BIR Ruling [DA-077-02]

April 29, 2002 BIR RULING [DA-077-02] Sec. 24 (D) (1); 339-88 De Vega Law Offices No. 3 Iris Street, West Fairview Park Quezon City Attention: Atty. Jesus R. De Vega Gentlemen : This refers to your letter dated October 22, 2001 requesting for exemption from the payment of capital gains and documentary stamp taxes on a Deed of Conveyance executed by the Court Trustee in favor of the plaintiff, Mr. Antonio R. de Vega, in order to give effect to and implement the judgment of the Court declaring the plaintiff as the true and lawful owner of a certain parcel of land. It is represented that Civil Case No. 140-M-47 entitled "Antonio R. de Vega vs. Sps. Amorsolo and Myraflor Carpio" filed before the Regional Trial Court of Malolos, Bulacan, Branch 22, Third Judicial Region is a complaint for the annulment of a contract of sale of a parcel of land with improvements situated in Brgy. Abangan, Marilao, Bulacan on ground of fraud, intimidation and violence with a prayer that the title covering the aforementioned property issued to the defendant be cancelled and the same be reconveyed to the plaintiff; that the pertinent facts as found by the Court are as follows: that sometime in July of 1996, plaintiff, Antonio R. de Vega, had a disagreement with the defendant Amorsolo Carpio over the latter's insistence that plaintiff sign or execute a "mortgage" contract over his aforementioned property; that plaintiff told Amorsolo Carpio that he would study the matter before deciding the same; that said statement enraged Carpio who suddenly clutched plaintiff's neck in strangulation, and reached for the kitchen knife and raised it in a position as if to stab the plaintiff; that with this sudden and unprovoked aggression against him, plaintiff fell down on a nearby sofa, very terrified of being killed by strangulation and knife stabbing, but managed to kneel before Carpio and plead for mercy and said that if Carpio would spare his life he would sign any document the latter would tell him to sign to; that only then that Carpio released his tighthold on plaintiff's neck and let plaintiff go; Carpio then telephoned his wife who arrived minutes later bringing with her already prepared or typewritten papers over which they made the plaintiff sign; that only on the second week of February 1997 that plaintiff came to know that the papers he was forced to sign was not a mortgage contract but an absolute deed of sale of his house and lot in favor of Spouses Amorsolo and Myraflor Carpio as shown in a "Kasulatan sa Ganap na Bilihan" which was made to appear to have been signed by plaintiff and acknowledged on December 27, 1996 in Meycauayan, Bulacan before Notary Public Sergio E. Bernabe, a commissioned Notary Public of Sta. Maria, Bulacan; that as a consequence of the violence and intimidation employed by the defendants-spouses Carpio, who acted in conspiracy in forcing or compelling plaintiff to sign, execute and deliver a public instrument thereby vitiating the latter's consent, plaintiff Antonio R. de Vega filed the aforesaid complaint for the annulment of the deed of sale and reconveyance of the aforementioned property to him; that on, September 8, 1999, the trial court resolved the case for the plaintiff and against the defendants, the dispositive portion of the decision state, among other things, as follows: HSaEAD "1. the annulment of the "Kasulatan sa Ganap na Bilihan" ( Exhibit 'G' ) on the ground that plaintiff's (de Vega's) consent thereto was vitiated by fraud, intimidation and violence. 2. the Register of Deeds, Meycauayan, Bulacan to cancel TCT No. T-287466(M) issued in the names of Amorsolo F. Carpio and Myraflor Carpio and in lieu thereof, to reissue or reinstate TCT No. T-184009(M) Meycauayan, Bulacan registered in the name of Antonio R. de Vega, or otherwise issue a new Transfer Certificate of Title under the name of Antonio R. de Vega;" that by reason of the failure/refusal of Spouses Carpio to comply with the resolution of the court dated November 7, 2000 which expressly ordered the spouses to turn over and surrender promptly to the court the aforementioned property which is now covered by TCT No. T-287466 of the Registry of Deeds of Meycauayan, Bulacan to enable the Register of Deeds to cancel the same and to issue a new Transfer Certificate of Title under the name of plaintiff, Antonio R. de Vega, the court issued an Order dated August 13, 2001 appointing Mr. Merito P. Rillo, Legal Researcher of the said court, as Trustee with authority to execute without delay in favor of plaintiff Antonio R. de Vega a Deed of Conveyance transferring to the latter the ownership of the aforementioned property. In reply, please be informed that under Section 24(D)(1) of the Tax Code of 1997, 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 six percent (6%) based on the gross selling price or the fair market value prevailing at the time of sale, whichever is higher. Accordingly, the Deed of Conveyance executed by the Court Trustee in favor of Antonio R. de Vega involving the aforementioned property which is now registered in the name of Spouses Amorsolo F. Carpio and Myraflor Carpio is not subject to the 6% capital gains tax imposed under Section 24(D)(1) of the Tax Code of 1997, since the same was executed pursuant to an order of the court declaring as null and void the "Kasulatan sa Ganap na Bilihan" or Deed of Absolute Sale in favor of the spouses on the ground that Mr. De Vega's consent thereto was vitiated by fraud, intimidation and violence; and declaring further that Mr. Antonio R. de Vega is the true and lawful owner of the said property. In other words, there was no sale, exchange or other disposition of real property classified as capital asset in this case. (BIR Ruling No. 339-88 dated July 19, 1988) Moreover, the said Deed of Conveyance is not likewise subject to the documentary stamp tax imposed under Section 196 of the Tax Code of 1997 but the same shall be subject only to the P15.00 documentary stamp tax imposed under Section 188 of the same Tax Code. 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. ADEaHT Very truly yours, Commissioner of Internal Revenue By: (SGD.) EDMUNDO P. GUEVARA Deputy Commissioner Legal and Inspection Group