BIR Ruling [DA-210-03]

July 7, 2003 BIR RULING [DA-210-03] Section 24 (D) (1); DA-090-2000; 153-2000 Philippine Deposit Insurance Corporation PDIC Building, 2228 Chino Roces Avenue 1231 Makati City Attention: Ms. Margaret V. Nuevas Deputy Liquidator Gentlemen : This refers to your letter dated November 11, 2002 requesting exemption from the capital gains tax on a Deed of Reconveyance. It is represented that the subject property is a foreclosed property of the Development Bank of Rizal (DBR) covered by TCT No. 156515, (Lot 51) registered on September 26, 1983 which is prior to bank closure on August 10, 1984; that on April 20, 1989, Mr. Juanito Sy participated in the public bidding held by the then Central Bank, as liquidator of DBR, for disposal of several properties of DBR; that as the highest bidder of one of the properties, Mr. Sy was awarded a property consisting of a lot with a two (2) storey 4-door apartment located at 836 Craig St., Sampaloc, Manila; that a Deed of Sale was executed in favor of Mr. Sy and a new title, TCT No. 187295 was issued under his name; that after a year, the Assessment Office of the City of Manila inspected the property and it was discovered that there was a discrepancy between the Deed of Sale as executed and the records of the Assessor's Office as regards the actual location of the property; that Mr. Sy engaged the services of a geodetic engineer to survey the property and found out that the 4-door apartment at No. 836 Craig St., Sampaloc Manila is erected on Lot 52 and covered by TCT No. 181085 registered under the name of a certain Hilario Refuerzo and that the actual location of the DBR property on Lot 51 is situated at 840 Craig St., and the only improvement erected thereon is a dilapidated house; that Mr. Sy and DBR agreed to cancel and rescind the Deed of Sale due to a discrepancy as to the improvements being sold; and that a Deed of Reconveyance between DBR and Mr. Sy was executed on July 24, 1990 and the amount of P1,010,405.91 representing the purchase price plus interest was refunded to Mr. Sy by DBR. DEcTIS In reply, please be informed that the execution of the Deed of Reconveyance has the effect of reconveying the aforesaid real property in favor of DBR, and being only a formality of restoring title to the said property in the name of its previous owner, the same is not subject to the capital gains tax imposed under Section 24(D)(1) of the Tax Code of 1997, nor to the documentary stamp tax imposed under Section 196 of the same Code. However, in your case, the purchase price is different from the amount refunded. The difference in the amount of P160,405.91, representing interest income on the part of Mr. Sy, shall be subject to the income tax. Lastly, the notarial acknowledgment to the said deed is also subject to the documentary stamp tax of P15.00 pursuant to Section 188 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 as null and void. Very truly yours, Commissioner of Internal Revenue By: (SGD.) JOSE MARIO C. BUAG Deputy Commissioner Legal and Inspection Group