CIR versus AQUAFRESH SEAFOODS

G.R. No. 170389

Octoer !0" !010
SECOND DI#ISION
FAC$S AS $O %E$I$IONER
On June 7, 1999, respondent Aquafresh Seafoods Inc. sold two parcels of
land, including improvements thereon, located at Barrio anica, !o"as #it$,
!espondent then filed a #apital %ains &a" !eturn'Application for #ertification
Authori(ing !egistration and paid the #apital %ains &a" )#%&* and the the
+ocumentar$ Stamp &a" )+S&* due from the said sale.
FAC$S AS $O RES%ONDEN$
&he )I!*, however, received a report that the lots sold were undervalued for
ta"ation purposes. &his prompted the Special Investigation +ivision )SI+* of
the I! to conduct an occular inspection over the properties. After the
investigation, the SI+ concluded that the su,-ect properties were commercial
with a (onal value of .hp/,000.00 per square meter.
On Septem,er 11, /000, )+irector Sacamos* sent two Assessment 2otices
apprising respondent of #%& and +S& deficiencies. On Octo,er 1, /000,
respondent sent a letter protesting the assessments which was denied.
!espondent filed a petition for review
3
,efore the #&A. !espondent asserted
that the su,-ect properties were classified as 4!!4 or residential and not
commercial. !espondent argued that since there was alread$ a pre5defined
(onal value for properties located in Barrio anica, the I! officials had no
,usiness re5classif$ing the su,-ect properties to commercial.
#&A promulgated a +ecision
6
ruling in favor of respondent, &he #&A En
Banc ruled that the 1991 !evised 7onal 8alues of !eal .roperties should
prevail. Said court relied on Section 9 ):* of the 2ational Internal !evenue
#ode )2I!#* which requires consultation from appraisers, from ,oth the
pu,lic and private sectors, in fi"ing the (onal valuation of properties.
ISSUE AS $O %E$I$IONER
1. .etitioner also contends that what it did in the instant case was not to
prescri,e the (onal value, ,ut merel$ classif$ the same as commercial
/. .etitioner, that its act of classif$ing the su,-ect properties ,ased on
actual use was proper.
ISSUE AS $O RES%ONDEN$
1. !espondent contends that I! officials had no ,usiness re5classif$ing
the su,-ect properties to commercial.
/. !espondent further argues that actual use of propert$ does not
determine its (onal value
RU&ING OF $HE SU%RE'E COUR$
1. As to the issue whether petitioner;s act of re5classif$ing the properties
were valid, the S# ruled in favor of respondent. .etitioner<s act of re5
classif$ing the su,-ect properties from residential to commercial cannot
,e done without first compl$ing with the procedures prescri,ed ,$ law.
.etitioner<s act of classif$ing the su,-ect properties involves a re5
classification and revision of the prescri,ed (onal values. .etitioner,
thus, cannot unilaterall$ change the (onal valuation of such properties
to 4commercial4 without first conducting a re5evaluation of the (onal
values which requires a prior consultation with competent appraisers
,oth from the pu,lic and private sectors.
/. As to the issue whether actual use of the propert$ should determine
(onal values, the S# ruled in favor of respondent. :ven
assuming arguendo that the su,-ect properties were used for
commercial purposes, the same remains to ,e residential for (onal
value purposes. It appears that actual use is not considered for (onal
valuation, ,ut the predominant use of other classification of properties
located in the (one. Again, it is undisputed that the entire Barrio anica
has ,een classified as residential.
&he #&A En Banc held that petitioner failed to prove an$ amendment effected
on the 1991 !evised 7onal 8alues of !eal .roperties at the time of the sale of
the su,-ect properties.
=ence, herein petition, with petitioner raising the following issues for this
#ourt<s resolution, to wit>
I.
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SAJ:#& DO&S IS A..DI#AD: I2 &=: #AS: A& A!.
II.
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BANC #OBBI&&:+ %!A8: :!!O! I2 A..DGI2% &=: CAI! BA!E:&
8ADA: AS:+ O2 &=: 7O2AD 8ADAA&IO2 OC A !:SI+:2&IAD DA2+ AS
&AF AS: I2 &=: #OB.A&A&IO2 OC #A.I&AD %AI2S &AF A2+
+O#AB:2&A!G S&AB. &AF +:CI#I:2#I:S OC !:S.O2+:2&.
