Payment of Documentary Stamp Tax and Capital Gains Tax on Mortgaged Property

November 25, 1987 BIR RULING NO. 380-87 21 (e) 313-87380-87 Gentlemen : This refers to your letter dated November 12, 1987 stating that in view of the refusal of the Revenue District Office of Naga City to issue in your favor a certificate of exemption, you would like to request for a ruling exempting you from the payment of capital gains tax on the mortgaged property of the spouses Nestorio V. Herrera and Mary Rose M. Herrera situated at Barrio San Antonio, Bombon, Camarines Sur which you acquired, as highest bidder, in an extra-judicial foreclosure sale conducted by the Deputy Provincial Sheriff of Camarines Sur on November 17, 1985; and that your premise for such exemption is that the said sale was consummated prior to the effectivity of Revenue Memorandum Order No. 29-86. In reply, I have the honor to inform you that RMO No. 33-81 as amended by RMO No. 18-82 allowed the issuance of a Certification authorizing the transfer of Title to real property classified as capital asset even before payment of the capital gains tax if foreclosed by a bank, finance or insurance company thru a foreclosure sale. However, RMO No. 29-86 dated September 3, 1986 which revoked RMO No. 33-81 as amended by RMO No. 18-82 provides that no certificate authorizing transfer of title to real property classified as capital asset sold by an individual thru foreclosure sale shall be issued without prepayment of the capital gains tax including the documentary stamp tax. Considering, however, that RMO No. 29-86 applies to real property purchased by a bank, finance and insurance company thru mortgage foreclosure sale on or after September 3, 1986 and since the mortgage foreclosure sale in this case was held on November 17, 1985 or prior to September 3, 1986, a Certificate authorizing the transfer of title to the aforesaid property may be issued to you before payment of the capital gains tax. Moreover, while title to the aforesaid foreclosed property can be consolidated in your favor without the prepayment the capital gains tax prescribed by Section 21(e) of the Tax Code, as amended by Executive Order No. 37, said tax shall nevertheless be paid and collected from the debtor-mortgagor by the Revenue District Officer of the place where such debtor-mortgagor has his legal residence, or principal place of business who shall, for this purpose, conduct the necessary investigation to ascertain the capital gains tax due from the debtor-mortgagor in accordance with the procedure prescribed by Revenue Memorandum Order No. 21-80 dated May 28, 1980. (RMO No. 33-81 as amended by RMO No. 18-82) Finally, the sheriff's Deed of Sale is subject to documentary stamp tax based on the consideration or value received or paid for the land as stated on said Deed pursuant to Section 209 of the Tax Code, as amended. Very truly yours, (SGD.) EUFRACIO D. SANTOS Officer-in-Charge