BIR Ruling [DA-168-06]

March 27, 2006 BIR RULING [DA-168-06] 24 (D) (1); 196; 188; DA-194-2000 Messrs. Jovencio V. Oliveros & Armando V. Oliveros No. 13 I. Villegas Street, San Francisco Del Monte Quezon City Gentlemen : This refers to your letter dated July 1, 2005, requesting for exemption from capital gains tax and documentary stamp tax on the Deed of Exchange executed in order to correct the mistake relating to the ownership of subdivision lots. It is represented that Jovencio V. Oliveros, Sr. is the registered owner of a parcel of land (Lot 10-D-2) with an area of 67.73 square meters together with its improvements situated at No. 13 I. Villegas Street, San Francisco Del Monte, Quezon City; that the said property is registered under Transfer Certificate of Title (TCT) No. N-199082 of the Register of Deeds of Quezon City; that Armando V. Oliveros, Jovencio's brother, is on the other hand the registered owner of the adjacent lot (Lot 10-D-3) and its improvements with an area of 68.04 square meters covered by TCT No. N-199295; that both of you purchased the said adjacent lots from your late father, Salvador D. Oliveros, Sr., and that through confusion, errors were inadvertently committed, such as that the property sold to Jovencio, which should be Lot-10-D-3, with an area of 68.04 square meters, then covered by TCT No. 314749 was stated in the Deed of Sale executed in his favor as Lot 10-D-2, then covered by TCT No. 314748 while the deed of Sale executed in favor of Armando, which, should be Lot 10-D-2, with an area of 67.73 square meters then covered by TCT No. 314748, was inadvertently stated as Lot 10-D-3; that the corresponding capital gains tax and documentary stamp tax were paid; that both of you have taken possession and have been residing on the property actually pertaining to each other, Lot 10-D-3 for Jovencio and Lot 10-D-2 for Armando; that you voluntarily agreed between yourselves, without any monetary consideration to exchange the subject parcels of land together with the improvements to rectify the error inadvertently committed as to its registration; that to support the foregoing representation, you submitted a certification dated June 30, 2005 issued by the Barangay Chairman of Barangay Bungad, San Francisco Del Monte, Quezon City, certifying to the effect that the Jovencio V. Oliveros is a bonafide resident of the said Barangay and has been occupying Lot 10-D-3, described in TCT No. N-199295 while Armando. V. Oliveros is likewise a bonafide resident of the said Barangay and has been occupying Lot 10-D-2, described in TCT No. N-199082. In reply, please be informed that Section 24 (D)(1) of the Tax Code of 1997 provides that 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 forms of conditional sales, by individuals, including estates and trusts, shall be taxed at the rate of 6% based on the gross selling price or the fair market value as determined in accordance with Section 6(E) of this Code, whichever is higher. ASDCaI As represented, the parties purchased in 1998 the said adjacent lots from their late father, Salvador D. Oliveros, Sr., and that through confusion, errors were inadvertently committed, such as that the property sold to Jovencio, which should be Lot-10-D-3, with an area of 68.04 square meters, then covered by TCT No. 314749 was stated in the Deed of Sale executed in his favor as Lot 10-D-2, then covered by TCT No. 314748 while the deed of Sale executed in favor of Armando, which should be Lot 10-D-2, with an area of 67.73 square meters then covered by TCT No. 314748, was inadvertently stated as Lot 10-D-3. Both Deeds of Sale seem to be in order because there are no typographical errors which are manifest, and in addition, the presence of the signatures of all the parties to the transaction just shows that said executed document was checked for errors. Such being the case, both exchanging parties i.e., Jovencio and Armando are subject separately and distinctly to capital gains tax based on the fair market value or zonal value of the properties, whichever is higher. Moreover, pursuant to Section 196 of the Tax Code of 1997, a conveyance or deed whereby land is assigned or transferred to another is subject to documentary stamp tax based on the consideration contracted to be paid for such realty or on its fair market value or zonal value whichever is higher. (BIR Ruling No. 029-96 dated February 27, 1996, as reiterated in BIR Ruling No. DA-282-97 dated August 20, 1997) Regrettably, this Office is of the opinion that your request that you be exempt from the payment of capital gains tax and documentary stamp tax is hereby denied for lack of legal basis. Very truly yours, Commissioner of Internal Revenue By: (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service