Mrs. Magdalena Villasi

September 5, 2008 BIR RULING [DA-(I-016) 196-08] 27 (D) (5); RR 2-98 & 6-2001; DA-301-2003 Mrs. Magdalena Villasi No. 810 City Tower Condominium N. Domingo St., Aurora Blvd., Cubao Quezon City M a d a m : This refers to your letter dated February 1, 2008 requesting for a ruling on the tax consequence of the reconveyance of several condominium units by the Philippine National Bank (PNB) in favor of Spouses Jose and Magdalena Villasi pursuant to the court approved compromise agreement in Civil Case No. Q-95-24919, for the Annulment of Foreclosure Sale made by the PNB against the said properties of the Spouses. CHIaTc The facts as represented are as follows: PNB extended certain loans/credit accommodations to the Spouses secured by real estate properties, among which, are the following twelve (12) condominium units in City Tower Condominium, located in N. Domingo St., Cubao, Quezon City, covered by Condominium Certificate of Title Nos. 2879, 2888, 2898, 2927, 2942, 2889 (N-22568), 2891, 2894, 2913, N-22560, N-22561, and N-22577 of the Registry of Deeds for Quezon City. The loan account turned past due and PNB consequently foreclosed on November 5, 1993 some of the properties offered by the Spouses as collateral. After the foreclosure, PNB filed a Petition for the Issuance of Writ of Possession over the foreclosed properties. The Spouses, on the other hand, with some of the City Tower Condominium unit buyers, filed a case against PNB to annul the foreclosure sale, including the Writ of Possession issued in conjunction therewith, with prayer for the issuance of preliminary injunction and/or restraining order and payment of damages. The Spouses, the Condominium buyers and the PNB have agreed to a compromise settlement of their respective claims, hence, the decision of the court based on the compromise agreement which became final and executory on July 29, 2005. Under the terms of the Compromise Agreement, the parties agreed, among others, for PNB to reconvey to the Spouses the above condominium units which were subject to existing contracts to sell prior to the foreclosure, and for the same to be transferred and/or delivered to the condominium buyers. In reply, please be informed that in BIR Ruling No. DA-301-2003 dated September 15, 2003, wherein the facts of the case involve the return of real properties to the owners of the same, without monetary consideration, by virtue of a court approved compromise settlement, this Office ruled that the said reconveyance is not subject to the capital gains and documentary stamp taxes 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, and Section 196 of the same Code respectively. ECcaDT Following the stand of this Office as laid down in the above ruling, the reconveyance by PNB to the Spouses of the above-mentioned condominium units which were the subject of the existing contracts to sell prior to the foreclosure, without monetary consideration, therefore, is not subject to income tax and the capital gains tax imposed under Section 27 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 same Tax Code. Likewise, the said transfer of property is not subject to the documentary stamp tax imposed under Section 196 of the same Code. However, the notarial acknowledgment to the said deed of reconveyance is subject to the documentary stamp tax of P15.00 only pursuant to Section 188 of the Tax Code of 1997. On the other hand, the subsequent conveyance of the condominium units to the respective buyers, however, is subject to income tax and, consequently, 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, if the same has not been paid. Moreover, the said conveyance of condominium units to the buyers is subject to the documentary stamp tax imposed under Section 196 of the same Code. CSHEAI 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. Very truly yours, Commissioner of Internal Revenue By: (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service