BIR Ruling [DA-669-B-99]

December 7, 1999 BIR RULING [DA-669-B-99] Castro & Associate Castro Law Center 1353 Kalayaan Ave. Candelaria cor. Nicanor Garcia, Santiago Vill. Makati City Attention: Aries Tristan A . Reyes Partner Gentlemen : This refers to your letter dated September 28, 1999 requesting on behalf of your client, Security Bank Corporation (SBC), for exemption from the payment of capital gains tax and documentary stamp tax in connection with the reconveyance of its foreclosed property. It is represented that on May 18, 1994, the property of Mr. Jose Teofilo T. Mercado located at No. 36 Narra Avenue, South Forbes Park, Makati City covered by TCT No. 169833 was extra-judicially foreclosed and sold at a notarial sale to SBC, the mortgagee bank; that on May 23, 1994, SBC paid the creditable withholding tax and the documentary stamp taxes in the respective amounts of P2,421,050.00 and P726,315.00; that in Civil Case No. 95-724 entitled "Jose Teofilo T. Mercado vs. Security Bank Corporation, et al.," Mr. Teofilo T. Mercado seeks the nullification of the foreclosure proceedings conducted by SBC and Notary Public Lani A. Solis affecting his aforesaid property; that on February 13, 1998, SBC was able to consolidate its title over the property and was issued by the Register of Deeds of Makati City a new certificate of title, TCT No. 211663, under its name; that on July 10, 1998, the Regional Trial Court of Makati City, Branch 60, rendered its decision in the aforesaid case, wherein the foreclosure sale was declared void; that the Court also ordered Mr. Jose Teofilo T. Mercado to pay SBC P35,000,000.00 the amount of the loan obligation of Mr. Jose Teofilo T. Mercado, plus 17% interest per annum, until the liability is fully paid; that there was no appeal taken by the parties hence, the decision has now become final and executory; and that to enforce the decision, SBC executed on August 4, 1999 an Affidavit of Reconveyance of the property to Mr. Mercado. In reply, please be informed that since the foreclosure sale which led to the transfer of the title of the property to SBC has been judicially declared null and void, it is as if there was no foreclosure sale that has taken place. Accordingly, the reconveyance of said property without any consideration to Mr. Mercado is not subject to the capital gains tax, imposed under Section 27(D)(5) of the Tax Code of 1997 nor to the creditable withholding tax imposed under Section 57 (B) of the Tax Code of 1997 as implemented by Revenue Regulations No. 2-98. cdlex Furthermore, it is not likewise subject to the documentary stamp tax imposed under Section 196 of the Tax Code of 1997 pursuant to Section 185 of Revenue Regulations No. 26, otherwise known as the Revised Documentary Stamp Tax Regulations. However, the acknowledgment on the said Deed of Reconveyance is 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 null and void. (BIR Ruling No. 027-93 dated January 15, 1993). Very truly yours, Commissioner of Internal Revenue By: (SGD.) SIXTO S. ESQUIVIAS IV Deputy Commissioner (Legal and Enforcement Group)