9
&he petition is not meritorious. &he issues ,eing interrelated, this #ourt shall
discuss the same in seriatim.
Ander Section /7)+*)1* of the 2I!# of 1997, a #%& of si" )9H* percent is
imposed on the gains presumed to have ,een reali(ed in the sale, e"change
or disposition of lands and'or ,uildings which are not activel$ used in the
,usiness of a corporation and which are treated as capital assets ,ased on
the gross selling price or fair marIet value as determined in accordance with
Section 9):* of the 2I!#, whichever is higher.
On the other hand, under Section 199 of the 2I!#, +S& is ,ased on the
consideration contracted to ,e paid or on its fair marIet value determined in
accordance with Section 9):* of the 2I!#, whichever is higher.
&hus, in determining the value of #%& and +S& arising from the sale of a
propert$, the power of the #I! to assess is su,-ect to Section 9):* of the
2I!#, which provides>
Section 9. Power of the Commissioner to Make Assessments and Prescribe
Additional Requirements for Tax Administration and Enforcement 5
" " " "
):* Authorit$ of the #ommissioner to .rescri,e !eal .ropert$ 8alues J &he
#ommissioner is here,$ authori(ed to divide the .hilippines into different
(ones or area and shall, upon co(su)t*t+o( ,+t- co./ete(t *//r*+sers
ot- 0ro. t-e /r+v*te *(1 /u)+c sectors, determine the fair marIet value
of real properties located in each (one or area. Cor purposes of computing
internal revenue ta", the value of the propert$ shall ,e, whichever is higher of>
)1* the fair marIet value as determined ,$ the #ommissionerK or
)/* the fair marIet value as shown in the schedule of values of the
.rovincial and #it$ Assessors.
?hile the #I! has the authorit$ to prescri,e real propert$ values and divide
the .hilippines into (ones, the law is clear that the same has to ,e done upon
consultation with competent appraisers ,oth from the pu,lic and private
sectors. It is undisputed that at the time of the sale of the su,-ect properties
found in Barrio anica, !o"as #it$, the same were classified as 4!!,4 or
residential, ,ased on the 1991 !evised 7onal 8alue of !eal .roperties.
.etitioner, thus, cannot unilaterall$ change the (onal valuation of such
properties to 4commercial4 without first conducting a re5evaluation of the (onal
values as mandated under Section 9):* of the 2I!#.
.etitioner argues, however, that the requirement of consultation with
competent appraisers is mandator$ onl$ when it is prescri,ing real propert$
values J that is when a formulation or change is made in the schedule of
(onal values. .etitioner also contends that what it did in the instant case was
not to prescri,e the (onal value, ,ut merel$ classif$ the same as commercial
and appl$ the corresponding (onal value for such classification ,ased on the
e"isting schedule of (onal values in !o"as #it$.
10
?e disagree.
&o this #ourt<s mind, petitioner<s act of re5classif$ing the su,-ect properties
from residential to commercial cannot ,e done without first compl$ing with the
procedures prescri,ed ,$ law. It ,ears to stress that ADD the properties
inBarrio anica were classified as residential, under the 1991 !evised 7onal
8alues of !eal .roperties. &hus, petitioner<s act of classif$ing the su,-ect
properties involves a re5classification and revision of the prescri,ed (onal
values.
In addition, !evenue Bemorandum 2o. 1L599 provides for the procedures on
the esta,lishment of the (onal values of real properties, vi(.>
)1* &he su,mission or review ,$ the !evenue +istrict Offices Su,5
&echnical #ommittee of the schedule of recommended (onal values to
the &#!.8K
)/* &he evaluation ,$ &#!.8 of the su,mitted schedule of
recommended (onal values of real propertiesK
)3* :"cept in cases of correction or ad-ustment, the &#!.8 finali(es
the schedule and su,mits the same to the :"ecutive #ommittee on
!eal .ropert$ 8aluation ):#!.8*K
)3* Apon approval of the schedule of (onal values ,$ the :#!.8, the
same is em,odied in a +epartment Order for implementation and
signed ,$ the Secretar$ of Cinance. &hereafter, the schedule taIes
effect )11* da$s after its pu,lication in the Official %a(ette or in an$
newspaper of general circulation.
