BIR Ruling [DA-296-04]

May 31, 2004 BIR RULING [DA-296-04] Sec. 25, Rule 39; 044-01; DA 287-03 Atty. Fe C. Delos Santos Quiaoit No. 27 Gen. Vicente Lim Street Little Baguio, San Juan Metro Manila M a d a m : This refers to your letter dated March 18, 2004 stating that your client, Orange Healthcare, Inc. (formerly Aetna Healthcare, Inc.) is a corporation duly organized and existing under the laws of the Philippines; that on July 1, 2001, a Real Estate Mortgage (REM), was executed in its favor by one Limary King, a resident of 966 BB Soler Street, Binondo, Manila covering a real property located in Quezon City covered by TCT No. N-213672 issued by the Registry of Deeds for Quezon City; that the REM was executed to secure the obligations of the mortgagor to Orange Healthcare, Inc.; that the REM provides that in case of default, the mortgagee shall become an attorney-in-fact to take possession and control of the property and sell, transfer and deliver the same at a public or private sale; that in view of the mortgagor's default in the payment of her obligations, Orange Healthcare, Inc. foreclosed on the mortgage in accordance with the terms and conditions of the REM, by way of an extra-judicial foreclosure filed with the Office of Clerk of Court and Ex-Officio Sheriff of the Regional Trial Court in Quezon City, the property was then sold at public auction on December 3, 2003; that Orange Healthcare, Inc. emerged as the winning bidder in the public auction sale with its bid in the amount of P2,500,000.00; that Orange Healthcare, Inc. did not pay any amount to the Sheriff as the amount of its bid was properly credited to the partial satisfaction of the mortgage obligations: that on December 8, 2003, a Certificate of Sale was issued in favor of Orange Healthcare, Inc. by the Office of the Clerk of Court and Ex-Officio Sheriff; and that Orange Healthcare, Inc. has not yet consolidated its title over the property as the same is still subject to redemption by the mortgagor within a period of one (1) year, which shall commence only upon registration or annotation of the Certificate of Sale with the Registry of Deeds. In connection therewith, you now request for a ruling as to whether or not the payment of capital gains tax and documentary stamp tax is required in the registration of a Sheriff's Certificate of Sale, relative to the extra-judicial foreclosure sale conducted on December 3, 2003, considering that the property is still subject to redemption within a period of one (1) year reckoned from the date of registration of the certificate of sale with the Office of the Registry of Deeds. In reply thereto, please be informed that Section 25 of Rule 39 of the Rules of Court provides that upon a sale of real property, the officer must give the purchaser a certificate of sale containing: (a) A particular description of the real property sold; (b) The price paid for each distinct lot or parcel; (c) The whole price paid by him; (d) A statement that the right of redemption expires cane (1) year from the date of the registration of the certificate of sale. Such certificate must be registered in the registry of deeds of the place where the property is situated. A careful scrutiny of the above-cited law discloses that the one (1) year period of redemption is reckoned from the time of registration of the sale in the Office of the Register of Deeds. Section 28 of Rule 39 of the Rules of Court allows the judgment obligor, or redemptioner, to redeem the property from the purchaser within one (1) year from the date of the registration of the certificate of sale. If, however, the property is not redeemed within the one (1) year redemption period, the purchaser or redemptioner shall be substituted to and acquire all the rights, title, interest and claim of the judgment obligor to the property at the time of the levy of attachment or execution. ( Sec. 33, Rule 39, Rules of Court ) Thus, we must not disregard the fact that a certificate of sale given to the purchaser at the time the sale is made is different and distinct from the final deed, which is delivered at the expiration of the period of redemption, since the former is not intended to operate as an absolute transfer of the property, but merely to identify the property, price paid, and the date when the right of redemption expires. In other words, it is but a mere memorial of the fact that a purchase was made by the person named in the certificate as the buyer. ( Yap vs. Intermediate Appellate Court , G.R. No. 68464 dated March 12, 1993) Considering that the transfer of ownership is not perfected until the execution and delivery of the sheriff's final deed of sale after the expiry of the one (1) year redemption period, and considering further that registration of the certificate of sale is a mere ministerial act by which an instrument is sought to be inscribed in the records of the Office of the Registry of Deeds and annotated at the back of the certificate of title covering the land subject of the instrument, it is therefore safe to conclude that the mere sale of the property at an extra-judicial foreclosure sale which is similar to an execution sale under Rule 39 of the Rules of Court and the corresponding registration of the certificate of sale in the Office of the Registry of Deeds is not subject to the capital gains tax and documentary stamp tax as respectively prescribed in Sections 24(D)(1) and 196 both of the Tax Code of 1997. This will therefore serve as an authority for the Registrar of Deeds to register the aforementioned sheriff's certificate of sale and to annotate at the back of the certificate of title covering the land subject of the extra-judicial foreclosure sale, without the payment of the capital gains tax and the corresponding documentary stamp tax. 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. cADTSH Very truly yours, (SGD.) JOSE MARIO C. BUAG Deputy Commissioner Legal & Inspection Group