BIR Ruling [DA-091-02]

May 13, 2002 BIR RULING [DA-091-02] RMC 43-91; 174-90 Mrs . Tomasita M. Dris B-21, L-21 GSIS La Mesa Homesite Novaliches, Quezon City M a d a m : This refers to your letter dated November 13, 2000 requesting for an opinion to the effect that the rules on the kind of tax, rate of tax, zonal or fair market value obtaining at the date of sale of real property should be applied and that the computation stated hereunder is correct. Documents submitted disclosed that on March 17, 1978, a Deed of Conditional Sale was executed by and between Mr. Amando G. Mendoza and Lagro Development and Realty Corporation covering a 316 square meter land, together with the improvements thereon, and covered by TCT No. 190211 of the Registry of Deeds of Quezon City; that the Government Service Insurance System (GSIS) financed the purchase of the said property, thus, as a standard operating procedure, the title of the property was transferred to GSIS under TCT No. 254422 of the Registry of Deeds of Quezon City to serve as collateral of the loan of Mr. Mendoza; that GSIS' title over the aforementioned property was reconstituted under TCT No. RT-31575 (254422) of the Registry of Deeds of Quezon City; that on December 17, 1986, you and Mr. Mendoza executed a Deed of Transfer of Rights whereby he transferred in your favor his right, title and interest over the aforementioned property for and in consideration of the amount of P230,000.00 plus the outstanding balance of the loan with the GSIS in the amount of P53,291.83 or an aggregate amount of P283,291.83; that on even date, Mr. Mendoza executed a Special Power of Attorney constituting and appointing you and your spouse, Conrado M. Dris, to pay to the GSIS the monthly amortization due on the said property and to receive from the GSIS the Transfer Certificate of Title of said property and later on transfer the same to your names; that instead of substituting or subrogating yourself and your spouse in place of the original buyer, Mr. Mendoza, the GSIS annotated only the name of your spouse, Conrado M. Dris, as the Attorney-In-Fact of Mr. Mendoza in the Deed of Absolute Sale it issued in the name of the latter on August 9, 1996; that on August 12, 1996, the documentary stamp tax due on the above-mentioned deed was paid in the amount of P1,335.00; that on August 15, 1996, a Certificate Authorizing Registration (CAR) was issued to Mr. Mendoza and consequently, the above-mentioned property was titled and transferred in his name under TCT No. 163706; that in order that the above-mentioned property could be transferred both in your name and that of your spouse, on September 28, 2000 you presented before the BIR Revenue District Office of Novaliches, Quezon City, RDO No. 28, the Deed of Transfer of Rights you executed with Mr. Mendoza together with the following computation of the capital gains and documentary stamp taxes based on the applicable tax law on sale or exchange of realty in the year 1986: Selling Price P283,291.83 Fair Market Value per Tax Declaration: Land P69,520.00 Improvement @ 130% of 157,430.00 Fair Market Value P226,950.00 =========== Adjusted Value P283,291.83 x 5% Capital Gains Tax P14,164.60 25% Surcharge 3,541.15 Interest (60% maximum) 8,498.76 Compromise Penalty 1,000.00 Amount Due P27,204.51 =========== Documentary Stamp Tax (1%) P2,835.00 25% Surcharge 708.75 Amount Due P3,543.75 =========== In reply, please be informed that Revenue Memorandum Circular No. 43-91 clarifying Revenue Memorandum Circular No. 34-91 relating to ante-dating of documents provides that when there is only a delay in the presentation of sales document, the rules on the kind of tax, rate of tax, zonal or fair market value obtaining at the date of notarization shall be applied, but the penalties for late filing of return and payment of tax shall be imposed. There is a delay in the presentation of sales documents to the BIR after 30 days from date of notarization. For this purpose, taxpayers have the burden of proving by the submission of other documents such as cancelled checks, official receipts, contract to sell or certification of the archive official, to show that there is no ante-dating of public instrument. The foregoing provision of Revenue Memorandum Circular No. 43-91 dealing on ante-dating of Deed of Sale involving real properties, in order to remove doubts as to what rules to apply in the payment of