Payment of Capital Gains Tax on Pro-rated Basis Instead of the Whole Amount as Assessed Allowed

February 5, 1997 BIR RULING NO. 016-97 49 (a) (4) 000-00 016-97 Philippine National Bank Escolta, Manila Attention: Mr . Narciso S . Capito, Jr . Asst . , Vice President & OIC Gentlemen : This refers to your letter dated June 21, 1996 stating that on January 11, 1984, a public auction was held and conducted by the Ex-Officio Sheriff of Pasig City on the 32 foreclosed properties of your client, Milagros Rillo; that being the highest bidder of said properties for P503,000.00, a Certificate of Title was issued in your favor; that said properties are covered by 30 TCTs in Antipolo and 2 TCTs in Cainta, Rizal or a total of 32 lots; that at the time of foreclosure, the total appraised value of the 30 lots in Antipolo was P265,040.00 representing 86% while the 2 lots in Cainta were appraised at P120,000.00 representing 14% of the total value of the foreclosed properties; that due to legal impediments on the 30 lots in Antipolo, registration of the Certificate of Sale was held in abeyance and cannot be pursued due to the findings of your Credit Department that the "subject properties are part and parcel of pregnant titles"; that in your desire to register the Certificate of Title on the 2 remaining lots in Cainta, our Revenue District Office in Cainta, Rizal assessed your bank the amount of P51,300.00 as capital gains tax on the whole foreclosed properties including the 30 lots in Antipolo. cdt Based on the foregoing representations, you now request for a ruling as to whether or not you may pay capital gains tax on pro-rated basis on the aforesaid 2 lots in Cainta at 14% only on the total assessment of P51,300.00 or the amount of P7,182.00 instead of the whole amount as assessed. In reply, please be informed that in the case of sale of real property effected through public bidding, e.g., judicial sale, extrajudicial foreclosure sale, both the 5% capital gains tax and the documentary stamp tax shall be computed based on the highest or winning bid price. (BIR Ruling No. 101-89; Revenue Memorandum Order No. 41-91). Revenue Memorandum Order No. 6-92 provides that in foreclosure sales of mortgaged real properties, the creditor bank is the statutory seller, representing the owner mortgagor of the real property, so that said bank becomes liable to pay the capital gains tax due on such foreclosure sale based on the bid price in the auction sale. The bank, however, could get, reimbursement or recovery of the capital gains tax payment, if the right of redemption is exercised by the debtor mortgagor or when the property is sold to any party whatsoever. (BIR Ruling Nos. 101-89 and 118-91; RMO 041-91 par. 2(3)). Moreover, a BIR Clearance is required before said properties are transferred in the name of your bank, pursuant to Section 49 (a)(4) of the Tax Code, as amended by Executive Order No. 37 which reads as follows: "No registration of any document transferring real property shall be effected by the Register of Deeds unless the Commissioner of Internal Revenue or his duly authorized representatives has certified that such transfer has been reported, and the tax herein imposed, if any, has been paid." (BIR Ruling No. 010-87 dated January 14, 1987) Furthermore, Section 5 (c) of Revenue Memorandum Order No. 44-86 provides that a BIR Clearance shall be issued after payment of the corresponding (i) capital gains tax; and (ii) documentary stamp tax, if the real property involved was a capital asset in the hands of the vendor/transferor. In view of the above considerations and inasmuch as the capital gains tax shall be based on the highest or winning bid price which in the instant case amounts to P503,000.00, your request to pay capital gains tax on pro-rated basis, i.e., 14% only on the total assessment of P51,300.00 or the amount of P7,182.00 instead of the whole amount as assessed cannot be granted. casia Very truly yours, LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue