BIR Ruling [DA-092-02]

May 13, 2002 BIR RULING [DA-092-02] 98, 24 (D) (1), 196 and 105 486-99 SGV & Co . 6760 Ayala Avenue 1226 Makati City Attention: Atty. C. P . Noel Tax Division Gentlemen : This refers to your letter dated June 1, 2000 stating that in 1987, the late Don Ramon Roces donated in favor of his daughter (Doa Elena) and three grandchildren (Alfredo, Lydia and Xavier), in equal shares pro indiviso , parcels of land located at Murphy, Quezon City, covered by three Transfer Certificates of Title (TCT) with a total area of 14,860 square meters, as follows: TCT No. (Old) TCT No. (New) Area (sq.m.) 34315 374297 4,953 4,943 144427 374298 1,645 144428 374299 3,319 Total Area 14,860 ===== and that the donees have agreed among themselves to partition the property together with the improvements thereon under the following Technical Description as approved by the Land Registration Authority (LRA): Donee Technical Description Area Xavier R. Guerrero Lot 1 (LRA) Pcs-32787 3,885 sq.m. Lydia R. Guerrero Lot 2 (LRA) Pcs-32787 3,885 sq.m. Alfredo R. Guerrero Lot 3 (LRA) Pcs-32787 3,885 sq.m. Elena Roces Lot 4 (LRA) Pcs-32787 3,205 sq.m. T o t a l 14,860 sq.m. ========= Based on the foregoing representations and documents submitted, you are now requesting exemption from the payment of donor's tax, capital gains tax, documentary stamp tax and value-added tax on the partition of the above realty by the co-heirs/co-owners, Xavier R. Guerrero, Lydia R. Guerrero, Alfredo R. Guerrero and Elena Roces. In reply, please be informed that the juridical condition of co-ownership of things or right is terminated, among others, by the partition which converts into certain and definite parts the respective undivided shares of the cor-owners. ( Art. 494, Civil Code ) Moreover, under Article 496 of the Civil Code, partition may be made by agreement between the parties or by judicial proceedings. Partition shall be governed by the Rules of Court insofar as they are consistent with the Civil Code. " Partition by Agreement . An agreement of partition may be made orally or in writing. An oral agreement for the partition of the property owned in common is valid and enforceable upon the parties. The Statute of Frauds has no operation in this kind of agreements, for partition is not a conveyance of property but simply a segregation and designation of that part of the property which belong to the co-owners." (Tolentino, Civil Code of the Philippines, Vol. II, 1972 ed., p. 195 citing Hernandez vs . Andal et al ., G.R. No. L-275, March 29, 1957; Perez, et al . vs . Curada, et al . (C.A.). 55 Off. Gaz. 474) In the instant case, the properties to be partitioned between the co-owners, Xavier R. Guerrero, Lydia R. Guerrero, Alfredo R. Guerrero, and Elena Roces are properties they received by virtues of the donation, which had already been subjected to donor's tax on December 28, 1987. However, considering that the partition resulted in the renunciation by Elena Roces of a portion of her share in the properties in favor of the three other co-owners, the Deed of Partition will be subject to donor's tax, to the extent of the share renounced, as imposed under Section 98(A) and (B) of the Tax Code of 1997. Moreover, the said partition is not likewise subject to the capital gains tax since the same is not a sale exchange or other disposition of realty within the contemplation of Section 24(D)(1) of the Tax Code of 1997. Furthermore, the Deed of Partition executed for purposes of terminating the co-ownership over the aforesaid real property by and between the co-owners. Xavier R. Guerrero, Lydia R. Guerrero, Alfredo R. Guerrero and Elena Roces, is not subject to the documentary stamp tax prescribed under Section 196 of the Tax Code of 1997 because the allocation is made without monetary consideration and not in connection with a sale. Instead, the partition is made merely to distribute among the co-heirs their respective undivided shares in the said real properties. The partition among the co-owners is not likewise subject to value-added tax because the partition is not a sale of goods and services pursuant to Section 105 of the Tax Code of 1997. (BIR Ruling No. 486-99 dated August 25, 1999) This ruling is being issued in 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 and Inspection Service