CAPITAL GAINS TAX SHALL BE PAID BY THE SELLER THUS CANNOT BE AWARDED

AS CONSEQUENTIAL DAMAGES IN AN EXPROPRIATION PROCEEDING

REPUBLIC OF THE PHILIPPINES, represented by the DEPARTMENT OF PUBLIC WORKS
AND HIGHWAYS (DPWH) vs
SPOUSES SENANDO SALVADOR and JOSEFINA SALVADOR
G.R. No. 205428 June 7, 2017

Del Castillo, J.

Facts: Respondents are the registered owners of a parcel of land in Valenzuela City. On
November 9, 2011, the Republic, represented by the Department of Public Works and Highways
(DPWH), filed a verified Complaint before the RTC for the expropriation of 83 square meters of
said parcel of land (subject property), as well as the improvements thereon, for the construction
of the C-5 Northern Link Road Project Phase 2 (Segment 9) from the North Luzon Expressway
(NLEX) to McArthur Highway. Respondents received two checks from the DPWH representing
100% of the zonal value of the subject property and the cost of the one-storey semi-concrete
residential house erected on the property amounting to P161,850.00 and
P523,449.22, respectively. The RTC thereafter issued the corresponding Writ of Possession in
favor of the Republic.
RTC rendered judgment in favor of the Republic condemning the subject property||| The RTC
likewise directed the Republic to pay respondents consequential damages equivalent to the value
of the capital gains tax and other taxes necessary for the transfer of the subject property in
the Republic's name.|
The Republic moved for partial reconsideration, specifically on the issue relating to the
payment of the capital gains tax, but the RTC denied the motion for having been belatedly filed.
The RTC also found no justifiable basis to reconsider its award of consequential damages in
favor of respondents, as the payment of capital gains tax and other transfer taxes is but a
consequence of the expropriation proceedings. Thus, this Petition for Review on Certiorari.
Issue: Whether the capital gains tax on the transfer of the expropriated property can be
considered as consequential damages that may be awarded to respondents.|||
Held: No. 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.
In fact, the Bureau of Internal Revenue (BIR), in BIR Ruling No. 476-2013 dated December 18,
2013, has constituted the DPWH as a withholding agent tasked to withhold the 6% final
withholding tax in the expropriation of real property for infrastructure projects. Thus, as far as
the government is concerned, the capital gains tax in expropriation proceedings remains a
liability of the seller, as it is a tax on the seller's gain from the sale of real property.
Besides, consequential damages are only awarded if as a result of the expropriation, the
remaining property of the owner suffers from an impairment or decrease in value. In this case,
no evidence was submitted to prove any impairment or decrease in value of the subject property
as a result of the expropriation.
TAXPAYER HAS TWO (2) YEARS FROM THE CLOSE OF THE TAXABLE QUARTER WHEN
THE ZERO-RATED SALES WERE MADE WITHIN WHICH TO FILE WITH THE CIR AN
ADMINISTRATIVE CLAIM FOR REFUND OR CREDIT OF UNUTILIZED INPUT VAT
ATTRIBUTABLE TO SUCH SALES
COMMISSIONER OF INTERNAL REVENUE vs.TOLEDO POWER COMPANY
G.R. No. 196415, December 02, 2015
Del Castillo, J.
Facts: Toledo Power Corporation (TPC) is a general partnership principally engaged in the
business of power generation and sale of electricity to the National Power Corporation (NPC),
Cebu Electric Cooperative III (CEBECO), Atlas Consolidated Mining and Development
Corporation (ACMDC), and Atlas Fertilizer Corporation (AFC) TPC filed with the Bureau of
Internal Revenue (BIR) Regional District Office (RDO) No. 83 an administrative claim for refund
or credit of its unutilized input Value Added Tax (VAT) for the taxable year 2002 under EPIRA law
and NIRC CTA Decision Since NPC is exempt from the payment of all taxes, including VAT, the
CTA Division allowed TPC to claim a refund or credit of its unutilized input VAT attributable to its
zero- rated sales of electricity to NPC for the taxable year 2002.
The CTA Division, however, denied the claim attributable to TPC's sales of electricity to
CEBECO, ACMDC and AFC due to the failure of TPC to prove that it is a generation company
under the EPIRA. The CTA also ruled that Toledo Company fails to be under the EPIRA law;
because it was late with its COC application.
Issue: 1. Whether the administrative and the judicial claims for tax refund or credit were timely
and validly filed.
2. Whether the TPC is entitled to the full amount of its claim for tax refund or credit.
Held: 1. Yes. In filing tax refund claims - taxpayer has two (2) years from the close of the taxable
quarter when the zero-rated sales were made within which to file with the CIR an administrative
claim for refund or credit of unutilized input VAT attributable to such sales.
In this case, TPC applied for a claim for refund or credit of its unutilized input VAT for the
taxable year 2002 on December 22, 2003. Since the CIR did not act on its application within the
120- day period, TPC appealed the inaction on April 22, 2004. Clearly, both the administrative
and the judicial claims were filed within the prescribed period provided in Section 112 of the NIRC.
To the validity of TPC's claim, there is no question that TPC is entitled to a refund or credit of its
unutilized input VAT attributable to its zero-rated sales of electricity to NPC for the taxable year
2002 pursuant to Section 108 (B) (3)49 of the NIRC, as amended, in relation to Section 1350 of
the Revised Charter of the NPC, as amended
2. No. To be entitled to a refund or credit of unutilized input VAT attributable to the sale of
electricity under the EPIRA, a taxpayer must establish: (1) that it is a generation company, and
(2) that it derived sales from power generation.
Under the EPIRA, all new generation companies and existing generation facilities are required
to obtain a COC from the ERC. New generation companies must show that they have complied
with the requirements, standards, and guidelines of the ERC before they can operate. There is
nothing in the JSFI to show that the parties agreed that TPC is a generation company under the
EPIRA.