BIR Ruling [DA-651-99]

November 29, 1999 BIR RULING [DA-651-99] Ms. Josephine P. Delos Reyes #26 Pina St., Valle Verde I Pasig City M a d a m : This refers to your letter dated October 26, 1999 requesting exemption from the payment of capital gains tax and documentary stamp tax the assignment of your rights over Unit No. 2129 of the City and Land Mega Plaza situated at the corner of ADB Avenue and Garner Sts., Pasig City. It is represented that on June 13, 1996, you entered into a Contract to Sell with City and Land Developers, Inc. (CLDI) wherein you bought on installment basis Unit No. 2129 with an area of 45.140 square meters of the City and Land Mega Plaza situated at the corner of ADB Avenue and Garner Sts., Pasig City from CLDI; that subsequently, you offered to assign your rights over the said unit including your obligation under the said Contract to sell to Angeli P. Ortile who accepted your said offer; and that on September 18, 1999, you with the consent of your husband, and Angeli P. Ortile likewise with the consent of her husband, made and executed a Deed of Assignment with Assumption of Obligations whereby you assigned and transferred all of your rights and interest over the said unit including all of your obligations under the said Contract To Sell in favor of Angeli P. Ortile. llcd In reply, please be informed that under Section 24(D)(1) of the Tax Code of 1997, a final tax of six percent (6%) based on the gross selling price or current fair market value as determined in accordance with Section 6(E) of the Tax Code of 1997, whichever is higher, is imposed upon capital gains presumed to have been realized from the sale, exchange or other disposition of real property located in the Philippines, classified as capital asset, including pacto de retro sales and other forms of conditional sales, by individuals, including estate and trust. A close perusal of the foregoing provision of Section 24(D)(1) of the Tax Code of 1997, would reveal that only capital gains presumed to have been realized from the sale, exchange, or other disposition of real property located in the Philippines classified as capital asset, including pacto de retro sales and other forms of conditional sales by individuals, including estates and trusts are subject to the capital gains tax imposed thereunder. Hence, assignment of rights over real property is not included within the purview of Section 24(D)(1) of the Tax Code of 1997 considering that in assignment of rights, the assignee merely steps into the shoes of the assignor without acquiring a better right that what the assignor had in the property to which the rights assigned pertain. (BIR Ruling No. 174-92 dated September 10, 1992) However, any gain that you may have realized from the disposition of your rights over the said property, as determined in accordance with Section 40(A) and (B)(4) of the Tax Code of 1997, is subject to ordinary income tax which must be reported in your income tax return for the year 1999 pursuant to Section 32(a)(3) of the same Code. (BIR Ruling No. DA-543-99 dated September 21, 1999) Moreover, the Deed of Assignment in this case, is not a Deed of Sale as contemplated under Section 196 of the Tax Code of 1997, since what is being conveyed by the assignor is not the property itself but the rights pertaining to such property, hence, not likewise subject to the documentary stamp tax prescribed under Section 196 of the Tax Code of 1997. Furthermore, the said assignment of rights is also not subject to the donor's tax imposed under Section 84 of the Tax Code of 1997, since there is no donative intent on your part in assigning your right over the said condominium unit. Very truly yours, Commissioner of Internal Revenue By: (SGD.) SIXTO S. ESQUIVIAS IV Deputy Commissioner (Legal and Enforcement Group)