BIR Ruling [DA-191-02]

October 24, 2002 BIR RULING [DA-191-02] 036-2000; 142-96; Rev. Regs. #4-99 Security Bank Corporation 6778 Ayala Avenue, Makati City Philippines Attention: Ms. Evylene C. Sison Vice President Head, Property Management Division Gentlemen : This refers to your letter to the Office of the Chief, Legal Division of Revenue Region No. 8 which was referred to this Office by way of Second Indorsement dated January 24, 2000 requesting for a ruling regarding the basis of the computation of the capital gains tax. It is represented that a Real Estate Mortgage was executed by and between Renato and Josefa Ponce with Romulo and Erlinda Lumauig (mortgagors) in favor of Security Bank Corporation (SBC, mortgagee) covering a parcel of land covered by Transfer Certificate of Title No. RT-91521 (T-246642) issued by the Registry of Deeds for Quezon City as security for the payment of the principal sum of P2,264,446.51; that on June 29, 1998, the above-mentioned property was sold at public auction to the SBC, as the highest bidder, in the total sum of P199,200.00; and that SBC did not pay the ex-officio sheriff the sale price of the above-described mortgaged property which amount was merely credited to the satisfaction of the mortgaged debt. In reply, please be informed that Section 3(2) of Revenue Regulations No. 4-99 relative to the Payment of Capital Gains Tax and Documentary Stamp Tax on Extra-Judicial Foreclosure Sale of Capital Assets Initiated by Banks, Finance and Insurance Companies provides, viz : "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." (Emphasis ours) In view thereof, and since the sale of the real property was through a public auction, this Office is of the opinion and so holds that the tax base in the computation of the capital gains tax as well as the documentary stamp tax under Sections 24(D)(1) and 196 of the Tax Code of 1997, respectively, should be based on the bid price and not on the fair market value of the property. Very truly yours, Commissioner of Internal Revenue By: (SGD.) EDMUNDO P. GUEVARA Deputy Commissioner Legal and Inspection Group