Computation of Capital Gains Tax and Documentary Stamp Tax of Property Redeemed in an Extrajudicial Sale

June 25, 1991 BIR RULING NO. 118-91 21 (e) 000-00 118-91 Gentlemen : This refers to your letter dated April 5, 1991 stating that a property located at H. Lozada Bo. Balong-Bato, Municipality of San Juan, Metro Manila with an area of 271 square meters with an assessed value of P59,620.00 for the land and P9,240.00 for the improvements was formerly registered in the name of "Manuel de las Alas married to Josefina Pea de las Alas 1/3; and Manuel P. de las Alas, Jr. married to Shirley Wilson-de las Alas, and Celso P. de las Alas, married to Angelita Kakilala-de las Alas 2/3; that to enable Manuel P. de las Alas, Jr., to engage in agricultural venture, his other co-owners, particularly Celso P. de las Alas executed a Deed of Assignment in favor of Manuel P. de las Alas, Jr. covering the rights, interest and participation of Celso P. de las Alas over the parcel of land described in Certificate of Title TCT No. 492237, and that TCT No. (492237) -3040 was later on issued in the name of Manuel P. de las Alas, Jr. obtained loans from the Development Bank of the Philippines (DBP) which was computed at P169,200.00 in November 1980; that the aforementioned property was mortgaged to the DBP; that Manuel P. de las Alas, Jr. failed to settle his obligation, hence, DBP extrajudicially foreclosed the real estate mortgage on September 17, 1990; that DBP was the highest bidder at P174,555.93; that the corresponding Sheriff's Certificate of Sale was duly annotated in the title on October 12, 1990 however, there was no Certificate of Title issued in the name of DBP; that the TCT remained to date in the name of Manuel P. de las Alas, Jr.; that to save the property of which Celso P. de las Alas has a beneficial interest, he negotiated with the DBP for the redemption of the property; that since Celso P. de las Alas will be solely responsible for the redemption, Manuel P. de las Alas, Jr. executed a Deed of Assignment assigning to Celso P. de las Alas all his rights, interest and participation in the property including the right to redeem the same; and that the property was finally redeemed by Celso P. de las Alas in the amount of P507,300.23. The Deed of Redemption was executed by DBP on April 3, 1991. cdtech In connection therewith, you now request a ruling on the following: "a) From what amount will the documentary stamp tax and transfer tax be based; "b) Is there capital gains tax involved? If in the affirmative, who will have to shoulder it and on what amount should it be based?" In reply, please be informed that the extrajudicial sale in this case is considered "conditional sale" under Section 21 (e) of the Tax Code because it is subject to redemption within one (1) year from such sale. The capital gains tax will have to be computed at P174,555.93, which is the highest bid at the extrajudicial sale. Since you were the assignee of the rights and interests on the property and, on the basis thereof, you have redeemed the property from the DBP, the transfer of the title to the property in your name could be affected only after your payment of the capital gains tax (5% of P174,555.93) and documentary stamp tax, based also on P174,555.93. You need not pay the surcharge and interest hereon considering that under the facts of the case there will be no late payment of taxes, if paid within thirty (30) days from receipt hereof. You should present your Deed of Assignment to the Revenue District Officer of Revenue District No. 31 (Mandaluyong-San Juan) for purposes of the issuance of the certificate on tax payments, a requirement for the transfer of the title in the Office of the Register of Deeds. Very truly yours, (SGD.) JOSE U. ONG Commissioner