Atty. Celso P. Mariano

June 24, 2009 BIR RULING [DA-(C-104) 322-09] 196; BIR Ruling No. 301-2003 Atty. Celso P. Mariano No. 28 Sampaguita Street, DRJ Village Sauyo, Quezon City Sir : This refers to your letter dated March 31, 2007 requesting exemption from the payment of capital gains tax and other transfer taxes, fees and expenses on the reconveyance of property to Apple Clientele, Inc. Documents submitted disclosed that Everharvest Corporation obtained the following loans from Traders Royal Bank secured by real estate mortgages executed by its sister company, Apple Clientele, Inc. in favor of the Bank: (1) Twenty Million (P20,000,000.00) Pesos on 7 May 1996 secured by a real estate mortgage over a 776-square meter parcel of land located in No. 7 Cleveland Street, Greenhills West Subdivision, San Juan City, covered by TCT No. 2606-R; and (2) Twenty Three Million One Hundred Eighty Four Thousand (P23,184,000.00) Pesos on 9 July 1997 secured by real estate mortgages over several parcels of land with a combined area of 1,265 square meters situated in Tulay, Malon City covered by TCT Nos. M-3684, M-3685, M-3686, M-3687 and M-9508; a 239-square meter condominium unit in Fountainbleau Villas in Valle Verde V, Pasig City covered by CCT No. PT-9755 and a 182-square meter condominium unit in Atrium Building located in Makati City, covered by CCT No. 13193; aATHIE that due to financial constraints, Everharvest failed to pay one of the loans on maturity; that consequently, on 24 October 1997, Traders Royal Bank filed a Petition for Extrajudicial Foreclosure of the 9 July 1997 mortgage; that the Notice of Extrajudicial Sale stated the principal amount of Everharvest indebtedness to be equal to Fifty Million Five Hundred Thousand Six Hundred Ten and 41/100 pesos and gave notice that the property to be sold was the 776-square meter parcel of land located in No. 7 Cleveland Street, Greenhills West Subdivision, San Juan City covered by TCT No. 2606-R, and that the public sale was to be held on 23 December 1997 at the Main Entrance Lobby of the San Juan Municipal Hall; that the Notice of Extrajudicial Sale was published for 3 consecutive weeks in the "Maharlika Pilipinas"; that however, instead of stating that the auction sale will be held at the Main Entrance Lobby of the San Juan Municipal Hall, the published notice stated that the same will be held at the Main Entrance Lobby of the Antipolo Municipal Hall; that despite the designation of the Antipolo Municipal Hall in the published notice as the venue of the auction sale, the sale actually proceeded in the San Juan Municipal Hall on 23 December 1997; that Everharvest and Apple Clientele, Inc. failed to redeem the mortgaged property within the one-year redemption period and so the title thereto was consolidated in the name of Traders Royal Bank under TCT No. 9866-R; that on 21 October 1999, Everharvest and Apple Clientele, Inc. filed a complaint for annulment of extrajudicial foreclosure against Traders Royal Bank; that on 20 April 2006, the trial court rendered judgment annulling the extrajudicial foreclosure of mortgage; that the Regional Trial Court correctly invalidated the extra-judicial foreclosure of mortgage because the venue of auction sale stated in the published Notice of Sale was not the actual venue of the sale; and that the Trial Court correctly declared the sale invalid and without effect, and ordered the cancellation of the Certificate of Sale, and of TCT No. 9886-R over the Greenhills property in the name of Traders Royal Bank, with the consequent reconveyance thereof to Apple Clientele, Inc. DACTSa In reply, please be informed that in BIR Ruling No. 301-2003 dated September 15, 2003 citing BIR Ruling No. DA-195-2000 dated March 30, 2000 involving the transfer of a parcel of land by way of legal redemption, the BIR ruled as follows: ". . . please be informed that since the transfer of the subject property is in consonance with the decision of the Court of Appeals and is without consideration, the transfer of the said property in your favor is not subject to the capital gains tax imposed under Section 24(D)(1) of the Tax Code of 1997 nor to the creditable withholding tax prescribed by Revenue Regulations No. 2-98, implementing Section 57(B) of the Tax Code of 1997. xxx xxx xxx" In both rulings, this Office ruled that the deed of conveyance is not subject to the documentary stamp tax imposed under Section 196 of the Tax Code of 1997, because there is no monetary consideration in the subject transfer. However, the notarial acknowledgment to the deed of conveyance is subject to the documentary stamp tax of P15.00 pursuant to Section 188 of the Tax Code of 1997. (BIR Ruling No. 027-93 dated January 15, 1993, BIR Ruling No. 115-94 dated July 1, 1994) In view of the foregoing, this Office hereby rules that the Deed of Reconveyance executed by Traders Royal Bank in favor of Apple Clientele, Inc. to effect the court decision dated 27 August 2008 is not subject to the capital gains tax imposed under Section 27 (D) (5) of the Tax Code of 1997, as amended, nor to the creditable withholding tax prescribed by Revenue Regulations No. 2-98, as amended, implementing Section 57 (B) of the Tax Code of 1997, as amended. Likewise, the said Deed is not subject to the documentary stamp tax imposed under Section 196 of the 1997 Tax Code, as amended. However, the notarial acknowledgment to the Deed of Reconveyance is subject to the documentary stamp tax of P15.00 imposed under Section 188 of the same Code. 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 as null and void. TDCAIS Very truly yours, Commissioner of Internal Revenue By: (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service