BIR Ruling [DA-116-01]

June 27, 2001 BIR RULING [DA-116-01] Mr . Tolentino Fernandez & Ms . Segundina F. Alegre Calmay District Dagupan City Gentlemen : This refers to your letter dated February 19, 2001 which was referred to the OIC-Regional Director of Revenue Region No. 1, Calasiao, Pangasinan, requesting in effect for exemption from the payment of capital gains tax on the transfer of a parcel of land by way of a Deed of Reconveyance considering that the estate tax of P400.00 had already been paid last September 12, 2000. The facts of the case upon which your request is based are stated in the Decision of the Court of Appeals in CA-G.R.. CV No. 45281 and are hereby summarized as follows: 1. Gregorio Fernandez in his lifetime contracted two marriages: the first with Saturnina Rudas with whom he had three (3) children namely: Victoria, Eulalio and Julio; and the second with Hipolita de Vera with whom he had also three (3) children namely: Bernardo, Segunda and Lucas. 2. Victoria and Eulalio predeceased Gregorio Fernandez, Victoria being survived by her six (6) children while Eulalio was survived by his children, namely: Tolentino Fernandez and Segunda (a.k.a. Segundina) Fernandez Alegre. 3. Gregorio Fernandez died on June 2, 1943 and on November 25, 1949, his heirs by the second marriage executed a document entitled Extrajudicial Settlement of Estate and Definite Sale of Same adjudicating unto themselves Lot No. 8311 (OCT No. 43051) containing an area of 2,113 sq. meters. 4. On May 20, 1958, his heirs by the second marriage executed again a Deed of Extrajudicial Partition with Renouncement whereby they adjudicated among themselves Lot No. 3574 (OCT No. 42936) with an area of 765 sq. meters and Lot No. 3578 (OCT No. 42936) with an area of 3,737 square meters. 5. On January 22, 1959, spouses Bernardo & Espirita Fernandez sold a portion of Lot No. 3578 to Spouses Avelino and Fe Aloong. 6. Bernardo's brother and sister namely: Segunda and Lucas filed a case against the former for annulment of said Deed of Extrajudicial Partition with Renouncement (docketed as Civil Case No. D-841) and after hearing, the court rendered a decision on December 21, 1967 declaring the said Deed to be null and void. 7. On February 10, 1970, the spouses Bernardo and Espirita Fernandez sold the remaining portion of Lot 3578 to spouses Gregorio and Felipa Majia. 8. On July 31, 1980, in the then CFI of Pangasinan, the heirs of Gregorio Fernandez with his first wife Saturnina Rudas filed a complaint for Partition, Annulment of Documents and Damages against the heirs of Gregorio Fernandez with the second wife, docketed as Civil Case No. D-5189. 9. After trial the court rendered a decision on February 25, 1993 in favor of the plaintiffs which decision was affirmed in toto by the Court of Appeals in CA-G.R.. CV No. 45281 promulgated on March 31, 1997. DHEaTS 10. Pursuant thereto, the Clerk of Court executed a Deed of Reconveyance reconveying that portion containing 2,264 square meters and 533 square meters pro indiviso of Lot No. 3578 of the Cadastral Survey of Dagupan unto the Plaintiffs in Civil Case No. D-5189, namely: Tolentino Fernandez, Segunda F. Alegre, Julio Fernandez, Florencio De Vera, Fortunata De Vera, Isabelo De Vera, Genaro De Vera, Bartolome De Vera, Florida De Vera and covered by TCT Nos. 10584 and 25418. In reply, please be informed that since the reconveyance of subject property is in pursuance to the Order of the Regional Trial Court dated December 3, 1997 and is without consideration, the transfer of the said properties in your favor is not subject to the capital gains tax imposed under Section 24(D)(1) of the Tax Code of 1997 nor to the creditable withholding tax prescribed by Revenue Regulations No. 2-98, implementing Section 57(B) of the Tax Code of 1997. Furthermore, the Deed of Reconveyance is not likewise subject to the documentary stamp tax imposed under Section 196 of the Tax Code of 1997 but to the DST imposed under Sec. 188 of the same Code. However, the estate of Gregorio Fernandez is liable to pay the estate due on the transmission of his estate to the heirs while the latter are liable to the corresponding inheritance tax, at the rates imposed under the Tax Code then enforced. Since you alleged that the estate tax had been paid, it is requested that the receipt/s showing payment of the estate and inheritance taxes be presented to the Revenue District Office for confirmation/validation. This ruling is being issued on the foregoing facts as represented. However, if upon investigation it will be disclosed that the facts are different, this ruling shall be considered null and void. Very truly yours, (SGD.) REN G. BAEZ Commissioner of Internal Revenue