Request for Reconsideration of the Payment of Capital Gains Tax on the Ground of Tenant's Incapacity to Pay

December 28, 1998 BIR RULING NO. 179-98 Mr. Carlos N. Arce 143 A. Rizal/Hayes St. Cagayan de Oro City S i r : This refers to your letter dated June 10, 1997 requesting for reconsideration of the payment of the capital gains tax on the ground that your tenant cannot afford to pay the said taxes. It is represented that the lot subject of this request with Transfer Certificate of Title No. 49411 in Kapisnon, Kausuagan, Misamis Oriental was originally owned by Ms. Evangeline Arce; that one of the tenants therein was Mr. Deciderio Neri; that the subject property was sold by Ms. Arce to Mr. Pedro Gamolo who represented thirty to forty lot buyers on the condition that the said tenant would not be ejected nor relocated but that he shall be given 100 square meters out of the 7,000 square meters subject property; that as a consequence, TCT No. 49411 covering the 100 square meters, among others, was canceled and a new TCT No. 50077 with Tax Declaration No. 1044015 was issued in favor of Mr. Gamolo; and that thereafter, a Deed of Waiver, Quitclaim and Renunciation of Rights was executed between Mr. Gamolo and Spouses Neri on May 15, 1995. In reply, please be informed that for purposes of the capital gains tax the one who is liable to pay the tax is the transferor and not the transferee/s (your tenants) but since the subject transaction is one which we may call as a "fraudulent transaction" where your tenants are the parties who were "defrauded," and the new transfer being without any monetary consideration but merely acknowledges and confirms the title and the ownership of the tenants, Spouses Neri, over the said property and considering further that the execution of the Deed of Waiver, Quitclaim and Renunciation of Rights is merely to correct a mistake, this Office is of the opinion as it hereby holds that the aforementioned transfer of real property is not subject to capital gains tax then imposed under Section 21 (e) of the Tax Code, as amended (now Sec. 21 (D) of the Tax Code of 1997), nor to the creditable withholding tax then imposed under Revenue Regulations No. 12-94 (as last amended by Revenue Regulations No. 2-98). Accordingly, the Certificate Authorizing Registration (CAR), now called Tax Clearance Certificate (TCL), may be issued by the Revenue District Officer concerned authorizing the transfer of the 100 sq. m. subject property in the name of Spouses Neri without need to pay the 5% (now 6%) capital gains tax, the said tax having been paid when the subject property was first transferred to Engr. Gamolo. Since there is no monetary consideration for the conveyance by Mr. Gamolo to Spouses Neri of the subject property, the Deed of Conveyance is not also subject to the documentary stamp tax under Section 196 of the Tax Code of 1997, but only to the documentary stamp tax of P15.00 on certificates under Section 188 of the Tax Code of 1997. LexLib This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be disclosed that the facts are different, then this ruling shall be considered null and void. (BIR Rulings No. 027-93 dated January 15, 1993) Very truly yours, (SGD.) BEETHOVEN L. RUALO Commissioner of Internal Revenue