BIR Ruling [DA-241-02]

December 17, 2002 BIR RULING [DA-241-02] 27; 115-94 Cityland Incorporated Cityland Condominium 10 Tower 1 2nd/3rd Floor, H.V. Dela Costa Street Salcedo Village 1200, Makati, Metro Manila Attention: Atty. Alberto Wilfredo O. Oxales, Jr. Senior Legal Counsel Gentlemen : This refers to your letter dated December 15, 1998 requesting for a ruling as to whether or not the reconveyance of a parcel of land without consideration is exempt from creditable withholding and documentary stamp taxes. You stated in your letter that "(1) Julian Pabilona, Virginia Go, Gemma Tan Ongking, Arthur C. Chua and Nenita Chua So, represented by Nenita Chua So, as Sellers, and Cityland, Inc., as the Buyer, entered into a Contract to Sell for the purchase of a parcel of land consisting of 8,047 square meters, located at Bo. Iruhin, Tagaytay City; "(2) Unfortunately, there was an overlapping problem with regard to a portion of said parcel of land measuring about 1,160 square meters; "(3) In the said Contract to Sell the parties agreed to "deduct from the total of the purchase price the amount of P1,740,000.00 which is equivalent to the above portion of the property affected by the encroachment (1,160 sq. m. x P1,500.00/sq.m.). Provided that the Buyer has the option to either: (1) pay to the Sellers the amount so deducted after said encroachment is removed and rectified by the Sellers, and the encroached area accepted to the satisfaction, and for the exclusive use of the Buyer OR (2) consider the aforesaid encroached portion equivalent to 1,160 sq. m. excluded from the purchased area and to automatically deduct the equivalent of said portion from the total purchase price if the Sellers cannot resolve the encroachment within 365 days, from the signing of this Agreement." . . . "(4) The parties further agreed that "In case the title to the whole 8,047 sq. m. property is transferred into the name of the Buyer, and the encroachment is not resolved after 365 days, the Buyer shall segregate the 1,160 sq.m. right-of-way and transfer its corresponding title back to the Sellers. Expenses for segregation and transfer of title for the 1,160 sq.m. portion shall be chargeable to Seller;" "(5) On September 25, 1992, the whole parcel of land consisting of 8,047 square meters was transferred under the name of Cityland, Inc. by virtue of a Deed of Absolute Sale. However, in accordance with the aforesaid Contract to Sell, the consideration for the 1,160 square meter portion in the amount of P1,740,000.00 was withheld and not yet paid to the Sellers; "(6) The Sellers were not able to settle the overlapping or encroachment problem within the prescribed period of 365 days; "(7) On April 23, 1998, Cityland, Inc. sent a letter dated April 21, 1998 and exercised its option under the aforesaid Contract to Sell to exclude the 1,160 square meter portion from total purchased area and the withheld amount of P1,740,000.00 shall be considered deducted from the purchase price. Such deducted amount shall not be paid anymore to the Sellers; "(8) As a consequence of the exercise of the said option, the sale with regard to the 1,160 square meter portion did not materialize and Cityland, Inc. shall transfer back or reconvey the 1,160 square meter portion to the Sellers; "(9) The act of transferring back or reconveying the 1,160 square meter portion shall merely be a formality of restoring the title to the name of the Seller, without any consideration. In reply, please be informed that the aforesaid Deed of Reconveyance is not subject to the corporate income tax imposed under Section 27 of the Tax Code of 1997, since the conveyance of the aforementioned lot consisting of 1,160 square meters was not for monetary consideration, hence, not subject to creditable withholding tax on the sale, exchange or transfer of real properties under Revenue Regulations No. 1-90 as amended by Revenue Regulations No. 12-94 and as further amended by Revenue Regulations No. 2-98. Likewise, since there is no monetary consideration for the conveyance is not subject to the documentary stamp tax imposed under Section 196 of the Tax Code of 1997, but only to the documentary stamp tax of P15.00 on certification under Section 188 of the Tax Code of 1997. ( BIR Ruling No. 115-94 dated July 1, 1994 ). This ruling is being issued on the basis of the foregoing facts as represented. However, if it will be disclosed upon investigation that the facts are different, then this ruling shall be considered null and void. Very truly yours, Commissioner of Internal Revenue By: (SGD.) JOSE MARIO C. BUAG Deputy Commissioner Legal & Inspection Group