BIR Ruling [UN-016-94]

January 14, 1994 BIR RULING [UN-016-94] The Revenue District Officer Revenue District No. 24 Revenue Region No. 4-A Intramuros, Manila S i r : This refers to the letter dated March 24, 1993 of Mr. Bienvenido Berris requesting that Authority to Accept Payment SN No. 248364 issued relative to the sale of his realty situated at San Anton St., Sampaloc, Manila covered by TCT No. 112878 on March 22, 1993 be cancelled due to the subsequent cancellation of said sale transaction. Records of this case disclosed that on March 22, 1993, Mrs. Bienvenido Berris executed a Deed of Absolute Sale whereby he sold his realty situated at San Anton St., Sampaloc, Manila covered by TCT No. 112878 in favor of the following persons with their corresponding portion of said realty sold: VENDEES PORTION SOLD Emilia O. Tan 2/9 portion Leoncio O. Tan 1/9 portion Buenaventura Berris 1/9 portion Calixta B. Berris 1/9 portion Jose Berris 1/9 portion Ricardo Berris 1/9 portion Efren Berris 1/9 portion that the remaining 1/9 portion of said realty was retained by the seller, thereby making himself a joint owner of said realty with the aforenamed vendees, that on March 23, 1993, the vendor, Mr. Bienvenido Berris together with the aforenamed Vendees of his said realty executed a Cancellation of deed of Absolute Sale whereby the parties (vendor and vendees) irrevocably agreed to the cancellation of said Deed of Absolute Sale executed by Mr. Bienvenido Berris on March 22, 1993 and the said vendees acknowledged the return by Mr. Bienvenido Berris of the full amount paid by them as stated in the same Deed of Absolute Sale; that in a letter dated March 24, 1993, Mr. Bienvenido Berris thru his representative requested Revenue Region No. 4-A, Revenue District No. 24, to cancel ATAP No. 248364 dated March 23, 1993 in view of the cancellation of the sale of his realty; that report of investigation conducted by this Office as a consequence of the request of Mr. Bienvenido Berris shows that his representative presented documents pertaining to the said sale of realty in the late afternoon of March 22, 1993 for the computation of the capital gains tax and documentary stamp tax due thereon; that accordingly, Authority To Accept Payment (ATAP) No. 248364 dated March 23, 1993 was prepared for the payment of documentary stamp tax and instructions were made to the representative of Mr. Bienvenido Berris to file capital gains tax return to the bank which is authorized to receive the return and validate on the return the corresponding payment of capital gains tax; and that the following day the said representative came back presenting instead a validated ATAP and Capital Gains Tax Return, a request for the cancellation of ATAP No. 248364 together with a copy of the aforesaid Cancellation of Deed of Absolute Sale. Under Section 21(e) of the Tax Code, as amended, capital gains presumed to have been realized from the 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, including estates and trust, shall be taxed at the rate of 5% based on the gross selling price or the fair market value prevailing at the time of sale, whichever is higher. On the other hand, under Section 196 of the Tax Code, on all conveyance, 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, 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. From the foregoing, it is clear that the taxable event that would give rise to the imposition of the capital gains tax prescribed under Section 21(e) of the Tax Code, is the transfer of ownership by sale, exchange or other disposition by an individual, estate or trust of his or its realty located in the Philippines classified as capital asset while the deed or instrument executed effecting the same is subject to the documentary stamp tax prescribed under Section 196 of the Tax Code. Consequently, the subsequent cancellation of such sale, exchange or other disposition of real property would render the imposition of the capital gains tax and documentary stamp tax without any legal basis, considering that there was in fact neither a sale, exchange nor other disposition of realty after the same has been subsequently cancelled by the parties thereto, as in the instant case. In view thereof, Authority To Accept Payment No. 248364 dated March 23, 1993 should be cancelled and considered of no further force and effect. Very truly yours, LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue