Taxability of the Parcels of Land Which Became the Subject of a Deed of Assignment Between the Incorporators and the New set of Corporators

May 25, 1992 BIR RULING NO. 156-92 50 (b) 000-00 156-92 Ann Arbor Montessori, Inc. # 3 Rosal Street U9 Manuela Homes Pamplona, Las Pias Metro Manila Attention: Ms . Elizabeth B . Lucas Finance Manager Gentlemen : This refers to your letter dated August 1, 1991 inquiring whether the parcels of land registered in the name of Ann Arbor Montessori, Inc. which became the subject of a Deed of Assignment between the incorporators and the new set of corporators, are subject to tax. It is represented that Ann Arbor Montessori Early Learning Center, Inc. is a corporation duly organized and existing under and by virtue of Philippine laws and registered with the Securities and Exchange Commission of September 28, 1974; that on April 1, 1991, a Deed of Assignment was executed by and between the owners, Renato L. Cayetano, Gregorio Garcia III, Sandra L. Cayetano, Myrna N. Garcia and Armando M. Marcelo, with principal address at El Grande Street, BF Homes Paraaque, Metro Manila, and the assignees, Spouses Reynaldo G. Carpio and Lourdes L. Carpio, with address at Casa Susana Building, Madrigal Avenue, Ayala Alabang Village, Muntinlupa, Metro Manila; that pursuant thereto, the owners-assignors agreed to sell, transfer, and assign to the assignees all their rights, title and interest in the Learning Center, all furniture, materials and equipment listed in Annex B of said Deed of Assignment, including the goodwill and business that has accrued through its operations; that previously, the Board of Trustee of the Learning Center, in a special meeting held on October 5, 1990, resolved to sell and dispose certain real properties of the Corporation, including all the improvements thereon, covered by Transfer Certificate of Title Nos. 42618, 42619 and 42620 described as follows: TCT #42618 A parcel of land (Lot 4, Block 88, Pcs 13319) situated in the Barrio of San Dionisio, Paraaque, Rizal, containing an area of 494 square meters; TCT #42619 A parcel of land (Lot 3, Block 88) situated in the Barrio of San Dionisio, Paraaque, Rizal, containing an area or 340 square meters; and TCT #42620 A parcel of land (Lot 5, Block 88) situated in the Barrio of San Dionisio, Paraaque, Rizal, containing an area of 469 square meters, for and in consideration of P3,000,000.00, to the spouses Carpio; that thereafter, the Deed of conditional Sale executed between the parties of October 5, 1990 and made an integral part of the Deed of Assignment dated April 1, 1991 contains the agreed total purchase and contract price of the properties in the amount of P4,000,000.00, payable in installments but not later than March 31, 1991; that the parties have contractually agreed that the Buyer-Spouses Carpio shall pay the capital gains tax, broker's commission, and documentary stamp tax, if any; finally, that the sale includes all furniture, materials and equipment as listed in the inventory list, except the Ford Van and Toyota Cressida car. In reply, please be informed that Section 50(b) of the Tax Code, as amended, requires the withholding of a tax on the items of income payable to persons (natural or juridical) residing in the Philippines by payor-corporation/persons as provided for by law and which shall be credited against the income tax liability of the taxpayer for the taxable year. Accordingly, Revenue Regulations No. 1-90 provides in Section 1 thereof that "except at (t) herein otherwise provided, there shall be withheld a creditable income tax at the rates (t) herein specified for each class of payee from the following items of income payments to persons residing in the Philippines: "(f) Gross selling price or total amount of consideration or its equivalent paid to the seller/owner for the sale, exchange or transfer of "(iii) real property, other than capital assets, by an individual, estate, trust, trust fund or pension fund or real property, whether capital or ordinary asset, by a corporation who is not habitually engaged in real estate business five percent (5%)." On the basis of the foregoing, it is the opinion of this Office as it hereby holds that the parcels of land including the improvements thereon registered in the name of Ann Arbor Montessori, Inc. per TCT #42618, 42619 and 42620 and which were authorized by the Board of Trustees to be sold and disposed of on October 5, 1990, are subject to the creditable withholding tax of 5%. Moreover, the said Deed of Assignment, including the Deed of Conditional Sale which was made in integral part of the former, is subject to the documentary stamp tax under Section 196 of the Tax Code, as amended. atdc Very truly yours, JOSE U. ONG Commissioner of Internal Revenue