BIR Ruling No. 521-12

August 23, 2012 BIR RULING NO. 521-12 Tax Code of 1997, as amended, Sections 27 (D) (1); 32 (B) (7) (b); 196; Revenue Regulations No. 09-2012 Atty. Benito B. Pastrana 1035 Ilang-Ilang St., Antipolo Valley Subd. Brgy. Mambugan, Antipolo City Dear Atty. Pastrana, This refers to your letter dated March 20, 2012 requesting on behalf of the heirs of Spouses Manuel and Salvacion Buenvenida, namely, Estate of Nenita Buenvenida Pastrana, Carlito Buenvenida, Roger Buenvenida, Sonia Buenvenida, Teddy Buenvenida, Victor Buenvenida, Harry Buenvenida, Mildred Buenvenida, Manolito Buenvenida and Daisy Buenvenida (collectively referred herein as the "Heirs"), for exemption from the capital gains tax (CGT) and documentary stamp tax (DST) on the transfer of four (4) parcels of land levied and sold at a public auction to satisfy the Court's money judgment in favor of the Heirs. Based on the documents submitted, it is shown that sometime on July 7, 1987, the Heirs instituted a complaint against Mr. Carlito Campos ("Mr. Campos") for, among others, recovery of possession over a certain parcel of land covered by Transfer Certificate of Title (TCT) No. T-10269 containing an area of 62,212 sq.m., situated at Roxas City, Capiz. The Regional Trial Court (RTC) of Roxas City, Branch 16, decided the case in favor of the Heirs and ordered Mr. Campos to pay the Heirs the amount of Six Million Seven Hundred Seventy Three Thousand Pesos (P6,773,000.00) representing for, among others, compensatory and moral damages. On July 13, 2010, the RTC issued an order for the implementation of the writ of execution to satisfy the aforesaid court judgment. Pursuant to the Court's order, the Court Sheriff, Mr. Rodolfo M. Agonias, sold on December 1, 2010 at a public auction four parcels of land belonging to Mr. Campos, which parcels of land are covered by TCT No. 097-2010000538, TCT No. 097-2010000679, TCT No. 099-2010000091 and TCT No. 089-2010000092 and with an area of 413 sq.m., 980 sq.m., 3,285 sq.m. and 4,687 sq.m., respectively, or a total area of 9,365 sq.m. During the public auction, the above properties were sold to the Heirs as the sole bidder in the total amount of Six Million Two Hundred Seventy Two Thousand Five Hundred Pesos (P6,272,500.00). Mr. Campos failed to redeem the sold properties within the one year redemption period. Thus, on April 18, 2012, two (2) Final Deeds of Sale over the subject properties were executed by the Sheriff of RTC, Branch 16 transferring the said properties in favor of the Heirs. In reply, please be informed that under Section 24 (D) (1) of the 1997 Tax Code, as amended, it is provided that in the case of 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, a final tax of six percent (6%) based on the gross selling price or current fair market value as determined in accordance with Section 6 (E) of the Tax Code, whichever is higher, is imposed upon capital gains presumed to have been realized therefrom. SAaTHc In the case of Salud vs. CIR, CTA EB Case No. 412 dated April 30, 2009, the Court of Tax Appeals had the occasion to rule that the 1997 Tax Code, as amended, does not define nor qualify the phrase "other disposition". It is clear, plain and therefore must be applied without attempted or strained interpretation. It shall be construed in its plain and simple meaning. "Disposition" means an act of disposing; transferring to the care or possession of another; the parting with, alienation of, or giving up property ( Black's Law Dictionary, 6th Edition ). Applying the above ruling of the Court, it is therefore clear that the phrase "other disposition" includes within its purview all kinds of dispositions of real property under Section 24 (D) (1) of the 1997 Tax Code, unless specifically excluded therefrom or subject to another tax treatment pursuant to different provisions of the 1997 Tax Code. Thus, the sale of a real property to satisfy the court's money judgment, in the absence of a specific law excluding it from the coverage of Section 24 (D) (1) of the 1997 Tax Code, is deemed included within the purview of the said provision. Moreover, Section 2 of Revenue Regulations (RR) No. 9-2012 dated May 31, 2012 provides for the tax treatment of unredeemed foreclosed/auctioned off properties sold during involuntary sales, to wit: "Section 2. Taxability of Owner's/Mortgagor's Failure to Redeem his Foreclosed/Auctioned Off Property within the Applicable Statutory Redemption Period. In case of non-redemption of properties sold during involuntary sales, regardless of the type of proceedings and personality of mortgagees/selling persons or entities , the capital gains tax (CGT) imposed under Section 24(D)(1) and 27(D)(5) of the Tax Code in relation to Section 57 of the Tax Code and RR 2-98, as amended, if the property is a capital asset; or the Creditable Withholding Tax (CWT) imposed under Section 57 and RR 2-98, as amended, if the property is an ordinary asset; the value added tax (VAT) imposed under Section 106 of the Tax Code and RR 16-05, as amended; and the documentary stamp tax (DST) imposed under Section 196 of the Tax Code shall become due. CIDaTc The buyer of the subject property, who is deemed to have withheld the CGT or CWT due from the sale, shall then file the CGT return and remit the said tax to the Bureau within thirty (30) days from expiration of the applicable statutory redemption period; or file the CWT return and remit the said tax to the Bureau within ten (10) days following the end of the month after expiration of the applicable statutory redemption period. If the property sold through involuntary sale is under the circumstances which warrant the imposition of VAT, the said tax must be paid to the Bureau by the VAT-registered owner/mortgagor on or before the 20th or 25th day, whichever is applicable, of the month following the month when the right of redemption prescribes. The DST return shall be filed and the said tax paid to the Bureau within five (5) days after the close of the month after the lapse of the applicable statutory redemption period. The CGT/CWT/VAT & DST shall be based on whichever is higher of the consideration (bid price of the highest bidder) or the fair market value or the zonal value as determined in accordance with Section 6(E) of the Tax Code." Based on the foregoing, it is clear that unredeemed foreclosed/auctioned off properties sold during involuntary sales, regardless of the type of the proceedings, including real properties sold pursuant to a court's order for the satisfaction of a money judgment, are subject to CGT/CWT/VAT, as the case may be, and DST. In view of the foregoing, your request for exemption from CGT and DST is hereby denied for lack of legal basis. Accordingly, the transfer of TCT Nos. 097-2010000538, 097-2010000679, 099-2010000091 and 089-2010000092 shall be subject to CGT and DST, based on whichever is higher of the consideration (bid price of the highest bidder) or the fair market value or the zonal value as determined in accordance with Section 6 (E) of the Tax Code. Please be guided accordingly. Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue