CIR v. AQUAFRESH SEAFOODS INC.

Peralta, J. 20 Oct 2010 GR No. 170389

Doctrine The Commissioner is hereby authorized to divide the Philippines into different zones or area and shall, upon consultation with competent
appraisers both from the private and public sectors, determine the fair market value of real properties located in each zone or area.
Furthermore, its reliance on the “predominance test” to re-assess the property is misplaced. Firstly, it is only used to determine the zonal
value of properties not yet assessed. Secondly, the predominant use of other properties in the same zone is considered for the zonal
valuation—meaning since the other lots in the zone are residential, we should consider the subject lots as residential for the purposes of
its zonal value, too.
Summary The BIR assessed Aquafresh for deficiency CGT and DST in the sale of two parcels of land. They said that the deficiency was accounted for
by the real zonal value of the property—which they just came up with in the course of investigating the sale—which was much higher than
that contemplated by Aquafresh. The respondent assailed the assessment and said that the tax base of the CGT and DST should be that
which was indicated in the list of zonal values of real property. The Court agreed with the respondents, saying that the BIR did not have
the power to unilaterally re-assess the value of the property.
Facts  SALE: Aquafresh Seafoods Inc. sold two parcels of land in Barrio Banica, Roxas City to Philips Seafoods Inc for P3.1M. The
respondent then filed a CGT return, paying P186k in CGT and P46.5k in DST.
 Upon receiving a report that the sale was undervalued for tax purposes, the BIR’s Special Investigation Division conducted an
ocular inspection of the properties. They found that the subject properties were commercial lots with a zonal value of P2k/sqm.
 ASSESSMENT: Sept 15, 2000: Two assessment notices: P1,372,171.46 and P356,267.52 in CGT and DST deficiencies, respectively.
 Oct 1, 2000: Aquafresh protested.
 Dec. 1, 2000: protest denied for lack of legal basis
 [no date]: Aquafresh appealed; denied with finality on Feb 13, 2002.
 JUDICAL HISTORY: Aquafresh filed an appeal to the CTA on Mar. 19, 2002. They claimed that the zonal value of the lots was
P650/sqm, based on the 1995 Revised Zonal Values of Real Properties. Under the same, the lots were classified as residential, and
since there was a pre-defined value the BIR had no business reclassifying the properties. The CTA granted their petition, citing the
need for consultations before revising zonal values, and cancelled the assessments. This was affirmed by the CTA en banc, hence
this petition with the SC.
Ratio/Issues
I. Whether the requirement of consultation with appraisers re: FMV is applicable in this case (YES)

(1) The CIR’s authority to prescribe real property values under Sec. 6(E) of the NIRC requires consultation with competent
appraisers both from the public and private sectors. Since at the time of the sale of the subject properties were classified
in the 1995 Revised Zonal Value of Real Properties, the CIR cannot unilaterally change the zonal valuation.
(2) Petitioner argues that the consultation requirement is mandatory only when it is prescribing real property values - that is
when a formulation or change is made in the schedule of zonal values. Petitioner also contends that what it did was not to
prescribe the zonal value, but merely classify the same as commercial and apply the corresponding zonal value for such
classification.
(3) Court disagrees. Petitioner's act of re-classifying the subject properties cannot be done without first complying with the
procedures prescribed by law. All the properties in Barrio Banica were classified as residential under the 1995 Revised
Zonal Values of Real Properties. Petitioner's act involves a re-classification and revision.
(4) The CIR also failed to comply with RM No. 58-69, which lays down the procedure for the establishment of the zonal value
(unimportant internal procedural stuff).

II. Whether the CTA en banc erred in upholding the FMV based on the zonal valuation as the tax base for computing the CGT &
DST (NO)

(1) Petitioner insists that its act is based on the Zonal Valuation Guidelines—however, this procedure only applies when no
zonal value has actually been prescribed, and does not apply to this case.
(2) Petitioner insists that the same guidelines allow it to classify property predominantly used as commercial as “commercial”
even if they are located in residential areas. Citing a previous case, the Court said that the same standard is only applicable
for property which has not yet been classified and their respective zonal valuations have not yet been determined.
(3) If petitioner feels that the properties in Barrio Banica should also be classified as commercial, then petitioner should work
for its revision in accordance with Revenue Memorandum Order No. 58-69. The burden was on petitioner to prove that
the classification and zonal valuation in Barrio Banica have been revised in accordance with the prevailing memorandum.
In the absence of proof to the contrary, the 1995 Revised Zonal Values of Real Properties must be followed.
(4) Lastly, this Court takes note of the wording of Section 2 (b) of the Zonal Valuation Guidelines, to wit:

2. Predominant Use of Property.

b) The predominant use of other classification of properties located in a street/barangay zone, regardless of actual use
shall be considered for purposes of zonal valuation.

(5) The Court ruled that even assuming that the subject properties were used for commercial purposes, it remains residential
for zonal value purposes. Actual use is considered not for zonal valuation, but the predominant use of other classification
of properties located in the zone. Again, it is undisputed that the entire Barrio Banica has been classified as residential.
Held Petition DENIED.
Prepared by: Job de Leon [Tax 2 | Prof. Laforteza]