BIR Ruling [DA-015-97]

January 14, 1997 BIR RULING [DA-015-97] Atty. Arnaldo M. Tejada Buswang New Road Kalibo, Aklan S i r : This refers to your letters dated October 28, 1996 and November 24, 1996 requesting for a ruling as to whether or not the Deed of Reconveyance executed in your favor by your brother, Herman M. Tejada, is subject to the capital gains tax and documentary stamp tax. prcd Documents submitted show that on November 7, 1975 you and your brother, Herman M. Tejada mutually agreed that the parcel of land situated at Poblacion, New Washington (formerly Malogo) Aklan covered by Tax Declaration No. 9632 (1975) owned by your uncle, Juan S. Tejada, which was being offered to you for sale, be placed in the name of your aforenamed brother, so that the same could be utilized by him as a project site of his loan with the Development Bank of the Philippines (DBP) which was made on August 5, 1977; that it was likewise agreed upon that the beneficial title thereto shall remain in your name with the obligation, on the part of your brother, to reconvey the legal title of the same in your favor upon full payment of his said loan with the DBP; that as a consequence of the said agreement, your uncle, Juan S. Tejada, executed a Deed of Absolute Sale of Real Estate on the same day whereby he sold the aforesaid realty in favor of your brother for and in consideration of One Thousand Eight Hundred Pesos (P1,800.00); that the money paid for the consideration of said sale come from you; that subsequently, on June 16, 1988, your brother fully paid his said loan with the DBP; and that on November 8, 1995, your brother, Herman M. Tejada, executed a Deed of Reconveyance whereby he reconveyed in your favor the aforesaid realty now covered by Tax Declaration No. ARF/TD No. 93-001-1009 No. 93-001-1010 PIN No. 038-15-001-10-032 038-115-001-10-032 pursuant to your aforesaid agreement with him without any monetary consideration. In reply, please be informed that under Section 21(e) of the Tax Code, as amended, capital gains presumed to have been realized from the sale, exchange or other disposition of real property located in the Philippines classified as capital assets, including "pacto de retro" sales and other forms of conditional sales by individuals, including estates and trusts, shall be taxed at the rate of 5% based on the gross selling price or the fair market value prevailing at the time of sale, which ever is higher. From the foregoing provision of Section 21(e) of the Tax Code, only sale, exchange and other disposition of real property located in the Philippines classified as capital assets by individuals including, estates and trust are subject to the 5% capital gains tax imposed therein. Hence, in the instant case, the transfer by Herman M. Tejada of the aforementioned real property now covered by Tax Declaration No., viz. ARF/TD No. 93-001-1009 No. 93-001-1010 PIN No. 038-15-001-10-032 038-115-001-10-032 (301) by executing a Deed of Reconveyance of November 8, 1995 whereby he reconveyed the same in favor of Atty. Arnaldo M. Tejada, his brother and rightful owner is not subject to the capital gains tax prescribed under Sections 21(e) and 196 of the Tax Code, as amended, considering that the said transfer by Herman M. Tejada of the said realty in favor of Atty. Arnaldo M. Tejada is not a sale, exchange or other disposition of said realty but merely a return of the same to its rightful owner. (BIR Ruling No. 372-92 dated December 28, 1992) However, the said Acknowledgment of the Deed of Reconveyance is subject to the P15.00 documentary stamp tax imposed under Section 188 of the Tax Code, as amended. This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be disclosed that the facts are different, then this ruling shall be considered null and void. asiadc Very truly yours, ALICIA L. TOMACRUZ Head Revenue Executive Assistant (Legal Service)