Liability for Payment of Final Capital Gains Tax on the Sale of Certain Real Estate Properties

August 8, 1985 BIR RULING NO. 122-85 34 (h) 000-00 122-85 Gentlemen : This refers to your letter dated April 24, 1985 requesting for a ruling on whether the spouses Mauricio and Elena Ocampo of No. 15 Jacinto St., Vitas, Tondo, Manila are liable for the payment of final capital gains tax on the sale of certain real estate properties to one Editha E. de la Paz, based on the following facts: (1) Per a deed of sale, executed and notarized before Notary Public Floro de la Cruz, of Pasig, Metro Manila, on March 2, 1983, the above-mentioned spouses sold to Editha de la Paz, of No. 53 San Isidro St., Bo. Capitolyo, Pasig, Metro Manila, three parcels of land, covered by T.C.T. Nos. 7162, 126832, and 135228, located in Caloocan City and Malabon, allegedly in consideration of Seventy Eight Thousand Pesos (P78,000.00) only, receipt in full of which has been acknowledged by said vendors from vendee; (2) On the basis of said deed of sale and the original owner's copy of Transfer Certificates of Title Nos. 135228 and 126832 which she gave in mortgage as collaterals, Editha de la Paz secured a short term loan in the amount of Twenty Five Thousand Pesos (P25,000.00) from the Real Savings & Loan Association, Inc., a banking institution doing business in Ortigas Avenue, Cainta, Rizal; (3) Upon default by Editha de la Paz in paying her loan obligation, the aforesaid bank took the necessary steps to foreclose the said mortgage, but only to discover that the capital gains tax on the preceding sale was not paid by the vendors to its prejudice; (4) On being confronted by the bank, said vendors, namely spouses Mauricio and Elena Ocampo, alleged that they did not, and in fact still will not, pay the capital gains tax supposed to be due, because they have not yet received the amount of the consideration of said deed of sale, explaining that the vendee had defrauded them by running away with their certificates of title and the said deed of sale without paying them anything; (5) On the other hand, if it were true that they have been thus defrauded by the vendee, said vendors have not done anything after all these years to recover their said owner's certificates of title and have said deed of sale nullified and cancelled, despite their knowledge that the same are now in the possession of this bank, having been used by the vendee as collaterals for a loan, in effect displaying an attitude and actuation inconsistent with their allegation. In reply, I have the honor to inform you that under the foregoing facts, the spouses Elena and Mauricio Ocampo are liable for the payment of capital gains tax on the net gain, if any, derived from their sale transaction in favor of Editha H. de la Paz, pursuant to Section 34(h) of the Tax Code. Likewise, if that Association has absolutely foreclosed the properties, said Editha de la Paz, as debtor-mortgagor, is liable for the payment of the capital gains tax on the income derived from the loan transaction. Said gain exists if the proceeds of the loan transaction exceed the acquisition costs of the properties mortgaged. (Revenue Memorandum Order No. 33-81). cdtech Very truly yours, (SGD.) RUBEN B. ANCHETA Acting Commissioner