BIR Ruling No. 355-14

September 9, 2014 BIR RULING NO. 355-14 Sections 24 (D) (1), 188 & 196 of the Tax Code of 1997, as amended; BIR Ruling No. 360-11 Damar Financing Corporation 5th Floor, Wing B, Concorde Bldg. Benvidez St.,Legazpi Village, Makati City Attention: Napoleon S. Siggaoat Gentlemen : This refers to your letter dated November 7, 2012, requesting tax exemption from the payment of capital gains tax and other related revenue taxes and fees on the cancellation of Transfer Certificate of Title TCT No. T-260646. Documents submitted disclose that Damar Financing Corporation (Damar) with (TIN 000-448-608-000) is a domestic corporation engaged in financing activities under R.A. 8556, otherwise known as Financing Act of 1998; that Damar caused the consolidation of property covered by TCT No. T-143860 under the name of Reina P. Uychiat after the lapse of one (1) year period of redemption and from the issuance and registration of the Sheriff's Certificate of Sale at public auction and the Register of Deeds of Negros Occidental issued new title TCT No. T-26046 under name of Damar. On February 21, 2007, Reina Uychiat filed a case against Antonia Cueva, Pamela Arroyo, Damar, the Register of Deeds for the Province of Negros Occidental and Ex-Officio Sheriff for the Province of Negros Occidental under Civil Case No. 825-S for "Declaration of Absolute Nullity and/or Uneforceability of Promissory Note and Real Estate Mortgage, Quieting of Title and Damages with prayer for other reliefs" in the Regional Trial Court of Cadiz City, Branch 60. DTCSHA On June 29, 2012, Regional Trial Court of Cadiz City, Branch 60 rendered its decision approving in toto, the Compromise Agreement dated June 14, 2012 entered into by and between Damar and Reina Uychiat; that said Decision has become final and executory on July 23, 2012; and that paragraph 6.b of said Compromise Agreement provides that: "6.b. "DAMAR shall, upon receipt of the Order/Judgment of the RTC, Sagay in Civil Case No. 825-S approving this Compromise Agreement thereby causing the dismissal of the same, shall proceed to process the cancellation of the Notice of Lis Pendens annotated in TCT No. T-260646 and apply for the issuance of a new TCT in the name "UYCHIAT" in lieu of TCT No. T-260646 with the Register of Deeds of Negros Occidental." Hence, this request. In reply, we regret to inform you that your request for tax exemption cannot be granted for lack of legal basis. Section 24 (D) of the Tax Code of 1997, as amended, provides, viz.: "Section 24 (D). Capital Gains from Sale of Real Property. (1) In General. The provisions of Section 39 (B) notwithstanding, a final tax of 6% based on the gross selling price or current market value as determined in accordance with Section 6 (E) of this Code, whichever is higher, is hereby imposed upon the capital gains presumed to have been realized from the sale, exchange and other dispositions of real property located in the Philippines, classified as capital assets, including pacto de retro sales and other forms of conditional sales, by individuals, including estates and trusts: ... " (emphasis supplied) Although the conveyance of the real property is pursuant to a court order, which approved the Compromise Agreement entered into by the parties to amicably settle their dispute over the property, the reconveyance of the property in favor of Reina Uychiat is covered by the clause "other dispositions of real property" under Section 24 (D) of the Tax Code of 1997, as amended, and therefore subject to the capital gains tax imposed therein. The conveyance per court-approved Compromise Agreement is in the nature of disposition of real property under Section 24 (D) of the Tax Code, as amended, is likewise subject to the documentary stamp taxes imposed in Section 188 and Section 196 of the Tax Code, as amended. (BIR Ruling No. 360-11 dated September 30, 2011) ETIDaH 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. Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue