BIR Ruling [DA-210-01]

October 19, 2001 BIR RULING [DA-210-01] 24 (D) (1), 188, 196 DA-014-99 Atty. Honesto V. Bonnevie Unit 1506 Annapolis Wilshire Plaza #11 Annapolis Street, Greenhills San Juan, Metro Manila S i r : This refers to your letter dated November 10, 1999 which was referred to us by our Makati Regional Office. It is represented that the Spouses Cayetano Cordero and Erlinda A. Cordero contracted to buy from CMJ Real Estate Corporation (CMJ), a Condominium Unit (APT-606) of LPL Manor covered by Condominium Certificate of Title No. 28675 of the Registry of Deeds for Makati, District VI with the understanding that the substantial balance of the purchase price would be paid directly by PS Bank to CMJ from the proceeds of a loan PS Bank agreed to grant the Cordero Spouses to be secured by a mortgage on the condo unit itself after the title of the unit is transferred to them and the mortgage in favor of the PS Bank is registered; that upon the down payment of P168,000.00 from the Cordero Spouses, CMJ executed a Deed of Absolute Sale of the condo unit in favor of the Cordero Spouses; that before the release by the Register of Deeds of Makati City of the new title in the name of the Cordero Spouses, the husband, Cayetano A. Cordero, Jr., unexpectedly died; that efforts on the part of the widow to stop the issuance of the new title in the name of her husband proved futile; that the widow finally advised PS Bank and CMJ that because of the sudden death of her husband, she was cancelling the loan application and the purchase of the condo unit; that under the Extrajudicial Settlement among the heirs of the late Cayetano Cordero, the conjugal interest in the said condo unit was adjudicated in favor of the widow, Erlinda A. Cordero; and that the widow executed a Deed of Rescission and Reconveyance of the said unit in favor of CMJ in order to effect the cancellation of the sale. Based on the foregoing, you now in effect request for a ruling on the tax consequence of the rescission and reconveyance of the condo unit. In reply, please be informed that since the Deed of Rescission and Reconveyance was executed in order to effect the cancellation of the sale and is without monetary consideration, the transfer of the said property in favor of CMJ 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. Furthermore, it is not likewise subject to the documentary stamp tax imposed under Section 196 of the Tax Code of 1997. However the notarial acknowledgment to the said Deed of Rescission and Reconveyance is subject to the documentary stamp tax of P15.00 only pursuant to Section 188 of the Tax Code of 1997. (BIR Ruling No. 027-93 dated January 15, 1993) However, the P168,000.00 paid by the Cordero Spouses to CMJ as down payment, if not returned to Erlinda Cordero, is subject income tax at the rate prescribed under Section 27(A) of the Tax Code of 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.) EDMUNDO P. GUEVARA Deputy Commissioner Legal and Inspection Group