BIR Ruling [DA-071-03]

March 11, 2003 BIR RULING [DA-071-03] 27, 188 & 196; 29-96 & DA 282-97 Padilla Law Office 7/F, Padilla-De Los Reyes Bldg. 232 Juan Luna St., Binondo Manila Attention: Atty. Sabino Padilla, Jr. Gentlemen : This refers to your letter dated December 18, 2002 stating that your client, the Holy See, is a sovereign entity recognized by, and with diplomatic relations with the Republic of the Philippines, and the Good Shepherd Convent, Inc., a religious corporation organized and existing under the laws of the Philippines with address at 1043 Aurora Blvd., Cubao, Quezon City; that the Good Shepherd Convent, Inc. ("GSC" for brevity), was the registered owner in fee simple of three (3) parcels of land in Tagaytay City, known as Lot 1 of the consolidation and subdivision plan (LRC) Pcs-35 with an area of 15,000 sq. meters, covered by and more particularly described in TCT No. 1131 of the Register of Deeds for Tagaytay City, and Lots 2 and Lot 3 of the consolidation and subdivision plan (LRC) Pcs-35 with an area of 20,533 sq. meters and 1,838 sq. meters, respectively, covered by TCT No. 1487 of the Register of Deeds for Tagaytay City; that on July 17, 1958, GSC, caused the subdivision of Lot 2 of the consolidation and subdivision plan (LRC) Pcs-35 into Lot 2-A with an area of 4,851 sq. meters and Lot 2-B with an area of 15,682 sq. meters, under subdivision plan (LRC) psd-5140; and that on August 11, 1958, the GSC, for a consideration of P1.00 per sq. meter, or P4,851.00, sold to the Holy See a parcel of land with an area of 4,851 sq. meters in Tagaytay City, known as Lot 2-A of the subdivision plan (LRC) Psd-5140. This Lot 2-A is part of a large tract of land, consisting of Lots 1, 2 and 3 of (LRC) Pcs-35, with a total area of 37,371 sq. meters; that the subdivision survey (LRC) Psd-5140 was undertaken and the sale by the GSC to the Holy See of Lot 2-A was intended to sell and convey to the Holy See the land on which the Holy See had constructed a summer house on the grounds thereof; that the subdivision plan (LRC) Psd-5140 and the Deed of Sale executed by the GSC and notarized on August 11, 1958 by Notary Public for Manila Antonio Pesigan was not registered with the Register of Deeds of Tagaytay City; that Lot 2-A of (LRC) Psd-5140 does not correctly reflect the agreement of the parties as to the exact size and shape of the land which GSC sold to the Holy See and on which the Holy See had erected a summer house; that to correct the mistake, GSC and the Holy See secured the services of a Geodetic Engineer to undertake a consolidation-subdivision survey that would reflect the exact size and shape of the land which GSC sold to the Holy See; that on March 12 and April 9, 2002, the parties caused the consolidation and subdivision survey, approved by the Land Registration Authority as (LRA) Pcs-33363, accurately delineated and described as Lot 2 of (LRA) Pcs-3363 the parcel of land sold by GSC to the Holy See, on which was erected the summer house of the Apostolic Nunciature; that under the consolidation and subdivision plan (LRA) Pcs-33363, the actual metes and bounds of the parcel of land sold by GSC to the Holy See is Lot 2 thereof, with an area of 5,045 sq. meters; that the area of 5,045 sq. meters of Lot 2 exceeded by 194 sq. meters the area of the lot described in the Deed of Sale of August 11, 1958, which was 4,851 sq. meters only; and that the additional area of 194 sq. meters has a present fair market value of P630,500.00 (at P3,250.00 per sq. meter, according to the City Assessor of Tagaytay City and current B.I.R. zonal value is P340.00 per sq. meter or P87,300.00). In view of the foregoing, you now seek for a ruling on the tax consequences of the Deed of Partition they intend to execute, more particularly, whether the transfer of the additional 194 sq. meters, over and above the 4,851 sq. meters sold on August 11, 1958, as a result of the Deed of Partition they will execute should be treated as a separate taxable event, or merely a rectification or correction by the parties of the metes and bounds of the land of 4,851 sq. meters sold forty-four (44) years ago. In reply, please be informed that the execution of the deed of partition in question is a separate taxable event. Section 27(D)(5) of the 1997 Tax Code provides that capital gains presumed to have been realized from the sale, exchange or other disposition of lands and/or buildings which are not actually used in the business of a corporation and are treated as capital assets, shall be taxed at the rate of 6% based on the gross selling price or fair market value prevailing at the time of the sale, exchange or disposition, whichever is higher. Such being the case, the transfer of the additional 194 sq. meters by GSC in favor of the Holy See which resulted from the Deed of Partition, and is over and above the 4,851 sq. meters sold on August 11, 1958, is subject to capital gains tax based on the fair market value or zonal value, whichever is higher. Moreover, pursuant to Section 196 of the 1997 Tax Code, the Deed of Partition is subject to the documentary stamp tax based on the consideration or value received or contracted to be paid for such realty or on its fair market value determined in accordance with Section 6(E) of the same Code, whichever is higher ( BIR Ruling No. DA-282-97 dated August 20, 1997 citing BIR Ruling No. 029-96 dated February 27, 1996 ). 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. Very truly yours, Commissioner of Internal Revenue By: (SGD.) JOSE MARIO C. BUAG Deputy Commissioner Legal & Inspection Group