Payment of Capital Gains Tax

September 17, 1990 BIR RULING NO. 178-90 21 (e) 123-89 178-90 S i r : This refers to your letter dated May 25, 1990 stating that your property, a parcel of land situated at Barrio Santolan, Pasig, Metro Manila covered by TCT No. 29537 was foreclosed in 1984 and was sold at a public auction sale to the highest bidder, Mr. Emilio C. Gozum, at a bid price of P286,000.00; and that on May 17, 1990 or before the expiration of the legal redemption period, you redeemed the same at the legal redemption price of P199,638.71 as evidenced by a photocopy of the Certificate of Redemption issued by Sheriff Sofronio M. Villarin on May 17, 1990. Based on the foregoing representations, you now request in effect a ruling as to whether or not you are obliged to pay the capital gains tax on the aforesaid property you lawfully redeemed before the expiration of the legal redemption period. In reply, please be informed that under Section 21(e) of the Tax Code, as amended, capital gains presumed to have been realized from the sale, exchange or other disposition of real property located in the Philippines classified as capital assets, including pacto de retro sales and other forms of conditional sales, by individuals, including estates and trusts, shall be taxed at the rate of 5% based on the gross selling price or the fair market value (zonal value) prevailing at the time of sale, whichever is higher. From the foregoing provision, it is clear that the 5% capital gains tax imposed therein presupposes that a transfer of title to real property has taken place before the aforesaid tax could be imposed even if the sale is a conditional sale as in the case of mortgage foreclosure sale under Act No. 3135 as amended by Act No. 4118 wherein title to the property sold is consolidated in the name of the purchaser as highest bidder in a public auction sale upon the expiration of the one-year period redemption without the mortgagor-debtor exercising his right to redeem the property sold within the said period, reckoned from the time of the registration of the foreclosure sale with the Register of Deeds concerned. Such being the case, and since in the instant case, you were able to redeem your aforementioned property within or before the expiration of the one-year period of redemption granted under Act No. 3135 as amended by Act No. 4118, you are not therefore, subject to the 5% capital gains tax imposed under Section 21(e) of the Tax Code, as amended, since no transfer of title to real property has taken place or is involved in this case. Moreover, the Deed of Redemption is not subject to the documentary stamp tax imposed under Section 196 of the Tax Code, as amended, since the transaction merely involves a restoration of the property from the purchaser to the mortgagor-debtor. (BIR Ruling No. 530-88). cdi Very truly yours, (SGD.) JOSE U. ONG Commissioner