BIR Ruling [DA-228-98]

June 9, 1998 BIR RULING [DA-228-98] Atty. Servillano S. Santillan 157 Tandang Sora Ave. Banlat, Quezon City S i r : This refers to your letter dated December 12, 1997 requesting, on behalf of your client, Mr. Felipe Tolentino, exemption from payment of the capital gains tax relative to the Deed of Exchange and its addendum by and between Atty. Daniel Balanoba and Mr. Felipe Tolentino to correct a mistake inadvertently made by the surveyor during the segregation of a portion of the parcel of land owned by the latter in payment of the legal services rendered by the former to him sometime in 1966. casia It appears that prior to January 1966 the parcels of land covered by TCT Nos. RT-89137 and RT-101271, both of the Registry of Deeds of Quezon City, were yet a single lot owned by Mr. Tolentino and covered by TCT No. 98439; that Mr. Tolentino, who has a residential house on said lot, has a right of way to the nearest public road which he and his parents habitually passed in coming in and out of said property; that sometime in 1962, Mr. Tolentino encountered legal problems and hired the services of Atty. Balanoba; that in 1966, as payment of the lawyer's services, Mr. Tolentino conveyed by way of sale unto his counsel a portion of his lot consisting of an area of 709.50 square meter wherein the 140 square meters right of way is included; that immediately thereafter, the son of Atty. Balanoba erected a residential house on the north-eastern side of the land which is precisely the portion given by Mr. Tolentino to Atty. Balanoba; that as a result thereof, new Certificates of Title were issued to both parties, TCT No. 101270 in the name of Atty. Daniel Balanoba and TCT No. 101271 in the name of Atty. Daniel Balanoba and TCT No. 101271 in the name of Mr. Tolentino consisting of 3,000 square meters, more or less; that the son of Atty. Balanoba and his family likewise pass through the passageway which Mr. Tolentino uses since it is the nearest way and the only outlet to the public road; that in 1988, the Quezon City Hall which houses the Registry of Deeds of Quezon City was burned and among those burned were the titles above-mentioned hence, the issuance of reconstituted titles TCT No. RT-80137 in the name of Atty. Balanoba and TCT No. RT-110279 in the name of Mr. Felipe Tolentino; that in the latter part of 1996, Mr. Tolentino wanted to fence his lot and that after consulting with a surveyor for the missing monuments, he was informed that the land he had conveyed to his former counsel, as described in the documents, is not the land actually occupied by Atty. Balanoba's son; that to rectify the error made by the surveyor in segregating the property way back in 1966, both parties agreed to execute a Deed of Exchange on November 6, 1997 to the effect that they will be swapping the same area of land, specifically 140 square meters, in order to clear the portion they commonly used as their passageway to the nearest public road and to incorporate in their respective titles the correct technical descriptions of their lots in accordance with their agreement way back in 1966; and that such exchange transaction is strictly without any monetary consideration. In reply, please be informed that considering that the exchange transaction is strictly without any monetary consideration and considering further that the execution of the Deed of Exchange and its addendum is merely to correct a mistake inadvertently committed by the surveyor in segregating the property, this Office therefore, is of the opinion that such exchange transaction is not subject to the capital gains tax imposed under the Section 21 (e) of the Tax Code, as amended, [now Section 24 (D)(1) of the Tax Code of 1997] nor to the creditable withholding tax imposed under then Section 50 (b) of the Tax Code, as amended, [now Section 57 (B)] of the Tax Code of 1997]. Accordingly, the Certificate Authorizing Registration (CAR) now called the Tax Clearance Certificate (TCC) may be issued by the Revenue District Officer concerned, authorizing the exchange of the subject properties. [BIR Ruling No. 38797, dated September 16, 1993] Further, the Deed of Exchange is not likewise subject to the documentary stamp tax imposed under then Section 196 of the Tax Code, as amended, but the same shall be subject only to the P15.00 documentary stamp tax imposed under Section 188 of the same Tax Code. [Same Sections under the Tax Code of 1997.] 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. cdlex Very truly yours, (SGD.) SIXTO S. ESQUIVIAS IV Deputy Commissioner (Legal & Enforcement Group)