Spouses Tan Kim Te and Teresita Yu

March 30, 2007 BIR RULING [DA-200-07] Sec. 85 Spouses Tan Kim Te and Teresita Yu No. 72 West Avenue, Quezon City Gentlemen : This refers to your letter dated February 20, 2007 requesting a ruling whether or not real property covered by Transfer Certificate of Title No. 194557 (PR-25709) of the Registry of Deeds of Quezon City shall be considered in the inventory of the estate of the late Ronald "Remy" Kookooritchkin for purposes of computation of the estate tax considering that at the time of his death the said property was already a subject of a sale transaction. The facts of the case are as follows: On November 28, 1989, an Agreement to Sell was executed by Mr. Kookooritchkin in your favor for and in consideration of the amount of P12,000,000.00, covering the above real property. You paid the amount of P5.2 million and the balance to be paid on installments, upon assurance by the seller that he would cause the lessee of the premises, Banco de Oro, to vacate and deliver possession of the property to you on or before June, 1990. The untimely demise of Mr. Kookooritchkin on March 26, 1990 has rendered the assurance to deliver the possession of the property impossible. The death of Mr. Kookooritchkin prompted you to hold in abeyance the installment payment due on March 30, 1990 for the reason that he can no longer comply with his obligation to execute the Absolute Deed of Sale in your favor pursuant to the terms and conditions stipulated in the Agreement to Sell. You made several communications with the heirs of Mr. Kookooritchkin, asking the heirs to honor the commitment of the decedent. The heirs filed a civil case against you for Judicial Rescission of Contract with Damages and Cancellation of Adverse Claim docketed as Civil Case No. Q-90-6872. While the case was pending in court, the heirs proposed to you a compromise to just rescind the contract. However, as it was already impossible for the heirs to return the P5.2 million, you did not agree with the compromise, instead you conveyed to the heirs your willingness to deposit in court the balance of P6.8 million by way of consignation as soon as the heirs are ready to comply with their obligation to deliver the possession of the subject property and that they must show to the court that they have complied with the legal requirements concerning the settlement of the estate of the deceased. After series of communications and to no avail as subsequently the heirs appear not inclined to settle the matter amicably by refusing to talk or avoiding dialogue with you, you were compelled to bring the matter to court, hence, the filing of another civil case for Specific Performance under Civil Case No. Q-90-6903 in the Regional Trial Court of Quezon City, Branch 94. The above two (2) civil cases were consolidated upon your prayer for consolidation. The Regional Trial Court in its decision dated July 2, 1998 dismissed the complaint filed by the heirs against you in Civil Case No. Q-90-6872 as it considered the subject sale as a consummated transaction thereby ordering the heirs of Mr. Kookooritchkin to execute the Deed of Sale covering the property subject of the Agreement to Sell dated November 28, 1989 upon full payment of the remaining balance of the purchase price in the amount of P6.8 million which includes expenses for registration, taxes and expenses necessary for the complete transfer of ownership. Further, the court ordered the heirs to cause the tenants to vacate the premises and to deliver possession and ownership of the property in your favor, free from all liens and encumbrances, and to pay moral damages and costs of the proceedings. The case, however, was elevated by the heirs to the Court of Appeals which rendered its decision on January 23, 2002, affirming the decision of the lower court with the modification only as to the amount of moral damages and attorney's fees. aSTAHD The heirs filed a petition for review on certiorari of the decision of the Court of Appeals in the Supreme Court, docketed as G.R. No. 153713. For failure to file reply to the comment on the petition for review on certiorari which is tantamount to failure to prosecute, the Supreme Court dismissed the petition through a Resolution dated November 17, 2003. Entry of Judgment was made on July 12, 2004. The heirs filed a Motion for Reconsideration and to no avail as the Court denied the same for the reason that no substantial argument was advanced by the petitioner that would warrant a modification of the Resolution. An omnibus second motion for reconsideration was filed by the heirs and the same was denied it being a prohibited pleading. The Supreme Court, First Division issued a directive dated April 7, 2005, relative to its Resolution dated March 16, 2005, reiterating its earlier resolutions denying the petition for relief from judgment and the motions for reconsideration, and further, once and for all, stating that no further pleadings shall be entertained relative thereto. The heirs executed the Deed of Sale pursuant to the court order only on February 14, 2007. You immediately paid the taxes in the amount of P720,000.00 for capital gains tax and P180,000.00 for the documentary stamp tax. The taxes were based on the rate prevailing at present. Based on the foregoing, you are requesting a ruling that payment of the estate tax should not be made a pre-requisite for the issuance of the Certificate Authorizing Registration (CAR) for the above sale transaction in your favor. In reply, please be informed that under Section 85 of the 1997 Tax Code, as amended, the value of the gross estate of the decedent is determined by including the value at the time of his death of all properties, real or personal, tangible or intangible, wherever situated. Likewise, under subsection (A) of Section 85 of the same Code, "Decedent's Interest" as referred to in the said provision, covers the extent of the interest of the decedent in a property at the time of his death. In the instant case, although the sale transaction was held by the Court as deemed consummated during the lifetime of the decedent despite the fact that the consideration was paid in full only after his death, this Office opines that as of the time of death of the decedent he still had a real interest over the subject property corresponding to the unpaid portion of the contract price in the amount of P6.8 million. The above interest of the decedent in the subject property translated in its equivalent monetary value (P6.8 million) should be treated as receivable of the decedent's estate. Consequently, the unpaid amount of P6.8 million which was subsequently paid by you to the heirs of Mr. Kookooritchkin should be included in the computation of his gross estate in accordance with Section 85 of the Tax Code, as amended. Effectively, the subject real property shall no longer be included in the decedent's gross estate as it was already considered sold in your favor at the time of his death. Finally, payment of the estate tax due on the estate of Mr. Kookooritchkin is not a pre-requisite for the issuance of the CAR in your favor for purposes of transferring the title of the above subject property in your names. Such being the case, you are hereby given the authority to request from the revenue district office concerned for the issuance of the CAR in your favor relative to the above sale transaction. EcHTDI 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.) JAMES H. ROLDAN Assistant Commissioner Legal Service