.etitioner failed to prove that it had complied with !evenue Bemorandum 2o.
1L599 and that a revision of the 1991 !evised 7onal 8alues of !eal
.roperties was made prior to the sale of the su,-ect properties. &hus,
notwithstanding petitioner<s disagreement to the classification of the su,-ect
properties, the same must ,e followed for purposes of computing the #%&
and +S&. It ,ears stressing, and as o,served ,$ the #&A En Banc, that the
1991 !evised 7onal 8alues of !eal .roperties was drafted ,$ petitioner, I!
personnel, representatives from the +epartment of Cinance, 2ational &a"
!esearch #enter, Institute of .hilippine !eal :state Appraisers and .hilippine
Association of !ealtors oard, which dul$ satisfied the requirement of
consultation with pu,lic and private appraisers.
11
.etitioner contends, nevertheless, that its act of classif$ing the su,-ect
properties ,ased on actual use was in accordance with guidelines num,er 15,
and / as set forth in 4#ertain %uidelines in the Implementation of 7onal
8aluation of !eal .roperties for !+O 7/ !o"as #it$4 )7onal 8aluation
%uidelines*.
1/
Section 1 ),* of the 7onal 8aluation %uidelines reads>
1. No 2o(*) v*)ue -*s ee( /rescr+e1 for a particular classification of real
propert$.
?here in the approved schedule of (onal values for a particular ,aranga$ 5
" " " "
,* No 2o(*) v*)ue -*s ee( /rescr+e1 for a particular classification of real
propert$ in one ,aranga$, the (onal value prescri,ed for the same
classification of real propert$ located in an ad-acent ,aranga$ of similar
conditions shall ,e used.
Section 1 ),* does not appl$ to the case at ,ar for the simple reason that said
proviso operates onl$ when 4no (onal valuation has ,een prescri,ed.4 &he
properties located in Barrio anica, !o"as #it$ were alread$ su,-ect to a
(onal valuation, a fact which even petitioner has admitted in its petition, thus>
It must ,e noted that under the schedule of (onal values, aranga$ anica,
where the su,-ect lots are situated, has a single classification onl$ J that of a
residential area. Accordingl$, it has a prescri,ed (onal value of .hp910.00
per square meter.
13
.etitioner, however, also relies on Section / )a* of the 7onal 8aluation
%uidelines, to -ustif$ its action. Said section states>
/. .redominant Ase of .ropert$.
a* All real properties, regardless of actual use, located in a street',aranga$
(one, the use of which are predominantl$ commercial shall ,e classified as
4#ommercial4 for purposes of (onal valuation.
In I! !uling 2o. 0615/001, issued on Septem,er 1L, /001, the I! tacIled
the application of a provision which is identical to Section / )a* of the 7onal
8aluation %uidelines. I! !uling 2o. 0615/001 involved a request ,$
the!glesia Ni Cristo that the re5computation of #%& and +S& ,ased on the
predominant use of the real properties located at Bindanao Avenue, @ue(on
#it$, ,e set aside. In said case, the !glesia ni Cristo paid the #%& and +S&
,ased on the (onal value of residential lots in @ue(on #it$. &he !evenue
+istrict Officer, however, ordered a re5computation of the #%& and +S&
,ased on the ground that the real propert$ is located in a predominantl$
commercial area and must ,e classified as commercial for purposes of (onal
valuation. &he I! ruled in favor of!glesia ni Cristo stating that 4#ertain
%uidelines in the Implementation of 7onal 8aluation of !eal .roperties for
!+O 2o. 3L, appl$ing the predominant use of propert$ as the ,asis for the
computation of the #apital %ains and +ocumentar$ Stamp &a"es, s-*))
*//)3 o()3 ,-e( t-e re*) /ro/ert3 +s )oc*te1 +( *( *re* or 2o(e ,-ere
t-e /ro/ert+es *re (ot 3et c)*ss+0+e1 *(1 t-e+r res/ect+ve 2o(*) v*)u*t+o(
*re (ot 3et 1eter.+(e1.4 &he pertinent portion of I! !uling 2o. 0615/001
reads>
In repl$, please ,e informed that this Office finds $our request meritorious.