taxes, however, finds no application to the instant case since what you have presented to the BIR on September 28, 2000 was a Deed of Transfer of Rights executed in your favor by Mr. Mendoza on December 17, 1986 whereby Mr. Mendoza merely transferred in your favor his rights over the subject real property, which was subsequently registered in the name of GSIS to serve as collateral of the loan taken by Mr. Mendoza to pay for the purchase price of said property. Be it noted that a Deed of Transfer of Rights in real property is not a Deed of Sale of real property contemplated under Revenue Memorandum Circular No. 43-91 because in a Deed of Transfer of Rights in real property what is conveyed by the assignor is not the property itself but the rights pertaining to such property. (BIR Ruling No. 174-90 dated September 10, 1990) Thus, this Office has consistently ruled that a Deed of Transfer of Rights over a real property is not a sale, exchange of disposition of real property classified as capital asset located in the Philippines, but a sale of right pertaining to such property, hence, not included within the purview of Section 24(D)(1) of the Tax Code of 1997 (then Section 21(e) of the 1977 Tax Code, as amended). The reason for this is that in assignment of rights, the assignee merely steps into the shoes of the assignor without acquiring a better right than what the assignor had in the property to which the assigned right pertains. (BIR Ruling No. 024-2000 dated January 11, 2000) From the foregoing, the Deed of Transfer of Rights executed by Mr. Mendoza merely transferred in your favor his rights as buyer of the subject real property and not the property itself; the said deed, therefore, did not in any way transfer the ownership of the subject property in your favor inasmuch as at the time Mr. Mendoza executed the deed he was not yet the owner of the subject property. The consequence of the above transfer or assignment of rights is that you and spouse have been subrogated as buyers of the subject property so much so that after you have paid the full amortization, title of the property should have been transferred in your favor. However, this did not happen in the instant case because instead of subrogating you and your spouse as buyers of the subject property, the GSIS merely annotated in the Deed of Absolute Sale it executed in favor of Mr. Mendoza on August 9, 1996 the fact that your spouse, Conrado M. Dris, was constituted as the Attorney-In-Fact of the latter by virtue of a Special Power of Attorney executed in connection with the Deed of Transfer of Rights you executed with him. Thus, as a result thereof, Mr. Mendoza was able to transfer the title of the subject property in his name after he had acquired a clearance or CAR from the BIR authorizing the registration of the subject property in his name on August 15, 1996. The fact that Mr. Mendoza was able to transfer the title of the above-mentioned property in his name does not, as a consequence, make the subsequent transfer of the above-mentioned property in your name a taxable conveyance. However, in order to effect the subsequent transfer of the above-mentioned property in your favor, a Deed of Reconveyance must be executed by Mr. Mendoza, which Deed of Reconveyance is exempt from the payment of capital gains tax and documentary stamp tax imposed under Sections 24(D)(1) and 196 of the Tax Code of 1997, respectively. The reason for the foregoing exemption is that the reconveyance of the subject real property will be effected only to effectively transfer the ownership of the same in your favor as the rightful owners of the same. On the other hand, Section 185 of Revenue Regulations No. 26, otherwise known as the Revised Documentary Stamp Tax Regulations provides that conveyances of realty, not in connection with a sale and without consideration, to trustee or other persons are not taxable. However, the notarial acknowledgment of the said Deed is subject to the P15.00 documentary stamp tax imposed under Section 188 of the same Code. Moreover, considering that Mr. Mendoza derived income from the said sale or transfer of rights over a real property, his income in said transaction therefore, shall be subject to the ordinary income tax at the rate prevailing at the time said transaction was made. 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.) EDMUNDO P. GUEVARA Deputy Commissioner Legal & Inspection Group