BIR Ruling [DA-148-02]

September 5, 2002 BIR RULING [DA-148-02] Secs. 24 (A) (1) (c), 173 DA-367-99, DA-606-99 Atty. Mario L. Cera Abarabar Building A.B. Fernandez Avenue Dagupan City S i r : This refers to your letter dated January 9, 2001 requesting for and on behalf of your clients, Lourdes M. Yaranon and Eduardo M. Yaranon, for exemption from capital gains, donor's and documentary stamp taxes of the Deed of Recognition, Quitclaim and Reconveyance executed by Jorge M. Yaranon in favor of your clients. It appears from the documents submitted that the Spouses Sixto R. Yaranon and Graciana Mamaril are the registered owners of a parcel of land situated in Manaoag, Pangasinan covered by the Original Certificate of Title No. 46231 of the Registry of Deeds for the Province of Pangasinan; that the Spouses Sixto R. Yaranon and Graciana Mamaril who are both deceased have three (3) children, namely; Jorge, Lourdes and Eduardo, all surnamed Yaranon; that Jorge M. Yaranon adjudicated the entire lot to himself by misrepresenting to be the sole heir of the Spouses Sixto R. Yaranon and Graciana Mamaril to the prejudice of his sister and brother; that because of Jorge M. Yaranon's machination, the said lot is now registered in his name under Transfer Certificate of Title No. 234136 of the Registry of Deeds for the Province of Pangasinan; that in order to avoid litigation, Jorge M. Yaranon admitted his wrong-doing and recognized the share of his sister and brother; that to that effect, Jorge M. Yaranon executed a Deed of Recognition, Quitclaim and Reconveyance of the portion due to his sister and brother; and that the said conveyance is without monetary consideration. In reply, please be informed that the transfer of the aforesaid property in the name of Jorge M. Yaranon is deemed void ab initio as it arose from an unlawful transaction. The Deed of Recognition, Quitclaim and Reconveyance was executed without consideration as a mode of giving the share of Lourdes M. Yaranon and Eduardo M. Yaranon who are both compulsory heirs of the Spouses Sixto R. Yaranon and Graciana Mamaril. Since the said document is without consideration and is not in connection with a sale made to Lourdes M. Yaranon and Eduardo M. Yaranon, no income was generated and a fortiori , no capital gains tax nor creditable withholding tax is payable and collectible. Moreover, Section 185 of the Revised Documentary Stamp Tax Regulations (Regulations No. 26) provides that conveyances of realty not in connection with a sale, to trustees or other persons without consideration, are not taxable. In view thereof, this Office is of the opinion as it hereby holds that the aforesaid Deed of Recognition, Quitclaim and Reconveyance 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. Neither is it subject to the documentary stamp tax imposed under Section 196 of the Tax Code of 1997. However, the notarial acknowledgment to said document is subject to the documentary stamp tax of P15.00 only pursuant to Section 188 of the same Code. (BIR Ruling No. 550-93 dated December 29, 1993; DA419-96 dated November 12, 1996) However, before the transfer of the said property to the compulsory heirs, Jorge M. Yaranon, Lourdes M. Yaranon and Eduardo M. Yaranon is made, it should be ascertained first that the estate taxes due on the estates of Spouses Sixto R. Yaranon and Graciana Mamaril have been separately settled. cSHIaA 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, Commissioner of Internal Revenue By: (SGD.) EDMUNDO P. GUEVARA Deputy Commissioner Legal and Inspection Group