BIR Ruling [DA-099-05]

March 31, 2005 BIR RULING [DA-099-05] 24 (D) (1); 196; 009-95 King Capuchino Tan & Associates 2nd Floor BELMAN II Building Quezon Avenue cor. Cordillera Street Quezon City Attention: Atty. Hermenegildo S. Capuchino Gentlemen : This refers to your letter dated March 17, 2005 stating that your client, Tormil Realty and Development Corporation (Tormil), is a corporation organized and existing under the laws of the Philippines and is registered with the Securities and Exchange Commission (SEC) with SEC Registration No. S3502 dated December 18, 1978 and with business address at No. 10 Real Street, Urdaneta Village, Makati City; that the original authorized capital stock of Tormil is P4,000,000.00 divided into 400,000 shares with a par value of P10.00 per share; that Manuel A. Torres, Jr. (Judge Torres) is the absolute and registered owner of various parcels of land together with the improvements thereon covered by TCT Nos. 81834, 144240, 77008, 65689 and 109200; that on July 13, 1984, Judge Torres executed a Deed of Assignment in favor of Tormil assigning, conveying and transferring the ownership of his parcels of land covered by TCT Nos. 81834 and 144240 together with the improvements thereon issued by the Registry of Deeds for Quezon City in exchange of 13,252 shares of stock of Tormil; that Judge Torres executed another Deed of Assignment dated July 13, 1987 in favor of Tormil assigning, conveying and transferring ownership of his three (3) parcels of land covered by TCT Nos. 77008, 65689 and 109200 together with the improvements thereon issued by the Registry of Deeds for Manila in exchange of 78,493 shares of stock of Tormil; that by virtue of the Deeds of Assignment, TCT Nos. 81834 and 144240 were cancelled in the name of Judge Torres and TCT Nos. 319263 and 319264 were issued in the name of Tormil; that likewise, TCT Nos. 77008, 65689 and 109200 were cancelled in the name of Judge Torres and TCT Nos. 162339, 162340 and 162341 were issued in the name of Tormil; that the said Deeds of Assignment were duly accepted by Tormil through its Board Resolution dated July 25, 1984 and the shares of stock corresponding to the property assignments were duly issued to and received by Judge Torres; that the aforesaid properties were duly recorded in the inventory of assets of Tormil and the revenues generated by said properties were correspondingly entered in the corporation's books of account and financial records; that sometime in the first quarter of 1987, the other stockholders discovered that said properties and the revenues generated therefrom disappeared in the company's inventory and financial records; that on April 6, 1987, the stockholders of Tormil learned that Judge Torres executed several documents denominated as Deeds of Revocation of Assignment unilaterally revoking and canceling all the Deeds of Assignment he previously executed in favor of Tormil in 1984; that as a result of the execution of the Deed of Revocation of Assignment, TCT Nos. 162339, 162340 and 162341 in the name of Tormil were cancelled and in lieu thereof, TCT Nos. 174181, 174182 and 174183 were issued in the name of Judge Torres by the Registry of Deeds for Manila; that likewise, TCT Nos. 319263 and 319264 in the name of Tormil were cancelled and TCT Nos. 357965 and 357966 were issued in the name of Judge Torres by the Registry of Deeds for Quezon City; that due to the disappearance of said properties and the earnings thereon in the company records, Tormil and other stockholders filed a complaint against Judge Torres in the SEC in March 1987 docketed as SEC Case No. 03545 to compel him to reconvey to Tormil the properties covered by the aforementioned Deeds of Assignment; that on January 8, 1998, the SEC rendered a Decision in said SEC Case No. 03545, the dispositive portion of which reads as follows: "WHEREFORE, premises considered, JUDGMENT is hereby rendered as follows: "1. Board Resolution No. 3-87 dated April 3, 1987 passed and approved by Edgardo Pabalan, Graciano Tobias, Rodolfo Jocson, Jr., Melvin Jurisprudencia and Augustus Ceasar Azuna, authorizing Torres to act for himself and for Tormil to sign and approve the Deeds of Revocation of Assignment executed by respondent is hereby declared NULL and VOID; "2. The Deeds of Revocation of Assignment all dated April 6, 1978 executed and signed by respondent Torres revoking and canceling the assignment of real properties/shares of stock in exchange for the 225,000 shares of Tormil are hereby declared NULL and VOID; "3. The respondent, through the Court appointed Administratrix in Special Proceedings No. M-1768 pending before the Regional Trial Court of Makati City, is hereby ORDERED to execute the necessary deeds/instruments of reconveyance, in ordered (sic) to effectively and legally vest the title, ownership and possession in and over the title, ownership and possession in and over the parcels of land covered by TCT Nos. 174181 and 174182 of the Registry of Deeds of Manila and TCT Nos. 357965 and 357966 of the Registry of Deeds of Quezon City in favor of Tormil; "4. ORDERING the respondent through the same Administratrix to account for and to deliver to the complainant Tormil the proceeds of the sale of the lot covered by TCT No. 174183 of the Registry of Deeds of Manila sold by