BIR Ruling [DA-295-05]

June 27, 2005 BIR RULING [DA-295-05] Secs. 24 (D) (1); 196, 188; DA-027-2003 dtd 1/30/03 Ms. Anna Rose S. Villa #33 Mercury St., Banlat Tandang Sora, Quezon City M a d a m : This refers to your letter dated May 19, 2005, requesting exemption from the payment of the capital gains and documentary stamp taxes on the exchange of your property with that of Ms. Zenaida R. Pallarca. It is represented that you bought a parcel of land with an area of One Hundred Twenty (120) square meters in Hillcrest Village located at Camarin, Caloocan City (Blk 7 Lot 31) covered by TCT No. C-359188; that last August, 2003, your mother retired from the government service and decided to build a house on the said property out of her retirement proceeds; that you contracted the services of an engineer to construct the said structure; that the said construction turned out later to have been made on your neighboring lot which is Lot 29 covered by TCT No. 229430, allegedly owned by Zenaida Pallarca; that you just found this out when on the second month of construction, Ms. Pallarca visited her property and saw that there was an ongoing construction on the said lot; that she confronted your engineer and workers but your engineer was confident that he was constructing on the correct lot (Lot 31); that according to your engineer he conducted an investigation etc. based on your title and asked some people around the vicinity; that Ms. Pallarca filed a complaint with the Barangay and the case was later on elevated to the Office of the City Engineer, Caloocan City; that in the end, the lot on which you were constructing turned out to be Ms. Pallarca's; that during the discussion/hearing of the case, the following circumstances were cited which caused/contributed to the error of identifying the correct lot, to wit: (a) there were no visible landmarks found in the said area; (b) the lots have the same sizes; and (c) there were only a few houses constructed in the said phase of the subdivision; that finally, you were able to convince Ms. Pallarca that you have committed an "honest mistake" so you ended up with a solution whereby you and Ms. Pallarca will just exchange lots without any monetary consideration as she understood your situation that you belong to the average income earner class. CDHaET In reply, please be informed that since the exchange transaction was without any monetary consideration, and that the execution of the Deed of Exchange is merely to correct the mistake resulting from your honest belief that you are constructing the 3-door apartment on your lot as identified by the engineer, the same 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. Furthermore, the said exchange 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 Acknowledgment to the said deed is subject to the Documentary Stamp Tax (DST) of P15.00 only pursuant to Section 188 of the Tax Code of 1997 (BIR Ruling No. DA-068 dated March 2, 1998). 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, (SGD.) JOSE MARIO C. BUAG Deputy Commissioner Legal and Inspection Group