BIR Ruling [DA-159-02]

September 12, 2002 BIR RULING [DA-159-02] 24 (D) (1); 196 DA-127-2001 Ms. Evelyn David de Leon Lot 33-A, Block 83, Narra St., North Fairview, Quezon City M a d a m : This refers to your letter dated July 31, 2002 requesting on behalf of your parents, Spouses Victoriano David and Genoveva David for exemption from the payment of capital gains tax and documentary stamp tax on the swapping of their real properties to rectify an error and without consideration. Based on your representations, as well as from the documents submitted, the facts are as follows: 1. The 183 square meter residential property registered under the name of Spouses Rodel and Elsa Salvador and covered by Transfer Certificate of Title No. 165953 (Lot 33-A) which is half of the 366 square meter lot with duplex house structure was mortgaged to and consequently, foreclosed by the Bank's Mortgage Banking Department (MBD) from the borrower Spouses Salvador per Certificate of Sale dated November 6, 1998. Subsequently, the property was consolidated on February 10, 2000 in the name of Land Bank of the Philippines under Transfer Certificate of Title No. N-210389. 2. At the time of mortgage, Lot 33-A was erroneously registered in the name of borrower Spouses Salvador but was occupied by Spouses Victoriano and Genoveva David. On the other hand, Lot 33-B registered in the name of Spouses David was occupied by Spouses Salvador. The error came about due to the inadvertence on the titling of the two (2) lots at the Register of Deeds. Spouses Salvador and David discovered the inadvertence/interchange when the subject property was already mortgaged to the Bank prompting them to request the MBD sometime in 1999 for the possibility of a Deed of Exchange for Lots 33-A and 33-B, as follows: Lot 33-A TCT No. N-165953 (now TCT No. N-210389) consolidated in LBP's name; to be transferred to Spouses David's name. Lot 33-B TCT No. 55799 registered in Spouses David's name; to be transferred to LBP's name. 3. Hence, a Deed of Exchange dated April 18, 2001 was executed between Land Bank of the Philippines and Spouses Victoriano and Genoveva David whereby the parties agreed to exchange the above-described property for the purpose of correcting the mistake without any monetary considerations as certified by the Land Bank of the Philippines (Special Assets Division) dated July 19, 2002. 4. In support of your request, you submitted a copy of the Transfer Certificates of Title Nos. N-210389, 55799, and N-165953; deed of exchange between Land Bank of the Philippines and Spouses David; Partition Agreement between Spouses David and Spouses Salvador; and Certification from Land Bank of the Philippines that the Deed of Exchange was executed to rectify the error and without any monetary considerations. 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 between the Land Bank of the Philippines and Spouses David 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, as amended. AEIHaS The said swapping of real property is likewise not subject to the documentary stamp tax imposed under Section 196 of the Tax Code of 1997. However, the notarial acknowledgement 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-145-2000 dated March 10, 2000 ) 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. Very truly yours, Commissioner of Internal Revenue By: (SGD.) MILAGROS V. REGALADO Assistant Commissioner Legal Service