Atty. Marcelinda Omila-Yap

February 16, 2007 BIR RULING [DA-107-07] Sec. 24 (D) (1); DA-256-2004 dtd 10/08/04 Atty. Marcelinda Omila-Yap Regional Director BIR Revenue Region No. 19 San Pedro St., Davao City M a d a m : This refers to your letter dated September 22, 2004, in connection with the request of Community Organizing: Davao Experience (CODE) Foundation, Inc. in behalf of the National Livelihood Support Fund (NLSF) for the consolidation of the title of a foreclosed property in the name of the latter. It could be ascertained from records that a Memorandum of Agreement (MOA) was entered into by and among then Ministry of Human Settlements (MHS), the Central Bank of the Philippines (CBP), Philippine National Bank (PNB), Landbank of the Philippines (LBP) and the Development Bank of the Philippines (DBP) for the mobilization of local resources for the establishment of viable productive enterprises nationwide; that then Ministry of Human Settlements, as the KKK Secretariat has been mandated to implement the policies, programs and projects approved by the Pambansang Lupon; that the Kilusang Kabuhayan at Kaunlaran (KKK) is a government priority program geared towards the realization of the MOA; that to make effective the KKK Program, the CBP, LBP, PNB and DBP because of their nationwide network and facilities were tasked for the funding, credit and collection and related matters in the KKK per LOI No. 1161 aside from serving as the financial link between the KKK Secretariat and the beneficiary-proponents; that, one of those who availed of the benefits of the KKK Loan Program was LAKAMBINI CRAFTS INC., the owner/proprietor of which was one ALEJANDRO CARRIEDO, who mortgaged a parcel of land covered by TCT No. T-53240 of the Registry of Deeds for Davao City, consisting of 730 sq.m. more or less at the Landbank-Davao Branch; that LBP, as one of the fundholders of KKK funds, released the loan to KKK-approved projects of the Lakambini Craft Inc., however, due to failure to pay its monthly amortization, the parcel of the land mortgaged as security for the loan was foreclosed since the LBP had the power to foreclose the collateral of defaulting loans; that, by virtue of the abolition of the Ministry of Human Settlements after the EDSA Revolution, then President Corazon C. Aquino issued Executive Order (EO) Nos. 715 and 238, consolidating the earnings of the KKK Capital Funds and the NLSF under the control and supervision of the Office of the President; that by virtue of E.O. No. 237 also issued by President Aquino in June 1988, KKK was subsumed under the National Livelihood Support Fund (NLSF); that Community Organizing Davao Experience (CODE) Foundation, Inc., the herein requesting party has been authorized by NLSF through its Legal and Collection Group Head to facilitate the consolidation of title of ownership of the aforesaid property; Hence, this query on whether or not the title to the property could be consolidated in the name of NLSF and not in the name of LBP-Davao Branch. CSAcTa In reply, please be informed that Section 27 (D) (5) of the Tax Code of 1997 provides, viz: "SEC. 27 (D). Rates of Tax on Certain Passive Incomes . "(5) Capital Gains Realized from the Sale, Exchange or Disposition of Land and/or Buildings . A final tax of six percent (6%) is hereby imposed on the gain presumed to have been realized on the sale, exchange or disposition of lands and/or buildings which are not actually used in the business of a corporation and are treated as capital assets, based on the gross selling price or fair market value as determined in accordance with Section 6 (E) of this Code, whichever is higher, of such lands and/or building." In short, capital gains tax is imposed upon 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 such as mortgage foreclosure sales whether it is done judicially or extra-judicially. SaIEcA Since LBP in representation of NLSF, is the highest bidder, the transfer of the title to the property in the name of NLSF could be effected only after the payment of the 6% capital gains tax and documentary stamp tax both based on the highest bid price. NLSF should present the Certificate of Sale to the proper Revenue District Officer for purposes of the issuance of the Certificate Authorizing Registration (CAR), a requirement for the transfer of title in the Office of the Register of Deeds. It is clear from the MOA dated October 3, 1981, that the fundings in the amount of multi-million pesos were geared to the KKK Livelihood Projects, although it is through the Landbank that these funds were channeled being the fundholder and the financial link between the KKK Secretariat and the beneficiary-proponent (Lakambini Crafts). Corollarily, it was the KKK Program to which the collateral properties were posted when a loan agreement was entered into by the LBP and the beneficiary-proponent (Lakambini Crafts). Inasmuch as the LBP had acknowledged its status as a mere financial conduit and acted for and in behalf of KKK (now NLSF) in foreclosing the property (letter attached as Annex "A" hereof), this Office is of the opinion that the title to the property should be consolidated in the name of the National Livelihood Support Fund (NLSF), being the fund provider of the KKK loan extended to Lakambini Craft owned by one ALEJANDRO CARRIEDO. DCcTHa Furthermore, since the extrajudicial foreclosure sale was made by LBP-Davao Branch, the provisions of Revenue Regulations 4-99 apply wherein the mortgagor has the right of legal redemption of one year from the registration of the certificate of sale. However, in extrajudicial foreclosure of mortgage under Act No. 3135, as amended, the mortgagor has the right to redeem the property within one year from the date of sale. For purposes of the one-year redemption period, the date of sale is reckoned from the date of registration of the certificate of sale in the Registry of Deeds. ( Quimson vs. PNB , L-24920 dated November 24, 1970 cited in BIR Ruling No. DA-177-99 dated November 17, 1999). In short, the counting of the one-year period of redemption in the case of an extrajudicial foreclosure of mortgage under Act No. 3135, as amended, as well as judicial and extrajudicial foreclosure of mortgage by banks, finance and insurance companies shall start from the date of the registration of the Certificate of Sale in the Registry of Deeds. Thus, in the case at bar, the Certificate of Sale was registered with the Registry of Deeds for Davao City on August 17, 1993. Accordingly, the redemption period shall be within one (1) year from August 17, 1993. 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.) JAMES H. ROLDAN Assistant Commissioner Legal Service