spouses Bunsay, supra note 29.

34.Id.

35.Rollo, pp. 12, 26.