BIR Ruling [DA-309-04]

June 8, 2004 BIR RULING [DA-309-04] RR No. 12-89; DA-195-2000 Fandialan & Associates Law Office No. 4 Hectan Commercial Center Brgy. Halang, Calamba City Attention: Atty. Adolfo Fandialan Counsel for Conrado R. Castillo Gentlemen : This refers to your letter dated November 27, 2003 requesting in behalf of your client Conrado R. Castillo for exemption from capital gains tax and other internal revenue taxes. It is represented that Conrado R. Castillo (Castillo, for brevity) is the owner of a parcel of agricultural land in Calamba City, Laguna covered by Transfer Certificate of Title No. T-21588-7133; that the said land was mortgaged with the Rural Bank of Canlubang Planters Inc. (Bank); that Castillo intended to develop the property; that he needed the title for partition or subdivision preparatory to the development; that for the Bank to allow him to do so, he was required to pay the over due interest and to make advance interest payment; that at that time, he was not in a financial position to comply with the requirement of the Bank, so that he requested Dominador Chipeco (Chipeco) to extend him an accommodation loan; that Castillo was a regular client of Chipeco's financing business and had already an existing loan with him, Chipeco agreed to accommodate Castillo; that their agreement was embodied in the Summary, Memorandum Agreement (SMA); that the arrangement was for Chipeco to assume the loan of Castillo with the Bank, using the same collateral and to pay, the interest and other expenses related therein; that to facilitate said arrangement and at the same time secure the payment of the accommodation loan extended by Chipeco to Castillo, the property's title had to be transferred to Chipeco; that the parties executed a Deed of Sale with Assumption of Mortgage, although the true and actual agreement of the parties was only an accommodation loan as expressly stated in the SMA; that Castillo has been in continuous possession of the property as its lawful owner up to the present; that the property was subdivided into six (6) sub lots and as agreed upon, one (1) lot was disposed, leaving five (5) lots, namely: TCT Nos. T-59048, T-59050, T-59051, T-59052, and T-59053; that it is also stipulated in the agreement that upon payment of the total accommodation extended to Castillo by Chipeco, the latter shall make the proper Deed of Reconveyance to Castillo; that Castillo had fully paid Chipeco, hence the Owner's copy of the five lots were delivered back to Castillo; that the parties neglected to execute the corresponding Deed of Reconveyance during the lifetime of Chipeco; that the heirs of the late Chipeco were aware of the transaction between Castillo and Chipeco; and that Revenue District No. 56, Calamba City remanded by way of 2nd Indorsement dated April 2, 2004, herein file and found that the Law Division was in a better position to make a determination of the issues. In reply, please be informed that since the transaction is without any monetary consideration, and considering further that the execution of the Summary Memorandum Agreement and a Deed of Reconveyance was merely to accommodate Castillo who was never deprived of title to the above properties, the same is not subject to the capital gains tax, imposed under Section 24(D)(1) of the Tax Code of 1997, nor to the withholding tax imposed under Revenue Regulations No. 2-98. Furthermore, the said reconveyance of the real property is not likewise subject to the documentary stamp tax imposed under Section 196 of the Tax Code of 1997. However, the notarial acknowledgment to the said deed is subject to the documentary stamp tax of P15.00 only pursuant to Section 188 of the Tax Code of 1997. ( BIR Ruling No. DA 068-98 dated March 2, 1998 ) This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it shall be ascertained 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