DST Exemption on the Deed of Redemption

November 7, 1988 BIR RULING NO. 530-88 196 000-00 530-88 Gentlemen : This refers to your letter dated July 23, 1988 requesting a ruling as to whether or not the Deed of Redemption executed on June 17, 1988 by the Pacific Banking Corporation thru its Liquidator Mr. Renan V. Santos of the Central Bank of the Philippines in favor of your clients, the brothers Samson, Pepito, Robert, Pedro, Miguel and Alfredo, all surnamed Ng of Iloilo City, is subject to documentary stamp tax. cdti It is represented that your abovenamed clients own a parcel of residential land situated in Bacolod City known as Lot 387-C-6 with an area of 22,452 square meters covered by TCT No. T-21757; that said parcel of land was mortgaged to the Pacific Banking Corporation to secure an obligation in the total amount of P1,250,000; that for failure to pay the said obligation on its due date, the mortgaged property was sold to the Pacific Banking Corporation for the total sum of P2,417,244.59 as the highest bidder in a public auction sale held on February 28, 1985; that the Central Bank of the Philippines as Liquidator of Pacific Banking Corporation granted your clients extension of time within which to redeem the property; that on June 17, 1988, a Deed of Redemption was executed by the Pacific Banking Corporation thru its Liquidator Mr. Renan V. Santos of the Central Bank of the Philippines releasing and discharging the aforementioned property in favor of your clients for and in consideration of the amount it has received for the full redemption of the said property; and that when said Deed of Redemption was presented for registration before the Register of Deeds of Bacolod City, he expressed doubt as to whether or not the said deed is subject to documentary stamp tax, hence, this request. Our Regional Director of Bacolod City has also reported that no documentary stamp tax not capital gains tax paid when property was sold at public auction. In reply, please be informed that the provision of law involved in this case is Section 196 of the Tax Code, as amended, which reads as follows: "SEC. 196. Stamp Tax on Deeds of Sale and Conveyance of Real Property . On all conveyances, deeds, instruments, or writings, other than grants, patents, or original certificates of adjudication issued by the Government, whereby any lands, tenements or other realty sold shall be granted, assigned, transferred, or otherwise conveyed to the purchaser, or purchasers, or to any other person or persons designated by such purchaser or purchasers, there shall be collected a documentary stamp tax at the following rates: (a) When the consideration, or value received or contracted to be paid for such realty, after making proper allowance of any encumbrance, does not exceed one thousand pesos, ten pesos. (b) For each additional one thousand pesos, or fractional part thereof in excess of one thousand pesos of such consideration or value, ten pesos. When its appears that the amount of the documentary stamp tax payable hereunder has been reduced by an incorrect statement, of the consideration in any conveyance, deed, instrument, or writing subject to such tax the Commissioner, provincial or city treasurer, or other revenue officer shall from the assessment rolls or other reliable source of information, assess the property of its true market value and correct the proper tax thereon." Pursuant to the foregoing provision (formerly Section 245), the Sheriff's Deed of Sale is subject to documentary stamp tax based on the consideration of P2,417,244.59 as stated on said Deed (Section 166 and 172, Regulations No. 26 or the Documentary Stamp Tax Regulations; BIR Ruling No. 376-88) However, the Deed of Redemption is not subject to the documentary stamp tax imposed under the above quoted provision. It is noted that under said provision, the transaction which is subject to the documentary stamp tax is the conveyance of real property to the purchaser . This is not so in redemption of real property which involves restoration of the property of the mortgagor-debtor from the purchaser. Said Deed of Redemption is, however, subject to the three-peso documentary stamp tax imposed by Section 188 of the Tax Code. This accordingly modifies BIR Ruling No. 121-88. Likewise, your client are not subject to the final capital gains tax imposed under then Section 34(h) of the Tax Code, as amended by Batas Pambansa Blg. 37, notwithstanding RMO No. 33-81 as amended by RMO No. 18-82 which directs that the 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 26, 1980. It is noted that said RMO No. 33-81, as amended, applies only to cases where this Bureau shall allow the registration of the foreclosure sale and ultimately the consolidation and issuance of title in favor of the bank. In the instant case, title is not being consolidated and issued to the bank as the property has been redeemed by the owner-mortgagors. aisadc Very truly yours, (SGD.) BIENVENIDO A. TAN, JR. Commissioner