BIR Ruling [UN-138-94]

April 13, 1994 BIR RULING [UN-138-94] Tarrosa, Racho, Aritao, Penalosa & Llauder Law Offices Suite 1008, 10th Floor National Life Insurance Building 6782 Ayala Avenue Makati, Metro Manila Attention: Atty . Marlon Llauder Gentlemen : This refers to your letter dated December 1, 1993 requesting for a ruling as to whether reconveyance of a real property by your client, Zonapaz M. Calma, back to the seller, Felicidad G. Legaspi, is subject to the capital gains tax. It is represented that sometime in April 1990, Felicidad G. Legaspi, through her real estate broker, Mr. Edgardo Collo, was trying to sell a vacant parcel of land situated in Feria Compound, Commonwealth Avenue, Quezon City; that based on the representations of the owner and the broker, your client agreed to buy the said property; that on May 11, 1990, a Deed of Absolute Sale was executed by the owner, Felicidad G. Legaspi, in favor of your client, and paid the corresponding capital gains tax and documentary stamp tax on the transfer thereof; that subsequent thereto, improvements were erected by your client on the said property as described and pinpointed by the owner and the broker; that sometime in May 1992, a certain Ma. Elena Ledesma sent a letter to your client, informing the latter of the former's co-ownership over the property together with her two (2) sisters, and therefore of their desire that your client should remove all the improvements made on the said property; that a resurvey was caused by your client, and subsequently discovered that the property subject of the sale is not the property your client is interested in buying, as previously described and pinpointed by the owner and the broker; that for lack of the meeting of the minds, the aforesaid Deed of Absolute Sale was rescinded and a Deed of Reconveyance dated April 30, 1993 was executed by your client returning the said property subject of the sale back to the seller, Felicidad G. Legaspi. In reply, please be informed that Section 21 (e) of the Tax Code, as amended, provides that 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. Considering, however, that in the instant case, the parties to the contract have already paid the 5% capital gains tax and the corresponding documentary stamp tax when they caused the transfer and registration of the said property subject of the sale, this Office is, therefore, of the opinion that your client Zonapaz M. Calma, is no longer liable for capital gains tax on the Deed of Reconveyance she executed in favor of the seller, Felicidad G. Legaspi, returning the said property subject of the sale by reason of fraud on April 30, 1993 (BIR Ruling 53-89 dated March 30, 1989). aisadc Very truly yours, JAIME M. MAZA Assistant Commissioner (Legal Service)