BIR Ruling [DA-538-04]

October 29, 2004 BIR RULING [DA-538-04] San Lorenzo Ruiz Builders & Developers Group, Inc . 16th Floor OMM Building San Miguel Avenue Ortigas Center Pasig City Attention: Ms. Beatriz Q. Sayson Vice President Gentlemen : This refers to your letter dated September 11, 2004 requesting for a ruling that the transfer or reversion of a house and lot subject of a rescission of a deed of absolute sale is not subject to capital gains tax and the corresponding documentary stamp tax. It is represented that San Lorenzo Ruiz Builders & Developers Group, Inc. (San Lorenzo), is a domestic corporation duly registered with the Securities and Exchange Commission; that a Deed of Absolute Sale was executed by San Lorenzo in favor of Ms. Rhodora D. Policarpio, covering a house and lot in Violago Homes Parkwoods Subdivision and more particularly known as Block 23 Lot 8-A covered by TCT No. N-224209 issued by the Registry of Deeds for Quezon City; as required by the Home Development Mutual Fund to avail of Pag-Ibig housing loan; and that for failure of Ms. Rhodora D. Policarpio to secure the aforesaid housing loan with Pag-Ibig, San Lorenzo cancelled/rescinded the subject Deed of Absolute Sale. In reply thereto, please be informed that Article 1191 of the Civil Code of the Philippines provides that the power to rescind obligations is implied in reciprocal ones, in case one of the obligors should not comply with what is incumbent upon him. The injured party may choose between the fulfillment and the rescission of the obligations with the payment of damages, in either case. He may also seek rescission, even after he has chosen fulfillment, if the latter should become impossible. SCaDAE Corollarily, Article 1385 of the same Code provides that the rescission creates the obligation to return the things which were the object of the contract, together with their fruits, and the price with its interest; consequently, it can be carried out only when he who demands rescission can return whatever he may be obliged to restore. In applying the above-cited articles to the case in point, both San Lorenzo and Ms. Rhodora D. Policarpio have mutually agreed to rescind the subject Deed of Absolute Sale involving a house and lot for failure on the part of the latter to avail of the Pag-Ibig housing loan thru the Home Development Mutual Fund to pay the property. Thus, rescission gives San Lorenzo the right to rescind and render null and void the stipulations in the aforementioned Deed of Absolute Sale, as the effect of rescission is, as if no sale, transfer or exchange ever took place between the parties. Similarly situated is BIR Ruling No. DA210-01 dated October 19, 2001, where this Office ruled that ". . . the Deed of Rescission and Reconveyance was executed in order to effect the cancellation of the sale and is without monetary consideration, the transfer of the said property in favor of CMJ is not subject to the capital gains tax imposed under Section 24(D)(1) of` the Tax Code of 1997 nor to the creditable withholding tax prescribed by Revenue Regulations No. 2-98, implementing Section 57(B) of the Tax Code of 1997. "Furthermore, it is not likewise subject to the documentary stamp tax imposed under Section 196 of the Tax Code of 1997. However, the notarial acknowledgment to the said Deed of Rescission and Reconveyance is subject to the documentary stamp tax of P15.00 only pursuant to Section 188 of the Tax Code of 1997. ( BIR Ruling No. 027-93 dated January 15, 1993 ) . . . " IN VIEW OF THE FOREGOING, this Office holds that since the effect of the rescission between San Lorenzo and Ms. Rhodora D. Policarpio is to cancel the Deed of Absolute Sale for failure on the part of the latter to comply with the terms and conditions stated therein, the transfer of the house and lot by Ms. Rhodora D. Policarpio to San Lorenzo by virtue of a Deed of Reconveyance and without any monetary consideration is not subject to capital gains tax and the corresponding documentary stamp tax. 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.) JOSE MARIO C. BUAG Deputy Commissioner Legal & Inspection Group