BIR Ruling [DA-567-98]

December 18, 1998 BIR RULING [DA-567-98] Mr. Onofre Balaga Sr. Km. 5, Indangan, Buhangin Davao City S i r : This refers to your request for a ruling that your sale of your real property situated at Malagamot, Brgy. Indangan, Buhangin, Davao City covered by TCT No. T-239407 of the Registry of Deeds for Davao City to the Nagkahiusa Settlers Association, Inc., a non-stock, non-profit community organization duly registered with the Home Insurance and Guaranty Corporation (HIGC) in accordance with the Community Mortgage Program (CMP) initiated by the National Housing Authority (NHA) is exempt from capital gains tax pursuant to Section 32(b) of R.A. No. 7279 which was approved on March 24, 1992 and published in the March 28, 1992 issue of the Philippine Times Journal and Malaya, newspapers of general circulation. LexLib It appears that through the initiative of the City Government of Davao City, you executed a Deed of Sale of the aforesaid real property in favor of the Association for and in consideration of the sum of Three Million Four Hundred Twenty-Eight Thousand and Two Hundred Pesos (P3,428,200.00), Philippine Currency, in full payment thereof. Investigation and ocular inspection conducted by Revenue Officer Alberto A. Pombo disclosed that the actual occupants of the land are members of the association; that they are qualified beneficiaries, under privileged and homeless citizens; and that the property involved is an area for priority development and zonal improvement program site as certified by the City Mayor of Davao, Benjamin C. de Guzman. In reply, please be informed that pursuant to Section 32 of R.A. No. 7279, pertinent portion of which reads: "SEC. 32. Incentives To encourage its wider implementation, participants in the CMP shall be granted with the following privileges or incentives: xxx xxx xxx (b) Properties sold under the CMP shall be exempted from the capital gains tax; and xxx xxx xxx" the landowner who sells his property for use in socialized housing project is exempt from the payment of capital gains tax and from the expanded withholding tax under Revenue Regulations No. 12-94, as amended by Revenue Regulations No. 2-98. Such being the case, the sale to the Nagkahiusa Settler's Association, Inc. is exempt from the capital gains tax and the expanded withholding tax. Upon issuance of this letter of exemption, and upon registration of the document of sale, a lien on the Certificate of Title of the land to be issued in the name of the Nagkahiusa Settler's Association, Inc. shall be caused to be annotated by the Register of Deeds having jurisdiction over the properties, to the effect, that the said properties shall be used for socialized housing pursuant to R.A. No. 7279. However, it is observed that the documentary stamp tax is not one of the taxes covered by the tax incentives/exemption clause under Sections 20 and 32 of R.A. 7279. Such being the case, the seller is liable to pay the documentary stamp tax on the document conveying the property to the Nagkahiusa Settler's Association, Inc. for use in socialized housing project as imposed under Sec. 196 of the Tax Code of 1997. The tax herein imposed shall be based on the consideration contracted to be paid or the fair market value of the realty determined in accordance with Section 6(E) of the Tax Code of 1997, whichever is higher. On the hand, the transfer by the Nagkahiusa Settler's Association, Inc. of the real property sold under R.A. 7279 to the individual member-buyer is not subject to either the capital gains tax imposed under Section 24(D) of the Tax Code of 1997, or the creditable withholding tax imposed under Revenue Regulations No. 2-98, considering that the said transfer/transaction is merely a formality to finally effect the transfer of title of the real property to the member-beneficiaries who actually bought the same. Such lack of consideration does not, likewise, render the transfer subject to the donor's tax imposed under Section 99 of the Tax Code of 1997, since there is no intention on the part of the association to donate the said property to said members considering that the members of the association could not donate a property the ownership of which belongs to themselves (member-beneficiaries). Furthermore, Section 185 of the Revised Documentary Stamp Tax Regulations (Regulations No. 26) provides that "conveyances of realties not in connection with a sale, to trustees or other person without consideration are not taxable". Accordingly, the deeds to be executed by the Nagkahiusa Settler's Association, Inc. to effect the aforesaid transfer in favor of its individual members are not subject to the documentary stamp tax imposed under Section 196 of the Tax Code of 1997. However, the notarial acknowledgment to said deed of conveyance is subject to the documentary stamp tax of P15.00 pursuant to Section 188 of the Tax Code of 1997. (BIR Ruling No. 398-93 dated October 11, 1993) LLpr 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, Commissioner of Internal Revenue By: (SGD.) SIXTO S. ESQUIVIAS IV Deputy Commissioner (Legal & Enforcement Group)