Taxability of the Sale of Property in Favor of the Occupants of Said Property

July 3, 1992 BIR RULING NO. 195-92 21 (e) 272-92 195-92 Home Insurance and Guaranty Corporation 349 Sen. Gil J. Puyat Avenue Makati, Metro Manila Attention: Ms . Marilu M . Alferez Vice-President for Regional Operation Gentlemen : This refers to your letter dated May 18, 1992 stating that the Nagkahiusa Residents Association, Inc. (an urban poor organization) located at Mandaue City, Cebu was able to purchase the property they are occupying from the land owner, Mr. Virgilio Cabahug, under the community Mortgage Program; that under the said program the property was sold at a price much lower than the zonal value to accommodate the financial capability of the association; that the association applied for interim Funding from the Home Insurance and Guaranty Corporation (HIGC); and that based on evaluation of your Social Housing Group, an interim fund was released to the project. LexLib Based on the foregoing representations, you now in effect request a ruling allowing Mr. Virgilio Cabahug to pay the taxes due on the sale of his property in favor of the Nagkahiusa Mandaue Residents Association, Inc. of Mandaue City, Cebu, whose members are occupying the said property, based on the consideration appearing on the Deed of Sale executed for the purpose and not on the zonal valuation of the property. 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 individual, including estates and trusts, shall be taxed at the rate of 5% based on the gross selling price or the fair market value prevailing at the time of sale, whichever is higher. Accordingly, the sale of Mr. Virgilio Cabahug of his realty in favor of the Nagkahiusa Mandaue Residents Association, Inc. Mandaue City, Cebu, whose members are occupying the said realty, is subject to the 5% capital gains tax imposed under Section 21 (e) of the Tax Code. However, this Office, realizing that it takes a considerable amount of sacrifice and fortitude on the part of Mr. Virgilio Cabahug to part with and dispose of his real property specially a price much lower than the current zonal valuation or market appraised value and considering that the likelihood of understatement of consideration is remote in this case as the payment thereof was made under the Community Mortgage Program through the Home Insurance and Guaranty Corporation a government Corporation financing the government's shelter program, the use of actual consideration appearing on the Deed of Sale executed for the purpose as basis in determining Mr. Virgilio Cabahug's capital gains tax liability as consequence of said sale of his realty, is hereby granted as an exception to the policy of the Bureau in relation to Section 21 (e) of the Tax Code. Moreover, the Deed of Sale executed for the purpose of said sale is subject to the documentary stamps tax imposed under Section 196 of the Tax Code, as amended. Very truly yours, JOSE U. ONG Commissioner of Internal Revenue