respondent Torres to one Josephine Serrano in the amount of P740,000 plus legal interest thereon computed from the time of its disposition on April 20, 1987 until fully accounted for; "5. ORDERING the respondent through the same Administratrix to execute the necessary deeds/instrument of reconveyance in order to effectively/legally vest the title, ownership and possession of the shares of stock which respondent conveyed to TORMIL in exchange for its 225,000 shares of stock, particularly the following shares of stock, to wit: a) Manila Jockey Club, Inc. b) El Hogar Filipino c) Ayala Corporation d) Philippine Long Distance Telephone Co. e) Phil. Tannery Co., Inc. f) F.G.U. Insurance Corp. g) Filipino Life Insurance Co. h) Jardine Davies, Inc. i) Universal Reinsurance Corp. "6. ORDERING the Administratrix to account for, reimburse and pay to complainant Tormil the value of such shares of stock of San Miguel Corporation, Ayala Fund, Inc., China Banking Corporation and PLDT already disposed plus legal interest thereon computed from the time of disposition on October 24, 1986 until fully paid; "7. ORDERING the respondent through the same Administratrix to account for, reimburse and pay complainant TORMIL any and all fruits, income and interests generated and/or earned by TCT Nos. 174181 and 174182 (Manila) and TCT Nos. 357965 and 357966 (Quezon City) and by the shares of stock of Manila Jockey Club, Inc.; El Hogar Filipino; Ayala Corporation; Philippine Long Distance Telephone Co.; Philippine Tannery Co., Inc.; F.G.U. Insurance Corp.; Filipinas Life Insurance Company; Jardine Davies, Inc. and Universal Reinsurance Corporation from the time they were revoked by respondent Torres on April 6, 1987 until titles thereof shall have been reinstated in Tormil's favor; "8. ORDERING the respondent through the same Administratrix to pay complainants attorney's fees in the amount of P50,000.00 and the costs of suit. Respondent's counterclaim for damages and attorney's fees are hereby DISMISSED for lack of permit. "SO ORDERED." that while said SEC Case No. 03545 was still pending for trial, Judge Torres filed Sp. Proc. No. M-1768 before the RTC, National Capital Judicial region, Branch 141 of Makati City, entitled "In The Matter of the Allowance of the Last Will and Testament of Manuel A. Torres, Jr., Edgardo Pabalan, Petitioner vs. Antonio P. Torres, Jr., et al., Oppositors" , which is petition for the probate of his holographic will; that accordingly, the properties covered in the aforesaid deeds of assignment were listed and included by Judge Torres as part and parcel of his estate; that while the probate case was pending, Judge Torres, died on April 3, 1991; that a notice of death was filed by Torres Pabalan Realty & Development Corporation and Edgardo Pabalan and moved that they be substituted as petitioners to the case; that during the pendency of the probate case, the Decision in SEC Case No. 03545 became final and executory; that the Special Administratrix in Sp. Proc. No. M-1768 was ordered by the court to comply with the Decision of SEC Case No. 03545; that accordingly, the Special Administratrix in the probate case reconveyed to Tormil the aforesaid parcels of land; that Tormil will now register the Deed of Reconveyance of the aforesaid properties in its name before the Register of Deeds of Manila and Quezon City in order that new titles in the name of Tormil be issued; that the reconveyance shows that there is no material consideration because it simply restores back the title to Tormil, being the original owner. Based on the foregoing representations, you now request for an opinion that the reconveyance of the above-mentioned properties to Tormil is exempt from the payment of capital gains tax and the corresponding documentary stamp tax. In reply thereto, please be informed that this Office had already occasioned to rule on the matter, when it said in BIR Ruling No. 009-95 dated January 16, 1995 , that ". . . the execution of a Deed of Reconveyance by the Spouses Rodrigo Cawili and Marissa Cawili reconveying the aforesaid real property in favor of Aurora R. Magno (now Aurora M. Panaguiton) and Manuel R. Magno being merely a formality of restoring title to the said property in the name of its true owners, hence, without any, consideration, is not likewise subject to the capital gains tax imposed under Section 21(e) of the Tax Code, as amended, and to the documentary stamp tax imposed under Section 196 of the same Code.However, the notarial acknowledgment to the said Deed of Reconveyance is subject to the documentary stamp tax of P10.00 pursuant to Section 188 of the Tax Code, as amended. Considering that the above-mentioned case is in all fours similar to the instant case, as the reconveyance of the five (5) parcels of land to Tormil is without any monetary consideration, as it simply restores back the titles over the said properties to the latter, being the original owner thereof, the reconveyance of the said properties in favor of Tormil is exempt from the payment of capital gains tax and the corresponding documentary stamp tax respectively imposed under Sections 24(D)(1) and 196 of the Tax Code of 1997. aEIADT 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, (SGD.) JOSE MARIO C. BUAG Deputy Commissioner Legal & Inspection Group