BIR Ruling No. 461-11

November 24, 2011 BIR RULING NO. 461-11 BIR Ruling No. DA-116-01; BIR Ruling No. DA-465-04; BIR Ruling No. DA-552-04 Senining Belcia Atup Entise Limalima Jumao-As & Bantilan Law Offices 11th Avenue, corner Benedicto St. North Reclamation Area, Cebu City Attention: Atty. Rumulo R. Senining Gentlemen : This refers to your letter dated January 4, 2008, indorsed to this Office by Revenue Region No. 13, Cebu City, requesting for exemption from the payment of capital gains and documentary stamp taxes on the reconveyance of certain real properties in favor of Santiago Limquiaco, et al. by virtue of a Judgment on Compromise rendered by Regional Trial Court of Cebu, Branch 19, Cebu City in Civil Case No. CEB-5184 entitled " Santiago Limquiaco, et al. vs. ABN AMRO Bank, Inc. et al. " As represented, the Limquiacos questioned, before the Regional Trial Court (RTC), Branch 19, Cebu City, docketed as Civil Cases No. CEB-2112 and CEB-5184, BA Finance ("BA") Corporation's foreclosure and auction sale of their collaterals as illegal. On September 2, 1980, the Limquiacos, discounted/assigned to BA (now ABN AMRO Bank, Inc.) post-dated checks of the producers Bank indicated as loan account whereby Santiago Limquiaco was made to sign 3 deeds of assignment of the post-dated checks of the producers Bank in favor of BA. After collecting in advance the interest, BA delivered the discounted principal of the loan to the Limquiacos. The loan was supported by Real Estate Mortgages (REM) over 4 parcels of land and a continuing Suretyship Agreement executed by Santiago, Rufina and Carlos Limquiacos, in favor of BA. Contending that the payments of the Limquiacos were insufficient and not in accord with the schedule, BA made an Extrajudicial Foreclosure of the REM on December 7, 1983. In an auction sale conducted on December 7, 1983, BA was the winning bidder of the mortgaged lots. On April 1 and 8, 1985, Deeds of Sale were issued by the Deputy Sheriff in favor of BA. On July 25, 1986, the Limquiacos filed a case for Declaration of Nullity of Foreclosure proceedings, Certificates of Sale, Deeds of Sale plus damages. IcaEDC In a Decision dated October 26, 1992 in Civil Case No. CEB-2112 which was affirmed by the Court of Appeals on November 23, 2003, the RTC rendered judgment in favor of the Limquiacos ordering ABN AMRO to reimburse to the Limquiacos the latter's overpayment of their loans. On August 25, 2005, the RTC in Civil Case No. CEB-5184 rendered judgment on compromise wherein ABN AMRO acknowledged that (1) at the time of the foreclosure sale of the properties, the Limquiaco's indebtedness to ABN AMRO had been paid and settled in full and, thus, the foreclosure sale did not have any legal basis; (2) the subsequent cancellation of the TCT's in the name of the Limquiacos and issuance of TCT's in the names of ABN AMRO and MEG Properties, Inc., likewise, had no legal basis; and (3) the TCT's to the Properties must revert to the names of the Limquiacos. In reply, please be informed that since the reconveyance of subject properties in pursuance to the Order of the Regional Trial Court decided by a Judgment of Compromise is without consideration and the reconveyance was in order to return the properties to the legal owners, the transfer of the four (4) properties in favor of the Limquiacos is not subject to the capital gains tax imposed under Section 24 (D) (1) of the Tax Code of 1997, as amended. Likewise, the Deed of Reconveyance is not subject to the documentary stamp tax (DST) imposed under Section 196 of the Tax Code of 1997 but to the DST imposed under Sec. 188 of the same Code. (BIR Ruling No. 465-04 dated August 30, 2004). 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