Propriety of Paying Taxes Due for Consolidation of Property Foreclosed in Light of a TRO

September 26, 2001 BIR RULING NO. 046-01 Ayala Life BPI Family Bank Center, 109 Paseo de Roxas cor. Dela Rosa Sts. Makati City Attention: Ms. Ledda M. Francisco Manager Asset Recovery Department Gentlemen : This refers to your letter dated September 3, 2001 requesting for an opinion on the propriety of paying the taxes due for the consolidation of the property you foreclosed in light of temporary restraining order issued by a court. Based on your representations and the document submitted, the following are the facts: You foreclosed a property with TCT No. 18802 located in Scout Fernandez St. Laging Handa, Quezon City. The one-year redemption period was to expire last August 30, 2001. However, last August 29, 2001, your Legal Department informed you that a temporary restraining order was issued by Branch 80 of the Quezon City Regional Trial Court enjoining you to cease and desist in consolidating the subject property, the pertinent portion of which reads as follows: "Considering that the title to the property in question might be consolidated by the defendant on August 30, 2001 and in order that the injunctive issue may not be rendered moot and academic, a temporary restraining order is hereby issued enjoining the defendants to cease and desist in consolidating the subject property in August 30, 2001 or soon thereafter. This Temporary Restraining Order shall be effective for a period of twenty (20) days from date hereof without prejudice to its possible dissolution or setting aside after the Court shall have resolved the injunctive issue. SO ORDERED." In reply, please be informed that in the case of People's Financing Corp. and Enrique V. Arcenas vs. Court of Appeals, et. al. (G.R. No. 80791, December 4, 1990), the Honorable Supreme Court had pronounced that: " It is not correct to say that the restraining order issued on February 11, 1980, by the trial court (which ultimately dismissed the complaint four years later) had the effect of suspending the running of the redemption period. As we held through Chief Justice Concepcion in Sumerariz v. Development Bank of the Philippines, "there is no statute or decision which supports plaintiffs contention that the period of one year to redeem land sold at the sheriff's sale was suspended by the institution of an action to annul the foreclosure sale." (Emphasis supplied.) Applying the foregoing precept, this Office opines and so holds that the issuance of the Temporary Restraining Order by the RTC of Quezon City, Branch 80 did not stop the running of the redemption period. Consequently, the redemption period having expired last August 30, 2001, the capital gains tax and documentary stamp tax should be paid in accordance with Sections 3(2) and 4(2) of Revenue Regulations No. 4-99 dated March 9, 1999, which provide that: "SEC. 3. Capital Gains Tax. xxx xxx xxx (2) In cases of non-redemption, the capital gains tax on the foreclose sale imposed under Secs. 24(D)(1) and 27(D)(5) of the Tax Code of 1997 shall become due based on the bid price of the highest bidder but only upon the expiration of the one-year period of redemption provided for under Sec. 6 of Act No. 3135, as amended by Act No. 4118, and shall be paid within thirty (30) days from the expiration of the said one-year redemption period. SEC. 4. Documentary Stamp Tax. xxx xxx xxx (2) In cases of non-redemption, the corresponding documentary stamp tax shall be levied, collected and paid by the person making, signing, issuing, accepting, or transferring the real property wherever the document is made, signed, issued, accepted or transferred where the property is situated in the Philippines; Provided, That whenever one party to the taxable document enjoys exemption from the tax, the other party thereto who is not exempt shall be the one directly liable for the tax. The tax return prescribed under the Code shall be filed within ten (10) days after the close of the month following the lapse of the one-year redemption period, and the tax due under Section 196 of the Tax Code of 1997 shall be paid based on the bid price at the same time the aforesaid return is filed." (Emphasis supplied.) This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be ascertained that the facts are different, then this ruling shall be considered void. Very truly yours, (SGD.) RENE G. BAEZ Commissioner of Internal Revenue