Sale/Transfer of Land for Stocks - Tax-Free Exchange

January 19, 1993 BIR RULING NO. 041-93 SALE/TRANSFER OF LAND FOR STOCKS TAX-FREE EXCHANGE 121 (e) 319-92 041-93 Mr. Alejandro B. Jubida (Attorney-in-fact) #7 Allery Street Lucena City This refers to your letter dated November 11, 1992 requesting confirmation of your opinion that the sale of real properties located at Purok V Ahon, Bgy. Dalahican, Lucena City, by Marilou J. Marcelino, Dario Jalbuena and Linda J. Jubida to Damayang Bigkis Pagkakaisa Association, Inc ., a duly registered non-stock, non-profit community organization, in accordance with the Community Mortgage Program (CMP) is exempt from capital gains tax pursuant to Section 32(b) of R.A. 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 a tract of land under the concept of community ownership; that a Letter of Guaranty was issued by NHMFC in their favor, for and in consideration of their willingness to sell in favor of the Damayang Bigkis Pagkakaisa Association, Inc., parcels of land covered by TCT Nos. 52813, 52814 and 52815 consisting of 13,995 square meters located at purok V Ahon, Bgy. Dalahican, Lucena City, undertaking to pay the amount of P4,823,156.50 representing the proceeds of the loan of the Community Association as borrower-buyer; that aforesaid landowners executed a Deed of Absolute Sale dated November 4, 1992 on the said properties in favor of the Association for a consideration of P4,823,156.50; that the said transaction was certified by the Housing and Urban Development Coordinating Council (HUDCC) as an approved project under the Community Mortgage Program (CMP) of the government. In reply, please be informed that pursuant to Section 32(b) of R.A. No. 7279, pertinent portion of which reads: "SEC. 32. Incentives . To encourage its wider implementation, participants in the CMP shall be granted the following privileges or incentives: xxx xxx xxx (b) Properties sold under the CMP shall be exempted from the capital gains tax. xxx xxx xxx the landowners who sell their property to the tenant's association pursuant to the Community Mortgage Program are exempt from the payment of capital gains tax and from the expanded withholding tax under Revenue Regulations No. 1-90. Upon the sale thereof, the capital gains realized by the owners shall be exempt from capital gains tax pursuant to the aforequoted provisions of R.A. 7279. Such being the case, the sale of real properties located at Purok V Ahon, Bgy. Dalahican, Lucena City by Marilou J. Marcelino, Dario Jalbuena and Linda J. Jubida to Damayang Bigkis Pagkakaisa Association, Inc . is exempt from the payment of capital gains tax and the expanded withholding tax. However, it is observed that documentary stamp tax is not one of the taxes covered by the tax exemption clause under Section 32 of R.A. 7279. Such being the case, the landowners, represented by you, are liable to pay the documentary stamp tax on the document conveying the property to the Association under the CMP as imposed by Section 196 of the Tax Code, as amended, based on the actual consideration paid by the association to them (land-owners). 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 and the transaction is not covered by the Community Mortgage Program (CMP) contemplated under R.A. 7279, then this ruling shall be considered null and void. cd JOSE U. ONG Commissioner of Internal Revenue