G.R. No. 170389 - Republic vs. Aquafresh Seafoods, Inc.

The case involves a petition for review on certiorari filed by the Republic of the Philippines, represented by the Commissioner of Internal Revenue (CIR), against Aquafresh Seafoods, Inc.
The dispute centers on the assessment of Capital Gains Tax (CGT) and Documentary Stamp Tax (DST) following the sale of two parcels of land by Aquafresh Seafoods, Inc. to Philips Seafoods, Inc. for Php3,100,000.00.
Aquafresh Seafoods filed a tax return and paid the corresponding taxes, but the Bureau of Internal Revenue (BIR) later claimed the properties were undervalued, leading to a reassessment.

The BIR's Special Investigation Division conducted an ocular inspection and determined that the properties were commercial, with a zonal value of Php2,000.00 per square meter.
Regional Director Leonardo Q. Sacamos issued assessment notices for CGT and DST deficiencies amounting to Php1,372,171.46 and Php356,267.62, respectively.
Aquafresh Seafoods protested the assessments, asserting that the properties were residential and should be valued at Php650.00 per square meter, as per the 1995 Revised Zonal Values.

The Court of Tax Appeals (CTA) ruled in favor of Aquafresh Seafoods, stating that the existing zonal values should prevail and that the BIR's unilateral reclassification of the properties was not permissible without proper consultation.
The CTA emphasized that the BIR must consult with competent appraisers when determining property values, as mandated by Section 6(E) of the National Internal Revenue Code (NIRC).

The CIR filed a motion for reconsideration, which was denied, leading to an appeal to the CTA En Banc.
The CTA En Banc upheld the CTA's decision, reiterating that the 1995 Revised Zonal Values should be applied and that the BIR failed to demonstrate any amendments to these values at the time of the sale.

The primary legal issues for resolution included whether the requirement for consultation with appraisers was applicable and whether the CTA En Banc erred in applying residential zonal valuation for tax computation.
The Court found that the issues were interrelated and would be discussed in sequence.

Under the NIRC, CGT is imposed on gains from the sale of properties not actively used in business, based on the higher of the gross selling price or fair market value.
DST is similarly based on the consideration contracted or fair market value, as determined under Section 6(E) of the NIRC.

The CIR has the authority to prescribe real property values but must do so in consultation with appraisers from both public and private sectors.
The properties in question were classified as residential under the 1995 Revised Zonal Values, and the CIR could not unilaterally change this classification without following the proper procedures.

The CIR failed to demonstrate compliance with the procedures outlined in Revenue Memorandum No. 58-69 for establishing zonal values.
The existing zonal values, which classified the properties as residential, must be adhered to for tax computation purposes.

The CIR's reliance on the Zonal Valuation Guidelines was misplaced, as the guidelines apply only when no zonal value has been...continue reading