BIR Ruling No. 309-61

July 12, 1961 BIR RULING NO. 309-61 1st Indorsement Respectfully returned to the Regional Director, Regional District No. 7, Cebu City, the within papers relative to the donor's and donee's gift tax cases against Lim Seng, Ong Cio Duan (donors) and Vicenta Lim (donee), involving the amount of P200.00, representing deficiency donor's and donee's gift taxes. prcd A decision is requested as to whether or not the donation made by Lim Seng and Ong Cio Duan, father and mother, respectively, of Vicenta Lim, in consideration of the latter's marriage may be considered as donation "propter nuptias", hence, exempt from donor's and donee's gift taxes as provided in Section 112(a)(1) of the Tax Code. The donors alleged that on November 25, 1956, they gave to their daughter by way of donation "propter nuptias" a gift of money in the sum of P20,000.00. The records do not show that said donation was made on November 25, 1956. On June 28, 1960, however, a document was executed entitled "CONFIRMATION OF DONATION PROPTER NUPTIAS", which stated among other things that the donors "had on November 25, 1956, donated to our daughter VICENTA LIM, the sum of TWENTY THOUSAND (P20,000.00) PESOS, Philippine Currency, and in cash, in consideration of her marriage . . .". Counsel for the taxpayers claim that the donation was not subject to the donor's and donee's gift taxes as it was exempt under Section 112(a)(1) of the Tax Code, which provides: LexLib "SEC. 112. Exemption of certain gifts . The following gifts or donations shall be exempt from the tax provided for in this Chapter: (a) In the case of gifts made by a resident: (1) Dowries or gifts made on account of marriage and before its celebration or within one year thereafter by parents to each of their legitimate, recognized natural, or adopted children to the extent of the first ten thousand pesos." Under this provision of the Tax Code, donations propter nuptias or donations made in consideration of marriage, to be exempt from the taxing provision, must be made (1) prior to the celebration of the marriage or (2) within one year thereafter. The question then arises: Was there a donation made at or within one year from the celebration of the marriage and in consideration of such marriage? In a decision promulgated by our Supreme Court in the case of SOLIS vs. BARROSO, 53 Phil., 912, it was stated that " donation propter nuptias must be governed by the rules established in Title II , Book III of the Civil Code , on donations ". As the donation in question consisted of money, which is movable or personal property the pertinent provision under our New Civil Code is Article 748 which provides thus: "Art. 748. The donation of a movable may be made orally or in writing. LibLex An oral donation requires the simultaneous delivery of the thing or of the document representing the right donated. If the value of the personal property donated exceeds five thousand pesos, the donation and the acceptance shall be made in writing. Otherwise, the donation shall be void." Under the afore-quoted provision of law, donations made orally are valid provided the value of the thing donated does not exceed five thousand pesos (P5,000.00). Where the value of the gift exceeds five thousand pesos, the donation as well as the acceptance should be in writing in order that the donation should be valid. The records show that the only writing showing that a donation was made and accepted was the so-called "Confirmation Document", which was executed on June 28, 1980, more than three years from the celebration of the marriage on November 25, 1956. Granting that the money donated was actually given on November 25, 1956, such act did not give birth to a valid donation as it was not executed with the formality required by law for its validity. If the donation was void, hence, nonexistent, there was nothing to confirm, correct, or validate in 1960. As our Supreme Court aptly stated: "We have, therefore, a donation propter nuptias which is not valid and did not create any right, since it was not made in a public instrument, and hence, Article 1279 of the Civil Code which the lower court applied is not applicable thereto. The last named article provides that, should the law require the execution of an instrument or any other special form in order to make the obligations of a contract effective, the contracting parties may compel each other to comply with such formality from the moment that consent has been given, and the other requirements for the validity of the contract exist. Suffice it to state that this article refers to contracts, and is inapplicable to the donation in question, which must be governed by the rules on donations. It may further be noted, at first sight, that this article pre-supposes the existence of a valid contract and cannot possibly refer to the form required in order to make it valid, which it already has, but rather to that required simply to make it effective, and for this reason, it would, at all events, be inapplicable to the donation in question, wherein the form is required precisely to make it valid." (Solis vs. Barroso, 53 Phil., 912-916) The document executed on June 28, 1960 gave birth to a valid donation on the date of its execution. Considering that it was executed more than one year from the celebration of the marriage, it cannot be covered by the exempting provision provided in Section 112(a)(1) of the Tax Code. Consequently, it is subject to the donor's and donee's gift taxes. In view thereof, you are requested to collect the deficiency taxes due, including the penalties that have accrued thereon from May 16, 1961. (SGD.) MELECIO R. DOMINGO Commissioner of Internal Revenue