BIR Ruling [DA-647-06]

October 31, 2006 BIR RULING [DA-647-06] Section 24 (D) (1); DA-309-2004 Woodland Real Estate Development, Inc . 3/F Legaspi Towers 300, Roxas Blvd., Manila Attention: Ms. Flora C. Manalo Vice President Gentlemen : This refers to your letter dated August 29, 2006 requesting exemption from the payment of capital gains tax and documentary stamp tax relative to the reconveyance of the property previously sold to Teresita Desales. It is represented that Teresita Desales (Desales) was a purchaser for value of a house and lot unit in a subdivision project of Woodland Real Estate Development, Inc. (Woodland), particularly described as Block 2 Lot 16 Woodridge Subdivision, Brgy. Pulang Lupa Dos, Las Pias City; that prior to said sale, a suit was filed against Woodland, thus, a Notice of Lis Pendes was thereafter annotated on the Transfer Certificate of Title of the subject property; that upon full payment of the purchase price, Desales requested for the transfer of the certificate of title from Woodland in her name; That the Transfer Certificate of Title was then transferred accordingly; that Woodland, however, disclosed the pending litigation, which involved the subject property prompting Desales to retract from the sale and demand for the return of all her payments plus indemnity in the form of interest with an agreement that should the case be decided in favor of Woodland, she would have the right of first refusal; that on August 23, 1997, a Deed of Reconveyance was executed by and between Woodland and Desales; that a Certificate Authorizing Registration of (CAR) was issued by the BIR District Office of Trece Martires, Cavite for the reconveyance of the property to Woodland; that Woodland, in anticipation of a favorable outcome of the civil case filed against it and the subsequent exercise of Desales to purchase the property as agreed upon, did not pursue the transfer of title to its name; that the CAR stated that the transaction is not subject to Capital Gains Tax and Documentary Stamp Tax; that on January 15, 2006, the civil case attained finality; that Desales was informed of such fact and was given due notice to exercise her right of first refusal over the subject property but failed to repurchase the same for lack of funds until the expiration of the period agreed upon; and that when a transfer of jurisdiction over the subject property to the BIR District Office in Las Pias came about, the latter is now requiring Woodland to submit a BIR Ruling that no capital gains tax, documentary stamp tax, other taxes and penalties shall be due on the said transfer for the issuance of a new CAR since the 1997 CAR is already invalidated due to the lapse of 9 years. EAHDac In reply, please be informed that the execution of the Deed of Reconveyance has the effect of reconveying the aforesaid real property in favor of Woodland, and being only a formality of restoring title to the said property in the name of its previous owner, the same is not subject to the donor's tax or capital gains tax imposed under Section 24(D)(1) of the Tax Code of 1997, nor to the documentary stamp tax imposed under Section 196 of the same Code. Lastly, the notarial acknowledgement to the said deed is also subject to the documentary stamp tax of P15.00 pursuant to Section 188 of the Tax Code of 1997. 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 as null and void. Very truly yours, Commissioner of Internal Revenue By: (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service