BIR Ruling [DA-580-04]

November 12, 2004 BIR RULING [DA-580-04] 24 (D); 313-88 Angelina C. Dy Rm. 307 Roman Santos Building Plaza Lacson, Sta. Cruz Manila M a d a m : This has reference to your letter dated December 2, 2002 requesting confirmation of your opinion that the transfer of a parcel of land to your name is not subject to the capital gains and documentary stamp taxes. It is represented that you are the highest bidder in the public auction over a parcel of land with Transfer Certificate of Title (TCT) No. T-135348 in the name of Consolacion P. Aquino. The auction sale emanated from the decision of the Court on the Civil Action for recovery of the sum of money with prayer for preliminary attachment which you filed against C.P. Aquino for failure of the latter to pay the sum of P151,700.00. The Certificate of Sale and Sheriff's Final Deed of Sale were respectively issued on June 23, 1993 and February 6, 1996 by Sheriff Apolonio L. Golfo. On June 28, 2001, Judge Perfecto Laguio of the Regional Trial Court of Manila issued an Order directing the Register of Deeds to cancel TCT No. T-135348 and issue a new one. Notwithstanding the said Order of the Court, the Register of Deeds refused to comply with the Order because of your failure to present a clearance from the Bureau of Internal Revenue. cDTACE On this score, you now submit that the issuance of a new TCT under your name is not subject to capital gains and documentary stamp taxes since no gain will be realized on the supposed transfer and the transaction is without consideration. Consequently, the need for prior payment of the foregoing taxes is not necessary to effect the issuance of the new TCT. In reply, please be informed that your opinion that the transfer of a parcel of land in your name is not subject to the capital gains and documentary stamp taxes is not in consonance with the existing law and jurisprudence on the matter. Under Section 21(e) {now Section 24(D)} of the Tax Code, as amended, capital gains presumed to have been realized from the sale, exchange or other disposition of real property located in the Philippines classified as capital assets, including pacto de retro and other forms of conditional sales, by individuals including estates and trusts, shall be taxed at the rate of 5% based on the gross selling price or the fair market value prevailing at the time of sale, whichever is higher. This accordingly, includes sale effected through a public auction sale, in other words, in the instant case, the 5% capital gains tax, which is payable by Consolacion P. Aquino as the registered owner of TCT No. 135348 and judgment debtor, should be paid after said auction sale but before registration of the Certificate of Sale issued by the auctioneer conducting the auction sale based on the gross selling price shown in the Sheriff's Deed of Sale. ( BIR Ruling No. 313-88 dated July 13, 1988 ) Revenue Memorandum Order No. 41-91 provides that, the determination of the tax base of sales, exchange or any disposition or conveyance of real property for documentary stamp tax purposes shall be the same as the tax based used in the computation of the capital gains tax which means, gross selling price, fair market value or zonal value of the real property, whichever is higher, except in the following instances, where the actual consideration in the Deed of Sale shall be an acceptable tax base in the computation of not only the capital gains tax but also of the documentary stamp tax , viz : xxx xxx xxx 3. Sale of real property effected through public bidding, e.g. judicial sale, extra-judicial foreclosure sale, where both the 5% capital gains tax and the documentary stamp tax were computed based on the highest winning bid price (BIR Ruling Nos. 101-89; 118-91) cIaCTS xxx xxx xxx In addition, the reckoning date in the payment of capital gains and documentary stamp taxes should be the date of the Sheriff's Final Deed of Sale. It may be true, however, that the Certificate of Sale is an evidence of the perfection of the contract of sale, but the time of payment of the foregoing taxes cannot be reckoned from the date of the Certificate of Sale considering that the decision of the Regional Trial Court was elevated to the Court of Appeals with the filing of the Petition for Certiorari of the judgment debtor which was subsequently denied. In other words, there was a supervening event that vacated the Certificate of Sale earlier issued. This ruling is issued on the basis of the foregoing representations. 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