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Philippine Taxation Encyclopedia 2014 1
November 13, 2003
BIR RULING [DA-412-03]
24 (D) (1); 196 #121-88;118-96;
169-98
Rilloraza, Africa, De Ocampo & Africa
Law Offices
7th and 10th Floors, Telecoms Plaza
316 Sen. Gil Puyat AvenueMakati City
Attention: Atty. Cesar G. David
Counsel
Gentlemen :
This refers to your letter dated November 22, 2002 stating that
Lacson
Hermanos Agro-Industrial Corporation ("LHAIC") is a corporation
which owns four parcels of land covered by TCT Nos.
6706, 6707, 6708 and 6709; that TCT No. 6706
was later subdivided into four parcels and titled as TCT Nos.
9070, 9071, 9072 and
9073; that TCT 9070 was further subdivided into three (3)
parcels titled as TCT Nos.
9327, 9329, and 9330; that TCT No. 9071 was further subdivided
into six (6) parcels
and titled as TCT Nos. 9323, 9324, 9325, 9326, 9328, and 9331;
that TCT No. 9072
was further subdivided into three (3) parcels and titled as TCT
Nos. 9332, 9333, and
9334; that all of the above parcels of land were mortgaged to
Republic Planters Bank
to secure the payment of the obligation of the corporation in
the amount of
P13,366,194.58; that on November 6, 1990, the Bank assigned all
its credit rights,
with the securities, to one Manuel Sanchez who paid a discounted
amount of P7,562,554.36; that on November 26, 1990, Manuel
Sanchez cancelled the mortgage
over TCT Nos. 9326, 9330 and 9334 upon payment to him of the sum
of
P2,000,000.00; and that on the same day, he cancelled the
mortgage over TCT Nos.
6707, 6709, 9323, 9327, 9328, 9329, and 9331 upon payment to him
of the sum of
P3,000,000.00.
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In view thereof, you now ask for a ruling on whether Manuel
Sanchez, as
assignee, is liable for any tax on the cancellation of mortgage
over the above-titled
properties upon payment to him of P2,000,000.00 and
P3,000,000.00 made by
LHAIC.
In reply, please be informed that the assignment of rights and
credit over the
foreclosed properties of Republic Planters Bank as the
mortgagee-bank in favor of
Manuel Sanchez is not subject to the capital gains tax imposed
under Section
27(D)(5) of the Tax Code of 1997, since in this case, Manuel
Sanchez, as the
assignee, in effect became the creditor of LHAIC, thereby merely
steps into the shoes
of Republic Planters Bank as the one having the right as
creditor-mortgagee to
exercise the right to foreclose the aforesaid mortgaged
properties under Act 3135, as
amended by Act 4118, aside from the fact that there is no
transfer of title to the real
properties involved in the said deed of assignment of
right to foreclose the mortgaged
properties. Thus, the mortgagee bank, in assigning its
credit and mortgage rights in
favor of Manuel Sanchez for and in consideration of
P7,562,554.36 was merely
assigning whatever rights it had in said foreclosed real
properties and the assignee
does not acquire a better right than what the assignor-bank had
in the properties to
which the rights assigned pertains. (BIR Ruling No. DA-252-96
dated July 18, 1996)
Moreover, the cancellation of mortgage on the eight (8)
properties, executed by
Manuel Sanchez in favor of LHAIC in consideration of the sum of
P2,000,000.00 and
P3,000,000.00, is likewise not subject to capital gains tax,
since LHAIC is merely
exercising its right of redemption under Act 3135 as amended by
Act 4118 and no
consolidation of ownership over the foreclosed properties was
made by neither
Republic Planters Bank nor Manuel Sanchez as the redemption was
accordingly made
within the redemption period. (BIR Ruling No. 121-88 dated March
25, 1988 and BIR
Ruling No. DA-252-96 dated July 18, 1996) cATDIH
Finally, under Article 415(10) of the Civil Code, "real rights
over immovable
property" are themselves immovable or real property or
realty. The Deed of
Assignment executed by Republic Planters Bank in favor of Manuel
Sanchez is
tantamount to a conveyance of real property to the purchaser and
should be subject to
documentary stamp tax under Section 196 of the Tax Code of 1997.
In such case, the
assignment of right and credit over the subject properties
already involves a
conveyance of a real right over the real properties subject of
the mortgage. The herein
transaction, as represented, involves a conveyance of real right
from the assignor-bank
(Republic Planters Bank) in favor of the purchaser-assignee, Mr.
Manuel Sanchez.
(BIR Ruling No. 169-98 dated September 10, 1998)
