BIR Ruling [DA-072-00]

February 2, 2000 BIR RULING [DA-072-00] Brixton Investments Corporation 3rd Floor Pako Building Cor. Pedro Gil, A. Linao & Gen. Luna Streets Paco, Manila Attention: Mr . Jose W . Barcelon Gen. Manager Gentlemen : This refers to your letter dated July 16, 1999 requesting exemption from the payment of capital gains tax and documentary stamp tax the reconveyance by Paulino R. Paco, Jr., Lilian G. Salvador, Benjamin P. Labustro and Franciliza T. Viterbo of subdivision lots in favor of Brixton Investments Corporation. cdlex It is represented that you are a subdivision developer and builder presently engaged in low-cost housing project in Camarin, Novaliches, Caloocan City, under the Unified Housing Lending Program (UHLP) and Expanded Lending Program of the government; that several of yours customers/clients namely: Paulino R. Paco, Jr., Lilian G. Salvador, Benjamin P. Labustro and Franciliza T. Viterbo, each bought a house and lot by availing of a housing loan under the UHLP through an originating bank (Premier Bank) accredited with the National Home Mortgage Finance Corporation (NHMFC); that as required by the originating bank, the titles of the lots were transferred to and registered in the names of the respective buyers; that due to financial constraints, the buyers backed out and withdrew their loan applications; that in the cases of Paulino R. Paco, Jr., Lilian G. Salvador, and Benjamin P. Labustro, their said withdrawals were made prior to the release of the loans from the NHMFC; that in the case of Franciliza T. Viterbo, the said buyer has sought the cancellation of the loan extended to her by the UHLP through the originating bank; that you obtained the cancellation or release of mortgage from the NHMFC and are selling the lots to new buyers, but before you can effect the transfer of said lots to the new buyers, the lots must first be reconveyed by Paulino R. Paco, Jr., Lilian G. Salvador, Benjamin P. Labustro and Franciliza T. Viterbo in your favor without any consideration involved: that eventually, Deeds of Reconveyance were executed by the withdrawing lot buyers, returning said lots in your favor; and that based on the foregoing facts, you are of the opinion that the Deed of Sale you executed in favor of the afore-named withdrawing buyers, did not effectively transfer or convey the title of the said properties in their favor for lack of consideration since their withdrawal was made prior to the release of their loans, while the one whose withdrawal was after the loan was released, the subsequent cancellation of the loan by the NHMFC was obtained. Accordingly, the reconveyance without consideration of the same properties in your favor by the withdrawing buyers is not subject to capital gains tax and documentary stamp tax. In reply, please be informed that since the withdrawal of your clients, namely Paulino R. Paco, Jr., Lilian G. Salvador, and Benjamin P. Labustro from the said sale transaction was made prior to the release of their loans from the NHMFC while in the case of Franciliza T. Viterbo, her request for cancellation of the loan extended to her by NHMFC was subsequently obtained, the said sale transaction was therefore, without consideration and produced no effect whatsoever, pursuant to Art. 1352 of the Civil Code.Hence, the Deed of Reconveyance without consideration executed by your afore-names withdrawing clients in your favor so as to effect the return of their respective house and lot they bought from you, is not therefore subject to the capital gains tax imposed under Section 24(D)(1) of the Tax Code of 1997 and to the documentary stamp tax prescribed under Section 196 of the Tax Code of 1997, since under Section 185 of Regulations No. 26, otherwise known as the "Revised Documentary Stamp Tax Regulations", conveyances without consideration are not taxable. (BIR Ruling No. DA-015-97 dated January 14, 1997) LexLib However, the payments in your favor by your said buyers that were made as a consequence thereof that were not returned to them 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, 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 disclosed that the facts are different, this ruling shall be considered null and void. Very truly yours, Commissioner of Internal Revenue By: (SGD.) SIXTO S. ESQUIVIAS IV Deputy Commissioner (Legal and Enforcement Group)