BIR Ruling [DA-295-00]

July 28, 2000 BIR RULING [DA-295-00] Prince David Development Corporation 3rd Floor Megaton Supertrade Building 935-937 EDSA, Phil-Am Quezon City Attention: Ms. Elizabeth A. Sunga Client Service Manager Gentlemen : This refers to your letter dated June 14, 1999 requesting for a ruling as to whether or not the Deeds of Reconveyance executed by and between Pulilan Management Co., Inc. and Prince David Development Corporation involving condominium units and parking slots are exempt from the payment of capital gains tax/creditable withholding tax and documentary stamp tax. It is represented that Prince David Development Corporation, a domestic corporation, is engaged in the real estate industry particularly in high rise buildings; that it is the registered owner of a parcel of land located at 305 Katipunan Avenue, Loyola Heights, Quezon City, covered by TCT No. 109379 issued by the Registry of Deeds for Quezon City, with a total land area of 1,350 square meters; that it is the developer of the Prince David Condominium; that Pulilan Management Co., Inc. availed itself of a housing loan through an originating bank accredited with the National Home Mortgage Finance Corporation (NHMFC); that as required by originating bank, the titles of the units were transferred and registered in the name of Pulilan Management Co., Inc.; that on October 21, 1997, two (2) separate Deeds of Absolute Sale with Right to Reconveyance were executed by Prince David Development Corporation and Pulilan Management Co., Inc. whereby the former transferred to the latter two (2) condominium units more particularly described as follows: CCT No. Unit No. Area Floor Carpark No. 16331 406 38 sq. m. 4th 95 Basement 2 16317 308 45 sq. m. 3rd 99 Basement 2 subject to the condition that in the event the vendee shall fail to comply with the requirements of the bank which financed the loan for the purchase of the said units, then the vendor shall have the right to reconvey the said property to itself without any further documentation nor consent of the vendee; that due to financial constraints, Pulilan Management Co., Inc. backed out and withdrew its loan application; that said withdrawal was made prior to the release of the loan from the NHMFC; that the buyer for whose account was cancelled must first reconvey the property in favor of Prince David Development Corporation without any consideration; and that eventually, a Deed of Reconveyance will be executed by Pulilan Management Co., Inc. returning the above-mentioned properties to Prince David Development Corporation. llcd In reply, please be informed that Article 1352 of the Civil Code of the Philippines, states: "Art. 1352. Contracts without cause, or with unlawful cause, produce no effect whatsoever. "xxx xxx xxx" the Deed of Absolute Sale executed by Prince David Development Corporation in favor of Pulilan Management Co., Inc., as required by the originating bank, did not produce any legal effect because, with the withdrawal of Pulilan Management Co., Inc. prior to the release of its loan and the subsequent cancellation of the loan by the NHMFC, Prince David Development Corporation failed to receive the proceeds which was to be the cause/consideration for the sale. For lack of consideration, it cannot be said that the aforementioned properties have been disposed, transferred or conveyed in favor of Pulilan Management Co., Inc. prcd Such being the case, since the Deed of Absolute Sale between Prince David Development Corporation and Pulilan Management Co., Inc. failed to effect the transfer of ownership of the properties for lack of consideration, the Deed of Reconveyance to be executed by the parties so as to effect the return of the subject properties to Prince David Development Corporation is not subject to creditable withholding tax and documentary stamp tax respectively prescribed under Revenue Regulations No. 2-98 and 196 of the Tax Code of 1997. (BIR Ruling No. 186-93 dated May 5, 1993) 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.) LILIAN B. HEFTI OIC-Deputy Commissioner (Legal & Inspection Group)