Shobe_CEO » BIR Ruling No. 145-98 (October 9, 1998)

BIR Ruling No. 145-98 (October 9, 1998)

June 5th, 2009

24(D)(1)-000-00-145-98

Dulay & Pagunsan

4/F Bee Lu Building

103-113 Sen. Gil J. Puyat Ave.

Pasay City

Attention : Atty. Sinforoso R. Pagunsan

Gentlemen :

This refers to your letter dated March 4, 1998 stating that your client, Noel Espina, had purchased a lot described under TCT No. 387499 of the Register of Deeds for the Province of Rizal, which is registered in the name of Juan Posadas III and Maria Elena Posadas, that Juan Posadas III and Maria Elena Posadas own several other parcels of land which are jointly titled in their names; that on February 9, 1982, Juan Posadas III died in an aircraft accident; that on February 8, 1994, an Agreement was executed by Maria Elena Posadas with the Administratrix of Juan Posadas III whereby an exchange of land for land was effectively sought to be approved, that is, that designated lots shall be exclusively registered in the name of one party only in exchange for exclusive ownership of other lots by the other co-owner; that this Agreement was approved by the Regional Trial Court of Manila, Branch 48, in an Order dated July 21, 1994 which is now final and executory; that Maria Elena Posadas who was assigned the property embraced under TCT No. 387499 subsequently executed a Deed of Absolute Sale in favor of your client; and that thereafter, Title to the said property may, in turn, be transferred in the name of your client upon payment of the appropriate capital gains tax, documentary stamp tax and other fees. cdasia

Based on the foregoing representations and for purposes of transferring the Title from the joint name of Juan Posadas III and Maria Elena Posadas to Maria Elena Posadas only pursuant to the Agreement and the Order of the Court, you are now requesting, in effect, for a ruling on whether the transaction is exempt from capital gains tax.

In reply, please he informed that under Article 496 of the Civil Code, Partition as a mode of terminating co-ownership may be made by agreement between the parties or by judicial proceedings. Partition shall be governed by the Rules of Court insofar as they are consistent with the Civil Code. Thus, the said Agreement executed on February 8, 1994 by and between Maria Elena Posadas and the Administratrix of the Estate of Juan Posadas III is in fact an Agreement partitioning the properties owned by the co-owners Maria Elena Posadas and Juan Posadas III transferring from the co-ownership by designating the said properties to each of the said owners. Moreover, the transfer of Title from the co-owners is not a barter, exchange or other disposition of realty that would warrant the imposition of the capital gains tax on said transaction including the documentary stamp tax imposed in Section 196 of the Tax Code of 1997.

Such being the case, the dissolution by the co-owners of the co-ownership by an Agreement to divide among the co-owners the properties is not subject to the capital gains tax imposed under Section 24(D)(1) of the Tax Code of 1997. However, that portion of the properties of the co-ownership which is designated to be the properties belonging to the deceased co-owner, Juan Posadas III, shall be subject to the estate tax prescribed under then Section 99 of the Tax Code, as amended or the law enforced at the time of the death of the decedent, before the said properties are transferred to his heirs.

This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be disclosed that the facts are different, then this ruling shall be considered null and void. prLL

Very truly yours,

(SGD.) BEETHOVEN L. RUALO

Commissioner of Internal Revenue

Entry Filed under: Taxation