BIR Ruling [DA-301-03]

September 15, 2003 BIR RULING [DA-301-03] 24 (D) (1), 188, 196 DA-014-99, DA-195-2000 Morales Sayson & Rojas Law Offices 702 Manila Luxury Condominium Pearl Drive corner Gold Loop, Ortigas Centre Pasig City Attention: Atty. Julieta M. Morales Gentlemen : This refers to your letter dated June 7, 2003, requesting in behalf of your client Lee Tek Sheng, defendant in the following cases: Civil Case No. C-1483 " Rita K. Lee, et al. vs. Lee Tek Sheng Civil Case No. C-159989 " Leoncio Lee Tek Sheng vs. Lee Tek Sheng " RTC Caloocan City, Branch 131 for a ruling that the return of real property to its true owner by reason of annulment of an earlier deed of sale in favor of the present title registrant, or reconveyance by the trustee to his trustor of the property, is not subject to capital gains tax and documentary stamp tax. We quote the pertinent portion of your request, thus: "In the two (2) above-mentioned cases, the trial court rendered a consolidated decision in favor of Lee Tek Sheng finding him as a true and lawful owner of the four (4) parcels of land covered by Transfer Certificate of Title ("TCT") No. 8278, presently registered in the name of plaintiff Leoncio Lee Tek Sheng ("Leoncio"), his son. The trial court found that Lee Tek Sheng merely placed the title to his four (4) parcels of land in trust in the name of his son Leoncio. There were several issues on other matters presented for resolution by the trial court. However, culled from the 25-page Decision of the trial court dated 09 December 1999 are the following paragraphs which capsulize its disposition of the specific issue of ownership of the four (4) parcels of land covered by TCT No. 8278 ; HAaECD "This; court is of the considered view that evidence on record preponderantly supports the conclusion that plaintiff is holding the subject property in trust for defendant. This must be so, otherwise injustice would result if plaintiffs' `paper' title were to prevail over the true ownership of defendant over the property. The court has carefully weighed the parties' opposing contentions and finds more credible the defendant's evidence, . . . " (at page 12) "xxx xxx xxx "In view of all the foregoing the court finds that defendant is the true and lawful owner of the four (4) parcels of land covered by TCT No. 8278. Consequently , the Register of Deeds of Caloocan City is ordered to cancel TCT No. 8278 and to issue another one in the name of defendant Lee Tek Sheng and the estate of Keh Shiok Cheng as pro-indiviso co-owners in equal shares ." (at page 17) The plaintiffs elevated to the Court of Appeals the Consolidated Decision of the trial court. However, after the lapse of a long period of time, parties decided to come to an amicable settlement of the disputes between them, among which is the ownership of the four (4) parcels of land covered by TCT No. 8278. Parties executed a Compromise Agreement on 25 September 2002 which was thereafter submitted to the Court of Appeals for approval. Accordingly, a Judgment by Compromise has been rendered by the Court of Appeals in CA-G.R. CV No. 65900, which virtually reproduced the entire Compromise Agreement executed by the parties. The dispositive portion of the Judgment by Compromise rendered by the Court of Appeals reads: " Wherefore , considering that the foregoing Compromise Agreement is not contrary to law, moral, good customs and public policy, the same is hereby APPROVED. Accordingly, judgment is hereby rendered pursuant to the compromise Agreement, and the parties are hereby ENJOINED to comply in good faith with the terms and conditions thereof." The reliefs granted by the court under the said compromise are: "1. Leoncio Lee Tek Sheng to execute a Deed of Reconveyance of the property covered by Transfer Certificate of Title ("TCT") No. 8278 presently in his name in favor of Lee Tek Sheng and the Estate of Keh Shiok Cheng. 