BIR Ruling [DA-096-03]

March 26, 2003 BIR RULING [DA-096-03] 24 (D) (1); 196 DA-159-2002 E.B. Tarobal & Company Certified Public Accountants 20 Pinaglabanan Extension, San Juan Metro Manila Attention: Ms. Eufrocina B. Tarobal Managing Partner Gentlemen : This refers to your letter dated January 5, 2003 requesting, on behalf of your clients Heriberto C. Comsti and Apolonia C. Marcos, for exemption from the payment of capital gains tax and documentary stamp tax on the swapping of real properties to correct a mistake and without consideration. It is represented that Heriberto C. Comsti and Manuel C. Marcos (the "Parties") are first cousins, their mother being sisters; that their mothers inherited two parcels of land from their parents, covered by Transfer Certificate of Title No. PT-110670 ("Property 1"), registered in the name of Heriberto C. Comsti, containing an area of 677 square meters and located in Pasig City and adjacent to the latter parcel of land is covered by Transfer Certificate of Title No. 88208 ("Property 2"), registered in the name of Mario P. Marcos, father of Manuel C. Marcos, containing an area of 662 square meters and located in Pasig City; that in 1971, the parents of Heriberto C. Comsti erroneously but in good faith built their house on the lot of Mario P. Marcos (Property 2), believing that it was their lot (Property 1); that when the parents of the Parties discovered the error concerning their respective properties, they agreed that an execution of a deed of exchange should correct the situation, however, they never had the opportunity to execute one until now; that a deed of exchange was executed by the heirs of Mario P. Marcos and Heriberto C. Comsti in order to correct the mistake committed by sheer oversight and inadvertence by simply swapping their respective titles to the properties without cost from either of them; that in support of your request, you submitted a copy of the Transfer Certificates of Title of the subject properties, deed of exchange and other pertinent documents. 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 for the purpose of correcting the mistake above-described, the exchange of realty by and among Heriberto C. Comsti and the heirs of Mario P. Marcos 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 swapping of real property is not likewise subject to the documentary stamp tax imposed under Section 196 of the Tax Code of 1997. However, the notarial acknowledgment of 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-159-2002 dated September 12, 2002 ) 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. EHTISC Very truly yours, Commissioner of Internal Revenue By: (SGD.) MILAGROS V. REGALADO Assistant Commissioner Legal Service