BIR Ruling [DA-438-06]

July 19, 2006 BIR RULING [DA-438-06] 24; DA-197-01 Mr. Teodoro F. Bautista 388 G. Cruz St., Paltao Pulilan, Bulacan S i r : This refers to your letter dated November 2, 2005 requesting for a ruling on the following issues: 1. Is the 1973 Deed of Sale still subject to Capital Gains Tax? 2. If so, is it based on 1973 zonal value or present zonal value? It is represented that sometime in June 1963, Spouses Pablo and Evangeline G. Dingcong applied for a housing loan with GSIS; that in compliance with the collateral requirement of the loan, Mrs. Evangeline G. Dingcong requested her parents, Marcelino and Aurelia Gabriel to execute a Deed of Sale and annotate the same on OCT No. RO-2010 (0-274) covering 1/4 share of the lot; that the GSIS management still required a separate title issued in the name of Sps. Pablo and Evangeline Dingcong before it can approve the housing loan; that in order to expedite the loan transaction, Spouses Marcelino and Aurelia Gabriel, the registered owners, together with their another daughter, Josefina S. Gabriel, were made to be the direct borrowers and they signed the mortgage contract; that the loan was fully paid and cancellation of mortgage was annotated on the title in 1973; that in the same year a Deed of Sale was executed by Spouses Pablo and Evangeline Dingcong and Josefina S. Gabriel selling back to Spouses Marcelino and Aurelia Gabriel, now both deceased, the 1/4 share of the same lot but for unknown reason/s it was not annotated in the title; that presently, the legitimate children and heirs of the deceased Spouses Marcelino and Aurelia Gabriel have already extrajudicially settled the portion of the real estate properties of their parents and are about to register it with the Register of Deeds of Bulacan; and that, however, upon review of the documents by the RDO, he suggested that the Deed of Sale in 1973, which was not annotated in the same year, be referred to BIR for comment regarding Capital Gains Tax. In reply, please be informed that Batas Pambansa No. 37, as implemented by Revenue Regulations No. 8-79, which requires the imposition of a final schedular tax on capital gains realized by individuals from sales or other disposition of real property and the issuance of a certification that the said tax had been fully paid before registration with the Registry of Deeds, is applicable only to deeds of conveyance executed and acknowledged before a notary public on or after September 7, 1979. Deeds of Conveyance executed and acknowledged before a notary public prior to such date are not subject to the final schedular tax on capital gains. However, the gains realized therefrom are subject to the regular income tax imposed on individuals. (BIR Ruling Nos. 197-01 dated October 19, 2001 and 148-84 dated September 5, 1984) In view thereof, and inasmuch as the subject parcel of land was sold back to Spouses Marcelino and Aurelia Gabriel on November 28, 1973, as evidenced by the Deed of Sale which is duly notarized, Spouses Pablo Dingcong and Evangeline Gabriel and Josefina S. Gabriel are not required to file the capital gains tax return and pay the final schedular capital tax prescribed by then Section 34(h) of the Tax Code of 1977, as amended. aEIcHA This ruling is being issued based on the foregoing representations. If upon investigation, however, it will be shown that the facts are different from the said representations, then this ruling shall be considered null and void. Very truly yours, Commissioner of Internal Revenue By: (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service