BIR Ruling [DA-340-03]

October 7, 2003 BIR RULING [DA-340-03] Sections 27, 98 & 196 BIR Ruling No. DA-215-03 Sorreda Law Office 7 Roque Drive, Tandang Sora Quezon City Attention: Atty. Noel S. Sorreda Gentlemen : This refers to your letter dated November 18, 2002 requesting, in effect, for a ruling on whether the conveyance of a real property without donative intent is subject to donor's tax, the transfer being a mere formality of restoring the title to the true and beneficial owner. It is represented that Crisanta S. Arcilla ("Crisanta" for brevity) with residence at No. 5 Roque Drive, Tandang Sora, Quezon City is the mother of Rosita S. Arcilla-Schreffler ("Rosita" for brevity) with residence at No. 751 Niantic Avenue, Daly City, California, U.S.A., both being your clients; that Rosita, while she was yet in the Philippines, negotiated for the purchase of a parcel of land covered by TCT No. RT-74084 (238456) of the Register of Deeds of Quezon City situated at No. 5 Roque Drive, Tandang Sora, Quezon City containing an area of Two Hundred Fifty (250) sq.m., more or less; that the sale was actually consummated when she was already abroad; that while paying the price of the land herself, Rosita allowed Crisanta to register the same in Crisanta's name; that it can be shown that Crisanta had no source of income, hence, she could not have paid the purchase price on her own; that to restore the title to Rosita, the true and beneficial owner, Crisanta executed a Deed of Conveyance dated June 12, 2001 in favor of Rosita acknowledging therein that Rosita is the trustor or real owner of the real property; and that Rosita has executed a donation in favor of her niece, Wilhelmina Maghari. In reply, please be informed that under Section 27(D)(5) of the Tax Code of 1997, a final tax of six percent (6%) is hereby imposed on the gain presumed to have been realized on the sale, exchange or disposition of lands and/or buildings which are not actually used in the business of a corporation and are treated as capital assets, based on the gross selling price or fair market value as determined in accordance with Section 6(E) of this Code, whichever is higher, of such lands and/or buildings. In the instant case, it is clear that the conveyance by Crisanta of the real property to Rosita under the Deed of Conveyance is without consideration because Rosita having provided the funds for the payment for the said property is the real owner thereof. Thus, an implied trust was created between Crisanta and Rosita pursuant to Articles 1448 and 1453 of the Civil Code which state: "ART. 1448. There is an implied trust when property is sold, and the legal estate is granted to one party but the price is paid by another for the purpose of having the beneficial interest of the property. The former is the trustee, while the latter is the beneficiary. . . ." "ART. 1453. When property is conveyed to a person in reliance upon his declared intention to hold it for, or transfer it to another or the grantor, there is an implied trust in favor of the person whose benefit is contemplated." Such being the case, and considering that the Deed of Conveyance dated June 12, 2001 is not a sale, exchange or other disposition of the said property but merely a surrender or restoration of the property to its rightful owner, the same is not subject to the capital gains tax prescribed under Section 27(D)(5) of the Tax Code of 1997. This finds support in BIR Ruling No. 147-92 dated May 8, 1992 wherein this Office held: IEAHca ". . . the transfer of the Q.C. property effected by the heirs of the estate of Edward M. Grimm in the Deed of Partition in favor of GP and company is not subject to capital gains tax imposed under Section 21(e) of the Tax Code, since the transfer of the title in favor of GP and Company is merely a formality of transferring to the beneficial owner thereof the title to the same and in order that the title to the said property may be registered in the name of its rightful owner without any monetary consideration. " Moreover, conveyances of realty not in connection with a sale, to trustees or other persons without consideration is not taxable pursuant to Section 185 of Regulations No. 26, otherwise known as the Documentary Stamp Tax Regulations. Moreover, it has already been settled that a Deed of Transfer of Real Property executed by a trustee in favor of the real owner without consideration is not subject to the documentary stamp tax on conveyance of real property 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 pursuant to Section 188 of same Code (BIR Ruling No. DA-136-2000 dated March 6, 2000 citing BIR Rulings Nos. 21-98 dated February 19, 1998; 116-91 dated June 21, 1991; and 118-87 dated April 24, 1987) . Finally, the Deed of Conveyance dated June 12, 2001 executed by Crisanta in favor of Rosita is exempt from the donor's tax imposed under Section 98 of the Tax Code of 1997 due to lack of donative intent (undated BIR Ruling No. DA-014-99) . However, Rosita is subject to the donor's tax imposed under Section 98(A) of the Tax Code of 1997, on the transfer of the above-described property to her niece, Wilhelmina Maghari. 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 as null and void. Very truly yours, Commissioner of Internal Revenue By: (SGD.) JOSE MARIO C. BUAG Deputy Commissioner Legal & Inspection Group