BIR Ruling [DA-175-04]

April 6, 2004 BIR RULING [DA-175-04] #177-99 Rey M. Ranada 556 Magsaysay Street Manggahan, Pasig City S i r : This refers to your letter dated July 1, 2002 requesting for clarification from this Office in view of the conflicting opinions of Efren T. Martinez, Chief, Legal Division, Revenue Region No. 7, Quezon City, and that of Minerva M.P. Pacheco Assistant Chief, Legal Division, Revenue Region No. 7, Quezon City, on whether or not capital gains and documentary stamp taxes should be imposed on the redemption of the property after the expiration of the one-year redemption period. It is represented that Planters Development Bank allowed redemption of the foreclosed mortgage even after the expiration of the redemption period. On one hand Minerva M.P. Pacheco, Assistant Chief, Legal Division, sustained, your position that no capital gains or creditable withholding and documentary stamp taxes should be imposed on the redemption of foreclosed mortgage allowed by Planters Development Bank after the expiration of the redemption period. On the other hand, Efren T. Martinez, Chief Legal Division sustained the assessment of capital gains and documentary stamp taxes on the transaction made by Revenue District Office No. 40 (Cubao). In reply, please be informed that under Section 3 of Revenue Regulations No. 4-99 dated March 9, 1999, the capital gains tax on a foreclosure sale is due upon the expiration of the one-year redemption period, to wit: "SEC. 3 CAPITAL GAINS TAX. . . . xxx xxx xxx (2) In case of non-redemption, the capital gains tax on the foreclosure sale imposed under Secs. 24(D)(1) and 27(D)(5) of the Tax Code of 1997 shall become due based on the bid price of the highest bidder but only upon the expiration of the one-year period of redemption provided for under Sec. 6 of Act No. 3135, as amended by Act No. 4118, and shall be paid within thirty (30) days from the expiration of the said one-year redemption period. In BIR Ruling No. 177-99 dated November 17, 1999, this Office ruled that the one-year redemption period of a mortgaged property cannot be extended by the mortgagee-bank, finance or insurance companies nor by the parties in an extra judicial foreclosure, viz : "(2) The period of redemption of the mortgaged property has been fixed by law and the same cannot be extended by the mortgagee-bank, finance and insurance companies nor by the parties in the case of extrajudicial foreclosure of mortgage under Act 3135, as amended." Accordingly, Planter's Bank is liable for the capital gains tax due on the foreclosure sale of a mortgage property. Planter's Bank cannot negate this obligation by the simple expedience of allowing the mortgagor to redeem the mortgage property after the expiration of the one-year redemption period. Please be guided accordingly. AaHTIE Very truly yours, Commissioner of Internal Revenue By: (SGD.) JOSE MARIO C. BUAG Deputy Commissioner Legal and Inspection Group