BIR Ruling [DA-506-98]

November 18, 1998 BIR RULING [DA-506-98] Palmera Homes 827 Palmera Center Aurora Blvd. Cubao Quezon City Attention: Ms . Jerylle Luz CC . Quismundo Head, Admin . Post Department Gentlemen : This refers to your letter dated September 8, 1997 requesting for a ruling as to whether or not the Deed of Reconveyance of the subdivision property is exempt from the payment of capital gains tax and documentary stamp tax. cdpr It is represented that Palmera Homes, Inc. is a domestic corporation duly registered with the Securities and Exchange Commission (SEC); that it is the owner of a subdivision project known as Tierra Nova Royale 4 situated at Bo. Bagumbong, Caloocan City; that most of your customers bought house and lot by availing themselves of a housing loan through an originating bank accredited with the National Home Mortgage Finance Corporation (NHMFC); that as required by the originating bank, the titles of the lots were transferred and registered in the name of the buyers; that several Deeds of Absolute Sale were executed by and between Palmera Homes, Inc. and its buyers whereby the former transferred to its respective buyers a parcel of land, together with the improvements thereon, for and in consideration of P410,000.00; that due to financial constraints, most of its buyers backed out and withdrew their loan applications; that said withdrawals were made prior to the release of the loan from the NHMFC; that the buyers for whose accounts were cancelled, must first reconvey the said properties in favor of Palmera Homes, Inc. without any consideration; and that eventually, a Deed of Reconveyance will be executed by the respective buyers returning the said properties to Palmera Homes, Inc. In reply, please be informed that pursuant to Article 1352 of the Civil Code of the Philippines, stating: "ARTICLE 1352. Contracts without cause, or with unlawful cause, produce no effect whatsoever. "xxx xxx xxx" the Deeds of Absolute Sale executed by Palmera Homes, Inc. in favor of its buyers, as required by the originating bank, did not produce any legal effect because, with the withdrawals of the buyers prior to the release of their loan and the subsequent cancellation of the loan by the NHMFC, Palmera Homes, Inc. failed to receive the proceeds which was to be the cause/consideration for the sale. For lack of consideration, it cannot be said that the aforementioned properties have been disposed, transferred or conveyed in favor of the respective buyers. Such being the case, since the Deeds of Absolute Sale between Palmera Homes, Inc. and its buyers failed to effect the transfer or ownership of the respective lots for lack of consideration, the Deeds of Reconveyance to be executed by the parties so as to effect the return of the subject properties to Palmera Homes, Inc. are not subject to capital gains tax and documentary stamp tax prescribed under Sections 24(D)(1) and 196, both of the Tax Code of 1997. (BIR Ruling No. 186-93 dated May 5, 1993) 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. cdta Very truly yours, Commissioner of Internal Revenue By: (SGD.) SIXTO S. ESQUIVIAS IV Deputy Commissioner (Legal & Enforcement Group)