Republic of the Philippines v. Sps. Marcelino
G.R. No. 205473, December 10, 2019
SC First Division
Caquioa, J
Lessons Applicable: Capital Gains Tax on Expropriation
Laws Applicable: Section 6 Rule 67
FACTS:
• RTC Order dated August 23, 2012 and Order dated January 10, 2013 directed the expropriation of a 100 sqm. Lot in Valuenzuela City covered by Transfer Certificate of Title (TCT) No. V-16548 issued in the name of Sps. Marcelino and Sps. Bunsay and orderining Department of Public Works and Highways (DPWH) to pay Sps. Bunsay consequential damages equivalent to the value of the capital gains tax (CGT) and other taxes necessary to transfer the Disputed Property in its name.
• Department of Public Works and Highways (DPWH) filed a Motion for Partial Reconsideration (MPR) praying for the deletion of the award for just compensation representing replacement cost of improvements and equivalent value of CGT and other taxes necessary to transfer
• RTC granted the MPR in part by excluding the replacement cost of improvements
• DPWH filed a Petition for review on certiorari filed under Rule 45 of the Rules of Court against the Order dated August 23, 2012 and Order dated January 10, 2013
ISSUE: W/N RTC award for consequential damages should include equivalent value of CGT and other taxes necessary to transfer
HELD: NO. While award of consequential damages equivalent value of CGT and other taxes necessary to transfer must be struck down for being erroneous, it is just and equitable to direct Republic to shoulder such taxes to preserve the compensation awarded as a consequence of the expropriation. 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.
• CGT, being a tax on passive income, is imposed by National Internal Revenue Code (NIRC) on the seller as a consequence of the latter’s presumed income from the sale or exchange of real property. However, the transfer of real property by way of expropriation is not an ordinary sale contemplated under Art. 1458 of the Civil Code. It is akin to a “forced sale” or one which arises not from consensual agreement of the vendor and vendee, but by compulsion of law. Unlike in an ordinary sale wherein the vendor sets and agrees on the selling price, the compensation paid to the affected owner in an expropriation proceeding comes in the form of just compensation determined by the court. Just compensation is defined as the fair and full equivalent of the loss incurred by the affected owner.
• Section 6 Rule 67 of the Rules of Court mandates that in no case shall xxx 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.
