Taxability of Reconveyance of a Parcel of Land Sold by a Foreclosing Bank

December 14, 1994 BIR RULING NO. 178-94 20 (b) 196 000-00 178-94 University of the Philippines Office of Legal Aid 1st Floor, Malcolm Hall Diliman, Quezon City Attention: Ms . Vilma Hilda Villanueva Law Intern and Mr . Marcos del Rosario Law Intern Gentlemen : This refers to your letter dated May 12, 1994 requesting, in effect, for a ruling as to whether or not the reconveyance to your client, Mrs. Priscilla Barrios of a parcel of land which was sold to her in 1968 by the Bank of Commerce, is subject to the 5% expanded withholding tax imposed under Revenue Regulations No. 1-90 implementing Section 50(b) of the Tax Code, as amended; and whether or not the Deed of Reconveyance executed by the aforenamed foreclosing bank in favor of Mrs. Barrios is subject to documentary stamp tax based on the zonal valuation of the said realty. aisadc It is represented that in 1968, the aforesaid lots has been paid in full by Mrs. Barrios and a Deed of Absolute Sale was executed on February 17, 1968 in her favor by the seller, DimeBon Realty Corporation; that the said lot is a portion of the property covered by TCT No. 34016, with a total area of Fifty Thousand and One (50,001) square meters, which was mortgaged to the Bank of Commerce (then known as the Overseas Bank of Manila) through the fraud perpetrated by Mr. Raoul Bonnevie, President of DimeBon Realty Corporation, to secure the payment of a loan of Five Hundred Thousand Pesos (P500,000.00) in 1974; that due to the failure of the mortgagor (DimeBon Realty Corporation) to redeem the said foreclosed property covered by TCT No. 34016 within the one-year redemption period which expired on March 20, 1976, the Bank of Commerce consolidated the ownership of the said foreclosed property in its name and a new title was issued in the name of the Bank of Commerce under TCT No. 86043; that for having defrauded Mrs. Barrios, Raoul Bonnevie was convicted of the crime of estafa on December 19, 1991 by the Metropolitan Trial Court of Manila; that the case was appealed to the Regional Trial Court of Manila but on the day the judgment was to be promulgated the accused did not appear and was nowhere to be found; that it was due to the said court action and as a measure of liberality and justice that the bank executed the Deed of Reconveyance transferring the lot in question to its rightful owner, that you are of the opinion that Expanded Withholding Tax (EWT) should not be imposed, on the Deed of Reconveyance of the said lot since it is without monetary consideration and that it is a case of an involuntary transfer, while EWT covers only voluntary transfers; and that the said Deed is only subject to a documentary stamp tax on P15.00 under Section 198 of the Tax Code, as amended by R.A. No. 7660. In reply, please be informed that since the Deed of Reconveyance transferring and reconveying the realty in question in favor of its rightful owner, Mrs. Priscilla Barrios was executed by the Bank of Commerce pursuant to the decision of the Regional Trial Court of Manila and without any monetary consideration, the same is not subject to income tax and consequently, to the creditable withholding tax prescribed under Revenue Regulations No. 1-90 implementing Section 50(b) of the Tax Code, as amended. Moreover, the Deed of Reconveyance effecting the transfer of said realty in favor of Mrs. Priscilla Barrios as the rightful owner is not likewise subject to the documentary stamp tax imposed under Section 196 of the Tax Code, as amended. However, the said deed shall be subject only to the documentary stamp tax of P10.00 imposed under Section 188 of the Tax Code, as amended by Republic Act No. 7660. Very truly yours, LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue