BIR Ruling [DA-030-04]

January 16, 2004 BIR RULING [DA-030-04] 24 (D) (1) DA-118-2001 Brixton Investments Corporation 3rd Fl. Pako Bldg. Cor. Pedro Gil, A. Linao and Gen. Luna Sts. Paco, Manila Attention: Mr. Jose W. Barcelon General Manager Gentlemen : This refers to your letter dated October 27, 2003 stating that Brixton Investments Corporation (Brixton for brevity) is a subdivision developer and builder engaged in a low-cost housing project at Brixtonville Subdivision, Lancer St., Camarin, Caloocan City; that some of your clients, namely: 1. Nolasco E. Estomaquio; 2. Rosalina V. Filomeno; 3. Mafalda S. Garcia; 4. Roberto P. Gutierrez; and 5. Loreta D.G. Mayrina purchased from your company houses and lots thru the housing plan of Home Development Mutual Fund; that the titles of the lots were transferred to and registered under the names of the aforementioned buyers; that due to financial constraints said buyers backed-out and withdrew their housing loan applications; and that Deeds of Reconveyance were eventually executed by the above-quoted buyers. You now request for a ruling that the reconveyance by the afore-named buyers of the lots registered under their names in favor of Brixton will not be subject to capital gains and documentary stamp taxes. In reply, please be informed that the transfer of titles of the lots by the developer to the buyers was done merely for the purpose of loan approval. Such conveyance did not produce any legal effect, since the developer failed to receive the consideration for the sale, hence it cannot be said that the properties have been properly disposed, transferred or conveyed by the developer in favor of the buyers, pursuant to Article 1352 of the Civil Code, stating: "Art. 1352. Contracts without cause, or with unlawful cause, produce no effect whatsoever." xxx xxx xxx Consequently, since the Deeds of Absolute Sale between Brixton and the buyers failed to effect the transfer of ownership of the properties for lack of consideration, the Deeds of Reconveyance executed by the buyers so as to effect the return of the subject properties to the developer are not subject to the capital gains and documentary stamp taxes prescribed in Section 24 (D)(1) and 196 of the Tax Code of 1997, respectively. However, the payments made by your buyers which were not returned to them as a consequence of the aforesaid transfer are subject to the creditable withholding tax imposed under Section 57(B) of the Tax Code of 1997 and implemented by Revenue Regulations No. 2-98, as amended and consequently to income tax imposed under Sec. 27(A) of the Tax Code of 1997. This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be ascertained that the facts are different, then this ruling shall be considered null and void. DAaIHT Very truly yours, Commissioner of Internal Revenue By: (SGD.) MILAGROS V. REGALADO Assistant Commissioner Legal Service