Request for Exemption from Payment of Capital Gains Tax to Effect Transfer of Title to Property

June 13, 1985 BIR RULING NO. 089-85 34-h 000-00 089-85 S i r : This refers to your letter dated August 7, 1984, in behalf of your client, spouses Edgardo and Divina Regalado, requesting exemption from the payment of capital gains tax in order to effect transfer of title to property in the name of your client. It is represented that on June 26, 1981, Ms. Leticia Te obtained a loan from Metropolitan Bank and Trust Company (Metrobank) Roxas Branch, Roxas City in the amount of P50,000, wherein she put up as collateral a residential lot under TCT No. T12949 of the Register of Deeds of Roxas City, of which she is the registered owner, that for failure to pay her obligation, the bank extrajudicially foreclosed said property on August 22, 1983 and at a public auction sale wherein the mortgage bank was the highest bidder, it acquired the said property for P100,189.83; that on June 20, 1984, for a consideration of P5,000.00 Ms. Leticia Te, within the period of redemption, assigned her right to redeem the above foreclosed property and also waived and renounced whatever right she might have over said property in favor of the spouses Edgardo and Divina Regalado, that on June 21, 1984, said spouses paid the Metrobank the amount of P105,000.00 plus interest representing payment of the obligation of Ms. Te with Metrobank; that on June 29, 1984, a deed of reconveyance was executed by the Bank in favor of the spouses Edgardo and Divina Regalado; and that a certification authorizing transfer of title to the spouses cannot be issued by the Revenue District Office at Roxas City since no capital gains tax was paid. In reply, please be informed that your request cannot be granted for lack of legal basis. Pursuant to Section 34(h) of the Tax Code, as amended by Batas Pambansa Blg. 37, and implemented by Revenue Regulations No. 8-79, the net capital gains realized from the sale, exchange or other disposition of real property by citizen of the Philippines or resident alien individuals shall be subject to final income tax. From the foregoing facts, capital gains tax is payable by Ms. Leticia Te as debtor-mortgagor because she realized the income on account of her disposition of the capital asset. The income is realized if the proceeds of the loan exceed the cost of the property mortgaged. (Revenue Memorandum Order No. 33-81) Accordingly, before the Revenue District Officer of Roxas City issues a certificate authorizing transfer of title over the property, the capital gains tax imposed by Section 34(h) of the Tax Code should be paid. cdtia Very truly yours, (SGD.) RUBEN B. ANCHETA Acting Commissioner