BIR Ruling No. 427-11

November 4, 2011 BIR RULING NO. 427-11 Sec. 24 (D) (1) of the Tax Code of 1997, as amended; BIR Ruling No. DA-(I-014) 202-09; BIR Ruling No. DA-155-2002; BIR Ruling No. DA-159-2002 Petronila B. Bisnar Mapawa, Maragusan Compostela Valley Madam : This refers to your letter dated August 13, 2010, endorsed by the Regional director of Revenue Region No. 19-Davao City requesting exemption from capital gains and documentary stamp taxes on the reconveyance of a parcel of land. It is represented that on June 24, 2003 a parcel of land designated as Lot 864, Pls-633 containing an area of thirty five thousand five hundred nineteen (35,519) square meters covered by Original Certificate of Title (OCT) No. OCT-P-35454 was awarded by President Gloria Macapagal Arroyo to Enrique Silanova, Sr., Petronila B. Bisnar, on the other hand, is one of the occupants in the said lot since 1978. It was awarded by virtue of inadvertence committed by Isidro D. Bayona, Land Management Inspector, Department of Environment and Natural Resources, by relying solely on the alleged misrepresentation of Mr. Enrique Silanova, Sr. for his application for free patent that he was the only claimant of the property, without disclosing that a portion was occupied by Petronila B. Bisnar and her family. On May 9, 2008, the Heirs of Sps. Enrique Silanova, Sr. and Visitacion Silanova executed a deed of reconveyance in favor of Petronila B. Bisnar, whereby the heirs cede, transfer by way of reconveyance to Petronila B. Bisnar, the thirteen thousand seven hundred forty five square meter (13,745) portion of the property. In reply, please be informed that Section 24 (D) (1) of the Tax Code of 1997 provides that 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 individuals, including estates and trust, shall be taxed at the rate of 6% based on the gross selling price or the fair market value as determined in accordance with Section 6 (E) of this Code, whichever is higher. (BIR Ruling No. DA-(I-014) 202-09 dated April 21, 2009) SAHIaD As represented, the parties executed the Deed of Reconveyance whereby the heirs of Sps. Enrique Silanova, Sr. and Visitacion Silanova cede, transfer by way of reconveyance to Petronila B. Bisnar, the thirteen thousand seven hundred forty five square meter (13,745) sq. m. portion of the property. However, there can be no reconveyance of the portion of the property to Petronila Bisnar since she did not previously own said portion in the first place. Like Enrique Silanova, Sr., Petronila Bisnar could have also applied for the patent on the portion she was occupying. Apparently, she did not. The alleged mistake in awarding the patent on the entire property to Silanova is not the kind of mistake that can be corrected by a tax exempt transaction, thus, the requested tax exemption has no legal basis to be granted. Such being the case, the transfer of property is subject to the 6% capital gains tax based on the fair market value or zonal value of the properties, whichever is higher. Moreover, pursuant to Section 196 of the Tax Code of 1997, a conveyance or deed whereby land is assigned or transferred to another is subject to documentary stamp tax based on the consideration contracted to be paid for such realty or on its fair market value or zonal value whichever is higher. (BIR Ruling Nos. DA-159-2002 dated September 12, 2002 and DA-155-2002 dated September 11, 2002) Regrettably, your request that you be exempted from the payment of capital gains tax and documentary stamp tax is hereby denied for lack of legal basis. Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue