BIR Ruling [DA-015-98]

January 27, 1998 BIR RULING [DA-015-98] Palmera Homes 827 Palmera Centre, Aurora Blvd., Cubao Quezon City Attention: Ms . Jerylle Luz CC . Quismundo Head, Administrative Post Department Gentlemen : This refers to your letter dated September 8, 1997 requesting confirmation of your opinion that Deeds of Reconveyance executed by your buyers in your favor are not subject to the 5% capital gains tax and documentary stamp tax. casia It is represented that your buyers purchased house and lot from your company availing themselves of housing loans from the National Home Mortgage Finance Corporation (NHMFC) or from the Home Development Management Fund (HDMF) or the Pag-ibig through their respective accredited originating banks; that Deeds of Absolute Sale were executed between your company and the buyers; that on several occasions, your company was constrained to cancel some of the accounts of the buyers who decided to withdraw from their purchase due to financial constraints, or due to other reasons which made it practicable not to pursue with the purchase, and such withdrawals and cancellations were made prior to the release of their housing loans from the financial institutions; and that for the buyers whose accounts were cancelled, a Deed of Reconveyance were executed by them in your favor returning the property since no payment was made on the purchase. In reply thereto, please be informed that the Deeds of Absolute Sale executed by you in favor of your customers as required by the originating banks, did not produce any legal effect because with the withdrawal of your customers and your subsequent cancellation of the sales, prior to the release of their housing loans from the financial institutions, you failed to receive the proceeds which were to be the cause/consideration for the sales. For lack of consideration, it cannot be said that your property has been disposed, transferred or conveyed in favor of your customers, pursuant to Article 1352 or the Civil Code, stating: "ARTICLE 1352. Contracts without cause, or with unlawful cause, produce no effect whatsoever. xxx xxx xxx Consequently, since the Deed of Sales between your company and your customers failed to effect the transfer of ownership of your aforementioned properties, the Deeds of Reconveyance executed by your buyers so as to effect the return of your properties to you are not subject to the capital gains tax and documentary stamp taxes prescribed in Sections 21(e) and 196 of the Tax Code, as amended, (now Section 24 (D) (1) and 196 of the Tax Code of 1997) respectively. (BIR Ruling No. 186-93 dated May 5, 1993) However, the notarial acknowledgment on the Deeds of Reconveyance shall be subject to the documentary stamp tax of fifteen pesos (P15.00) imposed under Section 188 of the Tax Code, as amended. cdta This ruling is being issued on the basis of the facts as represented. However, if upon investigation, it shall be disclosed that the facts are different then this ruling shall be considered null and void. Very truly yours, (SGD.) SIXTO S. ESQUIVIAS IV Deputy Commissioner (Legal & Enforcement Group)