Taxability of Sale of Real Properties by a Non-Stock, Non-Profit Community Organization Under the Community Mortgage Program

October 28, 1992 BIR RULING NO. 316-92 21 (e), 24 284-92 316-92 Development Resources Corporation Rm. 214, Federation Center Bldg. Binondo, Manila Attention: Mr . Carlos Chua President Gentlemen : This refers to your letter dated October 16, 1992, requesting confirmation of your opinion that the sale of real properties by your company, Development Resources Corporation, located at South San Juan Village, Agdao, Davao City to the SOUTH SAN JUAN VILLAGERS ASSOCIATION OF AGDAO, a non-stock, non-profit community organization duly registered with the Securities and Exchange Commission (SEC), in accordance with the Community Mortgage Program (CMP) initiated by National Housing Authority is exempt from capital gains tax pursuant to Section 32(b) of R.A. 7279, otherwise known as the Urban Development and Housing Act of 1992. cdt It appears that the Community Mortgage Program (CMP) is a mortgage financing program of the National Home Mortgage Finance Corporation (NHMFC) which assists legally organized associations of underprivileged and homeless citizens to purchase and develop a tract of land under the concept of community ownership; that a Letter of Guaranty was issued by NHMFC in favor of the company, for and in consideration of its willingness to sell in favor of the San Juan Villagers Association of Agdao, parcels of land covered by TCT Nos. T-160933 and T-160935 consisting of 48,449 square meters located at South San Juan Village, Agdao, Davao City, undertaking to pay the amount of P6,643.057.64 representing the proceeds of the loan of the Community Association as borrower-buyer; that your company, represented by its President, Mr. Carlos Chua, executed a Deed of Absolute Sale dated October 14, 1992 of the said properties in favor of the Association for a consideration of P6,643,057.64; that the said transaction was certified by the National Home Mortgage Finance Corporation as an approved project under the Community Mortgage Program (CMP) of the government. In reply, please be informed that pursuant to Section 32(b) of R.A. No. 7279, pertinent portion of which reads: "Sec. 32. Incentives . To encourage its wider implementation, participants in the CMP shall be granted with the following privileges or incentives: xxx xxx xxx b) Properties sold under the CMP shall be exempted from the capital gains tax. xxx xxx xxx the landowners who sell their property to the tenant's association pursuant to the Community Mortgage Program are exempt from the payment of capital gains tax and from the expanded withholding tax under Revenue Regulations No. 1-90. Upon the sale thereof, the capital gains realized by the owners shall be exempt from capital gains tax pursuant to the aforequoted provisions of R.A. 7279. Such being the case, the sale of real properties by your company, Development Resources Corporation, located at South San Juan Village, Agdao, Davao City to the South San Juan Villagers Association of Agdao is exempt from the payment of capital gains tax and the expanded withholding tax. However, it is observed that documentary stamp tax is not one of the taxes covered by the tax exemption clause under Section 32 of R.A. 7279. Such being the case, your company are liable to pay the documentary stamp tax on the document conveying the property to the Association under the CMP as imposed under Section 196 of the Tax Code, as amended, based on the actual consideration paid by the association to the company. Very truly yours, JOSE U. ONG Commissioner of Internal Revenue