BIR Ruling [DA-434-03]

December 1, 2003 BIR RULING [DA-434-03] Sections 24 (D) (1) & 196 BIR Rulings Nos. 9-95 & DA 295-00 Ms. Leonor M. Estanislao 24-C K8 Street Kamias, Quezon City M a d a m : This refers to your letter dated November 5, 2003 requesting for a ruling that the reconveyance of property without monetary consideration in your favor is exempt from capital gains and documentary stamp taxes. It is represented that you are the owner of a parcel of land covered by Transfer Certificate of Title No. N-78697 situated in Bayanbayanan, Marikina City with an area of 411 sq. m., more or less; that on August 17, 1983, you executed a Deed of Absolute Sale over the above-described property in favor of Sylvia A. de Vera in consideration of the amount of P40,000.00; that it was agreed that the full amount of the consideration shall be payable in ten (10) years; that this arrangement was agreed upon to accommodate Sylvia A. de Vera in her financial needs; that due to business losses, Sylvia A. de Vera failed to pay the full amount of the consideration; that on August 26, 1989 you filed an Adverse Claim over the said property; and that on November 3, 2003, Sylvia A. De Vera executed a Deed of Reconveyance covering the above-described property in your favor. In reply, please be informed that Article 1352 of the Civil Code of the Philippines, states: "Art. 1352. Contracts without cause, or with unlawful cause, produce no effect whatsoever . xxx xxx xxx" The Deed of Absolute Sale you executed in favor of Sylvia A. de Vera did not produce any legal effect due to lack of a cause/consideration for the sale. For lack of consideration, it cannot be said that the aforementioned property has been disposed, transferred or conveyed in favor of Sylvia A. de Vera. Accordingly, the said sale transaction is not subject to the capital gains tax imposed under Section 24(D)(1) of the Tax Code of 1997, nor to the documentary stamp tax imposed under Section 196 of the same Code. Moreover, the Deed of Reconveyance executed by Sylvia A. de Vera being merely a formality to restore title to the said property in the name of its true owner, is not subject to the capital gains and documentary stamp taxes respectively prescribed under Sections 24(D)(1) and 196 of the Tax Code of 1997 (BIR Rulings Nos. 009-95 dated January 16, 1995 and DA-295-2000 dated July 28, 2000) . 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. TaCEHA Very truly yours, Commissioner of Internal Revenue By: (SGD.) JOSE MARIO BUAG Deputy Commissioner Legal & Inspection Group