BIR Ruling [DA-125-00]

February 25, 2000 BIR RULING [DA-125-00] Mr . Remedios P . Protacio 640 General Lucban Street Callejon G, Gagalangin Tondo, Manila M a d a m : This refers to your letter dated June 22, 1999 requesting for a ruling that the Deed of Exchange and Assignment executed by and between the Spouses Wilfredo A. Protacio and Miraflor Buenaventura and the Spouses Raul A. Protacio and Remedios H. Pelagio to correct the mistake and negligence of the surveyors and in the issuance of the Title is exempt from the capital gains tax and documentary stamp tax. It is represented that the Spouses Wilfredo and Miraflor Protacio and the Spouses Raul and Remedios Protacio are the co-owners of a parcel of land covered by Transfer Certificate of Title No. 153503 issued by the Registry of Deeds of Manila situated at 640 General Lucban St., Callejon G, Gagalangin, Tondo, Manila; that on May 12, 1999, the said parcel of land was partitioned by the parties into Lot 38-A and Lot-38-B, that as per partition agreement executed by the parties, Lot 38-A shall be awarded supposedly in favor of the Spouses Wilfredo and Miraflor Protacio, and Lot 38-B in favor of the Spouses Raul and Remedios Protacio; that however, during the survey and before the issuance of the Titles for the said partition, the surveyor concerned made the mistake of placing the wrong technical description of the said Lots; that when the Titles were issued, subsequently, Lot 38-A was awarded in favor of the Spouses Raul and Remedios Protacios and Lot 38-B in favor of the Spouses Wilfiredo and Miraflor Protacio, that when the inspectors of the City Assessor's Office of Manila went over the documents of said properties after the Titles were issued, the attention of the parties was called indicating the said disparities and mistakes made, which fact was certified to by the inspector in the certification issued on June 22, 1999; and that, acting on such information, on June 22, 1999, the parties executed a Deed of Exchange and Assignment to correct the discrepancies, thereby Lot 38-A shall be surrendered in favor of the Spouses Wilfredo and Miraflor Protacio and Lot 38-B in favor of the Spouses Raul and Remedios Protacio, hence, the aforesaid request. In reply, please be informed that under Section 24 (D)(1) of the Tax Code of 1997, a final tax of six percent (6%) based on the gross selling or current fair market value as determined in accordance with Section 6(E) of this Code, whichever is higher, is hereby imposed upon 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 form of conditional sales, by individuals, including estates and trust. From the foregoing provision of Section 24(D)(1), it would seem that the exchange transaction entered into by and between the Spouses Wilfredo and Miraflor Protacio and the Spouses Raul and Remedios Protacio is subject thereto. However, a close perusal of the facts antecedent to the said exchange transaction and which eventually led to the said exchange transaction shows that the same was entered into without consideration but merely to correct the error committed by the surveyor in placing the technical descriptions of the lots in question resulting in Lot 38-A being awarded in favor of the Spouses Raul and Remedios Protacio and Lot 38-B in favor of the Sps. Wilfredo a Miraflor Protacio, and therefore, not subject to the capital gains tax imposed under said Section 24 (D)(1) of the Tax Code of 1997 (BIR Ruling No. DA-229-99 dated April 13, 1999). Moreover, the said exchange transaction is likewise, not subject to documentary stamp tax imposed under Section 185 of Regulations No. 26, otherwise known as the "Revised Documentary Stamp Tax Regulations'' conveyances of realty not in connection with a sale to trustees or other persons without consideration are not taxable. (BIR Ruling No. DA-061-99 dated February 5, 1999) Very truly yours, Commissioner of Internal Revenue By: (SGD.) SIXTO S. EQUIVIAS IV Deputy Commissioner (Legal and Enforcement Group)