BIR Ruling [DA-039-06]

February 9, 2006 BIR RULING [DA-039-06] 24 (D) (1); 196; 188; DA-194-2000 Mr. Pablo Coronel Sta. Lucia Grand Mall Building, Marcos Hi-way Cainta, Rizal S i r : This refers to your letter dated January 26, 2006, requesting in behalf of your clients, Felino S. Zamora and Velsita L. Guevarra-Zamora for exemption from capital gains tax and documentary stamp tax on the Deed of Exchange executed in order to replace the real property sold. It is represented that Felino S. Zamora and Velsita L. Guevarra-Zamora are the registered owners of a parcel of land covered by Transfer Certificate of Title No. N-179506 with an aggregate area of three hundred (300) square meters, more or less located at Vista Real Classica, Phase 3A, Block 6, Lot 6, Brgy. Diliman, Matandang Balara, Quezon City; that this parcel of land was purchased by them from Sta. Lucia Realty & Development, Inc.; that Sta. Lucia Realty & Development, Inc. is the owner of a parcel of land covered by Transfer Certificate of Title No. N-177027 with an aggregate area of three hundred (300) square meters, more or less located at Vista Real Classica, Phase 4, Block 1, Lot 8, Brgy. Diliman, Matandang Balara, Quezon City; that your clients relied on the fact that the lot they purchased was free from any liens and encumbrances; that when your clients started occupying the land, they found out that their was an annotation of Notice of Lis Pendens on the title in connection with a civil case filed by a certain Evangeline Puzon against Sta. Lucia Realty & Development, Inc.; that after a series of conferences and negotiations, Sta. Lucia Realty & Development, Inc. offered the parcel of land as replacement for the one earlier sold to the Zamora's; that an agreement was reached and the parties agreed to swap and exchange the above mentioned properties without any monetary consideration through the execution of a Deed of Exchange. In reply, please be informed that since the exchange transaction is without any monetary consideration, and considering further that the execution of the Deed of Exchange is merely to replace the property earlier sold with one without an encumbrance like a Notice of Lis Pendens annotated on it, the same is not subject to the capital gains tax, imposed under Section 24(D)(1) of the Tax Code of 1997, nor to the withholding tax imposed under Revenue Regulations No. 2-98. Furthermore, the said exchange of real properties is not likewise subject to the documentary stamp tax imposed under Section 196 of the Tax Code of 1997. However, the notarial acknowledgement to the said deed is subject to the documentary stamp tax of P15.00 only pursuant to Section 188 of the Tax Code of 1997. (BIR Ruling No. DA 068-98 dated March 2, 1998) This ruling is issued on the basis of the foregoing representations. However, if upon investigation, it will be disclosed that the facts are different, then this ruling shall be considered null and void. Very truly yours, Commissioner of Internal Revenue By: (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service