Cordero Bael Acuña & Sepulveda (CBASE) Law Offices

July 3, 2020 BIR RULING NO. OT-371-20 Section 24 (D) (1) of the NIRC of 1997, as amended; BIR Ruling No. 351-2013 Cordero Bael Acua & Sepulveda (CBASE) Law Offices 3/F C.A.O Mercado Bldg., Osmea Blvd., Cebu City Attention: AAA Gentlemen : This refers to your letters dated January 15, 2016, August 2, 2016, and January 11, 2017, requesting in behalf of your client, BBB, for a BIR ruling exempting the reconveyance of a property by the Heirs of the late CCC and DDD in favor of BBB pursuant to the Order of the Regional Trial Court (RTC), Branch 62, Oslob, Cebu, in Civil Case No. OS-14-192, from the payment of tax. Background: By way of purchase from Spouses EEE and FFF, BBB became the owner of a parcel of land located at Brgy. Canlumacad, Santander, Cebu, known as Lot No. 6933, Cad 805-D, Module 4, containing an area of Three Thousand Nine Hundred Fifty-Nine (3,959) square meters, more or less. Since year 2003 and up to present, BBB has been in actual occupation and possession of Lot 6933 and religiously paid its real property taxes. On the said lot is a residential house owned by BBB. HTcADC Way back in the year 1997, however, unknown to BBB, the late CCC erroneously and inadvertently filed an Application for Free Patent for Lot No. 6933, Cad 805-D, Module 4, with the Community Environment and Natural Resources Office (CENRO) of the Department of Environment and Natural Resources (DENR) based in Argao, Cebu. The said application was approved per Order: Approval of Application and Issuance of Patent, issued by Community Environment and Natural Resources Officer Illuminado C. Lucas dated July 7, 1997. However, records of the application for free patent for Lot 6933 filed by the late CCC will show that the supporting Deed of Absolute Sale and Declaration of Real Property of the parcel of land they sought to be titled pertain to a totally different lot in Canlumacad, Santander, Cebu. To avoid controversy in the future and admitting that she is not the owner of Lot No. 6933, Cad 805-D, Module 4, the late CCC sent a letter to the CENRO dated December 2, 1997 requesting for the withdrawal or cancellation of her Free Patent Application No. 072245-493. Nonetheless, the request came in late as the "Katibayan ng Orihinal na Titulo Blg. OP-47973" was already issued in the name of the late spouses CCC and DDD on June 17, 1998 covering Lot No. 6933, Cad 805-D, Module 4 located at Canlumacad, Santander, Cebu. A case for Reconveyance was then filed against the Heirs of CCC and DDD, docketed as Civil Case No. OS-14-192. In the pre-trial stage of the case, BBB and Heirs of CCC and DDD entered into a compromise agreement wherein the latter admitted the true ownership of CCC over the subject property. Upon signing of the Compromise Agreement, Judge James Stewart Ramon E. Himalaloan issued a Judgment (on Compromise Agreement), wherein he ordered the Register of Deeds of the Province of Cebu to cancel the Katibayan ng Orihinal na Titulo Blg. OP-47973 in the name of Spouses CCC and DDD and issue a Transfer Certificate of Title in the name of BBB. Thus, the heirs of CCC and DDD executed a Deed of Reconveyance involving the subject parcel of land in favor of BBB. Hence, this request. CAIHTE In reply, please be informed that since the reconveyance of the subject property in pursuance to the Decision of the RTC is without consideration and the reconveyance was in order to return the property to the legal owner, the transfer of Katibayan ng Orihinal na Titulo Blg. OP-47973 in favor of BBB is not subject to the capital gains tax (CGT) imposed under Section 24 (D) (1) of the National Internal Revenue 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 National Internal Revenue Code of 1997, as amended, but is subject to the P15.00 1 DST on the notarial acknowledgement as imposed under Section 188 of the same Code. Very truly yours, (SGD.) CAESAR R. DULAY Commissioner of Internal Revenue Footnotes 1. Old DST rate is used since the Deed of Reconveyance was executed prior to the effectivity of Republic Act (RA) No. 10963 (TRAIN Law).