BIR Ruling [DA-118-01]

June 29, 2001 BIR RULING [DA-118-01] 24 (D) (l) DA-072-2000 Brixton Investments Corporation 3rd Floor Pako Building Cor. Pedro Gil, A. Linao & Gen. Luna Sts. Paco, Manila Attention: Mr . Jose W . Barcelon General Manager Gentlemen : This refers to your letters dated October 5, 2000 and February 6, 2001 stating that you are a subdivision developer and builder presently engaged in low-cost housing project in Camarin, Caloocan City, under the Unified Housing Lending Program (UHLP) and Expanded Lending Program of PAG-IBIG Fund; that some of your clients, namely: Messrs. Bernardo Burkett, Manolo Carandang, Edmond Floria, Emilio Marasigan, Roger Santillan, Luisito Guevarra, Isidro Vinarao and Mesdames Marilyn de Castro, Elizabeth Pagunsan and Alicia Cablao each bought a house and lot by availing of a housing loan under the UHLP; that the titles of the lots were transferred to and registered under the name of the aforestated buyers; that due to financial constraints, the said buyers backed out and withdrew their loan applications; and that Deeds of Reconveyance were eventually executed by them, transferring the lots in your favor. Based on the foregoing, you now request for a ruling that the reconveyance by the above-named vendees of the subdivision lots registered under their names in favor of Brixton Investments Corporation is not subject to capital gains tax and documentary stamp tax. In reply, please be informed that the transfer of titles of the lots by the developer to the buyers did not produce any legal effect since the transfer was done only for purposes of loan approval or when the funding institutions require the buy-back of accounts due to failure of the buyers to pay their monthly amortization. In effect, the developer failed to receive the consideration for the sale, hence, it cannot be said that the properties have been disposed, transferred or conveyed by the developer in favor of the buyers, pursuant to Article 1352 of the Civil Code, stating: "Art. 1352. Contracts without cause, or with unlawful cause, produce no effect whatsoever. xxx xxx xxx" Consequently, since the Deed of Reconveyance between the buyers and the developer failed to effect the transfer of ownership of the properties for lack of consideration, the Deed of Reconveyance executed by the buyer so as to effect the return of the subject property to the developer is not subject to the capital gains tax and documentary stamp taxes prescribed in Section 24(D)(l) and 196 of the Tax Code of 1997, respectively. However, the payments made by your buyers which were not returned to them as a consequence of the aforesaid transfer are subject to the creditable withholding tax imposed under Section 57(B) of the Tax Code of 1997 and implemented by Revenue Regulations No. 2-98, and consequently to income tax imposed under Sec. 27(A) of the Tax Code of 1997. 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. caCSDT Very truly yours, Commissioner of Internal Revenue By: (SGD.) EDMUNDO P. GUEVARA Deputy Commissioner Legal and Inspection Group