Mr. Anastacio G. Puno

April 13, 2007 BIR RULING [DA-225-07] 24 (D) (1); DA-60-2004 Mr. Anastacio G. Puno Alicia Building, 2356 Juan Luna Gagalangin, Tondo, Manila S i r : This refers to your letter dated February 1, 2007 requesting for a ruling on the tax consequences of the exchange of property between Spouses Puno and Marcos C. Hermoso. It is represented that a certain parcel of land situated in the Barrio of Malhacan, Municipality of Meycauayan, Province of Bulacan, previously owned by Natividad Magsino-Dulalia and more particularly described as Lot-6-D-2-B-2-B-2, (LRC) PSD-277615, TCT-52.261(M) with an area of 3,156 square meters more or less, was subdivided into two (2) lots as follows: Lot 6-D-2-B-2-B-2-A with an area of 1,052 sq. m. more or less and Lot 6-D-2-B-2-B-2-B with an area of 2,104 sq. m. more or less as appearing in the approved Plan of Subdivision Survey made for Natividad Magsino; that the Registry of Deeds of Bulacan issued TCT-88.919(M) registered in the name of Natividad Magsino, for that parcel of land with an area of 2,104 sq. m. more or less; that this parcel of land covered by TCT-88.919(M) was further subdivided into two (2) lots namely: Lot 6-D-2-B-2-B-2-B-1 with an area of 1,052 sq. m. more or less and Lot 6-D-2-B-2-B-2-B-2 with an area of 1,052 sq. m. more or less as appearing in the approved Plan of Subdivision Survey made for Natividad Magsino of Lot-6-D-2-B-2-B-2-B (LRC) Psd-328715; that after having the same subdivided, and for and in consideration of the sum of ONE HUNDRED FIFTY THOUSAND PESOS (P150,000.00) the owner/vendor Natividad Magsino-Dulalia sold, transferred and conveyed to Spouses Anastacio G. Puno and Alicia A. Puno, a "portion" known as Lot 6-D-2-B-2-B-2-B-2 with an area of 1,052 sq. m. more or less, as evidenced by that Deed of Absolute Sale executed on September 29, 1987 and that Natividad Magsino-Dulalia retained the ownership of the remaining adjacent lot; that TCT 88919(M) was cancelled and two (2) TCTs were issued by the Registry of Deeds of Bulacan as follows: TCT No. T-90.107(M) covering Lot 6-D-2-B-2-B-2-B-1 with an area of 1,052 sq.m. more or less, registered in the name of Natividad Magsino, and TCT No. T-90.108(M) covering Lot 6-D-2-B-2-B-2-B-2 with an area of 1,052 sq. m. more or less, registered in the name of Sps. Anastacio G. Puno and Alicia A. Puno; that sometime in 1991, Spouses Puno, in good faith, constructed a residential house on the lot that was pointed to them by Natividad Magsino-Dulalia as the one that was bought from her; that in addition, Spouses Puno constructed a coffee house on the same lot; that the above properties are covered by the following tax declarations: Tax Declaration No. 04600 for the land covered by TCT No. T-90.108(M); Tax Declaration No. 04601 for the residential house; and Tax Declaration No. 04602 for the coffee house that on August 31, 1994, Lot 6-D-2-B-2-B-2-B-1 covered by TCT-90.107(M) with an area of 1,052 sq.m. more or less, was sold by Natividad Magsino to Mr. Marcos C. Hermoso as evidenced by "Kasulatan Sa Ganap Na Bilihan" executed by Natividad Magsino on August 31, 1994; that the TCT T-90.107(M) registered in the name of Natividad Magsino was cancelled and a new TCT was issued by the Registry of Deeds of Bulacan, which was TCT-208366(M) registered in the name of Marcos C. Hermoso; that the parcel of land bought by Mr. Marcos C. Hermoso is covered by Tax Declaration No. 06871; that it has no existing improvements as further certified by the Office of the Municipal Assessor of the Municipality of Meycauayan on January 30, 2007; that sometime in December of 2006, based on the verification of survey conducted by Rufino S. Roque Jr., Geodetic Engineer, of Lot 6-D-2-B-2-B-2-B-1, (LRC) Psd-341087 under TCT No. T-208366(M), registered under Marcos C. Hermoso, it was found out that the Spouses Puno's residential house and coffee house which were constructed in good faith and without any malicious intent were erected on that parcel of land registered in the name of Marcos C. Hermoso; that the certification of no improvements issued by the Municipal Assessor's Office of Meycauayan refers to the adjacent/vacant Lot 6-D-2-B-2-B-2-B-2 covered by TCT No. T-90.108(M), which lot should have been the proper site of their house and coffee house; that at present, Spouses Puno are very much worried that the residential house and coffee house that were constructed in good faith could be subject to summary ejection and/or demolition; and that considering that the other lot has no improvement, Spouses Puno and Mr. Marcos C. Hermoso executed a Deed of Exchange of Real Estate property Without Monetary Consideration dated March 20, 2007 with the following terms and conditions: "1. the said Marcos C. Hermoso hereby cede, transfer and convey unto the said Anastacio G. Puno and Alicia A. Puno that lot known as Lot 6-D-2-B-2-B-2-B-1 covered by TCT No. T-208366(M); 2. the said Anastacio G. Puno and Alicia A. Puno hereby in turn likewise cede, transfer and convey unto the said Marcos C. Hermoso that lot known as Lot 6-D-2-B-2-B-2-B-2 covered by TCT No. T-90.108(M); 3. this exchange transaction has no monetary consideration because no gain or loss shall redound to any party as the two (2) parcel of land covered by this exchange are of the same area and adjacent to each other; and 4. the sole purpose of this deed of exchange of real estate property without monetary consideration is to set the records straight and correct an honest mistake." 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 realties by Spouses Puno and Marcos C. Hermoso is not subject to the capital gains tax imposed under Section 24 (D) (1) of the Tax Code of 1997. DISaEA Moreover, the said swapping of real properties is not likewise subject to the documentary stamp tax imposed under Section 196 of the Tax Code of 1997. However, the notarial acknowledgement to the said Deed of Exchange is subject to the documentary stamp tax of P15.00 only pursuant to Section 188 of the said Code. (DA-060-2004 dated Feb. 10, 2004) 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.) JAMES H. ROLDAN Assistant Commissioner Legal Service