The Court of Tax Appeals (CTA) said that local government unit (LGU) is liable to pay the capital gains tax (CGT) to the Bureau of Internal Revenue for acquiring tax delinquent real property.

The court's Third Division issued the ruling when it denied the petition of the Valenzuela City government to get back P2.3 million CGT payment for seizing and transferring the title of a forfeited property.
 
The LGU argued that the tax was erroneously collected as the property was not sold by the owner but seized for non-payment of real estate tax amounting to more than P657,000.
 
It added that the city is not liable to pay the tax by reason of its taxing power under the Local Government Code (LGC).
 
The city paid the tax in protest to secure the title of the property.
 
The courts Third Division said, however, that the acquisition of the property can be considered a form of purchase under Section 27 of the Tax Code.
 
It stressed that the exchange or transfer of title of the said delinquent property is equivalent to a purchase even if no money is involved.  
 
In the same 21-page resolution, the court ordered the BIR to return the more than P486,000 documentary stamp tax (DST) the city paid for the same forfeited property.
 
The decision penned by Associate Justice Erlinda Uy stated that the LGU is exempted from paying DST pursuant to Section 281 of the LGC.
 
The LGC states that LGU is exempted from paying DST and registration fees in the registration, of delinquent real property.