&he num,er / guideline laid down in #ertain %uidelines in the implementation
of 7onal valuation of !eal .roperties for !+O 2o. 3L5 2orth @ue(on #it$ """
does not appl$ to this case.
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It +s t-e co(s+1ere1 o/+(+o( o0 t-+s O00+ce t-*t t-e 5u+1e)+(e *//)+es ,-e(
t-e re*) /ro/ert3 +s )oc*te1 +( *( *re* or 2o(e ,-ere t-e /ro/ert+es *re
(ot 3et c)*ss+0+e1 *(1 t-e+r res/ect+ve 2o(*) v*)u*t+o( *re (ot 3et
1eter.+(e1.
I( t-e +(st*(t c*se" -o,ever" t-e c)*ss+0+c*t+o( *(1 v*)u*t+o( o0 t-e
/ro/ert+es )oc*te1 +( '+(1*(*o Ave(ue" 6*5o(5 6*(t*3" -*ve *)re*13
ee( 1eter.+(e1. Ander +epartment of Cinance Order 2o. 95/000, the
properties along Bindanao Avenue had alread$ ,een classified as residential
and commercial. &he (onal valuation thereof had alread$ ,een determined. "
" " $-ere0ore" t-e Reve(ue D+str+ct O00+cer o0 RDO No. 38 -*s (o
1+scret+o( to 1eter.+(e t-e c)*ss+0+c*t+o( or v*)u*t+o( o0 t-e /ro/ert+es
)oc*te1 +( t-e /ert+(e(t *re*. &he computation of the capital gains and
documentar$ stamp ta"es shall ,e ,ased on the (onal of residential
properties located at Bindanao Avenue, ago anta$, @ue(on #it$.
16
"a##$hil
ased on the foregoing, this #ourt need not ,ela,our on the applica,ilit$ of
Section / )a*, as the I! itself has alread$ ruled that the same shall appl$
onl$ when the real propert$ is located in an area or (one where the properties
are not $et classified and their respective (onal valuation are not $et
determined. As mentioned earlier, the su,-ect properties were alread$ part of
the 1991 !evised 7onal 8alue of !eal .roperties which classified the same
as residential with a (onal value of .hp910.00 per square meterK thus,
Section / )a* clearl$ has no application.
&his #ourt agrees with the o,servation of the #&A that 4(onal valuation was
esta,lished with the o,-ective of having an Mefficient ta" administration ,$
minimi(ing the use of discretion in the determination of the ta" ,ased on the
part of the administrator on one hand and the ta"pa$er on the other
hand.;4
11
7onal value is determined for the purpose of esta,lishing a more
realistic ,asis for real propert$ valuation. Since internal revenue ta"es, such
as #%& and +S&, are assessed on the ,asis of valuation, the (onal valuation
e"isting at the time of the sale should ,e taIen into account.
19
If petitioner feels that the properties in Barrio anica should also ,e classified
as commercial, then petitioner should worI for its revision in accordance with
!evenue Bemorandum Order 2o. 1L599. &he ,urden was on petitioner to
prove that the classification and (onal valuation in Barrio anica have ,een
revised in accordance with the prevailing memorandum. In the a,sence of
proof to the contrar$, the 1991 !evised 7onal 8alues of !eal .roperties must
,e followed.
Dastl$, this #ourt taIes note of the wording of Section / ),* of the 7onal
8aluation %uidelines, to wit>
/. .redominant Ase of .ropert$.
,* &he predominant use of other classification of properties located in a
street',aranga$ (one, re5*r1)ess o0 *ctu*) use shall ,e considered for
purposes of (onal valuation.
ased thereon, this #ourt rules that even assuming arguendo that the su,-ect
properties were used for commercial purposes, the same remains to ,e
residential for (onal value purposes. It appears that actual use is not
considered for (onal valuation, ,ut the predominant use of other classification
of properties located in the (one. Again, it is undisputed that the
entire Barrio anica has ,een classified as residential.
7HEREFORE, premises considered, the petition is denied. &he 2ovem,er 9,
/001 +ecision of the #ourt of &a" Appeals En Banc, in #&A5:.. 2o. 77, is
here,$ AFFIR'ED.
SO O!+:!:+.
DIOSDADO '. %ERA&$A
Associate Justice
?: #O2#A!>