Atty. Eufrocinio C. De La Merced, Jr.

April 17, 2007 BIR RULING [DA-240-07] Sec. 85 (H); DA-016-2004 Atty. Eufrocinio C. De La Merced, Jr. JCS Building, 119 Dela Rosa Street Legaspi Village, Makati City, Metro Manila S i r : This refers to your letter dated March 30, 2007 stating that Rosauro D. Villaluz and his brother, Efren D. Villaluz, bought several parcels of land, with improvements thereon: that the money contributed by Rosauro to buy said realties were coming from his exclusive funds the same being part of an inheritance; that the above properties are registered under Rosauro's and his brother's names as co-owners, with the names of their respective wife included, descriptive of their civil status; that the Transfer Certificates of Title (TCTs) covering the above realties are as follows: TCT No. Location N-190350 - EDSA, West Triangle, Q.C. N-253054 - Times St., West Triangle, Q.C. 17863 - Times St., West Triangle, Q.C. 54850 - Sta. Monica, Novaliches 55357 - Greater Lagro, Novaliches 130560 - Commonwealth Ave., Capitol Homes, Q.C. C32369 - Deparo, Caloocan 202015 - Espaa, Manila 72669 - Dr. A. Santos Ave., San Isidro, Paraaque 246367 - Bayan-bayanan, Concepcion, Marikina T-402435 - Wawa, Balagtas, Bulacan T-295497 - Calvario, Meycauayan, Bulacan T-297234 - Poblacion, Meycauayan, Bulacan T-42396 - Calvario, Meycauayan, Bulacan T-42397 - Calvario, Meycauayan, Bulacan 195149 - Cupang, Muntinlupa PT-14898 - Renaissance Towers that Rosauro, likewise, bought two (2) other properties using his exclusive funds, to wit: CDScaT TCT No. Location N-164911 - Capitol Homes, Quezon City T-954613 - Carmen, Silang, Cavite that Rosauro's wife, Adelina Zurbano-Villaluz, died on November 29, 2006; that the person assisting Rosauro in settling his wife's estate insisted on including his one-half (1/2) shares in the above properties and the other two real properties as part of his wife's estate asserting that the same are conjugal in nature; that it is your contention that Rosauro's one-half (1/2) shares in the above realties bought with his brother and the other two properties he alone bought, should not be included in his wife's estate as their conjugal properties because the same are his exclusive properties since these were bought using the money Rosauro inherited; and that it is Rosauro's desire that his civil status as indicated in the above titles will be changed from a married individual to a widower. From the foregoing, you are requesting a ruling that Rosauro's one-half (1/2) shares in the above-mentioned real properties bought together with his brother, Efren D. Villaluz, and the other two real properties, all purchased using his exclusive money be declared as his capital properties and that an authority be issued to change his civil status as indicated in the titles covering the subject realties from a married individual to a widower. In reply, please be informed as follows: Section 85 of the 1997 Tax Code, as amended, provides as follows: "SEC. 85. Gross Estate . The value of the gross estate of the decedent shall be determined by including the value at the time of his death of all property, real or personal tangible or intangible, wherever situated: . . . ." Section 85 (II), on the other hand, provides, viz.: SEC. 85. . . . (H) Capital of the Surviving Spouse . The capital of the surviving spouse of a decedent shall not, for the purpose of this Chapter, be deemed a part of his or her gross estate." Under Article 148 of the Civil Code (now Art. 109 of the Family Code) the following shall be the exclusive property of each spouse: (1) That which is brought to the marriage as his or her own; (2) That which each acquires, during the marriage, by lucrative title; (3) That which is acquired by right of redemption or by exchange with other property belonging to only one of the spouses; (4) That which is purchased with exclusive money of the wife or of the husband. AEcTaS ( Taken from Article 1396, Old Civil Code ) On the other hand, under Article 153 (now Art. 117 of the Family Code) the following are conjugal partnership property: (1) That which is acquired by onerous title during marriage at the expense of the common fund, whether the acquisition be for the partnership, or for only one of the spouses; (2) That which is obtained by the industry, or work, or as salary of the spouses, or of either of them; (3) The fruits, rents or interests received or due during the marriage, coming from the common property or from the exclusive property of each spouse. ( Taken from Article 1401, Old Civil Code ) In the case of Rivera vs. Batallones , 40 Off. Gaz., 2090 , the Supreme Court held that where a property is acquired by onerous consideration, it is clear from Article 148 and 153 of the old Civil Code, which define private property and conjugal property of the spouses, that only the origin , the ownership of the money invested in the property given in exchange may be inquired into to determine whether the thing acquired is separate or conjugal. Under above cited provisions of law and the above-cited case, property acquired during marriage may either be classified only as exclusive to either of the spouses, or conjugal, depending on the circumstances surrounding its acquisition. In determining the classification of the subject property, proofs that basically proved or pointed out who acquired the property ( i.e., receipts of payments and the deed of conveyance under the name of one spouse) are considered. 1 Under paragraph 1 of Article 1401 of the Old Civil Code, property acquired for a valuable consideration during the marriage at the expense of the common fund, whether the acquisition is made for the partnership or for one of the spouses only, shall belong to the conjugal partnership. In the instant case, however, all the documents pertaining to the acquisition of Rosauro's one-half (1/2) shares in the above realties were evidently in his name and that of his brother only (i.e., the deeds of conveyance). Likewise, the documents pertaining to the other two properties Rosauro had purchased show that it is acquired by him alone. As represented the money used to buy the above real properties were coming from Rosauro's exclusive funds the same being inherited by him. SECcAI In the case of Jocson v. Silos , 108 Phil. 923, the Supreme Court has suggested in a certain case decided that it would be the better rule that if the property registered under the Torrens system is conjugal the certificate of title covering such property should be issued in the name of both husband and wife, instead of only one of them with the name of the other spouse merely forming part of what may be regarded as descriptive of the civil status of the registered owner. A propos thereto, the one-half shares of Rosauro D. Villaluz in above-mentioned properties were all registered under his name as co-owner with his brother, Efren D. Villaluz. Likewise, the other two properties he bought were registered in his name with the name of his wife indicated to show his marital status only. Such being the case, the above-mentioned real properties of Rosauro D. Villaluz should not be included in his wife's estate because the same are his exclusive properties pursuant to paragraph 4 of Article 148 of the Civil Code (now Art. 109 of the Family Code), in relation to Section 85 (H) of the Tax Code of 1997, as amended. Finally, this serves as your authority to have your civil status as indicated in the TCT's of the above-mentioned properties change from a married individual to a widower. 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 Footnotes 1. Cited in the Memorandum dated July 28, 2003 relative to a draft ruling later signed as BIR Ruling No. DA-016-2004.