BIR Ruling [DA-090-02]

May 08, 2002 BIR RULING [DA-090-02] S.24 (B) (2); S.73 (C) 105-2000 Luis Q.U. Uranza, Jr. & Associates P.O. Box 2747, Manila Attention: Atty. Luis Q.U. Uranza, Jr. Gentlemen : This refers to your letter dated February 6, 2001 requesting for a ruling that the Deed of Reconveyance executed in favor of your client, Fr. Ramon Vicente P. Quiogue, O.M.I. (Fr. Ramon for brevity), pursuant to the Order issued by a competent court is exempt from transfer taxes. Per your representations and the documents thus submitted, the facts are as follows: From the period November 1977 to April 1978, Antonio Quiogue (Antonio for brevity) borrowed P1,050,000.00 from his cousin, Francisco V. del Rosario (Francisco for brevity) to pay his maturing loan with the Manufacturers Bank. Francisco, instead of documenting the transaction as a loan secured by a real estate mortgage, asked Antonio to convey the land and improvements comprising Nacional Memorial Chapels located at G. Araneta Avenue, Quezon City to Good Shepherd Memorial Plan, Inc. (GSMP for brevity), which in turn transferred the same property to ALLCO Loan and Leasing Corp. (ALLCO for brevity). ALLCO, then, leased the property back to Antonio and granted him an option to buy it back with the lease rentals to form part of the re-purchase price. When Antonio could not pay the rentals and amortization, ALLCO then transferred and conveyed to M & M Trading and Real Estate Corporation (M&M for brevity) all its rights, interests and title over the subject property. The property is now covered by Transfer Certificate of Title No. RT-4494 (283246) of the Registry of Deeds of Quezon City. Francisco is both a director and stockholder of the said corporations. Due to the usurious nature of the transactions, Antonio fell behind on his rent and payments. Antonio was likewise threatened with ejectment. Antonio, on January 19, 1982, filed a case before the Regional Trial Court of Quezon City in Civil Case No. Q-34245 to enjoin his threatened eviction and to recover his property as he had already repaid his loan's principal and the interest due thereon. On May 15, 1983, Antonio and Fr. Ramon entered into a Deed of Assignment whereby the former transferred and conveyed all his rights and title over the subject property, including all the rights in litigation in the aforementioned case to the latter. aDSTIC Upon the death of Antonio on December 18, 1983, Fr. Ramon substituted him as Plaintiff in the said pending case. A Decision was rendered by the court (1) declaring the Deeds of Sale between Antonio and GSMPI, and the Deed of Transfer of Assets with Assumption of Obligations between ALLCO and M & M Trading and Real Estate Corporation as merely fictitious and simulated contract; and (2) ordering the said companies to reconvey the property to Fr. Ramon, and for Fr. Ramon to execute a Deed of Real Estate Mortgage in favor of ALLCO as security for the former's loan. The Court of Appeals affirmed the said Decision with minor modifications. To reduce the documentation required by the Decisions, the parties agreed to execute one Deed of Reconveyance between M & M Trading and Real Estate Corp., the present owner of the subject property, and Fr. Ramon in lieu of the execution of the Decision. In reply, please be informed that reconveyance of real property with an end in view of transferring the title back to its original owner without monetary or valuable consideration is not subject to capital gains tax. The Honorable Court, in its Decision, held that the Deed of Sale between Quiogue and GSMPI, and that between GSMPI and ALLCO, the Lease Contract between ALLCO and Quiogue, and the Deed of Transfer of Assets with Assumption of Obligation between ALLCO and M and M Trading and Real Estate Corporation as merely fictitious and simulated contracts, the real transaction or transactions involved is one of simple loan and, between Quiogue and ALLCO an equitable mortgage. From the foregoing, this Office therefore opines and so holds that the reconveyance of the subject property, through the Deed of Reconveyance executed by M&M in favor of Fr. Ramon, is not subject to capital gains tax. Moreover, the said reconveyance is not also subject to the documentary stamp tax prescribed under Section 196 of the 1997 Tax Code since under Revenue Regulations No. 26, otherwise known as the Revised Documentary Stamp Tax Regulations, conveyances of realty without valuable consideration is not subject to the documentary stamp tax. The acknowledgment on the said Deed of Reconveyance is, however, subject to a documentary stamp tax of P15.00 pursuant to Section 188 of the 1997 Tax Code. ( BIR Ruling No. DA-105-2000 dated February 15, 2000 ) The Deed of Real Estate Mortgage to be executed by Quiogue in favor of ALLCO in accordance with the dispositive portion of the said Decision shall, likewise, be subject to Documentary Stamp tax under Section 195 of the 1977 Tax Code, the transaction in 1977 being considered in substance as equitable mortgage. 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 void. SDHITE Very truly yours, Commissioner of Internal Revenue By: (SGD.) EDMUNDO P. GUEVARA Deputy Commissioner Legal and Inspection Group