Fil-Estate Management, Inc.

December 20, 2007 BIR RULING [DA-676-07] 24 (D) (1), 196; DA-030-2004 Fil-Estate Management, Inc. Renaissance Centre Meralco Avenue, Pasig City Attention: Atty. Alan B. Quintana Counsel Gentlemen : This refers to your letter dated September 15, 2007 stating that Spouses Virgilio and Judith Canga agreed to purchase from Fil-Estate Management, Inc. (FEMI) a parcel of land identified as Lot 3 of Block 21, Hillsborough Alabang Phase 1 Subdivision, Barangay Cupang, Muntinlupa City (hereinafter referred to as the "Hillsborough Lot"). Spouses Canga then requested that the certificate of title to the Hillsborough Lot be transferred in their name, representing to FEMI that they will secure a loan from the Far East Bank and Trust Company (FEBTC) to enable them to pay the balance of the purchase price. FEMI then executed a Deed of Absolute Sale for the purpose of transferring said certificate of title to Spouses Canga in compliance with FEBTC's requirement. After payment of the appropriate transfer taxes, Transfer Certificate of Title (TCT) No. 184673 was issued in the name of Spouses Canga, however, the latter did not succeed in securing the loan from the bank and has not paid the balance of purchase price of the property. The spouses recognized and acknowledged that the Contract to Sell for the Hillsborough Lot has been cancelled and rescinded because of their non-payment of the balance of the purchase price. In consideration thereof, they executed in favor of FEMI a Deed of Reconveyance to surrender the ownership and title of the subject lot. It is your opinion that the reconveyance of the Hillsborough Lot is not subject to capital gains and documentary stamp taxes, since the purpose of the transfer is merely to return the property to its legal and rightful owner after a failed and incomplete transaction and that the conveyance did not produce any legal effect because FEMI failed to receive the proceeds of the loan which was to be the cause or consideration for the said sale. In reply, please be informed that in BIR Ruling No. DA-030-2004 dated January 16, 2004, the BIR ruled that: ". . . the transfer of titles of the lots by the developer to the buyers was done merely for the purpose of loan approval. Such conveyance did not produce any legal effect, since the developer failed to receive the consideration for the sale, hence it cannot be said that the properties have been properly disposed, transferred or conveyed by the developer in favor of the buyers, pursuant to Article 1352 of the Civil Code, stating: "Art. 1352. Contracts without cause, or with unlawful cause, produce no effect whatsoever. xxx xxx xxx "Consequently, since the Deeds of Absolute Sale between Brixton and the buyers failed to effect the transfer of ownership of the properties for lack of consideration, the Deeds of Reconveyance executed by the buyers so as to effect the return of the subject properties to the developer are not subject to the capital gains and documentary stamp taxes prescribed in Section 24 (D)(1) and 196 of the Tax Code of 1997, respectively. In view of the foregoing, this Office rules and so holds that the Deed of Reconveyance executed by and between FEMI and Spouses Canga for the purpose merely of restoring the parties to their previous status, as if no such Deed of Absolute Sale was executed is not subject to capital gains tax under Section 24 (D) (1) of the Tax Code of 1997 and the documentary stamp tax under Section 196 of the same Tax Code. ATcaEH This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be ascertained that the facts are different, then this ruling shall be considered null and void. Very truly yours, Commissioner of Internal Revenue By: (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service