BIR Ruling [DA-346-00]

September 20, 2000 BIR RULING [DA-346-00] Sec. 24 (D); 258-91 Atty. Mauro V. Yumang c/o Pilipinas Hino, Inc. Edsa corner Madison Street Mandaluyong City S i r : This refers to your letter dated June 21, 2000 requesting in behalf of your clients, for a ruling as to whether or not a deed of partition between co-owners is exempt from withholding tax and documentary stamp tax. CHATcE It is represented that your clients, Isabel Remigio Aure and Edita Remigio Villanueva, who are legitimate sisters are the registered and absolute co-owners in equal and undivided portion of certain properties situated in Blumentritt, Manila with a total area of 136.25 sq. meters, covered by Transfer Certificate of Title Nos. 209591 and 209590, Dimasalang, Manila, with an area of 262.88 sq.m. covered by TCT No. RT-54612 (359934) and Del Monte, Quezon City with an area of 497.70 sq.m covered by TCT No. RT-54612 (359934); that the titles are all both in their names; that the said properties were acquired and/or inherited from their deceased parents; that as per tax declarations, the market values of the properties are as follows: Blumentritt (Land and Improvement) P1,867,950.00 Dimasalang (Land and Improvement) 2,233,170.00 Del Monte (Land and Improvement) 4,498,450.00 P8,599,570.00 =========== that to divide the properties equally, the co-owners will have a share of P4,299,785.00 each; and that however, in as much as the properties are essentially indivisible, the co-owners have agreed to partition them as follows: 1. The Del Monte properties (valued at P4,498,450.00) shall be assigned to Isabel Remigio Aure, who will compensate Edita Remigio Villanueva the amount of P198,665.00 2. The Dimasalang and Blumentritt properties (value at P4,101,120.00) shall be assigned to Edita Remigio Villanueva, thus bringing her share to P4,299,785,120.00 including the amount of P198,665.00 In reply, please be informed that under Section 24(D) of the Tax Code of 1997, capital gains presumed to have been realized from the sale, exchange or other disposition of real property located in the Philippines classified as capital assets including pacto de retro sales and other forms of conditional sales, by individuals, including estates and trusts, shall be taxes at the rate of 6% based on the gross selling price or current fair market value as determined in accordance with Section 6(E) of the same Tax Code, whichever is higher. On the other hand, under Article 1082 of the Civil Code, every act which is intended to put an end to indivisions among co-heirs and legatees and devisees is deemed to be a partition, although it should purport to be a sale, an exchange, a compromise, or any other transaction. Moreover, under Article 1086 of the Civil Code, should a thing be indivisible, or would be much impaired by its being divided it may be adjudicated to one of the heirs, provided he shall pay the other the excess in cash. From the foregoing, it is clear therefore, that, in the instant case, your clients are not subject to the 6% capital gains tax imposed under the aforecited Section 24(D) of the 1997 Tax Code, considering that there was neither a sale, exchange nor disposition of real property on their part but a partition of the estate of their parents wherein both of them agreed to indemnify each other if there is a difference in the value of the properties. (BIR Ruling No. 258-91 dated December 3, 1991) Moreover, Section 196 of the Tax Code of 1997 provides that on all conveyances, deeds, instruments, or writings . . . any land or other realty sold shall be granted, assigned, transferred or otherwise conveyed to any other person designated, there shall be collected a documentary stamp tax based on the consideration contracted to be paid for such realty or on its fair market value determined in accordance with Section 6(E) of the same Code, whichever is higher. However, considering that the Deed of Partition was executed to put an end to the indivision among co-heirs and there is neither a sale, exchange nor disposition of real property on their part, the same deed is not subject to the documentary stamp tax imposed under the said section of the Tax Code. However, the aforesaid Deed is subject to the documentary stamp tax of P15.00 imposed under Section 188 of the same Code. 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. cSCTID Very truly yours, Commissioner of Internal Revenue By: (SGD.) LILIAN B. HEFTI Deputy Commissioner Legal and Inspection Group