BIR Ruling No. 094-10

October 6, 2010 BIR RULING NO. 094-10 Sec. 101 (A) (2), Tax Code of 1997; RR 24-02; BIR Ruling No. 074-84; BIR Ruling No. 021-96; BIR Ruling No. DA-046-98; BIR Ruling No. DA-(DT-005) 064-09 Office of the Punong Barangay Barangay Maria Clara, Maasin, Southern Leyte Attention: Hon. Enrique M. Fontnar, Sr. Punong Barangay Gentlemen : This refers to your letter dated October 19, 2009, received by this Office on October 27, 2009 by way of 1st Indorsement from the Revenue Region No. 14-Government Center, Candahug, Palo, Leyte dated October 21, 2009, requesting exemption from donor's tax on the donation of two (2) parcels of land in favor or Barangay Maria Clara, Maasin City, Southern Leyte. HDTSIE Documents submitted disclosed that the following parcels of land were subject of a donation to the Barangay Government of Barangay Maria Clara, Maasin City, Southern Leyte (hereinafter referred to as the "Donee" ): Donee Date of Donation Title No. Description/Land Area Adela Galdo June 16, 2009 OCT No. 11820 Residential/217 sq.m. Joselito Altiveros June 24, 2009 TCT No. T-10085 Residential/556 sq.m. that the land donated by Adela Galdo was to be used for a multi-purpose court of the Barangay; that the land donated by Joselito Altiveros was to be exclusively utilized as a barangay road; and that the donations were duly accepted by the Donee as represented by its Punong Barangay, Enrique M. Fontnar, Sr. In reply, please be informed that Section 101 (A) (2) of the Tax Code of 1997 provides that: "SEC. 101. Exemption of Certain Gifts. The following gifts or donations shall be exempt from the tax provided for in this Chapter: "(A) In the Case of Gifts Made by a Resident. "(1) . . . "(2) Gifts made to or for the use of the National Government or any entity created by any of its agencies which is not conducted for profit, or to any political subdivision of the said Government; and xxx xxx xxx" Inasmuch as the donee is a political subdivision of the National Government and the real properties donated by Adela Galdo and Joselito Altiveros shall be utilized as a multi-purpose court and barangay road, respectively, the aforesaid donations are exempt from the payment of donor's tax pursuant to Section 101 (A) (2) of the Tax Code of 1997, as amended. (BIR Ruling No. 074-84 dated April 23, 1984; BIR Ruling No. 021-96 dated February 21, 1996; BIR Ruling No. DA-046-98 dated February 9, 1998) It is however observed that the parcel of land (OCT No. 11820) being donated by Adela Galdo is not registered in her name but in the name of her deceased father, Olimpio Galdo. Considering that the certified photocopy of OCT No. 11820 as of March 20, 2009 does not appear to have been cancelled and does not bear any markings to show that it has been submitted to the Bureau of Internal Revenue (BIR) for the settlement of the Estate and payment of estate tax, it is presumed that up to the date of said donation, Olimpio Galdo's Estate is not yet settled. Consequently, the proportionate share or interest of Adela Galdo in the property donated cannot yet be ascertained. Nevertheless, for the purpose of determining the effect of her donation of the property, she will be treated as a co-owner thereof together with her co-heirs. AaCTcI Article 493 of the Civil Code of the Philippines provides that a co-owner may dispose of his undivided share, to wit: "Art. 493. Each co-owner shall have the full ownership of his part and of the fruits and benefits pertaining thereto, and he may therefore alienate, assign or mortgage it, and even substitute another person in its enjoyment, except when personal rights are involved. But the effect of the alienation or the mortgage, with respect to the co-owners, shall be limited to the portion which may be allotted to him in the division upon the termination of the co-ownership." "Thus, every co-owner has absolute ownership of his undivided interest in the co-owned property and is free to alienate, assign or mortgage his interest except as to purely personal rights. While a co-owner has the right to freely sell and dispose of his undivided interest, nevertheless, as a co-owner, he cannot alienate the shares of his other co-owners nemo dat qui non habet." (Acabal vs. Acabal, et al., G.R. No. 148376, March 31, 2005) Hence, the donation made by Adela Galdo will pertain only to her undivided portion or share in the property. The Donee gets only what the donor would have been entitled to after partition. (Corinthian Realty, Inc. vs. Court of Appeals, et al., G.R. No. 150240, December 26, 2002) In view of the foregoing, the donation of Adela Galdo in favor of the Donee is valid in so far as her undivided share is concerned. Notwithstanding the donation, title to the property shall neither pass to Adela Galdo nor to the Donee until the Estate to which such property belongs has been settled and the corresponding tax is paid and that the BIR has issued a tax clearance certificate to the late Olimpio Galdo and Certificate Authorizing Registration (CAR) that includes the property donated pursuant to Revenue Regulations No. 24-2002. Moreover, the Deeds of Donation are not subject to the documentary stamp tax. However, the notarial acknowledgments on both deeds are subject to the documentary stamp tax of P15.00 imposed under Section 188 of the Tax Code of 1997, as amended. (BIR Ruling No. DA-217-08 dated April 2, 2008; BIR Ruling No. DA-[DT-005] 064-09 dated February 6, 2009) 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, then this ruling shall be considered null and void. HTDcCE Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue