Request for Exemption from Payment of Capital Gains Tax, Transfer Tax and Documentary Stamp Tax on the Sale of Real Property

January 14, 1994 BIR RULING NO. 022-94 21 (e) 395-93 022-94 Mr. Gabriel L. Tan Fernandez St., Puerto Princesa City Palawan S i r : This refers to your letter dated August 12, 1993 requesting exemption from the payment of capital gains tax, transfer tax and documentary stamp tax on the sale of your real property situated at Barangay Tiniguiban, Puerto Princesa City, Palawan, covered by TCT No. 4016 in favor of Kalipunan ng Nagkakaisang Mamayan ng Puerto Princesa City Home Owners Association, Inc. (KNMPPCHAI), a duly registered non-stock, non-profit community organization organized in accordance with the Community Mortgage Program (CMP) initiated by the National Housing Authority (NHA), pursuant to R.A. No. 7279, otherwise known as the Urban Development and Housing Act of 1992. It appears that the Community Mortgage Program (CMP) is a mortgage financing program of the National Home Mortgage Finance Corporation (NHMFC) which assists, legally organized associations of underprivileged and homeless citizens to purchase and develop tract of land under the concept of community ownership; that through a Letter-Guaranty by said Government Financing Institution, you executed a Deed of Sale on August 1993 in favor of KNMPPCHAI which stands as the borrower and debtor to the extent of the total amount paid by NHMFC in your favor; that the said transaction was certified by the National Home Mortgage Finance Corporation as an approved project under the Community Mortgage Program (CMD) of the government. Field verification conducted in this case disclosed that the one hundred fifty seven (157) registered members of KNMPPCHAI are qualified beneficiaries of the socialized housing program of the government as certified by the National Housing Authority; and that all portions of the lots are occupied. In reply, please be informed that pursuant to Section 32 of R.A. No. 7279, pertinent portion of which reads as follows: "Sec. 32. Incentives To encourage its wider implementation, participants in the CMP shall be granted with the following privileges or incentives: xxx xxx xxx (b) Properties sold under the CMP shall be exempted from the capital gains tax; and xxx xxx xxx Such being the case, landowners who sell their property to the association pursuant to the Community Mortgage Program are exempt from the payment of capital gains tax imposed under Section 21(e) of the Tax Code, as amended and from the Creditable Withholding Tax prescribed under Revenue Regulations No. 1-90 implementing Section 50(b) of the Tax Code, as amended. Accordingly, your sale of aforementioned realty in favor of KNMPPCHAI is exempt from abovementioned capital gains tax and creditable withholding tax. However, it is observed that documentary stamp tax is not one of the taxes covered by the tax exemption clause under Sections 20 and 32 of R.A. No. 7279. Such being the case, you are liable to pay the documentary stamp tax imposed under Section 196 of the Tax Code, as amended, on the Deed of Absolute Sale you and your wife executed in August 1993, conveying your aforesaid realty in favor of KNMPPCHAI under the CMP, based on the actual consideration appearing on said deed. Moreover, it is suggested that your request for exemption from the payment of transfer and registration fees required for the issuance of the TCT be directed to the provincial/local government having jurisdiction over your said realty. Furthermore, upon issuance of this letter of exemption, and upon registration of the document of sale, the parties thereto, shall cause a lien on the Transfer Certificate of Title of the realty to be issued in the name of KNMPPCHAI to be annotated by the Register of Deeds having jurisdiction over the property, to the effect, that the said realty shall be used for socialized housing pursuant to R.A. No. 7279. aisadc Very truly yours, LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue