Chato & Vinzons-Chato

November 6, 2009 BIR RULING [DA-(C-256) 657-09] DA486-99; DA065-97 Chato & Vinzons-Chato 8th Floor, Strata 2000 F. Ortigas Jr. Road Ortigas Center, Pasig City Attention: Atty. Wilfredo M. Chato and Atty. Esther R. Ibaez Gentlemen : This refers to your letter dated October 14, 2008 relative to your September 5, 2007 letter stating that your clients, Josefina Padilla Rufino, Francisco Padilla, Ambrosio Padilla, Jr., Lourdes Padilla Roque, Felipe Padilla, Alexander Padilla, Emmanuel Padilla and Vicente Padilla (deceased) are the registered co-owners of the following real properties, to wit: TcCSIa TCT No. Location Area 52168 Manila 524 square meters 52169 Manila 506.40 52167 Manila 574 that the late Vicente Padilla, who died on February 19, 1976, was one of the registered owners of the said properties; that his estate includes one-eight (1/8) share of the above-mentioned properties; that the project of partition designated the children of the deceased Vicente Padilla, namely: Vicente Padilla, Jr., Marciano Padilla and Mercedes Victoria Padilla as the owners of the 1/8 share on said properties; that hence, the co-owners of the subject properties are now the following: 1. Josefina Padilla Rufino 2. Francisco Padilla 3. Ambrosio Padilla, Jr. 4. Lourdes Padilla Roque 5. Felipe Padilla 6. Emmanuel Padilla 7. Alexander Padilla 8. Vicente Padilla, Jr. 9. Marciano Padilla 10. Mercedes Victoria Padilla and that the co-owners executed an Extra-Judicial Deed of Partition and have covenanted among themselves for the dissolution of the co-ownership over the subject properties to be distributed as follows: 1. The parcel of land located in the City of Manila and more particularly described in TCT No. 52168-R of the Registry of Deeds shall belong to Josefina Padilla, Lourdes Padilla, Alexander Padilla, Francisco Padilla and Emmanuel Padilla; 2. The parcel of land located in the City of Manila and covered by TCT No. 52169 shall belong to Josefina Padilla, Lourdes Padilla, Alexander Padilla, Francisco Padilla and Emmanuel Padilla; 3. The parcel of land located in the City of Manila and covered by TCT No. 52167 shall belong to Felipe Padilla, Ambrosio Padilla, Jr., Vicente Padilla, Jr., Marciano Padilla and Mercedes Padilla. Based on the foregoing representations, you now request confirmation of your opinion on the tax consequence relative to the extra-judicial partition to be executed by the above-named co-owners. In reply thereto, please be informed that the juridical condition of co-ownership of things or right is terminated, among others, by the partition which converts into certain and definite parts the respective undivided shares of the co-owners. (Art. 494, Civil Code) CAIaDT Moreover, under Article 496 of the Civil Code, partition may be made by agreement between the parties or by judicial proceedings. Partition shall be governed by the Rules of Court insofar as they are consistent with the Civil Code. "Partition by Agreement. An agreement of partition may be made orally or in writing. An oral agreement for the partition of the property owned in common is valid and enforceable upon the parties. The Statute of Frauds has no operation in this kind of agreements, for partition is not a conveyance of property but simply a segregation and designation of that part of the property which belong to the co-owners." In the instant case, the properties to be partitioned among the co-owners Josefina Padilla Rufino, Francisco Padilla, Ambrosio Padilla, Jr., Lourdes Padilla Roque, Felipe Padilla, Emmanuel Padilla, Alexander Padilla, Vicente Padilla, Jr., Marciano Padilla and Mercedes Victoria Padilla are their respective legitime and included in the inventory of properties of the decedent, which had already been subjected to estate tax on October 11, 1978. Thus, the eventual partition of the said real properties will not render the same subject to the donor's tax imposed under Section 98 (A) and (B) of the Tax Code of 1997, since there is no donative intent on the part of the other heirs to donate the said realties considering that the renunciation was made merely to exclude themselves from sharing on the said realty, and they have already received their respective legitime from the said estate. Moreover, the said partition is not likewise subject to the capital gains tax since the same is not a sale, exchange or other disposition of realty within the contemplation of Section 24 (D) (1) of the Tax Code of 1997. Furthermore, the Deed of Partition to be executed for purposes of terminating the co-ownership over the aforesaid real properties by and among the co-owners, Josefina Padilla Rufino, Francisco Padilla, Ambrosio Padilla, Jr., Lourdes Padilla Roque, Felipe Padilla, Emmanuel Padilla, Alexander Padilla, Vicente Padilla, Jr., Marciano Padilla and Mercedes Victoria Padilla is not subject to the documentary stamp tax prescribed under Section 196 of the Tax Code of 1997 because the allocation is made without monetary consideration and not in connection with a sale. Instead, the partition is made merely to distribute among the co-heirs their respective legitime. 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. cSATDC Very truly yours, (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service