2. The Register of Deeds of Caloocan City, upon payment of the proper taxes and fees and upon compliance with all other requirements stated in the Compromise Agreement, to cancel TCT No. 8278 registered in the name of Leoncio Lee Tek Sheng, and in lieu thereof, issue a new title in the names of Lee Tek Sheng and the Estate of Keh Shiok Cheng as pro-indiviso co-owners. SHcDAI xxx xxx xxx 6. The PARTIES to faithfully adhere to and comply with each and every stipulation of the Compromise Agreement, and fulfill their commitments and undertakings thereon with good faith." " Said judgment has become final and executory. We are now in the process of transferring the registration of TCT No. 8278 in the name of Lee Tek Sheng and the Estate of Keh Shiok Cheng as conjugal owners thereof. Thus, this request for a declaration that no gain arises from such transfer." (Emphasis supplied) and that in support of your request, you submitted to this Office the following documents, viz. : a) Certified true copy of Transfer Certificate of Title No. 8278; b) Certified true copy of the Consolidated Decision in the above-captioned two (2) cases; c) Certified true copy of the Court of Appeals' Judgment by compromise in CA-G.R. CV No. 65900; d) Certified true copy of the Entry of Judgment; and e) Photocopy of the Deed of Reconveyance executed by Leoncio Lee Tek Sheng in favor of Lee Tek Sheng and the Estate of Keh Shiok Cheng. In reply, please be informed that in BIR Ruling No. DA-245-2001 dated November 27, 2001 citing BIR Ruling No. DA-014-99 dated January 11, 1999 involving the transfer of real properties from a trustee to a trustor without consideration, this Office ruled that: "xxx xxx xxx "1. . . . the conveyance of the property by the Trustee in favor of the Trustor is not subject to the final capital gains tax of 6% imposed under Section 27(D)(5) of the Tax Code of 1997 nor to the creditable withholding tax prescribed by Revenue Regulations No. 2-98, implementing Section 57(B) of the Tax Code of 1997 . . . since as represented, the transfer and assignment by WG&A of one-half (1/2) or fifty percent (50%) nominal share, rights, title, claim or beneficial interest is merely a confirmation of title in favor of the beneficial owner, Fast Cargo Logistics Corporation. There is, therefore, no actual transfer of ownership, as Fast Cargo Logistics Corporation is the real and beneficial owner of the said one-half share of the property from the beginning. Likewise, being merely a confirmation of title, the assignment involves no monetary consideration (BIR Ruling No. 115-94 dated July 1, 1994) ADCETI xxx xxx xxx" Furthermore, in BIR Ruling No. DA-195-2000 dated March 30, 2000 involving transfer of a parcel of land by way of legal redemption, this Office ruled that: "xxx xxx xxx " . . . please be informed that since the transfer of the subject property is in consonance with the decision of the Court of Appeals and is without consideration, the transfer of the said property in your favor is not subject to the capital gains tax imposed under Section 24(D)(1) of the Tax Code of 1997 nor to the creditable withholding tax prescribed by Revenue Regulations No. 2-98, implementing Section 57(B) of the Tax Code of 1997. xxx xxx xxx" In both rulings, this Office ruled that the deed of conveyance is not subject to the documentary stamp tax imposed under Section 196 of the Tax Code of 1997, because there is no monetary consideration in the subject transfer. However, the notarial acknowledgment to the deed of conveyance is subject to the documentary stamp tax of P15.00 pursuant to Section 188 of the Code of 1997. (BIR Ruling No. 027-93 dated January 15, 1993, BIR Ruling No. 115-94 dated July 1, 1994) Following the stand of this Office laid down in the foregoing rulings, the reconveyance of the aforementioned property by Leoncio Lee Tek Sheng in favor of Lee Tek Sheng and the Estate of Keh Shiok Cheng is not subject to the capital gains and documentary stamp taxes imposed under Section 24(D)(1) of the Tax Code of 1997 nor to the creditable withholding tax prescribed by Revenue Regulations No. 2-98, implementing Section 57(B) of the Tax Code of 1997, and Section 196 of the same Code, respectively. However, the notarial acknowledgment to the said deed of conveyance is subject to the documentary stamp tax of P15.00 only pursuant to Section 188 of the Tax Code of 1997. This ruling is 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 consider null and void. ADcEST Very truly yours, Commissioner of Internal Revenue By: (SGD.) JOSE MARIO C. BUAG Deputy Commissioner Legal and Inspection Group