Sale of Land Under CMP-Exempt from Capital Gains Tax

April 1, 1993 BIR RULING NO. 122-93 SALE OF LAND UNDER CMP-EXEMPT FROM CAPITAL GAINS TAX 21 (e) 071-93 122-93 Urban Poor Affairs Officer UPAO Building, City Hall Compound Quezon City, Metro Manila Attention: Mr . Zosimo I . Ampongan, Jr . Head This refers to your letter dated November 26, 1992, in effect, requesting for a ruling that the sale by the Philippine Bank of Communications (PBC) of its real property located at Cariosa Street, Villa Verde Homes, Bgy. Sta. Monica, Novaliches, Quezon City to the Damayang Magkakapitbahay ng Cariosa, Inc., a non-stock, non-profit community organization duly registered with the Securities and Exchange Commission (SEC) in accordance with the Community Mortgage Program (CMP) initiated by the National Housing Authority is exempt from the capital gains tax pursuant to Section 2(a) and (b) of R.A. 7279 which was approved on March 24, 1992 and published in the March 24, 1992 issue of the Philippine Times Journal and Malaya , newspapers of general circulation. cd It appears that the Community Mortgage Program (CMP) is a mortgage financing program of the National Home Mortgage Finance Corporation (NHMFC) which assists legally organized associations of underprivileged and homeless citizens to purchase and develop a tract of land under the concept of community ownership; that through a Letter of Guaranty by said Government Financing Institution the landowner executes a Deed of Sale to the Association which stands as the borrower and debtor to the extent of the total amount paid by NHMFC to the landowner; that in the instant case, the property being sold to the Damayang Magkakapitbahay ng Cariosa, Inc . is covered by TCT Nos. RT-49473 (337632), RT-49477 (339631), and RT-49479 (337644) of the Registry of Deeds for the City of Quezon; that the said transaction was certified by the Housing and Urban Development Coordinating Council as an approved project under the Community Mortgage Program (CMP) of the Government. Field verification conducted in this case disclosed that the beneficiaries are registered owners of the Damayang Magkakapitbahay ng Cariosa, Inc. and the actual occupants of the land. They are poor and less educated people living in shanties and houses built of light materials. In reply, please be informed that pursuant to Section 32 of R.A. No. 7279, pertinent portion of which reads: "Sec. 32. Incentives. to encourage its wider implementation, participants in the CMP shall be granted with the following privileges or incentives: aisa dc xxx xxx xxx (b) Properties sold under the CMP shall be exempted from the capital gains tax; and xxx xxx xxx the landowners who sell their property to the Tenant's Association pursuant to the Community Mortgage Program are exempt from the payment of the capital gains tax and from the expanded withholding tax under Revenue Regulations No. 1-90. Upon the sale thereof, the capital gains realized by the owner shall be exempt from capital gains tax pursuant to the aforequoted provision of R.A. 7279, otherwise known as the Urban Development and Housing Act of 1992. Such being the case, the sale by PBC of said real property to the Damayang Magkakapitbahay ng Cariosa, Inc. is exempt from the capital gains tax and the creditable expanded withholding tax. However, it is observed that documentary stamp tax is not one of the taxes covered by the tax exemption clause under Sections 30 and 32 of R.A. 7279. Such being the case, PBC is liable to pay the documentary stamp tax on the document conveying the property to the Association under the CMP as imposed under Sec. 196 of the Tax Code, as amended, based on the actual consideration paid by the Association to PBC as the landowner. EUFRACIO D. SANTOS Deputy Commissioner of Internal Revenue