Republic v. Aquafresh Seafoods, Inc., G.R. No.

170389, 20 October 2010

DOCTRINE: The first sentence of Section 6(E) of the National Internal Revenue Code sets the
limitation of the right to prescribe real property values by requiring the Commission to consult
with competent appraisers both from public and private sectors.

FACTS: Respondent sold to Philips Seafoods, Inc. two parcels of land, including
improvements thereon, located at Barrio Banica, Roxas City, for Php 3,100,000. Respondent
filed Capital Gains Tax Return/Application for Certification Authorizing Registration and
Documentary Stamp Tax due from said sale. Bureau of Internal Revenue (BIR), however,
received a report that the lots sold were undervalued for taxation purposes. The Special
Investigation Division conductedan ocular inspection and concluded that the properties were
commercial with a zonal value of P2,000 per square meter. The Regional Director Sacamos sent
two Assessment Notices to respondent for the deficiencies. Respondent sent a protest which was
then denied by Sacamos. Respondent filed a petition for review before the Court of Tax Appeals
(CTA) contending that the properties have pre-defined zonal value of P650 per square meter
based on the Revised Zonal Values of Real Properties in the City of Roxas and that the
properties were classified as residential with a pre- defined zonal value, hence, the BIR officials
had no business re-classifying the same. The CTA ruled in favor of respondent. Hence, the
petitioner filed the instant petition.

ISSUES:

1.) Whether the requirement of consultation with competent appraisers both from private and
public sectors in determining the fair market value of the subject lots were applicable in the
instant case

2.) Whether the CTA erred in applying the fair market value based on the zonal valuation of
residential land as tax base for computation of the deficiencies

RULING:

1.) Yes. While the Commission of Internal Revenue has the authority to prescribe real property
values and divide the Philippine into zones as provided under Section 6(E) of the National
Internal Revenue Code, the law is clear that the same has to be done upon consultation with
competent appraisers both from the public and private sectors. Petitioner’s act of re-classifying
the subject properties from residential to commercial cannot be done without first complying
with the procedures prescribed by law.

2.) No. As observed by the CTA en banc, that the “Revised Zonal Values of Real Properties”
was drafted by petitioner, with representatives from both public and private sectors, duly
satisfied the requirement of the law for its validity. It indicates the zonal values and classified the
properties in Barrio Banica as residential. Hence, it is proper application.

As regards the contention of petitioner that the act of classifying the subject properties was in
accordance with the section 1(b) and 2 Zonal Value Guidelines, the Court ruled that it was not
applicable in the instant case. Section 1(b) does not apply because said proviso operates only
when no zonal valuation has been prescribed and section 2 shall apply only when the real
property is located in an area or zone where the properties are not yet classified and their
respective zonal valuation are not yet determined.