BIR Ruling [DA-240-04]

May 7, 2004 BIR RULING [DA-240-04] 24 (D) (1) DA509-98 dated Nov. 11, 1998 R.P. Mateo and Associates 2F Catapusan Building, Plaza Aldea Tanay, Rizal Attention: Atty. Rafael P. Mateo Gentlemen : This refers to your letter dated May 8, 2003 requesting on behalf of your client, Felisa M. Torres, for a ruling that the reconveyance of two (2) parcels of land located in Marikina by Violeta O. Sierra and Horacio T. Oracion, as Trustees, to Felisa M. Torres, as Trustor, is exempt from capital gains tax and documentary stamp tax. It is represented that Felisa M. Torres has acquired two (2) parcels of land located at Jade Street, Emerald Village, Malanday, Marikina then covered by TCT No. 458493 under Tax Declaration No. B-005-02639 and B-005-02640 through her hard earned money while she was working as a nurse in the United States of America; that her niece and nephew named Violeta O. Sierra of Barangay San Juan, Baras, Rizal and Horacio T. Oracion of Tuktukan, Taguig, Metro Manila, respectively, have solicited her help in their business proposal; that Felisa M. Torres lent them the titles to the above-mentioned properties on condition that they should not transfer the titles in their respective names; however, they were able to transfer the said titles in their names which are now covered by TCT Nos. 258372 and 258460 issued by the Registry of Deeds for Marikina; that on April 9, 1994, both Violeta O. Sierra and Horacio T. Oracion execute a Deed of Declaration of Trust on the above-mentioned properties to Felisa M. Torres, who is the factual and legal owner thereof; and that when Felisa M. Torres retired from work, both Violeta O. Sierra and Horacio T. Oracion, as Trustees, jointly executed a Deed of Reconveyance in favor of Felisa M. Torres, as Trustor. In reply thereto, please be informed that Section 24(D)(1) of the Tax Code of 1997 provides that a final tax of six percent (6%) is hereby imposed on the gains presumed to have been realized on the sale, exchange or other disposition of real property located in the Philippines, classified as capital assets, including pacto de retro sales and other forms of conditional sales, by individuals, including estates and trusts. . . Corollarily, Article 1448 of the Civil Code provides that there is an implied trust when property is sold, and the legal estate is granted to one party but the price is paid by another for the purpose of having the beneficial interest of the property. The former is the trustee, while the latter is the beneficiary. However, if the person to whom the title is conveyed is a child, legitimate or illegitimate, of the one paying the price of the sale, no trust is implied by law, it being disputably presumed that there is a gift in favor of the child. HaIATC Moreover, Article 1453 of the Civil Code provides that when the property is conveyed to a person in reliance upon his declared intention to hold it for, or transfer it to another or the grantor, there is an implied trust in favor of the person whose benefit is contemplated. In the instant case, an implied trust is deemed created by law. The transfer of the aforesaid properties in the name of Violeta O. Sierra and Horacio T. Oracion, as Trustees, to Felisa M. Torres, as the Trustor, without monetary consideration by way of a Deed of Reconveyance is not subject to capital gains tax imposed under Section 24(D)(1) of the Tax Code of 1997 nor to the creditable withholding tax prescribed in Revenue Regulations No. 2-98, as amended. Moreover, Section 185 of Regulations No. 26 provides that conveyances of realty, not in connection with a sale, to trustees or other persons without consideration are not taxable. Accordingly, the Deed of Reconveyance executed by Violeta O. Sierra and Horacio T. Oracion, as Trustees, in favor of Felisa M. Torres, as the true and beneficial owner, is not subject to the P15.00 documentary stamp tax prescribed in Section 188 of the said Code. ( BIR Ruling No. DA509-98 dated November 11, 1998 ) Finally, the above transaction is not subject to donor's tax imposed under Section 99 of the Tax Code of 1997 as there is no intention to donate on the part of the parties. IN VIEW OF THE FOREGOING, the aforementioned real property may now be registered by the Registry of Deeds concerned in the name of Felisa M. Torres, as the true and beneficial owner of the aforesaid properties. 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, (SGD.) JOSE MARIO C. BUAG Deputy Commissioner Legal & Inspection Group