Capital Gains Tax Liability on the Transfer of the Shares of Stock

January 13, 1987 BIR RULING NO. 007-87 21 (d) 007-87 Gentlemen : This refers to your letters dated September 5 and December 10, 1985 requesting a ruling as to whether your client, Mr. Benito Legarda, Jr. is liable to pay the capital gains tax on the transfer of his 796 shares of stock to Leroc, Inc. It is represented that on February 1985 a Deed of Absolute Conveyance was executed by and between Leroc, Inc., a corporation duly organized and existing under Philippine Laws represented by its General Manager, Ms. Carmita Legarda (First Party) and Mr. Benito Legarda, Jr. represented by its attorney-in-fact, Mr. Marcos Roces (Second Party) whereby in consideration of the assignment and transfer by the Second Party of 796 shares of Leroc, Inc. stocks at par to the First Party, the First Party conveys, assigns and transfers absolutely in fee simple, free and clear of all liens and encumbrances unto the Second Party, his heirs, assigns and successors-in-interest, all its rights, title and interest in and to a parcel of land located in Lubao, Pampanga with an area of 2,051,252 square meters, more or less covered by Transfer Certificate of Title No. 32069-R of the Register of Deeds of Pampanga, and that the execution of the aforementioned Deed of Absolute Conveyance was the result of a Compromise Agreement entered into by the First and Second Parties in connection with S.E.C. Case No. 002711, entitled "Benito Legarda, Jr. v. Carmita Legarda et al." atdc In reply thereto, I have the honor to inform you that, under the foregoing facts, your client is subject to the capital gains tax imposed by Section 34 (g) [now Section 21(d)] of the Tax Code, on the transfer of his 796 shares of stock in favor of Leroc, Inc. On the other hand, Leroc, Inc. is subject to corporate income tax on the gains derived by it from the transfer of the abovementioned parcel of land in favor of your client in accordance with Section 24(a) of the Tax Code. Very truly yours, (SGD.) BIENVENIDO A. TAN, JR. Commissioner