Sale of Property by PBCom to Homeowners Group under CMP Exempt from Capital Gains Tax

December 22, 1993 BIR RULING NO. 501-93 SALE OF PROPERTY BY PBCOM TO HOMEOWNERS GROUP UNDER CMP EXEMPT FROM CAPITAL GAINS TAX 21 (e) 56-93 01-93 Philippine Bank of Communications 214-216 Juan Luna St., Binondo Manila Attention: Mr . Domingo S . Aure Assistant Manager This refers to your letter dated November 9, 1993 requesting in effect for a ruling that the sale of Philippine Bank of Communications of its real property located at Lico corner Callejon Street, Tondo, Manila to the United Lico Homeowners Association, Inc. Phase I, 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 the National Housing Authority is exempt from capital gains tax pursuant to Section 32(a) and (b) of R.A. 7279 which was approved on March 24, 1992 and published in the March 28, 1992 issue of the Philippine Times Journal and Malaya , newspapers of general circulation. 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 through a Letter-Guaranty by said Government Financing Institution the landowner executes a Deed of Sale to the Association which stands as the borrower and debtor to the extent of the total amount paid by NHMFC to the landowner; that in the instant case, the property sold to the United Lico Homeowners Association, Inc. Phase I is covered by TCT No. 122795; that the said transaction was certified by the NHMFC as an approved project under the Community Mortgage Program (CMP) of the government. Field verification conducted in this case disclosed that the twenty six (26) registered members of United Lico Homeowners Association, Inc. Phase I are qualified beneficiaries of the socialized housing program of the government; that the land has a total area of 738.50 square meters; and that the average area occupied by a member is 24.92 square meters. In reply, please be informed that pursuant to Section 32 of R.A. No. 7279, pertinent portion 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; and xxx xxx xxx the landowner who sells its property to the association pursuant to the Community Mortgage Program is exempt from the payment of capital gains tax and from the expanded withholding tax under Revenue Regulations No. 1-90. Such being the case, the sale to the United Lico Homeowners Association, Inc. Phase I is exempt from the capital gains tax and the expanded withholding tax. Upon issuance of this letter of exemption, and upon registration of the document of sale, a lien on the Certificate of Title of the land to be issued in the name of the Homeowners Association shall be caused to be annotated by the Register of Deeds having jurisdiction over the property, to the effect, that the said property shall be used for socialized housing pursuant to R.A. 7279. However, it is observed that documentary stamp tax is not one of the taxes covered by the tax exemption clause under Sections 20 and 32 of R.A. 7279. Such being the case, the landowner, Philippine Bank of Communications is liable to pay the documentary stamp tax on the document conveying the property to the Association under the CMP as imposed under Sec. 196 of the Tax Code, as amended, based on the actual consideration paid by the association to the said landowner. cdta LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue