Request for Exemption from Capital Gains Tax or Creditable Withholding Tax on Sale of Property

August 16, 1991 BIR RULING NO. 153-91 50 (b) 000-00 153-91 Gentlemen : This refers to your letter dated May 21, 1991 requesting exemption from the payment of capital gains tax or creditable withholding tax on your sale of your subdivided property situated at Malate, Manila, in favor of your tenant members; and a ruling that the same is not subject to the donor's tax prescribed under Section 93 of the Tax Code and to the documentary stamp tax imposed under Section 196 of the same Code. It is represented that you are a non-stock corporation duly organized and existing under and by virtue of Philippine Laws; that you were organized by the tenants of the Doa Juliana Estate for the primary purpose of representing and taking all necessary steps, ways and means that would eventually lead to the final purchase by the said tenants of the respective areas being occupied by them in said estate; that the antecedent facts which led to your above request are as follows: that on October 10, 1972, you entered into a Contract To Sell with the late Doa Juliana Vda. de Gabriel through your president, Mr. Emiliano V. Rafols, whereby Doa Juliana Vda. de Gabriel sold her paraphernal properties consisting of two parcels of land located at Anak Bayan, Paco, Manila, covered by TCT Nos. 55350 and 100209 on installment in your favor at a contract price of P554,697.00 or at P65.00 per square meter; that prior to the execution of Contract To Sell, you paid option money amounting to P220,840.48 or equivalent to 39.8% earnest money, which was received and paid to Doa Juliana Vda. de Gabriel during her lifetime; that on April 1979, Doa Juliana died, resulting in the filing before the Probate Court of Manila Testate Estate proceedings of her estate; that the estate tax due having been paid, clearance was issued by the contract of sale, it is however, likewise, provided that in case of installment sales, only such amounts paid beginning in 1990 shall be subject to the withholding tax. This is in consonance with the rule that regulations shall apply prospectively. Thus, past installment payments made before 1990 should not be subject to the expanded withholding tax provision because the requirement was imposed only in January, 1990. (Revenue Memorandum Circular 7-90) Furthermore, the creditable withholding tax prescribed under Revenue Regulations No. 6-85 as amended by Revenue Regulations No. 1-90 implementing Section 50 (b) of the Tax Code imposes the tax on items of income payments to person residing in the Philippines based on the gross selling price or total amount of consideration or its equivalent paid to the seller/owner for the sale, exchange or transfer of real property which is not covered under Section 21 (e) of the Tax Code. (Section 1, Revenue Regulations No. 1-90) Applying the foregoing in the instant case, this Office hereby confirms your opinion to the effect that your sale in favor of your individual tenant members of your said subdivided property located in Malate, Manila is not subject to either the capital gains tax imposed under Section 21 (e) of the Tax Code, as amended, or the creditable withholding tax imposed under Revenue Regulations No. 1-90 implementing Section 50 (b) of the same Code considering that your said sale of your property is without any consideration since it is merely a formality to finally effect transfer of title of the said property of your tenant members who actually bought the same on installment basis covering the period from 1972 to 1987 from Doa Juliana Vda. de Gabriel and later on when she died, from her estate through you as the representative association. In other words, the sale is without any consideration because you are in fact selling property the ow Such lack of consideration does not likewise, render the said sale subject to the donor's tax imposed under Section 93 of the Tax Code, since there is no intention on your part to Donate the said property to said tenant members considering that you could not Donate property the ownership of which belongs to the donee (tenant-members). cdtech Finally, under Section 196 of the Tax Code, as amended, on all conveyances, deeds, instruments, or writings, other than grants, patents, or original certificates of adjudication issued by the Government, whereby lands, tenements or other realty sold this Office, that upon the full payment of the purchase cost of the property in question on September 29, 1987, an order dated October 7, 1987, was issued by the Honorable Presiding Judge of the Regional Trial Court, Branch 38, Manila National Capital Region in Sp. Proc. No. R-82-6994 entitled "Testate Estate of Doa Juliana Vda. de Gabriel" directing the Special Administrator to execute the corresponding Absolute Deed of Sale; that on May 30, 1988, a Deed of Absolute Sale was executed by and between you and the Testate Estate of Doa Juliana Vda. de Gabriel pursuant to the said order dated October 7, 1987; that on September 29, 1988, TCT No. 182510 was issued in your favor, as a consequence of said sale; that subsequently, however, you subdivided the said property among your tenant members and individual titles registered in your name were issued on December 12, 1989; that you have already prepared the necessary Deeds of Absolute Sale in favor of your individual tenant members to effect the transfer of title of the portion of said estate respectively occupied by said tenant members who actually purchased the said property from Doa Juliana Vda. de Gabriel on installment basis through your association; that upon your inquiries with this Office, you were advised to secure a certificate of exemption when you requested that your tenant members be exempt from the payment of the capital gains tax creditable withholding tax on your sale in their favor of the said parcel of land; and that you were further informed that documentary stamp tax due on the Deeds evidencing such sale will be based on the zonal valuation of the property sold. In reply, please be informed that under Revenue Memorandum Circular No. 7-90 clarifying some pertinent provisions of Revenue Regulations No. 12-89 as amended by Revenue Regulations No. 1-90 implementing Section 50 (b) of the Tax Code, as amended, all sales, exchanges or transfers of real properties (whether classified as an ordinary or capital asset) by corporations, consummated on or after January 1, 1990, are subject to the creditable withholding tax imposed by Revenue Regulations No. 1-90. However, in the case of individuals, estates, trusts, trust funds, or pension funds, only sales, exchanges or transfers of real properties classified as ordinary assets, consummated on or after January 1, 1990, are subject to the creditable withholding tax. Sales by individuals or real properties classified as capital assets remain subject to the 5% capital gains tax imposed by Section 21 (e) of the Tax Code. Moreover, although it is provided in said Revenue Memorandum Circular that the date of notarization appearing on the Deed of Sale shall be considered prima facie the date of consummation of shall be granted, assigned, transferred, or otherwise conveyed to the purchaser or purchasers, or to any other person or persons, designated by such purchaser or purchasers shall be subject to a documentary stamp tax at the rate of P10.00 for every one thousand pesos or less or fractional part thereof in excess of one thousand pesos based on the consideration or value received or contracted to be paid for such realty. It is noted that under the above cited provisions of the Tax Code, the deed of document subject to the documentary stamp tax imposed therein are those where the realty sold shall be granted, assigned, transferred, or otherwise conveyed to a purchaser or purchasers or to any other person or persons designated by such instant case considering that the supposed purchasers in the said sale is actually the owners thereof, aside from the fact that no tax imposed in said section could be based. Accordingly, your opinion to the effect that the Deeds of Absolute Sale you executed to effect the transfer of title of the said property in favor of your tenant members are not likewise subject to the documentary stamp tax imposed under Section 196 of the Tax Code is hereby confirmed. However, such Deeds are subject to the documentary stamp tax of P3.00 imposed under Section 188 of the Tax Code, as amended. (BIR Ruling No. 453-88) cdta Very truly yours, (SGD.) EUFRACIO D. SANTOS Deputy Commissioner Officer-in-Charge