BIR Ruling [DA-206-97]

May 15, 1997 BIR RULING [DA-206-97] Severina Realty Corporation No. 80 R. Magsaysay Blvd. Extension Quezon City Attention: Mr . Marcelius R . Lim Vice-President Gentlemen : This refers to your letter dated February 12, 1997 seeking exemption from payment of capital gains tax on the swap of lots which your office effected vis-a-vis your customer. It appears that you are a domestic corporation engaged in the real estate business; that on June 16, 1996, a deed of absolute sale was executed by and between you and Spouses Renato and Lolita Banal involving a One Hundred Twenty (120) square meter lot located at the Westborough Homes Subdivision, Paraaque, Metro Manila covered by a Deed of Sale under Doc. No. 80, Page No. 17, Book No. 43, Series of 1996 by Atty. Jesus M. Bautista for Quezon City; that after registration of the Deed of Sale at the Register of Deeds of Paraaque, Metro Manila, with Transfer Certificate of Title No. 112253 consequently issued, it was discovered at the back of the title that the said lot is the subject matter of litigation as evidenced by Notice of Lis Pendens Entry No. 1704; that the Buyers requested your corporation, being the Seller, to change the lot with another lot within the same subdivision with the same area and with a clean title to which you agreed upon; that on December 20, 1996, a Deed of Exchange of Real Property was executed by and between you and the Spouses Renato and Lolita Banal for the return and exchange/substitution of the properties involved herein. In reply please be informed that this Office finds the exchange of lots by Severina Realty Corporation and Spouses Renato and Lolita Banal not subject to capital gains tax. Under Section 21(e) of the Tax Code, as amended, 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, shall be taxed at the rate of 5% based on the gross selling price or that fair market value prevailing at the time of sale, whichever is higher. We find that the provision of law referred to does not find application in this case at hand. The property, object of the Deed of Exchange, is merely a replacement of the property sold to Spouses Renato and Lolita Banal; hence, no taxable income arises therefrom. A transaction whereby nothing of exchangeable value comes to or is received by the taxpayer does not give rise to or create a taxable income. (Commissioner vs. Rail Joint Co. [CCA] 61 F. [2d] 751, Bowers vs. Kerbough Empire Co., 271 U. S. 170) The deed giving effect to the switch of lots between Severina Realty Corporation and the Spouses Renato and Lolita Banal is, however, subject to documentary stamp tax of P15.00 pursuant to Section 188 of the Tax Code, as amended. aisadc This ruling is issued on the basis of the foregoing representations. However, if upon investigation, it shall be disclosed that the foregoing representations turned out to be different, then this ruling shall be considered null and void. (BIR Ruling No. 21 (e) /97-91/355-92 dated December 16, 1992) Very truly yours, SIXTO S. ESQUIVIAS IV Officer-in-Charge Assistant Commissioner (Legal Service)