Monday, December 05, 2011

Supreme Transliner, Inc., Moises C. Alvarez and Paulita S. Alvarez vs BPI Family Savings Bank, Inc., G.R. No. 165617, February 25, 2011; BPI Family Savings Bank, Inc. vs Supreme Transliner, Inc., Moises C. Alvarez and Paulita S. Alvarez, G.R. No. 165837, February 25, 2011.

National Internal Revenue Code; capital gains tax; documentary stamp tax; if right of redemption exercised. Under Revenue Regulations (RR) No. 13-85 (December 12, 1985), every sale or exchange or other disposition of real property classified as capital asset under the National Internal Revenue Code (NIRC) shall be subject to final capital gains tax. The term “sale” includes pacto de retro and other forms of conditional sale. Section 2.2 of Revenue Memorandum Order (RMO) No. 29-86, as amended by RMO Nos. 16-88, 27-89 and 6-92, states that these conditional sales “necessarily includes mortgage foreclosure sales (judicial and extrajudicial foreclosure sales).” Further, for real property foreclosed by a bank on or after September 3, 1986, the capital gains tax and documentary stamp tax must be paid before title to the property can be consolidated in favor of the bank. Under Section 63 of Presidential Decree No. 1529, or the Property Registration Decree, if no right of redemption exists, the certificate of title of the mortgagor shall be cancelled, and a new certificate issued in the name of the purchaser. But where the right of redemption exists, the certificate of title of the mortgagor shall not be cancelled, but the certificate of sale and the order confirming the sale shall be registered by brief memorandum thereof made by the Register of Deeds on the certificate of title. It is therefore clear that in foreclosure sale, there is no actual transfer of the mortgaged real property until after the expiration of the one-year redemption period as provided in Act No. 3135, or An Act or Regulate the Sale of Property Under Special Powers Inserted In or Annexed to Real Estate Mortgages, and title thereto is consolidated in the name of the mortgagee in case of non-redemption. In the interim, the mortgagor is given the option whether or not to redeem the real property. The issuance of the Certificate of Sale does not by itself transfer ownership. RR No. 4-99 (March 16, 1999), further amends RMO No. 6-92 relative to the payment of capital gains tax and documentary stamp tax on extrajudicial foreclosure sale of capital assets initiated by banks, finance and insurance companies. Under this RMO, in case the mortgagor exercises his right of redemption within one year from the issuance of the certificate of sale, no capital gains tax shall be imposed because no capital gain has been derived by the mortgagor and no sale or transfer of real property was realized. Moreover, the transaction will be subject to documentary stamp tax of only PhP 15 because no land or realty was sold or transferred for a consideration. 

National Internal Revenue Code; non-retroactivity of rulings; exception. Section 246 of the National Internal Revenue Code sets out that rule on non-retroactivity of rulings. In this case, the retroactive application of Revenue Regulations No. 4-99 [to the transaction which took place before its effectivity is more consistent with the policy of aiding the exercise of the right of redemption. As the Court of Tax Appeals concluded in one case, RR No. 4-99 “has curbed the inequity of imposing a capital gains tax even before the expiration of the redemption period [since] there is yet no transfer of title and no profit or gain is realized by the mortgagor at the time of foreclosure sale but only upon expiration of the redemption period.” In his commentaries [Hector] De Leon expressed the view that while revenue regulations as a general rule have no retroactive effect, if the revocation is due to the fact that the regulation is erroneous or contrary to law, such revocation shall have retroactive operation as to affect past transactions, because a wrong construction cannot give rise to a vested right that can be invoked by a taxpayer. Supreme Transliner, Inc., Moises C. Alvarez and Paulita S. Alvarez vs BPI Family Savings Bank, Inc., G.R. No. 165617, February 25, 2011; BPI Family Savings Bank, Inc. vs Supreme Transliner, Inc., Moises C. Alvarez and Paulita S. Alvarez, G.R. No. 165837, February 25, 2011.

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