BIR Ruling [DA-529-98]

November 26, 1998 BIR RULING [DA-529-98] Communities (Cagayan), Inc. 2nd Floor, Capitol Bank Building Lapasan Highway Cagayan de Oro Attention: Ms . Bernadette M . Maranga Operations Head Gentlemen : This refers to your letter dated July 17, 1998 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. It is represented that Communities (Cagayan), Inc. (formerly Masterplan Properties, 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 Camella Homes situated at Barrio Carmen, Cagayan de Oro; that one of your customers, Ms. Debbie B. Cababarros, bought a house and lot by availing herself of a housing loan through an originating bank accredited with the National Home Mortgage Finance Corporation (NHMFC); that as required by originating bank, the title of the lot was transferred and registered in the name of Ms. Debbie B. Cababarros; that on December 22, 1995, a Deed of Absolute Sale was executed by and between Masterplan Properties, Inc. and Ms. Debbie B. Cababarros whereby the former transferred to the latter a parcel of land together with the improvements thereon for and in consideration of P90,000.00; that due to financial constraints, Ms. Debbie B. Cababarros backed out and withdrew her loan application; that said withdrawal was made prior to the release of the loan from the NHMFC; that the buyer for whose account was cancelled must first reconvey the property in favor of Communities (Cagayan), Inc. without any consideration; and that eventually, a Deed of Reconveyance was executed by Ms. Debbie B. Cababarros returning the said property to Communities (Cagayan), Inc. In reply, please be informed that Article 1352 of the Civil Code of the Philippines, states: "ARTICLE 1352. Contracts without cause, or with unlawful cause, produce no effect whatsoever. "xxx xxx xxx" the Deed of Absolute Sale executed by Communities (Cagayan), Inc. in favor of Ms. Debbie B. Cababarros, as required by the originating bank, did not produce any legal effect because, with the withdrawal of Ms. Debbie B. Cababarros prior to the release of her loan and the subsequent cancellation of the loan by the NHMFC, Communities (Cagayan), 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 property has been disposed, transferred or conveyed in favor of Ms. Debbie B. Cababarros. Such being the case, since the Deed of Absolute Sale between Communities (Cagayan), Inc. and Ms. Debbie B. Cababarros failed to effect the transfer of ownership of the lot for lack of consideration, the Deed of Reconveyance to be executed by the parties so as to effect the return of the subject property to Communities (Cagayan), Inc. is 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. Very truly yours, (SGD.) SIXTO S. ESQUIVIAS IV Deputy Commissioner (Legal & Enforcement Group)