BIR Ruling [DA-181-02]

October 10, 2002 BIR RULING [DA-181-02] 24 (D) (1), 57 (B), 196 DA-159-2001; 323-97 Picazo Buyco Tan Fider and Santos Law Offices 8th, 6th and 4th Floors, Singapore Airlines Building 138 H.V. dela Costa St., Salcedo Village Makati City Attention: Atty. Charlie C. Yalung Gentlemen : This refers to your letter dated October 5, 2001 requesting on behalf of your client, Excel Unified Land Resources Corporation (Exceland), that the reconveyances made by certain lot buyers on the small portions of their subdivision lots at the Wedge Woods Subdivision to Exceland, as the owner/developer of the aforestated property, be considered as a tax-free conveyance of real properties. Documents submitted disclosed that: 1. Exceland is the owner/developer of Wedge Woods residential subdivision project (Wedge Woods), with an area of 300,077 square meters, more or less, located at Bgy. Inchican, Silang, Cavite, and covered by Transfer Certificates of Title (TCT) Nos. 707425, 707426, 707427, 707428 and 768128 of the Register of Deeds for the Province of Cavite; 2. Based on concepts and designs that were approved by the Housing and Land Use Regulatory Board (HLURB), Exceland contracted the services of SLM Land and Property Resource Corporation (SLM) as project manager in the development of Wedge Woods; 3. SLM thereupon contracted the engineering services of a geodetic engineer to prepare the subdivision plan for Wedge Woods in accordance with the Exceland-approved concepts and designs. The aforesaid geodetic engineer completed the preparation of the subdivision plan, which plan was subsequently approved by the Housing and Land Use Regulatory Board (HLURB), the Local Government Unit of Silang (LGU), and the Land Management Services of the Department of Environment and Natural Resources (LMS) on July 2, 1997 as Pcs-04-012472; 4. Upon application of SLM, the surrender of the TCTs and on the basis of Pcs-04-012472, the Register of Deeds of the Province of Cavite issued the corresponding TCTs of each of the saleable lots delineated in Pcs-04-012472 (the Saleable Lots); 5. Exceland has sold some of the Saleable Lots to the following buyers: a) Crispin B. Lacson; b) Lancon Realty Corporation; c) Gloria E. Marisol; d) Jonina Ventures, Inc.; e) Ma. Patricia G. Picazo; and f) Raymond A. Virata who all have already paid in full the purchase prices therefor for their respective lots (the Lots), Likewise, the relevant taxes in connection with the respective sales of the above-mentioned lots and the execution of the covering Deeds of Sale have already been paid and that the Register of Deeds of the Province of Cavite issued new certificates of title corresponding to each of the new lots; 6. Exceland recently discovered that there was a failure in Pcs-04-012472 to delineate separately from the area and technical description of the Saleable Lots, including the Lots, the areas and technical descriptions of certain easements (e.g., drainage and sewer lines) and common areas for the installation of Manila Electric Company electric transformer pads (Easements and Common Areas), contrary to the Exceland-approved subdivision concept and designs of Wedge Woods, which require that these Easements and Common Areas be titled separately in the name of Exceland and/or Wedge Woods; and 7. Due to this technical error, the areas and technical descriptions of the Easements and Common Areas were included in the transfer certificate of title of each of the Saleable Lots, including the Lots, although the original intention of Exceland as developer of Wedge Woods and of the buyers, as well as the requirements of applicable laws and regulations, was to exclude these Easements and Common Areas from the transfer certificates of title of the Saleable Lots considering that said Easements and Common Areas rightfully belong in common to all the buyers of Wedge Woods and could not be alienated, sold or encumbered as provided by P.D. 957 and the Rules and Regulations of HLURB and the LGU. It is your considered view that law, reason and good subdivision administration require that these errors be corrected as soon as possible before the buyers commence construction work in their respective Lots and that the non-meeting of the minds of Exceland and the buyers with respect to the inclusions of the Easements and Common Areas with the Lots requires that the "erroneous sale" of the Easements and Common Areas be undone as Exceland had no intention to sell nor the buyers the intention to buy the same. In order to correct this error and avoid future confusion, controversies and litigation in connection with the boundaries of the Lots and the adjoining Easements and Common Areas and in order to remedy the violation of P.D. 957 and the Rules and Regulations of the HLURB and the LGU, Exceland and the buyers have agreed that the buyers shall each reconvey to Exceland that portion of the Lots which is allocated for the Easements and Common Areas, and Exceland, in turn, shall accordingly reimburse the buyers the purchase price corresponding to the area of the Easements and Common Areas that would be reconveyed to Exceland. aSACED For the purpose of implementing the agreed reconveyance, Exceland had contracted Home Planners, Inc. (Home Planners) to prepare the correct subdivision plans of Wedge Woods. The latter, in turn prepared new subdivision plans for the Lots. These plans have been approved by the HLURB, LGU and subsequently by the LMS, and now delineates and describes separately and accurately the respective technical descriptions of the Lots, the Easements and Common Areas as originally intended by Exceland and the buyers. Based on these new subdivision plans of the Lots, Exceland and the buyers have agreed to the reconveyance of the Easements and Common Areas back to the Exceland and have accordingly executed a Memoranda of Agreement which specify in details the intended reconveyance of the Easements and Common Areas. In reply, please informed that in the instant case, there is no actual sale, exchange or voluntary disposition of real properties, but a mere reconveyance of the buyers subdivision lots which were erroneously sold to them, inasmuch as these constitute the easements and common areas or properties which could not be sold or alienated by anyone. Considering that the transfer of said properties will not result in any way to an increase in wealth or income on either parties, since Exceland will reimburse the purchase price corresponding to the area of the easements and common areas that would be transferred to it, the reconveyance therefore of the properties in question by and among Exceland and Crispin B. Lacson, Lancon Realty Corporation, Gloria E. Mirasol, Jonina Ventures, Inc., Ma. Patricia G. Picazo and Raymond A. Virata are not subject to the capital gains tax imposed under Section 24(D)(1) of the Tax Code of 1997 and consequently to the creditable withholding tax prescribed under Revenue Regulations No. 2-98, implementing Section 57(B) of the same Tax Code. ( BIR Ruling No. DA-323-97 dated September 24, 1997 ) Finally, the said Memorandum of Agreement executed for the purpose is not likewise subject to the documentary stamp tax imposed under Section 196 of the 1997 Tax Code. However, the notarial acknowledgment is subject to the documentary stamp tax of P15.00 under Section 188 of the same Tax Code. (BIR Ruling No. DA-159-2001 dated September 10, 2001 and DA-323-97 dated September 24, 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. Very truly yours, Commissioner of Internal Revenue By: (SGD.) MILAGROS V. REGALADO Assistant Commissioner Legal Service