BIR Ruling [DA-275-03]

August 21, 2003 BIR RULING [DA-275-03] 24 (D) (1); DA 157-2002 dated September 11, 2002 Ms. Emma L. Espinosa U-407 Cityland Wackwack Royal Mansion Wackwack Road, Greenhills East, 1555 Mandaluyong City M a d a m : This refers to your letter dated March 24, 2000 requesting for a ruling that the transfer of rights by virtue of a Deed of Assignment over a realty is exempt from capital gains tax imposed under Section 24(D)(1) of the Tax Cole of 1997. Documentary evidence submitted to this Office disclosed that on April 2, 1998, a Contract to Sell was entered into by and between you and Cityland Development Corporation involving a unit of the Cityland Wackwack Royal Mansion and more particularly described as follows: Unit No. 0407 Area 56.290 square meters CCT No. 9398 for and in consideration of P1,903,070.40 payable in 36 monthly installments; that due to financial constraint, you could no longer continue paying the regular monthly amortization which prompted you to execute a Deed of Assignment with Assumption of Obligations on March 21, 2000 in favor of Cecilia L. Ang wherein you transferred all your rights over the aforementioned property with the condition that Cecilia L. Ang shall assume all your obligations to Cityland Development Corporation; and that said transaction is without monetary consideration In reply thereto, please be informed that Section 2.57-1(A)(6) of Revenue Regulations No. 2-98, implementing Section 24(D)(1) of the Tax Code of 1997, a final withholding tax of six percent (6%) is imposed on the gain presumed to have been realized on the sale, exchange or disposition of real property located in the Philippines classified as capital assets, including pacto de retro sales and other forms of conditional sales based on the gross selling price or fair market value as determined in accordance with Section 6(E) of the same Code, whichever is higher. SDAaTC From the foregoing, it is clear that only sales, exchanges or transfers of real properties are subject to the final withholding tax imposed under Section 24(D)(1) of the Tax Code of 1997, as implemented by Revenue Regulations No. 2-98; hence, assignments of rights over realty although classified as real property under the Civil Code, are not included within the purview of the said regulations, considering that in assignments of rights the assignee merely steps into the shoes of the assignor without acquiring a better right than what the assignor had in the property to which the rights assigned pertain. Moreover, a Deed of Assignment is not a Deed of Sale because what is conveyed by the assignor is not the property itself but the rights pertaining to such property. ( BIR Ruling Nos. 083-99 dated June 22, 1999; DA 024-2000 dated January 11, 2000; DA 157-2002 dated September 11, 2002 ) Such being the case and since the transfer of your rights over the aforementioned realty in favor of Cecilia L. Ang is without any monetary consideration, the Deed of Assignment being equivalent to a Contract to Sell to which Cecilia L. Ang is merely stepping into the shoes of the assignor, this Office is of the opinion as it hereby holds that it is not subject to the final withholding 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, the notarial acknowledgment of said Deed of Assignment with Assumption of Obligations is subject to the documentary stamp tax of P15.00 on certificates under Section 188 of the Tax Code of 1997. Finally, if the assignee, Cecilia L. Ang, derived income from the transfer of rights over the aforesaid property, her income in said transaction therefore, shall be subject to the ordinary income tax at the rate prevailing at the time said transaction was made. ( BIR Ruling No. DA091-02 dated May 13, 2002 ) 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.) MILAGROS V. REGALADO Assistant Commissioner Legal Service